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Issue 2: Energy
Also in this issue: “The challenge is certainly ahead of us to make every issue even better than the previous”
“(leading) is pretty much like love in this sense, it is simply impossible to pin it down in words, and if you manage to describe it, you know it is not really love.” “Stronger private investments and interest is needed. Indeed, a less fragmented and more integrated regulatory framework might help to increase both.” “I do find it conflicting that there is so much talk about gas reserves depleting within decades yet, across the board, everyone still builds new plants that produce energy by burning gas” “only one thing seems to be sure: the industry has to be prepared for further changes regarding cogen regulation.” “These are exciting times for the green energy sector both locally and globally.”
“This will mean a fundamental change in the operation of the Hungarian electricity generators, likely leading to an increase in the wholesale electricity prices.”
This Issue’s Grapevine Pick: Dr. Pál Kara - Vice President Legal - Mol Group
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Issue 2: Energy Letter s from the editor s We are incredibly pleased with the launching of the inaugural edition of The GC Grapevine in May and the immense market feedback we have received in this short while. The GCG is the result of a long-held need of a pre-eminent legal focused publication. For those who have contributed to this edition and the previous, WE THANK YOU and so do the readers, believe me. The response has been profoundly and overwhelmingly positive. It is YOU, our reader, who is making this periodical the most sought after legal publication in Hungary. As one avid reader commented, “… easily digestible up to date legal info coupled with an amazing human touch”, while another reader acclaimed “ …nice to read about leading GC’s who are like the untouchables, yet you come to realize they face similar issues as the rest of us…”.
Enjoy the read and a heartfelt thank you to every GCG contributor, follower! Orsolya Endrefi Associate Director - Emerging Europe and Latin America Legalis When we started this project we could not have imagined we would receive so much feedback and so many e-mails from the legal community asking how they can get involved. Although in its infancy, the GCG has managed to kick-start the creation of a true GC community in Hungary and we plan to ensure that this momentum does not go to waste. We will keep our call to join us in this community open so I would like to reiterate the tools at our readers’ disposal:
In this issue: DR.
PÁL KARA, VICE PRESIDENT - LEGAL, MOL PLC. …………….……………3
DR.
BÁNFI LÁSZLÓ DEPUTY CEO FOR CORPORATE AFFAIRS AND GENERAL COUNSEL, MVM..………….……………6
DR.
NAGY T. KATALIN LEGAL COUNSEL, E.ON….……8
DR.
ÁKOS SZENTKERESZTY CHIEF LEGAL ADVISOR, GDF SUEZ ….…………………....10
The Private Practice Strip will offer firms the chance to make brief announcements.
The challenge is certainly ahead of us to make every issue even better than the previous. Our goal is to do just that; make it better, more interesting and informative with a spiral of inspiration coming from each interviewee. We have a market holding their breath for the Pharmaceutical edition and our pillars of the issue have already begun to take shape.
The Grapevine Pick will offer all our subscribers the opportunity to recommend who should be interviewed for the next edition.
As always, your suggestions are more than welcome - actually we look forward to them - this is your voice. Remember, the “On the GC Grapevine” was created for you, the elite in-house Counsel, so let us know what legal topics you wish to read about and the GC’s you want us to feature.
We are always happy to hear from our readers so, please, feel free to write to us at GCG@legalisglobal.com or join the dedicated group here for more details.
(My) Word On The Grapevine will offer readers the opportunity to make their voices heard directly. Feedback, replies, comments and additional information that our readers wish to share with the rest of the community.
C HANGING REGULATION FOR
CO-GENERATION POWER PLANTS – WHERE IS THE END? ....…....12
EXCITING TIMES FOR THE
GREEN ENERGY SECTOR BOTH GLOBALLY AND LOCALLY ……..13
H OW THE REFORM OF THE
EU EMISSION TRADING SCHEME (ETS) WILL CHANGE THE ENERGY LANDSCAPE IN HUNGARY ..…..14
Radu Cotarcea Marketing Manager - Emerging Europe and Latin America Legalis
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dr. Pál Kara, Vice President - Legal, Mol Plc. GCG: We know that you always practiced law inhouse. Why did you choose this path and is there any reason for which you envy private practice lawyers?
“You need to think day and night how to connect the dots: business knowledge meets political sensitivities meets legally speaking highest challenges.”
“I would say it is a very dynamic role and the challenge comes as a result of this. You need to be able to prioritize and focus on the project at hand and not get easily distracted by all the pending tasks from all the different areas.”
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P.K.: First of all, I especially like the industry MOL Group deals with, mostly because of its complexity and its role in the business and social life. This complexity provides challenging and interesting work. Let me give you an example: the defense of the OMV hostile attack was one of the most incredible tasks you can imagine. You need to think day and night how to connect the dots: business knowledge meets political sensitivities meets legally speaking highest challenges. At the same time, I, somehow, never liked the idea of being an external lawyer. First of all, the life style seemed more hectic and unpredictable comparing with working in-house. I am not saying that working in-house cannot get crazy at times. Simply think of the example I gave earlier, but I think you can somehow better control your time. Also, when working in private practice, your clients expect the absolute highest level of legal proficiency in any field they use your services for. This means that external lawyers need an intense specialization as one lawyer cannot really be a labor lawyer one week and an M&A one the next. In my position, though, I benefit from flexibility. I enjoy the idea of working on dozens of different cases from different practices area as well as different jurisdictions. GCG: So what would be the characteristics of a good GC?
