Schoenherr is pleased to announce the release of its first Regulatory Newsletter. We have created the newsletter to provide stakeholders and clients from different industries with regular updates on regulatory issues, such as new developments in the fields of environmental and energy law, TMT, life sciences and public procurement law.
Our contributions focus on CEE markets and aim to give investors better insight into the European and CEE regulatory frameworks. Up-to-date knowledge of regulatory law is crucial when assessing business opportunities and risks related to specific projects. It may also facilitate the identification of certain regulatory issues within a due diligence process.
We pay special attention to environmental and energy law, as these regulatory regimes have become increasingly important in CEE countries over the past five years.
Schoenherr is recognised as the standard-bearer for regulatory advice thanks to our expertise and longstanding experience. Our Regulatory Practice Group is at the heart of many regulatory projects, ensuring that we are always up-to-date on the latest developments.
The Regulatory Practice Group has expertise in energy and infrastructure projects as well as the licensing of large industrial and commercial infrastructure. We regularly provide legal advice in the fields of TMT, public procurement, PPPs and state aid.
SERBIA: SERBIA POWERS UP: NEW ENERGY ACT ADOPTED
The new Energy Act (the Act) was adopted by the Serbian Parliament on 29 July 2011. The aim of the Act is to harmonise domestic energy regulations with those of the European Union. By adopting the Act, Serbia will implement the Second EU energy package, while the Third EU energy package will be implemented only in part.
The Act envisages liberalisation of the Serbian energy market, introduces market-based mechanisms for determining energy prices and provides a new incentive structure for electricity generation from renewable sources.
Liberalisation of the electricity market will begin on 1 January 2013 and end by 1 January 2015. As the last step in the liberalisation process, households will be able to freely choose their supplier after 1 January 2015.1
An open electricity market (and bilateral and balancing energy markets) will be formed through the creation of an energy exchange.
Vertically integrated undertakings will have to (legally) unbundle the operation of the trans-mission and distribution grid (a natural monopoly) from competition-oriented business areas, such as supply and generation. Apart from that, cross subsidising between entities undertaking regulated activities and entities undertaking market activities within the same vertically or horizontally integrated system has been banned.
In accordance with the EU legal framework, electricity generation has been removed from the list of activities of public interest. Consequently, concluding an agreement with the government for energy production in Serbia is no longer required.
Energy permits and licences
Energy permits are issued for three years (two years under the previous Energy Act). Energy licences will be valid for 10 years, save for electricity production, heat energy and the combined production of electric and heating energy, whose licences will be valid for 30 years.
The Act aims to increase investments in renewable energy sources. The following incentives to generate electricity from renewables are envisaged:
- a possibility of obtaining the status of a privileged producer;
- privileged producers are entitled to the incentives measures;
- privileged producers will have priority with respect to electricity grid feed-in.
The Act further provides the introduction of guarantees of origin for electricity from renewables. These guarantees of origin will allow producers to export green energy from Serbia to other countries. Guarantees will be issued by the transmission system operator (TSO) and will be valid for one year. Guarantees of origin issued in other countries will be valid in Serbia based on the principle of reciprocity.
The costs of electricity from renewables will ultimately be borne by end-users paying a special fee for incentive measures, which will be separately indicated on the electricity bill.
The status of a privileged electricity producer can be obtained if the following conditions are fulfilled:
- generation of electricity from renewable resources (e.g. water, wind, biomass), except hydropower plants with installed capacities over 30 MW;
- an individual generating facility with an installed capacity of up to 30 MW simultaneously generates electricity and heat energy, provided that there is a high percentage of primary energy use;
- the facilities are connected to the grid;
- the facilities have separate metering stations from those measuring the electricity produced in other technological processes;
- an agreement on the sale of heat energy for cogeneration power plants has been concluded;
- the facility is dedicated as a wind or solar plant with an installed capacity less than free capacity, i.e. that the request to obtain privileged producer status relates to a part of the installed power that is equal to or less than the free capacity.2
The status of privileged producer is conferred by a decision of the Ministry for Infrastructure and Energy, which must be issued within 30 days from submission of the request and complete documentation.
Another change envisaged for certain producers (using wind and sun energy) is to obtain the status of provisional privileged producer prior to obtaining the status of privileged producer. Provisional privileged producer status can be obtained if:
- a construction permit for the facility has been obtained;
- the conditions listed above under points (i), (ii) and (vi) for obtaining privileged producer status have been met; and
- the applicant provides a deposit or bank guarantee amounting to 2% of the investment.
