Gas Regulation in 32 Jurisdictions Worldwide Contributing Editors: Florence Ninane, Alexandre Ancel 2012 and Liliana Eskenazi

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Gas Regulation in 32 jurisdictions worldwide Contributing editors: Florence Ninane, Alexandre Ancel 2012 and Liliana Eskenazi

Published by Getting The Deal Through in association with: Æ´LEX Alexander Vassardanis & Partners Law Firm Allen & Overy LLP Arthur Cox Bahamondez, Alvarez & Zegers Bech-Bruun Boga & Associates Chandler & Thong-ek Law Offices Limited CMS Adonnino Ascoli & Cavasola Scamoni CMS – Rui Pena & Arnaut CRB Africa Legal Fiebinger Polak Leon Rechtsanwälte GmbH Grata Law Firm Hoet Pelaez Castillo & Duque Kluge Advokatfirma DA Kocián Šolc Balaštík advokátní kancelárˇ sro López Velarde, Heftye y Soria, SC Lupicinio Abogados International Attorneys Lydian Lawyers Mac´ešic´ & Partners Martelli Abogados Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados Mehmet Gün & Partners Minter Ellison Lawyers Mohamed Ridza & Co Pillsbury Winthrop Shaw Pittman LLP prietocarrizosa Rizvi, Isa, Afridi & Angell SNR Denton UK LLP Spaczyn´ski, Szczepaniak i Wspólnicy spk contents

Gas Regulation 2012 Albania Renata Leka and Besa Velaj (Tauzi) Boga & Associates 3 Contributing editors Argentina Hugo C Martelli Martelli Abogados 8 Florence Ninane, Alexandre Ancel and Liliana Eskenazi Allen & Overy LLP Australia Andrew G Thompson, Stephanie Rowland and Carol Mao Minter Ellison Lawyers 14

Business development managers Austria Thomas Starlinger and Stefan Korab Fiebinger Polak Leon Rechtsanwälte GmbH 21 Alan Lee George Ingledew Belgium David Haverbeke and Wouter Vandorpe Lydian Lawyers 28 Robyn Hetherington Dan White Brazil Giovani Loss Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados 34 Marketing managers Ellie Notley Chile Felipe Bahamondez Bahamondez, Alvarez & Zegers 42 Alice Hazard Colombia Sandra Manrique and Johanna Cajigas Caicedo prietocarrizosa 51 Marketing assistants William Bentley Croatia Miroljub Macéšic´, Ivana Manovelo and Miran Macéšic´ Macéšic´ & Partners 58 Zosia Demkowicz Czech Republic Václav Rovenský and Tomáš Sequens Subscriptions manager Nadine Radcliffe Kocián Šolc Balaštík advokátní kancelárˇ sro 65 Subscriptions@ GettingTheDealThrough.com Denmark Per Hemmer, Johan Weihe and Rania Kassis Bech-Bruun 72

Admin assistant Faroe Islands Per Hemmer, Johan Weihe and Rania Kassis Bech-Bruun 78 Megan Friedman France Florence Ninane, Liliana Eskenazi and Alexandre Ancel Allen & Overy LLP 83 Marketing manager – subscriptions Rachel Nurse Greece Ioannis Vassardanis Alexander Vassardanis & Partners Law Firm 90 subscriptions@ gettingthedealthrough.com Greenland Per Hemmer, Johan Weihe and Rania Kassis Bech-Bruun 97 Assistant editor Adam Myers Ireland Alex McLean, Patrick McGovern and Jennifer Burke Arthur Cox 104 Editorial assistant Lydia Gerges Italy Pietro Cavasola and Matteo Ciminelli CMS Adonnino Ascoli & Cavasola Scamoni 111

Senior production editor Malaysia Mohamed Ridza Abdullah Mohamed Ridza & Co 117 Jonathan Cowie Production editor Mexico Rogelio López-Velarde and Amanda Valdez López Velarde, Heftye y Soria, SC 125 Martin Forrest Nigeria Sina Sipasi and Olasumbo Abolaji Æ´LEX 133 Chief subeditor Jonathan Allen Norway Sondre Dyrland and Per Arvid Schøyen Kluge Advokatfirma DA 139 Subeditor Davet Hyland Pakistan Yousaf Khosa, Zainab Aziz and Amna Nasir Rizvi, Isa, Afridi & Angell 146