P.K.: First of all, you need to know your industry very well. For MOL Group, we are talking about gas, electricity, petrochemicals. You need to understand the whole supply chain from crude oil to the gas stations. For that matter, supply itself can be quite varied. If you extract oil from the sea or buy it from the Russians via the pipelines makes a world of a difference. Later you need to worry about the refining process and even the end goal, selling, depends on whether you are planning to do so retail or wholesale. Connecting this to my previous answer, as you can see, talking about oil alone, you would require at least three specialized lawyers. Secondly, energy has always been one of the focal points of interest of politicians, economists. Because of this interest, and the scrutiny it brings with it, you always need to be very well prepared when it comes to the regulations surrounding the industry both at EU and national level. Thirdly, any General Counsel is, other than a lawyer, a manager, who is expected to put together a strong team. This is why I am always heavily involved in the recruitment of my team members, whether for Hungary or anywhere else in the region, rather than relying solely on our HR department. GCG: I imagine that having this extra hat must be rather challenging... P.K.: Not really, we do not have that much of a fluctuation, and the one that we do register is to some extent beneficial as it brings fresh blood to the team. This allows for more room for innovation. As you
can imagine, there is actually a strong need for this in an industry that moves so fast and this small staff turnover simply provides a way for it to occur naturally. GCG: Out of all the GC responsibilities, which do you find to be the most challenging? P.K.: Different times require a different focus. Sometimes I am required to concentrate the bulk of my efforts on managing people. For instance, there were periods when two or three of my colleagues were having babies which meant I had to pick up their responsibilities and relocate them within the team. Other times we may get hit by a new regulation and we need to focus a lot of our attention to adapting our policies and implementing what is required of us. As a result, I would say it is a very dynamic role and the challenge comes as a result of this. You need to be able to prioritize and focus on the project at hand and not get easily distracted by all the pending tasks from all the different areas. GCG: When do you outsource work and based on what do you chose the firms you work with? P.K.: The structure set up is that we outsource, especially in Hungary, those projects that require general or a widerreaching expertise. For example, a legal proceeding is usually outsourced to a law firm specialized in such cases. For these kinds of issues it would not really make sense to keep ‘talent’ in-house simply because the counsels that we do have as part of our team are experts in the specific
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If I make the decision to use an external law firm we send out a request for a proposal where we clarify our expectations. At the same time, we do our own homework and try to also search directly for qualified local firms that meet our needs. When we compare between firms we look at expertise primarily and secondly the fee. Equally important to the fee for us are the assumptions made in the proposal, those nice ‘provided that x is done’ or ‘provided that y happens’. GCG: What do you not like to see in proposals? P.K.: Too many assumptions usually kill the mood for me and operating a proposal under too many such assumptions risks easily losing a tender in my view. This is primarily due to the fact that it makes it considerably difficult for me to compare the offers. A limited number of reasonable assumptions are, of course, acceptable. For example, if I see ‘provided that the contract is under English law’ I find it perfectly fine. At the same time, I dislike proposals that put forward unreasonable caps. In my experience, we have had plenty of low caps and firms would later come up and offer many arguments on why they would like to have those removed or changed. GCG: What would be your inclination towards, a top tier international firm or local firm?
P.K.: If we need support on a cross-regional project, it would, in most cases, make sense to go with top international firms. Only these types of firms have the capacity to offer support across multiple jurisdictions at a time. However, from my experience, if you are talking about projects bounded within one country, I have noticed that, in many cases, although not all the time, local firms’ input can actually prove to be more reliable at a considerably lower price. At the same time you need to consider that in some of the markets that we operate in, some of the big international names are simply not present, or if they are, they have not been there for long enough to have a solid understanding of the market relative to the local firms. I tend not to tip the balance towards an international firm simply because of its brand name in light of what I mentioned before but also because it has been my experience that a lot of these firms represented locally do not offer the same strong support as their London offices or wherever they have their headquarters. On the other hand, there have been quite a few big firms that pulled out of Hungary. Naturally, most of the lawyers remained and we still work with them. Just because they do not have a big name on the door does not mean that their level of service is lowered all of a sudden. GCG: While, ‘energy’ would seem to be the most obvious answer, you mentioned that as a General Counsel you have the opportunity to work on cases from a variety of practices. What area of the law do you find the most interesting? P.K.: Firstly I believe there is no such thing as ’energy law’. When I
think ‘energy’ I think of renewable energy, gas, oil and these, for me, represent completely different legal fields. I feel this in our company as well. For example, we are relatively young in electricity, but soon after we started working in this direction we learned that it requires completely different skills and knowledge. The bigger the company becomes and the more we outreach into new fields of the ‘energy industry’ I need to work with more and more differently specialized lawyers. In fact, I believe that being a General Counsel does not mean you need to be an expert in
“there have been quite a few big firms that pulled out of Hungary. Naturally, most of the lawyers remained and we still work with them. Just because they do not have a big name on the door does not mean that their level of service is lowered all of a sudden.” everything. I quite often tell my colleagues that it would be a huge mistake and completely bad management from my side if I was a better expert in their fields than them. I am the one responsible with managing the legal team and it is up to my colleagues to be the true experts and give the in-depth advice on their fields. I cannot, and no man can, be expected to be an expert in all the areas involved in such a complex industry. GCG: What side of the energy law gets you buzzing then? P.K.: Personally I enjoy most the oil side of our business. I would not be able to tell you exactly why
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Andrékó Kinstellar
The largest ongoing power plant development project Kinstellar has been advising the Joint Venture of two major Central European energy holdings since 2009 in relation to the development and construction of two new 880 MW gas-fired CCGT power plants in Hungary and Slovakia, including preparing and negotiating all project agreements and advising on the regulatory implications, with a project value of more than EUR 1.5 billion. The transaction is the largest ongoing power plant project in Hungary. The largest lignite-based power plant development project in decades Kinstellar advised Mátrai Erőmű ZRt. between 2008 and the end of 2010 on the brown-field development of a 500 MW lignite and biomass-fired power plant through a joint venture with the MVM group, including preparing and negotiating the project agreements and advising on the regulatory implications of the project, with a project value of EUR 1 billion. Although finally not completed, the project represents the largest power plant development project in decades based on Hungary’s domestic source of fuel and contemplated in a joint venture with the State.
Faludi Wolf Theiss
Faludi Wolf Theiss advises on ERSTE Bank merger Faludi Wolf Theiss advised ERSTE Bank in relation to the acquisition of direct and indirect control over Magyar Factor Zrt. The mandate also included obtaining approval by the Hungarian Financial Supervisory Authority and the Hungarian Competition Authority.
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core functions of our company. In fact, I believe that, as a result of their work here, they are far more ‘in tune’ with the industry regulations and understand the company needs better than most private practice lawyers so I would rarely outsource for these kinds of projects.
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this is the case. Maybe it has to do with my history with the company. When I first joined there was no expert on oil regulations whereas we had one for gas and even had one on renewable energy already. Somehow it remained the case that, even in my current role, I like to focus on the oil component more and still have very strong gas experts to cover that side. Naturally, I still have to offer support on gas issues as well but oil remained my personal favorite topic. Renewable energy law is also an interesting aspect simply because it is one of those areas that we are happy to work on the regulatory side and happy to implement systems to comply with them. We agree with controlling emissions, with the content of sulfur, and so on. I say happy in that we see the need for it and we understand our wider social responsibility to do so. Nevertheless, I enjoy finding the correct balance because I feel we need to be realistic and be aware that it is not feasible to live without conventional energy in the upcoming decades. While I am not an expert on the technical, engineering side, I simply do not see how we will be able to remove our dependency on conventional energy in the very near future. Take wind power for example. It is still a rather unpredictable energy supply and the cost of this kind of energy is still very high relative to the conventional one. The everyday consumer might not notice it yet, but this technology, setting it up and operating it has yet to reach reasonable cost margins so that consumers would not feel the price pressure if we moved to it more and more. So it is difficult to predict when alternative energy will replace our current primary means of production although I would be
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very happy to see that happening. I challenging for you? guess it is up to the engineers P.K.: Well this is one of the aspects really and less up to the lawyers. I actually love most about my job. I GCG: How do you comment already got used to the size of the on the EU’s target: 20 per company and the sheer volume cent renewable energy by involved and this idea can really get 2020:? your adrenalin pumping at times. I guess it depends on the day really, P.K.: I personally think that this is, with a great variety of issues what would be a nice word for it.. popping up everywhere. In Slovakia challenging. there were times when we had GCG: How do you expect this issues with their competition agency will be reflected Governmen- as they thought that we leveraged our dominant position that we had tal policies? in the country. Romania has its own P.K. Well, I can tell you what challenges. There, we have a much happened with MOL Group and smaller market segment, pretty the sulfur emissions rules adopted much like in Austria, where we by the EU. In order to achieve the focus primarily on wholesale and EU targets, MOL was required to that involves a completely different make huge investments in its approach. refineries to be able to produce at the required quality. This is what However I think the regional we also have to do now in Croatia perspective in itself is one of the to be able to meet the EU targets biggest challenges as today, more when Croatia joins the EU. and more, regulators and agencies Personally I do not have a problem are in touch with their counterparts “the Government cannot realistically expect all the market players all of a sudden to have the resources to make such investments .”
