The Energy
Regulation
ABOUT THE AUTHORS
and Markets
Review
Appendix 1
Third Edition
Editor
David L Schwartz
Law Business Research
551
The Energy Regulation
and Markets Review
The Energy Regulation and Markets Review
Reproduced with permission from Law Business Research Ltd.
This article was first published in The Energy Regulation and Markets Review
Edition 3
(published in June 2014 – editor David Schwartz).
For further information please email
[email protected]
The Energy
Regulation
and Markets
Review
Third Edition
Editor
David L Schwartz
Law Business Research Ltd
THE LAW REVIEWS
THE MERGERS AND ACQUISITIONS REVIEW
THE RESTRUCTURING REVIEW
THE PRIVATE COMPETITION ENFORCEMENT REVIEW
THE DISPUTE RESOLUTION REVIEW
THE EMPLOYMENT LAW REVIEW
THE PUBLIC COMPETITION ENFORCEMENT REVIEW
THE BANKING REGULATION REVIEW
THE INTERNATIONAL ARBITRATION REVIEW
THE MERGER CONTROL REVIEW
THE TECHNOLOGY, MEDIA AND
TELECOMMUNICATIONS REVIEW
THE INWARD INVESTMENT AND
INTERNATIONAL TAXATION REVIEW
THE CORPORATE GOVERNANCE REVIEW
THE CORPORATE IMMIGRATION REVIEW
THE INTERNATIONAL INVESTIGATIONS REVIEW
THE PROJECTS AND CONSTRUCTION REVIEW
THE INTERNATIONAL CAPITAL MARKETS REVIEW
THE REAL ESTATE LAW REVIEW
THE PRIVATE EQUITY REVIEW
THE ENERGY REGULATION AND MARKETS REVIEW
THE INTELLECTUAL PROPERTY REVIEW
THE ASSET MANAGEMENT REVIEW
THE PRIVATE WEALTH AND PRIVATE CLIENT REVIEW
THE MINING LAW REVIEW
THE EXECUTIVE REMUNERATION REVIEW
THE ANTI-BRIBERY AND ANTI-CORRUPTION REVIEW
THE CARTELS AND LENIENCY REVIEW
THE TAX DISPUTES AND LITIGATION REVIEW
THE LIFE SCIENCES LAW REVIEW
THE INSURANCE AND REINSURANCE LAW REVIEW
THE GOVERNMENT PROCUREMENT REVIEW
THE DOMINANCE AND MONOPOLIES REVIEW
THE AVIATION LAW REVIEW
THE FOREIGN INVESTMENT REGULATION REVIEW
THE ASSET TRACING AND RECOVERY REVIEW
THE INTERNATIONAL INSOLVENCY REVIEW
THE OIL AND GAS LAW REVIEW
THE FRANCHISE LAW REVIEW
THE PRODUCT REGULATION AND LIABILITY REVIEW
THE SHIPPING LAW REVIEW
www.TheLawReviews.co.uk
PUBLISHER
Gideon Roberton
BUSINESS DEVELOPMENT MANAGERS
Adam Sargent, Nick Barette
SENIOR ACCOUNT MANAGERS
Katherine Jablonowska, Thomas Lee, James Spearing
ACCOUNT MANAGER
Felicity Bown
PUBLISHING COORDINATOR
Lucy Brewer
MARKETING ASSISTANT
Chloe Mclauchlan
EDITORIAL ASSISTANT
Shani Bans
HEAD OF PRODUCTION
Adam Myers
PRODUCTION EDITOR
Caroline Rawson
SUBEDITOR
Janina Godowska
MANAGING DIRECTOR
Richard Davey
Published in the United Kingdom
by Law Business Research Ltd, London
87 Lancaster Road, London, W11 1QQ, UK
© 2014 Law Business Research Ltd
www.TheLawReviews.co.uk
No photocopying: copyright licences do not apply.
The information provided in this publication is general and may not apply in a specific
situation, nor does it necessarily represent the views of authors’ firms or their clients.
Legal advice should always be sought before taking any legal action based on the
information provided. The publishers accept no responsibility for any acts or omissions
contained herein. Although the information provided is accurate as of June 2014, be
advised that this is a developing area.
