Following a recent decision of the EFTA Surveillance Authority (available here), contracts relating to the exploration and extraction of oil and gas on the Norwegian Continental Shelf will now be exempt from the detailed procedural procurement rules set out in the Utilities Directive 2004/17/EC (the “Utilities Directive”).
We have recently reported on the proposed Directive of the European Parliament and of the Council on procurement by entities operating in the water, energy, transport and postal services sectors (the “New Utilities Directive”, available here), which is intended to replace the existing Utilities Directive (click here). ( to view our earlier Law-Now on this). The practical implications of the New Utilities Directive on the UK oil and gas industry are limited, as since 2010 exploration for and exploitation of oil and gas in England, Scotland and Wales has been fully exempt from the Utilities Directive, and will continue to benefit from a full exemption from the New Utilities Directive. As our earlier Law-Now explains however, for other EU territories, the new rules will provide an exemption for exploration activities but not for development and production or “exploitation”.
Norway, although not a member of the European Union, is required pursuant to the European Economic Area (EEA) Agreement to comply with certain rules of the European Union. The EEA Agreement is the international agreement which enables the three European Free Trade Association (EFTA) States (Norway, Iceland and Liechtenstein) to participate in the European single market. The EFTA Surveillance Authority monitors and enforces compliance with the EEA rules in the three EFTA States, including those rules on public procurement contained in the Utilities Directive.
Activities covered by the Utilities Directive may be exempted from its scope where access to the market is unrestricted and where an activity is already directly exposed to competition. In the UK oil and gas sector, there was found to be sufficient competitive pressure that the procurement discipline brought about by the EU procurement rules would not be required, and an exemption was granted on this basis. Now, after what we understand to have been a very protracted period of consideration, the EFTA Surveillance Authority has decided to grant a similar exemption for exploration and extraction of oil and gas on the Norwegian Continental Shelf (NCS), on the basis that the conditions for an exemption have been fulfilled. Accordingly, entities operating on the basis of special or exclusive rights (such as a NCS Production Licence) in Norway will no longer be subject to the Utilities Directive rules.
The complete list of territories with an exemption from the Utilities Directive is therefore now the UK (excluding Northern Ireland), Cyprus, Italy, Denmark, the Netherlands and Norway, although it should be noted that in Italy and Denmark the exemptions do not apply to contracts relating to the production of gas, and in Cyprus (where there is not yet any production) the exemption relates only to exploration.