with this kind of an approach and it is no secret that this may even bring us some benefits since, in the whole Balkan area, we are probably one of the few ones who have the economies of scale to upgrade to this level. On the other hand, the EU or th e G o v er nm e nt ca nn ot realistically expect all the market players all of a sudden to have the resources to make such investments and it is not like the Government at the moment is overflowing with money to consider further costly subsidies. But I expect that even if the targets are missed, the issue of renewable energy and CO2 reduction will not go away. GCG: Your role is a regional one. Which market has proven to be the most
in other countries. This means that we need to pay extra attention to consistency. This is beneficial to some extent as it ensures a discipline across the group which is so important with regulators, both at national and EU levels, becoming more and more integrated. This helps us to be prepared as we know that if we have a certain problem in one country we can definitely expect to be investigated on the same issue in other jurisdictions. GCG: What about ‘home’? What do you find to be the biggest regulatory challenge in Hungary? P.K.: The regulations are rapidly changing these days not to deeply explained, this could mean regulatory risk for the business - it is quite a challenging continuous task to keep track of regulatory
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developments. Of course, we are close to the regulatory body and have a dedicated group, separate from the legal department, which focuses on liaising with the Government and offering feedback to regulatory drafts in the official collation phase. GCG: Will we achieve a truly integrated energy market in the EU? What are the barriers towards this goal? I think this is first of all a historical heritage. During the socialist rules there was one pipeline from the Soviet Union to each country and there was no need to worry over energy supply. The problem is that over the last few decades only a few Governments realized the problem of over-dependency on one-sided Russian supply, although this is changing fast. MOL Group was one of the first to launch a regional gas network project because it is crucial to build a large network to be able to leverage it either in negotiations with the Russian suppliers or the regulatory bodies here. Small steps are already taken in this direction. EU, for example agreed on several competition exceptions to facilitate the Nabucco project. However, while the regulatory side has been improving, I think the EU should be more involved both in financing these kinds of projects as well as in negotiating the supply of the network.
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dr. László Bánfi Deputy CEO for Cor porate Affair s and General Counsel, MVM GCG: Your role or, rather I should say roles, certainly must provide a great deal of challenges. How does one learn to cope with the two hat concept – Deputy CEO for Corporate Affairs and General Counsel? L.B.: Personally I simply see it as a matter of constantly doing my best.
“I do not consider myself special or extraordinary in any way, just as a guy who works hard every day to do the best he can.”
“I am a lawyer and, as I mentioned, after practicing law for over 18 years, this is where my heart will always be.”
Despite the dual role, I still see myself as a lawyer first and foremost. It is the side I enjoy most but now I am put in a position where I need to cover so much more. As Deputy CEO of the Hungarian Power Companies Ltd, for example, I also need to handle environmental and quality management issues which I feel simply add to the value of my work. GCG: We have seen a growing number of General Counsels being a part of Boards, but few acting as Deputy CEOs. Why do you think you, as a lawyer, were chosen for this role? L.B.: To be completely honest, you would have to ask my CEO that. I do not consider myself special or extraordinary in any way, just as a guy who works hard every day to do the best he can. Indeed, the role of the General Counsel carries more and more weight in Companies’ Boards decision making process and the fact that MVM’s CEO chose to have me, a lawyer, as a Deputy CEO shows that MVM fully acknowledges the strategic role
that a general counsel has nowadays, especially in regulated markets such as energy. GCG: What is the most difficult aspect of this dual role? L.B.: I do not think I could point to one thing being more difficult than the rest simply because of the completely different natures of my responsibilities. On one side I am a lawyer and, as I mentioned, after practicing law for over 18 years, this is where my heart will always be. On the other hand, now I am in a position where I need to manage and lead a whole team. As you can imagine, this is completely new to me. I was never really educated or trained in this direction. But I do not think this is all that important at the end of the day. From my perspective, leading a team is something that needs to be done by nature; it has to come from inside and not only from a university book. GCG: So, according to you, what is the secret to managing, leading, developing an effective team? L.B.: Again, leadership is something that one needs to “feel”, not merely “know”. I think we could talk for days about how to be a good leader and would still not find the right way to put it into words. It is pretty much like love in this sense, it is simply impossible to pin it down in words, and if you manage to describe it, you know it is not really love.
GCG: Why did you decide to practice law in-house? L.B.: I worked in private practice until last year. The reason I decided to move was that, after a while the work becomes slightly flat and you need a new inspiration and challenge. There is also a strong tendency to develop this tunnel vision that, as a private practice lawyer, you are the best lawyer in the world, especially compared to those practicing inhouse. Yes, it might sound weird to say the work becomes flat in light of the numerous clients you work with but after a while you need something that truly inspires you. For me, this was the opportunity to dedicate myself to one team and have the responsibility that comes with understanding and working with one company in-depth. GCG: And why did you choose the energy sector specifically? L.B.: First of all, while in private practice I was working in energy and trade. At the same time, this role found me, not the other way around, and I was honoured by the invitation to work for MVM in my current role. I must admit, there is, of course, a practical consideration as well. During the recent years’ recession, pretty much every industry has been struggling. Energy, however, is one of the core industries that any recovery needs and it was exciting to be a part of a growing company.
