Trade and Investment Rules for Energy
II. Promoting Energy-related Investments
Issues and Challenges
Economic activity is energy dependent. It requires capacity to create energy and generate sufficient power to meet industrial development objectives as well as human and social needs. Power generation and supply, whether traditional or newer green forms, however, are capital intensive. Access to capital is critical both to maintain existing projects and, more importantly, to getting new projects underway.
Capital pools are assembled through a variety of vehicles, including private sources in combination with public and State-sponsored investment funds. Private capital, in turn, requires mobilization at the lowest cost, frequently through recourse to foreign sources. Ensuring availability of adequate cross-border capital raises a number of interrelated issues pertinent to the energy sector, including assurances of uniformly fair and equitable treatment, respect for the rule of law, assurances of due process, and non-discriminatory treatment of foreign investments by host States.
It is axiomatic that States have full sovereignty over their natural resources, a principle enshrined in U.N. General Assembly Resolution 1803 of 1962. However, State sovereignty must be balanced against guarantees of treatment of external energy investors and investments under generally accepted international rules and norms. The issue for WEC and for the energy sector generally is to tailor those rules and norms to facilitate capital formation and investments for international, national, regional, and local projects, whatever their dimension.
This is all the more urgent given the current global recession, with officials from the International Energy Agency commenting recently that upstream investments in the oil and gas sector are expected to decline globally by some 21% in 2009 over 2008 levels. Some form of guidelines on host State treatment in the energy sector could be a factor in rehabilitating that investment climate.