UNIVERSITÀ DI PISA
Dipartimento di Scienze Politiche
Corso di Laurea in Studi Internazionali
Tesi di Laurea
The Energy Community and the EU Neighbours:
The Role of The Secretariat
within the Dispute Settlement System
Relatore
Candidato
Prof.ssa Sara Poli Maria Lelli
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A questo tratto di strada, che è stato speciale. A chi è stato compagno di cammino, a chi è stato guida.
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Contents
List of Acronyms ... 5
Introduction ... 7
Ch.1 From a Pre-Accession Tool to the Main Instrument of the
EU External Energy Policy ... 15
1.1 The EU’s project of a pan-European energy market ... 16
1.1.1 A reference to the EU external energy policy ... 17
1.1.2 The genesis of the Energy Community Treaty ... 18
1.1.3 The EU model of liberalisation ... 22
1.2 The Energy Community for the Enlargement Policy market ... 25
1.2.1 The SEEREM: the advantages for the SEE countries ... 26
1.2.2 The SEEREM: the advantages for the EU ... 27
1.2.3 The Energy Community’s role on accession conditionality ... 29
1.3 The Energy Community in our Neighbourhood ... 30
1.3.1 A binding sectoral multilateral model ... 31
1.3.2 The advantages of such extension ... 33
1.4 Exporting the EU energy acquis: some controversial implications .. 35
1.4.1 The heterogeneity of the expanded energy legal order: fragmentation or flexibility? ... 35
1.4.2 The EU Normative Power ... 39
1.5 The Energy Community’s potential geographical expansion and other projects on energy ... 40
1.5.1 The Energy Community and the Euro-Mediterranean Partnership .. 40
1.5.2 The MedReg ... 42
1.5.3 Turkey and the Energy Community ... 43
1.5.4 A comparison between the EnCT and the Energy Charter Treaty ... 45
Ch.2 The Legal Framework ... 47
2.1 The Energy Community’s policies ... 48
2.1.1 Title II-The extension of the acquis communautaire ... 48
2.1.2 Title III-The mechanism for operation of network energy markets . 53 2.1.3 Title IV-The creation of a single energy market ... 54
2.1.4 Measures and Procedural Acts... 55
2.1.5 The decision-making process ... 56
2.2 The Energy Community institutions ... 57
2.2.1 The Ministerial Council ... 58
2.2.2 The Permanent High Level Group ... 59
2.2.3 The Regulatory Board ... 60
2.2.4 The Secretariat ... 62
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2.2.6 Energy Community bodies outside the Treaty ... 63
2.3 The EU participation in the Energy Community institutions ... 65
2.3.1 The external dimension ... 66
2.3.2 The internal dimension ... 68
Ch.3 The Dispute Settlement System ... 70
3.1 The Dispute Settlement Procedure ... 71
3.1.1 The General Procedure ... 71
3.1.2 The special procedure for serious and persistent breaches ... 76
3.2 The weaknesses of the Dispute Settlement system ... 78
3.2.1 The problems of the Ministerial Council as a judicial body ... 78
3.2.2 Ineffective sanctions ... 79
3.2.3 Failure to ensure investor protection ... 80
3.3 The enhancements to the Dispute Settlement system ... 81
3.3.1 The amended Dispute Settlement Rules of 2015 ... 81
3.3.2 The Dispute Resolution and Negotiation Centre ... 83
3.4 An Energy Community Court? ... 84
Ch.4 The Secretariat’s Action for Liberalisation in Case
ECS-02/17 against Ukraine ... 87
4.1 The role of the Secretariat in implementing liberalisation ... 88
4.1.1 The Secretariat’s tasks and powers within the Dispute Settlement system ... 88
4.1.2 The Secretariat’s contribution to enforce the EnC acquis ... 89
4.2The study of the Opening Letter to Ukraine in Case ECS-02/17 ... 93
4.2.1 Public Service Obligations in the Energy Community ... 94
4.2.2 The case study... 97
4.2.3 The subsequent development of Case ECS-02/17 ... 106
Conclusions ... 107
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List of Acronyms
ACER Agency for the Cooperation of Energy Regulators
CEE Centre Eastern Europe
CP Contracting Party
DSR Dispute Settlement Rules
ECJ Court of Justice of the European Union ECRB Energy Community Regulatory Board
ECT Energy Charter Treaty
EEA European Economic Area
EFTA European Free Trade Area
EnCT Treaty establishing the Energy Community
ENP European Neighbourhood Policy
ENPI European Neighbourhood and Partnership Instrument ERGEG European Regulators Group for Electricity and Gas
EU European Union
IEM Internal Energy Market (of the European Union)
MedReg Association of Mediterranean Regulators for Electricity and Gas
MEDTU Ministry of Economic Development and Trade of Ukraine
NATO North Atlantic Treaty Organisation
PHLG Permanent High Level Group
PSOs Public Service Obligations
REM Regional Energy Market
SEE South-East Europe
SEEREM South-East Europe Regional Energy Market TEC Treaty establishing the European Community TFUE Treaty on the Functioning of the European Union
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TSO Transmission System Operator
TUE Treaty establishing the European Union UCTE Union for the Coordination of Transmission of
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The present work originates from a personal interest in studying the EU external action. Specifically, I find the EU Enlargement and Neighbourhood policies particularly fascinating. Besides the importance and the potential that our neighbours have for the EU (and vice-versa), I am intrigued by how the EU could achieve the objectives of ensuring an area of “security, stability and prosperity” in its neighbourhood. At the same time, secure, stable and prosperous neighbours offer additional trade opportunities for EU operators. Moreover, the geopolitical relevance of the neighbouring area, together with the political and social vulnerability of many of the countries concerned, requires careful consideration on the part of the EU of the role that it wishes to play not only in its relations with neighbours but also with the “neighbours of neighbours”.
The ever-growing importance of the energy issue within the international relations has also attracted my attention. Notably, I consider the external dimension of the EU energy policy particularly stimulating and promising as a research subject. The EU’s external energy policy agenda includes, among other priorities, the attempt to reduce its dependence on fossil fuels from other countries, the commitment for becoming the global leader in renewables by 2050, and efforts for an energy-secure EU. Moreover, the EU «directs efforts outwardly by engaging with third-party states in order to encourage, outside its borders, a range of practices such as more efficient and sustainable energy use, energy sector liberalization and investment protection, and pro-market processes»1. Such practices arguably promote EU energy interests «by
enhancing the volume of energy commodities that eventually reach global markets and/or protect EU energy investments abroad»2. These challenges, therefore, require a well-consolidated EU “energy diplomacy” and the setting-up of governance mechanisms and structures capable of living setting-up to such expectations.