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“It (leading) is pretty much like love in this sense, it is simply impossible to pin it down in words, and if you manage to describe it, you know it is not really love.” GCG: We have been told that there is no such thing as ‘energy law’ with oil, gas, electricity and renewable energy, all varying greatly. Which one do you find the most challenging and why? L.B.: Common concepts and regulatory challenges affect all sectors linked to the notion of energy law. First of all, the regulatory approach is based on the value chain (upstream, midstream and downstream). All sectors are dominated by the core problems of network industries: access to network elements, security of supply, asymmetric regulatory obligations of incumbents, competitiveness of services and infrastructure investments, sustainability and protection of consumers. Energy law as such therefore inevitably established an art of skill to be understood comprehensively. The most of the challenge is common in each part of energy law: to reach an optimal consensus between the diverging interests of all stakeholders (government, market players, consumers, European Union). GCG: What do you think is the biggest regulatory issue
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in the Energy industry in Hungary? L.B.: In my view, currently the biggest regulatory challenge in the energy sector in Hungary is the creation of an efficient and wellfunctioning regulation concerning the mandatory off-take of electricity generated from renewable sources and the combined heat and power generation. The establishment of a mandatory off-take regime always poses a risk of over-financing or under-financing. It should also be noted that the establishment of such regimes may distort competition and may have a negative effect on the so called „traditional” power generation. EU member states implemented significantly different renewable energy regimes. Thus, a marketconform, unified EU legislation would be essential in this respect.
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regulation concerning renewable energy regimes would result in either having minimum impact on the market or in not distorting the market at all. Also, it would not increase the burden on the population of EU member states to an intolerable level and it would ensure reaching the established mandatory renewable energy targets. In this sense I trust there will be changes to the current energy regulations in the future since the current ‘package’ has yet to achieve all three objectives. GCG: There has been considerable push towards creating a strong North-South energy network between EU countries to reduce dependency on the East-West line. What are the biggest hurdles in your mind in connecting differently regulated markets?
GCG: Since most of these targets related to renewable energy are national in nature, how do you expect them to be reflected in governmental policies?
L.B.: Political goals may be more ambitious than business goals. This means that strategic goals are not necessarily feasible for purely business purposes.
L.B.: The Hungarian Government outlined many far-reaching goals both in the national renewable energy action plan and in the new national energy strategy they are currently finalizing. With regards to putting them into practice much depends on the cooperation of every market player so I am most curious if steps will be taken to incentivise this.
In this case market players can go along with the aim of creating a strong North-South energy network between EU countries to reduce dependency on the EastWest line. Moreover, they would even participate in the execution of the project. However, they expect a certain portion of the financial resources necessary for feasibility purposes to be provided from EU or national public funds.
GCG: Do you expect sustainable energy regulations to differ considerably from current energy regulations in the future? L.B.: In my opinion, an ideal
GCG: As a General Counsel for a major player in the energy sector, you must receive countless proposals from law firms. What do you look for when you chose
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what law firm to outsource work to? L.B.: If the decision to outsource is made, I usually look at the professionalism and reliability that the proposal conveys. For me a proposal should not be about the quantity of information presented. I value proposals that focus strictly on the core of the problem. I like to see a drive towards the identified problem and clear-cut solutions to address them and not a lengthy proposal explaining the barriers and obstacles towards solving it. Personally I don’t care too much if I work with a small local law firm or a Magic Circle firm. Indeed, the latter has a strong infrastructure and the capabilities required for some of the projects, but really, at the end of the day, it is professionalism, best portrayed in their focus on the problem and not on the barriers, that is the winner for me. GCG: What advice would you give any lawyer considering moving in-house? L.B.: It is quite hard considering the completely different systems of work between private practice and in-house. I think it is important to understand the difference between the two and to understand that when you move in-house, you automatically become part of a team. Most private practice lawyers that join my team are excellently prepared lawyers, but they tend to be individualistic. The more aware you are of this difference, the faster the transition will be from a lonely wolf to enjoying the benefits and social security that working in a team offers.
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Legal Counsel, E.ON GCG: What do you find to be the most difficult part of your role? How do you overcome it?
GCG: What would you say are the key characteristics that make a good General Counsel? K.N.: I think it takes a bundle of characteristics as well as attitudes to meet the specific requirements of the role as well those of the company. I include the company because I do think the role of the General Counsel does vary considerably based on the nature of the company and the industry it operates in. Being a good lawyer is obviously not enough. A good General Counsel needs to consider himself/herself a part of an organism and be directly involved with the day to day undertakings of the company. One has to be constantly proactive with regards to threats and opportunities and in order to best do this, the General Counsel must immerse himself/ herself and identify with the company in order to best identify and focus on its specific needs.
K.N.: Differences management is one of the key aspects I try to keep in mind at all times. It is crucial to understand that, unlike in a big law firm, when working in-house, you deal with people coming from different backgrounds, with different education and different cultures. Because of these differences you are expected to express yourself not as a lawyer, but clear and concise. In order to get your point across you need to be able to understand the way someone who does not have a legal background thinks and adapt your message accordingly. I believe the key to success in this regard is listening to colleagues. When in-house, you are surrounded by a wealth of knowledge readily accessible to anyone willing to listen. I am surrounded everyday by great professionals, great engineers who have this strong passion for what they do and are always proud to speak about their work. Anyone willing to listen carefully easily learns how the industry works and how their mind works, what their priorities are and, implicitly, how to adapt your message to something they can relate to. There is of course a price you pay for this. You cannot be distant or neutral anymore. You become emotionally involved and care to a deeper level about the decisions you make. The risk analysis you apply is always so much more
in-depth because of this. GCG: Having worked both as lawyer at an international law firm as well as General Counsel, would you go back in private practice?
“Anyone willing to listen carefully easily learns how the industry works” K.N.: I am not sure. I enjoyed the first six years of my legal career when I worked at the law office simply because I was constantly surrounded by a big professional group of my peers. However, while at the time I felt I had a good understanding of our clients, I was always an outsider. It was always a purely artificial relationship that did not really provide a real feeling of the organisation the same way that working in-house does. GCG: Why energy? K.N.: Energy is a top focus in each country. As a result, it is, at the present time the most complex, challenging and changing industry. Lawyers love challenges and the energy industry has plenty of it. Firstly, it develops at an amazing pace and simply staying in tune with what the newest technologies and practices are is a challenge. Secondly, it is a complex exercise with up-stream, mid-stream, down-stream, all having their own regulatory challenges: storage is unique; trading is a completely different game; and so on. Thirdly, it is a regulated industry and we need to do more than simply be up to speed with policy changes but
Gide Loyrette D’Ornano Iroda
Nouel
-
Hydro Power Békésszentandrás
Plant
at
Gide Loyrette Nouel is advising OTP Bank Nyrt. in relation to the financing of the building and maintenance of a hydro power plant at Békésszentandrás. The hydro power plant at Békésszentandrás represents a successful implementation of Hungary's new energy policy identifying the priority of low CO2 intensity power generation by using renewable energy.
Review of the Serbian operation of a TOTAL affiliate Gide Loyrette Nouel received a new mandate from the affiliate of the French petrochemicals company TOTAL, for the full review of its operations in the Serbian market and recommendations of the possible structuring of the future activities. The mandate required the full co-operation of GLN lawyers in Budapest and its affiliate firm in Belgrade.
Horváth & Partners DLA Piper DLA Piper in Hungary advising on the purchase of a 21,2% shareholding in MOL Plc. DLA Piper has advised the Hungarian government on the purchase of a 21,2% shareholding in MOL Plc., the Hungarian industrial company and one of the largest companies in the CEE (approximately EUR 10 billion market capitalisation). The advice also covered complex issues related to takeover bids, voting right reporting, as well as potential financing structures.
