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Titi, Catharine --- "The right of the host state to regulate water services" [2017] ELECD 326; in Chaisse, Julien (ed), "Charting the Water Regulatory Future" (Edward Elgar Publishing, 2017) 91

Book Title: Charting the Water Regulatory Future

Editor(s): Chaisse, Julien

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781785366710

Section: Chapter 6

Section Title: The right of the host state to regulate water services

Author(s): Titi, Catharine

Number of pages: 14

Abstract/Description:

For many decades, the promotion and protection of international investment has been international investment agreements’ (IIAs) principal function and the reason for their existence. States have concluded these agreements to offer investors safeguards, such as national treatment, most-favoured-nation treatment, protection in case of expropriation, fair and equitable treatment, full protection and security and free capital transfers, and have backed these up through offering access to investor-state dispute settlement (ISDS). The protection of international investment has been such a predominant concern, that, concluding these treaties, states restricted their policy space and their ability to adopt measures for public welfare objectives. Against this background, a new preoccupation was born, that of reserving the host state’s right to regulate and narrow the interpretive leeway of arbitral tribunals by addressing states’ right to pursue specific public policy goals. A new generation of investment treaties, essentially launched with the US and Canadian Model bilateral investment treaties (BITs) of 2004, have started to provide contracting parties with a modicum of flexibility and the question is asked for the first time of the pertinence of this right to regulate for state measures relating to water services. State regulation concerning water may adversely affect an investor not only where investment is made in water utilities, such as supply of drinking water and sanitation services, but also where the investor is engaged in water-intensive activities, such as in the agricultural, industrial, energy, and the mining and oil sectors. Water regulation may also become relevant where the investment ‘pollutes or deteriorates the environment associated with water’. Environmental legislation, and state measures for the protection of human, animal or plant life or health are two fields of public policymaking that may have a direct impact on a foreign investment and may overlay with investment protections afforded by the regulating state in an investment agreement. Given the potential for overlap between water, investment and state regulation, it is not astonishing that several water-related claims have been initiated, against both developing and industrialised countries. Among the numerous examples, one may cite the famous Aguas del Tunari, S. A. dispute against Bolivia and related events that became known as Bolivia’s Water War, as well as the first Vattenfall dispute against Germany, involving local authorities’ measures relating to compliance with cleanness of river water targets of EU legislation, earning Germany its first ever known investment arbitration. In light of the very large scope of cases that would fall within the range of what can qualify as a ‘water dispute’, the analysis will limit itself to the right of the host state to regulate directly related to water services, namely with reference to either water utility construction projectsor clean water distribution and sewage services,the latter category attracting the overwhelming majority of investment disputes.