1 Filis, A., Leal-Arcas, R., The Energy Community and the Energy Charter Treaty: Special Legal Regimes, their Systemic Relationship to the EU, and their Dispute Settlement Arrangements, in
«Ogel», 2, 2014, 12, par.2.2.
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In this context, the Energy Community is an interesting case study since it concerns the EU Enlargement and Neighbourhood policies on one hand, and the EU external energy policy on the other. Indeed, the Energy Community is an international organisation which brings together the European Union and its neighbours from South East-Europe and the Black Sea Region to create an integrated pan-European energy market.
I carried out part of my research during my three-month internship in Brussels at the ENVE Commission (Environment, Climate Change and Energy) of the European Committee of the Regions from October to December 2018. During my internship, I primarily worked on energy issues for the legislative unit of the ENVE Commission which gave me access to invaluable sources of information related to energy.
In addition, I had the opportunity to participate in the “2nd Eastern Partnership Energy Panel” on 27th November, co-organised by the European Commission
and the Eastern Partnership countries. This meeting was attended, inter alia, by members from the Energy Community Secretariat, DG Energy, DG Neighbourhood and Enlargement Negotiations, EEAS, the Ministry of Energy and the Ministry of Foreign Affairs of the respective Eastern Partnership countries. In this context, an interesting discussion on the opening of cross-border and reverse-flow gas pipelines was held between the Parties.
In order to develop the second part of the thesis, I used the text of the Treaty establishing the Energy Community, the Dispute Settlement Rules as amended in 2015, and the Opening Letter of the Secretariat of this body to Ukraine in Case ECS-02/17. I highlighted similarities and differences between the EU legal order and that of the Energy Community to the extent that this possible. I also investigated the EU energy legislation on Public Services Obligations as adopted by the Energy Community as well as documents of the EU institutions dealing with, or with references to, the Energy Community.
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In my work I analyse the Treaty establishing the Energy Community, signed in October 2005 in Athens and entered into force in July 2006. Its key objective is to extend the EU internal energy market rules and principles to the Contracting Parties (the non-EU members of the Energy Community) on the basis of a legally binding framework.
Next, I drew the reader’s attention to the difficulties faced by the Contracting Parties in implementing the EU Third Energy Package. Indeed, the adoption of this package of measures by the Energy Community in 2011 called for a more stringent effort from its members to open their national energy sectors and stimulate cross-border energy trade. Liberalising energy markets, however, is not an easy process. When it is hindered by transposition or skirted by non-implementation of the Energy Community law, the construction of a pan-European energy market is in turn hampered and delayed. The current weak and politically biased Dispute Settlement mechanism of the Energy Community, together with the absence of a Court, does not provide sufficient incentives to the Parties to rectify the breaches of the Energy Community acquis, that isthe EU acquis transposed by the Energy Community.
This study intends to demonstrate that, in spite of the shortcomings of such a mechanism, the Energy Community Secretariat -the central coordinating body of this organisation- has greatly contributed to the strengthening of the enforcement of the Energy Community acquis in the Contracting Parties. In particular, it has been playing an important role in implementing liberalisation in energy markets and in furthering cross-border energy trade among them.
Let us come to the structure of my thesis. Chapter I provides a general overview on the Treaty establishing the Energy Community (hereinafter – EnCT or “the Treaty”)3, focusing on the main goal of creating a common energy market
which includes the EU and its neighbouring countries. Following the EU model of liberalisation, which is currently provided by the Third Energy Package, the
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Contracting Parties are required to gradually open their national energy markets and promote energy cross-border trade.
After explaining the genesis and the rationale behind the setting up of the Energy Community, this Chapter offers an interpretation on the evolution of the very nature of this international organisation. Conceived in 2005 as a pre-accession tool for the post-war South-East European countries in the EU, it has turned into the main instrument of the EU external energy policy as of 2010. Indeed, the accession of some European Neighbourhood Policy countries (namely, Moldova in 2010, Ukraine in 2011, and Georgia in 2017) shows that the EnCT, as key example of sectoral multilateralism, can be an attractive proposition even for countries without prospective EU membership.
Some controversial issues are then taken into account: firstly, the high level of heterogeneity connected to the exportation of the EU energy acquis to third countries and, secondly, the potential of the EnCT to act as a vehicle for EU soft power.
Finally, following the discussion on the possible extension of the Energy Community to the Euro-Mediterranean Partnership countries, Chapter I considers another energy initiative existing between the two sides of the Mediterranean Sea, that is, the MedReg. A focus is then dedicated to Turkey, which has been an Observer in the EnCT since its establishment, and to the Energy Charter Treaty, comparing it to the EnCT.
Chapter II is based on a legal analysis of the Treaty. In addition to explaining features and the scope of the Energy Community’s macro-policies, it describes the decision-making process and the types of measures adopted.
An examination of the institutional structure of the Energy Community is then provided, studying both the institutions set up by the Treaty and those subsequently created outside of it.
Such analysis brings to light several similarities between the Energy Community’s institutional framework and the EU’s. The Ministerial Council, tasked with decision-making power, closely resembles the EU Council. At the same time, however, the Treaty gives political guidance to this body, also
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making it similar to the European Council. The Permanent High Level Group, charged with preparing the Ministerial Council's work, can be compared to the EU Committee of Permanent Representatives. The Secretariat, in charge of administrative, monitoring and coordination functions, finds its equivalent in the European Commission; a certain caution must be exercised, however, when considering this comparison: the Secretariat's powers of initiative and execution are much narrower. The Energy Community, like the EU, also provides mechanisms of consultation for energy regulation authorities and other stakeholders through, respectively, the Regulatory Board and the Fora. An Energy Community parliamentary assembly –such as the European Parliament in the EU- was only recently introduced: the Parliamentary Plenum. This assembly, which was not originally included in the Treaty, was established in 2015. The strongest difference with the EU, however, is the lack of an Energy Community Court.
This Chapter concludes with a description of the EU participation in the Energy Community institutional set-up. Firstly, the way the EU is represented in the various institutions of this organisation (the external dimension) is examined and secondly, the process leading the EU to reach its common positions (the internal dimension) is illustrated.
The aim of liberalising CPs’ national energy markets and integrating them in the EU internal energy market, shown in Chapter I, can be fulfilled only if the Parties comply with the Treaty. In the case of non-compliance, the only possible legal redress available is the infringement procedure foreseen by the Dispute Settlement procedure. Chapter III, therefore, deals with the functioning of the Dispute Settlement mechanism and its weaknesses.
This mechanism sees the major involvement of two main players: the Ministerial Council, working as a “judicial body” in this context, and the Secretariat, whose action mostly aims to convince the non-complaint Party to rectify the breach of its own accord.