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dr. Katalin T. Nagy
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“I also care deeply for firms that understand the business need behind a project, thus going a step beyond a simple legal advice.” also try to be proactive about adapting to them. GCG: Where do you see yourself five years down the line? K.N.: I see myself richer with industry specific knowledge, hopefully working for the same group, In this industry, challenges are just around the corner so I cannot imagine at this point ever getting bored. GCG: What do you look for when choosing a law firm to work with? K.N.: We have 20 lawyers in our legal team at the moment so the first step is to see if there really is a need. We might turn to private practices in case of skill shortages, capacity shortages or where there is a high degree of risk involved. Of course, if we need to choose one, I look at the professional credentials in the first instance. I also care deeply for firms that understand the business need behind a project, thus going a step beyond simple legal advice. GCG: Did you ever consider an engineering degree? K.N.: Oh no. Admittedly, it might be useful to actually understand the ratio of exchange of the cubic meter to God knows what. But in reality, all the information I would need I can learn from my colleagues. GCG: What do you see as the
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main regulatory challenges in your industry in Hungary in the next few years? K.N.: I think drafting a clear and sustainable direction is very much needed at the moment. A lot of questions are still left unanswered at the moment: how to replace the current mandatory takeover of power plants?; there is a lot of talk about smart grids but the concept is far from being clarified – are just some of the pending issues at the moment. The implication for us is obvious. It is simply difficult to take any action without knowing the form of the final Regulation. Working on drafting regulations is also particularly difficult. We are often faced with considerably tight deadlines in providing feedback. This allows for very little time to fully consider the companies as well as the markets interest in offering advice on the regulations drafted. GCG: ’Renewable energy’ is surely one of the buzz words in the industry. How is this concept reflected by the Hungarian regulatory bodies? K.N.: There is a strong commitment from the Hungarian Government towards renewable energy. However, this still needs to be reflected in a transparent, consistent and predictable regulatory package. I say consistent because there are a multitude of factors that need to be considered: subsidies, tax systems and infrastructure to name just a few. At the moment it is difficult to consider all of the above primarily as a result of how fragmented the regulations and regulatory bodies involved are. As a market player, it is then hard to see the big picture
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and to identify a clear direction in which to act. GCG: In light of recent events, I need to ask, how do you see the future of nuclear energy in the EU? Do you think more countries might follow suit after Germany announcing it is withdrawing from the nuclear programme? K.N.: It is of course difficult to predict but I believe this would give rise to considerable questions of energy supply. It obviously will depend on local regulatory bodies ultimately but my personal view is that nuclear energy, in today’s world is unavoidable.
“it is clear that recent events re-ignited the debate over nuclear power and regardless of a gap in the market or not, those local regulators will face the same concerns that the German ones did.” GCG: There have also been talks about SE countries seeing this as a potential opportunity to expand their own nuclear programs and take advantage of the gap created. Do you find it likely? K.N.: Not really. Other than the infrastructure build-up needed to ramp up these programs it is clear that recent events re-ignited the debate over nuclear power and regardless of a gap in the market or not, those local regulators will face the same concerns that the German ones did. GCG: Will we ever have an integrated energy market in the EU?
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K.N.: I think from a regulatory point of view this is a very complicated matter. Security of supplies and limiting dependency and the idea of a single European Energy Market are obviously goals pushing in this direction. Both the EU and individual member states have made considerable progress. We already have wholesale initiatives and quite a few regional projects. However, I think that regulatory support is not enough. Stronger private investments and interest is needed. Indeed, a less fragmented and more integrated regulatory framework might help to increase both factors.
Who do you see as a leading expert in the pharmaceutical industry? Who would you love to read about? Tell us at GCG@legalisglobal.com
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Kajtár Takács HegymegiBarakonyi Baker & Mckenzie
Chief Legal Advisor, GDF SUEZ consider how these practices can be applied, if at all, to the organizational context and what will be the ramifications to the other functions of the business. This long-term orientation is also the main push towards our effort to keep communication channels open with the regulating bodies to provide input on how legislation should be passed and implemented. In this sense, again, we always have to think in a more strategic manner than a simple ‘this is the law, this is the solution’ equation. GCG: According to many, comparing the work of in-house lawyers and that of private practice ones is like comparing apples and oranges. What are the main differences from your perspective? A.S.: I think that in-house lawyers, as opposed to private practice ones, focus less on ‘troubleshooting’. Our primary role is to facilitate managerial decisions and support the organizational goals. Also, when looking at problem-solving, in-house lawyers do not only focus on coming up with a solution but also work alongside other managers to implement them. Because of this proximity, when identifying solutions in-house lawyers also have a different approach to legal matters. Private practice lawyers tend to think in terms of best practices, fast solutions to a specific problem. In-house lawyers have a more long -term perspective and always
Don’t get me wrong, I appreciate private practice lawyers as excellent professionals that provide you with an accurate set of options based on the law but you need to understand that in most cases, they stop at presenting one, two, three possible solutions or opportunities. It is up to the general counsel to assess them and chose the option that is best suited to the context of the company. I think this makes perfect sense as I will be the one stuck with making sure the solution I chose is applied in practice by all the stakeholders. GCG: Which of the two sides do you believe is the most challenging one: to come up with a solution to a legal matter or the follow-up or implementation of it? A.S.: Both. The first is difficult as a creative process if you want to think of it in this way. The second involves a lot of responsibility as we are usually talking about a lot of money which is especially true in the energy sector.
At the same time, you need to understand that implementing such decisions is made particularly difficult by the regulatory environment in Hungary which is constantly changing. This often leads to cases where one day you think you came up with a good solution and you realize the following one, when you are trying to implement it, that it no longer applies. GCG: How do you manage communicating a decision across your company as part of implementing legal decisions? A.S.: I believe that legal matters in-house do not exist in a void. Rather, they impact a wide variety of functions in our company so whenever we have a decision to make we create cross-functional committees with members from all relevant departments. The same team later ensures the implementation across the organization in all the relevant areas of work. GCG: What led you to the energy field? A.S.: I have been working in energy since 1998, primarily on the electricity side, not so much on gas. Early in my career I worked with DÉMÁSZ in Szeged and later moved to E.ON. Having started off on this road I stuck with the energy sector because I believe it is the direct experience in a field that truly prepares you as opposed to books. GCG: Why particular?
electricity
in
Baker Mckenzie advises on Jones Lang LaSalle merger. Baker & McKenzie advised global real estate firm Jones Lang LaSalle on its GBP 197 million multi country merger with international property consultancy King Sturge. The combination - involving 9 CEE countries, 6 Western European countries and Hong Kong - creates the clear leader in the UK and Continental Europe in real estate services and investment management.