Editor-in-chief Poland Piotr Spaczyn´ski and Anna Piotrowska Spaczyn´ski, Szczepaniak i Wspólnicy spk 154 Callum Campbell Portugal Mónica Carneiro Pacheco and Marisa Apolinário Publisher Richard Davey CMS Rui Pena & Arnaut 162 Spain Margarita Hernando Martínez-Arroyo Lupicinio Abogados International Attorneys 168 Gas Regulation 2012 Published by Law Business Research Ltd Tanzania Charles R B Rwechungura and Kamanga W Kapinga CRB Africa Legal 174 87 Lancaster Road London, W11 1QQ, UK Thailand Albert T Chandler, Stefan Chapman and Christopher Kalis Tel: +44 20 7908 1188 Fax: +44 20 7229 6910 Chandler & Thong-ek Law Offices Limited 180 © Law Business Research Ltd 2012 No photocopying: copyright licences Turkey Serra Bas¸og˘lu Gürkaynak and Ali Ozan Karaduman Mehmet Gün & Partners 186 do not apply. United Kingdom David Tennant, Sam Szlezinger and Rebecca Owen-Howes ISSN 1740-7826 SNR Denton UK LLP 192 The information provided in this publication is general and may not apply United States Robert A James, Michael S Hindus and Julie D Hutchings in a specific situation. Legal advice should always be sought before taking any legal Pillsbury Winthrop Shaw Pittman LLP 204 action based on the information provided. This information is not intended to Uzbekistan Babur Karimov and Nodir Yuldashev Grata law firm 212 create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for Venezuela Miguel Rivero and José Alberto Ramírez Hoet Pelaez Castillo & Duque 219 any acts or omissions contained herein. Although the information provided is accurate as of April 2012, be advised that this is a developing area.

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Law Business Research denmark Bech-Bruun Denmark

