Berlin is pleite: Vattenfall v. Germany (yes, again)
Vattenfall and Germany have been in an (investment) relationship for a long time, as the Swedish company, among other things, operated the Krümmel and Brunsbüttel nuclear power plants. The problems between Vattenfall and the German Government started in 2009, with Vattenfall complaining that the Hamburg Environmental Authority issued a licence imposing water quality standards that made the project of a new coal-fired power plant in Hamburg-Moorburg “unviable.“ Vattenfall claimed the violation of the ECT rules on promotion and protection of foreign investment and commenced ICSID arbitration proceedings seeking compensation for € 1.4 billion. This one was settled, but apparently it was just the beginning.
In the summer of 2011, Germany decided to progressively abandon the use of nuclear energy in order to have a nuclear-free Germany in 2022. The 13th amendment to the Atomic Energy Act was mostly triggered by the nuclear disaster in Fukushima a few months earlier, even though the debate on the use of nuclear energy in Germany had been going on long before. Together with the amendment, Germany also passed a number of laws, effectively establishing a new energy policy and deactivating the 11th Amendment to the Atomic Energy Act that had approved extra energy supplies to prolong the lifespan of nuclear plants by 8 to 14 years. Instead, by 2022 all of Germany’s nuclear plants will be shut down. Understandably, a number of power plant operators were not big fans of the Atomic Energy Law, and made public that they planned to sue the government over the new Act. Vattenfall, in particular, was quite vocal in menacing actions to obtain compensation for the phasing out of nuclear energy, and indeed filed for arbitration under the Energy Charter Treaty at the ICSID in May 2012. Whilst Vattenfall’s financial report for 2011 stated that the damages from the nuclear phase out amounted to € 1.18 billion, such number has been inflated by additional costs and claims, reaching a number that has been reported to be between € 4.6 and € 6 billion. Whatever the number, it will be interesting to see Germany – not only a developed country, but one of the most industrialised and influential in the world – sitting at an ICSID table on the respondent side again. Ironically, the only other time Germany has been at the less comfortable side of an ICSID arbitration was in the first Vattenfall case. As stated above, the first Vattenfall v. Germany dispute was discontinued and settled in August 2010, with the host state agreeing to a weakened environmental permit in favour of Vattenfall. It will be interesting to see how it goes this time around. It’ll be fun – and, however it goes, it will carry consequences reaching far beyond Germany’s pockets; what’s really hard to predict right now is whether it will be an example of the “horrible” consequences of ISDS on sovereign states, or yet another definition of the scope of the fair and equitable treatment standard.
Update (from the Financial Times):
Sigmar Gabriel, Germany’s vice-chancellor, warned Sweden’s new prime minister Stefan Löfven last month that there would be “serious consequences” for electricity supplies and jobs if Sweden’s state-owned utility Vattenfall ditched plans to expand two coal mines in the northeast of Germany.
The intervention is a clear sign of the challenges Germany faces as it grapples with an ambitious switch to renewable energy – the so-called Energiewende.
Under the policy, Germany aims to derive 80 per cent of its electricity from clean sources by 2050. As part of that, it is closing down all of its nuclear power stations by 2022.
But it is making up the energy shortfall caused by the nuclear phase-out by generating power from coal – the dirtiest fossil fuel. Last year, German electricity production from lignite or brown coal, a particularly polluting form of the fuel, reached its highest level since 1990.
Germany’s heavy reliance on coal has left it struggling to meet its targets for cutting greenhouse gas emissions. Meanwhile high levies on bills to pay for renewable power mean that household energy prices are among the highest in Europe.
Angela Merkel’s cabinet is due to meet next week to discuss mothballing some coal-fired power stations as a means of helping the country reach its carbon goals.
But Berlin’s lobbying of Stockholm underlines a view held by some in the German government that coal-fired generation is vital to the security of the country’s power supply.
[...]
Magnus Hall, [Vattenfall's] new chief executive, announced on October 30 that the utility would look at selling off its lignite mining and generation assets in Germany.
“We have a clear strategy to reduce our CO2 exposure and to transform our business into a more renewable-based portfolio,” Mr Hall said in a statement.
Mr Löfven told the FT on Sunday that he had explained to Mr Gabriel in a phone call that Vattenfall’s board acted independently of the government.
“I also told Sigmar that we have a policy that we don’t want to harm Germany, so it is up to the board to handle this situation in the best way,” he said.
He added that Vattenfall’s board had decided to look into selling the German lignite mines and power plants and that “this is in line with government policy that we need Vattenfall to be a leading actor in renewables and clean energy”.
“But this decision was not from the government,” Mr Löfven said. “We are not telling Vattenfall to do something; they made their own decision. But it is in line with our policy, and we will keep that policy.”
Separately, Vattenfall has also filed a lawsuit against Germany seeking €4.7bn in compensation over Berlin’s decision to close the country’s fleet of nuclear power stations.
A spokeswoman for the German economics ministry said Mr Gabriel’s letter concerned Vattenfall’s responsibility to preserve jobs and a secure and affordable energy supply in Germany, “which has arisen from the profitable operation of this business in the past”.
Looks like a settlement may not be off the table just yet...