Réczicza White & Case
Réczciza White & Case advised MVM subsidiary Vértesi Erőmű Zrt. on arbitration proceedings related to power purchase agreements We represented Vértesi Erőmű Zrt. in several arbitration proceedings launched by or against it in relation to non-compliance with certain power purchase agreements by its contracting parties. Among these proceedings, with amounts claimed of €130 million in total, were the very first cases before the newly established Hungarian Energy Arbitration Court.
Réczciza White & Case is advising E.ON Tiszántúli Áramhálózati Zrt. in a GVH investigation We are representing E.ON Tiszántúli Áramhálózati Zrt. in connection with an investigation related to public lighting initiated by the Hungarian Competition Authority (GVH), now before the courts.
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dr. Ákos Szentkereszty
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“I do find it conflicting that there is so much talk about gas reserves depleting within decades yet, across the board, everyone still builds new plants that produce energy by burning gas.” A.S.: I guess it has to do with the town. Electricity was a given in the town of Szeged. In the field of electricity DÉMÁSZ is the biggest company in the south region of the country. I guess it played a role in my perspective at the time that electricity represents the future. At the same time, I like to think of it in terms of the basic needs of people: food, water, medicine and electricity (energy). I could not imagine myself as a doctor and there was not much I felt I could do with the first two either. Electricity on the other hand, I felt, would allow me to make an impact. But that was it really. It was just a feeling or a calling if you will. When compared to the rest of the energy field, electricity also sets itself apart in that it cannot be stored. I guess oil would have been an interesting side of the energy sector to explore but we simply never ‘met’.
GCG: How does a regular day at the office look for you? A.S.: Hectic, primarily because we are a relatively small team. At E.ON we had a bigger team. Nowadays I work with four others, which as you can imagine is less than little for a company operating in a regulated industry. But I believe in quality over quantity and, as a manager, I can be very proud of my team. One of the main preoccupations of our lawyers at the moment is actually outstanding debts that we need to collect with more than 5000 open cases. As you can imagine, for a team so small, this is quite a challenge to manage. GCG: You mentioned at the beginning how the general counsel role is very strategic in nature, and we see more and more general counsels in the Boards. With such a small team and such a time consuming task at hand, how do you manage to maintain a strategic vision throughout the day? A.S.: We have to outsource many of these activities and simply manage and oversee them. Debt collection is one of them for example. The labour law side is another one that we leave in the
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hands of external lawyers. Not only does it allow us to focus more on the strategic side but is also used as a cost-cutting tool. GCG: Cost-cutting? I would have imagined using external lawyers would be considerably more expensive on the long-run rather than inhouse staff. A.S.: Yes, at the end of the day it is a surprise for me as well but with the right contractual set-up we only end up spending money on these outsourced tasks strictly on a need basis. It offers us a lot more flexibility, on one side, but also provides these external lawyers with the same flexibility to work on the rest of the market. I would say it makes for a win-win situation.
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work with, I need to confirm this with the Paris office but it would be very rare that a different decision would be made than my recommendation. GCG: Renewable energy is one of the buzz words in the industry. One other general counsel featured in this edition made a valid comment in that at this point, how it progresses depends more on the engineers than on the lawyers at this point. What is your take on this?
GCG: Talking about external counsel, what are the criteria you look at when choosing a law firm to work with?
A.S.: It is indeed a hot topic, and rightfully so. I do find it conflicting that there is so much talk about gas reserves depleting within decades yet, across the board, everyone still builds new plants that produce energy by burning gas. I do agree, however, with the fact that, with the current technological tools at our disposal, there are not a lot of viable alternatives.
A.S.: Assuming no conflict of interest exists, I find the track record, specifically in the sector, speaks the most when it comes to choosing one. Of course, cost is a factor we consider but that is negligible since we work with caps most of the times. However, I only make the proposal on who to
I do see a role that lawyers can play in all of this though. Progress can only be ensured through a consistent regulatory package and lawyers definitely have a say in the matter. If we do our part and provide for the right regulatory context, I am sure engineers will do theirs.
( M y ) Wo r d O n T h e G r ap ev i n e RE: On The GC Grapevine Congratulations on the first issue of the GC Grapevine, which is an excellent platform for the exchange of ideas among GCs and private practitioners in Hungary. The first issue, devoted to TMT and GCs in TMT, also covered many interesting topics facing the sector, incl uding Internet protection, “net neutrality” and the potential impact of the EU’s
new regulatory framework on the telecoms industry. Other TMT issues that I believe would be useful to explore include the potential attitude of the Hungarian regulatory authority (NMHH) toward market players in light of the new EU regulatory framework to be implemented in Hungary and the implications of the delayed switchover from analogue to digital transmissions for TV broadcasting in Hungary,
which is now expected to be slated for 2015. There are, of course, other sector specific features facing the TMT sector in Hungary. These include, for instance, the tendency among local subsidiaries to use UK law as the governing law for interconnection and other network agreements, instead of Hungarian law. While this practice stems from the understandable desire to have one unifying law governing such agree-
ments for group entities, this might entail a degree of risk vis-àvis local mandatory rules and the Hungarian regulatory authority’s reactions.
Ákos Nagy, Andrékó Kinstellar If you would like to comment, reply or add your viewpoint on any of the articles or the publication overall, write to us at GCG@legalisglobal.com to share your views with the GC community.
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Chang ing regulation for co -generation power plants – where is the end? dr. Zoltán Faludi & dr. László Kenyeres - Faludi Wolf Theiss The mandatory off-take system for co-gens was originally to expire by the end of 2010. However, since this would have meant a 20-30% increase of district heating prices, affected market players and public bodies lobbied considerably for sustaining the mandatory off-take scheme. The Parliament yielded to the pressure and passed Act CLXXXI of 2010 and, thereby, extended mandatory off-take for co-gen electricity for another two years. This was, however only the beginning: a new bill submitted to the Parliament on 21 January 2011 envisaged further price reductions. Industrial stakeholders immediately concentrated fire on the bill, which was subsequently revoked.
The subsidy scheme of electricity generated from renewable sources or waste or by the use of the so-called co-generation technology (“co -gen”) was, and partially still is the system of mandatory off-take and feed-in tariffs. The electricity generated with co-gen technology is off-taken by MAVIR, the Hungarian transmission system operator, within the limits and for the duration determined by the Hungarian Energy Office (“HEO”).
Thereafter Act XXIX of 2011 was promulgated on 25 March amending the Electricity Act in a rather comprehensive way. As a result of a swiftly lodged surprise amendment, co-gen power plants were expressly excluded from the subsidy scheme: the Act declared that mandatory off-take of co-gens is terminated from 1 July 2011, including those generators who requested extension of their off-take in line with earlier amendments. Although not declared officially, the motive behind this measure was the plan to support co-gen plants’ heat production instead of electricity. The change caused considerable turmoil on the market, and the administration had to start working an a new three-step
model to remedy the situation. A new Act, reflecting this concept, was promulgated on 10 June 2011, containing new transitional rules for co-gens. According to the new Act, production of co-gens below 50 MW will be subject to a prioritized off-take, balancing, sale and settlement by MAVIR, though the so-called “cogeneration balance circle” to be separately established for this purpose.
