New provisions on lease of developed hydropower plants - International Law Office

Power production in Norway embraces different types of energy source and production technology, although approximately 99% of electricity is derived from hydropower.

All undertakings may participate in electricity production and markets. However, since the majority of the waterfalls used for large hydropower production are subject to the Industrial Licensing Act, in practice, access to ownership of such facilities is limited. When the consolidation model was introduced in Norway in 2008 to strengthen public ownership of the country's hydropower resources, private entities were no longer allowed to acquire larger hydropower plants (for further details please see "Rules proposed for consolidating and strengthening public hydropower ownership"). Private and international companies may possess proprietary rights in such projects only as owners of up to one-third of the shares in the undertaking, thus maintaining two-thirds public ownership in hydropower companies.

The obstacles that this framework poses to international undertakings that wish to participate in the Norwegian market have been debated for several years. To achieve flexibility in the electricity sector and market, and to ensure that the organisation of the sector helps to improve expertise and innovation, the Ministry of Petroleum and Energy proposed changes to the Industrial Licensing Act concerning the lease of developed waterfalls. The new rules entered into force on July 1 2010. The more detailed Regulations on the Lease of Hydropower Plants also came into force on that date. The new provisions give domestic and international, and public and private, companies the opportunity to lease already built hydropower plants for a period of up to 15 years.

The regulations apply to agreements concerning hydropower plants and projects which are already built and which are subject to licensing under the Industrial Licensing Act. The regulations comprise three types of agreement:

• leasing agreements with transfer of operational liability;
• leasing agreements without transfer of operational liability; and
• agreements on operational liability and running of the plant.

The first two types of agreement are traditional leasing agreements which transfer the commercial rights to the lessee. The third option transfers the responsibility for running the plant to another operator. However, these agreements do not include the transfer of the commercial rights (ie, the right to make commercial decisions regarding the running of the plant).

The regulations lay down certain requirements for the content of the agreements. The most important is that the lease period is limited to 15 years and no subleasing is permitted. Further, the agreements must include a clause that provides for invalidity if the lease system is found to violate obligations under the European Economic Area Agreement. In addition, agreements must be approved by the ministry.

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