- legal aspects - Investment opportunities in natural gas infrastructure - legal aspects - MINISTRY OF MINING AND ENERGY RUPUBLIC OF SERBIA: Branislava Lepotić Kovačević, Ph.d Aleksandra Babić Belgrade, March 8th 2005

2 Content n investments in construction of gas pipelines and underground storages n existing investment models n investment barriers n conclusions

Development of gas pipelines and underground storages

4 Development of gas pipelines and underground storages - before The Energy Law is fully enforced - n administrative procedure for construction of energy facilities is same as procedure for all facilities n responsibility of the Ministry for capital investments n Building permit and Occupancy permit issued by the Ministry for capital investments

5 Development of gas pipelines and underground storages - after The Energy Law is fully enforced - n Energy permit for constructions of energy facilities n responsibility of the Ministry of mining and energy n Energy permit is precondition for Building permit n issued in accordance with: –Energy sector Development Strategy and –Strategy Implementation Programme

Activities in natural gas sector

7 Activities in natural gas sector - provided by the Energy Law - n gas pipeline transportation and operation of gas transportation pipelines n gas distribution and operation of gas distribution pipelines n underground gas storage and operation of underground gas storage n natural gas trade activities of public interests (except natural gas trade), monitored by the Government and the Energy Agency

Existing Models

9 n State-owned enterprise (SOE)/daughter company of SOE n Contract on assignment of right to conduct activity of public interest (Assignment Contract) n Concession Contract

SOE/daughter company of SOE

11 S O E - existing models - n founded by – the Government of the Republic of Serbia n investment into SOE: –investment into SOE is not allowed so far –joint ventures with SOE are possible –loan agreements and commercial arrangement are possible

12 Daughter company of SOE - existing models - n daughter company founded by – Petroleum Industry of Serbia (SOE) n sources of investments –Investments in daughter company of SOE –Joint venture…

13 SOE and daughter company of SOE - existing models - Characteristics: n legislation is in transition procedure (pending adjustments) n Petroleum Industry of Serbia (SOE) is approaching restructuring procedure

14 Model of daughter company of SOE additional founder daughter company bank (credit contract) feasibility study Assignment Contract contract on international sale of equipment additional founding capital credit for founding capital Modality 1: credit for assets Modallity 2: credit for assets gas pipeline connection

15 Model of daughter company of SOE - after The Energy Law is fully enforced - additional founder daughter company bank (credit contract) feasibility study Assignment Contract contract on international sale on equipment additional founding capital credit for founding capital Modality 1: credit for assets Modality 2: credit for assets Modality 1: energy permit Modality 2: energy permit energy licence - Energy Agency responsibility gas pipeline connection

Assignment Contract

17 Assignment Contract - existing models - Preconditions: n any form of company can be founded (except SOE) n founder of company - domestic and/or foreign person n company must be fully in compliance with the legislation (technical conditions for equipment, environmental protection,...)

18 Assignment Contract - existing models - Characteristics: n procedure not used so far n avoids tendering procedure n new legislation pending n time period is not legally limited nor defined n there is no legal obligation to transfer energy facility into state property

19 Model – Assignment Contract founder new company bank (credit contract) feasibility study Assignment Contract contract for international sale of equipment founding capital credit for founding capital Modality 1: credit for assets Modality 2: credit for assets gas pipeline connection

20 Model – Assignment Contract - after The Energy Law is fully enforced - founder new company bank (credit contract) feasibility study Assignment Contract contract for international sale of equipment founding capital Credit for founding capital Modality 1: credit for future equipment Modality 2: credit for equipment Modality 1: energy permit Modality 2: energy permit energy licence - Energy Agency gas pipeline connection

Concession Contract

22 Concession Contract - existing models - Preconditions: n Grantee – domestic or foreign person n Grantor – the Government of the Republic of Serbia Procedure: Serbian Government and Parliament to review the application one member of Tendering Commission from Serbian Parliament The Government of Serbia signs the contract

23 Concession Contract - existing models - Types of Concessions : n construction, exploitation and maintenance of gas pipeline n reconstruction, modernization, maintenance and exploitation of gas pipeline n construction, exploitation and maintenance of underground gas storage n reconstruction, modernization, maintenance and exploration of underground gas storage n conduction of activities of public interest n B.O.T. system...

24 Concession Contract - existing models - Characteristics: n complex procedure n precise procedure n tendering procedure is being applied for selection of grantee n grantee have to establish concession company n concession contract may be valid for the maximum period of 30 years n transfer of new energy facility into state property is obligatory after concession expires

25 Model - Concession Contract grantee concession company bank (credit contract) tender bid contract for international sale of equipment founding capital credit for founding capital Modality 1: credit for assets Modality 2: credit for assets gas pipeline connection

26 Model - Concession Contract - after The Energy Law is fully enforced - grantee concession company bank (credit contract) tender bid contract for international sale of equipment founding capital credit for founding capital Modality 1: credit for future equipment Modality 2: credit for equipment energy licence - Energy Agency responsibility gas pipeline connection

27 Notes n one additional procedure for development of energy facilities that are required to secure reliable energy supply is envisaged by the Energy Law n development option should be tendered by the Government of Serbia

Barriers for investments

29 Barriers for investments n inconsistency between some applicable Laws n high level of administration discretion rights in decision making process n lack of secondary legislation certain steps to overcome these problems are envisaged

Conclusions

31 Conclusions n Concession Contract - the most precise procedure n Assignment Contract - avoiding tendering procedure, shorter procedure, transfer of energy facility into state property is not envisaged risk of changes in legislation n Investment in daughter company of SOE - the shortest procedure, risk of changes in legislation

32 Applicable Laws n Energy Law n Law on foreign investments n Company Law n Law on State-owned enterprises and activities of public interests n Concession Law n Law on pipeline transportation of liquid and gaseous hydrocarbons

33 Resume n investments in construction of gas pipelines and gas underground storage n existing models: –Investments in daughter company of SOE –Assignment Contract –Concession Contract n barriers for investments n conclusions n applicable Laws

34 n dr Branislava Lepotić Kovačević n Aleksandra Babić