“only one thing seems to be sure: the industry has to be prepared for further changes regarding co-gen regulation.” Two preconditions needed to be fulfilled in order to be eligible for this transitional subsidy: generators either needed to be members of the so-called “green balance circle” on 1 June 2011; or had to have their eligibility for mandatory off-take extended until 30 June 2011 or their eligibility had to be expressly terminated from 1 July 2011 by the relating appropriate Section of the Electricity Act. The affected generators had 4 days (!) from the date of the promulgation of this new Act to apply for the membership of the co-generation balance circle; currently, no information is available regarding how many of the affected producers were able to comply with the requirement. MAVIR will settle the co-gen balance circle,
sell the off-taken electricity on the organised electricity market and will pay for the off-taken electricity monthly, in line with the fees of trading on the organised market, the settlement prices, and the costs of the balance circle settlement. A new fee will also be introduced in addition to the already existing ones: the “cogeneration re-structuring fee” will be payable by traders and other market players to help fund this new type of co-gen subsidy. These fees are payable from 1 July to MAVIR on a monthly basis in the amount of HUF 1.20/kWh. As it can be seen, regulation for co-gens has seen significant changes recently, and further changes can also be forecast during the forthcoming months. According to recent press information, the above, recently enacted measures will be accompanied by a second period, during which heat suppliers will buy the heat from generators at a price which reflects the reasonable costs of heat, and generators will be able to buy the necessary natural gas at a reduced price. Finally, a third, longterm period is planned to start during 2013, under which cogenerated energy certificates (a tradable allowance system) will also be introduced. These are, however, the current plans, and hence only one thing seems to be sure: the industry has to be prepared for further changes regarding co-gen regulation.
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Exciting times for the g reen energy sector both globally and locally dr. Eszter Kamocsay -Ber ta - Gide Loyrette Nouel -D’Or nano Iroda fed into the grid adjusted in line with technological progress. 2. Regulatory framework Due to the regulatory framework adopted in many countries with a renewable energy industry, grid connected renewable energy systems present the best growth opportunities, and it is expected that these systems will become more prevalent in coming years. 3. Technological innovation These are exciting times for the green energy sector both locally and globally. Although the financing environment is still challenging, capital is freeing up for renewable investments again. Global trends in the renewable energy industry For the renewable sector, the credit crunch followed by a deep recession draw attention to the green economy as a means of stimulating growth. Accordingly, countries strive to develop the green economy through stimulus measures and support mechanisms. 1. Governmental policy More and more governmental bodies worldwide believe strongly in grid-connected electricity generated from renewable sources and are committed to vigorously supporting the development of the renewable energy industry, as well as promoting technological innovation through payments for renewable energy
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Technological innovation will make renewable energy production more cost effective and reduce the need for government subsidies. As was the case in Germany, when the industry matures, tariffs will gradually reduce and so will the costs. Thus, investors have the opportunity to capitalize on current market conditions. Renewable energy trends in Hungary Investors reinforce the desire for political and regulatory stability in evaluating investment decisions. A well elaborated governmental policy is the necessary precondition for a stable regulatory framework. It seems now that, in accord with the global energy trends, Hungary has now made a decisive step ahead to lay down the foundations of a sustainable green economy by elaborating Hungary's Renewable Energy Utilization Action Plan. In this coherent economic model energy saving and energy efficiency, an increased use of
renewable energy resources and the priority of own resources are declared to be of key importance. 1. Contribution to the European undertakings Being a Member State of the European Union, the adopted common legislation, in particular Directive 28/2009/EC of the European Parliament and of the Council (RED) sets out several tasks for Hungary in this field. The RED specifies an ambitious 20% share of renewable energy sources, including a 10% share in the transportation sector, as well as a 20% increase in energy efficiency and a reduction of greenhouse gas emission to 20% (of the level of 1990) as targets to be reached by 2020. The RED also specifies a legally binding obligation for Hungary to ensure 13% minimum share of renewable energy sources in gross final energy consumption by 2020. The NAP acknowledges the importance of a green economy and thus, sets the target of a 14,65% share of renewable energy sources in gross final energy consumption by 2020. 2. Strategic goals of the national energy strategy The strategic goals of the national energy strategy imply that beside the contribution to the community undertakings the following key objectives of Hungarian renewable energy policy are expected to determine growth opportunities in the coming years. These are:
i. Security of supply Hungary is highly dependent on energy import and satisfies 80% of its domestic crude oil demand and over 83% of its natural gas consumption from imports, primarily from former CIS countries. Through the use of renewable energy sources, the dependency on imports can be reduced, as the use of renewable energy is planned to be realized from domestic sources. ii. Environmental sustainability and climate protection The use of renewable energy sources supports the shift to low CO2 intensity power generation. Environmental sustainability and climate protection will have high priority, in particular when setting criteria for government subsidies available for investors in the green industry. iii. Agriculture development
and
rural
The use of biomass for energy purposes based on the favourable agro-ecological conditions of Hungary primarily causes that workplaces in the agricultural sector can be preserved and new ones can be created. The use of organic by-products from the agriculture and forestry industries for local energy purposes and their conversion into end-products will significantly reduce the need of the communities for fossil energy sources. Investments in the agricultural and rural development are declared to obtain preeminent support
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ronmental and Energy Operative Program, as a financial source enabling the investors to comply with these equity requirements, may open the door for Hungarian SMEs provided they have the necessary sector specific knowledge and professional experience. The Békésszentandrás power plant represents a successful implementation of Hungary's new energy policy setting the priority of low CO2 intensity power generation by using renewable energy.
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Squire, Sanders & Dempsey (US) LLP Squire, Sanders & Dempsey (US) LLP advises on acquisition of Industrial Union of Donbass Erős Ügyvédi Iroda Squire, Sanders & Dempsey (US) LLP recently advised Troika Dialog, the largest private investment bank in the CIS on its EUR multibillion leveraged acquisition of Industrial Union of Donbass (ISD), one of Ukraine’s largest steel groups which included the major Hungarian based steel producer ISD Dunaferr. The transaction involved the firm’s London, Moscow, Warsaw and Brussels offices.
