The investment provisions of the Energy Charter Treaty aim to promote and protect foreign investment in member countries. To this end, the Treaty grants a number of fundamental rights to foreign investors with regard to their investment in the host country. Foreign investors are protected against the most important political risks, such as discrimination, expropriation and nationalisation, breach of individual investment contracts, damages due to war and similar events, and unjustified restrictions on the transfer of funds. The dispute settlement provisions of the Treaty, covering both state to state arbitration and investor-state dispute settlement, reinforce these investor rights.
The perceived degree of political risks in the host country considerably affects the decision of foreign companies whether to make an investment in the first place or not, and what level of return it would require. The higher the perceived risk, the higher the return that the foreign investors demand. Vice versa, the lower the perceived risk, the more capital is likely to be invested and the more potential revenue the host country will gain. By reducing the political risks that foreign investors face in the host country, the Treaty seeks to boost investor confidence and to contribute to an increase in international investment flows.
An overall objective of the Treaty is to promote more open and competitive international energy markets, based on the principles of transparency and non-discrimination. However, the Treaty does not determine the structure of national energy markets, nor does it dictate national energy policies or oblige member countries to open up their energy sector to foreign investors. Member countries remain free to determine the system of property ownership of its national energy resources as they see fit. The Treaty also confirms the right of each state to decide which geographical areas within its jurisdiction should be made available for the exploration and development of energy resources, and to determine the rate at which such energy resources may be depleted or exploited.