Despite the changes to the Dispute Settlement procedure of 2008 and 2015, the such rules show significant shortcomings. Given that the Ministerial Council
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is the organ empowered to settle the disputes, this mechanism is diplomatic (and not judicial) in nature. Moreover, the sanctions system provided by the Treaty, (i.e. the freezing the right to vote and the exclusion from meetings and other mechanisms) turn out to be ineffective. A weak enforcement and dispute resolution system also discourages investors who prefer not to venture into overly risky energy markets. Finally, the Chapter discusses the possibility of creating an Energy Community Court.
Chapter IV aims to prove that, despite the shortcomings of the Dispute Settlement System, the Secretariat has been actively working for the enforcement of the Energy Community acquis, and primarily for the identification of the obstacles that obstruct the full liberalisation and regional integration of the Contracting Parties’ energy markets.
The Chapter further explores the Secretariat’s tasks and powers within the Dispute Settlement system in order to ensure the correct application of the Energy Community law by the Parties of Treaty.
To further illustrate the thesis supported, this work presents a case study showing the pivotal role of the Secretariat in favouring the liberalization in the Energy Community market. In Case ECS-02/17, the Secretariat took the preliminary view that certain aspects of Ukraine’s national legislation imposing Public Service Obligations on natural gas undertakings were non-compliant with the Energy Community acquis. In an Opening Letter sent to Ukraine in August 2017, the Secretariat claimed that Ukraine’s Public Services Obligation Regulations not only prevented the opening up of the national natural gas market, but even reinforced the monopoly of the Ukrainian State-owned Naftogaz.
Finally, the conclusions make an assessment of the current situation of the Dispute Settlement system and discuss its potential development. Despite the Secretariat’s effort for ensuring the respect of the Treaty by the Parties, the Dispute Settlement system nevertheless retains a rather limited effectiveness. Some improvements are therefore crucial if the aim of an integrated pan-European market wants to be achieved. Both proposals for more effective sanctions and for creating an Energy Community Court, strongly advocated by
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some authors, are once again considered. This work ends with an invitation extended to the EU institutions for a stronger collaboration with the Energy Community Secretariat: closer relationships between them may turn out to be mutually advantageous to the EU and the Energy Community. This, in turn, may reduce the distance between the EU and its neighbours and lead to enhanced cooperation.
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CHAPTER 1
FROM A PRE-ACCESSION TOOL
TO THE MAIN INSTRUMENT OF
THE EU EXTERNAL ENERGY POLICY
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1.1 The EU’s project of a pan-European energy market
The Energy Community is an international organisation whose aim is to create a pan-European energy market which includes, besides the EU, the neighbours of South East Europe and the Black Sea Region. Through the exportation of the EU internal energy market rules and principles within a legally binding framework, the EU extends its internal energy market to the Contracting Parties (CPs), the non-EU members of the Energy Community.
The Treaty establishing the Energy Community, in force since July 2006, was signed in Athens in October 2005 by the European Community, on one hand, and the countries of South East Europe, on the other. At the moment of the signing of the Treaty, the CPs were the Republic of Albania, the Republic of Bulgaria, Bosnia and Herzegovina, the Republic of Croatia, the former Yugoslav Republic of Macedonia4, the Republic of Montenegro, Romania, the Republic of Serbia and Kosovo through the United Nations Interim Administration Mission in Kosovo (UNMIK), set up pursuant to the United Nations Security Council 1244 (hereinafter – Kosovo).
Romania, Bulgaria and Croatia then became full members of the EU5, achieving the status of Participants in the Energy Community. Indeed, not only the EU, but also each of its Member States is entitled to become a member with the status of “Participant” (art. 95 EnCT); currently the Energy Community counts 20 Participants.
In May 2010 Moldova acceded to the Treaty, followed by Ukraine in February 2011 and Georgia in July 2017, thus widening the EnCT’s geographic scope. The Observers to the EnCT (art. 96 EnCT) are the Kingdom of Norway and the Republic of Turkey since November 2006 and the Republic of Armenia since October 2011, while the Republic of Belarus applied for Observer status in October 2016.
Art. 2 EnCT describes the mission of the Energy Community. This is the establishment of a stable regulatory and market framework capable of attracting
4 Now, the Republic of North Macedonia.
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investments (art. 2(a) EnCT), as well as creating an integrated energy market allowing for cross-border energy trade and integration with the EU market (b), and ensuring that all Parties can have access to the continuous supply of gas and electricity, essential for economic development and social stability (c). Moreover, a careful attention is dedicated to the environment, with the Energy Community also fostering energy efficiency and the use of renewables in the region (d). Finally, the Energy Community deals with developing competition of the enlarged market at regional level and exploiting economies of scale (e).
The Energy Community achieves these goals through three main activities, as described in art. 3 EnCT. Firstly with the implementation by the CPs of the acquis communitaire on energy, environment, competition and renewables (art. 3(a) EnCT)6, secondly with the setting up of a specific regulatory framework for the efficient operation of Network Energy markets across the territories of all the Parties adhering to the Treaty (b)7, and thirdly with the creation of a single energy market without internal frontiers (c)8.
1.1.1 A reference to the EU external energy policy
The Energy Community can be considered an instrument of the EU external energy policy. The legal basis of the external dimension of the EU energy policy can be found for the first time in the Lisbon Treaty: art. 194 TFEU introduces a shared competence between the EU and Member States on energy, which shall act «in a spirit of solidarity»9.
6 Ruled under Title II EnCT “The Extension of the Acquis Communautaire”.
7 Ruled under Title III EnCT “Mechanism for Operation of Network Energy Markets”. 8 Ruled under Title IV EnCT “The Creation of a Single Energy Market”.
9 Consolidate version of the Treaty of the Functioning of the European Union, OJ C 326,
26.10.12. - Article 194 reads: «1. In the context of the establishment and functioning of the internal market and with regard for the need to preserve and improve the environment, Union policy on energy shall aim, in a spirit of solidarity between Member States, to: (a) ensure the functioning of the energy market; (b) ensure security of energy supply in the Union; (c) promote energy efficiency and energy saving and the development of new and renewable forms of energy; and (d) promote the interconnection of energy networks. 2. Without prejudice to the application of other provisions of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of the Economic and Social Committee and the Committee of the Regions. Such measures shall not
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However, even if before the Lisbon Treaty none of the provisions of the TFEU had recognized any competence on energy, there is no doubt that «the very origins of the EU lie in energy issues»10. This is precisely the reason why
the EU «consciously modelled»11 the Energy Community drawing on the same mechanism behind the European Coal and Steel Community’s evolution, as explicitly stated by the Commission’s memorandum accompanying the Treaty.
1.1.2 The genesis of the Energy Community Treaty
The energy infrastructure of the Western Balkan region12 was severely damaged and fragmented during the military conflicts in the 1990s.
