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EU COURT NEONICOTINOID INSECTICIDE JUDGMENTS: SIGNIFICANCE FOR UK AGRICULTURE, CHEMICALS AND ENVIRONMENTAL POLICY, PART II

In the first article of this series we reported on the three joined neonicotinoid pesticide judgements issued by the EU General Court on 17 May 2018. In this article we consider in more detail why these judgements come at a particularly significant point for agriculture in the UK and EU, the immediate implications for Brexit, how they represent a divergence between the UK government and some farming organisations, and why that matters for the current consultations on an Environmental Principles and Governance Bill.

The final article in this series will consider some of the impacts of farm chemicals on birds, water and human health, and how these judgements may be important for a wider re-appraisal of pesticide use in the UK.

Implications of the judgements, particularly for the UK

Agriculture at the crossroads

Agriculture is at a critical point, both at EU and UK levels. On 2 May 2018 the European Commission embarked on two years of what will be difficult negotiations of a new Multiannual Financial Framework, or budget, for the EU, which will need to take account of the withdrawal of the net contribution from the UK, and pressures for increased spending on other issues such as border management, migration, asylum and security. Some commentators expect the long term decline of spending on the Common Agricultural Policy as a proportion of the EU budget to continue, and it seems equally likely that where support is given to agriculture, conditions attaching a requirement for the protection of the environment will be strengthened.

At the UK level, the government has promised to maintain agricultural subsidies for the next few years as the UK leaves the EU, but there are no promises to do so over the long term, and again it seems likely that environmental protection requirements as part of the ‘conditionality’ for farm subsidies will only increase.

Farmers are awaiting publication of a promised UK Agriculture Bill as part of the legislation required to deliver Brexit. Agriculture is also a devolved matter, and further legislation is likely in the short term, and, for example, the Climate Change, Environment and Rural Affairs Committee of the National Assembly for Wales has been carrying out its own inquiry into agriculture and the environment, and the ‘common frameworks’ needed to ensure some form of coordination between UK and devolved agricultural policy.

Immediate significance of the judgments with Brexit

The immediate significance of the Court’s neonicotinoid judgements is that they become part of the acquis communautaire, or body of EU law. They are now part of EU law, they apply to the UK as it is currently a member of the EU, and the UK government has undertaken to ensure the conversion of the whole acquis communautaire into UK law by means of the European Union (Withdrawal) Bill.

Again, where agriculture is a devolved matter, for example in Wales and Scotland, the Parliaments of Wales and Scotland can be expected to deliver legislation with similar effects: in the case of Scotland, it may require the Supreme Court to rule on whether this should be done by means of the European Union (Withdrawal) Bill or its own ‘continuity’ legislation (see our earlier briefing on Wales, Devolution, Brexit and the Environment).

Divergence between UK government and farmers’ organisations

In November 2017, Michael Gove, UK Secretary of State for the Environment, Food and Rural Affairs, announced the reversal of the UK government’s policy on neonicotinoids, and its support for the EU’s total ban on outside uses, writing that –

“The weight of evidence now shows the risks that neonicotinoids pose to our environment, particularly to the bees and other pollinators which play such a key part in our £100bn food industry, is greater than previously understood.”

However, as noted, the UK’s National Farmers Union was in court supporting the manufacturers’ legal challenge to the EU ban.

This is not an isolated example of a significant divergence between the UK government and the NFU in their approach to farm chemicals, which can also be noted in their respective statements on organophosphates in sheep dip, glyphosate, and the use of chemicals on the ‘landscape scale’ (see the third article in this series on the views of Defra’s Chief Scientist). At a time when public opinion and political opinion really matters, this sort of divergence is potentially very significant.

Environmental Principles and Governance

The Court’s neonicotinoids judgements also come at a time when both the UK government, and those of each of the home nations, are examining very fundamental questions about the environmental governance that should apply after Brexit, how to replace the enforcement of environmental laws when the European Commission and the Court of Justice of the European Union are no longer enforcing EU law in the UK, and which environmental principles should inform UK laws and in what way. House of Lords amendments to the European Union (Withdrawal) Bill will ensure that this is further debated in the UK Parliament before that Bill can be enacted.

The UK government and Defra issued a consultation on a proposed Environmental Principles and Governance Bill on 10 May 2018, and Parliaments in Wales and Scotland will also be considering these issues. The Court’s strong re-statement of the precautionary principle is therefore timely and significant.

This is one of the core environmental principles of EU environmental law. How it fares after Brexit, and how it comes to be reflected in UK law and the law of the devolved Parliaments will be closely watched.

About the Author:

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm, as well as running his own environmental policy consultancies. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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THE IAEA AND WHETHER IRAN IS TELLING THE WHOLE TRUTH

We continue to watch and assess the Iranian nuclear situation. Over the last week or so Israeli Prime Minister Netanyahu has been lobbying the leaders of Germany, France and the UK to accept his, and President Trump’s, assertion that Iran is already developing nuclear weapons. He backed this up by sharing with them many thousands of Iranian secret files. He says he’s not out to persuade the Europeans to withdraw from the Joint Comprehensive Plan of Action (JCPOA), stating in a recent BBC Newsnight interview that the nuclear deal is “already dead”.

Iran’s reaction to recent events was to announce that it will increase its uranium enrichment capacity, which will, in itself, not violate the terms of the JCPOA as long as it stays within certain limits. What does “uranium enrichment” mean and what are the implications of Iran’s announcements?

Uranium Enrichment

To explain this its worth looking at some basic physics and chemistry.

The chemical element uranium (symbol U) in nature comes in two main forms, or isotopes. Isotopes are atoms of the same element having the same numbers of protons and thus the same chemical properties, but different numbers of neutrons and different physical properties. The main isotopes of uranium are U-238 and U-235. On average, in nature, natural uranium contains ~0.7% U-235 and ~ 99.3% of the heavier U-238; there’s also a very small amount of U-234. U-235 is the important isotope as far as civil nuclear power stations and nuclear weapons are concerned because it can “fission” (split in two) and release energy.

Some nuclear reactor designs, including the UK’s Magnox and the Canadian CANDU designs, ran on natural uranium fuel. However, modern reactors and nuclear weapons require larger proportions of U-235 in the mix, achieved primarily through using centrifuges. A centrifuge is a spinning cylinder (not unlike a spin-dryer) in which uranium hexafluoride gas is fed into the spinning chamber and the heavier molecules of gas containing U-238 migrate towards the outside and the lighter gas molecules with U-235 towards the centre. The lighter gas will still contain much U-238, and so the process is repeated many thousands of times until the required concentration of U-235 is achieved.

