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IS SUE 2 V OL UM E 1 JUL Y, 2011 Issue 2: Energy Also in this issue: “The challenge is certainly ahead of us to make every issue even better than the previous” “(leading) is pretty much like love in this sense, it is simply impossi- ble to pin it down in words, and if you manage to describe it, you know it is not really love.” “Stronger private investments and interest is needed. Indeed, a less fragmented and more integrated regulatory framework might help to increase both.” “I do find it conflicting that there is so much talk about gas reserves depleting within decades yet, across the board, everyone still builds new plants that produce energy by burning gas” “only one thing seems to be sure: the industry has to be prepared for further changes regarding co- gen regulation.” “These are exciting times for the green energy sector both locally and globally.” “This will mean a fundamental change in the operation of the Hungarian electricity generators, likely leading to an increase in the wholesale electricity prices.”This Issue‟s Grapevine Pick:Dr. Pál Kara - Vice President Legal - Mol Group
IS SUE 2 V OL UM E 1 JUL Y, 2011Issue 2: EnergyLetter s from the editor s We are incredibly pleased Enjoy the read and a heartfelt thank you with the launching of the to every GCG contributor, follower! In this issue: inaugural edition of The Orsolya Endrefi GC Grapevine in May and DR. PÁL KARA, Associate Director - Emerging Europe the immense market feed- and Latin America VICE PRESIDENT - LEGAL, MOL back we have received in Hudson Legal PLC. …………….……………3this short while. The GCG is the result When we started thisof a long-held need of a pre-eminent project we could not havelegal focused publication. For those who imagined we wouldhave contributed to this edition and the DR. BÁNFI LÁSZLÓ receive so much feedback DEPUTY CEO FOR CORPORATEprevious, WE THANK YOU and so do and so many e-mails from AFFAIRS AND GENERAL COUNSEL,the readers, believe me. The response MVM..………….……………6 the legal communityhas been profoundly and overwhelmingly asking how they can get involved.positive. It is YOU, our reader, who is Although in its infancy, the GCG hasmaking this periodical the most sought managed to kick-start the creation of a DR. NAGY T. KATALINafter legal publication in Hungary. LEGAL COUNSEL, E.ON….……8 true GC community in Hungary and weAs one avid reader commented, “… plan to ensure that this momentum doeseasily digestible up to date legal info not go to waste. We will keep our call tocoupled with an amazing human touch”, join us in this community open so Iwhile another reader acclaimed “ …nice would like to reiterate the tools at our DR. ÁKOS SZENTKERESZTYto read about leading GC‟s who are like readers‟ disposal: CHIEF LEGAL ADVISOR, GDF SUEZ ….…………………....10the untouchables, yet you come to The Private Practice Strip will offerrealize they face similar issues as the rest firms the chance to make brief announce-of us…”. ments.The challenge is certainly ahead of us to The Grapevine Pick will offer all our C HANGING REGULATION FORmake every issue even better than the CO-GENERATION POWER PLANTS subscribers the opportunity to recom- – WHERE IS THE END? ....…....12previous. Our goal is to do just that; mend who should be interviewed for themake it better, more interesting and next edition.informative with a spiral of inspiration (My) Word On The Grapevine willcoming from each interviewee. We have C HANGING REGULATION FOR offer readers the opportunity to makea market holding their breath for the CO-GENERATION POWER PLANTS their voices heard directly. Feedback, – WHERE IS THE END? ......…..13Pharmaceutical edition and our pillars of replies, comments and additionalthe issue have already begun to take information that our readers wish toshape. share with the rest of the community.As always, your suggestions are more We are always happy to hear from our C HANGING REGULATION FORthan welcome - actually we look forward CO-GENERATION POWER PLANTS readers so, please, feel free to write to us – WHERE IS THE END? .....…..14to them - this is your voice. Remember, at GCG@hudson.com or join the dedi-the “On the GC Grapevine” was created cated group here for more details.for you, the elite in-house Counsel, solet us know what legal topics you wish to Radu Cotarcea Marketing Manager - Emerging Europeread about and the GC‟s you want us to and Latin Americafeature. Hudson Legal PAGE 2
IS SUE 2 V OL UM E 1 JUL Y, 2011dr. Pál Kara, Vice President - Legal, Mol Plc. GCG: We know that you P.K.: First of all, you need to can imagine, there is actually a always practiced law in- know your industry very well. For strong need for this in an industry house. Why did you choose MOL Group, we are talking about that moves so fast and this small this path and is there any gas, electricity, petrochemicals. staff turnover simply provides a reason for which you envy You need to understand the whole way for it to occur naturally. private practice lawyers? supply chain from crude oil to the GCG: Out of all the GC gas stations. For that matter, P.K.: First of all, I especially like responsibilities, which do supply itself can be quite varied. If the industry MOL Group deals you find to be the most you extract oil from the sea or buy with, mostly because of its challenging? it from the Russians via the complexity and its role in the pipelines makes a world of a P.K.: Different times require a business and social life. This difference. Later you need to different focus. Sometimes I am complexity provides challenging worry about the refining process required to concentrate the bulk of and interesting work. Let me give and even the end goal, selling, my efforts on managing people. you an example: the defense of the depends on whether you are For instance, there were periods OMV hostile attack was one of the planning to do so retail or when two or three of my “You need to think day most incredible tasks you can wholesale. Connecting this to my colleagues were having babies imagine. You need to think day previous answer, as you can see, which meant I had to pick up their and night how to and night how to connect the dots: talking about oil alone, you would responsibilities and relocate them connect the dots: business knowledge meets political require at least three specialized within the team. Other times we sensitivities meets legally speaking lawyers. may get hit by a new regulation business knowledge highest challenges. and we need to focus a lot of our Secondly, energy has always been meets political attention to adapting our policies At the same time, I, somehow, one of the focal points of interest and implementing what is required never liked the idea of being an of politicians, economists. Because sensitivities meets external lawyer. First of all, the of this interest, and the scrutiny it of us. legally speaking life style seemed more hectic and brings with it, you always need to As a result, I would say it is a very unpredictable comparing with be very well prepared when it dynamic role and the challenge highest challenges.” working in-house. I am not saying comes to the regulations comes as a result of this. You need that working in-house cannot get surrounding the industry both at to be able to prioritize and focus crazy at times. Simply think of the EU and national level. on the project at hand and not get example I gave earlier, but I think easily distracted by all the pending Thirdly, any General Counsel is, you can somehow better control tasks from all the different areas. other than a lawyer, a manager, your time. who is expected to put together a GCG: When do you outsource Also, when working in private strong team. This is why I am work and based on what do “I would say it is a very practice, your clients expect the always heavily involved in the you chose the firms you work absolute highest level of legal recruitment of my team members, dynamic role and the whether for Hungary or anywhere with? proficiency in any field they use challenge comes as a your services for. This means that else in the region, rather than P.K.: The structure set up is that external lawyers need an intense relying solely on our HR we outsource, especially in result of this. You need specialization as one lawyer cannot department. Hungary, those projects that to be able to prioritize really be a labor lawyer one week GCG: I imagine that having require general or a wider- and an M&A one the next. In my reaching expertise. For example, a and focus on the project position, though, I benefit from this extra hat must be rather legal proceeding is usually challenging... at hand and not get flexibility. I enjoy the idea of outsourced to a law firm working on dozens of different P.K.: Not really, we do not have specialized in such cases. For these easily distracted by all cases from different practices area that much of a fluctuation, and the kinds of issues it would not really the pending tasks from as well as different jurisdictions. one that we do register is to some make sense to keep „talent‟ extent beneficial as it brings fresh in-house simply because the all the different areas.” GCG: So what would be the blood to the team. This allows for counsels that we do have as part of characteristics of a good GC? more room for innovation. As you our team are experts in the specificPAGE 3
