Torbjörn Claeson December 4 2006 Nord Stream Pipeline Raises Concerns MAQS Law Firm | Energy & Natural Resources - Sweden Torbjörn Claeson Energy & Natural Resources Background Regulatory Framework Comment Background On November 14 2006 the Russian-German consortium Nord Stream (owned by Gazprom and E.ON) notified the governments around the Baltic Sea of its plans to build a pipeline for the transmission of natural gas from Vyborg in Russia to Greifswald in Germany, including a service platform to be located northeast or east of the Swedish island of Gotland. The company Peter Gaz has applied to the Swedish government for the right to investigate the possibilities of building a branch line to Sweden.The pipeline has been the subject of heated discussions around the Baltic Sea. In Poland, the agreement between Gazprom and E.ON on the pipeline has been compared to the Molotov-Ribbentrop pact. In Sweden, opponents have insisted that the pipeline (or at least the branch line) should be stopped, due to, among other things, the risk of: environmental problems when laying the pipeline, since the bed of the Baltic Sea is polluted by, among other things, heavy metals, dumped ammunition and chemical weapons; increased energy dependence on Russia, which has used its energy for political purposes in the past (eg, with regards to Ukraine and Georgia); increased Russian military activity in the Baltic Sea (since the pipeline must be guarded); use of the gas installations by Russia to spy on Sweden, especially from the planned service platform; and the Swedish plans for increased production of biofuel being hampered by competition from Russian natural gas. All political parties represented in the Swedish Parliament seem to oppose the pipeline. However, the industry is in favour of increased imports of natural gas to Sweden, mainly due to the need for increased electricity production. As early as 1988, Parliament issued guidelines on the use of natural gas in Sweden; the guidelines stipulated, among other things, that natural gas must be imported under strictly commercial principles and that gas must compete on the Swedish energy market on its own merits.This update reviews the legal possibilities, from a Swedish perspective, to stop the laying of the pipeline and branch line and the construction of the service platform.Regulatory FrameworkConventions United Nations Convention on the Law of the Sea The basic convention regulating states' rights and duties with regard to the sea is the United Nations Convention on the Law of the Sea. The convention divides the sea into the following areas: internal water - waters on the landward side of the baseline of the territorial sea; territorial sea - the sea up to a limit not exceeding 12 nautical miles, measured from the internal water; contiguous zone - the sea up to a limit not exceeding 12 nautical miles, measured from the territorial sea; exclusive economic zone - the sea up to a limit not exceeding 200 nautical miles, measured from the internal water; and continental shelf - the seabed and subsoil of the submarine areas that extend beyond the territorial sea through the natural prolongations of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the internal water where the outer edge of the continental margin does not exceed that distance. The delimitation of the exclusive economic zone and continental shelf between states with opposite or adjacent coasts is affected by multilateral agreements.The convention has been ratified by all the Baltic Sea coastal states. The pipeline between Russia and Germany will enter no territorial waters other than those of Russia and Germany, and will otherwise be governed by the relevant provisions of the convention.The sovereignty of a coastal state extends beyond its land territory and internal waters - and, in the case of an archipelagic state, its archipelagic waters - to an adjacent belt of sea known as the territorial sea. The sovereignty also extends to the seabed and subsoil. The sovereignty must be exercised according to the convention and other rules of international law.Outside the limits of the territorial sea, the laying of pipelines is governed by international law (in this case the convention). In the exclusive economic zone, all states enjoy the freedom to lay submarine pipelines and other internationally lawful uses of the sea relating to this freedom, such as those associated wih the operation of submarine pipelines. In exercising their rights and performing their duties in the exclusive economic zone, states shall have due regard to the rights and duties of the coastal state. All states are entitled to lay submarine cables and pipelines on the continental shelf. The coastal state may not impede the laying or maintenance of cables or pipelines, subject to its right to take reasonable measures for: the exploration of the continental shelf; the exploitation of the continental shelf's natural resources; and the prevention, reduction and control of pollution from pipelines. The course for laying pipelines on the continental shelf is subject to the consent of the coastal state. However, in the exclusive economic zone, the coastal state has the exclusive right to construct or authorize and regulate the construction of, among other things, artificial islands, installations and structures. The service platform at issue is considered to be such a construction. The coastal state has a right to establish conditions for cables or pipelines entering its territory or territorial sea, or its jurisdiction over cables and pipelines constructed or used in connection with the exploration of its continental shelf or the exploitation of its resources, or the operations of artificial islands, installations and structures under its jurisdiction. When laying submarine cables or pipelines, states shall have due regard to cables or pipelines already in place. In particular, the possibility to repair existing cables or pipelines must not be prejudiced. Convention on Environmental Impact Assessment in a Transboundary Context Of all the Baltic Sea states, the Convention on Environmental Impact Assessment in a Transboundary Context has been signed by Sweden, Finland, Russia, Poland, Germany and Denmark; it has also been signed by the European Union. It has been ratified by: Sweden and Finland (acceptance); Estonia, Latvia and Lithuania (accession); Poland, Germany and Denmark (approval); and the European Union (approval).The convention regulates the performance of environmental impact assessments for certain project activities with transboundary effects within areas under the jurisdiction of parties to the convention. Among the activities included are large-diameter gas pipelines. The convention contains a claim for follow-up and post-project