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STROOM – cross-participations of TSO's limited by Lower House

STROOM, issue 6

02/11/2015

On 13 October the Lower House of Dutch Parliament has adopted the Dutch STROOM Bill (see part 5). This means that only the Upper House can prevent the new Act becoming effective per 1 January 2016.



One item of the Act was most hotly debated and that is the forced ownership unbundling for the two Dutch companies that remained unbundled: Delta and Eneco.



In the heat of these fierce discussions, several other proposals for amendment of the draft Bill managed to get adopted in the fray. These amendments have however potentially serious implications for the security of supply of gas and electricity to the Netherlands as they limit the possibility of Dutch TSO's to strengthen their strategic positions abroad through cross participations.



As discussed in part 2, the STROOM Bill introduces an exception to the current rule that Dutch TSO's are to be 100% state-owned. The original draft Bill introduced the possibility of a cross participation through a share swap with another - foreign - TSO. The original proposal stipulated that the Dutch State was to retain at all times the ultimate control (more than 50%), and furthermore that the foreign entity should be an independent and certified TSO. Last but not least the share swap should promote the security of supply and the affordability and sustainability of the transmission system.



The Minister has argued in the explanation to the proposal for the STROOM Bill that cross border cooperation between TSO's can take several forms: a contractual cooperation, a share swap, incorporation of a joint venture company or a merger. The Minister has explained in his brief that a mere contractual cooperation provides for little incentive to align the strategic interests of the TSO's. A close cooperation in the form of a share swap can strengthen the cooperation as the interests will be aligned and the cooperation will be stable and long term. International cooperation will strengthen security of supply, and promotes better alignments of joint investments.



On 13 October a motion to limit the possibilities of a share swap has been adopted. The new Act will now only allow for a maximum of 25% of the shares in the Dutch TSO's to be swapped. According to the petitioners, the Dutch gas and electricity infrastructure is of such importance, that the public interest can only be properly guaranteed if the Dutch State retains at all times 75% of the infrastructure. The motion has substantially toughened the conditions for a cross sale by stipulating that the shares in a Dutch TSO can only be sold to TSO's that have networks that are directly linked to, or have an interconnector to, the Netherlands. The conditions are to be set out in more detail in lower legislation and Parliament is to approve the share swap.



This means de facto that Gasunie en TenneT can only enter into a share swap agreement with TSO's in Germany, Belgium, the UK and Norway. The Minister has argued (to no avail) that limiting the share swap possibilities to these countries is not desirable as a cooperation with TSO's in other countries, can also help strengthen the security of supply. From a supply point of view a closer cooperation with for instance Luxembourg or France could also make sense, which possibility is now excluded.



More importantly, the new wording of the Bill does not recognize the fact that a share swap of (less than) 25% may not be sufficient to properly align the financial and strategic interests of the parties and will therefore in practice prove to be an undesirable vehicle of cooperation.



The adoption of this motion has resulted in statutory limitations for both Gasunie and TenneT that will make it much more difficult for these entities to strengthen their strategic positions in Europe.

Authors

Martika-Jonk-CMS-NL
Martika Jonk
Advocaat | Senior Counsel
Amsterdam
Picture of Cecilia Weijden
Cecilia van der Weijden
Partner
Amsterdam
Picture of Jacqueline Feld
Jacqueline Feld
Picture of Dominique Voorst tot Voorst
Dominique van Voorst tot Voorst
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