IS SUE 2 V OL UM E 1 JUL Y, 2011 The Pr ivate Practice Str ipcore functions of our company. In P.K.: If we need support on a think „energy‟ I think of renewable Andrékó Kinstellarfact, I believe that, as a result of cross-regional project, it would, in energy, gas, oil and these, for me,their work here, they are far more most cases, make sense to go with represent completely different„in tune‟ with the industry top international firms. Only these legal fields. I feel this in our The largest ongoing powerregulations and understand the types of firms have the capacity to company as well. For example, we plant development projectcompany needs better than most offer support across multiple are relatively young in electricity,private practice lawyers so I would jurisdictions at a time. but soon after we started working Kinstellar has been advising the Jointrarely outsource for these kinds of in this direction we learned that it Venture of two major Central However, from my experience, if requires completely different skills European energy holdings since 2009projects. you are talking about projects and knowledge. The bigger the in relation to the development andIf I make the decision to use an bounded within one country, I construction of two new 880 MW company becomes and the moreexternal law firm we send out a have noticed that, in many cases, we outreach into new fields of the gas-fired CCGT power plants inrequest for a proposal where we although not all the time, local Hungary and Slovakia, including „energy industry‟ I need to workclarify our expectations. At the firms‟ input can actually prove to preparing and negotiating all project with more and more differentlysame time, we do our own be more reliable at a considerably agreements and advising on the specialized lawyers.homework and try to also search lower price. At the same time you regulatory implications, with adirectly for qualified local firms need to consider that in some of In fact, I believe that being a project value of more than EUR 1.5that meet our needs. When we the markets that we operate in, General Counsel does not mean billion. The transaction is the largestcompare between firms we look at some of the big international you need to be an expert in ongoing power plant project inexpertise primarily and secondly names are simply not present, or if Hungary.the fee. Equally important to the they are, they have not been there “there have been quite a few The largest lignite-based powerfee for us are the assumptions for long enough to have a solid plant development project inmade in the proposal, those nice understanding of the market big firms that pulled out of decades„provided that x is done‟ or relative to the local firms. Hungary. Naturally, most„provided that y happens‟. Kinstellar advised Mátrai Erőmű I tend not to tip the balance of the lawyers remained ZRt. between 2008 and the end ofGCG: What do you not like to towards an international firm 2010 on the brown-fieldsee in proposals? simply because of its brand name and we still work with development of a 500 MW lignite in light of what I mentioned before them. Just because they do and biomass-fired power plantP.K.: Too many assumptions but also because it has been my through a joint venture with theusually kill the mood for me and not have a big name on the experience that a lot of these firms MVM group, including preparing andoperating a proposal under too represented locally do not offermany such assumptions risks easily the same strong support as their door does not mean that negotiating the project agreementslosing a tender in my view. This is and advising on the regulatoryprimarily due to the fact that it London offices or wherever they their level of service is implications of the project, with a have their headquarters. project value of EUR 1 billion.makes it considerably difficult for lowered all of a sudden.” Although finally not completed, theme to compare the offers. A On the other hand, there have project represents the largest powerlimited number of reasonable been quite a few big firms that plant development project in decadesassumptions are, of course, pulled out of Hungary. Naturally, everything. I quite often tell my based on Hungary‟s domestic sourceacceptable. For example, if I see most of the lawyers remained and colleagues that it would be a huge of fuel and contemplated in a joint„provided that the contract is we still work with them. Just mistake and completely bad venture with the State.under English law‟ I find it because they do not have a big management from my side if I wasperfectly fine. name on the door does not mean a better expert in their fields than that their level of service is them. I am the one responsibleAt the same time, I dislike with managing the legal team and Faludi Wolf Theiss lowered all of a sudden.proposals that put forward it is up to my colleagues to be theunreasonable caps. In my GCG: While, „energy‟ would true experts and give the in-depthexperience, we have had plenty of seem to be the most obvious advice on their fields. I cannot, Faludi Wolf Theiss advises onlow caps and firms would later answer, you mentioned that and no man can, be expected to be ERSTE Bank mergercome up and offer many as a General Counsel you an expert in all the areas involvedarguments on why they would have the opportunity to work in such a complex industry. Faludi Wolf Theiss advised ERSTElike to have those removed or on cases from a variety of Bank in relation to the acquisition ofchanged. practices. What area of the GCG: What side of the energy direct and indirect control over law do you find the most law gets you buzzing then? Magyar Factor Zrt. The mandate alsoGCG: What would be your interesting? P.K.: Personally I enjoy most the included obtaining approval by theinclination towards, a top Hungarian Financial Supervisorytier international firm or P.K.: Firstly I believe there is no oil side of our business. I would Authority and the Hungarianlocal firm? such thing as ‟energy law‟. When I not be able to tell you exactly why Competition Authority. PAGE 4
IS SUE 2 V OL UM E 1 JUL Y, 2011this is the case. Maybe it has to do very happy to see that happening. I challenging for you? developments. Of course, we arewith my history with the guess it is up to the engineers close to the regulatory body andcompany. really and less up to the lawyers. P.K.: Well this is one of the aspects have a dedicated group, separate I actually love most about my job. I from the legal department, whichWhen I first joined there was no GCG: How do you comment already got used to the size of the focuses on liaising with theexpert on oil regulations whereas on the EU‟s target: 20 per company and the sheer volume Government and offering feedbackwe had one for gas and even had cent renewable energy by involved and this idea can really get to regulatory drafts in the officialone on renewable energy already. 