It has been reported in various public sources that the Energy Charter Secretariat has confirmed that the Government of Italy (“Italy”) gave formal notice to the Depository for the Energy Charter Treaty (“ECT”) of its intention to withdraw from the ECT. While Italy has yet to make a public announcement in this regard, it is understood that Italy’s stated reason for the withdrawal is its desire to avoid the annual fees for membership in the Energy Charter Conference, which are approximately €370,000 per annum. This is said to be part of a broader strategy by the government to minimise Italy’s memberships in international organisations and the related costs associated with such memberships.

In order for a Contracting Party to withdraw from the ECT, pursuant to article 47(2) they must give notice one year prior to the withdrawal taking effect. Accordingly, if notice was indeed given in January this year, Italy’s withdrawal will not take effect until January 2016. Moreover, pursuant to article 47(3) the post-withdrawal period during which the ECT will continue to apply to pre-existing qualifying investments, commonly known as the “sunset period”, is 20 years. Thus, those investors who make qualifying investments prior to Italy’s withdrawal taking effect in January 2016 will still enjoy the protections of the ECT for 20 years after Italy’s withdrawal, i.e. until January 2036.

Some will question whether Italy’s withdrawal is also partially motivated by concerns about existing and potential future claims from the renewable energy sector. However, given the sunset clause that applies to the ECT, if the Italian government is concerned by the risk of such claims from existing investments, withdrawal from the ECT will do little to limit that exposure.

If the reports are correct, Italy is the first member to give notice of its withdrawal from the ECT. However, it is not the first country to turn its back on the ECT: after signing and accepting provisional application of the ECT in 1994, in 2009 the Russian Federation informed the Depository that it would not ratify the ECT and that its provisional application had been terminated.

The effect of Italy’s status as a member state of the European Union (“EU”), which will continue to be a member of the ECT, remains to be seen.

For more information, please contact Christian Leathley, Partner, Jennifer Hartzler, Associate, or your usual Herbert Smith Freehills contact.

Christian Leathley
Christian Leathley
+44 20 7466 2532
Jennifer Hartzler
Jennifer Hartzler
Associate (New York)
+44 20 7466 7536