Introduction
Affected transactions
Affected entities
Exemptions
Comment
On 3 November 2021, the Commission for the Environment, Spatial Planning and Energy of the Swiss National Council (the Commission) opened consultation proceedings on a proposed amendment to the Federal Law on the Acquisition of Real Estate in Switzerland by Non-Residents (the proposed amendment). According to this proposed amendment, strategic energy infrastructures should be protected against acquisitions by non-Swiss persons or entities. The notion of "strategic energy infrastructures" includes:
- hydropower plants (eg, storage and run-of-river plants);
- pipelines for transporting gaseous fuels, which are subject to federal supervision;
- electricity grids (ie, the transmission grid operated by Swissgrid Ltd and the distribution grids); and
- nuclear power plants.
In the Commission's view, there is a fundamental public interest in ensuring that strategic energy infrastructures are not operated by non-Swiss persons or entities as they are essential to Switzerland's supply and security. Not only does the Commission consider that such non-Swiss acquisitions would crowd out domestic investment, but also the profit outflow abroad would be problematic because energy infrastructures are often subsidised by governments.
Against this background, the statutory purpose of the proposed amendment will be expanded to cover the protection of infrastructures that are essential for an independent and secure energy supply in Switzerland, which goes beyond monopolistic infrastructures. The proposed amendment subjects the acquisition of certain energy infrastructures by non-Swiss persons to approval requirements. The Federal Council will approve relevant transactions only if the requirements set out in the proposed amendment are met. However, the Federal Council is authorised to exempt certain hydropower plants with less than 20 megawatts of installed capacity, and thus non-Swiss persons' acquisitions of such plants, from these requirements.
The notion of an "acquisition" is broadly defined so as to include any possibility that allows a (foreign) person or entity to access relevant energy infrastructure and gain de facto control over it. Thus, the proposed amendment applies an economic approach and includes the following scenarios:
- the acquisition of ownership, building rights or beneficial use;
- the acquisition of real estate that will be part of the construction, operation or management of relevant energy infrastructure;
- the acquisition of licences or other rights (such as conjugal rights) to build or operate relevant energy infrastructure. This not only covers new constructions, but also future changes;
- participation in a company without legal personality which is, however, capable of holding assets, and the acquisition of shares in a legal entity whose actual purpose is to acquire, construct, operate or manage relevant energy infrastructure. According to the consultation materials, each shareholding and the acquisition of each individual shareholding are subject to an approval requirement. Further, the proposed amendment specifies that participation in the formation or in capital increase of the legal entity is also subject to approval;
- participation in collective investment schemes and similar structures that invest their funds in energy infrastructures subject to the proposed amendment, including indirect investments;
- the establishment or exercise of purchase, pre-emption or repurchase rights;
- the acquisition by way of a:
- merger;
- demerger;
- transformation; or
- transfer of assets; and
- the acquisition of any other rights that confer a position similar to that of an owner.
Moreover, under the proposed amendment, even the transfer of the registered or de facto seat is subject to the approval requirement, as long as access to relevant energy infrastructure is retained.
Whether a natural person is considered a "foreign person" under the proposed amendment depends on such person's nationality and the place of legal and actual residence. Conversely, not every legal entity that has its registered seat in Switzerland may be regarded as a Swiss person. Rather, this will be determined by whether the legal entity is controlled by foreign persons as defined in the proposed amendment.
The proposed amendment sets out certain exemptions from the approval requirements:
- The proposed amendment provides that shares may be acquired without an approval up to a certain threshold in order to preserve a limited trading volume. Thus, in general, only share acquisitions resulting in an acquisition of control by one or more persons or that strengthen such control are subject to an approval requirement. The proposed amendment defines this notion of "control" and provides for certain legal presumptions.
- There is no approval requirement for foreign persons who must be permitted to acquire energy infrastructures based on Switzerland's international obligations (ie, international commitments concerning market access and the national treatment of non-Swiss companies under free trade agreements, as well as obligations under freedom of movement agreements).
According to the objectives of the proposed amendment, relevant energy infrastructures should, in principle, remain in the hands of persons resident in Switzerland. It stipulates that approval will be granted only if the acquirer can demonstrate that the acquisition will strengthen Switzerland's macroeconomic or supply policy interests, and that there are no conflicting policy interests. Acquisitions by foreign persons for investment purposes will generally be incompatible with these interests.
Irrespective of whether a reason for approving a transaction is generally given, the proposed amendment sets out specific reasons that will automatically lead to refusal. This includes impermissible capital investments or attempts to circumvent the law. The proposed approval regime does not provide for an explicit exception in cases of the seller's hardship.
It is the acquirer's obligation to obtain approval or a ruling according to which no approval requirement applies in a given scenario. Violations may lead to civil liability as well as administrative and criminal penalties. In particular, a transaction subject to approval remains ineffective during approval proceedings and becomes null and void if it is executed without such approval. However, in addition to self-monitoring, the Federal Council may also initiate proceedings if it has reason to believe that a violation has occurred. In such instances, a mere suspicion is sufficient to demand information and inspection of any relevant documents. As a further control mechanism, and to support the Federal Council in its role as the competent authority, the proposed amendment also provides for a reporting obligation to obtain knowledge of transactions that potentially require approval. More specifically, persons who own or operate covered energy infrastructures must disclose to the Federal Office of Energy the shareholding and financing relationships of the respective energy infrastructure (ie, by disclosing the shareholders and submitting the most recent annual report) at least once a year.
Overall, the Commission's move to open up consultation proceedings is surprising, considering that the regulatory impact report prepared by its economic and regulatory advisor Swiss Economics was critical. More specifically, although many imperfections currently exist in energy markets, the regulatory impact report heavily questioned whether differentiating between non-Swiss and Swiss investors is an effective approach for securing energy supply in Switzerland going forward. Conversely, the report found that it would be more sensible to differentiate between public and private investors. Moreover, the regulatory impact report also mentioned that the proposed amendment contains various possibilities for circumvention (eg, legal entities could shift their registered seat to countries that are party to an eligible free trade agreement with Switzerland, prior to acquiring relevant energy infrastructures) and that studies in other jurisdictions suggest a decrease in investment volume once such regimes were enacted, thereby negatively affecting the security of the energy supply in the longer term. Experts expect that the proposed amendment will lead to a higher market concentration as well as reduced competition. In light of these critical voices, it remains to be seen whether the proposed amendment will make its way through Parliament successfully.
For more information please contact Marcel Meinhardt or Patrick Sattler at Lenz & Staehelin by telephone (+41 58 450 80 00) or email ([email protected] or [email protected]). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.