Controversy over Apparent Conflict of Interest by Member of the UK Government's Recently Created Investment Council

By Diego Luis Alonso Massa, 12 May 2021

On April 27, Gerry Grimstone, Minister for Investment, announced the UK Government’s creation of an Investment Council to serve as an advisory body on foreign investment. The council aims at improving and boosting the UK's business environment for foreign investors.

The Council, chaired by Minister Grimstome, will be composed of high-ranking leaders from the private sector, in particular, top executives from the world's leading companies in various sectors. It will meet twice a year, and as needed, to provide the UK Government with top-level strategic advice on policy and regulatory changes. 

Furthermore, at the end of this year, the U.K. will host a Global Investment Summit to leverage foreign investment in the U.K.'s future green industries. The summit hopes to boost foreign investment in the UK's green technology and renewable energy industries ahead of the COP26 Climate Summit. 

However, given the plans to secure foreign investment in green and renewable energy industries, criticism has been voiced over the fact that one of the Council's members will include a representative from RWE Renewables. On 2 February 2021, RWE Renewables’ parent company instituted ICSID arbitration proceedings against The Netherlands following the country's program to phase-out its coal-fired power plants.

openDemocracy, an independent global media organization, sparked the debate about the appropriateness of RWE Renewables’ membership on the Council, given the ICSID arbitration proceedings it launched against The Netherlands.

In those proceedings, the owners of the Eemshaven coal-fired power plant (German RWE AG and Dutch RWE Eemshaven Holding II BV) claim compensation from the Dutch Government, pursuant to the provisions of the Energy Charter Treaty (ECT), for banning the production of electricity from coal. Claimants retained the services of Luther Rechtsanwaltsgesellschaft, while Respondent is represented by De Brauw Blackstone Westbroek N.V.

In 2019, the Dutch Government decided to ban coal combustion due to incompatibility with its climate targets. As a result, RWE is expected to cease operations at its new large coal-fired power plant in Eemshaven in Groningen by 2030, whose construction cost amounted to 3.2 billion euros. 

According to a letter (an unofficial English translation can be requested at: alonso@arbitrage-transnational.com) sent by Mr. Bas van ’t Wout, Dutch Minister of Economic Affairs and Climate Policy, to the Speaker of the Lower House of the Dutch Parliament, the company estimates its damages from the Eemshaven plant’s closure will amount to € 1.4 billion - without interest. The Dutch Minister stated that the country is determined to defend its position before the ICSID Arbitral Tribunal by raising objections to both the jurisdiction of the tribunal and the merits of the dispute. 

Further, Minister van ‘t Wout seems determined to argue, as is to be expected following the Achmea decision, that investment arbitration clauses between members of the European Union run counter to EU law. He also mentioned that he will assert the Declaration of the Representatives of the Governments of the Member States, on the Legal Consequences of The Judgment of the Court of Justice In Achmea and on Investment Protection In the European Union. How these arguments, which have already been raised in a number of cases, will perform continues to be of great interest, especially given the role of  The Netherlands' climate goals in this case.  

Moreover, according to the Financieele Dagblad and the letter (an unofficial English translation can be requested at: alonso@arbitrage-transnational.com) sent to the Parliament concerning the launch of a subsidy scheme for the voluntary closure of coal-fired power stations by Mr. Wiebes, former Dutch Minister of Economic Affairs and Climate Policy, the maximum compensation that the Dutch Authorities can offer RWE under its voluntary closure plan amounts to €510 million. In this regard, the Financieele Dagblad reports that RWE's coal-fired power plant in the Eemshaven has a capacity of 1,560 megawatts, and the maximum compensation that can be applied for is € 328,000 per MW. So, the €510 million figure is well within the range of what the Dutch Government could be expected to offer.

The questions raised by openDemocracy appear valid. Indeed, the fact that RWE is sitting in the UK Investment Council to provide the UK Government with advice on securing foreign investment in UK green and renewable energy industries, while suing another State for phasing-out coal combustion, seems prima facie contradictory. 

In that regard, Global Justice Now campaigns and policy manager Jean Blaylock told openDemocracy: “Corporate court’ cases like this are some of the biggest obstacles to governments taking climate action. If the UK government really wants to ‘build back better’, they must not take advice from companies like RWE.”

However, the UK Government quoted Anja-Isabel Dotzenrath, CEO, RWE Renewables GmbH, who said that “The Council will help create the right framework for sustainable investment.”  By the same token, a spokeswoman for RWE told openDemocracy that the company had set a carbon neutrality goal by 2040, and she added that  “[w]e are committed to the phase out of coal. [The Dutch case] doesn’t change our long term ambitions as a company and our commitment to renewables.” 

The signals sent out by the UK Government, on one hand, and RWE Renewables, on the other, seem at odds with the UK Government’s goal of building a green and sustainable business environment by boosting foreign investment.

It is true that the arbitration proceedings are at an early stage. So, it remains possible that the ICSID arbitration proceedings against The Netherlands are being used to increase its bargaining power with the Dutch government notwithstanding RWE Renewables’ commitment to renewable energy and its goal of achieving carbon neutrality by 2040. After all, RWE is entitled to use the legal mechanisms available to it if it considers that its rights have been violated. 

After the Achmea case, the invocation of Investor-State Dispute Settlement clauses amongst European companies and a European state remains a controversial issue. So, until European countries take bolder action to prevent this from happening, companies still have recourse to such a mechanism at least under the caselaw of international investment arbitration tribunals. 

Perhaps the contradiction inherent in RWE’s membership on the UK Government’s Investment Council while suing another state for phasing-out its carbon-fired plants will become more acceptable in the future. This, of course, depends on the actions affected stakeholders (governments, EU, transnational companies and arbitration tribunals) end up taking to dispel the doubts surrounding the Energy Charter, intra-EU investor-state arbitration and the phase-out schemes for fossil fuels and nuclear energy, while advocating for the defense of the environment and addressing the challenges of climate change.  

URL: https://taobserver.com/news/2/controversy-over-apparent-conflict-of-interest-by-member-of-the-uk-governments-recently-created-investment-council