Enquiries concerning reproduction should be sent to Law Business Research, at the
address above. Enquiries concerning editorial content should be directed
to the Publisher – [email protected]
ISBN 978-1-909830-05-9
Printed in Great Britain by
Encompass Print Solutions, Derbyshire
Tel: 0844 2480 112
ACKNOWLEDGEMENTS
The publisher acknowledges and thanks the following law firms for their learned
assistance throughout the preparation of this book:
AFRIDI & ANGELL
ANDERSON MŌRI & TOMOTSUNE
ANGOLA LEGAL CIRCLE ADVOGADOS
ARZINGER
AVENT ADVOKAT
BANWO & IGHODALO
BRUUN & HJEJLE
ENGLING, STRITTER AND PARTNERS
GÓMEZ-PINZÓN ZULETA ABOGADOS SA
GONZÁLEZ CALVILLO, SC
HOGAN LOVELLS
KENNEDY VAN DER LAAN
KOLCUOĞLU DEMIRKAN KOÇAKLI ATTORNEYS AT LAW
KVALE ADVOKATFIRMA DA
LALIVE
LATHAM & WATKINS
LINKLATERS LLP
L O BAPTISTA SCHMIDT VALOIS MIRANDA FERREIRA AGEL
MANNHEIMER SWARTLING
i
Acknowledgements
MICHAEL DAMIANOS & CO LLC
MINTER ELLISON
MORAIS LEITÃO, GALVÃO TELES, SOARES DA SILVA & ASSOCIADOS, SOCIEDADE
DE ADVOGADOS RL
MOZAMBIQUE LEGAL CIRCLE ADVOGADOS
ORRICK, HERRINGTON & SUTCLIFFE
OSBORNE CLARKE
PAZ HOROWITZ ROBALINO GARCÉS ATTORNEYS AT LAW
PELIFILIP
PJS LAW
PROF ALBERT MUMMA & COMPANY ADVOCATES
REM LAW CONSULTANCY
RUSSELL McVEAGH
SHALAKANY LAW OFFICE
SOEMADIPRADJA & TAHER, ADVOCATES
SOŁTYSIŃSKI KAWECKI & SZLĘZAK
STIKEMAN ELLIOTT LLP
TRILEGAL
YOON & YANG LLC
ZUL RAFIQUE & PARTNERS
ii
CONTENTS
Editor’s Preface
..................................................................................................vii
David L Schwartz
Chapter 1
OVERVIEW OF CENTRAL AND WEST AFRICA ................1
Pascal Agboyibor, Bruno Gay and Gabin Gabas
Chapter 2
ANGOLA .................................................................................19
Catarina Levy Osório and Helena Prata
Chapter 3
AUSTRALIA.............................................................................35
Mark Carkeet, Andrew Brookes and Darshini Nanthakumar
Chapter 4
BRAZIL ....................................................................................55
Guilherme Guerra D’Arriaga Schmidt
Chapter 5
CANADA .................................................................................68
Patrick Duffy, Brad Grant, Erik Richer La Flèche and Glenn Zacher
Chapter 6
COLOMBIA.............................................................................85
Patricia Arrázola-Bustillo and Fabio Ardila
Chapter 7
CYPRUS ...................................................................................97
Michael Damianos and Electra Theodorou
Chapter 8
DENMARK ............................................................................107
Nicolaj Kleist and Morten Ruben Brage
Chapter 9
ECUADOR ............................................................................118
Jorge Paz Durini, Daniel Robalino, Leyre Suárez and Rafael
Valdivieso
iii
Contents
Chapter 10
EGYPT ...................................................................................127
Bassam Moussa and Mariam Fahmy
Chapter 11
FRANCE ................................................................................137
Fabrice Fages and Myria Saarinen
Chapter 12
GERMANY ............................................................................150
Kai Pritzsche, Sebastian Pooschke, Henry Hoda
Chapter 13
GHANA..................................................................................162
Emmanuel Sekor and Enyonam Dedey-Oke
Chapter 14
INDIA ....................................................................................175
Akshay Jaitly, Sitesh Mukherjee, Neeraj Menon and Rashi Ahooja
Chapter 15
INDONESIA..........................................................................188
Mochamad Kasmali
Chapter 16
ITALY .....................................................................................203
Simone Monesi, Piero Viganò and Giovanni Penzo
Chapter 17
JAPAN ....................................................................................220
Reiji Takahashi, Atsutoshi Maeda, Shun Hirota,
Yuko Suzuki and Masato Sugihiro
Chapter 18
KENYA ...................................................................................233
Albert Mumma
Chapter 19
KOREA ...................................................................................248
Wonil Kim and Kwang-Wook Lee
Chapter 20
MALAYSIA .............................................................................264
Lukman Sheriff Alias
Chapter 21
MEXICO ................................................................................273
Gonzalo A Vargas
iv
Contents
Chapter 22
MOZAMBIQUE ....................................................................285
Fabrícia de Almeida Henriques and Paula Duarte Rocha
Chapter 23
