AD HOC ARBITRATION UNDER THE RULES OF ARBITRATION OF THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW AND PURSUANT TO THE ENERGY CHARTER TREATY NORD STREAM 2 AG (Claimant) VS EUROPEAN UNION (Respondent) EUROPEAN UNION COUNTER-MEMORIAL ON THE MERITS Legal Service European Commission Rue de la Loi/Wetstraat 200 1049 Bruxelles/Brussel Christophe BONDY External Counsel Steptoe & Johnson LLP 3 May 2021 Ad Hoc Arbitration between Nord Stream 2 AG European Union and the European Union Counter-Memorial on the Merits ____________________________________________________________________________________ TABLE OF CONTENTS 1. INTRODUCTION AND SUMMARY ............................................................................................................... 1 1.1. THE CLAIMANT HAS FAILED TO PROVE ITS FACTUAL ALLEGATIONS ................................................................................ 4 1.1.1. The Amending Directive pursues legitimate and achievable public policy objectives ............................. 4 1.1.2. The Amending Directive did not involve a “dramatic and radical regulatory change” ........................... 5 1.1.3. The Amending Directive will not have the alleged on NSP2AG’s investment ..... 6 1.1.4. The NS2 pipeline project was not “deliberately excluded” from the Derogation Regime ....................... 7 1.1.5. The Claimant has failed to prove that the Amending Directive underwent an improper legislative process .................................................................................................................................................... 8 1.1.6. The European Commission acted transparently ...................................................................................... 9 1.2. NSP2AG’S CLAIMS THAT THE EUROPEAN UNION HAS BREACHED THE ECT ARE BASELESS ................................................ 9 1.2.1. There is no breach of the Fair and Equitable Treatment (FET) Standard in Article 10(1) of the ECT ..... 10 The European Union ensured due process and justice ........................................................................... 10 The European Union did not breach legitimate expectations ................................................................. 10 The European Union acted proportionately ........................................................................................... 11 The European Union did not impair the investment by arbitrary or discriminatory measures .............. 12 The European Union acted transparently ............................................................................................... 12 The European Union acted in good faith................................................................................................. 13 1.2.2. The European Union has not breached its obligations under the Constant Protection and Security (CPS) standard in Article 10(1) of the ECT. ............................................................................................ 13 1.2.3. The European Union has not breached its obligations under Article 13 of the ECT. ............................. 13 1.3. THE RELIEF SOUGHT BY NSP2AG IS INAPPROPRIATE .............................................................................................. 14 2. THE CLAIMANT HAS FAILED TO PROVE ITS FACTUAL ALLEGATIONS ......................................................... 15 2.1. THE AMENDING DIRECTIVE PURSUES LEGITIMATE AND ACHIEVABLE POLICY OBJECTIVES ................................................. 15 2.1.1. Introduction ........................................................................................................................................... 15 The objectives of the Gas Directive ......................................................................................................... 16 ENSURING COMPETITION ................................................................................................................................................................. 16 ENSURING SECURITY OF SUPPLY ......................................................................................................................................................... 18 Key provisions of the Gas Directive ......................................................................................................... 19 UNBUNDLING ................................................................................................................................................................................ 19 TARIFF REGULATION ........................................................................................................................................................................ 19 THIRD PARTY ACCESS ....................................................................................................................................................................... 20 The objectives of the Amending Directive .............................................................................................. 20 2.1.2. General benefits of the Amending Directive ......................................................................................... 21 2.1.3. Specific benefits of the Amending Directive .......................................................................................... 24 Third-Party Access (TPA) ......................................................................................................................... 24 Rights related to the connection to the pipeline .................................................................................... 24 Obligations for NSP2AG as a TSO – Article 13 of the Gas Directive ......................................................... 26 Transparency rules – Article 16 of the Gas Directive .............................................................................. 26 Rules in the Gas Regulation on transparency, congestion management and capacity allocation procedures ......................................................................................................................................................... 27 Tariff regulation....................................................................................................................................... 28 Unbundling rules ..................................................................................................................................... 28 2.2. THE CLAIMANT HAS FAILED TO PROVE THAT THE AMENDING DIRECTIVE INVOLVES A “DRAMATIC AND RADICAL REGULATORY CHANGE” ...................................................................................................................................................... 31 2.2.1. Introduction ........................................................................................................................................... 31 2.2.2. The Claimant could have understood that the Gas Directive applied to gas pipelines importing gas into the European Union from third countries.............................................................................................. 31 2.2.3. There were indications that the Gas Directive would apply to the NS2 pipeline ................................... 34 2.2.4. EU competition law prohibits abuses of a dominant position with the result that remedies such as unbundling, tariff regulation and TPA could be imposed prior to the adoption of the Amending Directive ................................................................................................................................................ 37 2.3. THE CLAIMANT HAS FAILED TO PROVE THAT THE AMENDING DIRECTIVE WILL HAVE THE ALLEGED ON NSP2AG’S INVESTMENT .................................................................................................................................. 40 -ii- Ad Hoc Arbitration between Nord Stream 2 AG European Union and the European Union Counter-Memorial on the Merits ____________________________________________________________________________________ 2.3.1. Introduction ........................................................................................................................................... 40 2.3.2. Preliminary considerations: identification of the relevant alleged “impacts” for the purposes of this dispute ................................................................................................................................................... 42 The effects of the Amending Directive on Gazprom’s or on the Financial Investors’ investments in NSP2AG are outside the scope of this arbitration ............................................................................................. 42 The Claimant seeks to rely on the effects of extraneous factors that are not attributable to the European Union ................................................................................................................................................. 43 The delays in the construction of the NS2 pipeline, and the ensuing additional costs for NSP2AG, cannot be attributed to the Amending Directive ............................................................................................... 44 2.3.3. The practical “impact” of the Amending Directive, as transposed and implemented by Germany, on NSP2AG’s investment remains highly uncertain at this stage............................................................... 45 Article 49a derogations ..........................................................................................................................