2020:? your adrenalin pumping at times. I collation phase.Somehow it remained the case guess it depends on the day really,that, even in my current role, I P.K.: I personally think that this is, GCG: Will we achieve a truly with a great variety of issueslike to focus on the oil component what would be a nice word for it.. integrated energy market in popping up everywhere. In Slovakiamore and still have very strong gas challenging. the EU? What are the barriers there were times when we hadexperts to cover that side. GCG: How do you expect this issues with their competition agency towards this goal?Naturally, I still have to offer will be reflected Governmen- as they thought that we leveraged I think this is first of all a historicalsupport on gas issues as well but tal policies? our dominant position that we had heritage. During the socialist rulesoil remained my personal favorite in the country. Romania has its own P.K. Well, I can tell you what challenges. There, we have a much there was one pipeline from thetopic. happened with MOL Group and smaller market segment, pretty Soviet Union to each country andRenewable energy law is also an the sulfur emissions rules adopted much like in Austria, where we there was no need to worry overinteresting aspect simply because it by the EU. In order to achieve the focus primarily on wholesale and energy supply. The problem is thatis one of those areas that we are EU targets, MOL was required to that involves a completely different over the last few decades only ahappy to work on the regulatory make huge investments in its approach. few Governments realized theside and happy to implement refineries to be able to produce at problem of over-dependency onsystems to comply with them. We the required quality. This is what However I think the regional one-sided Russian supply, althoughagree with controlling emissions, we also have to do now in Croatia perspective in itself is one of the this is changing fast. MOL Groupwith the content of sulfur, and so to be able to meet the EU targets biggest challenges as today, more was one of the first to launch aon. I say happy in that we see the when Croatia joins the EU. and more, regulators and agencies regional gas network projectneed for it and we understand our Personally I do not have a problem are in touch with their counterparts because it is crucial to build a largewider social responsibility to do network to be able to leverage itso. Nevertheless, I enjoy finding “the Government cannot realistically expect all the market either in negotiations with the players all of a sudden to have the resources to make suchthe correct balance because I feel investments .” Russian suppliers or the regulatorywe need to be realistic and be bodies here. Small steps areaware that it is not feasible to live with this kind of an approach and in other countries. This means that already taken in this direction.without conventional energy in the it is no secret that this may even we need to pay extra attention to EU, for example agreed on severalupcoming decades. While I am not bring us some benefits since, in consistency. This is beneficial to competition exceptions to facili-an expert on the technical, the whole Balkan area, we are some extent as it ensures a tate the Nabucco project.engineering side, I simply do not probably one of the few ones discipline across the group which issee how we will be able to remove However, while the regulatory who have the economies of scale so important with regulators, both side has been improving, I thinkour dependency on conventional to upgrade to this level. at national and EU levels, becoming the EU should be more involvedenergy in the very near future. more and more integrated. This On the other hand, the EU or both in financing these kinds ofTake wind power for example. It helps us to be prepared as we know projects as well as in negotiating th e G o v er nm e nt ca nn otis still a rather unpredictable that if we have a certain problem in the supply of the network. realistically expect all the marketenergy supply and the cost of this one country we can definitely players all of a sudden to havekind of energy is still very high expect to be investigated on the the resources to make suchrelative to the conventional one. same issue in other jurisdictions.The everyday consumer might not investments and it is not like the Government at the moment is GCG: What about „home‟? Join our Generalnotice it yet, but this technology,setting it up and operating it has overflowing with money to consider further costly subsidies. What do you find to be the biggest regulatory challenge Counsel dedicatedyet to reach reasonable costmargins so that consumers would But I expect that even if the targets are missed, the issue of in Hungary? group on Linkedinnot feel the price pressure if we renewable energy and CO2 P.K.: The regulations are rapidlymoved to it more and more. So it changing these days not to deeply reduction will not go away.is difficult to predict when explained, this could meanalternative energy will replace GCG: Your role is a regional regulatory risk for the business - itour current primary means of one. Which market has is quite a challenging continuousproduction although I would be proven to be the most task to keep track of regulatoryPAGE 5
IS SUE 2 V OL UM E 1 JUL Y, 2011dr. László BánfiDeputy CEO for Cor porate Affair s and General Counsel, MVM GCG: Your role or, rather I that a general counsel has GCG: Why did you decide to should say roles, certainly nowadays, especially in regulated practice law in-house? must provide a great deal of markets such as energy. challenges. How does one L.B.: I worked in private practice learn to cope with the two GCG: What is the most until last year. The reason I hat concept – Deputy CEO difficult aspect of this dual decided to move was that, after a for Corporate Affairs and role? while the work becomes slightly General Counsel? flat and you need a new inspiration L.B.: I do not think I could point and challenge. There is also a L.B.: Personally I simply see it as a to one thing being more difficult strong tendency to develop this matter of constantly doing my than the rest simply because of the tunnel vision that, as a private best. completely different natures of my practice lawyer, you are the best responsibilities. On one side I am a Despite the dual role, I still see lawyer in the world, especially lawyer and, as I mentioned, after myself as a lawyer first and compared to those practicing in- practicing law for over 18 years, foremost. It is the side I enjoy house. this is where my heart will always “I do not consider most but now I am put in a be. Yes, it might sound weird to say position where I need to cover so myself special or much more. As Deputy CEO of On the other hand, now I am in a the work becomes flat in light of the numerous clients you work extraordinary in any the Hungarian Power Companies position where I need to manage with but after a while you need Ltd, for example, I also need to and lead a whole team. As you can way, just as a guy handle environmental and quality imagine, this is completely new to something that truly inspires you. me. I was never really educated or For me, this was the opportunity who works hard every management issues which I feel to dedicate myself to one team and simply add to the value of my trained in this direction. But I do day to do the best he work. not think this is all that important have the responsibility that comes at the end of the day. From my with understanding and working can.” GCG: We have seen a growing perspective, leading a team is with one company in-depth. number of General Counsels something that needs to be done being a part of Boards, but GCG: And why did you by nature; it has to come from few acting as Deputy CEOs. choose the energy sector inside and not only from a Why do you think you, as a specifically? university book. lawyer, were chosen for this L.B.: First of all, while in private role? GCG: So, according to you, practice I was working in energy L.B.: To be completely honest, what is the secret to manag- and trade. At the same time, this “I am a lawyer and, you would have to ask my CEO ing, leading, developing an role found me, not the other way effective team? around, and I was honoured by the as I mentioned, after that. I do not consider myself invitation to work for MVM in my special or extraordinary in any practicing law for L.B.: Again, leadership is some- current role. way, just as a guy who works hard thing that one needs to “feel”, not every day to do the best he can. over 18 years, this is merely “know”. I think we could I must admit, there is, of course, a Indeed, the role of the General talk for days about how to be a practical consideration as well. where my heart will Counsel carries more and more good leader and would still not During the recent years‟ recession, always be.” weight in Companies‟ Boards find the right way to put it into pretty much every industry has decision making process and the words. It is pretty much like love been struggling. Energy, however, fact that MVM‟s CEO chose to in this sense, it is simply impossi- is one of the core industries that have me, a lawyer, as a Deputy ble to pin it down in words, and if any recovery needs and it was CEO shows that MVM fully you manage to describe it, you exciting to be a part of a growing acknowledges the strategic role know it is not really love. company. PAGE 6