In 1992, immediately after the disintegration of SFR Yugoslavia, the electricity network that belonged to that country was separated from its interconnection with the Union for the Coordination of Transmission of Electricity (UCTE), the “Western Union electricity grid”. Croatia and the Federation of Bosnia then remained connected to the UCTE Zone 1, while the Republika Srpska, Serbia, Macedonia, Bulgaria, Romania and Greece made up the UCTE Zone 213. The destruction of the energy systems is also worth
remembering for the demolition of two Serbian oil refineries, in Novi Sad and Pancevo, in 1999, during the NATO intervention14.
affect a Member State's right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply, without prejudice to Article 192(2)(c). 3. By way of derogation from paragraph 2, the Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament, establish the measures referred to therein when they are primarily of a fiscal nature. ».
10 Vantaggiato, F. P., Mechanisms and Outcomes of the EU External Energy Policy. An Alternative Approach, in Regional Energy Initiatives. MedReg and the Energy Community,
Cambini and Rubino (eds.), Routledge, Abingdon/New York, 2014, p.89.
11 Memorandum of Understanding, An integrated market for electricity and gas across 34
European Countries, Brussels, 25.10.2005, p.2.
12 Until late 1991, the Western Balkan region consisted of only two countries, Albania and the
Socialist Federal Republic (SFR) of Yugoslavia.
13 In 2004 the two sub-regional networks had been reconnected and re-synchronized. Only
Albania’s electricity system, for a long time underdeveloped, is not a member of this network.
14 Uvalic, M., Regional Cooperation in the Western Balkans. The Eighth Regional Energy Market in Europe, in Regional Energy Initiatives. MedReg and the Energy Community, Cambini
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The region needed the spurring of economic recovery and reconstruction of the energy infrastructure. At the same time, the EU thought that post-war SEE countries should have achieved those objectives by cooperating with each other. The historical path towards the EnCT should be read as aimed at developing a shared outlook on a common policy and then integrating accordingly, in order to promote pacification and stabilisation of the region.
Moreover, the idea was that, once achieved, the regional energy market would have been integrated into the EU internal energy market (IEM), thereby facilitating and accelerating the accession process for SEE countries into the EU.
When the conflict in Kosovo in 1999 was close to its end, various initiatives had been promoted by the international community to stabilize the Western Balkans. The EU, in addition to providing large financial resources, promised the European prospective.
In order to prepare these countries for accession, in May 1999 the European Commission launched the Stabilization and Association Process15, a comprehensive approach to regional stabilization. This was the framework for all the Stabilisation and Association Agreements16 that were later concluded by the EU with each SEE country.
By anchoring the Western Balkans to the EU, the Stabilization and Association Process provided the overall political context within which the EU could develop its initiatives, also on the energy issue. Indeed, energy market reforms and the setting up of a SEE Regional Energy Market (SEEREM) found in the Stability Pact for South Eastern Europe17 the basis to follow-up. This Pact
15 European Commission, Communication from the Commission to the Council and the European Parliament on the stabilisation and association process for countries of South-Eastern Europe - Bosnia and Herzegovina, Croatia, Federal Republic of Yugoslavia, former Yugoslav Republic of Macedonia and Albania, COM (1999) 0235 final.
16 The Stabilisation and Association Agreements foresee the development of economic and trade
relations between the EU and every single country as well as among the SEE countries themselves; renewed financial aid; cooperation in the field of justice and home affairs; and a deepening of political dialogue.
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was established in June 1999 for stimulating regional cooperation among SEE countries and integrating them into the European and Euro-Atlantic structure18.
On 10 September 1999 the SEE countries signed the Thessaloniki Declaration of Intent for the Establishment of a Competitive Regional Electricity Market19, the first official political endorsement regarding the EU’s SEEREM initiative20. The participants undertook to liberalise their electricity markets by 2006 and establish common rules for the functioning of a regional electricity market, to be subsequently integrated into the EU internal energy market.
In June 2000, with the signature of a Memorandum of Understanding for the Establishment of a Competitive Regional Electricity Market in South Eastern Europe21, the participant countries recognized the political primacy to the EU's initiative over similar projects promoted by other players. The Commission considered that such initial achievements should have been institutionalized into a more stable political frame.
In November 2002, the Athens Memorandum of Understanding22 was signed, setting up an institutional framework for cooperation over electricity matters known as the “Athens Process”. A Ministerial Council, composed of the energy Ministers of the participant countries, was established in order to ease coordination and governance of the regional electricity market; it would have been assisted by a Permanent High Level Group (PHLG), composed of representatives of the Energy Ministers. The Commission would have acted as an impartial secretariat.
18 Once substantial progress on the ground was achieved for transferring “policy ownership” to
the SEE region, the Stability Pact was transformed into the Regional Cooperation Council, officially launched in 2008 and based in Sarajevo. It maintains its initial objectives of promoting cooperation and ensuring peace and stability in the Western Balkan region.
19 Declaration of Intent for the establishment of a competitive Regional Electricity Market in South East Europe, Thessaloniki, 10.9.1999.
20 Actually, five SEE countries signed the Thessaloniki Declaration: Albania, Bosnia and
Herzegovina, Bulgaria, Romania, and the current North Macedonia.
21Memorandum of Understanding on the Establishment of a Competitive Regional Electricity
Market in South Eastern Europe, Athens, 2.6.2000, considerandum D.
22 Memorandum of Understanding on the Regional Electricity Market in South East Europe and
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In December 2003, cooperation was further expanded to the gas sector through a second Memorandum of Understanding23. The electricity and gas
memoranda, although not legally binding in nature, opened the road to an international binding treaty which would have established a regional energy community.
In June 2004, the Ministerial Council established the South East European Regulators Board for Electricity and Gas. In April 2005, an interim Energy Community Secretariat was established.
Eventually, the Treaty was signed in Athens in 25th October 2005 by the European Community and nine SEE countries. Once ratified by all participants, it entered into force on 1st July 2006.
Subsequently, three more countries of the Eastern Partnership joined the Energy Community – Moldova in 2010, Ukraine in 2011, and Georgia in 2017- extending the EU internal energy market to the Black Sea region.
In 2011, the European Commission defined the Energy Community as a «mature organization, which provides a solid institutional framework for cooperation, mutual support and exchange of experiences and therefore serves as a model for regional cooperation on energy matters»24.
The Treaty foresees a duration of ten years; however the Ministerial Council has the possibility of extending it. (art. 97 EnCT). In October 2013, the Ministerial Council decided in favour of the extension for another 10 years, until 202625.
23 Memorandum of Understanding on the Regional Energy Market in South East Europe and its
Integration into the European Community Internal Energy Market, Athens, 8.12.2003.
