Lack of codification characterizes the legal framework governing the electrical power sector in the Democratic Republic of the Congo ("DRC"). It is made up of disparate pieces of legislation governing uncoordinated specific issues and most of them being obsolete, therefore inappropriate for the evolving electric power sector in the national territory. Among these texts, there are: Decree of June 20, 1928 containing general provisions on electric power transmission and distribution, Decree of July 14, 1930 on standardization, Decree of April 16, 1931 on the electric power transmission through privately owned grounds, Decree of May 6, 1952 on concessions and administration of lake and streams, Decree of July 31, 1953 on arrangements to import and export the electric power. Also, in line with this legal framework of the electric power sector, there is also: Decree-law of March 20, 1961 as amended and supplemented by Ordinance-law no. 83-026 of September 12, 1983, (“Law on the Price”), which enables the Minister of National Economy to determine the maximum price of sales or supply of electric power.
Beyond this legal framework, there are operational problems related to insufficient production as well as the decrepit conditions of production equipment and electric power lines of the "Société Nationale d’Electricité" (SNEL) which result in recurrent power load shedding and power outages, regardless of the fact that hydro-electric energy resource potential of the DRC is estimated at 100,000 MW. Actually, SNEL was Initially incorporated as a state-owned enterprise in accordance with Ordinance-law No 70-033 of May 16, 1970 and governed by its articles of association as set forth in Ordinance No 78-195 of May 5, 1978 and Law No 78-002 of January 6, 1978 containing the general legislation applicable to state-owned companies, ("Law on publicly-owned company"), now a commercial company in the form of a limited company with the State as a unique shareholder, having de facto monopoly in the production, transmission and distribution of the hydroelectric power. It has so far operated only 2516 MW, or 2.5% of the current potential, forcing some customers to use power imported particularly from Zambia to cover the shortfall.
In 2002, the mining industry development, following the reform of the legal, tax and customs framework in the mining sector, with the enactment of the existing mining code and regulations thereof, has increased the needs in terms of requests for electric power supply, particularly from mining titleholders in construction and development phase of mines and production phase as well. The same applies to processing and transformation facilities of mining products, ("mining operations"). For this purpose, SNEL and different mining operators entered into financing agreements to rehabilitate and modernize SNEL hydropower plants as well as its other transmission and distribution equipment and infrastructure, under which sales and supply contracts were then entered into with mining operators and their affiliates. These sales and supply contracts determine the electric power price paid to SNEL (the other party) by mining operators. The price so determined shall constitute the means and guarantee to reimburse the funds for the rehabilitation and modernization of infrastructure.
The Law on price considers electricity as a strategic sector so much as it grants powers to the Minister of National Economy to determine the electric power price. Using that law on the price, the Minister fixes the pricing of high voltage electric power. The contracting parties of SNEL, especially mining operators, find themselves juggling with two prices of electric power supply: one is agreed with SNEL and another determined by the Minister of National Economy.
Therefore, legal principles should be set forth to govern the pricing of high voltage electric power locally generated (I) in order to underscore the effects of the price fixed by the Minister of National Economy on the contract price (II).
I. Principles governing the pricing of locally generated high voltage electric power
The review of relevant provisions of law on the price clearly demonstrates that the Congolese Lawmakers have established two legal principles in the pricing, namely the freedom in pricing (I.1), and arbitrary pricing by the Minister of National Economy (I.2). Also, this law represses illicit pricing (I.3).
I.1. Free-market pricing by the contracting parties
The principle in free pricing as stipulated in the Law on Price for producers of goods or service providers enables them to freely determine the price by complying with this legislation. It represents that "sale price of products and services shall be freely determined by tenderers, while abiding by the provisions of this Decree-Law and implementing measures thereof". The prices so defined are not subjected to a prior approval, but they shall, after being determined, be transmitted to the State Commissioner of National Economy, with the entire related file, for a posteriori control.
Under this provision, the Minister of National Economy has determined, in Order 017/CAB/MENI-PEM/96 containing implementing measures of Decree-Law of March 20, 1961 and its measures on the price ("Implementing Order"), factors of computation of the cost price paid by industrial producers namely: 1° purchase price of raw materials; 2° manufacturing costs, including refuse costs, casting charges, storage costs, lost weight during transformation, provided they are not covered by insurance; 3° wages and social charges; 4° insurance cost and contingent finance charges; 5° cost of energy sources; 6° rent, taxes and charges of industrial buildings; 7° maintenance expenses of facilities and equipment; 8° packaging cost; 9° duties and taxes on production activity; 10° local administration and management expenses.