Modern light water reactors need fuel which is between 3% and 5% enriched uranium, research and medical application reactors sometimes go up to 20% enrichment, and nuclear weapons require about 90% enrichment. Under the JCPOA, Iran had to give up its 20% enriched uranium and limit its enrichment programme to 3.67%, and its number of centrifuges to 5060.

Developments in Iran

In announcing its intent to increase enrichment capacity, Iran showed off some new, more efficient designs of centrifuge, which under the JCPOA it is not allowed to use, and it is this that is worrying to some. What this means is that it would need fewer centrifuges to produce weapons-grade material. Fewer units can be more easily hidden from the eyes of the outside world and the IAEA’s inspectors.

Iran doesn’t need to produce more enriched uranium for civil nuclear purposes, but with these announcements is demonstrating that it can, and possibly will, step up its campaign for higher enrichments in retaliation to the stance of the US and Israel in particular.

In his address to the IAEA Board of Governors on 4th June, IAEA Director General Yukiya Amano stated “the Agency continues to verify the non-diversion of nuclear material declared by Iran under its Safeguards Agreement. Evaluations regarding the absence of undeclared nuclear material and activities in Iran continue.” Previous statements by the Agency have given comfort to the first sentence of this extract. The second sentence however is causing some people to question whether the IAEA believes that Iran is in fact providing the “whole truth” about its programme

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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EU COURT NEONICOTINOID INSECTICIDE JUDGMENTS: SIGNIFICANCE FOR UK AGRICULTURE, CHEMICALS AND ENVIRONMENTAL POLICY, PART I

In the first of this series of articles, we consider three important linked judgements about neonicotinoid pesticides, which damage bees, from the EU General Court, issued on 17 May 2018, which have widespread implications for agriculture, chemicals and environmental policy, especially for the UK, for example in the way the judgement endorses the precautionary principle.

In the next article we will consider in more detail why these judgements come at a particularly significant point for agriculture in the UK and EU, the immediate implications for Brexit, how they represent a divergence between the UK government and some farming organisations, and why that matters for the current consultations on an Environmental Principles and Governance Bill. We will be considering the consultations on environmental principles and governance further in future articles.

In the third article we will consider some of the impacts of farm chemicals on farmland birds and on water, and question the implications of the judgements and current policies and practices for human health.

In judgements on three joined cases [T-429-13, T-451-13, T-584-13] issued on 17 May 2018, the General Court of the European Union confirmed the validity of restrictions introduced at EU level in 2013 against three neonicotinoid insecticides, because of the risks those substances pose to bees.

The active ingredients restricted were clothianidin, produced by Takeda Chemical Industries and Bayer Crop Science, thiamethoxam, made by Syngenta, and imidacloprid, made by Bayer Crop Science.

The Court dismissed the challenges brought to the EU legislative restrictions by Bayer Crop Science AG and Others, and Syngenta Crop Protection AG and Others, the “Others” in both cases including the UK National Farmers Union ‘NFU’.

However, in the third case the Court largely upheld the action brought by BASF, and annulled the restrictions on the use of the pesticide fipronil, since they were imposed without a prior impact assessment by the European Food Safety Authority ‘EFSA’.

In all three cases, the Court made a strong and clear re-statement of the importance of the ‘precautionary principle’.

As the Court’s Press Release on the judgements explained –

As regards the uses restricted and prohibited in 2013, the Court rules that the Commission has succeeded in demonstrating that, in view of the considerable strengthening of the requirements that there should be no unacceptable effects of the active substances on bees, the risk identified by EFSA warranted the conclusion that the three substances in question no longer satisfied the approval criteria….

…Consideration of the arguments put forward by Bayer and Syngenta in that respect did not reveal any errors (such as manifest errors of assessment) or any misapplication of the precautionary principle or the principle of proportionality. So far as the precautionary principle is concerned, the Court recalls that, where there is scientific uncertainty as to the existence or extent of risks to human health or to the environment, this principle allows the institutions to take protective measures without having to wait until the reality and seriousness of those risks becomes fully apparent or until adverse health effects materialise. The precautionary principle, moreover, gives precedence to the requirement relating to the protection of public health, safety and the environment over economic interests.”

In the third BASF case, the Court made it clear that the reason for allowing the challenge by BASF to the restrictions on fipronil was the failure by the Commission to secure an adequate prior impact assessment by EFSA, which itself constituted a failure to apply the precautionary principle correctly.

In sum, therefore, the manufacturers of these pesticides and their supporters have won themselves one of the strongest endorsements to date of the precautionary principle.  It remains to be seen whether they will seek to appeal against the judgement to the next level within the Court of Justice of the European Union. The next article in this series will consider some of the reasons why the judgements have particular significance to agricultural, chemicals and environmental policy at this point.

About the Author:

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm, as well as running his own environmental policy consultancies. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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WHOLESALE ENERGY PRICES: MARCH – MAY 2018

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Oil

Crude prices crept up a further 4% up amid renewed concern over OPEC exports, the possibility of new US oil sanctions on Iran and reports Houthi rebels starting to target Saudi exports of crude – a possible long-term campaign with the insurgency in Yemen showing no sign of abating.  Exports from OPEC’s second largest producer, Venezuela, were hit by a wave of national strikes and the market was buoyed further by the prospect that OPEC and non-OPEC countries agreeing to prolong their Accord and roll forward their production cuts well into next year. There are perhaps sound, if nefarious, incentives for Russia to take a lead in oil production sacrifices, possibly to ‘rattle the inflation cage’ of certain Western economies. Saudi Arabia will also be keen to keep oil prices as high as possible, in preparation for the partial sale of Aramco, whose stock market float is still believed to be on the cards. All in all, there have been few reasons to short crude over the past two months and oil prices could well strengthen further as we move into summer.

Gas

With oil prices re-visiting highs not seen in four years and heading for $70/bl, the effect of lagged oil price indexation in Trans-European take-or-pay gas contracts will be growing as the new gas year approaches on 1st October. Significantly, there are several major long-term contracts coming up for renewal. The starting Base Price in such deals will also be up rated and a ‘ratchet effect’ may be reflected to some degree in the Forward Market itself. Annual NBP gas prices rose a further 5% during the two month period. Despite the relative abundance of physical gas and the prospect of spot LNG cargoes being released by South East Asian buyers, gas prices could rise further if petroleum markets continue to climb as they have been.

