Mediating International Energy Disputes

The long-term, capital intensive and risky nature of much energy investment means that disputes often arise as does the need to resolve such disputes amicably to preserve the parties’ long-term business relationships. Energy disputes can typically have a state to state character, or can arise between investors and states, or companies against other companies. For decades, arbitration has been the preferred option by the parties to international energy disputes. However, there is greater pressure than ever before to ensure that costs – including reputational as well as direct costs – of settling disputes are kept to the minimum. Mediation is increasingly being touted as an important supplement to arbitration because of its many benefits including enabling the parties to find an innovative win-win solution to their dispute based on interests rather than a win-lose outcome, which may end the parties’ business relationship. Anecdotal evidence of industry practice lends support to this proposition. The use of mediation in resolving energy disputes is supported by a number of investment treaties including the Energy Charter Treaty and the presence of escalation clauses in energy agreements. However, despite its many advantages, there are also many challenges to the use of mediation in resolving energy disputes. These include a lack of familiarity with it among potential users, the reluctance of government officials and business executives to take personal responsibility for settlements, and a lack of adequate provisions in investment treaties, energy agreements and national investment legislation that provide the legal framework for mediation. The prospects for mediation would be brighter if these and other issues were sufficiently well-addressed.