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Legal Focus
JULY 2013
Energy
The Energy & Natural Resources Law landscape is constantly changing and companies are being put under consistent pressure from both governments and their clients to cut carbon emissions and operate in as green a way as possible. To find out about the challenges that arise within this practice area, Lawyer Monthly speaks to Ivana Manovelo and Miran Macesic from Macesic & Partners, one of Croatia's oldest law firms.
Can you please give me an overview of the current energy sector in your jurisdiction?
During the law few years, Croatian energy sector has been undergoing very dynamic changes. Mainly due to Croatia’s accession to the EU on 1 July 2013 and harmonization with acquis communautaire but also because of the Government’s efforts to open the energy market to attract new investments. General guidelines of Croatia’s energy policy are set out in the Strategy of Energy Development (Official Gazette No. 130/09).
The electricity market has been formally opened since 2008, however, in reality it is still liberalising due to national electricity company's (HEP) monopoly. Transmission, distribution and market organization are performed as public activities whereas generation, supply (to eligible customers) and trading are market activities. Generation of electricity from renewable energy sources is encouraged through eligible producer status and feed in tariffs.
The natural gas sector was fully opened in 2008 and today there are 36 registered distribution companies and 49 gas suppliers and traders. Transportation net- work is operated by state-owned company Plinacro d.o.o. and currently the only natural gas producer is Croatian Oil and Gas Company INA d.d.
Have there been any recent legislative changes that have affected this industry? Can you please detail them?
A new set of energy laws has been adopted to incorporate EU Third Energy Package. The Energy Act (Official Gazette No. 120/12) is an umbrella law that regulates energy market in general while separate acts regulate gas, oil, electricity, heat and renewables market. Up today, Act on the Regulation of Energy Activities (Official Gazette No. 120/12), Electricity Market Act (Official Gazette No. 22/13), Gas Market Act (Official Gazette No. 28/13) and Mining Act (Official Gazette No. 56/13) have been passed. A new Hydrocarbons Act (introduced in Croatian legislation for the first time) is under legislative procedure and should be passed soon. A new law on heat power and renewables are still being drafted as well as implementing rules and regulations of aforementioned acts.
Since the new legislative framework prescribes that the natural gas and electricity prices are market defined, electricity and gas prices should reach EU levels shortly.
Can you please talk about any important projects within this sector that you have been involved in? What were the main challenges involved and how did you overcome them?
Macesic and partners assisted a European oil and gas company in a joint venture for the rehabilitation, redevelopment and exploitation for the purpose of incremental production for several oil and/or gas fields in Croatia.
Starting from a standard JOA, the final draft agreement was a Production Sharing Agreement that still remains the only contract of its kind attempted in Croatia. Our office assisted the client in overcoming problems that arose from lack of relevant legal framework with respect to mining, taxation, ownership issues over shared product, risk assessment of mining licence transfer and PSA licence implications, foreign currency payment and other.
The office also assisted the client in drafting the objections to the tender of 14 onshore fields in northern Croatia. The objections focused mainly on short submission period, missing exploration documentation, unfair and unrealistic securities and obligations on foreign investors. Following the objections, the tenders were annulled and on the basis of the objections the new Hydrocarbons Act was drafted that is more favourable to foreign oil and gas companies. Tenders are expected next year.
On the other hand the Government is also pushing the construction of a LNG terminal with capacity of 5 billion cubic meters on the island of Krk.
The national electricity company has announced that it will invest approximately Eur 800 million in 8 new hydropower plants, Eur 450 million in existing facilities; Eur 150 million in modernization of existing hydropower plants and Eur 300 million in transmission and distribution networks.
What are the key challenges that face companies within the energy sector ? How do you help your clients with this?
Companies within the electricity sector struggle with a
rather limited market and HEP's monopol. Furthermore, balancing mechanisms are not funcioning properly and costs are few times higher than in EU countries.
The additional issue are complex and lengthy bureaucratic procedures as well as slow judicial system. The new set of energy law and regulations have simplified and expedited procedures (e.g. for obtaining energy licences). In addition, the Government is working on Strategic Investments Act aimed at ‘’kick starting’’ key investment projects.
Finally, inefficient legislative framework prevented investments in the oil & gas sector. This should be overcome with the new Mining Act and Hydrocarbons Act, currently under legislative procedure.
Is there anything else you would like to add?
Croatia is an importer of energy. In order to minimise its dependence on import and to ensure security of supply, Croatia is developing a new strong concept aimed at exploitation of domestic natural resources. Through new legislative framework and opening of the market towards investors, Croatia is seeking to ensure a competitive and sustainable energy system. LM
Contact:
Macesic & Partners Law offices Rijeka office
Pod kastelom 4, 51 000 Rijeka tel.: +385 (0)51 21 50 10
zagreb office Ivana Manovelo
Mihanoviceva 16, 10 000 zagreb tel.: + 385 (0)1 45 76 794
Email: manovelo@macesic.hr mmacesic@macesic.hr
Miran Macesic