As described in paragraph 7, the freedom in pricing, though not subjected to an approval, shall be, however, subjected to a posteriori administrative control by care of the Minister of National Economy in order to check the compliance of free pricing with mandatory provisions of the Law on Price and its implementing measures as well. For this purpose, producing traders or service providers, such as SNEL, shall, after freely determining their prices, submit them with the entire file to the Minister of National Economy for a posteriori control.
However, the freedom in pricing the electric power is subjected to a restriction based on article 3 of the Law on Price, which sets forth the principle of freedom in the arbitrary pricing of the electric power by the Minister of National Economy notwithstanding the principle of free prices.
I.2. Arbitrary pricing by the Minister of National Economy
The Law on Price goes against free prices, as it stipulates that the Minister of National Economy "is authorized to determine the prices of water, electric power, hydrocarbons and public transportation. The Minister may, for public transportation, delegate this power to the governors of provinces ".
The Minister of National Economy is, therefore, authorized to determine the electric power price, which is, so far, the exclusive sector of SNEL.
With regards to pricing or sales tariffs of high voltage electric power, the Minister of National Economy has adopted decisions, two of which attract our particular attention, namely: Ministerial Order No 005/CAB/MIN-ECONAT&COM/2009 of March 7, 2009 on pricing of high, medium and low voltage of electric power by SNEL for its customers in DRC, ("Ministerial Order of 2009") and Ministerial Order No 023/CAB/MIN-ECO&COM/2012 of October 11, 2012, which amended the first Order as it concerns only customers of high voltage ("Ministerial Order 2012"). Therefore, these two decisions should be examined by the Minister.
I.2.1. Ministerial order of 2009
A careful reading of article 2 of Ministerial Order of 2009 allows to note that, at first, prices of high voltage customers were set in US Dollars, payable in Congolese Francs based on the contractual power as follows: (i) 1 – 9.9 MW: 0.0569 US$/KWH; (ii) 10 – 29.9 MW: 0.0522 US$/KWH; (iii) 30 – 80 MW: 0.0472 US$/KWH and higher than 80MW: 0.0435 US$/KWH. This was the target reference rate, which gave SNEL a great deal of leeway to determine because of economic conditions and international market requirements, export tariffs, while obligating SNEL to inform the Minister of National Economy thereof.
With regard to the local market, the Order under consideration envisaged an interim pricing valid for two six-month periods maximum, exceeding the said period; SNEL could gradually make price adjustments provided it gets prior authorization from the Minister of National Economy. Such price was (i) 1 – 9.9 MW: 0.0458 US$/KWH; (ii) 10 – 29.9 MW: 0.0420 US$/KWH; (iii) 30 – 80 MW: 0.0380 US$/KWH and higher than 80 MW: 0.0350 US$/KWH
After all, according to Order under consideration, the Minister of National Economy actually limits SNEL’s wiggle room in the pricing of electric power by establishing maximum prices that SNEL should apply, while setting other interim prices, which may be gradually adjusted in order to reach fixed maximum pricing with prior authorization. This reflects the will of the Pricing Authority to control SNEL liberty in price adjustments that comply with economic conditions and international market requirements.
However, the review of article 6 of Ministerial Order at issue, shows that the same also limits SNEL’s freedom in fixing preferential tariff of electric power below prices set by the Minister of National Economy. SNEL could determine the price only after prior submission to the Pricing Authority, namely the Minister of National Economy as well as after a review by the Joint Ministerial Commission - SNEL, to avoid any pricing below the cost price.
Actually, this provision gives the Minister of National Economy full powers to act as a Pricing Authority with full exclusive powers on electric power pricing in DRC, contrary to the Law on Price, which grants to the Minister of National Economy only the power to determine the electric power price beyond which SNEL or any other operator may not exceed, without falling into the trap of applying illicit prices.
As a Pricing Authority of electric power, the Minister of National Economy has passed, in the past, the Ministerial Order 013/MIN-ECO/2007 of September 17, 2007, to cancel all contractual rates granted by SNEL that were below prices set without any authorization.
Therefore, it should be noted that decisions made by the Minister under aforesaid conditions and terms obviously denote an abuse of power, which should nullify them in relevant administrative courts.