Electricity

Prices rose 13% following the oil and gas higher (both more liquid and actively traded) although the market was spooked by the shutdown of the Hunterston B reactor. Although the plant was soon back online, the episode served as a reminder of the state of Britain’s aging fleet of Advanced Gas-cooled Reactors. All AGRs are set to operate well beyond their original design lives and this design accounts for all still-functioning reactors bar Sellafield. EDF was confirmed in one report to have said “the findings [at Hunterston] will probably limit the lifetime for the current generation of AGRs” so some nuclear output may come off line sooner than expected and before new-build reactors can replenish it. This long-term outlook was dimmed further by reports of defects identified in rivets forged for the EDF’s two European Pressurised-water Reactors (EFRs) under construction in France and Finland. The concern being that such design faults may extend delays at its third EPR under construction at Hinkley Point.

Wholesale market aside, business prices are set to rise anyway due to legislated increases in network capacity charges and higher tax levies. As of this April there are now seven separate taxes, on top of commodity and capacity costs. My research suggests that capacity and tax rises will have increased a typical commercial user’s bill by 35% over the period Oct 2017 to Sept 2020, i.e. assuming as a baseline we see no rise in the wholesale prices (in Oct 2017 £45/MWh or 4½p/kWh, so already up 14% since) . Energy buyers will possibly be looking at a combination of competitive tendering and more active demand-side management, including the possible application of Demand Side Response hardware and DSR-related Battery Storage, a topic to feature in Energy Focus soon.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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ZERO-HOURS CONTRACTS IN ENERGY AND INFRASTRUCTURE PROJECTS: THE FUTURE IS CONFUSED

Statistics released last month show that zero-hour contracts were greatly on the rise last year, including in the energy and infrastructure sectors. Although the government is criticised for doing little to tackle the perceived exploitation of workers on these contracts, they remain just as popular, if also as divisive, as ever.

These controversial “no-ties” agreements, which allow employers to contract whenever and for however long they want, with no guarantee of work, are not suitable for everyone. But for a proportion of the workforce, the flexibility these contracts allow makes them appropriate and convenient.

The oft repeated refrain from critics of zero hours contracts is that employers have no obligations to workers and take advantage of them, bringing them on board when they want them only to spit them out when they’ve gained what they need. Indeed, some zero-hour contract employees report a vulnerability that renders them unable to speak up when treated unfairly, but employment lawyers will tell you there are plenty of employees with “rights” who are the same. Employees may be protected on paper but when it comes down to a dispute, for example, who holds the cards? It’s often a game of chess rather than a legal fight, zero-hours or not.

The need for an occasional workforce 

Some businesses need workers irregularly. These contracts provide these firms complete flexibility over when and how they utilise their workforce whilst giving them no obligation to actually offer work. Now that a change in the law means that “exclusivity clauses” are unenforceable, workers can turn offers of work down without fearing the loss of future work from that company. Some industries may find a series of fixed-term contracts, consultancy agreements or engaging agency staff more suitable, however any business that does not know from one day to the next how many staff they need will still find zero hours’ arrangements useful.

There are reports that the use of zero hours contracts is levelling out, and may even be likely to decrease. Companies develop relationships with certain workers but, now that they cannot guarantee the availability of preferred workers, will zero hours’ contracts be used less?

Those companies that are already using zero hours’ contracts will have a good bank of contacts, so will be more likely to have immediately available back-up – not unlike under consultancy agreements. Now that workers do not have to take on work when it is offered, businesses will necessarily be looking at ways of getting a better bank of different people to rely on whilst maintaining, wherever possible, the flexibility to take on staff only when they require their services. This approach lessens the risk from the employer’s viewpoint of deemed “employment status” (i.e. mutuality of obligation) evolving in due course between employer and worker.

The ‘Uber’ Case

With the ground-breaking “Uber” case finding that drivers are “workers”, people who hold mid-way status between employees and the self-employed and benefit from some of the main worrisome claims for employers such as unfair dismissal and sick pay, and with certain faces naturally becoming more and more established at one location, mutuality of obligation may in fact be developing in any event. Are the lines between employee / worker and / or free to choose becoming blurred and leading zero-hours’ contracts to their natural end?

There will still be obligations on companies, of course. Companies need to keep track of which members of staff are working and when, whilst making workers aware that they need to be informing the firm of what else they are doing and for how long. Companies should be able to ensure that they do not fall foul of Working Time Regulations, since unless workers opt out of the 48 hour working week, this part of the Regulations applies to all their jobs as if they are one.

As always, the most effective way to ensure this and other vital information is recorded properly and that other important issues are dealt with at the same time is to have good, solid terms and conditions agreed from the outset.

About the Author:

Philippa Wood is a solicitor with many years’ experience advising on all areas of contentious and non-contentious employment law. Her clients include individuals and companies of all sizes from entrepreneurs to global brands. She advises on the full range of employment issues: defending all types of discrimination claims including maternity, stress & bullying; unfair and wrongful dismissal; directors’ disputes; whistleblowing; agents and agency regulations; redundancy, restructuring and outsourcing including TUPE claims; remedies hearings and contributory costs; collective bargaining; arranging and heading up employer and employee training days and sessions; drafting executive service, consultancy and fixed term and permanent contracts of employment, staff handbooks and sickness policies; advising on how to implement service provision changes; flexible working and statutory leave requests; and employee monitoring and data protection issues.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk

For a PDF of this blog click here

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OIL & GAS: VOLATILITY – ATTENTION TO DETAIL – THE KEY TO SUSTAINABILITY, PART II

In the following series of articles Alex Bakhshov will examine the challenges that come with negotiating key legal and contractual terms and managing legal risks across infrastructure operations comprising major oil and gas projects (Projects) in developing oil and gas markets and in turn a means through which to mitigate the impact of inflated barrel production costs (Barrel Price) by Independent Oil Companies (IOC), Oil Field Service Providers (OFP) and other market participants seeking to make strategic decisions relating to foreign direct investment (FDI).

Introduction:

In the first part of this series Alex Bakhshov considered the common determinants and barriers for Independent Oil Companies (IOC), Oil Field Service Providers (OFP) and other market participants seeking to make strategic decisions relating to Foreign Direct Investment (FDI) in developing markets. In this second article Alex will focus on the barriers faced by IOC’s in sub – Saharan Africa (SSA), which presents its own unique set of challenges amongst developing markets. Alex will hope to demonstrate that by collaborating with domestic policy makers (Regulators), barriers to FDI can be overcome and sustainable business can be built through periods of oil price volatility.

