Exemption from procurement law – still some hurdles - Simonsen

Entities involved in exploration and production of oil or gas on the NCS are bound by the Norwegian Act on Public Procurement and the Norwegian Utilities Regulation. This regime is an implementation of EU procurement law (through the EEA Agreement), in particular Directive 2004/17/EC, the Utilities Directive. Even though the entities involved in upstream activities have the benefit of the so-called “Alternative Procedure”, the principles of competitive and non-discriminatory procurement still applies. The “Alternative Procedure”, even though it represents a relief from the more detailed procedures of the Utilities Regulation, still causes uncertainties regarding the application of the principles it prescribes. For many the exemption from the more detailed procedures only reduces the legal predictability rather than simplifying the procurement procedure.

Most companies within the oil and gas industry would consider it to be a substantial relief if upstream petroleum activities would be exempt from Norwegian procurement law, including the “Alterative Procedure”.  The Ministry of petroleum and energy, in a joint effort with the Norwegian Oil Industry Association (OLF) has initiated a so called “Article 30 procedure”. This refers to Article 30 of the Utilities Directive which provides for the possibility of applying to the EFTA Surveillance Authority (ESA) for complete exemption from Norwegian procurement legislation subject to meeting certain criteria. The Ministry’s intent when initiating the procedure is, we understand, to have the entire upstream petroleum segment exempt from Norwegian procurement law.

When an Article 30 procedure is initiated, a decision from ESA would normally be made within three months. However, the Norwegian Article 30 initiative has met some obstacles. ESA has apparently raised issues in relation to Norway’s fulfillment of its obligations under the EEA Agreement. More specifically, it seems ESA is raising the question whether certain provisions of the Norwegian Petroleum Act is in line with Norway’s obligations under the Gas Market- and Licensing Directives. Before Norway’s compliance with these directives is verified, an exemption for upstream activities from the Utilities Directive and the corresponding Norwegian regulations will not be granted.

So where does this leave entities involved in upstream activities? For the moment these entities must continue to adhere to Norwegian procurement law and the Alternative Procedure. However, it is expected that Norway’s compliance with the Gas Market- and Licensing Directives will be verified and that the Article 30 initiative eventually will lead to full exemption from the Utilities Directive and the corresponding Norwegian regulations for upstream petroleum activities on the Norwegian continental shelf. When an exemption may be granted by ESA, however, is not possible to predict at the time this magazine went to press.