24 European Commission, Report from the Commission to the European Parliament and the Council under Article 7 of Decision 2006/500/EC (Energy Community Treaty), COM (2011) 105
final, p.3.
25 Ministerial Council of the Energy Community, Decision 2013/02/MC-EnC on extending the
duration of the Energy Community Treaty, 23.10.2013. See also Energy Community Secretariat,
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1.1.3 The EU model of liberalisation
Sharing the EU internal energy market means following the EU model of liberalisation, currently ruled by the Third Energy Package.
Initially, at the founding of the Energy Community in 2006, the CPs had to adopt the Second Energy Package26 in force at that moment, as foreseen by art. 12 EnCT. Then, upon a Decision of the Ministerial Council on 6th October 201127, they adopted the Third Energy Package28 which had to be implemented by 2015.
On 29th November 2018, the 16th Energy Community Ministerial Council agreed to incorporate three measures of the Clean Energy Package in 2019, whose implementation is ongoing in the EU Member States. Specifically, the Energy Community will adopt the revised Energy Efficiency Directive29, the
26 Second Energy Package: Directive 2003/55/EC of the European Parliament and of the Council
of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC, OJ L 176, 15.7.2003 (now repealed); Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC, OJ L 176, 15.7.2003 (now repealed).
27 Ministerial Council of the Energy Community, Decision 2011/02/MC-EnC on the
implementation of Directive 2009/72/EC, Directive 2009/73/EC, Regulation N. 714/2009/EC and Regulation N. 715/2009/EC and amending Articles 11 and 59 of the Energy Community Treaty, 6.10.2011.
28 Third Energy Package: Directive 2009/73/EC of the European Parliament and of the Council
of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, (Text with EEA relevance), OJ L 211, 14.8.2009; Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC, (Text with EEA relevance), OJ L 211, 14.8.2009.
29 Directive 2018/2002/EU of the European Parliament and of the Council of 11 December 2018
amending Directive 2012/27/EU on energy efficiency, (Text with EEA relevance), OJ L 328, 21.12.2018.
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Renewable Energy Directive30 and the new Governance Regulation31 in order
for the Contracting Parties to be in line with the EU targets for 203032.
Liberalising national energy markets is the prerequisite for an integrated energy market. Cristopher Jones, writing on the Third Energy Package, identifies the necessary measures for creating a single market33.
The first one is surely the introduction of competition in the electricity and gas wholesale markets, usually in the hands of State-owned companies. The development of competition requires that third-party access be assured and that the unbundling of the incumbent vertically integrated electricity and gas companies be effectively realized. Unbundling is the separation of the network business, both at transmission and distribution level, from generation and supply activities.
It is noteworthy that ownership unbundling has an important influence on the EU external energy policy: this obligation also applies to non-EU companies active in the EU energy market. The issue is particularly politically sensitive due to the strong EU dependence on Russian gas imports and the different relationships that Member States hold with Moscow, hence the name “Gazprom clause”34.
30 Directive 2018/2001/EU of the European Parliament and of the Council of 11 December 2018
on the promotion of the use of energy from renewable sources, (Text with EEA relevance), OJ L 328, 21.12.2018.
31 Regulation 2018/1999/EU of the European Parliament and of the Council of 11 December
2018 on the Governance of the Energy Union and Climate Action, amending Regulations N. 663/2009/EC and N. 715/2009/EC of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and 2015/652/EU and repealing Regulation N. 525/2013/EU of the European Parliament and of the Council, (Text with EEA relevance), OJ L 328, 21.12.2018.
32 https://www.energy-community.org/news/Energy-Community-News/2018/011/212.html
(last accessed on 2.5.2019).
33 Jones, C., Introduction, in EU Energy Law. Volume I. The Internal Energy Market, Jones (ed.),
Claeys & Casteels, Deventer, 2016, pp.9-13.
34 However, the search for a compromise among Member States, due to the heavy pressure of
Germany which did not want to upset Gazprom, eventually mitigated the Commission’s proposal. Proposal for the European Parliament and of the Council, amending Directive 2003/54/EC concerning common rules for the internal market in electricity, COM (2007) 528 final, 2007/0195 (COD); Proposal for a Directive of the European Parliament and of the Council, amending Directive 2003/55/EC concerning common rules for the internal market in natural gas,
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It should be added that the establishment of an independent energy regulator is also necessary in order to prevent discrimination, cross-subsidies and excessive pricing in the transmission and distribution networks.
At this stage, the liberalisation of all the national electricity and gas markets requires a step forward towards the creation of an integrated market: new, harmonised rules allowing cross-border trade to work in practice, in particular on issues such as cross-border tarification, congestion management mechanisms and transparency.
The EU model of liberalisation also includes public service obligations, necessary to counterbalance the risks and excesses of liberalisation itself. As we will see in the Chapter IV, they consist of those «public policy requirements that will or may not be achieved satisfactorily simply through the operation of a competitive market and therefore require government action»35 for ensuring protection of vulnerable consumers as well as security of supply and environmental protection36.
An analysis of the current situation, however, shows that the Contracting Parties are behind in the path of realizing full liberalisation37.
The lack of a full implementation of the Third Energy Package by the Contracting Parties can be explained in light of the different starting points between them and the EU Member States at the time of the signing of the Treaty. Considering the SEE countries and compared to EU Member States, the former had not been well-integrated in a developed common market when they decided to share the energy sector among themselves. They had just recently emerged from the conflicts of the 1990s which had pit one against the other, so their first
COM (2007) 529 final, 2007/0196 (COD). For the following mitigation see art. 11 of the Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, (Text with EEA relevance), OJ L 211, 14.8.2009.
35 Jones, Introduction, op.cit, p.13. 36 Ibidem, p.13.
37 Energy Community Secretariat, Annual Implementation Report 2017/2018, Vienna,
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efforts had to be the re-building of friendly relationships and the stabilisation of the political and social situations both at national and regional levels.
In addition, the process of opening markets in the Western Balkans is particularly difficult since it concerns countries with centralised economies that are still partly in transition. This is a situation that the founding fathers of the European Community never experienced.
Rozeta Karova also invites reflection on the short time period available for the CPs to open their energy markets if compared to the transition period of the Centre Eastern European countries (CEE countries). The SEE countries, from the adoption of the EnCT in 2006, had two years for opening their wholesale energy markets and nine years for opening the retail energy markets (respectively, by 2008 and by 2015), by contrast, the CEE countries had from 1993 to 200438.
1.2 The Energy Community for the Enlargement Policy
The SEEREM, which becomes the 8th regional energy market of the IEM, covers the territories of the Parties adhering to the EnCT, as well as the Republic of Bulgaria, Hungary, Romania, Slovenia, the Hellenic Republic and the territory of Italy with regards to the interconnections with the territories of the Parties of the EnCT39.