Unfavourable Fiscal Terms

A frequent source of frustration for oil executives seeking to invest in developing markets and in particular in SSA are the unfavorable fiscal terms frequently encountered during periods of low oil prices; this coupled with inflated barrel production costs (Barrel Price) is often the primary barrier to FDI. Paul McDade, chief executive of Africa focused Tullow oil told the Africa Oil Week Conference in Cape Town (2017) that exploration license terms must be competitive to attract new investors to the region’s upstream.

This means governments and regulators being bold and flexible and allowing companies to make final investment decisions more quickly by improving fiscal terms that were in many cases initially agreed at greater than $100 per barrel,” he said. “At the end of the day capital goes where it’s welcome and that’s especially the case at $50 oil. If we like the play and we like the basin, but the terms don’t work, then we won’t be investing.

The reality is that resource rich dependent and developing economies are impacted negatively during low oil prices, triggering aggressive fiscal terms for investors; however this should serve as an impetus and incentive for collaboration for diversification of the economy and liberalization of the legal framework to allow full ownership of enterprises by foreigners and the proper protection of their property rights – which would have the added benefit of encouraging expatriates to save and invest locally. SSA remains behind the GCC states in diversification of economic initiatives (see further “Could low oil prices be an opportunity for the Middle East?”, World Economic Forum). So even where fiscal terms are unfavourable, there are opportunities for IOC’s to include the meaningful transfer of knowledge and technology as part of FDI by, amongst other initiatives, engaging with Local Content Requirements (LCR’s).

As was shown in Part 1 of this series, in considering FDI, frequently overlooked by the investment community and oil executives are the inherent legal risks in the misalignment between international contracts and those mandated under LCR’s; especially where the initial fiscal terms look attractive. Often these risks do not materialize until a contractual dispute, political upheaval including policy and legislative change or environmental crisis arises, which will often be long after significant capital has already been committed, further inflating Barrel Prices. Whilst developing markets are prone to these risks, these factors are rarely factored into the Barrel Price and therefore proactive procurement, contracting, governance and project management strategies must be implemented early on and revisited throughout the lifetime of the oil and gas project (Project), to minimize the impact on business disruption, health and safety or financial loss.

Varying Production Costs:

Investment in high oil and gas dependent developing countries, as has been indicated in relation to SSA, does not consistently attract FDI, as the components of Barrel Price can be inflated through higher capital costs, taxes, transportation costs, infrastructure unreliability and security costs. Risks of expropriation during periods of political instability and the imposition by some countries of a requirement of majority domestic ownership can be a significant deterrent to FDI (see further ‘On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?’ World Development Vol. 30, No. 1, pp. 107 to 119, 2002).

Oil and gas barrel production Cost, March 2016
Country Gross
taxes
Capital
spending
Production
costs
Admin
transport
Total
UK $0 $22.67 $17.36 $4.30 $44.33
Brazil $6.66 $16.09 $9.45 $2.80 $34.99
Nigeria $4.11 $13.10 $8.81 $2.97 $28.99
Venezuela $10.48 $6.66 $7.94 $2.54 $27.62
Canada $2.48 $9.69 $11.56 $2.92 $26.64
U.S. Shale $6.42 $7.56 $5.85 $3.52 $23.35
Norway $0.19 $13.76 $4.24 $3.12 $21.31
U.S. non-shale $5.03 $7.70 $5.15 $3.11 $20.99
Indonesia $1.55 $7.65 $6.87 $3.63 $19.71
Russia $8.44 $5.10 $2.98 $2.69 $19.21
Iraq $0.91 $5.03 $2.16 $2.47 $10.57
Iran $0 $4.48 $1.94 $2.67 $9.08
Saudi Arabia $0 $3.50 $3.00 $2.49 $8.98

Source: “Barrel Breakdown” Wall Street Journal, April 15, 2016.

Increased Costs: Nigeria & Angola

It is evident that in Nigeria, the total Barrel Price is significantly higher than most of the emerging markets largely due to higher capital and production costs. In times of low oil prices, Nigeria therefore does not attract FDI. These increased costs are due in part to lack of confidence in infrastructure and security concerns – most of the exploration activities now occur offshore, which attracts significant capital spending. Indeed, as indicated above the trend is that SSA countries attract less FDI than MENA or indeed other developing regions. This is troubling not only because of the significant oil reserves (Nigeria and Angola have amongst the highest proven reserves in the world) but because FDI is crucial to the region to help accelerate growth through technology, knowledge transfers, employment and infrastructure.

Pade Durotoye, chief executive of Nigerian independent Oando Energy Resources, has expressed frustration at the delay the company faced in exploration and production on its acreage because of unattractive terms.

One of the things we are trying to make the government understand and appreciate is that a higher government take of nothing is nothing,” he said at the Africa Oil Week conference in Cape Town (2017).

Future Reform:

These messages come at a critical time for the industry in the region, as governments rethink their hydrocarbons strategies at $50-60 oil. The continent’s two largest oil producers, Nigeria and Angola, are revamping their investment and legal frameworks for the oil and gas sector, and a plethora of other African states are keen to emulate the recent success of Senegal, Mauritania and Mozambique in kick-starting exploration and converting successful finds into concrete development plans.

Cote d’Ivoire, having just settled a protracted maritime border dispute with Ghana, has re-launched its efforts to encourage new exploration, offering redrawn blocks through direct negotiation with oil companies. Elsewhere on the continent, Namibia, Sierra Leone, Liberia and the Gambia are also promoting frontier offshore acreage. Onshore, Mali is also offering up blocks, hoping that investors will overlook the security risks posed by Islamist terrorism.

They will be keen to emulate countries such as Ghana, Mozambique and Senegal, which have managed to maintain exploration momentum during the industry downturn since Brent crude futures began to tumble in mid-2014.

In Part 3 of this series Alex Bakhshov will take a closer look at Mozambique, which has consistently attracted FDI, thus bucking the trend amongst SSA countries. Alex will take a close look at Mozambican Regulators’ approach to working in collaboration with IOC’s to develop its infrastructure and implement legal and social reform by working towards an innovative legal framework and diversification of its markets.