IS SUE 2 V OL UM E 1 JUL Y, 2011 “It (leading) is pretty in the Energy industry in regulation concerning renewable what law firm to outsource Hungary? energy regimes would result in work to? much like love in this either having minimum impact on L.B.: In my view, currently the the market or in not distorting the L.B.: If the decision to outsource sense, it is simply biggest regulatory challenge in the market at all. Also, it would not is made, I usually look at the impossible to pin it energy sector in Hungary is the increase the burden on the popula- professionalism and reliability that creation of an efficient and well- tion of EU member states to an the proposal conveys. For me a down in words, and functioning regulation concerning intolerable level and it would proposal should not be about the the mandatory off-take of electricity quantity of information presented. if you manage to ensure reaching the established I value proposals that focus strictly generated from renewable sources mandatory renewable energy describe it, you know and the combined heat and power targets. In this sense I trust there on the core of the problem. I like generation. The establishment of a will be changes to the current to see a drive towards the it is not really love.” mandatory off-take regime always energy regulations in the future identified problem and clear-cut poses a risk of over-financing or since the current „package‟ has yet solutions to address them and not under-financing. It should also be to achieve all three objectives. a lengthy proposal explaining theGCG: We have been told that noted that the establishment of such barriers and obstacles towards regimes may distort competition GCG: There has been consid- solving it.there is no such thing as and may have a negative effect on erable push towards creating„energy law‟ with oil, gas, a strong North-South energy Personally I don‟t care too much ifelectricity and renewable the so called „traditional” power network between EU coun- I work with a small local law firmenergy, all varying greatly. generation. tries to reduce dependency or a Magic Circle firm. Indeed, theWhich one do you find the EU member states implemented on the East-West line. What latter has a strong infrastructuremost challenging and why? significantly different renewable are the biggest hurdles in and the capabilities required forL.B.: Common concepts and energy regimes. Thus, a market- your mind in connecting some of the projects, but really, atregulatory challenges affect all conform, unified EU legislation differently regulated mar- the end of the day, it is profession-sectors linked to the notion of would be essential in this respect. kets? alism, best portrayed in their focusenergy law. First of all, the regula- on the problem and not on the GCG: Since most of these L.B.: Political goals may be moretory approach is based on the value barriers, that is the winner for me. targets related to renewable ambitious than business goals. Thischain (upstream, midstream and energy are national in nature, means that strategic goals are not GCG: What advice would youdownstream). All sectors are how do you expect them to be necessarily feasible for purely give any lawyer consideringdominated by the core problems of reflected in governmental business purposes. moving in-house?network industries: access to policies?network elements, security of In this case market players can go L.B.: It is quite hard consideringsupply, asymmetric regulatory L.B.: The Hungarian Government along with the aim of creating a the completely different systems ofobligations of incumbents, outlined many far-reaching goals strong North-South energy work between private practice andcompetitiveness of services and both in the national renewable network between EU countries to in-house. I think it is important toinfrastructure investments, energy action plan and in the new reduce dependency on the East- understand the difference betweensustainability and protection of national energy strategy they are West line. Moreover, they would the two and to understand thatconsumers. Energy law as such currently finalizing. With regards to even participate in the execution when you move in-house, youtherefore inevitably established an putting them into practice much of the project. However, they automatically become part of aart of skill to be understood depends on the cooperation of expect a certain portion of the team.comprehensively. The most of the every market player so I am most financial resources necessary forchallenge is common in each part curious if steps will be taken to Most private practice lawyers that feasibility purposes to be providedof energy law: to reach an optimal incentivise this. join my team are excellently from EU or national public funds.consensus between the diverging GCG: Do you expect sustaina- prepared lawyers, but they tend tointerests of all stakeholders ble energy regulations to GCG: As a General Counsel be individualistic. The more aware(government, market players, differ considerably from for a major player in the you are of this difference, theconsumers, European Union). current energy regulations in energy sector, you must faster the transition will be from a the future? receive countless proposals lonely wolf to enjoying theGCG: What do you think is from law firms. What do you benefits and social security thatthe biggest regulatory issue L.B.: In my opinion, an ideal look for when you chose working in a team offers.PAGE 7
IS SUE 2 V OL UM E 1 JUL Y, 2011 The Pr ivate Practice Str ip dr. Katalin T. Nagy Gide Loyrette Nouel - Legal Counsel, E.ON D‟Ornano Iroda GCG: What do you find to be in-depth because of this. Hydro Power Plant at the most difficult part of your Békésszentandrás GCG: Having worked both as role? How do you overcome lawyer at an international Gide Loyrette Nouel is advising OTP it? law firm as well as General Bank Nyrt. in relation to the K.N.: Differences management is Counsel, would you go back financing of the building and one of the key aspects I try to keep in private practice? maintenance of a hydro power plant at Békésszentandrás. The hydro in mind at all times. It is crucial to power plant at Békésszentandrás understand that, unlike in a big “Anyone willing to listen represents a successful law firm, when working in-house, implementation of Hungarys new you deal with people coming from carefully easily learns energy policy identifying the priority different backgrounds, with how the industry works” of low CO2 intensity power different education and different generation by using renewable energy. cultures. Because of these K.N.: I am not sure. I enjoyed the differences you are expected to first six years of my legal career express yourself not as a lawyer, when I worked at the law office Review of the Serbian but clear and concise. In order to simply because I was constantly operation of a TOTAL affiliateGCG: What would you say get your point across you need to surrounded by a big professionalare the key characteristics be able to understand the way Gide Loyrette Nouel received a new group of my peers. However,that make a good General someone who does not have a legal mandate from the affiliate of the while at the time I felt I had a good French petrochemicals companyCounsel? background thinks and adapt your understanding of our clients, I was TOTAL, for the full review of its message accordingly. always an outsider. It was always a operations in the Serbian market andK.N.: I think it takes a bundle of purely artificial relationship that recommendations of the possible I believe the key to success in thischaracteristics as well as attitudes did not really provide a real feeling structuring of the future activities. regard is listening to colleagues.to meet the specific requirements The mandate required the full When in-house, you are surround- of the organisation the same wayof the role as well those of the co-operation of GLN lawyers in ed by a wealth of knowledge that working in-house does. Budapest and its affiliate firm incompany. I include the company readily accessible to anyone willing Belgrade.because I do think the role of the GCG: Why energy? to listen. I am surrounded every-General Counsel does vary consid- K.N.: Energy is a top focus in each day by great professionals, greaterably based on the nature of the country. As a result, it is, at the engineers who have this strong Horváth & Partners DLAcompany and the industry it present time the most complex, passion for what they do and are Piperoperates in. challenging and changing industry. always proud to speak about their work. Anyone willing to listen Lawyers love challenges and the DLA