Per Hemmer, Johan Weihe and Rania Kassis Bech-Bruun

Description of domestic sector Distribution of natural gas in Denmark is carried out by Naturgas Fyn A/S and HMN Naturgas I/S (which are both owned by different 1 Describe the domestic natural gas sector, including the natural regional municipalities), the municipality of Aalborg and a company gas production, liquefied natural gas (LNG) storage, pipeline from the DONG group. transportation, distribution, commodity sales and trading segments There is no production of LNG in Denmark. There are 14 natural and retail sales and usage. gas commodity sales suppliers in the country. Since 2004, all Danish Since the mid-1980s, domestic natural gas production and explora- natural gas customers have been unrestricted as regards their choice tion activity in Denmark and in the other parts of the Danish King- of natural gas supplier. dom (Greenland and the Faroe Islands) has increased dramatically. Denmark has been energy self-sufficient since 1997. In 2010, In December 2010, seven new licences for exploration and exploita- Denmark’s net export of natural gas was 43 per cent of the total tion were granted by the Greenlandic government. With the seven domestic production. new licences the total number is 20. In December 2008, the Faroese government granted three licences under the third Faroese licensing 2 What percentage of the country’s energy needs are met directly round. In Greenland and the Faroe Islands exploration activities have or indirectly with natural gas and LNG? What percentages of the been carried out in 2010 and 2011 and exploration is expected to country’s natural gas needs are met through domestic production and continue in the coming years. This chapter, however, concentrates imported production? solely on the gas regulation of the Danish mainland and the con- tinental shelf belonging to it. See the chapters on the Faroe Islands 36.3 per cent of Denmark’s total energy needs are met directly or and Greenland for details on the other countries of the Danish indirectly by natural gas, all of which was produced in Denmark Kingdom. (figures for 2010). In January 2011, the total reserves of natural gas were calculated There are no LNG facilities in Denmark. at 101 billion cubic metres (bcm) corresponding to 13 years’ production of natural gas if activity continues at the 2010 level. 3 What is the government’s policy for the domestic natural gas sector Domestic natural gas production is located solely offshore in the and which bodies set it? North Sea and comprises a total of 19 fields, of which three fields represent 67.8 per cent of the total domestic production (2010). In The responsibility for the overall strategy and policy for the develop- 2010, a total of 8.1bcm was produced from the fields. The main part ment and regulation of the energy sector is vested in the Ministry of was supplied to the largely state-owned company, Dansk Olie og Climate, Energy and Building. The minister of climate, energy and Naturgas A/S (DONG; any company belonging to its group is also building is authorised to provide the detailed regulation within the referred to in this chapter as DONG). statutory framework and to grant necessary dispensations. In 2010, 86 per cent of all domestic gas production was carried In numerous respects, the minister’s authority to regulate is out by a joint venture, Dansk Underground Consortium (DUC), delegated to the Danish Energy Agency (DEA), which generally consisting of AP Moeller–Maersk (39 per cent ownership interest), assists the minister in respect of administering the law. Shell (46 per cent ownership interest) and Chevron (15 per cent The governmental policy for the natural gas sector is thus ownership interest) pursuant to the sole concession granted to AP exercised by the DEA and is focused on environmental, security of Moeller in 1962. supply, competition and public finance issues. There are two gas pipelines from the North Sea to the onshore processing facilities on the Danish peninsula Jutland. These pipelines Regulation of natural gas production are owned and operated by DONG. A natural gas pipeline owned by DONG and DUC from the North Sea to the Netherlands was 4 What is the ownership and organisational structure for production of completed in 2004. Furthermore, the Danish pipeline networks natural gas (other than LNG)? How does the government derive value connect to the German and Swedish natural gas pipeline networks. from natural gas production? A project for construction of a pipeline connection between the In 1962, the AP Moeller–Maersk Group was granted a sole conces- Norwegian, Swedish and Danish pipeline networks, called the sion for oil and natural gas exploration and production in Denmark Skanled gas pipeline, has been put on hold for the time being. for a 50-year period, expiring in 2012. Exploration and production DONG and the state-owned company Energinet.dk are the only activities are undertaken by DUC. The area covered by the sole con- providers of natural gas storage facilities in Denmark. There are two cession was subsequently reduced to the area in the North Sea where subsoil storage facilities, one in Jutland and one in Sealand. Energinet. DUC had focused its exploration activities. dk is responsible for transmission of natural gas in Denmark.

