Rules proposed for consolidating and strengthening public hydropower ownership - International Law Office

The Industrial Licensing Act is based on the principle that Norway's hydropower resources belong to the general public, and that the community as a whole should benefit from the utilization of this environmentally friendly power source. To help meet this objective, the special system for reversion of waterfalls was introduced almost 100 years ago. Under this system, hydropower plants are transferred back to the state at the end of the concession period without compensation. This opportunity has been availed of several times over the years and today the state, the county municipalities and the local municipalities own approximately 88% of all hydropower production in Norway.

However, in late June 2007 the European Free Trade Association (EFTA) Court held that the Norwegian system of waterfall reversion breaches Articles 31 and 40 of the European Economic Area (EEA) Agreement, due to the distinction drawn between Norwegian public undertakings and private and foreign undertakings (for further details please see "Rules on Acquisition and Reversion of Waterfalls Violate EAA Agreement").

In response to this ruling a provisional decree was passed in the King's Council on August 10 2007. The temporary decree aims to bring the right of reversion into line with the EFTA Court ruling and outlines the main principles for the future reversion model; it will remain in force until a permanent act has been passed.

On March 14 2008 the Ministry of Petroleum and Energy published a green paper on rules for consolidating and strengthening public ownership of hydropower. In presenting the green paper the government emphasized the importance of ensuring that Norway's hydropower resources remain in public ownership at state, regional and local levels. Hydropower is important in securing Norway's energy supply and diversified public ownership ensures that there are a large number of competitive hydropower producers. Minister of Petroleum and Energy Åslaug Haga stressed the importance of laying down the principle of public ownership in the wording of the new act.

The green paper proposes the so-called 'consolidation model' to strengthen public ownership in the hydropower sector (other alternative models were also considered and rejected). The key features of the consolidation model are as follows:

• New licences for acquisition can be granted only to public parties.
• The acquisition of reverted waterfalls and power plants is reserved to public parties.
• Sale or leaseback after reversion is no longer possible.
• Private investors may acquire only up to one-third of the shares in a public undertaking.

Where waterfalls and power plants are sold from private to public entities, it is proposed to continue the system of replacing time-limited concessions including a right of reversion with concessions without such conditions.

The ministry will further propose new rules for releasing hydropower production as an integrated part of the consolidation model. However, because this arrangement raises several specific questions, the proposal will be presented in a subsequent green paper.

The legislative amendments will be implemented by changes to the Industrial Licensing Act and a few adjustments to the Act on Regulation of Watercourses.

It remains to be seen how the proposal will be received. The consultation process closed on April 30 2008; upon evaluating the feedback received, the ministry will present a proposition to the National Assembly (Stortinget). Some of this feedback has already been published on the ministry's website (in Norwegian only). Among other things, it is argued that the one-third rule, combined with the possibility to lease power plants, may threaten the principle of public ownership, since a player that owns one-third of a plant can lease the remainder and thus become the de facto owner. Concerns have been voiced over a possible increase in foreign companies' control of Norwegian hydropower resources.

For further information on this topic please contact Mari Reitzel Bjerke at Advokatfirmaet Haavind Vislie AS by telephone (+47 22 43 30 00) or by fax (+47 22 43 30 01) or by email (m.bjerke@haavind.no).