NAMIBIA ...............................................................................296
Axel Stritter
Chapter 24
NETHERLANDS ..................................................................315
Louis Bouchez and Maurits Bos
Chapter 25
NEW ZEALAND ...................................................................325
Mei Fern Johnson and Nicola Purvis
Chapter 26
NIGERIA................................................................................338
Ken Etim and Ayodele Oni
Chapter 27
NORWAY ...............................................................................352
Per Conradi Andersen and Christian Poulsson
Chapter 28
PHILIPPINES ........................................................................362
Monalisa C Dimalanta and Najha Katrina J Estrella
Chapter 29
POLAND ...............................................................................377
Krzysztof Cichocki and Tomasz Młodawski
Chapter 30
PORTUGAL ...........................................................................390
Nuno Galvão Teles and Ricardo Andrade Amaro
Chapter 31
ROMANIA .............................................................................403
Lucian Caruceriu and Anca Mitocaru
Chapter 32
SPAIN .....................................................................................415
Antonio Morales
Chapter 33
SWEDEN ...............................................................................428
Hans Andréasson, Martin Gynnerstedt and Malin Håkansson
v
Contents
Chapter 34
SWITZERLAND ...................................................................440
Georges P Racine
Chapter 35
TURKEY ................................................................................452
Okan Demirkan, Zeynep Buharalı and Burak Eryiğit
Chapter 36
UKRAINE ..............................................................................468
Wolfram Rehbock and Maryna Ilchuk
Chapter 37
UNITED ARAB EMIRATES.................................................486
Masood Afridi and Haroon Baryalay
Chapter 38
UNITED KINGDOM ...........................................................507
Elisabeth Blunsdon
Chapter 39
UNITED STATES .................................................................524
Michael J Gergen, Natasha Gianvecchio, Kenneth M Simon
and David L Schwartz
Chapter 40
UZBEKISTAN .......................................................................541
Eldor Mannopov, Shuhrat Yunusov, Anna Snejkova and Ulugbek
Abdullaev
Appendix 1
ABOUT THE AUTHORS.....................................................551
Appendix 2
CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .. 577
vi
EDITOR’S PREFACE
Our third year of writing and publishing The Energy Regulation and Markets Review
has been marked by an increase in exploration and production of petroleum products
and natural gas, investment in energy infrastructure, renewable resource development,
competitive market developments in the electricity industry, privatisation of state-owned
energy companies, and Chinese state-owned investment. We have also seen decreases in
rate/tariff deficiencies and hydroelectric generation productivity in certain low-rainfall
regions, as well as an effort to reduce reliance on nuclear generation.
From a supply perspective, upstream oil and natural gas exploration, development
and production has continued to grow in North America. Canada continues to look for
export opportunities, the United States is continuing to consider export authorisations,
and Mexico is constructing natural gas pipelines to import low-cost natural gas from the
United States. In the wake of the Fukushima disaster, some countries, including Germany,
Switzerland, France, Japan and Korea, are seeking to reduce their current reliance on
nuclear generation. Certain countries, such as the United States and Denmark, have also
witnessed extensive retirements of coal-fired generation facilities, owing to greenhouse
gas emissions targets and comparisons with the cost of natural gas. At the same time,
other countries (including Malaysia, India and Indonesia) are continuing to develop
coal generation resources due to significant electricity generation needs that require fuel
source diversification. We have also seen increases in renewable generation development
efforts (including in Sweden, Denmark, Romania, Kenya, Australia, India, Japan and
Malaysia), while many other countries in Europe and North America have reduced
subsidies for renewable resource development.
From a demand perspective, we are seeing noteworthy reductions in demand in
some countries, owing to the residual effects of the global financial crisis, while we are
witnessing significant demand growth in other countries, including Indonesia, Turkey
and Angola.
