Energy services and competition policies under WTO law

Olga Nartova

ENERGY SERVICES AND COMPETITION POLICIES
UNDER WTO LAW

НАУЧНАЯ МЫСЛЬ
СЕРИЯ ОСНОВАНА В 2008 ГОДУ


OLGA NARTOVA

ENERGY SERVICES AND COMPETITION POLICIES UNDER WTO LAW





Moscow
INFRA-M
2010

Inauguraldissertation zur Erlangung der Wurde eines Doctor iuris der Rechtswissenschaftlichen Fakultat der Universitat Bern. Die Fakultat hat diese Arbeit am 17 Dezember 2009 auf Antrag der beiden Gutachter, Prof. Dr. Thomas Cottier und Prof. Dr. Christine Kaufmann, als Dissertation angenommen.





      Nartova O.

         Energy services and competition policies under WTO law. —
Moscow: INFRA-М, 2010. — 320 p. — (Научная мысль).
         ISBN 978-5-16-004604-4





This publication is protected by international copyright law. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the author except in cases permitted by law.



ISBN 978-5-16-004604-4                             © Nartova O., 2010


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                Preface





Trade in energy and energy services was not a focus of international trade law until recently. This was due, in part, to the high government ownership rate in energy companies, which frequently enjoyed the monopoly rights. Liberalisation of the energy industry in a number of countries together with the increasing number of oil producing countries joining the World Trade Organization (WTO) have changed the landscape and reinforced the need to address a sector which in many countries is still characterised by inefficient monopolies, waste and high levels of subsidization. Energy security concerns, the challenges of climate change and efficient use of energy set the scene for the complex multilateral negotiations.
This book launches an interdisciplinary dialogue on the needs of the energy sector and suggests a way forward for international regulation of energy services. Its main contribution consists of offering a comprehensive structure and listing of energy related services which may, in the future, serve as a basis for negotiations in this complex field. Moreover, it offers a reference paper addressing potential abuse of natural monopolies which are inherent to grid based energy supplies. In preparing for this, the book includes a comprehensive introduction to the economic and political background of the energy sector, of the international institutions involved, and of case studies showing the wide array of approaches and problems witnessed in selected countries around the globe.
Books of this type are not the fruit of individual efforts only and it is with great pleasure that I take the opportunity here to acknowledge all those who, in big and small ways, directly or indirectly, contributed to the completion of this study.
This monograph is a slightly revised version of my PhD dissertation and it would not have come together without the support of Prof. Thomas Cottier, my supervisor and the director of the World Trade Institute. I am grateful for his invaluable counsel and guidance, for his suggesting to me the outlines of this project and for assuaging my doubts. He truly exemplifies what it is to be a scholar, a teacher and a mentor; and I continue to draw upon his example in my own research and teaching. I owe a particular debt of gratitude to Prof. Christine Kaufmann, who served as my second examiner, for her suggestions, critique and kindness.

vi

Preface

Funds and facilities are an important part of any project. I started my PhD as a research fellow at the World Trade Institute and financial support for this work was provided by the SNF NCCR Trade Regulation programme.
Over the years many have contributed to the effort and I am particularly indebted to my colleagues at the World Trade Institute: Susan Kaplan, Jane Muller, Joёlle de Sepibus, Marion Panizzon, Mira Burri-Nenova, Julien Chaisse, Panagiotis Delimatsis, Pierre Sauve and many others who have helped in various ways.
Preliminary findings were discussed at doctoral workshops held in Bern and I benefited immensely from the comments of many participants. Inevitably, I am unable to acknowledge by name everyone who provided inputs at these events but I am grateful to each one of them.
Special thanks are due to Sofya Matteotti-Berkutova for numerous discussions on third-party access to energy facilities, as well as for keeping me sane and encouraging me to continue.
But books do not live on academic and institutional contributions alone. My family and friends have been more a part of this work than they imagine, their contribution to this thesis cannot be expressed in words.



Berne, December 2009
Olga Nartova

                Summary of Contents





Part One - Foundations of Energy Trade

I Energy Markets: Setting the Scene                       2
II Emergence of Energy Services,
     Development of Competition and Trade Liberalisation 42
III  Regulatory Challenges for the Energy Services in
     International Trade                                79

     Part Two - The Instruments of Energy Regulation

IV   WTO Provisions Regulating Energy Services and
     Its Limitations                                   107
V    Energy Regulation on the Country Level
     (Case Studies)                                    131
VI   Commercial Reality and Trade Barriers             192

Part Three - Energy Services a Way Forward

VII  Reclassification of Energy Services               201
VIII  Essential Regulatory Ingredients
     for a Competitive Market                          219
IX   Reference Paper on Energy Services                234
X    Conclusions and Policy Recommendations            258

                Table of Contents





Preface ............................................................ v
Summary of Contents ...............................................vii
Table of Contents ................................................. ix
Abbreviations ....................................................xvii

Part One
Foundations of Energy Trade

Chapter I Energy Markets: Setting the Scene

A.  Introduction.....................................................2

B.  Energy services as the object of regulation .................... 3
    1. Worldwide energy market ..................................... 4
    2. Energy consumption patterns ................................. 4
    3. Types of energy sources ...................................... 5
       a)  Fossil fuels ............................................ 6
       b)  Renewable energy......................................... 9
       c)  Biofuels................................................ 13
       d)  Nuclear electric power ................................. 24
    4. Demand for energy services ................................. 25
    5. Types of energy services ................................... 26
       a)  Upstream services ........................................ 27
       b)  Downstream services ...................................... 28
    6. The future of the energy services market.................... 31

C.  Energy regulators ............................................. 32
    1. International framework .................................... 33
       a)  The International Energy Agency of the Organisation for Economic Cooperation and Development ....................... 33
       b)  The Energy Charter Treaty ................................ 34
       c)  The Organization of the Petroleum Exporting Countries..... 35
       d)  The World Trade Organisation ........................... 36
       e)  United Nations Development Programme ..................... 37
       f) The International Energy Forum........................... 37

x

Table of Contents

   2.  Multilateral environmental agreements ........................ 37
   3.  Bilateral and regional trade agreements...................... 38
       a)  The North American Free Trade Agreement ................. 38
       b)  The Association of Southeast Asian Nations and the Asia-Pacific
       Economic Cooperation Forum ................................... 39

D.   Concluding remark .............................................. 40

Chapter II
Emergence Of Energy Services, Development Of Competition And Trade Liberalisation

A.   Introduction ................................................... 42

B.  Metamorphosis of regulation: from monopolies to liberalised markets .. 42
   1.  Monopoly markets ............................................. 42
   2.  WTO move towards trade opening .............................. 43
   3.  Assumptions and reasons for liberalisation .................. 44

C.  Liberalisation of energy services .............................. 47
   1.  Energy liberalisation objectives ............................. 48
   2.  Problems and challenges ..................................... 49
   3.  Barriers to liberalisation ................................... 51
       a)  Past energy failures ..................................... 51
       b)  Fragmentation in energy services sector ................. 54
       c)  Associated risks ......................................... 55
   4.   Impacts of energy liberalisation............................. 57
       a)  Impact on energy service suppliers ...................... 60
       b)  Impact on end-users ..................................... 63
       c)  Impact on industry ...................................... 64
   5.  Role of governments ......................................... 69
       a)  In achieving public policy objectives .................... 69
       b)  In preventing market power abuse ........................ 70

D.   Competition in energy services markets ........................ 72
   1.  Competition and market efficiency ............................ 72
   2.  Competition models ........................................... 74
   3.  Competition in liberalized energy markets ................... 76

E.  Concluding remark ............................................... 77