72 Getting the Deal Through – Gas Regulation 2012 Bech-Bruun denmark

In 2003, the sole concession period of the AP Moeller–Maersk Transmission, distribution and storage companies are prohibited Group was extended from 2012 through 2042, and the terms from carrying out activities outside the scope of their respective were adjusted so as to include, inter alia, a 20 per cent state licences (see question 7). Effectively, subject to limited exceptions, participation. The negotiations were carried out within the scope of a other activities must be vested in separate legal entities (except specific derogation granted in favour of the Danish state under the for certain other pipeline and storage-related activities subject to EC Licensing Directive (1994/22). individual permission by the minister). Between 1986 and 2008, six licensing rounds concerning the North Sea areas outside the area of the reduced sole concession were 7 Describe the statutory and regulatory framework and any relevant carried out. In these rounds, all licences granted were subject to 20 authorisations applicable to the construction, ownership, operation per cent ownership interest for the Danish state through DONG and interconnection of natural gas transportation pipelines, and (as regards the first five licensing rounds) and subsequently through storage. the Danish North Sea Fund (as regards the latest licence round). Production from areas subject to licences granted pursuant to the The statutory legal framework for the domestic downstream natural said rounds commenced in 1999. gas sector is the Act on Natural Gas Supply (2000), which imple- In respect of the remainder of the Danish subsoil (primarily other ments the recent EC Gas Directive (2009/73/EC). The EC Gas Direc- than the North Sea areas) an ‘open door’ policy has been in force since tive contains a requirement of ownership unbundling of transmission 1997. Under the open door policy a number of onshore licences have system operators from undertakings performing production or sup- been issued in Jutland and Sealand. ply of natural gas. This requirement is fulfilled, as Energinet.dk is the The government benefits from natural gas production via sole owner and operator of gas transmission systems in Denmark. its hydrocarbon tax and corporation tax receipts and via state Transmission, distribution and storage activities may only participation. The taxation rules applicable to the upstream sector were be carried out subject to a licence granted by the minister. The changed as of 1 January 2004 and apply to DUC’s new sole concession licence runs for a term of at least 20 years. Essential conditions are and to licences granted after the effective date. Other concessionaries the applicant’s ability to demonstrate sufficient relevant skill and may, if they so wish, submit to the new taxation regime. financial capacity. In the taxation regime, the hydrocarbon and corporation taxes, The licence holder must carry out the necessary maintenance, both of which are calculated on the basis of income, are 52 per cent change and expansion of the relevant transportation pipelines or (subject to certain mandatory calculation principles as regards the storage facilities. Significant changes, as well as the construction of applicable income) and 25 per cent respectively. State participation new pipelines or facilities, remain subject to prior approval by the is 20 per cent through Danish North Sea Fund. minister. Licences are not required for natural gas activities carried out by Energinet.dk and companies within this group. The rules regarding Energinet.dk’s organisation, activities, etc, are found in the 5 Describe the statutory and regulatory framework and any relevant Act on Natural Gas Supply as well as in a separate act on Energinet. authorisations applicable to natural gas exploration and production. dk (2004). The Subsoil Act (1981) provides the framework, whereas adapta- The Danish Energy Regulation Authority (DERA) and the tions and more detailed regulation are issued by the minister through Energy Board of Appeal (EBA) generally oversee compliance with the DEA. The model licences and guidelines developed by the DEA respect to the applicable energy laws, including supervising prices are of significant practical importance. and licence requirements. Decisions by the minister, the DEA and the The minister grants licences that confer an exclusive right DERA may be appealed to the EBA. on the holder to explore and to produce or extract natural gas within a defined area and subject to specific terms and conditions. 8 How does a company obtain the land rights to construct a natural gas Separate licences may be granted for exploration and production or transportation or storage facility? extraction, respectively. An exploration licence may grant the licensee a preferential right to a production or extraction licence. In the absence of an agreement with the landowner, and provided that The minister may grant licences for a term of up to three years regard for public interest dictates it, the DEA and the relevant munici- for performing specific types of preliminary investigations in order to pality can order a compulsory sale of the necessary rights over land. explore and produce or extract natural gas or to exploit the subsoil for storage or purposes other than the production of natural gas. It is not possible to lease mineral rights from the state. The leasing 9 How is access to the natural gas transportation system and storage or farming of mineral rights from a concessionary is allowed but is facilities arranged? How are tolls and tariffs established? subject to case-by-case approval by the minister. All paying customers must be granted access to the transmission sys- There are no rules or regulations governing when, where or how tem, the distribution systems as well as to LNG facilities, if any. Where much natural gas may be produced. it is technically and economically necessary to enable efficient access In the onshore upstream sector the local authorities have, along to the systems, the said companies must grant all customers access to with the DEA, governmental powers with respect to the supervision storage and line-pack facilities and other help functions. Access must of, for example, the environment and the working environment. be granted on objective and non-discriminatory conditions. Conse- quently, transmission, distribution and storage facility providers may Regulation of natural gas pipeline transportation and storage only deny access to their respective systems in a number of specifically defined situations, such as a lack of capacity, and such denial must be 6 Describe in general the ownership of natural gas pipeline reasoned and can be appealed to the DERA. transportation, and storage infrastructure. The transmission system operator must ensure sufficient and Energinet.dk is responsible for Danish natural gas transmission and efficient transportation through the transmission network and that is under an obligation to run the transmission system and ensure safe the correct quality level of the natural gas is delivered from the delivery to distribution networks at non-discriminatory prices. transmission network. Ensuring constant balance, capacity, security Natural gas storage facilities are owned by Energinet.dk and of supply, and necessary measuring and connecting distribution DONG. Energinet.dk and DONG are both state-owned companies. networks and consumers to the transmissions system are related The public listing of DONG has been postponed for the time being. requirements, which the said operator must comply with. www.gettingthedealthrough.com 73 denmark Bech-Bruun