Alex Bakhshov is a commercial lawyer specialising in project and infrastructure work, having attained experience of major projects in Africa, Asia, the North Sea, South America and Australia. Alex has advised on mergers and acquisitions, joint ventures, construction, regulatory, contracting and procurement strategies, and possesses significant experience in construction, the marine sector, shipyard disputes, shipping (both wet and dry) and offshore Oil & Gas projects in the North Sea, West Africa and Brazil.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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WALES, DEVOLUTION, BREXIT AND ENVIRONMENTAL LAW:

The constitutional clash between the governments of the United Kingdom, Scotland and Wales over Brexit legislation may be heading for resolution in the Supreme Court unless continuing negotiations between the governments are successful, according to announcements by the UK government on 17 April 2018.

The immediate cause is the passage in March 2018 by the Parliaments in Cardiff and Edinburgh of their own “Continuity” legislation, which may or may not be within the legislative competence of each devolved Parliament, but which certainly clashes with the intended framework of the UK government’s European Union (Withdrawal) Bill. The UK government has said that it will challenge these Bills in the Supreme Court, unless agreement is reached in negotiations which may result in this devolved legislation being withdrawn.

Threatened litigation in the Supreme Court brings to a head two conflicting trends, first the strong measures to devolve really significant further powers to Wales and Scotland; and secondly, the destination of powers being repatriated to the UK from Brussels after Brexit.

The governments of Wales and Scotland argue that these powers should be returned directly to them where they relate to devolved areas. The UK government had intended that such powers should first be returned to the UK government, with a view to their being re-allocated to the devolved parliaments in devolved areas, but with restrictions and limitations that would ensure that in key areas, the UK remains a single market, with consistent rules, rather than risking fragmentation which will make future trade agreements even more complicated than at present.

Responsibility for legislation on the environment was one of the first matters to be transferred to the legislative competence of the Welsh Assembly under the original devolution legislation in 1998.  Environmental legislation in Wales continues to develop with significant differences from the rest of the United Kingdom and England. However, environmental laws in Wales raise many of the same questions on fundamental issues, such as how they are to be enforced effectively, once Brexit happens and the European Commission and Court of Justice of the European Union are no longer available as part of the enforcement picture.

Original devolution settlement and development of environmental law in Wales

Responsibility for legislation on the environment, and also, very importantly for Wales, the related areas of agriculture, fisheries and food, was part of the original devolution settlement of powers on the then Welsh Assembly under the original Government of Wales Act 1998.

Devolution of further powers has continued at some pace, and the trend is for remaining restrictions on the exercise of relevant powers, for example over water supplies from Wales to areas of England, to be removed, or re-cast in favour of jurisdiction in Cardiff. In the Government of Wales Act 2006, ‘Assembly Measures’ included agriculture, fisheries, food and rural development and the environment.

Following the 2011 referendum and the Silk Commission Report, the National Assembly for Wales was given further financial powers under the Wales Act 2014,  which will see it able to exercise income-tax varying powers from 2019.

The second part of the Silk Commission Report dealt with proposed changes to the Assembly’s legislative powers, and resulted in the Wales Act 2017. The fundamental change introduced by the Wales Act 2017, which came fully into force on 1 April 2018, was the move to a “reserved powers’ model. In other words, and more like the Scottish Parliament, the National Assembly for Wales can now legislate in any area which is not specifically reserved to the UK Parliament. This is a change of great constitutional significance, and represents a major shift in the balance of power between London and Cardiff.

Meanwhile, the environment has remained squarely within the National Assembly’s remit, and it has begun to enact a series of specifically Welsh pieces of legislation relating to the environment and associated topics. These include, most notably the Planning (Wales) Act 2015, the Well-Being of Future Generations (Wales) Act 2015 and the Environment (Wales) Act 2016, which sets out a framework for Natural Resources Wales and for Sustainable Natural Resource Management.

European Union (Withdrawal) Bill

The UK government published the European Union (Withdrawal) Bill in 2017, and it began its tortuous process through Parliament, supported by a government with a wafer-thin majority when combined with the votes of the DUP. The express aims of the Bill include the repeal of the European Communities Act 1972, as the basis for all European Union law in the UK, and the withdrawal of the UK from the jurisdiction of the Court of Justice of the European Union, with all European Union law being brought into UK law as an interim measure.

It soon became clear that there were at least two major fault lines in this flagship Bill from the Brexit legislative programme. First, in seeking to transfer to ‘UK law’ the entire acquis communautaire or body of European Union law, the Bill took very wide and very controversial powers to correct “deficiencies” in EU law transferred in this way. These now famous ‘Henry VIII clauses’ allowing Ministers very wide scope to make changes to legislation through regulations, (see clauses 7, 9 and 17 of the Bill), have set up a clash between Parliament and the executive over whether this is a fair and proportionate use of delegated powers, or an unacceptable way or circumventing Parliamentary oversight.

Secondly, the European Union (Withdrawal) Bill runs straight into the headwinds of devolution, by seeking to enact very wide and equally controversial restrictions on the way in which devolved Parliaments can amend “retained EU law”. The way in which these clauses were drafted may have been legally effective but politically provocative. In any event, they were not welcomed by the First Ministers of Wales and Scotland Carwyn Jones and Nicola Sturgeon. They made a joint statement on 13 July 2017 describing the European Union (Withdrawal) Bill as a “naked power grab” by the Westminster government, which they could not support as it stood. Perhaps ironically, this statement was issued from Brussels, where the two leaders were paying their own visit to the EU chief negotiator Michel Barnier.

Welsh and Scottish “Continuity” Bills

Initially, the UK government’s negotiations with the EU were supposed to be informed by a committee involving representatives of all the devolved administrations, with close coordination throughout. However, there were many complaints of a lack of real consultation, and complaints by some of those close to the process of a breakdown in trust in what has been, by any measure, a fractious and continually controversial negotiating process.

This distrust resulted in both the National Assembly for Wales and the Scottish Parliament tabling and then enacting, on 21 March 2018, their own “Continuity” Bills, which give them powers to enact and amend ‘returning’ EU legislation in devolved areas in their own Parliaments in the absence of agreement with the UK Parliament about how this will be done under its European Union (Withdrawal) Bill.

There is considerable uncertainty as to whether these “Continuity” Bills are within the legislative competence of the National Assembly for Wales and the Scottish Parliament respectively. The Scottish Bill was actually accompanied by a formal statement from the Presiding Officer of the Scottish Parliament  expressing his view that the Bill was not within the legislative competence of that parliament.

Supreme Court Challenge?

Building upon those doubts, UK government Ministers announced on 17 April 2018 that they would refer the two  “Continuity” Bills to the Supreme Court for a legal view on whether they were properly within the devolved legislative competence of the two Parliaments in Wales and Scotland. However, both Welsh and UK government Ministers have given some indications that negotiations may result in this further case before the Supreme Court being withdrawn.