I.2.2. Ministerial Order 2012
It should also be noted that through Ministerial Order 023/CAB/MIN-ECO&COM/2012 of October 11, 2012 on amending and supplementing Ministerial Order 005/CAB/MIN-ECONAT&COM/2009 of March 7, 2009 containing pricing of electric power sale by SNEL for its high, medium and low voltage customers in DRC, the Congolese Minister of National Economy has established a unique tariff of high voltage electricity at 0.0569 US$/KWH.
Even though the2012 Ministerial Order, which proceeded by trial and error to determine the maximum prices by giving SNEL the full scope to implement them under the Minister's control, and the latter is regarded as a pricing authority also empowered to authorize preferential prices under the prices set by him, Order of 2012 exposes, without further ado, the abuse of power by the Minister who is regarded as an exclusive pricing authority authorized to set unique and exclusive price of high voltage electric power contrary to the Law on Price of which this Order is supposed to be an implementing measure.
I.3. Suppression of illicit prices
Pursuant to the Law on Price, an illicit price is any price higher than the prices set in accordance with the provisions of articles 2 and 3 of this Law on Price and with their implementing measures and prices higher than common prices. For that purpose, the Law on Price regards as unfair, the price resulting in unfair profit, even if such profit is equal to or less than the price or profit margin possibly set by the Order.
The notion of unlawful price as described in the Law on Price allows to define the jurisdiction of the Minister of National Economy regarding the pricing of electricity because the Law on Price considers a price to be illicit, the one higher than the price set by the Minister. Therefore, as the below price is not considered, SNEL as well as any other operator in the electric sector may legally negotiate with its customers prices cheaper than those set by the Minister of National Economy as long as such prices do not generate unlawful profits.
The unfair nature of pricing may be noted especially during a posteriori control that the Minister of Economy carries out under article 2 of the Law on Price. However, courts shall have the power to supremely assess the unfair nature of prices.
Nevertheless, it should be noted that decisions criticized above may harm different SNEL contracting parties so that it is important to examine the effects thereof with regard to contractual prices agreed between SNEL and mining operators.
II. Effects of pricing by the Minister of Economy on the contractual prices agreed between SNEL and mining operators
As described above, with a few exceptions, most hydropower plants as well as other transmitting and distributing equipment and facilities of electric power owned by the State or taken over by the same due to law No 74/012 of July 10, 1974 on the dissolution of six electricity companies and the taking-over by SNEL of assets, debentures and activities of such companies, were allocated to SNEL asset when it was created.
Since it was incorporated as an industrial and commercial state-owned company by Ordinance-Law No 70-033 of May 16, 1970, its management as described in its articles of association stemming from Ordinance No 78-195 of May 5, 1978 and its transformation into commercial corporation under Law No 08/007 of July 7, 2008 containing general provisions on the transformation of state-owned companies ("law on transformation of state-owned companies") as implemented in Decree No 09/11 of April 24, 2009 on transition measures in connection with the transformation of state-owned companies ("Decree on the change of state-owned companies") and Decree No 09/12 of April 24, 2009 drawing up the list of state-owned companies changed into commercial companies, public corporations and enterprises ("Decree on the list of changed state-owned companies"), SNEL SARL, party to financing agreements of rehabilitation and modernization of hydroelectric stations, transmission and distribution equipment and infrastructure of the electric power as well as to the supply and sales contract of high voltage electric power, is legal entity with a legal status separate from its unique shareholding. Therefore, the company is subject to the law whose object relates to the generation, transmission, distribution and commercialization of electricity.
Therefore, SNEL legal status and corporate purpose enable the company to become involved in legal transactions and to enter into, in compliance with the law (especially the law on price) and its articles of association, any agreement in line with its corporate purpose, to be specific the supply and sales contract of electric power as a guarantee to the financing granted by mining operators for the rehabilitation and modernization of hydroelectric stations, transmission and distribution equipment and infrastructure of electric power .
For that purpose, as far as substantial formalities set forth in the law and SNEL articles of association are compliant and agreements concerned are not subjected to specific conditions for coming into force or all contract obligations to be performed by SNEL, such agreements, including the supply and sales contract of electric power shall be immediately enforced by SNEL SARL and bind the parties hereto, as a law.
Regarding legally substantial formalities, we shall note that many financing agreements to rehabilitate and modernize hydroelectric stations, transmission and distribution equipment and infrastructure of electric power as well as supply and sales contracts of high voltage electric power have been entered into by SNEL as a state-owned company. Therefore, for them to be compliant, pursuant to articles 10 and 41 of Law No 78-002 of January 6, 1978 on general legislation applicable to publicly-owned companies, ("law on publicly-owned companies") and clause 21 of the articles of association of the time, decisions by the Board of Directors to enter into financing agreements, concerning more-than-one-year loans of considerable amounts and agreements on the company's assets, which did not depend on the day-to-day management, were subjected to prior approvals from relevant ministerial authorities of the company.
