Background
On 23 July 2024, an ICSID arbitration tribunal ordered Germany in a yet unpublished preliminary order to refrain from demanding or enforcing a temporary solidarity contribution on windfall profits for the year 2022 from Heide Refinery GmbH. Since 2010, Heide Refinery and Heide Refinery GmbH have been part of the Klesch Group. The Klesch Group, headquartered in Jersey, encompasses a number of companies in the heavy industry sector.
The European Union responded to significant price increases in the electricity market following the Russian invasion of Ukraine, among other measures, with Regulation (EU) 1854/2022. This regulation essentially governs the so-called solidarity contribution and obligates member states to implement it. According to the ordinance (text number 46), Member States should ensure that the surplus revenues resulting from the application of the cap on market revenues are passed on to final customers to mitigate the impact of exceptionally high electricity prices. In Germany, this regulation was transposed through sections 14 to 18 of the StromPBG. Simplified, certain plant operators are obligated to surrender profits that exceed a certain cap price. This cap price is determined individually in Germany, among other criteria, based on the energy used and its marketing, thus deviating from the European cap price of EUR 180. According to the EU ordinance, the revenues is supposed to help member states finance measures such as income transfers, bill discounts, compensatory payments for producers delivering below costs, and investments that would lead to a structural reduction in consumption, particularly of electricity from fossil fuels.
In response to this measure, Klesch Group Holdings Limited and Heide Refinery GmbH filed an arbitration claim against the Federal Republic of Germany under the Energy Charter Treaty (ECT) at the International Centre for the Settlement of Investment Disputes (ICSID) [1]. In the proceedings, the plaintiffs seek damages because they allege the solidarity contribution violates the investment protection provisions of the ECT.
With its decision on 23 July 2024, the arbitration tribunal prohibited the Federal Republic of Germany from asserting or enforcing a "solidarity contribution" (referred to in Germany as “Übererlösabschöpfung” section 16 StromPBG) on alleged revenues above the cap price for the year 2022 against Heide Refinery GmbH. This decision significantly differs from a ruling by the Higher Regional Court of Düsseldorf on 29 April 2024 (3 Kart 459/24). The Düsseldorf Court indicated that, in a summary examination, there were no serious doubts about the legality of the solidarity contribution decision by the Federal Network Agency based on section 17 StromPBG. The question of whether the amount had been correctly determined was not suitable for summary proceedings. This also applied to the constitutional questions that would need to be clarified. The issue of the solidarity contribution is not fully determined by EU law, so the European Charter of Fundamental Rights would not apply to the question of legality, but rather the provisions should be measured against fundamental rights contained in the German constitution. In particular, the question of the admissibility of special levies has not yet been sufficiently determined in order for it to be answered in a summary examination. The payment of the demanded amount would also not constitute an unreasonable hardship for the claimant.
The decision and its implications
The decision is exceptional, as the ordering of preliminary measures in investment arbitration is subject to strict conditions. In particular, a deterioration of the investor's legal position must be imminent, which cannot be rectified by a later decision in the main proceedings, and the order must be reasonable and proportionate for the state.
The existence of these conditions is at least not evident. If Heide Refinery GmbH has paid the solidarity contribution on windfall profits unjustly from the perspective of the arbitration tribunal, a claim for damages could likely fully compensate the claimants’ damage. Moreover, the preliminary injunction represents a significant intervention in the national legal system, as it prohibits the collection of a solidarity contribution, thereby directly affecting the financial system of the Federal Republic of Germany. This suggests that the arbitration tribunal may view the solidarity contribution as a violation of the ECT.
Regardless, the mere existence of the decision enables other affected companies to potentially also challenge the payment of the “Übererlösabschöpfung” – whether through their own ECT claim or by invoking the principle of equal treatment according to Art. 3 of the German constitution. Should the Federal Constitutional Court find the solidarity contribution unconstitutional in the upcoming oral hearing, this could open further options for affected companies to reclaim payments already made.
Our support
Our experts in investment protection law and energy law are pleased to advise you on evaluating the different legal options in dealing with the solidarity contribution and on possible claims for repayment following a decision by the Federal Constitutional Court.