Future developments: what is at issue

Following Brexit, there are some signs that the Welsh government will embark on a major codification of Welsh law, and this could result in a Welsh Environmental Code. The UK Parliament, meanwhile, can realistically expect to be busy for years to come with the enactment and re-enactment of environmental legislation, which will be competing for Parliamentary time with every other sort of legislation affected by Brexit.

What these debates have shown and underlined, is the very large extent to which powers have been devolved over the environment, and many very important related subjects in Wales, including agriculture, fisheries, food, forestry, most forms of energy, rural development and so on. All major businesses in Wales are affected by devolution and have to accommodate the new legal and legislative realities, from Horizon Nuclear Power in Anglesey,  Airbus’ wing manufacturing plant in North Wales, to BAE Systems in South Wales. Devolution is also going to be a major issue for every piece of Brexit legislation, from control and allocation of fisheries quotas and the  proposed Fisheries Bill, to the devolved administrations’ policies on a customs union, to the vexed question of the Irish border with Northern Ireland, and the impact this could have on the whole Withdrawal Agreement.

What is also becoming clear is that with devolved power comes much more devolved responsibility, and environmental law is a case in point.  If there will no longer be recourse to the European Commission and the Court of Justice for the European Union for issues of enforcement of EU law after Brexit, the question of what will replace that form of enforcement is not simply a question for the Westminster Parliament, but also for the Senedd in Cardiff. It will have to decide how the Welsh Government itself will be held to account if it fails or refuses to enforce environmental law; whether to continue to rely upon criminal law or to extend the use of civil and administrative law; how to hold regulators to account; which legal principles to include in environmental laws and how to apply them. Enforcement of environmental law is a major topic in itself, and will be the subject of a future article in this series.

There will also be a pressing need, once the UK and devolved administrations have had their arguments, negotiations or perhaps their day in court, to make a reality of the “common frameworks” to which each of them is committed. It is not going to help make any part of the UK an attractive place in which to do business if environmental laws are uncoordinated and strikingly different across the UK, not would that help promote trade with the EU or other countries.

William Wilson, Prospect Law Ltd

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm, as well as running his own environmental policy consultancies. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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OIL & GAS: VOLATILITY – ATTENTION TO DETAIL – THE KEY TO SUSTAINABILITY, PART I

In the following series of articles Alex Bakhshov will examine the challenges that come with negotiating key legal and contractual terms and managing legal risks across infrastructure operations comprising major oil and gas projects (Projects) in developing oil and gas markets and in turn a means through which to mitigate the impact of inflated barrel production costs (Barrel Price) by Independent Oil Companies (IOC), Oil Field Service Providers (OFP) and other market participants seeking to make strategic decisions relating to foreign direct investment (FDI).

Introduction:

Alex Bakhshov will seek to contrast the contractual challenges for both IOC’s and OFP’s delivering goods and services in those markets, providing examples where relevant of how savings were made in respect of Barrel Price.

In the first three of this series of introductory articles, Alex will seek to identify the key challenges faced by market participants seeking to invest in developing markets, focusing on the common barriers and determinants for FDI.  Each Project and jurisdiction presents its own challenges and further guidance will be addressed in subsequent articles dealing separately with each of the key contractual terms and legal risks identified in the third article of this introductory series.

Having attained over ten years of experience of working on Projects in markets as diverse as Latin America, Middle East and North Africa (MENA), sub-Saharan Africa (SSA) and Asia Pacific during a period of oil price volatility, Alex hopes to demonstrate the benefits of giving careful consideration to legal as well as fiscal risks at the inception of a Project.

Need for Internal Controls & Corporate Governance

Controls for legal risk factors should also be implemented at the outset, adopting a collaborative approach with domestic policy makers (Regulators) and local content requirements (LCR) as it can contribute to ensuring effective crisis management in the event of dispute, political upheaval or environmental catastrophe. Additionally, for listed companies, a joined up approach should be adopted as part of the internal controls for the purposes of governance, reporting requirements and greater transparency for capital market participants – this should also ensure corporate level engagement and ownership and thus confidence for third party investors and other market participants.

The importance of having robust internal controls and a rigorous interface for corporate governance in developing countries cannot be stressed enough where the Project requires engagement with LCR’s. Issues hampering development of the private sector of some developing countries frequently include the absence of a comprehensive credit reporting system, which “compromises banks’ ability to distinguish good from poor performers and makes them reluctant to lend in the absence of collateral” per World Bank’s biannual ‘Mozambique Economic Update’ report dated July 2017. The Report also states “Similarly, equity finance is constrained by a corporate governance regime that provides few incentives for firms to make financial information and audited reports of their activities available. As a result, investors are hesitant to invest because they cannot assess the viability of firms seeking finance.”

Financial Controls:

For listed companies, financial controls in some developing countries are essential for compliance with anti bribery legislation, which in many cases now imposes strict liability on corporations as well as partners, agents, suppliers and indeed throughout the supply chain irrespective of whether the company itself has fallen foul of the anti-bribery legislation.  Under regulations, for example, large and EU-listed, UK-registered oil and gas companies must report their payments to governments worldwide annually for financial years starting from January 2015, country-by-country and Project by Project. At times of oil price volatility when profit margins are threatened, the pressure to cut capital expenditure can impact the risk of non- compliance with anti–bribery regulations  – robust controls and governance can ensure that this risk is mitigated. Risks of anti-corruption non-compliance and exposure are a significant barrier to FDI.

Foreign Direct Investment (FDI):

FDI may include mergers and acquisitions, the building of new facilities and the expansion of existing production capacity. FDI usually involves control or participation in management, joint venture, management expertise and technology transfers. It excludes investment through purchase of securities or foreign portfolio investment, a passive investment in the securities of another country such as shares and bonds.

There are three main types of FDI contracts in the upstream oil and gas sector:

  1. concessions or licenses;
  2. production sharing contracts or agreements (PSCs or PSAs); and
  3. risk-service contracts.

Although legal risks are often addressed upfront through ‘stabilization clauses’, these, though advisable, provide limited comfort.  Preference should be given to pursuing a collaborative strategy with Regulators to help support the roll out of infrastructure, as well as active pursuit of a joint strategy for transfer of knowledge and technology. This approach will not only mitigate Barrel Price and thus profitability but also promote an environment for sustainable business growth. Any meaningful engagement with the Regulator in this regard early in the assessment process can also help support a competitive bid.