Piper in Hungary advisingBeing a good lawyer is obviously on the purchase of a 21,2% carefully easily learns how the energy industry has plenty of it.not enough. A good General shareholding in MOL Plc. industry works and how their Firstly, it develops at an amazingCounsel needs to consider mind works, what their priorities pace and simply staying in tune DLA Piper has advised the Hungarianhimself/herself a part of an government on the purchase of a are and, implicitly, how to adapt with what the newest technologiesorganism and be directly involved 21,2% shareholding in MOL Plc., your message to something they and practices are is a challenge.with the day to day undertakings the Hungarian industrial company can relate to. Secondly, it is a complex exerciseof the company. One has to be and one of the largest companies in with up-stream, mid-stream, the CEE (approximately EUR 10constantly proactive with regards There is of course a price you pay down-stream, all having their own billion market capitalisation). Theto threats and opportunities and in for this. You cannot be distant or regulatory challenges: storage is advice also covered complex issuesorder to best do this, the General neutral anymore. You become unique; trading is a completely related to takeover bids, voting rightCounsel must immerse himself/ emotionally involved and care to a reporting, as well as potential different game; and so on. Third-herself and identify with the deeper level about the decisions financing structures. ly, it is a regulated industry and wecompany in order to best identify you make. The risk analysis you need to do more than simply be upand focus on its specific needs. apply is always so much more to speed with policy changes but PAGE 8
IS SUE 2 V OL UM E 1 JUL Y, 2011 “I also care deeply for firms main regulatory challenges in and to identify a clear direction in K.N.: I think from a regulatory your industry in Hungary in which to act. point of view this is a very compli- that understand the business the next few years? cated matter. Security of supplies GCG: In light of recent need behind a project, thus and limiting dependency and the K.N.: I think drafting a clear and events, I need to ask, how do going a step beyond a idea of a single European Energy sustainable direction is very much you see the future of nuclear Market are obviously goals pushing simple legal advice.” needed at the moment. A lot of energy in the EU? Do you in this direction. Both the EU and questions are still left unanswered at think more countries might individual member states have the moment: how to replace the follow suit after Germanyalso try to be proactive about made considerable progress. We current mandatory takeover of announcing it is withdrawingadapting to them. already have wholesale initiatives power plants?; there is a lot of talk from the nuclear programme? and quite a few regional projects.GCG: Where do you see about smart grids but the concept is K.N.: It is of course difficult toyourself five years down the far from being clarified – are just However, I think that regulatory predict but I believe this wouldline? some of the pending issues at the support is not enough. Stronger give rise to considerable questions moment. private investments and interest isK.N.: I see myself richer with of energy supply. It obviously will needed. Indeed, a less fragmentedindustry specific knowledge, The implication for us is obvious. It depend on local regulatory bodies and more integrated regulatoryhopefully working for the same is simply difficult to take any action ultimately but my personal view is framework might help to increasegroup, In this industry, challenges without knowing the form of the that nuclear energy, in today‟s both factors.are just around the corner so I final Regulation. Working on draft- world is unavoidable.cannot imagine at this point ever ing regulations is also particularly Who do you see asgetting bored. difficult. We are often faced with “it is clear that recent events considerably tight deadlines in a leading expert inGCG: What do you look for re-ignited the debate overwhen choosing a law firm to providing feedback. This allows for nuclear power and regardless the pharmaceutical very little time to fully consider thework with? companies as well as the markets of a gap in the market or industry?K.N.: We have 20 lawyers in our interest in offering advice on the not, those local regulatorslegal team at the moment so the regulations drafted. Who would you will face the same concernsfirst step is to see if there really is a GCG: ‟Renewable energy‟ is love to read about?need. We might turn to private that the German ones did.” surely one of the buzz wordspractices in case of skill shortages, in the industry. How is this GCG: There have also been Tell us atcapacity shortages or where thereis a high degree of risk involved. concept reflected by the Hun- talks about SE countries GCG@hudson.com garian regulatory bodies? seeing this as a potentialOf course, if we need to choose opportunity to expand theirone, I look at the professional K.N.: There is a strong commit- own nuclear programs andcredentials in the first instance. I ment from the Hungarian Govern- take advantage of the gapalso care deeply for firms that ment towards renewable energy. created. Do you find it likely?understand the business need However, this still needs to bebehind a project, thus going a step reflected in a transparent, consistent K.N.: Not really. Other than thebeyond simple legal advice. and predictable regulatory package. infrastructure build-up needed to I say consistent because there are a ramp up these programs it is clearGCG: Did you ever consider multitude of factors that need to be that recent events re-ignited thean engineering degree? considered: subsidies, tax systems debate over nuclear power andK.N.: Oh no. Admittedly, it and infrastructure to name just a regardless of a gap in the marketmight be useful to actually few. or not, those local regulators willunderstand the ratio of exchange face the same concerns that the At the moment it is difficult toof the cubic meter to God knows German ones did. consider all of the above primarilywhat. But in reality, all the as a result of how fragmented the GCG: Will we ever have aninformation I would need I can regulations and regulatory bodies integrated energy market inlearn from my colleagues. involved are. As a market player, it the EU?GCG: What do you see as the is then hard to see the big picturePAGE 9
IS SUE 2 V OL UM E 1 JUL Y, 2011 The Pr ivate Practice Str ip dr. Ákos Szentkereszty Kajtár Takács Hegymegi- Chief Legal Advisor, GDF SUEZ Barakonyi Baker & Mckenzie consider how these practices can At the same time, you need to be applied, if at all, to the organi- understand that implementing Baker Mckenzie advises on zational context and what will be such decisions is made particularly Jones Lang LaSalle merger. the ramifications to the other difficult by the regulatory environ- ment in Hungary which is Baker & McKenzie advised global real functions of the business. estate firm Jones Lang LaSalle on constantly changing. This often its GBP 197 million multi country This long-term orientation is also leads to cases where one day you merger with international property the main push towards our effort think you came up with a good consultancy King Sturge. The to keep communication channels solution and you realize the combination - involving 9 CEE open with the regulating bodies to countries, 6 Western European following one, when you are provide input on how legislation countries and Hong Kong - creates trying to implement it, that it no should be passed and implement- the clear leader in the UK and longer applies. ed. In this sense, again, we always Continental Europe in real estate have to think in a more strategic GCG: How do you manage services and investment communicating a decision management.Hydro Power Plant at manner than a simple „this is the Békésszentandrás law, this is the solution‟ equation. across your company as part of implementing legalGCG: According to many, Don‟t get me wrong, I appreciate decisions?comparing the work of private practice lawyers as excel- Réczicza White & Case lent professionals that provide you A.S.: I believe that legal mattersin-house lawyers and that of with an accurate set of options in-house do not exist in a void.private practice ones is like based on the law but you need to Rather, they impact a wide variety Réczciza White & Case advisedcomparing apples and understand that in most cases, they of functions in our company so MVM subsidiary Vértesi