Transmission
Distribution
Licences and Concessions
According to the Power Industry Act, published in La Gaceta 74 of April 23 1998, the power industry's activities comprise the generation, transmission, distribution, commercialization, import and export of power (Article 1).
All energy companies, whether national or foreign, must have a concession or licence (depending on the activity) and be domiciled in Nicaragua in order to conduct operations.
Power generation companies can agree sales contracts with distributors and large-scale consumers. However, power generation companies, as well as their subsidiaries and shareholders, are not allowed to be owners or shareholders of transmission and/or distribution facilities.
The state owns the national transmission system and must finance any extension of the system that is required by users. Companies specializing in transmission activities cannot buy or sell power. Companies that own lines and other elements of a transmission system must allow other companies and large-scale consumers to connect to the system upon payment.
Distribution companies are responsible for the execution, operation and maintenance of facilities up to the point of connection to the end users system. The state shall subsidize electricity projects in sparsely populated areas that do not show adequate levels of profitability (Articles 36 and 38).
Distribution companies have the right to suspend service immediately when:
- there is illegal usage;
- the agreed conditions for the supply of energy are violated; or
- human health is threatened.
Distributors shall supply electricity in their concession zone to all clients that require it in a continuous, reliable and secure manner. They shall maintain sufficient power and energy in order to supply the predicted demand in their concession area (Article 87).
In order to commence distribution activities a company must have acquired a concession, which is an exclusive right that the state grants for up to 30 years according to the obligations imposed by the Power Industry Act.
Generation companies and transmission companies that use renewable sources of energy need a state licence to operate. This is granted by the Nicaraguan Institute of Energy and lasts for up to 30 years.
The concession or licence holder must give the Institute of Energy a guarantee of compliance for a percentage of the value of the initial investment, depending on the type of project. This stands at 7% in the case of transmission and hydroelectric generation licences, 4% for distribution concessions and 1% for other generation licences (Article 128).
The guarantee for obligations derived from the contract shall be issued by a reliable bank or insurance company, with enforceability for up to one year after the estimated conclusion of the project's initial works. This guarantee can be refunded if the initial works are concluded satisfactorily or, if the Institute of Energy authorizes it, to invest it in works (Article 77).
Concession and/or licence holders that undertake activities in the power industry have the right to lease or otherwise acquire goods necessary for the construction, operation and maintenance of their facilities. They also have the right to free access, use and occupation of the state, municipality or public domain goods necessary for the construction and operation of their facilities (Article 82). The holder of a concession for distribution has the right to be the exclusive distributor for small and medium consumers in its operating zone (Article 83). Concessions or licences may be transferred to third parties with the Institute of Energy's authorization.
According to Articles 89 and 90 the following are anticipated causes for the termination of a concession or licence:
- declaration of expiration;
- waiver;
- failure to meet the agreed terms;
- failure to subscribe to the corresponding contract; or
- abandonment of the activities.
Under the Power Industry Act the tariff regime is either free or regulated. The free price regime covers all transactions between generators, co-generators, self producers, distributors, merchants and large-scale consumers regarding the import and export of power. The regulated price regime covers all power-sale transactions by the distributors to final consumers, and the transportation of power via the transmission and distribution system.
Large-scale consumers can transact under either of these regimes (Articles 109-111).
For further information on this topic please contact Carlos Taboada Rodriguez at Taboada & Asociados by telephone (+505 2 683 839) or by fax (+505 2 668 088) or by email ([email protected]). The Taboada & Asociados website can be accessed at www.taboadayasociados.com.