Large proven reserves, relatively modest Barrel Prices and attractive concessions for FDI can mean that, in periods of oil price volatility, market participants can reap benefits by focusing their resources in developing markets.

FDI Investment in the Oil Sector:

With high oil and gas dependent economies, many developing countries have historically provided opportunities for IOCs to spearhead oil exploration and production activities, and to acquire interests in fields with unexplored economic potential. As an example, the oil and gas sector has been the largest beneficiary of FDI in most oil exporting Arab countries. In Oman for instance, around 50 per cent of FDI is invested in the oil sector.

As manufacturing and service export bases remain limited in many of these countries, specialization and entrances in a specific segment of the global production chain could also benefit from FDI, while also improving export quality, sophistication and accelerating technology and knowledge transfers, specifically in the form of FDI. Improving the climate for FDI in non-oil industries may involve lowering entry requirements, creating investment promotion intermediaries, and streamlining tax structures. (See International Monetary Fund, Economic Diversification in Oil-Exporting Arab Countries (2016) 7-8 available here)

The common determinants for FDI in oil and gas markets and by implication components of the Barrel Price are chiefly fiscal in nature, such as oil price volatility, infrastructure reliability, political uncertainty (e.g. risks of expropriation and ownership) and openness of the economy such as foreign exchange controls and tax laws; this can have an impact on expatriation of profits and transactional costs and in many cases the oil executive will typically be interested in the proven reserves and the fiscal terms as against the prevailing and forecast oil price as the basis for making a decision relating to FDI.

In the next article in this series, a particularly challenging jurisdiction, sub- Saharan Africa, shall be explored to illustrate some of the issues experienced by the international investment community and how they have responded to the barriers to FDI.

Alex Bakhshov is a commercial barrister that specialises in project and infrastructure work, having attained experience of major projects in Africa, Asia, the North Sea, South America and Australia. Alex has advised on mergers and acquisitions, joint ventures, construction, regulatory, contracting and procurement strategies, and possesses significant experience in construction, the marine sector, shipyard disputes, shipping (both wet and dry) and offshore Oil & Gas projects in the North Sea, West Africa and Brazil.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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BREXIT, EURATOM AND NUCLEAR LIABILITIES: PROSPECT LAW AT THE WM SYMPOSIA 2018 IN PHOENIX, ARIZONA PART III:

The following series of articles is written further to Jonathan Leech’s attendance at the Waste Management Symposia 2018 in Phoenix, Arizona, on 22nd March, and examines the UK’s impending exit from EURATOM and responsibility for international nuclear safeguards.

See link to Jonathan Leech’s presenter profileList of exhibitors and Conference Program

The third part of this series examines the nuclear cooperation agreements the UK has entered into over the past fifty years.

Nuclear cooperation agreements

Nuclear trade between the UK and other Euratom members relies on cooperation provisions within the Euratom treaty and common Euratom safeguarding arrangements.

Nuclear trade between the UK and other countries relies on either Euratom nuclear cooperation agreements, or bilateral nuclear cooperation agreements, the majority of which are predicated on continued UK participation in Euratom safeguards.

Of the circa 50 bilateral nuclear cooperation agreements the UK has entered since 1956, over 30 specifically recite and rely upon UK participation in Euratom safeguards. Without demonstrably adequate safeguards and replacement nuclear cooperation agreements key countries will, where their domestic law or policies require, cease trade with the UK in nuclear materials, components, technology and know-how. The relationship with the US is well understood. Absence of a ‘Section 123 Agreement’ would prevent supply of key components for both the planned Hitachi-GE ABWR and Westinghouse AP1000 reactors, and would disrupt supply of components and equipment required by Sellafield. Absence of a nuclear cooperation agreement with Australia would cut off a key source of uranium imports.

The UK Government has identified development of replacement nuclear cooperation agreements with USA, Canada, Australia and Japan as key milestones within the Euratom exit programme, including negotiation up to Q4 of 2018 and finalisation in Q1 of 2019 “to enter into force on Day 1 of Exit”. Notably there is no mention of South Korea. Written evidence from Sellafield to the BEIS Committee also identifies Kazakhstan and China as key counterparties.

Establishing the UK safeguarding regime to be in place on Euratom exit will be a pre-condition to finalising any new nuclear cooperation agreement. In each case the acceptability of any new regime will be a matter for each counterparty. As noted above, the current Safeguards Bill is merely a first step in enabling development of a domestic safeguarding regime. Whilst there are relatively few states that require nuclear cooperation agreements as a strict legal or policy requirement, for those that do the need to finalise a safeguarding regime first will add to the challenge presented by the timetable. For example, taking into account the minimum 90-day Congressional review period for a new Section 123 Agreement, any replacement UK safeguarding regime will need to be established by the end of 2018 at the latest if the agreement is to take effect immediately on the current Euratom exit date.

Update on nuclear liabilities conventions

The global nuclear liabilities landscape is changing. The last 3 years have seen significant developments, with the Convention on Supplementary Compensation finally entering into force on 15 April 2015 and significant progress towards ratification of the 2004 Protocols to the Paris and Brussels Conventions. These changes are to be welcomed as beneficial to international cooperation, but also bring changes to liabilities risks associated with the international movement of nuclear materials.

The attached global nuclear liabilities map shows the current geographic extent of the Paris Convention, Brussels Supplementary Convention, Vienna Convention, Joint Protocol and Convention on Supplementary Compensation.

Convention on Supplementary Compensation

The latest change is to the status of Canada. Following major revisions to domestic nuclear liabilities legislation, Canada ratified the Convention on Supplementary Compensation on 6 June 2017 and the convention took effect in Canada on 4 September 2017. This ensures consistent allocation of jurisdiction between the US and Canada in the event of a nuclear incident.

Paris / Brussels Conventions: Ratification of 2004 Protocols

Ratification of the 2004 Protocols by EU member states (including the UK) is now expected to take place around the middle of 2019 at the earliest.

The changes will substantially reduce risks of nuclear liabilities within Paris / Brussels jurisdictions falling outside the convention regime. Limited risks of cross-border liabilities in non-Paris / Brussels jurisdictions remain.

The UK Nuclear Installations (Liability for Damage) Order 2016 sets out extensive changes to the Nuclear Installations Act 1965. Those changes will take effect when the UK ratifies the 2004 Protocols and the Protocols enter into force.

