Falkland Islands-linked Rockhopper Exploration said that Italy was working to annul the August ruling by an arbitration panel under which Italy has to pay 200 million Euros, plus interest, to Rockhopper for breaching its obligations related to the company's Ombrina Mare field in the Adriatic Sea.
Rockhopper, now mainly focused on the Falkland Islands Sea Lion project, started arbitration in March 2017 after Italy in 2016 imposed restrictions on offshore oil and gas operations in its waters within 12 miles of the coast of Italy, and after the country's Ministry of Economic Development of Italy informed Rockhopper Exploration that the production concession covering its Ombrina Mare field area would not be awarded, despite the Ombrina Mare project having completed all the required technical and environmental authorizations.
Ombrina Mare is an appraisal/development project situated in the shallow waters of the central Adriatic off the coast of Abruzzo, Italy.
Rockhopper in August said that the arbitration panel unanimously held Italy had breached its obligations under the Energy Charter Treaty, ECT, entitling Rockhopper to compensation.
The company at the time said that the award was final and binding on the parties, and that Italy had 120 days to apply for an annulment of the award, which can only be annulled in limited circumstances.
However, Rockhopper said Italy had on October 28, 2022, submitted an application to the ICSID, (International Centre for Settlement of Investment Disputes), seeking to annul the Award under Article 52 of the ICSID Convention.
According to Rockhopper, Italy has also requested a provisional stay of the enforcement of the Award pursuant to Article 52(5) of the ICSID Convention.
Rockhopper is consulting with its legal representatives as to what submissions will be required to contest this application, the company said.
Samuel Moody, CEO of Rockhopper Exploration, said:It is disappointing although perhaps not surprising that the Italian government has chosen to pursue an annulment of the Award. Based on legal advice we believe annulment proceedings are likely to take approximately 18 to 24 months, albeit interest will commence accruing again in December 2022. We remain confident in the strength of our case, as was reflected in the unanimous decision underpinning the award in August, and very much hope and believe the annulment request will be rejected in due course.”
Rockhoppper said it had a non-binding offer in place to fund both fighting the annulment and enforcing the award if required. The company will now consider this along with other funding possibilities, the company said.
The ECT, under which European energy companies have been suing their governments to protect their hydrocarbons investments in recent years, pretends basically to follow climate objectives. ECT was set up in the 1990s to protect energy investments in former Soviet countries, and currently ECT has more than 50 signatories, allowing investors to sue countries when energy policy changes threaten their investment.
A significant majority of disputes have sought compensation from European Union states. And big emitters have lately targeted EU governments for phasing out fossil fuel energy in favor of renewables.
But with the war in Ukraine and energy crisis, some of the climate ambitious goals to reduce CO2 emissions have forced countries to be more modest, causing the current disputes. So far attempts to modernize the ECT by the European Commission, have failed. Though new investments will no longer be protected from August 2023 under the reforms, one contentious clause protects existing investments for the next 10 years.
Tribunals will also still be able to calculate payouts based on perceived future earnings, and according to IISD sources this will allow energy companies to seek massive compensation for unearned profits. Thus an expert on the issue, Yamina Saheb recommended all member states withdraw from the ECT, saying it would defang a treaty that harms the energy transition.
The ECT has a chill effect on adopting ambitious climate policies, so we won't be able to implement the Green Deal, said Saheb of the European Union's plan for carbon neutrality by 2050.
This chill is exacerbated by a zombie or sunset clause — which is so far still part of the modernized ECT — whereby states can be sued for another 20 years following their withdrawal from the treaty.
And allegedly this loophole was exploited by UK oil company Rockhopper in 2017 when it sued the Italian government — after it had withdrawn from the ECT — for banning oil drilling on the Adriatic coast. Most of the €225 million claim, which succeeded in August of this year, was for future profits.
That's why it's crucial there is a coordinated withdrawal of EU member states, said Paul de Clerck of Friends of the Earth. The states can then decide amongst themselves in an additional agreement that intra-EU cases are no longer possible.”
De Clerck is referring to the European Court of Justice decision in September 2021 which adjudicated that EU energy companies cannot, under EU law, sue other EU countries through the investor-state dispute settlement (ISDS) mechanism that settles ECT cases. This would neutralize around 90% of the cases being brought to the tribunal, according to de Clerck.