From a market and rate perspective, we are observing substantial efforts to
reduce rate/tariff deficiencies. Many countries have fully liberalised their generation
markets, while others are heading towards a competitive market model. There are
vii
Editor’s Preface
continued efforts to develop competitive electricity markets for energy and capacity, and
some countries have developed effective carbon pricing mechanisms. We have seen an
increase in privatisations of state-owned energy companies, including in Turkey, Cyprus,
New Zealand and Nigeria. Chinese state-owned companies have acquired interests in
utilities in Australia (State Grid acquisition of significant shares of two Australian utility
companies) and Mozambique (China National Petroleum acquired certain offshore gas
rights).
Natural disasters and political strife continue to impair the ability to provide
reliable energy services, as evidenced by the impacts of Typhoon Haiyan in the Philippines
and the continued unrest in Ukraine. On the other hand, a lack of political strife has
contributed to significant development of the energy industry in other countries, such
as Angola, which has seen increased capital investment, including in oil exploration and
production.
I would like to thank all the authors for their thoughtful consideration of these
difficult challenges. We look forward to identifying possible mechanisms to resolve the
many issues and concerns discussed in these chapters.
David L Schwartz
Latham & Watkins LLP
Washington, DC
June 2014
viii
Chapter 9
ECUADOR
Jorge Paz Durini, Daniel Robalino, Leyre Suárez and Rafael Valdivieso1
I
OVERVIEW
Until 1963, electric power systems in Ecuador were dispersed throughout the country.
Local entities developed and administered the first systems through local companies that
generated and distributed electricity, while the principal shareholders were municipal
governments.
In 1963 the state created the Ecuadorean Electrification Institute (INECEL), a
government entity with administrative and financial autonomy. The board of directors
was formed mostly from representatives of the central government and ministers and
other government functionaries. The INECEL consolidated 21 electrical distribution
corporations, including the two companies that delivered to the largest markets: the
Quito Electric Company Inc, serving 22.9 per cent of the market, and EMELEC, now
operating as Guayaquil Electric Company Ep, and serving 23.9 per cent.
Up until 1999, the INECEL built and operated central generators with a total
1,934MW of installed power. It built the National Transmission System, which currently
comprises the national network and allows for integration of all distribution companies.
The structure of the electric sector, as an integrated and vertical state monopoly, did
not permit the sale of energy to final consumers at rates that would cover the costs of
production, transportation and distribution of energy; therefore, the INECEL was selling
energy at prices lower than actual cost. The difference should have been compensated for
by the state through direct or indirect subsidies. This affected the economic balance of
1
Jorge Paz Durini is a partner, and Daniel Robalino, Leyre Suárez and Rafael Valdivieso are
associates at Paz Horowitz Robalino Garcés Attorneys at Law. The authors would also like
to thank Anne-Marie Robinson, a graduate of Birmingham Law School at the University of
Birmingham, for her assistance on the chapter.
118
Ecuador
both the INECEL and the state, which did not have the necessary resources to cover the
rate deficit or to develop new projects.
The state decided to transform the electric sector in response to this situation,
which was widely criticised during the early 1990s. It made an attempt to break the
monopoly and provide the private sector with opportunities to develop generation,
transmission and distribution activities under a system of free trade and free competition.
In 2007, Ecuador created the Ministry of Electricity and Renewable Energy (the
Ministry). In 2008, through Mandate No. 15, it established a single rate for distributors,
eliminated the concept of marginal cost and consolidated 19 distributors into one single
entity. The mandate was carried out through the creation of the Electric Corporation
of Ecuador (CELEC EP) and the National Electricity Corporation, which encompass
energy distribution companies. The new market structure was configured based on these
dispositions and entering into regulated agreements.
The Ecuadorean Constitution of 2008 considers the electricity sector as ‘strategic’.
As such, the government is currently developing an important programme to expand
the generation capacity (by over 60 per cent of the current installed capacity), paying
special attention to renewable energy projects, including wind, solar and hydroelectric
energy. The development and health of the Ecuadorean electricity market has encouraged
foreign investment in the sector, and there are currently a number of diverse projects
with concessions to private generators.
II
REGULATION
i
The regulators
The main regulatory body for the electricity sector in Ecuador is the National Electricity
Council (CONELEC), which regulates and controls all areas of the electricity sector.
Alongside CONELEC, the Ministry is the public body representing the executive in
the electricity sector in compliance with the Electrification Master Plan. There are
other private and public bodies that make up the energy sector, such as the state-owned
CELEC EP and the National Centre for Energy Control (CENACE). These bodies have
a lot of influence in the sector but no regulatory powers as such.