This article is not intended to constitute legal advice and Prospect Law and Prospect Energy accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

Jonathan Leech is a solicitor specialising in project and infrastructure work, with particular emphasis on the energy, nuclear and utility sectors. His work includes advising on legal and contracting strategies and regulatory issues associated with major nuclear development, decommissioning, waste and reprocessing projects, energy infrastructure and other utility and infrastructure related projects.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Jonathan Leech on 020 7947 5354 or by email on: jrl@prospectlaw.co.uk.

For a PDF of this blog click here

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BREXIT, EURATOM AND NUCLEAR LIABILITIES: PROSPECT LAW AT THE WM SYMPOSIA 2018 IN PHOENIX, ARIZONA PART II:

The following series of articles is written further to Jonathan Leech’s attendance at the Waste Management Symposia 2018 in Phoenix, Arizona, on 22nd March, and examines the UK’s impending exit from EURATOM and responsibility for international nuclear safeguards.

See link to Jonathan Leech’s presenter profileList of exhibitors and Conference Program

The second part of this series examines the UK’s nuclear cooperation agreements and post-exit relationship with EURATOM.

Future Relationship with Euratom

Phase 1 negotiations have focused on separation issues (such as ownership of special fissile materials). Phase 2 will move onto the future relationship between the UK and Euratom.

The UK Government’s aim is to remain as close as possible to existing arrangements, achieving maximum continuity without actually remaining as a full member of Euratom (recognising that Euratom membership is comprised exclusively of EU member states). Aside from the badge of membership, there is nothing at all about the UK’s relationship with Euratom that the UK Government would like to change.

There is no established model for the form of close association the Government seeks. The solution will be bespoke. It seems that anything is now open to negotiation. Even recognition of some on-going jurisdiction for the European Court of Justice, previously seen as a red line, may now form part of a future relationship. Government is confident that “there is a sensible solution, which may involve the ECJ …”. This would be a victory for pragmatism. Government has not found any ECJ case on Euratom affecting the UK in all the time it has existed. “It may be a point of principle for some people, but in practice as an appellate jurisdiction it has not even been needed.

In essence, Government is seeking an arrangement that has all the benefits and obligations of membership, but without actually being a member of Euratom.

Transitional period

Government has stated that there should be a time-limited transitional period of “about 2 years”, with the UK “staying in all the EU regulators and agencies during that limited period … [meaning] that companies will only have to prepare for one set of changes as the relationship between Britain and the European Union evolves.” It is not clear whether this or any other transitional period will apply to Euratom.

The BEIS Committee Report published on 13 December 2017 refers to the committee’s assumption that staying in all EU regulators and agencies “includes membership of Euratom” (whilst also noting that “the Government has not said so explicitly). Euratom is neither a regulator nor an agency. It is a community with its own legal identity. This does not mean that that UK cannot remain a full member of Euratom during a transition period, but the position is not clear.

A transitional period during which current arrangements for implementing safeguards within the UK via Euratom monitoring and inspections would alleviate time pressure on establishing domestic safeguarding capability within the UK Office for Nuclear Regulation. Assuming the UK does not remain a full Euratom member, the UK will still need to preserve or re-create existing safeguarding obligations currently enshrined in Euratom regulations.

The UK is only likely to be able to retain the benefit of existing Euratom nuclear cooperation agreements during a transition period if the UK does remain a full Euratom member during the transition period. Each Euratom nuclear cooperation agreements is made between Euratom for the benefit of its members and a third country. It is unlikely that Euratom can unilaterally extend the benefit of any cooperation agreement to a non-member (as the UK would then be) without the agreement of that third country.

Nuclear safeguards and cooperation agreements

Safeguards are essential to international nuclear commerce – verifying for an international audience that nuclear material is where it should be and is used only for its intended purpose. International safeguards are administered by the International Atomic Energy Agency (IAEA) under the Non-Proliferation Treaty (NPT), which requires that non-nuclear-weapon states accept comprehensive safeguards on all nuclear material. Similar arrangements are in place to safeguard civil nuclear material in nuclear weapon states (including the UK) under Voluntary Offer Safeguards Agreements negotiated with the IAEA. Safeguarding requirements applicable to the UK therefore arise from both the IAEA and Euratom. Euratom safeguarding requirements go beyond IAEA requirements, both in relation to quantities of material and nuclear facilities requiring inspection.

Currently the UK satisfies its safeguarding obligations via Euratom, with Euratom inspectors carrying out inspections of UK plant and inventories and submitting reports to the IAEA.

In a written statement made on 14 September 2017 the Secretary of State for Business, Energy and Industrial Strategy provided a clear commitment, recognising that “it is vitally important that the new domestic nuclear safeguards regime, to be run by the Office for Nuclear Regulation, is as comprehensive and robust as that currently provided by Euratom.” The statement confirms the Government’s decision to establish “a domestic regime which will deliver to existing Euratom standards and exceeds the standard that the international community would require from the UK as a member of the IAEA.” Government has no interest in reducing current safeguarding obligations to achieve a commercial advantage.

Government has made clear that it regards the current Safeguards Bill before Parliament as a contingency arrangement, to be used if an appropriate future relationship with Euratom cannot be achieved. The Bill provides enabling powers for development of a domestic safeguarding regime but does not itself make clear whether that regime will be designed to meet obligations under the UK’s replacement Voluntary Offer Safeguards Agreement with the IAEA or to maintain equivalence for current (and possibly future) Euratom safeguarding requirements. To maintain equivalence, Government will need to develop detailed regulations replicating current Euratom commitments.

Delivery of a state system of accounting and control to meet those commitments immediately on Euratom exit will remain a practical challenge. Evidence provided by ONR and others to the BEIS Committee highlights the difficulty in securing, training and mobilising sufficient resource before the current Euratom exit date of 29 March 2019. ONR is confident of meeting IAEA obligations by that date, but additional time will be required “to include all the activities necessary for an assurance regime which is robust and as comprehensive as that of Euratom.” It would be possible for the UK as a non-member during a transition period to continue to rely on Euratom inspections and monitoring (as distinct from Euratom nuclear cooperation agreements as referred to in Paragraph 5.4 above). If would however still be necessary for a safeguarding regime to be set out in UK law in place of current Euratom regulation.

Jonathan Leech is a solicitor specialising in project and infrastructure work, with particular emphasis on the energy, nuclear and utility sectors. His work includes advising on legal and contracting strategies and regulatory issues associated with major nuclear development, decommissioning, waste and reprocessing projects, energy infrastructure and other utility and infrastructure related projects.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Jonathan Leech on 020 7947 5354 or by email on: jrl@prospectlaw.co.uk.

For a PDF of this blog click here