You are here:
20 May 2020 / news

‘Decommissioning’ Bill to amend the Dutch Mining Act submitted to Parliament

On 19 May 2020 the Dutch government submitted a bill to parliament to amend the Dutch Mining Act (hereafter ‘the bill’). The bill proposes clarification, updating and addition of provisions in the Mining Act regarding abandonment, decommissioning and re-use of mining infrastructure together with providing a financial (tax) incentive for production activities in a time of declining gas reserves and increasing production costs.

The bill broadly contains four measures:

  • Introduction of a compulsory set of decommission agreements.
  • Direct transfer of 40% ownership of extracted hydrocarbons to EBN.
  • A broadening and increase of the investment deduction facility in the state profit share calculation from 25% to 40%.
  • An update of decommissioning procedures and obligations.

The bill follows a draft bill that was published for consultation last year (see our Energy news article of 10 May 2019). The main changes after the consultation of the draft bill are the following:

  • Unlike the draft bill, the investment deduction facility will also apply to onshore mining infrastructure. This is because the government is not sure whether limiting the investment deduction to offshore may lead to state aid discussions, and requesting certainty or approval from the European Commission may take too long.
  • Onshore mining infrastructures also include geothermal infrastructure and salt caverns.
  • The wording of the new decommissioning procedures and obligations has been further updated and streamlined.

The background of this bill is twofold. First, the government indicates that the current costs of decommissioning of Dutch E&P infrastructure are estimated at EUR 7 billion, of which two-thirds are located at sea. The government wants to ensure that there is sufficient certainty that license holders will comply with their decommissioning obligations, and if necessary provide financial security. At the same time, the Dutch government indicates that the Netherlands will still need natural gas in the foreseeable future, and prefers domestic production over import. Therefore, the government has proposed an increased investment deduction facility to stimulate and maximise remaining gas production activities. These and some other measures are described in more detail below. 

Introduction of compulsory set of decommission agreements

The bill introduces an obligation for production licensees to enter into a set of two agreements with respect to decommissioning obligations. This obligation aims to ensure that the addressee of the decommission obligation (the operator), can successfully charge the costs of decommissioning to its co-licensees (parties to the Joint Operating Agreement (‘JOA’)). This set of contracts will consist of:

  • A ‘Decommissioning Security Agreement’ (‘DSA’): to be agreed between the operator and co-licensees. The DSA will arrange the timing for and the form of the financial security to be furnished by the licensees. The amount, timing and form will depend on the ratio between the expected value of the assets and the remaining reserves on the one hand and the expected decommissioning costs on the other hand, and shall be re-assessed annually and adjusted accordingly.
  • A ‘Decommissioning Security Monitoring Agreement (‘DSMA’): to be entered into by the respective licensees and Energie Beheer Nederland B.V. (‘EBN’), the 100% state-owned company designated by law as non-licensed partner in E&P activities. The DSMA allows EBN to monitor the correct execution of the DSA and to inform and advise the Minister on whether or not the financial security provided under the DSA is adequate. If deemed necessary, the Minister may fall back on the statutory authority in the Mining Act to demand financial security from the operator.

These decommissioning security agreements have been developed in cooperation by NOGEPA (the Dutch E&P branch organisation), EBN and the Ministry of Economic Affairs and will be determined and provided as compulsory by the Minister. They are comparable to security agreements that UK operators need to enter into with the Offshore Petroleum Regulator for Environment and Decommissioning (‘OPRED’).

The bill also introduces a change-of-control clause, that obliges licensees to notify EBN within four weeks in case the control of the licensee directly or indirectly changes for more than 50%. In case the change has detrimental effects on the security of decommissioning or if no notification has been filed, a court may nullify the legal acts performed to transfer the control.

Direct transfer of 40% ownership of hydrocarbons to EBN

Under the current Mining Act, EBN acquires 40% of the extracted hydrocarbons from the licensee(s) on the basis of an Agreement of Cooperation. The acquisition of this percentage interest still requires a legal act of delivery. The issue has been raised, however, how this would work in the face of bankruptcy of the licensee(s) that would render the licensee(s) unable to transfer the percentage interest to EBN. In order to avoid any potential discussions, the bill provides for a statutory transfer of ownership of 40% of the hydrocarbons to EBN at the moment of production, without a legal act of delivery being required.

Increase of investment deduction facility percentage

One of the key proposed amendments to ensure an attractive investment climate in the Netherlands offshore mining industry, is the amendment of the investment deduction facility (‘investeringsaftrek’) (IDF) for investments in ‘small fields’ as defined in provision 68a of the Mining Act. The bill increases this deduction from 25% to 40%.

Broadening of investment deduction facility in the state profit share calculation

The investment deduction facility is furthermore broadened in a number of ways:

  • Currently, the investment deduction facility only applies to certain “small fields” offshore, that meet specific requirements in terms of volume and productivity. This is replaced by a generic investment deduction for all investments in mining works that will apply to both onshore and offshore fields.
  • Furthermore, currently only investments in “business assets” (a specific Dutch tax concept) used for exploration and production activities are eligible for the investment deduction facility. Under the new rules, all investments in mining works as defined in the Mining Act are eligible for the deduction, with the exception of investments in mobile mining works. This also includes for instance investments in the electrification or conversion of platforms for other purposes.
  • Lastly, the investment deduction facility is broadened to not only include initial (purchasing) costs of mining works, but also amendments (‘aanpassingen’) and improvements (‘verbeteringen’) of existing mining works. Maintenance is however excluded.

The investment deduction facility only applies for the levy of state profit share, and does not apply to the Dutch corporate income tax.

Update of decommissioning obligations and procedures

Finally, the bill updates the decommissioning obligations and procedures. As a main rule, mining works that are no longer “in use” are obligated to be decommissioning by the licensee, and he has to file a decommission plan (‘verwijderingsplan’) within one year. However, the licensee can propose to use the mining works for other purposes (such as for instance the storage of CO2 or hydrogen).

Timeline

The bill has been submitted to the Lower House of the Dutch parliament, which will now start its deliberations and has the ability propose amendments to the bill. The bill and the explanatory memorandum do not mention an indicated date of entry into force of the measures.



Sustainability in the Debt Markets: transparency for investors remains key

On 9 June, the 6th Annual General Meeting of the Green & Social Bond Principles was held, where the new Sustainability-Linked Bond Principles, an expansion of... read more

The Carbon tax is coming (after all)

The Dutch carbon tax has not been postponed despite 'the current circumstances', the draft proposal for the legislative bill was published in April. read more

Renewable energy subsidies and COVID-19 in the Netherlands

The Minister informed on several renewable energy subsidy topics, including the impact of the COVID-19 pandemic on the renewable energy market. read more