Basically, the urgency for energy system reconstruction, the necessity of creating a mechanism of cooperation among SEE countries and prospective EU membership are the three main reasons to explain the choice of a “regional approach” as a more effective solution rather than a series of bilateral agreements. Indeed, since 1997, regional cooperation became one of the official
38 Karova, R., Rationale Behind the Establishment of the Energy Community, 2010/14 EUI Law
Working Papers, Florence, 2010, p.5.
39 Ministerial Council of the Energy Community, Decision 2008/02/MC-EnC on the
implementation of Commission Decision of 9 November 2016 amending the Annex to Regulation N. 1228/2003/EC on conditions for access to the network for cross-border exchange in electricity, 27.6.2008.
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criteria, added to those of Copenhagen, for the Western Balkans’ accession to the EU40.
The advantages of creating a common regional energy market within the framework of the Energy Community, both for the SEE countries and for the EU, are illustrated in the following section.
1.2.1 The SEEREM: the advantages for the SEE countries
Despite the differences and particularities among the SEE countries, an analysis of the whole region shows that almost none of them is energy self-sufficient, the domestic production represents less than 60% of the total primary energy supply, and the region is dependent on imported primary energy41. The principal energy sources in the region are coal and hydropower, followed by oil and natural gas. Serbia has the largest energy market with the dominant share in total primary energy supply, as much as 43% of the total of the seven countries42,
while the smallest energy market is the one of Kosovo. Only two countries in 2010 had primary energy production higher than their domestic consumption, Bosnia and Herzegovina and Serbia, although only the former is the only exporter of energy in the region.
At the moment of their accession to the Energy Community, the energy infrastructure, which was in poor condition, maintained a low intra-regional energy trade, accounting for about 13% of the region’s energy need. The State-owned vertically integrated companies maintained the energy prices below market prices, a clear sign that the national energy markets were far from being liberalised.
Their integration would therefore facilitate cross-border trade, lowering the transaction costs and allowing the better utilisation of the existing capacities. Indeed, the various energy sources differently allocated in the countries of the
40 Vantaggiato, Mechanisms and Outcomes of the EU External Energy Policy, op.cit, p.164. 41 All the data relating the SEE countries present in this paragraph are extrapolated from the
various sourced used by Uvalic, Regional Cooperation in the Western Balkans, op.cit., pp.164-186.
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SEEREM would permit a mutual compensation in peak and off-peak periods43,
thus increasing security of supply and fuel diversification. The Energy Community may thereby be considered as «an answer to common problems»44.
Moreover, in order to reconstruct a regional energy grid, it would be easier to rely on the pre-existing electricity network, rather than setting up new national grids that later would have to be re-integrated into the regional one.
In addition, after the recent liberalisation of the electricity markets, various large European energy groups – such as Enel, Eni, Cez Group- have invested in the region in order to get market shares and important production capacity, a trend that is likely to continue in the future45. In fact, «according to economic theory, the integration of markets can increase allocative efficiency by enabling economies of scale and widening consumer choice. This is confirmed in practice by investors having little appetite to enter small markets»46.
Finally, the implementation of the EU acquis adopted by the Energy Community (also termed the “Energy Community acquis”, hereinafter – EnC acquis) is a way to accelerate and incentivize the process towards EU membership.
1.2.2 The SEEREM: the advantages for the EU
From the EU’s point of view, politically stable and economically stronger Western Balkans make them an attractive region for investment, especially given their geo-political position. In fact, in spite of a general low level of energy sources, they serve as a substantial gas storage capacity and as a valuable transit area for new pipelines. This allows diversification of energy mix, suppliers and supply routes, thus reducing EU energy dependence on Russia: the project of the
43 Karova, Rationale Behind the Establishment of the Energy Community, op.cit., p.12. 44 Ibidem, p.11.
45 Uvalic, Regional Cooperation in the Western Balkans, op.cit., p.178.
46 Buschle, D., Challenges in Exporting the Internal Market. Lessons from the Energy Community, in The European Neighbourhood Policy in a Comparative Perspective. Models, Challenges, Lessons, Gsthöl (ed.), Routledge, Abingdon/New York, 2016, p.123.
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TAP pipeline is a clear example of that47. A regional framework, as the one
provided by the Energy Community, can effectively exploit such potential whereas bilateral solutions would not be enough.
A wider internal energy market, inclusive of the SEE countries, can also increase the bargaining power of the EU at the moment of negotiation. Moreover, the Energy Community can be one more forum for the EU to adopt a common voice in its external energy policy, even though the EnCT restricts its external policy to the trading issue48.
A commonly reported advantage for the EU is the obligation of mutual assistance among countries in the event of disruption in the energy supply, foreseen in the EnCT but absent so far among Member States.49 However, the Risk-Preparedness Directive of the Clean Energy Package -whose adoption is ongoing in the EU- provides a mechanism of solidarity among Member States for the prevention and the management of energy supply crises50.
Lastly, the Energy Community can work as the EU’s major driving force for transferring its own rules into the SEE legal orders. Padgett demonstrates that the EnCT, as a multilateral agreement, exercises a more effective accession conditionality on candidate countries or potential candidate countries51 rather than a bilateral path52. Padgett’s thesis is discussed in the next paragraph.
47 The Trans Adriatic Pipeline (TAP) will transport Caspian natural gas to Europe. It has been in
the construction phase since 2006. The project foresees the connection with the Trans Anatolian Pipeline (TANAP) at the Greek-Turkish border, then it will cross Northern Greece, Albania and the Adriatic Sea, to finally reach Southern Italy to connect to the Italian natural gas network. The TAP is considered as a project of common interest both by the EU and the Energy Community.
48 In fact, the EnCT only mentions “External Energy Trade Policy” in Title IV, Chapter III. 49 Karova, Rationale Behind the Establishment of the Energy Community, op.cit., p.8.
50 Proposal for a Regulation of the European Parliament and of the Council on risk-preparedness
in the electricity sector and repealing Directive 2005/89/EC, COM/2016/0862 final, 2016/0377 (COD). The current status: as of 20 April 2019, the European Parliament adopted the main text in March II plenary session 2019; the next expected steps are the formal adoption by the Council and publication in the Office Journal.
51 The countries of the EU Enlargement policy are classified in two categories: candidate
countries (Albania, North Macedonia, Montenegro, Serbia, and Turkey) and potential candidate countries (Bosnia and Herzegovina, and Kosovo).