For agreements entered into by SNEL SARL, a commercial corporation from the transformation of publicly-owned companies of the open sector governed by common law provisions pursuant to article 4 of law on the transformation of publicly-owned companies, substantial formalities is those provided for in its articles of association. For that purpose, the concerned agreements should be authorized by SNEL Board of Directors and signed by persons duly authorized or empowered under article 35, paragraphs 1 and 5 of SNEL articles of association, which stipulate that "The Board of Directors has extended powers to act, in any case whatsoever, in the name of the company. The Board of Director may also carry out any operations in line with the company's corporate purpose as well as any contributions, transfers, subscriptions, limited partnerships, partnerships, participations or financial transactions related to said operations". In addition, pursuant to article 35, paragraph 7 of SNEL articles of association, the Board of Directors may give to one or several members any special powers for specific reasons.
Therefore, supply or sales contracts of high voltage electric power, following such financing agreements to rehabilitate and to modernize hydroelectric stations, transmission and distribution equipment and infrastructure of electric power, are established on this basic principle, set as an intangible dogma by classical authors, "principle of contractual autonomy", which can be interpreted as the power one has to create his own law. This principle is even established by article 33 of Decree of July 30, 1888 on contracts and statutory obligations, the Congolese Civil Code Book III, (« CCCLIII ») as it states that "Conventions legally constituted stand as law for those who made them. They may be rescinded only based on mutual consent or for legal grounds. They shall be enforced in bona fide".
As a result, the electric power price determined by common agreement by SNEL and its contracting parties, in accordance with the Law on Price and other laws applicable in DRC, based on financing considerations to rehabilitate and to modernize hydroelectric stations and other transmission and distribution equipment and infrastructures of electric power may be amended only by mutual agreement. The valuation of compliance with the Law on Price, sales agreements of electric power entered into between SNEL and mining operators, depends on the fact that such prices shall be less than or equal to prices arbitrarily set by the Minister of National Economy under article 3 of the Law on Price.
Therefore, it should be noted that the provisions of article 6 of Ministerial Order of March 7, 2009 as well as those of Ministerial Order 023/CAB/MIN-ECO&COM/2012 of October 11, 2012 and the provisions of Ministerial Order 013/MIN-ECO/2007 of September 17, 2007 show abuse of power, which should void them pursuant to an administrative judicial procedure as long as the involved person is within the relevant period and based on conditions set forth in Ordinance Law no. 82-017 of March 31, 1982 containing the procedure at the Supreme Court of Justice.
Prices agreed upon in this contract constitutes the law of the Parties. SNEL will not be able to obtain from courts, the payment of the difference in prices it unilaterally fixed under Ministerial Order 023/CAB/MIN-ECO&COM/2012 of October 11, 2012 since in accordance with article 153, paragraph 4 of the DRC Constitution of February 18, 2006 now in force, Civil and Military courts enforce regulatory decisions provided they comply with laws, or as described before, the applied unique tariff is not compliant with the meaning of Decree-Law of March 20, 1961 as amended and supplemented by Ordinance #83-026 of September 12, 1983 .
We have reviewed the main issues raised by the pricing of high voltage electric power according to the Congolese Law. Actually, we have noted that the Law on Price states the principle of freedom on pricing, however authorizes the Minister of National Economy to determine the price, which operators of the electric sector may not exceed.
Thereby, under the pretext of executing the provisions of the Law on Price, the Minister of National Economy has passed different Orders whereby he gives himself the power to determine prices to the point of prohibiting SNEL to determine the price below the price set forth in such Orders, which we have regarded as an abuse of power since the concerned provisions are inconsistent with the substance of the Law on Price.
Based on our analyses, we have concluded that SNEL does not have the right to unilaterally change the agreed prices in different Sales Contracts of electric power entered into with its high voltage customers without the consent of its contracting parties under the pretext of complying with these Orders because of their obvious unlawfulness.
In anticipation of the law on electric power, now under consideration in Parliament, we believe that lawmakers should settle this thorny issue of pricing by taking into account the interests of operators in the generation, transmission and distribution of electric power so as to avoid prices which preclude profitability, thus impairing the maintenance of generation and distribution equipment and materials of electric power, therefore becoming an obstacle to attract investments in this sector in the DRC .