Erőműoranges. What are the main stop at presenting one, two, three whenever we have a decision to Zrt. on arbitration proceedingsdifferences from your possible solutions or opportuni- make we create cross-functional related to power purchaseperspective? agreements ties. It is up to the general counsel committees with members fromA.S.: I think that in-house to assess them and chose the all relevant departments. The We represented Vértesi Erőmű Zrt.lawyers, as opposed to private option that is best suited to the same team later ensures the imple- in several arbitration proceedingspractice ones, focus less on context of the company. I think mentation across the organization launched by or against it in relation„troubleshooting‟. Our primary this makes perfect sense as I will in all the relevant areas of work. to non-compliance with certainrole is to facilitate managerial power purchase agreements by its be the one stuck with making sure GCG: What led you to thedecisions and support the contracting parties. Among these the solution I chose is applied in energy field? proceedings, with amounts claimedorganizational goals. Also, when practice by all the stakeholders. of €130 million in total, were thelooking at problem-solving, A.S.: I have been working in very first cases before the newlyin-house lawyers do not only focus GCG: Which of the two sides energy since 1998, primarily on established Hungarian Energyon coming up with a solution but do you believe is the most the electricity side, not so much Arbitration Court.also work alongside other challenging one: to come up on gas. Early in my career Imanagers to implement them. with a solution to a legal worked with DÉMÁSZ in Szeged matter or the follow-up or and later moved to E.ON. Having Réczciza White & Case isBecause of this proximity, when implementation of it? started off on this road I stuck with advising E.ON Tiszántúliidentifying solutions in-house the energy sector because I believe Áramhálózati Zrt. in a GVHlawyers also have a different A.S.: Both. The first is difficult as investigation it is the direct experience in a fieldapproach to legal matters. Private a creative process if you want to that truly prepares you as opposed We are representing E.ON Tiszántúlipractice lawyers tend to think in think of it in this way. The second to books. Áramhálózati Zrt. in connection withterms of best practices, fast involves a lot of responsibility as an investigation related to publicsolutions to a specific problem. we are usually talking about a lot GCG: Why electricity in lighting initiated by the HungarianIn-house lawyers have a more long of money which is especially true particular? Competition Authority (GVH), now-term perspective and always in the energy sector. before the courts. PAGE 10
IS SUE 2 V OL UM E 1 JUL Y, 2011 “I do find it conflicting that there is GCG: How does a regular day hands of external lawyers. Not work with, I need to confirm this so much talk about gas reserves at the office look for you? only does it allow us to focus more with the Paris office but it would depleting within decades yet, across on the strategic side but is also be very rare that a different A.S.: Hectic, primarily because we used as a cost-cutting tool. decision would be made than my the board, everyone still builds new are a relatively small team. At GCG: Cost-cutting? I would recommendation. plants that produce energy by E.ON we had a bigger team. burning gas.” Nowadays I work with four others, have imagined using external GCG: Renewable energy is which as you can imagine is less lawyers would be considera- one of the buzz words in the than little for a company operating bly more expensive on the industry. One other generalA.S.: I guess it has to do with the in a regulated industry. But I believe long-run rather than in- counsel featured in this edi-town. Electricity was a given in in quality over quantity and, as a house staff. tion made a valid comment inthe town of Szeged. In the field of manager, I can be very proud of my that at this point, how it pro- A.S.: Yes, at the end of the day itelectricity DÉMÁSZ is the biggest team. gresses depends more on the is a surprise for me as well butcompany in the south region of the engineers than on the lawyers One of the main preoccupations of with the right contractual set-upcountry. I guess it played a role in at this point. What is your our lawyers at the moment is we only end up spending moneymy perspective at the time that take on this? actually outstanding debts that we on these outsourced tasks strictlyelectricity represents the future. need to collect with more than on a need basis. It offers us a lot A.S.: It is indeed a hot topic, andAt the same time, I like to think of 5000 open cases. As you can more flexibility, on one side, but rightfully so. I do find it conflictingit in terms of the basic needs of imagine, for a team so small, this is also provides these external that there is so much talk about gaspeople: food, water, medicine and quite a challenge to manage. lawyers with the same flexibility to reserves depleting within decadeselectricity (energy). I could not work on the rest of the market. I yet, across the board, everyone GCG: You mentioned at theimagine myself as a doctor and would say it makes for a win-win still builds new plants that produce beginning how the generalthere was not much I felt I could situation. energy by burning gas. I do agree, counsel role is very strategicdo with the first two either. however, with the fact that, with in nature, and we see more GCG: Talking about externalElectricity on the other hand, I the current technological tools at and more general counsels in counsel, what are the criteriafelt, would allow me to make an our disposal, there are not a lot of the Boards. With such a small you look at when choosing aimpact. But that was it really. It viable alternatives. team and such a time consum- law firm to work with?was just a feeling or a calling if you ing task at hand, how do you A.S.: Assuming no conflict of I do see a role that lawyers canwill. manage to maintain a strategic interest exists, I find the track play in all of this though. ProgressWhen compared to the rest of the vision throughout the day? record, specifically in the sector, can only be ensured through aenergy field, electricity also sets A.S.: We have to outsource many speaks the most when it comes to consistent regulatory package anditself apart in that it cannot be of these activities and simply choosing one. Of course, cost is a lawyers definitely have a say in thestored. I guess oil would have been manage and oversee them. Debt factor we consider but that is matter. If we do our part andan interesting side of the energy collection is one of them for negligible since we work with caps provide for the right regulatorysector to explore but we simply example. The labour law side is most of the times. However, I context, I am sure engineers willnever „met‟. another one that we leave in the only make the proposal on who to do theirs.( M y ) Wo r d O n T h e G r ap ev i n e RE: On The GC Grapevine new regulatory framework on the which is now expected to be slated ments for group entities, this telecoms industry. for 2015. might entail a degree of risk vis-à- Congratulations on the first issue Other TMT issues that I believe There are, of course, other sector vis local mandatory rules and the of the GC Grapevine, which is an would be useful to explore include specific features facing the TMT Hungarian regulatory authority‟s excellent platform for the the potential attitude of the sector in Hungary. These include, reactions. exchange of ideas among GCs and Hungarian regulatory authority for instance, the tendency among Ákos Nagy, Andrékó Kinstellar private practitioners in Hungary. (NMHH) toward market players local subsidiaries to use UK law as The first issue, devoted to TMT in light of the new EU regulatory the governing law for interconnec- If you would like to comment, and GCs in TMT, also covered framework to be implemented in tion and other network agree- reply or add your viewpoint on many interesting topics facing the Hungary and the implications of ments, instead of Hungarian law. any of the articles or the publi- sector, incl uding Internet the delayed switchover from While this practice stems from the cation overall, write to us at protection, “net neutrality” and analogue to digital transmissions understandable desire to have one GCG@hudson.com to share your the potential impact of the EU‟s for TV broadcasting in Hungary, unifying law governing such agree- views with the GC community.
