Ministerial involvement in a contemplated acquisition?
In answer to questions that ENECO will be privatized in a controlled auction, the Minister of Economic Affairs and Climate Policy sent a written response.
In answer to questions raised in Parliament in December 2018 following the public announcement that ENECO will be privatized in a controlled auction, the Minister of Economic Affairs and Climate Policy (hereinafter ‘the Minister’) sent a written response on 29 January 2018. In his response, the Minister refers to his authority under article 86f of the Electricity Act 1998 to prohibit or attach conditions to a change in the control of power production facilities with a capacity of more than 250MW. In this EnergyBit, I will provide some more insight on this authority.
The background of this clause is the so-called ‘Gazprom-clause’ that was negotiated in the EU Directive 2009/72 concerning common rules for the internal electricity market, to give Member States the possibility to withstand possible acquisitions of essential infrastructure by companies from third countries that were considered less favorable at the time. The concept of reciprocity – the country of origin of the acquirer should have a similar open and liberalized market structure as the member state of the targeted assets - was presented as suitable justification. The Directive 2009/72 provides in Article 43 (Level Playing Field) that Member States may impose measures to ensure a level playing field, but that such measures shall be compatible with the EU Treaty (the TFEU). Also these measures must be transparent, proportionate and non-discriminatory.
Dutch implementation – art. 86f of the Electricity Act 1998
In the Netherlands, this Gazprom-clause was implemented in article 86f of the Electricity Act. The clause provides that any change of control (within in the meaning of the Competition Act) in i) power production facilities with a nominal capacity of 250MW or more or ii) in a business that manages such facilities; shall be notified to the Minister. Legal acts entered into without notification are subject to nullification in court. The Minister may prohibit or attach conditions to the contemplated change of control, based on considerations of public safety or security of supply. Specific procedural requirements (such as the required (financial and transactional) information) regarding this notification obligation are laid down in a ministerial regulation. The regulation foremost requires that the notification must be filed four months prior to the contemplated change of control, resulting in a four-month period between signing and closing of the transaction.
In the event the Minister intends to prohibit or attach conditions to the transaction, he must notify the intended measures to the European Commission (EC). The EC will assess whether such measures are compatible with the EU fundamental right of free movement. The EC will have a two-month period to respond. If the EC has not acted within that period, it will be deemed not to have raised objections to the notified measures. In practice this means that parties to the transaction will informally know two months after singing whether they can expect to proceed with the transaction (or not).
It is important to realize that this is not a consent-procedure in the sense that the parties will receive a formal (and appealable) decision holding the Minister’s consent. In our experience, if the Minister has no concerns he will provide an informal letter within two months stating that it holds no objections against the transaction. Moreover, this letter will not be published and third parties will have no means to formally object against the ‘letter of no objections’ (as this is not an decision subject to appeal).
Although the clause has been in force since 2012, the number of notifications until this date has been modest. Loyens & Loeff has been involved in four cases related to the (effectuated or contemplated) transfers of large conventional and renewable production facilities.
With respect to ENECO, the first step for potential bidders will be to pinpoint the eligible assets (>250MW) in which ENECO holds a controlling stake, either through its shareholding or voting rights.
The vast majority of the generating assets of ENECO have less capacity than that. The existing wind assets (onshore and offshore) are too small to qualify individually. The qualifying assets that immediately come to mind are:
- the Enecogen plant (870MW), in which ENECO holds a 50% stake,
- the Lage Weide plant (248-266MW) and
- the Merwedekanaal plants (jointly 328MW), all gas-fired (combined-cycle gas turbines or ‘CCGT’).
The future 700MW Blauwwind offshore wind park will not be operational in 2020 (the envisaged year the ENECO transaction should be closed) but if it were to be taken into account, it should be assessed whether ENECO’s current 10% share in the partnership with possible special voting rights, combined with a PPA for 50% of the output could qualify as ‘control’.
The Gas Act contains a similar provision for LNG terminals and LNG companies but ENECO does not own or control such activities. The Heat Act (ENECO is the largest Dutch heat supplier) does not have a similar provision.
However, given the nature of the controlled auction process, the qualitative requirements for bidders that will have been set by the current shareholders and the public scrutiny that this process already faces and will face, one would expect that the party that eventually wins the controlled auction would also be acceptable to the Minister in his capacity as ‘gatekeeper’ pursuant to 86f of the Electricity Act 1998. Nevertheless this notification obligation is something every bidder will duly have to take into account.
From a legal perspective there are some interesting aspects to this notification obligation. One of them is the principle of free movement and the interesting question whether a party from a non-EU Member State enjoys the same protection by this EU fundamental right as its EU competitor bidder. And if not, whether this protection can be acquired by quite simply using a company in any Member State as bidding vehicle.
Another topic of debate lies in the difference between the justifications of the measures under the Electricity Act 1998 (i.e. public safety and security of supply) and under the EU Directive (i.e. maintaining a level playing field), both in the context of free movement.
And finally, it will be interesting to see – again from a legal perspective – how this discussion will evolve on a European level in relation to the recently agreed proposal for a EU Regulation establishing a framework for screening of foreign direct investments in strategic sectors into the EU. Unlike the US for instance (FINSA/CFIUS), the EU does not yet have such rules in place.
We will keep you posted on these and other relevant developments as they occur.
Should you have queries, please contact Roland de Vlam or your trusted Loyens & Loeff adviser.
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