Viren Mascarenhas of Milbank to Discuss Arbitration in the Energy Sector at Istanbul Arbitration Week

The Istanbul Arbitration Week is taking place October 2 to 6, gathering the leading minds in international arbitration to discuss the latest trends and global factors in the practice. We sat down with Viren Mascarenhas, a partner at Milbank and panelist at the event, to get a preview of the topics he’s planning to cover.

Mascarenhas does commercial, construction and investments treaty arbitration. His commercial arbitration work mostly centers around breach of contract in the energy and infrastructure space. In construction arbitration, the disputes are between owners and contractors over the familiar gripes: Why did this take so long to build? And why did it cost so much? He typically works in the energy space within that practice: nuclear power plants, LNG terminals, oil refineries and, increasingly, renewable energy infrastructure such as wind farms and solar plants.

So, he is well-suited to be speaking on the panel, “Energy Sector Construction Disputes in the Era of the New Global Energy Economy.”

Mascarenhas is a member of the Lawdragon 500 Leading Global Litigators.

Lawdragon: Viren, what are some of the topics you expect to dive into with this panel?

Viren Mascarenhas: One of the big things that's happening in the world right now in light of the climate emergency is that governments are rapidly trying to phase out energy from fossil fuels, and move towards renewable energy. They're doing this to meet the obligations in the Paris Agreement and stay below the 1.5° Celsius – or, more realistically, at least the 2° Celsius – thresholds set there. As some of the existing forms of traditional forms of energy are phased out, it raises the question: What do you do with all that infrastructure that’s going to be decommissioned?

As oil and gas projects come to an end, companies need to make sure that infrastructure is disassembled and taken apart in an environmentally safe and secure way. How they do so could give rise to decommissioning disputes. This is a topic we likely will cover.

Another topic we’ll likely cover is, now that we're switching to new forms of clean energy, which includes renewable energy such as solar or wind energy, what are the kinds of infrastructure disputes that will start to arise in this energy transition? A lot of the technology that's being used currently in this sector is rapidly changing, because more investments are being poured into the sector, so that technology will get better, cheaper and more efficient at capturing the energy, storing the energy, and then connecting to the grid to disseminate the electricity that's generated from these renewable sources.

And so, where we used to see infrastructure disputes over oil and gas terminals, now they will be over things like the wind farm, the solar plant or the geothermal power plant. For example, the blades of the wind turbines – what do we do with them, depending on the wear and tear of those infrastructure parts as they're being put to test in the long run? What if the technology and the infrastructure doesn't work as well as it was thought over the life of the project? Who's to blame in the design and construction defects?

LD: Are you seeing situations where companies are decommissioning old infrastructure and then re-building them to support new or sustainable energy sources?

VM: This is one of the big questions. Oftentimes you will try to recycle parts that you can from decommissioned plants, and there's a whole industry that deals with that. Either it's put to bed or it's being refurbished and then reused elsewhere. But some of it is site specific and will have to be abandoned in as safe a way as possible.

Where we used to see infrastructure disputes over oil and gas terminals, now they will be over things like the wind farm, the solar plant or the geothermal power plant.

Now, equally in some of the new technology that's being developed for wind farms and so forth, there is a question of, can you reuse any of these new technologies or do they have a shelf life? So, for example, if we're building offshore wind farms, does the salt water corrode the turbine? If so, when it comes to the end of its 10, 15-year life, is that scrap metal, or is there something that's salvageable?

Some of these questions are untested, so I’m expecting that these are the coming disputes in construction over renewable energy technology. We have ideas and projections for how this technology will play out in the long run of 10, 20 or 30 years, but we're still in an early phase. We’re figuring out what actual wear and tear rates are, or what defects may have been latent or may not have been thought through in the engineering and construction and design phase. As the technology gets used, these issues will all come up.

There's also a real push right now for LNG, liquified natural gas. It’s a more popular form of energy right now coming out of countries such as the U.S., but also Qatar and Australia historically have been producing. So, there's been the construction of more LNG terminals in different parts of the world to produce more LNG to meet the increased demand, and related disputes over the cost and potential delay of building these terminals.

LD: How about electric cars?

VM: Yes, there will be more disputes in the electric automotive sector relating to supply chain issues. You need batteries to store energy and power your electric vehicles, and those batteries require critical minerals, such as cobalt, nickel, lithium, manganese and copper. So, there's going to be mining of these critical minerals with a real focus by governments, but also the defense industry, the automotive industry and the aerospace industry, trying to lay claim to and control the supply of these critical minerals.