CONELEC is in charge of the overall regulation and control of the electricity
sector.2 It is the main regulatory body for all the delegated activities in Ecuador, such
as the generation, transmission and distribution of energy. To generate electricity in
Ecuador, the interested entity must obtain a permit or licence from CONELEC. The
transmission and distribution of energy are reserved exclusively to the state through
state-owned companies.
As per the provisions in the main regulation governing the sector, CONELEC has
the following main powers and duties:3
2
3
Article 12 of the Law on the Electricity Sector Regime (LESR), published in the Supplement of
the Official Gazette No. 43, 10 October 1996; Article 13 of the Regulation on the LESR; and
Article 11 of Executive Decree No. 1274.
See Article 13 of the LESR.
119
Ecuador
a
b
c
d
e
f
regulating the public sector and supervising compliance with the legal provisions;
drafting the Electrification Master Plan in order to guarantee the supply of
electricity;
approving the rates for transmission and distribution;
issuing regulations for all the areas regarding the environment, techniques,
procedures, control and other relevant areas;
developing tender documents for generation, transmission and distribution
contracts; and
granting permits and licences for the construction and operation of new generation
facilities.
The Ministry is in charge of general policymaking and planning for the electricity sector.4
It oversees and supervises the other actors in the sector (CONELEC and its agencies).
Furthermore, the Ministry is in charge of developing the Electrification Master Plan
(along with CONELEC), as well as the development of other related national policies.
The CENACE is a non-profit corporation that controls the supply of electricity in
the country.5 It regulates the functioning of the National Interconnected System (SNI).
All transmission, generation and distribution bodies (private or public) are members of
the CENACE, as are the major consumers. As mentioned above, the CENACE does not
have regulatory powers, but it is a very important participant in the Ecuadorean electricity
sector since it is the only body that decides which generators go online.
CELEC EP is the state-owned company created as a result of the merger
of Electroguayas SA, Hidroagoyan SA, Hidropaute SA, Termoesmeraldas SA,
Termopichincha SA and Transelectric SA (all of which were state generators). As a result
of the merger, the CELEC EP is the main generator of electricity in Ecuador.
The main legislation regulating the electricity sector is the LESR, which was
enacted in 1996. It contains several provisions to regulate every segment of the electricity
sector, such as generation, transmission, distribution and commercialisation. The LESR
also created CONELEC, the main regulatory body. Under the provisions of the LESR,
CONELEC issues regulations regarding the different areas of the electricity industry in
Ecuador, including authorisations and licences for such activities.
Furthermore, in 2006 the Regulation for the application of the LESR was enacted
in order to establish specific provisions and procedures regarding the provision of services
in different areas of the electricity sector, as well as any other relevant regulations, such as
rates, operative regulations and contractual regulations.
There are also many specific regulations issued by CONELEC regarding rates,
procedures and other relevant issues such as licensing for generation. Since 2013 there
have been few regulations issued by the CONELEC. The most important regulation
(No. 001-13) is related to renewable energy (see Section V, infra).
4
5
Article 5-A of the LESR and Article 12 of the Regulation on the LESR.
See Ministry Agreement No. 151, dated 27 October 2008.
120
Ecuador
ii
Regulated activities
The rights to carry out the main activities in the electricity sector (generation, transmission,
distribution and commercialisation) fall exclusively to the state, since they are classified
as public services. Exceptionally, these activities may be delegated to private entities
through a granting instrument after completion of the corresponding qualification and
licensing processes; however, currently only generation activities are delegated to private
entities, and transmission, distribution and commercialisation remain controlled by the
state.
Private generation organisations need to enter into contracts (power purchase
agreements, or ‘PPAs’) with distributors (with prior authorisation from CONELEC) in
order to sell the electricity generated. In addition, the connection to the SNI must be
authorised by CONELEC, and a rate will be set for the transmission of the energy.
For private generators, the type of licence or permit required will depend on the
power to be generated. A concession is granted for more than 50MW, an authorisation
for less than 50MW6 and a registration for less than 1MW.7 Furthermore, in order
to execute PPAs with authorised distributors or interconnection agreements with
transmission entities, CONELEC must grant an authorisation to the private entity to do
so. The process for these approvals will depend on the type of generator and the specific
(environmental, financial and contractual) characteristics of each request.
iii
Ownership and market access restrictions
As previously mentioned, all areas of the electricity industry are public services; therefore,
the state is in charge of their management, control and regulation as well as their
provision. Currently, the state only allows private entities to participate in generation
activities.
