According to a press statement released by the Energy Charter’s Secretariat on March 17, 2023, Germany exercised its right under Article 17 of the Energy Charter Treaty (ECT) to deny advantages of Part III of the ECT to any legal entity owned or controlled by citizens or nationals of the Russian Federation and without any substantial business activities, as well as to investments of investors of the Russian Federation.
Denial of benefits clauses allow contracting parties of international investment agreements to deny the protection of a treaty to certain categories of investors that the treaty did not intend to protect. They thus allow states to pre-emptively avoid claims by such investors.
Germany may have exercised at least two of the four options set out in Article 17 to deny benefits, which include (1) legal entities controlled by citizens or nationals of a third state with no substantial business activities in the contracting party’s area and (2) investments belonging to investors of a third state with which the denying contracting party does not maintain diplomatic relations or has measures prohibiting transactions.
It is worth noting that Ukraine also invoked Article 17 of the ECT with respect to Russian investments after Russia’s 2022 invasion of the country. In this context, Ukraine argued that Russia qualifies as a “third state” in the sense of Article 17, since Russia never ratified the ECT.