Why Vattenfall is taking Germany to court
The hearing on jurisdiction, merits and quantum in Vattenfall AB versus the Federal Republic of Germany is scheduled to take place before a three-member arbitral tribunal beginning mid-October 2016. Vattenfall's General Counsel Anne Gynnerstedt explains why Vattenfall is seeking compensation from the German state for the loss of revenue from its German nuclear power plants at the World Bank's International Centre for Settlement of Investment Disputes (ICSID).
Shortly after the nuclear incident in Fukushima, Japan on 11 March 2011, Germany decided to phase out its nuclear power plants by 2022 and to immediately close Vattenfall's nuclear power plants in Krümmel and Brunsbüttel.
"Vattenfall does in no way question the decision to phase out nuclear power in Germany. But we insist on being compensated for the financial loss resulting from this decision. Based on the Energy Charter Treaty we make use of a framework which has been created exactly for such cases and has been agreed by 52 countries, including Sweden and Germany to provide security to foreign investors," says Vattenfall's General Counsel Anne Gynnerstedt.
In 2012 Vattenfall filed a case against the German state with the International Centre for Settlement of Investment Disputes (ICSID) in Washington.
"As a foreign investor, Vattenfall saw no other way of being heard," Anne Gynnerstedt points out.
The ICSID hearing will take place from Monday, 10 October, through Friday, 21 October. It will be streamed on the ICSID website (see link below).
Vattenfall is convinced that making the hearing accessible to the general public will be beneficial for the understanding of this dispute.
"We welcome the arbitration court's decision to stream the hearing on the internet," Gynnerstedt says.
Why should a company like Vattenfall indict a state for the consequences of a democratically taken decision?
"We fully accept the German decision to phase out nuclear power. But when Germany decides to reorient its energy policy, foreign investors should not have to pay the price for such a decision and its immediate consequences. The Energy Charter Treaty's aim is to promote long-term co-operation in the energy field which presupposes that signatories respect fundamental legal principles. Hence dispute settlement mechanisms were included to give companies the security to make major investments without having to take political risks. If there was no such protection, then no one could be expected to make major long-term investments over national borders, which would be counter-productive."
The Energy Charter Treaty's website shows that 59 lawsuits are currently ongoing between companies and national states. Anne Gynnerstedt expects that after the hearing the ICSID in Washington will need several months to duly assess all material before taking a decision.
Have there been any similar cases in the past?
A very similar situation occurred in Sweden in 1997 when the Swedish government decided to close down the nuclear power plant Barsebäck. Sweden then compensated the German owners for the premature closure.
"The German government, on the contrary, has not similarly sought to compensate Vattenfall. Yet, the foreign-owned nuclear power plant which was closed due to the Swedish decision was considerably older than several of Vattenfall's reactors shut down in Germany."
Where's the ethics of a profit-driven company like Vattenfall claiming compensation from a state?
"Investments in the energy sector always involve large sums of money, and there is a need for long-term planning. That's also the reason why there is a special trade charter precisely in this sector. If a foreign company has made major investments in a high-resource industry such as nuclear power under the precondition that this type of energy will be part of the energy system, then the company should not have to assume the consequences of a sudden political change. The foreign state that makes the decision and controls the further course of events should take the consequences. That was also the understanding of the German state when it signed the Trade Charter."
Anne Gynnerstedt also emphasises that from a standpoint of one of the largest industrial nations the case is much more daily business than a political scandal. "Germany has signed more than one hundred investor protection agreements with other countries. German companies, including small and medium size enterprises and German municipal utilities regularly make use of investor protection agreements. As an example, both Stadtwerke Munich and Steag, the latter owned by the Rhein-Ruhr consortium of municipal utilities, have recently filed cases at ICSID against Spain over amendments to the legislation that negatively affected their renewable energy investments."
"If we suffer a major loss and believe that we are entitled to compensation, then it would be irresponsible of us not to try and obtain it. That has nothing to do with whatever general feeling one may have about nuclear power."
It has also been claimed that Vattenfall is against the production of renewable energy and that's why it's indicting Germany?
"That claim does not hold up due to its own lack of logic. Renewable energy is Vattenfall's future core activity, not least in Germany. Vattenfall will be investing billions in renewable energy projects over the next four years, in particular wind power."