This provisional status may be held only for up to three years. During this time, it is expected that the provisional privileged producer will complete construction of the energy facility and commence generating electricity (i.e. become a privileged producer). If the status of privileged producer is not obtained following this three-year period, the Act provides in certain cases for the possibility of a one-year extension. Investors with the status of provisional privileged producer can proceed to sign preliminary contracts on feed-in tariffs, which are intended to provide a sufficient basis for obtaining third party financing. Thus, if the status of preliminary privileged producer is obtained, the producer should be entitled to incentive measures.3
Incentive measures for generation of electricity from renewable sources
The incentive measures include an obligation by the public supplier to purchase electricity from the privileged producer at a price set by the government (specified for each type of renewable energy source).
Incentive measures for generation of heat energy from renewable sources
Generators of heat energy from renewable sources are, inter alia, entitled to (i) the incentive purchase price, (ii) subsidies and (iii) tax/customs waivers (holidays). The incentive measures will be regulated in more detail by competent local governments.
Incentive measures for generation of electricity from bio fuels
The incentive measures for generation of electricity from bio fuel are still to be determined by the government. The government will also regulate in detail the mandatory stake of bio fuels in the Serbian transportation system.
New regulations apply to (i) oil transport, (ii) measures for providing higher quality fossil fuels and (ii) quality control. Oil and oil derivatives companies participating on the oil and oil derivatives markets will be obliged to maintain mandatory and operative reserves.
Undertakings transporting oil via pipeline must draft a development plan determining the dynamics of reconstruction of existing and construction of new transportation capacities for the next five years.
Natural gas market
The Act introduces clearer provisions concerning (i) non-discriminatory third party access to the gas grid, (ii) management of the natural gas distribution system and (iii) storage and management of natural gas.
The operator must allow users of the system non-discriminatory access to the grid at regulated prices.
HUNGARY: THE NEW HUNGARIAN PUBLIC PROCUREMENT ACT
Act No. CVIII of 2011 on public procurements (the New Act) was promulgated on 20 July 2011 to replace the former public procurement act that had been in effect since 2003. The New Act enters into force on 1 January 2012. Pursuant to the official interpretation to the New Act, the adoption of the new regulation became necessary due to the complex and non-transparent nature of the former public procurement act. The legislative interpretation also sets out that the New Act better serves the ultimate purposes of public procurements: spending public funds on a best value for money basis, transparency of such spendings and clarity of the relevant competition. Beyond these purposes, the New Act aims to improve the chances of small and medium enterprises (SMEs) to successfully participate in the public procurement procedures and to decrease the go-round debts.
In order to achieve the goal of SMEs obtaining more assignments from public procurements, purchasers may choose to give the right of participation in the procurement procedure only to enterprises whose annual net revenue does not exceed HUF 100 million in the case of a purchase of goods and services, or HUF 1 billion in the case of construction works. This rule may only be applied for construction works and concessions if the purchase does not exceed HUF 500 million. The government may freely prescribe the compulsory application of this rule for state-owned organisations and budgetary agencies governed or supervised by the government.
SMEs are also favoured by another new rule. If the estimated purchase price of goods and services does not reach HUF 25 million, or the estimated value of the construction project does not exceed HUF 150 million, the purchaser may not need to announce an invitation for tender but may instead ask at least three possible SME bidders to make an offer. In such a case, the Public Procurement Arbitration Board, acting as a general supervisory body, need not even be notified.
The rules regarding in-house procurements (procurements between the state or local municipalities and their enterprises) have been simplified. There is no need to conduct public procurement procedures for contracts to be concluded between the state or local municipalities and their own enterprises if at least 80 per cent of the revenue of such enterprises otherwise stems from the owner. Such contracts must be reconsidered only every five years. In practice this may also mean that a state-owned company can avoid the public procurement procedure by giving an assignment or order to its own subsidiary with the procurement.
Grounds for exclusion
Under the new regulation, offshore companies or companies in which a participation of an offshore entity exceeds 25 per cent cannot be bidders in public procurement procedures.
Bidders with pending payment obligations to subcontractors related to former public procurement procedures are also disqualified and prohibited from participating. But this rule only applies to contracts concluded after 15 September 2010 in relation to former public procurement procedures. The fact that the debt has been due for more than 15 days must be verified by an enforceable administrative or court decision.
Further grounds for exclusions include: unpaid taxes, customs duties or social security contributions; labour fines; supplying false information in public procurement procedures; if the bidder is under any sort of liquidation procedure; if the bidder has been found guilty of a crime by a final court verdict in connection with its economic or professional conduct, until exonerated from the detrimental consequences of having a criminal record; or if the bidder has been excluded for any period from participating in public procurement procedures.