It might seem outside the new energy economy, but construction disputes will certainly include the mining infrastructure for these critical minerals. So, the mine that's built and then the beneficiation plant and the tailings dam where you process and refine the minerals that are being taken out of the ground will give rise to mining construction disputes. However, these minerals are essential to the energy transition, and so in a way these construction disputes ultimately relate to energy.

LD: How have you found traditional energy companies to be approaching the energy transition?

VM: It depends. A lot of the traditional players in the oil and gas sector have had to reckon internally with existential questions such as, "Can we continue with our old business model, or are we going to have to move into the renewable space? And if we are, do we spin off different business units or do we all operate as one business?" I have a major energy client that I used to do a lot of oil and gas disputes for about 15 years ago, and they've spent the last 15 years divesting from a lot of their overseas projects. Now they're looking at clean energy, carbon-removal techniques, and low carbon LNG production. I think each company is on its own path, but they are all focused on the energy transition.

LD: You’re based in the New York office of Milbank. But it sounds like you have a pretty international practice?

VM: Yes, I am based in New York but Milbank has offices all over the world: five in Asia, three in Europe, three in the U.S., and then one in Brazil. I do domestic U.S. arbitration as well – typically, New York-seated arbitrations, or where New York law governs the contracts. But a lot of what draws clients to me is my expertise in cross-border work. My career started doing a lot of Latin America work because there were a number of mining and energy disputes involving Venezuela, Ecuador and Bolivia in the period up to and then right after the Global Financial Crisis.

A lot of the traditional players in the oil and gas sector have had to reckon internally with existential questions such as, "Can we continue with our old business model, or are we going to have to move into the renewable space?

I have also done a lot of work in Turkey, where I have represented the government over the years in five different investment arbitrations. And my involvement in Turkey-related disputes has given rise to more work in Central Asia, such as Azerbaijan, where I am involved in disputes in the real estate sector, and also the energy and mining sectors.

I'm originally from India, I was born there and grew up there before coming to the U.S. to study. So, I've also had a historical and personal interest in India-related disputes. I am also very focused on disputes in renewable energy in Southeast Asia.

LD: Why would you say Istanbul is emerging as a hub for arbitration and dispute resolution, particularly in the energy industry?

VM: Turkey generally as a geopolitical country is very important. It has a massive economy. It has a very sophisticated workforce, who are very well-educated. With regard to energy, Turkey historically has not produced enough oil to meet its needs. The country has been dependent on imports of oil and oil products, such as petrol and diesel, and such dependency gives rise to disputes when oil prices fluctuate.

Turkey ratified the Paris Agreement in 2021, and the government has approved a goal to reach net zero emissions by 2053. So there is significant investment in renewable energy in Turkey. Turkey is Europe’s sixth largest electricity market, and 54 percent of installed capacity in Turkey consists of renewable power plants – wind, solar and geothermal. The construction of these renewable plants and the use of renewable sources to generate power will give rise to the disputes we have discussed in this interview.

Finally, Turkey’s location at the intersection of multiple oil pipelines as well as its gas storage capacity makes it an energy hub, not just with Russia as a supplier but potentially from Central Asian and Mediterranean gas sources. But Turkey will need to develop its energy infrastructure – building new LNG terminals, regasification facilities and storage facilities, which, again, could give rise to the disputes we have discussed.

Now, in terms of Istanbul as a seat of arbitration, Turkey has a very vibrant domestic arbitration scene, because the courts are quite backlogged and proceedings can take long. It's not unusual for Turkish companies, when they have domestic disputes, to seat those arbitrations in Istanbul. It’s also becoming a prominent player as a neutral venue for international disputes, joining the likes of Paris, Geneva and Frankfurt.

LD: Any other trends you’re seeing in arbitration in the energy construction sector, that might be discussed in the panel next week?

VM: We're still seeing the effects of Covid, which caused a lot of supply chain disruptions. Especially in the construction sector, the moving around of parts to get to where they were intended to be means that subcontractors, contractors and owners are fighting over schedules.

The other big issue is that the Russia-Ukraine War has really raised the price of oil, especially as Russia has threatened, and has in fact cut output. So, you are also seeing, in the commodities market, a real surge in the price of LNG and other energy products. There are some long-term agreements where prices were forecast in a certain way that may not have accounted for the Russia-Ukraine impact on energy prices, and that's now being dealt with in the market.

Learn more about Istanbul Arbitration Week here.