52 Padgett, S., Multilateral institutions, accession conditionality and rule transfer in the European Union: the Energy Community in South East Europe, in «Journal of Public Policy »,
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1.2.3 The Energy Community’s role on accession conditionality
According to Padgett, even for countries without a prospective EU membership, the conditionality of alignment to the EU acquis -which is supposed to be the strongest one- can be weakened, eroded, and perceived as distant, thereby creating frustration and resistance against carrying out reforms53. A strictly multilateral approach presents several advantages compared to the nature of bilateral and multilateral frameworks that are used in the EU relationship with acceding countries.
Specifically, Padgett states that sectoral multilateral institutions, such as the Energy Community, can reinforce accession conditionality in three ways.
Firstly, they can commit third countries to realize the EU rule transfer into their legal orders long before accession. The strategy consists in tying incentives to participate in multilateral institutional arrangements to accession incentives: third countries’ participation in multilateral institution can be envisaged as a formal condition of accession; or may be perceived as proof of being prepared for membership; and even in the presence of a weak accession prospective, non-participation risks compromising accession status.
Secondly, a multilateral institutionalized organisation facilitates sustained and intensive monitoring, especially if led by a permanent secretariat, in order to monitor the compliance with the EU sectoral acquis. Each progress should be bound to a further stage of the accession process: in case of failure of compliance, «a credible threat that the reward of progression towards EU membership will be withheld»54 should be activated.
Finally, in a cost-benefit analysis on the convenience of adopting the EU acquis as a condition for accession, a multilateral institution tasked with coordination of the regional market integration process can boost and optimize «the interdependence benefits of EU rules»55.
53 Ibidem, p.262. Padgett also analyses the context of the EU’s 2004 enlargement into Central
and Eastern Europe and highlights the differences in context with the SEE countries.
54 Ibidem, p.263. 55 Ibidem, p.262.
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1.3 The Energy Community in our Neighbourhood
Although the initial conception of the Treaty was addressed to SEE countries, the accession of Moldova (2010), Ukraine (2011) and Georgia (2017) then opened its geographic scope to the Eastern Partnership (EaP), which -together with the Euro-Mediterranean Partnership (EMP)- is part of the European Neighbourhood Policy (ENP)56.
Such openness was strongly supported by the EU institutions, which started to conceive the Energy Community as «the principal policy instrument for organizing the EU’s foreign relations»57.
In February 2011, the European Council concluded that EU energy security should include the EU’s neighbouring countries as well, and that they should also be encouraged to embrace the EU’s relevant internal market rules «notably by extending and deepening the Energy Community Treaty and promoting regional cooperation initiatives»58.
Similarly, the European Commission, in its September 2011 communication “The EU Energy Policy: Engaging with Partners beyond Our Borders”, stressed the importance of widening the Energy Community to our neighbours, considered the most effective framework for their integration into our EU energy system59.
In February 2014, the European Parliament’s resolution on the situation in Ukraine stated that «further efforts should be made to include Ukraine in the EU’s energy market via the Energy Community»60, and thus recognizing the
potential of this organisation to strengthen the EU-ENP energy relationship.
56 The ENP is composed of 16 countries which are the EU’s closest Eastern and Southern
Neighbours. The countries of the EMP are Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, and Tunisia. The countries of the EaP are Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine.
57 Buschle, Challenges in Exporting the Internal Market…, p.127. 58 European Council, Conclusions on energy, 4 February 2011, item 12.
59 European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. On Security of Energy Supply and International Cooperation – “The EU Energy Policy: Engaging with Partners beyond Our Borders”, COM (2011) 539 final.
60 European Parliament, Resolution of 6 February 2014 on the situation in Ukraine,
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From a legal point of view, the EnCT does not provide any accession criteria but seems opened to all countries of the ENP61. It simply states that «[u]pon a
reasoned request of a neighbouring third country, the Ministerial Council may, by unanimity, accept that country as an Observer» (art. 96 EnCT). Even if not explicitly expressed, the accession of the three ENP countries demonstrates that the Treaty has no limitation for an Observer to become a Contracting Party at some point if it so desires62. Rather, the question which can be raised in the future is whether only neighbouring third countries may apply for Observer status.
Since the ENP countries have joined, the very nature of the Energy Community Treaty has changed. From a pre-accession tool for the post-war Western Balkan countries, it was turned into the main vehicle for exporting the EU energy policy into third countries with the aim of creating a pan-European energy market.
1.3.1 A binding sectoral multilateral model
The main difference between the SEE and the ENP countries is that the latter will not be EU members. However, since they can choose among different poles of attraction for developing their own interests, the EU should be capable of offering «a fair and attractive offer»63 that the ENP countries find advantageous even in the absence of any prospective membership.
Such an offer should consist in a multilateral framework which for the ENP countries is more than the simple sum of different bilateral agreements between the EU and each one of them. Given that no comprehensive multilateral framework for the ENP has been realized so far64, a sectoral one can be a more concretely viable alternative.
61 On the procedure of accession, the EnCT foresees that the Ministerial Council may, by
unanimity of its Members, agree on the accession to the Energy Community of a new Party (art. 100(iv) EnCT).
62 Kuhlmann, J., Enhanced Sectoral Multilateralism. Will The Energy Community lead he way to a New European Neighbourhood Policy?, in Regional Energy Initiatives. MedReg and the Energy Community, Cambini and Rubino (eds.), Routledge, Abingdon/New York, 2014, p.228. 63 Buschle, Challenges in Exporting the Internal Market, op.cit., p.111.
64 There has been no follow-up on the idea to create a “Neighbourhood Economic Community”. Ibidem, p.115.
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The following analysis of the EnCT identifies the main characteristics of this model.
➢ Binding legal rules ensure more transparency, neutrality and fairness than a political agreement, and legal commitments work as clear targets in the process of implementation of the EU acquis in third countries’ domestic legal orders65. Indeed, the binding nature of the EnCT implies a step further than the “more-for-more” principle of the soft cooperation arrangement of the ENP, under which the EU develops stronger partnerships with those neighbours that make more progress towards democratic reforms. On the contrary, membership in the Energy Community is not bound to any form of political conditionality, if not strictly related to the energy field. On this point, however, Josephine Kuhlmann critically argues that «analysing the issue of energy in the ENP context suggests that the EU does not follow its own rules on conditionality in cases in which vital interests of the EU are involved»66.
➢ A sectorial model allows third countries to adopt only one or more parts of the EU acquis67. It is an integrative approach, because virtually other sectors of the EU acquis can be subsequently adopted, bringing third countries closer to the condition of EU members. The EnCT covers the electricity, gas and oil sectors of the EU acquis, but also including certain horizontal provisions, such as environment, competition and State aid.
➢ A multilateral arrangement allows the exportation of EU rules to different third countries at the same time. Moreover, while a bilateral partnership sees the more powerful partner prevailing, a multilateral agreement opens possibilities for differentiated alliances and various configurations of balance of power. This is even more true if considering that art. 77 EnCT ensures each Party one vote, so that any CP is «on a pair with any EU member state in energy terms»68.