The prices and terms for transmission services are regulated, Regulation of natural gas distribution while the prices and terms for storage facility services, as well as linepack and other help functions, are negotiated (see question 13 Describe in general the ownership of natural gas distribution 12). In determining prices and terms in respect of transmission and networks. storage facility services, there must be no discrimination between Local distribution of natural gas is effected through local networks customers. Prices must take into due consideration the costs of the owned by the state or the local municipalities. Accordingly, the state system operators and a reasonable return on investments. through a subsidiary of DONG owns the distribution network in Energinet.dk’s transmission prices consist of a capacity element the southern part of Jutland and in a part of Sealand. Two other reflecting the level of occupation of the transmission system that companies, Naturgas Fyn A/S and HMN Naturgas I/S (both jointly the transport in question represents, and a variable price element owned by the municipalities in their respective regions), as well as depending on the amount of natural gas transported. Furthermore, the the Municipality of Aalborg, own the distribution networks in the prices consist of a payment for security of supply. Prices are based on middle and northern parts of Jutland, in Funen and in the remaining the ‘entry-exit’ principle. The entry-exit prices are currently identical, part of Sealand. and the transport element of the payment is thus not dependent on the geographical location of the destination of the natural gas in question (the postage stamp principle). The price for storage facilities 14 Describe the statutory and regulatory structure and authorisations also consists of a combination of a capacity element and a variable required to operate a distribution network. To what extent are gas volume-related price element. Prices, conditions and the applicable distribution utilities subject to public service obligations? basis must be notified to the DERA and will be published. The A distribution network operator must have a licence and the distribu- DERA may impose changes, if necessary, because of, for example, tion activities are governed by the Act on Natural Gas Supply (see discriminatory or otherwise unreasonable pricing. question 7). The distribution network operator must: 10 Can customers, other natural gas suppliers or an authority require a • connect consumers; pipeline or storage facilities owner or operator to expand its facilities • advise consumers on reduction of energy consumption; to accommodate new customers? If so, who bears the costs of • maintain, change and expand the network; interconnection or expansion? • ensure sufficient transport capacity, physical balance, necessary measuring and relevant information to consumers; and If transmission, distribution or storage capacity is insufficient to serv- • contribute to research and development in the area of energy ice demand, transmission, distribution and storage system operators efficiency and to the improvement of safety in the use of natural must expand their facilities, if it is economically feasible, and subject gas. to prior approval by the minister (see question 7), for example by covering the related costs through pricing or by financing offered in The distribution network operator must ensure in its communica- connection with the request for access to the facilities. tions to consumers that distribution services are distinctly separated from communications and services from affiliated companies per- 11 Describe any statutory and regulatory requirements applicable to forming production and supply of natural gas. the processing of natural gas to extract liquids and to prepare it for pipeline transportation. 15 How is access to the natural gas distribution grid organised? Describe Activities pertaining to the extraction of liquids and other process- any regulation of the prices for distribution services. In which ing necessary in the preparation for pipeline transport are subject to circumstances can a rate or term of service be changed? the general requirements of the Natural Gas Supply Act concern- Apart from what is stated in question 9, terms and conditions per- ing, for example, environmental and quality issues, as well as the taining to the use of distribution networks are regulated. Access Environmental Protection Act. More specifically, the requirements of to the distribution network requires the shipper to have reserved the Danish Network Code (see question 12) and the rules specified transportation capacity in the transmission system (in a connected therein must be complied with. transportation agreement). A request for permission to access any particular part of the 12 Describe the contractual regime for transportation and storage. distribution network should be addressed to the relevant regional operator (see question 13). The individual distribution network The rules applicable to the use of the transmission network are set operator has an obligation to contact other distribution network out in the latest version of the Danish Network Code. This code operators if transport via other distribution networks is, in its view, constitutes the framework of terms agreed among Energinet.dk, necessary or sensible. the storage operator DONG and the distribution system operators. The price for transportation of natural gas in distribution Energinet.dk will enter into individual contracts with shippers on the networks is regulated and is defined by reference to the applicable basis of the regulated terms. cost of energy, salaries, services, administration, maintenance, other There are separate codes applicable for the use of the two storage process costs, depreciation and interest on investment. All income facilities in Denmark, which consist of the main terms agreed between of the distribution network operator must be allocated to cover the Energinet.dk and DONG. Since the terms for access to storage said costs. facilities are subject to negotiation between DONG and Energinet.dk Prices are subject to objective and non-discriminatory criteria and respectively and the party requesting access to the storage facilities, are mainly based on the amount of natural gas distributed. Individual the rules in the codes may be derogated from. customer requirements pertaining to, for example, pressure, may Both the Danish Network Code and the two sets of Rules for Gas trigger separate additional charges. The physical distance will not Storage must be notified to the DERA and will be published. affect the price.