Local or foreign investors may own private entities; there is no restriction to
foreign ownership pursuant to the provisions of the LESR.8 Any form of association or
joint venture is permitted, but all activities and permits must be held and maintained via
a local corporation.
Any assets, equipment and materials that are used for such activities are requisitioned
to the public service,9 and so may not be removed without prior authorisation from
CONELEC. At the end of the licence term, all assets will be transferred free of charge
to the state.
iv
Transfers of control and assignments
Pursuant to Article 87 of Executive Decree No. 1,247, the holders of a concession contract
may not transfer or assign the rights in the contract without express prior authorisation
from CONELEC. Although there is no specific regulation regarding the merger or
acquisition of a licence or permit holder, the provision of the aforementioned Executive
6
7
8
9
See Executive Decree 1,274 dated 3 April 1998.
See Regulation No. 009/08 regarding the Registry of Generators under 1MW.
Article 29 of the LESR.
Article 6 of the LESR.
121
Ecuador
Decree states that any act or transfer under any title that has an effect on the terms of the
granting instrument will be considered as an unauthorised transfer, and so CONELEC
may unilaterally terminate the concession. Therefore, it should be understood that the
same principle of prior authorisation applies to any merger or share acquisition.
In order for the assignment process to be successful, the assignee should file
documents to demonstrate its financial and technical capabilities to continue with the
proposed operation; these documents form the legal basis on which CONELEC will
issue the approval for such assignment.
III
TRANSMISSION/TRANSPORTATION AND DISTRIBUTION
SERVICES
i
Vertical integration and unbundling
Under Ecuadorean law, electricity, gas and oil are the property of the state and,
exceptionally, these activities can be delegated to a private initiative. Electricity and gas
are highly regulated industries, controlled by public bodies.
Electricity
As described in Section I, the electricity industry was vertically integrated until the
1990s as a state monopoly. This structure caused significant economic problems, as the
rates charged were insufficient to cover production costs. The Ecuadorean government
therefore decided to open up the industry and allow private companies to invest and
provide services.10
Currently, the electricity market is made up of three principal activities –
generation, distribution and transmission – and there are two main regulatory entities:
CONELEC and the CENACE. The actors in the industry are separate entities and may
only carry out one activity. Both private and public organisations can be generators.
Distributors are state-owned companies that operate in a specific geographical area, and
transmission is a natural monopoly of the state.
Gas
The gas and oil industries are usually linked, and in many cases the holders of oil contracts
can obtain a permit to exploit gas. Activities in this industry are divided into production
(companies exploiting natural gas), storage, transportation and distribution. Actors in
the gas industry can exercise all the activities described herein, together or independently.
However, Petroecuador EP, a state-owned company that integrates its activities vertically,
has a monopoly on the transportation of gas through a gas pipeline network.
Private companies produce liquid gas (LPG) for domestic markets, and this is the
principal source of energy for domestic use (stoves and water heaters). Natural gas is used
in a few generation plants, mainly owned and operated by state-owned entities.
10
CONELEC, ‘Closing of Accounts of the Wholesale Electricity Market, Period 1999–2003’,
December 2004.
122
Ecuador
ii
Transmission/transportation and distribution access
Ecuadorean legislation grants transmission and distribution access subject to certain
conditions. Pursuant to Article 33 of the LESR, distributors and transmission operators
are obliged to provide non-discriminatory access to third parties to their facilities in
exchange for a tariff. This access includes the transformation of energy.
As previously mentioned, electricity transmission is a natural monopoly controlled
by the state through the SNI, which comprises transmission lines and the corresponding
interconnection modules. Once the energy enters into this system, the CENACE
measures the generation and consumption of energy in order to determine the fee.
Distribution activities, on the other hand, are divided into specific territories,
where distributors have exclusive rights to sell the electricity to final consumers. All
producers should execute PPAs with distributors in order to sell their energy and have
a preferential order in the payment of the energy sold. Major consumers can enter into
direct PPA with private generators, so a private generator may produce electricity solely
for a major consumer, but the tariff for the use of the SNI must still be determined and
paid.