IS SUE 2 V OL UM E 1 JUL Y, 2011 Chang ing regulation for co -generation power plants – where is the end? dr. Zoltán Faludi & dr. László Kenyeres - Faludi Wolf Theiss The mandatory off-take system model to remedy the situation. sell the off-taken electricity on for co-gens was originally to A new Act, reflecting this the organised electricity expire by the end of 2010. concept, was promulgated on market and will pay for the However, since this would 10 June 2011, containing new off-taken electricity monthly, have meant a 20-30% increase transitional rules for co-gens. in line with the fees of trading of district heating prices, According to the new Act, on the organised market, the affected market players and production of co-gens below settlement prices, and the costs public bodies lobbied consider- 50 MW will be subject to a of the balance circle settle- ably for sustaining the prioritized off-take, balancing, ment. mandatory off-take scheme. sale and settlement by MAVIR, A new fee will also be intro- The Parliament yielded to the though the so-called “co- generation balance circle” to be duced in addition to the pressure and passed Act already existing ones: the “co- CLXXXI of 2010 and, thereby, separately established for this purpose. generation re-structuring fee” extended mandatory off-take will be payable by traders and for co-gen electricity for other market players to help another two years. This was, however only the beginning: a “only one thing seems to be fund this new type of co-gen subsidy. These fees are payable new bill submitted to the sure: the industry has to be from 1 July to MAVIR on a Parliament on 21 January 2011 envisaged further price reduc- prepared for further changes monthly basis in the amount of HUF 1.20/kWh. tions. Industrial stakeholders regarding co-gen immediately concentrated fire As it can be seen, regulation on the bill, which was regulation.” for co-gens has seen significant subsequently revoked. changes recently, and further Two preconditions needed to changes can also be forecast Thereafter Act XXIX of 2011 be fulfilled in order to be eligible for this transitional during the forthcoming was promulgated on 25 March months. According to recent amending the Electricity Act in subsidy: generators either needed to be members of the press information, the above, a rather comprehensive way. recently enacted measures will As a result of a swiftly lodged so-called “green balance circle” on 1 June 2011; or had to have be accompanied by a second surprise amendment, co-gen period, during which heat power plants were expressly their eligibility for mandatory off-take extended until 30 June suppliers will buy the heat excluded from the subsidy from generators at a price scheme: the Act declared that 2011 or their eligibility had toThe subsidy scheme of which reflects the reasonable mandatory off-take of co-gens be expressly terminated from 1electricity generated from costs of heat, and generators is terminated from 1 July July 2011 by the relatingrenewable sources or waste or will be able to buy the neces- 2011, including those genera- appropriate Section of theby the use of the so-called sary natural gas at a reduced tors who requested extension Electricity Act.co-generation technology (“co price. Finally, a third, long- of their off-take in line with-gen”) was, and partially still The affected generators had 4 term period is planned to start earlier amendments. Althoughis the system of mandatory days (!) from the date of the during 2013, under which co- not declared officially, theoff-take and feed-in tariffs. promulgation of this new Act generated energy certificates (a motive behind this measureThe electricity generated with to apply for the membership of tradable allowance system) will was the plan to support co-genco-gen technology is off-taken the co-generation balance cir- also be introduced. These are, plants‟ heat production insteadby MAVIR, the Hungarian cle; currently, no information however, the current plans, of electricity.transmission system operator, is available regarding how and hence only one thing seemswithin the limits and for the The change caused considera- many of the affected producers to be sure: the industry has toduration determined by the ble turmoil on the market, and were able to comply with the be prepared for further changesHungarian Energy Office the administration had to start requirement. MAVIR will regarding co-gen regulation.(“HEO”). working an a new three-step settle the co-gen balance circle, PAGE 12
IS SUE 2 V OL UM E 1 JUL Y, 2011 Exciting Times For The Green Energy Sector Both Globally And Locally dr. Eszter Kamocsay -Ber ta - Gide Loyrette Nouel -D‟Or nano Iroda fed into the grid adjusted in renewable energy resources i. Security of supply line with technological pro- and the priority of own Hungary is highly dependent gress. resources are declared to be of key importance. on energy import and satisfies 2. Regulatory framework 80% of its domestic crude oil 1. Contribution to the European demand and over 83% of its Due to the regulatory frame- undertakings natural gas consumption from work adopted in many imports, primarily from countries with a renewable Being a Member State of the former CIS countries. Through energy industry, grid connect- European Union, the adopted the use of renewable energy ed renewable energy systems common legislation, in particu- sources, the dependency on present the best growth oppor- lar Directive 28/2009/EC of imports can be reduced, as the tunities, and it is expected that the European Parliament and of use of renewable energy is these systems will become the Council (RED) sets out planned to be realized from more prevalent in coming several tasks for Hungary in domestic sources. years. this field. The RED specifies an 3. Technological innovation ambitious 20% share of renew- ii. Environmental sustainability able energy sources, including and climate protectionThese are exciting times for Technological innovation will a 10% share in the transporta-the green energy sector both make renewable energy The use of renewable energy tion sector, as well as a 20% sources supports the shift tolocally and globally. Although production more cost effective increase in energy efficiencythe financing environment is and reduce the need for low CO2 intensity power gen- and a reduction of greenhouse eration. Environmental sustain-still challenging, capital is government subsidies. As was gas emission to 20% (of thefreeing up for renewable the case in Germany, when the ability and climate protection level of 1990) as targets to be will have high priority, ininvestments again. industry matures, tariffs will reached by 2020. gradually reduce and so will particular when setting criteriaGlobal trends in the The RED also specifies a legally for government subsidiesrenewable energy industry the costs. Thus, investors have the opportunity to capitalize on binding obligation for Hungary available for investors in theFor the renewable sector, the current market conditions. to ensure 13% minimum share green industry.credit crunch followed by a of renewable energy sources in Renewable energy trends iii. Agriculture and ruraldeep recession draw attention gross final energy consumption in Hungary by 2020. The NAP acknowl- developmentto the green economy as ameans of stimulating growth. Investors reinforce the desire edges the importance of a The use of biomass for energyAccordingly, countries strive for political and regulatory green economy and thus, sets purposes based on the favoura-to develop the green economy stability in evaluating invest- the target of a 14,65% share of ble agro-ecological conditionsthrough stimulus measures and ment decisions. A well elabo- renewable energy sources in of Hungary primarily causessupport mechanisms. rated governmental policy is gross final energy consumption that workplaces in the the necessary precondition for by 2020. agricultural sector can be1. Governmental policy a stable regulatory framework. preserved and new ones can beMore and more governmental 2. Strategic goals of the national It seems now that, in accord created. The use of organicbodies worldwide believe energy strategy with the global energy trends, by-products from the agricul-strongly in grid-connected Hungary has now made a The strategic goals of the ture and forestry industries forelectricity generated from decisive step ahead to lay down national energy strategy imply local energy purposes and theirrenewable sources and are the foundations of a sustainable that beside the contribution to conversion into end-productscommitted to vigorously sup- green economy by elaborating the community undertakings will significantly reduce theporting the development of the Hungarys Renewable Energy the following key objectives of need of the communities forrenewable energy industry, as Utilization Action Plan. In this Hungarian renewable energy fossil energy sources. Invest-well as promoting technologi- coherent economic model policy are expected to deter- ments in the agricultural andcal innovation through pay- energy saving and energy mine growth opportunities in rural development are declaredments for renewable energy efficiency, an increased use of the coming years. These are: to obtain preeminent supportPAGE 13