analysis of the environmental impact of a project. The purpose of the analysis is to ensure that the conditions for permission have been followed.The convention has been implemented into Swedish law through the Environmental Code (1998:808). The Swedish authority responsible for matters concerning the convention is the National Environmental Protection Agency, unless otherwise decided in a particular case. In order to improve the quality of the information presented to decision makers at all appropriate administrative levels, the convention sets out rules governing the national procedures for the evaluation of the likely impact of a proposed activity on the environment. An environmental impact assessment shall be undertaken before issuing a decision to authorize or undertake a proposed activity that is likely to cause a significant adverse transboundary impact. The affected states that are parties to the convention must be notified of a proposed activity. The state under whose jurisdiction a proposed activity is envisaged to take place shall provide an opportunity for the public - in the areas that are likely to be affected - to participate in the environmental impact assessment procedure. As a minimum requirement, environmental impact assessments shall be undertaken at the project level of the proposed activity. The convention does not affect laws, regulations, administrative provisions or accepted legal practices protecting information that would be prejudicial to industrial and commercial secrecy or national security. The states shall ensure that, in the final decision on the proposed activity, due account is taken of the outcome of the environmental impact assessment, as well as of the received comments.For proposed large-diameter gas pipelines that are likely to cause a significant adverse transboundary impact, the party of origin shall notify any party which may be an affected party. EU directives The EU Directive on the Assessment of the Effects of Certain Public and Private Projects on the Environment (85/337/EEC) shall be applied, among other things, to the construction of pipelines for the transport of gas with a diameter of over 800 millimetres and a length of over 40 kilometres. The EU member states have implemented legislation aligned with the directive. In Sweden, the legislation in question is mainly the Environmental Code. Russia has implemented similar legislation.Swedish legislation The Continental Shelf Act (1966:314) is based on the United Nations Convention on the Law of the Sea, as is the Economic Zone Act (1992:1140). In the Baltic Sea, the area of the Swedish continental shelf corresponds to the area of the Swedish exclusive economic zone; nowhere are the zones broader than 200 nautical miles.Other legislation to be taken into consideration is primarily the Natural Gas Act (2005:403) and the Environmental Code.Continental Shelf Act - the pipeline In the Baltic Sea, the Continental Shelf Act is applicable to the area between the Swedish territorial sea and the outer limit of the exclusive economic zone. The laying of pipelines on the continental shelf outside the territorial border requires a permit from the Swedish government. A permit shall be combined with the conditions necessary to: allow the exploration of the continental shelf and exploit its natural resources; prevent, limit and control pollution from pipelines; and protect the possibility to use and repair existing cables and pipelines.The government cannot block the laying of a pipeline as such, but only the laying in a certain location (if it does not meet the abovementioned conditions). Economic Zone Act - the service platform In the Baltic Sea, the Economic Zone Act is applicable to the area between the Swedish territorial sea and the median line in relation to other coastal states. The construction and use of artificial islands and installations and structures for economic purposes require a permit from the Swedish government. The act is regarded as applicable to the service platform. A permit shall be combined with the conditions necessary to protect the public interest, private rights, health and the environment. Natural Gas Act - the branch line The Natural Gas Act will apply to the pipeline on the landward side of the outer limit of the territorial sea (ie, the branch line). The act applies to pipelines for the transportation of natural gas. Such pipelines may not be built or used without a concession. However, a concession is not needed for a pipeline located after an installation for measurement and pressure reduction.Applications for a concession are administered by the Energy Agency, but the decision is taken by the government. Applications must always include an environmental impact assessment in accordance with the Environmental Code. Concessions must refer to pipelines with a fixed direction and are valid for a specified period of time, which may not exceed 40 years. Concessions must contain the terms necessary to protect, among other things, public interest, private rights, health and the environment. Environmental Code When considering whether a permit is in accordance with the Continental Shelf Act and the Economic Zone Act, or whether a concession is in accordance with the Natural Gas Act, certain sections of the Environmental Code shall be taken into account. For example, the Energy Agency must apply rules on environmental quality standards of the Environmental Code when considering applications for a concession under the Natural Gas Act. Other A number of other Swedish laws may also be taken into consideration; however, they are not specific to pipelines or sea-related.CommentThe possibility for Sweden to prevent the laying of the Nord Stream pipeline is very limited if the environmental impact assessments do not clearly show that the impact on the environment would be negative. Otherwise, it may be possible for the government to change the location of the pipeline, but it cannot prevent the laying of the pipeline as such.As regards the service platform, the government has better chances, as the relevant Swedish legislation gives the government the right to take the public interest into consideration; moreover, the relevant convention gives the coastal state (in this case Sweden) exclusive powers with regard to artificial islands, installations and structures.The branch line is more of a Swedish national interest. The relevant legislation allows for a more discretionary approach to the branch line, which is also stated in the 1988 guidelines. Whether the European Union has other views on the subject is another matter. For further information on this topic please contact Torbjörn Claeson at MAQS Law Firm by telephone (+46 8 407 09 00) or by fax (+46 8 407 09 10) or by email ([email protected]).