How to Protect Your Rights in High-Cost Energy Projects?

1. Introduction

The energy sector, with its high-budget projects, multinational investor relations, and long-term contracts, is one of the areas where arbitration is most frequently preferred. Contractual disputes, which frequently arise in areas such as electricity generation, natural gas distribution, renewable energy investments, and energy trading, are resolved through arbitration, which is considered faster, more expert-based, and impartial than national courts. This article will examine the legal framework giving rise to energy arbitration, types of disputes, exemplary practices, and mechanisms for protecting the rights of the parties

2. The Role of Arbitration in Energy Investments

Energy projects using build-operate-transfer (BOT), build-operate (BO), public-private partnership (PPP) , and foreign direct investment models. These projects are high-financing, long-term projects involving both domestic companies and multinational investors. Therefore, the parties prefer an impartial and internationally valid judicial avenue instead of national courts: arbitration.

3. Common Types of Disputes

The most common disputes in energy arbitrations are:

• Payment disputes arising from EPC (Engineering, Procurement and Construction) contracts,
• Failure to fulfill electricity production commitments,
• Termination and default conditions in purchase guarantee contracts (PPA),
• Government interventions (license revocation, regulatory changes),
• Responsibility disputes in operation and maintenance (O&M) processes.

These discrepancies are often supported by technical documents, financial statements, and engineering reports.

4. Energy Charter Treaty (ECT) and Investment Arbitration

A significant portion of international energy arbitrations on the Energy Charter Treaty (ECT) . This treaty grants investors the right to arbitrate against the host state. In cases brought under ICSID and UNCITRAL rules, investors can allege violations of property rights, discrimination, and unfair treatment. Turkey is a party to the ECT and has been involved in several arbitration cases brought under this framework.

5. The Role of ICSID and Other Arbitration Institutions

The most frequently used arbitration body for disputes related to energy investments is ICSID (International Centre for Settlement of Investment Disputes). In addition, institutions such as ICC, LCIA, SCC, and ISTAC also participate in energy arbitrations. These institutions manage processes with arbitrator lists and specialized rules specific to energy projects. Although each institution has different procedures, expert arbitrators are generally preferred in energy arbitrations.

6. Energy Arbitration and ISTAC Application in Türkiye

With the increase in renewable energy investments in Turkey, such as wind, solar, and hydroelectric power, the number of arbitration cases filed under EPC (Energy Procurement) contracts has also increased. ISTAC (Istanbul Arbitration Center) is the preferred institutional arbitration center for energy projects based in Turkey. ISTAC offers expedited proceedings and technical expert opinions specifically for energy disputes. As a result, cases are resolved within an average of 6-9 months.

7. Evidence and Technical Expertise

Technical complexity is paramount in energy arbitrations. Documents such as production reports, SCADA data, maintenance records, capacity estimates, and carbon emission measurements constitute essential evidence. The arbitration panel often seeks technical opinions from experts in engineering or energy economics. This increases the level of technical accuracy that is difficult to achieve in traditional courts.

8. Case Studies and Turkish Cases Before ICSID

Turkey has been involved in various energy arbitrations before ICSID. For example, a case brought by a Kazakh investor regarding the cancellation of an electricity license was heard under the Energy Charter Treaty. In these cases, Turkey argued that it had not violated the investor's right to fair and equal treatment; in some cases, the arbitration panel ruled in favor of the state, and in other cases, in favor of the investor. These examples demonstrate how critical and high-risk energy arbitrations are.

9. Points to Consider When Drafting an Arbitration Clause

When preparing arbitration clauses for energy projects, the following points should be carefully considered:

• Corporate arbitration or ad hoc arbitration?
• Number of referees and selection method,
• The seat of arbitration and the applicable law,
• Confidentiality of language and documents,
• Precautionary measures and temporary precautions.

Incomplete or incorrectly prepared arbitration terms may lead to the cancellation of the process or loss of rights.

10. Enforcement and Annulment of Decisions

energy arbitration awards ofteninvolve high sums, post-award processes are at least as important as the arbitration itself. While ICSID awards can be enforced directly, other arbitration awards enforcement proceedings under the New York Convention . In Turkey, according to the International Arbitration Law, it is also possible to take action for annulment for certain limited reasons (e.g., violation of public order, lack of jurisdiction)

11. Conclusion

Energy arbitration is a mechanism that provides confidence to international investors in resolving large-scale and complex disputes requiring technical expertise. Institutions such as the Energy Charter Treaty, ICSID, ICC, and ISTAC grant investors the right to sue both governments and private companies. With the increase in energy investments in Turkey, awareness of ISTAC practices and the protection of investor rights is also rapidly developing. As a result, arbitration has become the “new normal” of the energy sector. Working with a lawyer specializing in these high-cost energy arbitrations is essential.

Trainee Instructor Esmanur AKTAŞ