74 Getting the Deal Through – Gas Regulation 2012 Bech-Bruun denmark

The DEA can set a maximum for income generated by distribution The prices and terms of natural gas supply from companies network operators. Extraordinary earnings may be allocated to without specific supply obligations are negotiated and are not subject future investments, reduction of prices or extraordinary yield on to supervision from the DERA, but from the competition authorities. the invested capital. The DERA may grant dispensations from the However, the DERA monitors the level of transparency in wholesale maximum income. pricing and restrictive practices in the market, and must inform the When natural gas will pass more than one distribution network competition authorities of cases of non-compliance with competition on its way to the consumer, the relevant distribution network law. In order to ensure an effective and competitive market, natural operators will negotiate the price for such transport. The consumer gas suppliers are obligated to keep records of data relating to all will, however, only pay the price charged in the network to which transactions regarding gas supply, which must be available to DERA he or she is connected. for at least five years. Prices, conditions and the applicable basis must be notified to the DERA and will be published. The DERA may impose changes to 20 How are physical and financial trades of natural gas typically prices and terms with reference to the applicable principal purposes completed? expressed in the Natural Gas Supply Act. Natural gas is mainly traded by long-term contracts between the producers of natural gas and the wholesale-customers. Only a small 16 May the regulator require a distributor to expand its system to percentage of the total gas consumption in Denmark is based on free accommodate new customers? May the regulator require the trade through Energinet.dk’s Gas Transfer Facility (a virtual gas trad- distributor to limit service to existing customers so that new ing point), where natural gas can be traded bilaterally. To increase customers can be served? and facilitate free trade of natural gas, a gas exchange, Nord Pool Apart from what is stated in question 10 regarding expansion, it Gas, was established in 2008. should be noted that anyone situated in geographical areas desig- The wholesalers must enter into shipper-contracts with nated as natural gas supply areas or anyone being connected to the Energinet.dk to access the transmission network based on the distribution network now or in the future has a right to be supplied terms and conditions in the ‘Danish network Code’ (see question with natural gas. An ensuing right for suppliers and consumers to 12). Furthermore, the shipper must enter into contracts for access gain access to the relevant networks applies. The facilities must be to the storage facilities with the relevant storage facility operator provided on objective and non-discriminatory terms. Accordingly, (see question 12). Retail-customers purchase natural gas from the requiring a distributor to limit services to existing customers would shippers for re-sale to end-users and enter into customer handling not be relevant. agreements with the distribution companies (see question 17). End-users purchase natural gas from the retailers based on these companies’ terms and condition and enter into contracts with the 17 Describe the contractual regime in relation to natural gas distribution. distribution companies subject to their terms and conditions. Apart from what is stated in question 15, contracts between natural gas distribution companies and natural gas suppliers are subject to 21 Must wholesale and retail buyers of natural gas purchase a bundled each distribution company’s consumer handling agreement. These product from a single provider? If not, describe the range of services contain the terms and conditions, namely allocation of activities, and products that customers can procure from competing providers. between the natural gas supplier and the distribution company in relation to the supply of natural gas to the consumers. The natural Wholesale customers purchase natural gas transmission services from gas distribution companies enter into contracts for distribution of Energinet.dk. Distribution services are purchased from the operator natural gas with the end-users based on the companies’ terms and of the natural gas distribution network to which the customer is conditions for distribution of natural gas. connected. A distribution company’s consumer handling agreement and Natural gas as a commodity is purchased by the end-users from terms and conditions for distribution of natural gas must be notified the natural gas suppliers as a bundled product, namely, natural gas to the DERA and will be published. together with the necessary transmission and distribution services, but must enter into two separate contracts for supply and distribution Regulation of natural gas sales and trading respectively with the relevant company.