65 Ibidem, p.19.
66 Kuhlmann, Enhanced Sectoral Multilateralism, op.cit., p.226.
67 Other examples of sectorial multilateral models are the European Economic Area (EEA) and
the European Common Aviation Area (ECAA).
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➢ Sharing institutions, and especially independent institutions as the case of the Energy Community Secretariat, can better ensure the level playing field among members while balancing their own interests. Moreover, independent institutions can defend the interests of private persons, economic operators as well as those of the organisation itself from the interests of the States69. EU rules and the effectiveness of EU institutions are not jeopardised by the independence of those institutions. In the case of the Energy Community, this is guaranteed by the important role that the EnCT provides for the European Commission, which is given the exclusive right to propose the incorporation of the new acquis into the Energy Community legal order and the veto-power under the Title II and Title III of the EnCT70.
➢ The Energy Community can become the «frame of reference»71 for any
energy initiative with the ENP countries. It already is for the Eastern Partnership and for the Association Agreements as well. The analysis of the one with Ukraine, signed on June 2014, shows that in case of conflict with the EnCT, the latter prevails on the Association Agreement (art. 278 of the Association Agreement with Ukraine - “Relationship with the Energy Community Treaty”)72. This also can apply to all the legally non-binding energy initiatives
with neighbouring countries, which can find in the Energy Community the best context for their consolidation73.
1.3.2 The advantages of such extension
The EU welcomed the openness of the Energy Community to the EaP, and so widening the IEM to the Black Sea Region. As a matter of energy security, the EaP region is an important transit area for the EU, i.e. transit networks of Ukraine
69 Ibidem, p.127. 70 Ibidem, p.117.
71 Ibidem, p.112. Emphasis is mine.
72 Association Agreement between the European Union and its Member States, of the one part,
and Ukraine, of the other part, OJ L 161, 29.5.2014.
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provide about 20% of the EU’s gas supply74. In geopolitical terms, the accession
to the Energy Community demonstrates the EaP countries’ voluntary choice of reducing their dependence on Moscow in order to enter into the EU’s energy sphere of influence.
On the other hand, the accession to and the sharing of the IEM increase security of supply and diversification for the EaP, therefore decreasing their need for importing Russian gas. The “unbundling” required by the Energy Community laws brings to the “demonopolization” and the reduction of Gazprom’s influence on EaP countries’ gas system as well. Opening markets attracts foreign investments and also helps many companies in their exportation activities. To sum up, the adoption of reforms which increase their standards on energy security, energy efficiency and renewables will result in a more energy independence75.
Heiko Prange-Gstöhl identifies three kinds of reasons to explain why countries without prospective EU membership may desire joining the Energy Community. The identification motive, which is the willingness to demonstrate the potential capability of being members of the EU; the independence motive, when countries desire to break free from the influence of a regional hegemon; finally, the economic motive, which moves those countries to adopt EU common rules and standards in order to increase trade with the EU76.
74 Petrov, R., European Legal Space and Application of the European Union’s “Energy Acquis” in Ukraine and Moldava, in Regional Energy Initiatives. MedReg and the Energy Community,
Cambini and Rubino (eds.), Routledge, Abingdon/New York, 2014, p.268.
75 Ibidem, p.268.
76 Prange-Gsthöl, H., Enlarging the EU’s Internal Energy Market: Why Would Third Countries Accept EU Rule Export?, in «Energy Policy», 37, 2009, p.5297.
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1.4 Exporting the EU energy acquis: some controversial
implications
1.4.1 The heterogeneity of the expanded energy legal order: fragmentation or flexibility?
The extension of the EU acquis to third countries requires a certain flexibility considering the high level of heterogeneity.
Some authors consider this flexibility a probable cause of fragmentation of the EU legal order, «potentially harmful to homogeneity and thus opposed to the establishment of a real common Internal Energy Market»77.
The following analysis, however, details the various components of such heterogeneity and explains the way it is managed.
a. The first element is the difference between the CPs and the EU Member
States. The EU developed economies had negotiated that acquis which was as such then adopted by countries in a post-war situation with deeply different social, economic and political conditions. Implementing liberalisation in these countries needs a certain caution. For instance, market opening requires raising the too-low energy prices used in the CPs, but this can threaten social stability78. Differences, of course, also exist among the CPs. Therefore, the “one-size-fits-all” approach, as a criterion ensuring a homogeneous and comparable regulatory framework for all Parties concerned, does not take sufficiently into account the specificities of each country. The Treaty then calls for adaptation of the acquis communautaire to the institutional framework of the EnCT and to the specific situation of each CP, in both cases of adoption of the new EU acquis (art. 5 EnCT) and of implementation (art. 24 EnCT). As Dirk Buschle claims, in fact, the solution is «neither for fewer rules than the EU’s nor for different ones, but
77 Kuhlmann, Enhanced Sectoral Multilateralism, op.cit., p.218. 78 Buschle, Challenges in Exporting the Internal Market, op.cit., p.123.
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for rules adapted in a smarter way to the specific needs of the law-importing countries. »79.
b. Another aspect of heterogeneity concerns the possibility for the Energy
Community to choose whether or not to follow the development of the EU acquis. Indeed, while the acquis communautaire prior to the establishment of the Energy Community requires adoption by the Energy Community (art. 5 EnCT) and implementation by each CP (art. 10 EnCT), the EU dynamic energy acquis80 «may» be received by the Energy Community (art. 25 EnCT). To this purpose, the Treaty foresees that the PHLG shall «discuss the development of the acquis communautaire described in Title II on the basis of a report that the European Commission shall submit on a regular basis» (art. 53(f) EnCT). However, the possibility that the EnCT creates a new legal order seems contradicted by reality. Petrov assures that «the majority of the EnC’s contracting parties have already followed the EU “dynamic energy acquis”»81 and the adoption of the Third
Energy Package is a clear example of that. Karova also states that, even if not always properly complied with, «the Energy Community institutions have not abused the flexibility granted»82 and «the Contracting Parties represented in the institutions have undertaken obligations to implement such legislation at national level»83. Therefore, the overall conclusion is that the CPs, which are required to implement any decision addressed to them (art. 89 EnCT), have
79 Ibidem, p.123.
80 Petrov defines “dynamic energy acquis”as the law adopted by the EU after the entry into force
of the EnCT. Petrov, European Legal Space, op.cit., p.272.
81 Ibidem, p.272.
82 Karova, R., The Dispute Settlement System of the Energy Community. Testing its Effectiveness,
in The Energy Community: A New Energy Governance System, Buschle and Talus (eds.), Intersentia, Cambridge, 2015, par.3.2. Emphasis in the original.