IS SUE 2 V OL UM E 1 JUL Y, 2011 The Pr ivate Practice Str ipwithin the framework of the field will also improve in the ronmental and Energy Opera- Squire, Sanders & Dempseynational renewable energy long term. tive Program, as a financial (US) LLPstrategy of Hungary. source enabling the investors 3. Investments in renewable energy to comply with these equity Squire, Sanders & Dempseyiv. Development of a green in Hungary requirements, may open the (US) LLP advises on acquisitioneconomy door for Hungarian SMEs of Industrial Union of Donbass A good example for increasing provided they have the neces-The rational use of renewable interests of investors in renew- Erős Ügyvédi Iroda Squire, Sanders sary sector specific knowledge & Dempsey (US) LLP recentlyenergy sources may constitute able is the financing of the and professional experience. advised Troika Dialog, the largestthe basis for the creation of a construction and operation of a private investment bank in the CIS onnew (green) sector of the hydro power plant at The Békésszentandrás power its EUR multibillion leveragedeconomy. Since the use of Békésszentandrás. After the plant represents a successful acquisition of Industrial Union ofrenewable energy sources is credit crunch, equity require- implementation of Hungarys Donbass (ISD), one of Ukraine‟smore effective in terms of ments set by the banks have new energy policy setting the largest steel groups which includedoperational costs compared to increased substantially. The priority of low CO2 intensity the major Hungarian based steelthe use of fossil energy fact that bank financing tends power generation by using producer ISD Dunaferr. Thesources, the competitiveness of to acknowledge subsidies renewable energy. transaction involved the firm‟smarket actors investing in this granted, e.g. under the Envi- London, Moscow, Warsaw and Brussels offices.How the refor m of the EU Emission Trading Sc heme (ETS) will c hange theenergy landscape in Hungar ydr. Kr istóf Ferenczi - Andrékó Kinstellar more concrete terms the held, transferred, surrendered 2.039 billion CO2 allowances meaning of the revised EU ETS and cancelled via national CO2 available for the European framework promulgated on 23 registries operated by the Union in 2013, to be decreased April 2009 in the so-called Member States. Allowances in a linear manner by 1.74 per Climate Change and Energy have been allocated by the cent. each year, leading to a Package of the European Member States to the installa- total number of approx. 1.7 Parliament and the Council, tions on their territory based billion CO2 allowances in will bring fundamental changes on the Member States‟ national 2020. The national registries to (inter alia) the Hungarian allocation plans and lists after will be replaced as of 2013 by a energy sector. approval by the EU Commis- community-wide Union Regis- sion. try, operated by an EU Central The essence of the revised Administrator, regarding the In contrast to the rules applica- detailed rules of which the EU ETS ble in the on-going second Commission has just proposed Established by way of Directive trading period (between 2008 a new draft Regulation in May 2003/87/EC of 13 October and 2012), the rules of the 2011.A fundamentally new era 2003, the EU Emission Trading game will be substantiallyof CO2 trading coming As for obtaining CO2 allow- Scheme entails a cap-and-trade different as of the third tradingSince the end of 2010 and system of CO2 allowances (the period starting from January ances allowing the emittingthroughout the spring of 2011 commonly called „CO2 2013. Under the revised EU installations to carry on theirthe European legislator has quotas‟), each representing the ETS, generally speaking, all business activities, publicbeen very active in determin- right to emit one tonne of essential rules of CO2 trading auctioning of CO2 allowancesing the detailed rules of carbon-dioxide by the installa- will be defined at Community will become the general rule.implementation of the funda- tions covered by the EU ETS, level, putting the EU Commis- In other words, unless a givenmentally revised EU Emission with the overwhelming majori- sion into the driving seat. On installation or activity isTrading Scheme (EU ETS), ty (currently 90%) of CO2 the basis of Directive covered by a specific exemp-which has been operational allowances having been so far 2009/29/EC of 23 April 2009, tion under the revised EU ETSsince 2005. The new enforce- allocated free of charge. CO2 the Commission determined in Directive, the operator of thement rules, spelling out in allowances have been issued, October 2010 an overall cap of installation will need to PAGE 14
IS SUE 2 V OL UM E 1 JUL Y, 2011 purchase the required quantity As a general rule, CO2 auctions the CO2 quotas they need in the CO2 allowances on their of CO2 quotas at public will be centrally held at a respect of their electricity subsidiaries‟ behalf. auctions at the prevailing Community auction platform, generation activity at the market price. With very few with only Germany, Poland and central EU auction platform at Hence the dilemma facing the exceptions, power plants will the UK having opted to establish the prevailing market price. Hungarian Government is: not be eligible for an exemp- their own national auctioning Without the Hungarian whether to apply at the tion under the obligation to platforms. Auction platforms Government applying for the European Commission by 30 purchase their CO2 allowances will constitute regulated finan- Article 10c. exemption, power September 2011 for the Article at the public auctions. Howev- cial markets, with pre- plants may only benefit of free 10c. exemption, in the frame- er, Member States may allocate determined products on sale CO2 allocation with respect to work of which such power free CO2 allowances to (two-day spots and five-day heat generation for district plants are eligible for a installations belonging to other futures as of 2013). The heating or cooling purposes or maximum of 70% free CO2 sectors, in particular to those Commission has proposed in through high-efficiency co- quota allocation, that were sectors that are exposed to the March 2011 that, in preparation generation for economically operational or for which the so-called carbon-leakage risk, for the third trading period justifiable demand. This will investment process was physi- i.e. international competition starting in 2013, a total of 120 mean a fundamental change in cally initiated by 31 December due to the absence of carbon million allowances be auctioned the operation of the Hungarian 2008 and which have undertak- emission restrictions. The in 2012 through monthly early electricity generators, likely en a significant modernisation Commission has promulgated auctions. leading to an increase in the of their power generation the Union-wide rules on transi- wholesale electricity prices in assets. However, if the Gov- What will the revised EU ernment elects to apply for the tional free allocation of CO2 Hungary and potentially trig- ETS mean for the Hungarian gering the closure of the less exemption, it would thereby allowances to eligible installa- energy sector denounce a significant portion tions, primarily operating in efficient power plants, requir- the sectors exposed to carbon Unless the Hungarian Govern- ing a timely replacement of of its potential CO2 auction leakage, at the end of April ment elects to apply at the EU outgoing electricity generating revenues, 50% of which must 2011; with the exceptional Commission for the exemption capacities. Finally, due to the be used to contribute to CO2 rules on limited free CO2 available under Article 10c. of rules of the central EU reduction goals, whilst 50% quota allocation to certain the revised EU ETS Directive, auctions, mostly the mother may be used for any other, power plants having been is- as of 2013 power plants in companies of the Hungarian including budgetary purposes, sued at the end of March 2011. Hungary will have to buy all of power generators will purchase by the Government. T h e n e x t is s u e o f “ O n th e G C G r ap ev i n e ” w i ll f o c u s o n th e p h a r m a c e u ti c al in d u s t r y. He re a re s om e way s yo u c a n g e t invo lve d : T h e G rap ev in e p ic k : R e c om m e n d a g e n e ra l c ou n s e l t o b e f e a tu re d a s th e “ G rap ev in e p i c k ” C om m e n t on a r t ic l e s a n d / or in te r v iew s f e atu re d in th e G C G. You r in p u t w i ll b e p u blis h e d u n d e r th e “ ( M y ) Wo r d on th e G rap ev i n e ” s e c ti on W r i te t o u s at G C G @ h u d s on .c om . We a re a lway s h ap py to h e a r f r om ou r re a d e r s .PAGE 15 The information herein does not constitute legal advice or opinion. Hudson Legal will not be held responsible for any liability arising from the use of any information provided in this publication.
We would like to thank those who contributed to this newsletter: dr. Pál Kara dr. Bánfi László dr. Nagy T. Katalin dr. Ákos Szentkereszty dr. Zoltán Faludi dr. László Kenyeres dr. Eszter Kamocsay-Berta dr. Kristóf FerencziIf you would like to subscribe and receive a hard copy to thisnewsletter please write to us at GCG@Hudson.com with“subscribe” in the subject line. Or Follow-us in this GC only linkedin group: The editors: Orsolya Endrefi Associate Director - Emerging Europe and Latin America Hudson Legal m: +36 20 916 2252 @: firstname.lastname@example.org Radu Cotarcea Marketing Manager - Emerging Europe and Latin America Hudson Legal m: +36 20 969 6410 @: email@example.com http://cee.hudson.com/