18 What is the ownership and organisational structure for the supply and Regulation of LNG trading of natural gas? 22 What is the ownership and organisational structure for LNG, including There are nine natural gas suppliers without, and five with, specific liquefaction and export facilities and receiving and regasification natural gas supply obligations. Obligations to supply natural gas facilities? apply to suppliers with a licence to supply certain categories of customers. Since 2004, all customers have had a free choice of natural At present, no domestic LNG facilities have been established in gas supplier. The supply of natural gas to customers exercising their Denmark. right to choose their supplier is not subject to any licence. Trading in natural gas must be organised in a separate legal entity, 23 Describe the regulatory framework and any relevant authorisations which does not carry out any other natural gas-related activities (see required to build and operate LNG facilities. question 6). The establishment of LNG facilities may only be carried out subject to permission granted by the minister. Permission may only be 19 To what extent are natural gas supply and trading activities subject to obtained if the applicant is able to establish that there is a relevant government oversight? need for an LNG facility. The permission may be conditional on The price for natural gas supplied by companies with supply obliga- compliance with terms concerning the particulars of the establish- tions is determined by taking into consideration the relevant costs ment and operation of the LNG facility, including safety and environmental provisions. and prices, terms and the applicable basis must be notified to the DERA (see question 15). www.gettingthedealthrough.com 75 denmark Bech-Bruun

Update and trends

Oil and gas explorations in Denmark have continued in 2011 and the related North Sea oil agreement from 2003, see questions 1 and have led to discoveries of oil, natural gas and nitrogen gas in onshore 4. The purpose of the service check is to assess whether the state exploration wells and oil and natural gas in offshore exploration wells. and thereby the tax payers have the right to demand a higher share Some of the discoveries cannot be exploited commercially, whereas of the revenues from DUC’s oil and gas production in the North Sea. other discoveries are still being assessed. To encourage more DUC has recently questioned the basis for the government’s proposed discoveries, the DEA has, upon the request of the minister of climate, re-negotiation, and the outcome of the government’s proposal is still energy and building, begun preparation for a new licensing round to unsettled. be held in 2013 for offshore areas. The details of the licensing round In February 2012 a new association, the Danish Gas Association, remain undisclosed. was formed as part of the Danish Energy Association. The Danish Gas In 2011, Denmark elected a new government, which is currently Association aims to improve the competition in the retail market for negotiating a political energy agreement with all political parties in the benefit of private individuals and business entities. The members the parliament. The new government has proposed a service check of the association are producers, network owners and retail gas and a re-negotiation of the terms of the DUC’s sole concession and suppliers.

24 Describe any regulation of the prices and terms of service in the LNG 27 What authority does the government body have to preclude or remedy sector. anti-competitive or manipulative practices? There are no special rules or regulations concerning LNG prices and If prices and delivery terms are held by the DERA not to comply terms of services. with the provisions of the Natural Gas Supply Act, the DERA can order the amendment of prices and conditions. Non-compliance with Mergers and competition any such order may result in daily or weekly fines being imposed on such party. 25 Which government body may prevent or punish anti-competitive or If prices, terms or agreements result in an environmentally or manipulative practices in the natural gas sector? economically inappropriate utilisation of energy, the DERA can dictate The DERA enforces the sector-specific competition regulation of the amendments following negotiations with the parties involved. Danish natural gas sector. The DERA is authorised to conduct onsite searches in relation The DERA’s main task is to react if companies holding a to the Natural Gas Supply Act without a court order, and may take dominant position in their respective relevant markets take unfair copies of any type of information including accounts, accounting advantage of their market position. The underlying principle is that materials, books, other business papers and electronically stored data. the consumers should enjoy fair, uniform and transparent prices and If necessary, the police will assist in the exercise of these powers. conditions of supply. A licence can be revoked by the minister and the courts if Non-sector-specific competition regulation falls under the provisions, terms or orders pursuant to the Natural Gas Supply Act authority of the Competition Council. are repeatedly breached.