How the refor m of the EU Emission Trading Sc heme (ETS) will c hange the energy landscape in Hungar y dr. Kr istóf Ferenczi - Andrékó Kinstellar more concrete terms the meaning of the revised EU ETS framework promulgated on 23 April 2009 in the so-called Climate Change and Energy Package of the European Parliament and the Council, will bring fundamental changes to (inter alia) the Hungarian energy sector. The essence of the revised EU ETS A fundamentally new era of CO2 trading coming Since the end of 2010 and throughout the spring of 2011 the European legislator has been very active in determining the detailed rules of implementation of the fundamentally revised EU Emission Trading Scheme (EU ETS), which has been operational since 2005. The new enforcement rules, spelling out in
Established by way of Directive 2003/87/EC of 13 October 2003, the EU Emission Trading Scheme entails a cap-and-trade system of CO2 allowances (the commonly called ‘CO2 quotas’), each representing the right to emit one tonne of carbon-dioxide by the installations covered by the EU ETS, with the overwhelming majority (currently 90%) of CO2 allowances having been so far allocated free of charge. CO2 allowances have been issued,
held, transferred, surrendered and cancelled via national CO2 registries operated by the Member States. Allowances have been allocated by the Member States to the installations on their territory based on the Member States’ national allocation plans and lists after approval by the EU Commission. In contrast to the rules applicable in the on-going second trading period (between 2008 and 2012), the rules of the game will be substantially different as of the third trading period starting from January 2013. Under the revised EU ETS, generally speaking, all essential rules of CO2 trading will be defined at Community level, putting the EU Commission into the driving seat. On the basis of Directive 2009/29/EC of 23 April 2009, the Commission determined in October 2010 an overall cap of
2.039 billion CO2 allowances available for the European Union in 2013, to be decreased in a linear manner by 1.74 per cent. each year, leading to a total number of approx. 1.7 billion CO2 allowances in 2020. The national registries will be replaced as of 2013 by a community-wide Union Registry, operated by an EU Central Administrator, regarding the detailed rules of which the Commission has just proposed a new draft Regulation in May 2011. As for obtaining CO2 allowances allowing the emitting installations to carry on their business activities, public auctioning of CO2 allowances will become the general rule. In other words, unless a given installation or activity is covered by a specific exemption under the revised EU ETS Directive, the operator of the installation will need to
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The Pr ivate Practice Str ip
within the framework of the field will also improve in the national renewable energy long term. strategy of Hungary. 3. Investments in renewable energy iv. Development of a green in Hungary economy A good example for increasing The rational use of renewable interests of investors in renewenergy sources may constitute able is the financing of the the basis for the creation of a construction and operation of a power plant at new (green) sector of the hydro economy. Since the use of Békésszentandrás. After the renewable energy sources is credit crunch, equity requiremore effective in terms of ments set by the banks have operational costs compared to increased substantially. The the use of fossil energy fact that bank financing tends acknowledge subsidies sources, the competitiveness of to market actors investing in this granted, e.g. under the Envi-
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purchase the required quantity of CO2 quotas at public auctions at the prevailing market price. With very few exceptions, power plants will not be eligible for an exemption under the obligation to purchase their CO2 allowances at the public auctions. However, Member States may allocate free CO2 allowances to installations belonging to other sectors, in particular to those sectors that are exposed to the so-called carbon-leakage risk, i.e. international competition due to the absence of carbon emission restrictions. The Commission has promulgated the Union-wide rules on transitional free allocation of CO2 allowances to eligible installations, primarily operating in the sectors exposed to carbon leakage, at the end of April 2011; with the exceptional rules on limited free CO2 quota allocation to certain power plants having been issued at the end of March 2011.
As a general rule, CO2 auctions will be centrally held at a Community auction platform, with only Germany, Poland and the UK having opted to establish their own national auctioning platforms. Auction platforms will constitute regulated financial markets, with predetermined products on sale (two-day spots and five-day futures as of 2013). The Commission has proposed in March 2011 that, in preparation for the third trading period starting in 2013, a total of 120 million allowances be auctioned in 2012 through monthly early auctions. What will the revised EU ETS mean for the Hungarian energy sector Unless the Hungarian Government elects to apply at the EU Commission for the exemption available under Article 10c. of the revised EU ETS Directive, as of 2013 power plants in Hungary will have to buy all of
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the CO2 quotas they need in respect of their electricity generation activity at the central EU auction platform at the prevailing market price. Without the Hungarian Government applying for the Article 10c. exemption, power plants may only benefit of free CO2 allocation with respect to heat generation for district heating or cooling purposes or through high-efficiency cogeneration for economically justifiable demand. This will mean a fundamental change in the operation of the Hungarian electricity generators, likely leading to an increase in the wholesale electricity prices in Hungary and potentially triggering the closure of the less efficient power plants, requiring a timely replacement of outgoing electricity generating capacities. Finally, due to the rules of the central EU auctions, mostly the mother companies of the Hungarian power generators will purchase
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the CO2 allowances on their subsidiaries’ behalf. Hence the dilemma facing the Hungarian Government is: whether to apply at the European Commission by 30 September 2011 for the Article 10c. exemption, in the framework of which such power plants are eligible for a maximum of 70% free CO2 quota allocation, that were operational or for which the investment process was physically initiated by 31 December 2008 and which have undertaken a significant modernisation of their power generation assets. However, if the Government elects to apply for the exemption, it would thereby denounce a significant portion of its potential CO2 auction revenues, 50% of which must be used to contribute to CO2 reduction goals, whilst 50% may be used for any other, including budgetary purposes, by the Government.
T h e n e x t is s u e o f “ O n th e G C G r ap ev i n e ” w i ll f o c u s o n th e p h a r m a c e u ti c al in d u s t r y. He re a re s om e way s yo u c a n g e t invo lve d : T h e G rap ev in e p ic k : R e c om m e n d a g e n e ra l c ou n s e l t o b e f e a tu re d a s th e “ G rap ev in e p i c k ” C om m e n t on a r t ic l e s a n d / or in te r v iew s f e atu re d in th e G C G. You r in p u t w i ll b e p u blis h e d u n d e r th e “ ( M y ) Wo r d on th e G rap ev i n e ” s e c ti on W r i te t o u s at G C G @ le g a l is g l ob a l .c om . We a re a lway s h ap py t o h e a r f rom o u r re a d e r s .
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The information herein does not constitute legal advice or opinion. Legalis will not be held responsible for any liability arising from the use of any information provided in this publication.
We would like to thank those who contributed to this newsletter:
dr. Pál Kara
dr. Bánfi László
dr. Nagy T. Katalin
dr. Ákos Szentkereszty
dr. Zoltán Faludi
dr. László Kenyeres
dr. Eszter Kamocsay-Berta
dr. Kristóf Ferenczi
If you would like to subscribe and receive a hard copy to this newsletter please write to us at GCG@legalisglobal.com with “subscribe” in the subject line. Or Follow-us in this GC only linkedin group: The editors: Orsolya Endrefi Associate Director - Emerging Europe and Latin America Legalis m: +36 20 916 2252 @: orsolya.endrefi@legalisglobal.com Radu Cotarcea Marketing Manager - Emerging Europe and Latin America Legalis m: +36 20 969 6410 @: radu.cotarcea@legalisglobal.com http://legalisglobal.com/