The Ecuadorean government takes a strong position on encouraging competition
in the electricity sector. In 2001, an antitrust regulation was enacted in order to avoid
private monopolies,11 and this has played an important role in the opening up of the
electricity sector. Pursuant to Article 31, no person or entity can control more than 25
per cent of the electricity generating market; however, these provisions are not applicable
to existing state generating companies, only private generators.
iii
Terminalling, processing and treatment
According to Regulation of Law No. 85, which amends the Hydrocarbons Law, the
storage, transportation and distribution of natural gas is regulated under INEN norms.12
In addition, there are various international standards that must be achieved, which are
provided by the American Petroleum Institute and other international institutions.
The Ministry of Non-Renewable Natural Resources and the National Hydrocarbon
Regulation Agency control these activities, in which private entities may participate.
iv
Rates
The provisions that regulate fees have been subject to many changes in recent years.
Each year, CONELEC establishes fixed rates for distributors to sell the electricity to the
final consumers. CONELEC also establishes the rates for distributors for access to the
transmission system, taking into account energy and the power losses.13
11
12
13
Antitrust Regulation for Electricity Sector Activities, published in the Official Gazette No. 408,
10 September 2001.
Ecuadorean Technical Standards Catalogue, in alphabetical order; www.inen.gob.ec/images/
pdf/catalogos/alfabetico2013.pdf.
Legislative Decree No. 15, published in the Supplement of the Official Gazette No. 393, 31
July 2008; CONELEC Regulation No. 006/08, 12 August 2008.
123
Ecuador
Producers and distributors, producers and major consumers, and distributors and
major consumers may enter into PPAs, negotiating and freely determining the price of
the electricity. There used to be an exception for non-conventional energies generators,
who used to have a legal assurance of a fixed premium price for up to 15 years, pursuant
Regulation No. CONELEC-004/11. Regulation No. CONELEC–001/13 derogated
Regulation No. CONELEC-004/11 and established preferential rates only for biomass
and biogas generators. However, Photovoltaic generators that entered into a generation
agreement before CONELEC 001/13 remain with the preferential fee established in
regulation CONELEC 004/11.
The CENACE measures the energy distributed, the transmission rates and the
costs, and determines under the PPAs, if applicable, the price that each producer should
receive in relation to the dispatch and sale of energy.
The payment system encourages efficiency and cost reduction by establishing
priorities in the payments; producers that produce the most expensive energy are at
the bottom of the priority order and receive payment last. Since payment through trust
funds was recently eliminated, the generators are currently receiving a direct payment
from the distributors. It can be presumed that this measure equates to the stability of the
market and the possibility of the distributors to pay for the energy supplied.
IV
ENERGY MARKETS
i
Development of energy markets
Please see Section I, supra.
ii
Energy market rules and regulation
Ecuadorean legislation provides three market types for generators.
Short-term market or spot market
In setting short-term prices that imply an economic dispatch, operating over expenditures
of the generating units is not considered. This formula utilises variable and audited costs
of thermal power stations. The short-term price reflects the highest variable price of the
units released.
Currently the short-term market is only applicable to international electricity
transactions, as the national market functions only under regulated agreements.
Long-term market for regulated clients
Generators that operate in the national system have entered into regulated agreements
(PPAs) with the distribution companies. Private generation companies negotiate the sales
price, which establishes two elements:
a
a fixed charge, which is independently liquidated if the generator is or is not
released, if and when it maintains available capacity. The determination of the
fixed charged takes into consideration the costs of recouping investments, such as
those related to administration, operation and maintenance; and
b
a variable charge or production cost that is liquidated in accordance with the
measured electric energy production.
124
Ecuador
Generation market for free clients
Generators are permitted to sell energy in bulk consumer market. Bulk consumers are
those that demand a monthly average at or above 650kW or a minimum annual energy
consumption of 4,500MWh.
Bulk consumers may enter into transactions in the market through free agreements
with generators.
V
RENEWABLE ENERGY AND CONSERVATION
i
Development of renewable energy
The development of renewable energy in Ecuador from non-conventional14 resources is
very recent, but there is already a well-established infrastructure of hydroelectric projects
that generate approximately 11,100GWh (2013).15 This source of energy is the most
common in Ecuador due to the geological distribution of water currents and the high
cost and investments required for other renewable resource energy generators.
In 2011, CONELEC issued Regulation No. 04-11, which established preferential
rates and tax benefits for generation from non-conventional resources. In December
2012,16 CONELEC issued Regulation 07-12, which amended Regulation No. 0411, in which preferential rates were established for electric generation of wind power,
photovoltaic, solar thermoelectric, marine currents, biomass and biogas and geothermal.
