EU, Germany and Denmark sued by oil firm over windfall tax

Exclusive: Officials fear secret courts will block climate action and divert billions into coffers of fossil fuel investors

A Jersey-based oil-refining company is suing the EU, Germany and Denmark for at least €95m over a windfall tax introduced during the Ukraine war that it sees as a “pretext” for undermining fossil fuel firms, leaked documents show.

Klesch Group Holdings Limited is taking action under a controversial secret court system enabled by the energy charter treaty (ECT), an agreement officials fear will stymie climate action and divert hundreds of billions of euros into the coffers of fossil fuel investors.

The treaty was drafted to protect the interests of energy companies as the Soviet Union broke up in the early 1990s and is being used by companies such as the UK oil firm Rockhopper, which was awarded a £210m payout last year after Italy stopped it from drilling.

In July, Brussels proposed a “coordinated withdrawal” from the pact following domino-style exit announcements by several EU countries including France, Spain and the Netherlands. But the treaty remains in effect for now, and an EU official said there was “no specific timeline” for leaving it.

Speaking in a personal capacity, Tinne van der Straeten, the Belgian energy minister who will chair the EU’s energy council from January for six months, said: “The energy charter treaty strikes again. This newest lawsuit is yet more proof that the ECT is blocking a just and affordable energy transition.

“We need treaties that serve our people and climate, not the fossil fuel industry. I am personally convinced that we should establish a unified stance on a collective and coordinated European withdrawal. It’s time to take the necessary and legally sound steps for the climate. It’s time to walk away from the ECT.”

Klesch declined to comment on the issue but is seeking a declaration that the windfall tax violated the ECT, according to the leaked EU trade policy committee experts document, which is classified as “sensitive” and marked for “distribution on a need to know basis”.

It says Klesch claimed that the EU had “used the Russian war of aggression against Ukraine and the high electricity prices during 2022 as a pretext to constrain the competitiveness of fossil fuel companies”.

Last October, the EU said it was imposing its energy windfall tax on company profits more than 20% higher than the 2018-21 average to prevent “lasting harm for consumers and the economy”.

Klesch, which is based in the UK and Switzerland, is suing Germany and Denmark for €95m (£83m) after they set their utility levies at 33% for profits above the 20% average. It is also suing the European Commission for an undisclosed sum over the windfall tax regulation.

The dispute concerns two investments by Klesch in oil refineries in Germany and Denmark. A European Commission spokesperson said the windfall measure was introduced “to redistribute the energy sector’s surplus revenues and profits to households and businesses to mitigate the effects of rising energy prices”.

Cleodie Rickard, the trade campaign manager at Global Justice Now, said: “Countries like the UK that are teetering on the edge of a decision, while the EU contemplates a bloc-wide exit, must wake up to the risk and seize the window of opportunity to leave the ECT in coordination and before ever more egregious claims emerge.”

In a separate case, the publicly owned Swiss electricity company AET is suing Germany over the impact of its coal phase-out on the Trianel Lünen coal power plant, in which it has a 15% stake.

A company spokesperson, Pietro Jolli, said: “AET does not criticise nor question the coal ban, only requests to be financially compensated according to the ECT rules. The amount of compensation is to be determined by the arbitral tribunal.”

Photograph: Virginia Mayo/AP