Under the New Act, the scope of procurements exempted from the public procurement procedure has been widened. For instance, there is no need for a public procurement procedure in cases of prevention of catastrophes. Nor is the provision of legal services subject to a public procurement procedure, even if the value exceeds the EU thresholds for public procurement.
National procedure rules
Procurements below an estimated value of HUF 21 million in the case of the purchase of goods and services, and HUF 263 million in the case of construction works, representing the EU thresholds, may be conducted according to the so-called national procedure rules. In the framework of the national procedure rules, the purchasers are entitled to create and apply their own procedural rules. This may lead to legal uncertainties.
Risks and uncertainties
The New Act is considerably shorter than the former legislation. It is claimed that the new legislation is more transparent, simple and understandable. But several material issues are not regulated in the New Act at all, meaning it is more a framework act than a comprehensive regulation of the public procurement procedure. Detailed rules are promised and anticipated to be laid down in government decrees at later stages.
According to professional organisations, even if the New Act has introduced some favourable changes, it may result in greater risks of corruption, as well as legal and market uncertainties.
POLAND: POTENTIAL PRACTICAL PROBLEMS WITH TRANSFERRING ENVIRONMENTAL PERMITS IN CASE OF ACQUISITIONS AND RESTRUCTURINGS
When acquiring or restructuring a running business, one issue that must be considered is the transferability of environmental permits. Addressing this issue in advance will help to avoid ending up with a business that cannot be operated upon completion of the purchase or restructuring.
Although transferability of environmental permits is usually considered an issue in asset deals, it can also be a problem in share deals. This might be the case if the target owns a plant and the plant is operated by a third party that belongs to the target group and that holds the environmental permit. If the third party stops operating the plant after completion of the acquisition, transfer of the permit should be considered.
Polish environmental protection law
The Polish environmental protection law links the provisions relating to permits to the concept of installations, i.e., stationary technical equipment or buildings whose operation can cause emissions. According to the Polish environmental law, operation of an installation that causes certain emissions is allowed only after the relevant environmental permit has been obtained.
An entity interested in obtaining the legal title to an installation may apply for the transfer of existing permits from the current operator. However, the transfer is not automatic and is possible only when the purchaser warrants that it will duly perform the obligations resulting from such permits. It is also possible that the relevant authority will request a security for claims relating to a possible degradation of the environment. Once consent to transfer the permit is obtained, the consent is valid for one year. If legal title to the installation is acquired within that period, the permit becomes legally effective after the acquisition.
Besides the above transfer mechanism, permits transfer automatically in case of restructurings, such as mergers and spin-offs. In case of a spin-off, the company that takes over the installations takes over the relevant permit.
Although the above provisions may look straightforward, there are situations in which transferring a permit is difficult or impossible; for example, if only part of an enterprise is transferred on the basis of a sale of assets or a spin-off, and if the seller has an integrated environmental permit that covers all of its installations (i.e. including both the retained and the sold/spun-off installations). Since it is not possible to divide a permit between companies, it would not be possible to transfer only part of the permit.
This means that for the sold or spun-off installations, new permits must be obtained and the ones in force for the remaining installations must be modified. Since obtaining a new permit is time consuming (approximately one month to prepare the technical documentation and one to two months for the authority to grant the permit), it is essential that the parties consider the above period when structuring a transaction, especially when the permit is to be obtained between signing and completion. Also, it is important to keep in mind that the entity planning to take over the installation must apply for the permit; no other entity may apply on its behalf.
The above must be taken into account, for example, in case of a transfer of rights and obligations relating to a business purchase agreement between signing and closing to a newly created SPV, as the application for the permit may be filed only after the creation of the SPV.
1. The Act also envisages that the Energy Agency, as an independent regulator elected by the parliament, will deter-mine energy prices starting from 1 January 2012 (as opposed to such task being assigned to the government in the previous Energy Act).
2. Free capacity in this case means the difference between the maximum capacity for which the incentive measures apply and the amount of installed capacities for the same type of generation facilities of the producers that have ob-tained the status of provisional privileged producer or privileged producer in Serbia.
3. The previous Energy Act failed to clearly regulate this area (i.e. conditions to be fulfilled in order to avail of incentive measures); there was thus a high degree of risk in making substantial investments prior to receiving approval to avail of the incentive measures (e.g. a preliminary PPA).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.