However, on 13 March 2014, CONELEC issued Resolution No. 01-13 which repealed
Resolution No. 04-11 eliminating preferential rates for most forms of renewable energy
projects. With Resolution No. 01-13, preferential rates for non-conventional energy
generation were eliminated both in the continental and insular region of Ecuador.17
ii
Technological developments
In the past couple of years, photovoltaic and wind power generation projects have begun
in Ecuador; these are the newest clean generation units, which are of particular interest
in areas such as the Galapagos Islands, where there is no other available source of energy
generation other than diesel generators.
VI
THE YEAR IN REVIEW
The Ecuadorean government has attempted to promote changes in the energy matrix,
which up to now has been almost entirely oil-based. The Ministry of Electricity and
14
15
16
17
Non-conventional resources are defined as those used for the generation of energy through
aeolic, biomass, biogas, photovoltaic, geothermal and other resources of similar characteristics.
See Article 76 of the Regulation of the LESR and Article 63 of the LESR.
www.conelec.gob.ec/enlaces_externos.php?l=1&cd_menu=4223,.
1 December 2012.
Prefential rates are still available for biomass (US$9.67/US$10.64) and biogas (US$7.32/
US$8.05).
125
Ecuador
Renewable Energy, considering the stability of the market, eliminated the payments
towards trust funds. Now, distribution companies pays directly to the generators.
Some important energy infrastructure projects have been contracted by
the government. For instance, CONELEC awarded to a Chinese corporation the
construction of several transmission lines from 230kV up to 500kV valued at more than
US$500 million.
VII
CONCLUSIONS AND OUTLOOK
The Ecuadorean market is evolving and changing the energy matrix by developing new
sources of energy. Important projects are under way and the level of importation of energy
from neighbouring countries is declining. The changes introduced by the government
are encouraging energy efficiency by reducing energy losses and expanding the SNI.
The government is promoting the exploration and exploitation of gas. In the
eleventh oil bidding round, the industrialisation of gas has been introduced as part of the
deal for oil companies interested in entering into service contracts with Ecuador.
The Ecuadorean energy market presents interesting options for investors, since
the market has no deficit and is opening up to private investment.
126
Appendix 1
ABOUT THE AUTHORS
JORGE PAZ DURINI
Paz Horowitz Robalino Garcés Attorneys at Law
Jorge Paz Durini is co-founder and partner of Paz Horowitz Robalino Garcés and leads
its energy and natural resources practice area. He has negotiated acquisition, engineering
and construction contracts for some of the most important electric and hydroelectric
generators and facilities in Ecuador. Mr Paz Durini has provided legal support in the
development of business, financial and legal structure, as well as in regulatory compliance
issues for various renewable energy projects, including photovoltaic generator projects.
He is also known for his in-depth knowledge of the mining sector, having served
as Undersecretary of Mines at the Ecuador Energy and Mines Department and President
of the Ecuador Chamber of Mines.
Mr Paz Durini also practises in the areas of antitrust, arbitration and aviation,
corporate/commercial, real estate and tax. He consistently receives recognition from legal
guides such as Chambers and Partners Latin America, Legal 500 Latin America, Latin
Lawyer 250, The International Who’s Who of Mining Lawyers and IFLR 1000.
DANIEL ROBALINO
Paz Horowitz Robalino Garcés Attorneys at Law
Daniel Robalino is an associate at Paz Horowitz Robalino Garcés. His practice areas
include energy, international arbitration, foreign investment, antitrust law and policy,
and mergers and acquisitions.
551
About the Authors
LEYRE SUÁREZ
Paz Horowitz Robalino Garcés Attorneys at Law
Leyre Suárez is an associate at Paz Horowitz Robalino Garcés. Her practice areas include
energy, oil and gas, international arbitration, foreign investment, antitrust, administrative
law, and mergers and acquisitions.
RAFAEL VALDIVIESO
Paz Horowitz Robalino Garcés Attorneys at Law
Rafael Valdivieso is an associate at Paz Horowitz Robalino Garcés. His practice areas
include energy, oil and gas, international arbitration, foreign investment, antitrust law
and mergers and acquisitions.
PAZ HOROWITZ ROBALINO GARCÉS ATTORNEYS AT LAW
Calle del Establo y Calle E
Edificio Site Centre
Tower I, Suite 301
Cumbayá, Quito
Ecuador
Tel: +593 2 398 2900
Fax: +593 2 398 2999
[email protected]
[email protected]
www.pazhorowitz.com
552