28 Does any government body have authority to approve or disapprove 26 What substantive standards does that government body apply to mergers or other changes in control over businesses in the sector or determine whether conduct is anti-competitive or manipulative? acquisition of production, transportation or distribution assets? With respect to consumer protection under the Natural Gas Supply Act, licence-committed undertakings must provide their services on Licences granted pursuant to the Natural Gas Supply Act or the Sub- objective, transparent and non-discriminatory terms. soil Act can neither directly nor indirectly be transferred to others Transmission undertakings must provide rules for utilisation of without the prior approval of the minister. the transportation system in cooperation with distribution, storage Any divestiture of direct or indirect ownership interests in a and LNG undertakings (there are currently none of the latter in distribution network is subject to a right of first refusal in favour of Denmark). These rules must be objective and non-discriminatory the state. The pre-emptive right expires three months after receipt and accessible to users and potential users of the system. of the offer. Mergers and acquisitions in the natural gas sector are Prices and terms for services from transmission, storage and otherwise subject to EC or Danish merger regulation. LNG undertakings must not discriminate between the system users.

Per Hemmer [email protected] Johan Weihe [email protected] Rania Kassis [email protected]

Langelinie Allé 35 Tel: +45 72 27 00 00 2100 Copenhagen Faz: +45 72 27 00 27 Denmark www.bechbruun.com

76 Getting the Deal Through – Gas Regulation 2012 Bech-Bruun denmark

29 In the purchase of a regulated gas utility, are there any restrictions on International the inclusion of the purchase cost in the price of services? 31 Are there any special requirements or limitations on foreign companies Since the gas prices are fixed in accordance with the costs specified in acquiring interests in any part of the natural gas sector? the Natural Gas Supply Act, the purchase costs may not be included in the gas price. No. Distribution companies and natural gas traders may include depreciation and interest on investments in the calculation of their 32 To what extent is regulatory policy affected by treaties or other prices. The DEA may impose methods for calculation of the said multinational agreements? items. Transmission and storage companies may ensure themselves a reasonable return on their investments. Danish natural gas policy is first and foremost influenced by EU legislation. In addition, Denmark is involved in international activities in a number of different forums, including the European Energy 30 Are there any restrictions on the acquisition of shares in gas utilities? Charter, the OECD, the International Energy Agency (IEA), the UN Do any corporate governance regulations or rules regarding the and the Nordic Council of Ministers. transfer of assets apply to gas utilities? As stated in question 28, the state has a pre-emptive right in respect 33 What rules apply to cross-border sales or deliveries of natural gas? of distribution networks. Holders of licences (see question 7) must own the respective No rules specifically concerning cross-border natural gas supply facilities. A natural gas utility company could not, therefore, transfer apply. the essential assets and continue activities on the basis of a lease. The transfer of any licence is subject to prior approval by the minister. Transactions between affiliates No director, manager or key personnel holding positions in any natural gas or transmission company is allowed to participate in the 34 What restrictions exist on transactions between a natural gas utility operation or management of any natural gas producing enterprise. and its affiliates? Besides these rules on functional separation, no special corporate Apart from what is stated in questions 6 and 7, contracts entered governance standards apply. Transfers of shares or assets otherwise into by transmission, distribution and storage companies with other remain subject to EC or national merger control rules where companies, including companies within the same group, must be at applicable. arm’s length.

35 Who enforces the affiliate restrictions and what are the sanctions for non-compliance? For enforcement of ownership transfer restrictions, including competition rules, see question 25.

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Gas Regulation 2012 ISSN 1740-7826