The Executive Regulations of the Ga

On 14 February 2018, the Prime Minister issued the Executive Regulations ("ER")[1] of the Gas Market Law (the “Law"). The Law, passed on 1 August 2017,[2] allocated more space for private sector participation in the gas market. It also established a new regulatory body, the Gas Market Regulatory Agency (the “Agency") responsible for managing the gradual liberalization of Egypt's natural gas market. The ER provides more details regarding the issuance of licenses, which any entity is required to obtain prior to participating in any activity in the gas market. It also mandates the Agency with a number of regulatory and organizational responsibilities and empowers it to gradually create a competitive market.

Background

The 2017 Law transformed the dominance of the Egyptian Natural Gas Holding Company (EGAS) in the downstream market (which includes transportation, distribution and liquefaction) by opening the door to increased participation from the private sector. On the other hand, the Law left the framework for preparatory activities (or 'upstream' activities, such as exploration, drilling and production) unchanged, and stipulated that it does not apply to petroleum concession agreements that are addressed through separate laws. The Law further stated that its provisions are without prejudice to those of Law No. 20 of 1976 regarding the Egyptian General Petroleum Company (EGPC). The Regulatory Agency created by the Law regulates the activity of the gas market. It serves as the primary point of contact with private sector companies entering the Egyptian gas market, and is tasked with issuing operating licenses for new investors in the sector. The Law had stipulated that the ER are to be published within six months of its issuance, a term that ended in February 2018.

Requirements for Licensing

The ER gives all existing entities operating in various areas of the gas market a one-year transition period to ensure compliance with the new requirements of the Law and the ER, and requires them to submit an application to the Agency for a license to carry out the activity. Although no specific timeframe has been set during which applications for a license are to be submitted, the ER states that the Agency shall communicate with those entities that have not applied for licenses, and will specify the terms and conditions of such application. The time-frame for the transition period to comply with the new requirements is longer for companies engaged in more than one activity related to the gas market (such as shipping, transportation, distribution, storage and sale of natural gas). Such companies must comply with the provisions of the law within five years from the date of the ER's issuance. This deadline may be extended once for an additional three years.

Licenses to Practice Activities

The ER outlines the basic principles of activity licensing, some of which are defined in the Law, such as the requirement that licensing should not enable or create a monopoly in any geographical area of ​​any gas market, and that the intended activity and technical and financial competence of the applicant be made available. The ER also sets forth a detailed timetable for the period set for the consideration of licenses. Article 24 of the ER stipulates that the Agency provides a decision on the application within forty-five working days following submission of all required documentation. Requirements are specified in Articles 19, 20 and 21, including providing data on network operation activities, and other activities related to the shipping and supply of gas. If the license application is approved, the ER requires that the applicant pay the final license and insurance fees. It is worth noting that the Law has set a maximum limit of fees that the Agency can obtain in return for issuing a license at the value of US $ 0.1 per British thermal unit (Btu). Article 18 of the ER stipulates that in the case of a rejected application, the Agency shall inform the applicant of the reasons for rejection, giving the applicant the right to appeal before the Agency, but leaving the Board of Directors of the Agency to determine grievance procedures. In one of the most significant stipulations of the ER, the duration of licenses for participating in gas activities is set out as follows:

1. Ten years licenses for operating networks or facilities for third party use.
2. Five years for shipping or supplying gas.

The ER also stipulates some general requirements attached to obtaining a license such as the need to obtain an annual validity certificate to allow continuation of the license, and the need to obtain the prior approval of the Agency in the event of any change in ownership of shares that would impact the control, or in the case that licenses are assigned to third parties, or that third parties operate the subject of the license. Moreover, the list includes several other provisions related to the suspension and revocation of licenses by the Agency in case of non-payment of fees or ceasing activities for one year or when license conditions are violated.

The Regulatory Agency for Gas Market Activity

The ER includes a number of articles that provide a clearer picture of the role of the Agency, which has a number of responsibilities including both control/regulation and service provision. For example, the ER confirms the role of the Agency in granting and in monitoring the market in general. Article 31 of the ER provides for the right to inspect licensees to ensure that they comply with any relevant laws and decrees. Article 7 of the ER also affirms the right of the Agency to oblige the licensee to provide "the information and documents required by the Agency with respect to the licensee's activities during a time period determined by the Agency ". The ER also confirmed the responsibility of the Agency to regulate the relationships between different stakeholders in the gas market, and to set a tariff for the use of services of the gas market (including the operation of networks and facilities). Moreover, the ER requires the Agency to make available the information, decisions and rules governing all participants in the activities of the Agency, in order to create an environment based on transparency and clarity. Thus, it is expected that the coming period will witness the issuance of several significant decisions from the Agency, both regarding the tariff for the use of the market’s service activities and the new plan to be approved by the Agency to gradually liberalize the gas market in order "to create a competitive market that is efficiently regulated, in parallel to the controlled market, in which gas prices are determined in accordance with the decisions of the Council of Ministers." The Agency shall be associated with the Ministry of Petroleum, and shall be headed by an executive head from the energy sector. The Agency’s board shall include three representatives from the government’s petroleum sector, the head of the Competition Protection Authority and the president of the Federation of Industries. The ER stipulates that the competent minister shall nominate the three members of the Board of Directors who represent the entities affiliated with the public petroleum sector. The ER also stipulates that correspondence by the Agency shall take place through e-mail.

Conclusion

The issuance of the ER is another major step in the overhaul of the legal framework governing the Egyptian gas sector. The government’s intent to open some of the activities of the gas market to the private sector, and to gradually liberalize it has become clear. The importance of issuing the ER stems, in particular, from the beginning of the countdown period in which actors must reconcile with the new legal requirements. It also signals the beginning of a period in which new directions are expected to be given by the Agency regarding the regulation of the activities of the gas market.   [1] Prime Minister’s Decree No. 239/2018 enacting the Executive Regulation of Law No. 196/2017 on Organizing the Activities of the Gas Market, Official Gazette, Issue No. 6 (bis) (e), 14 February 2018. [2] Law No. 196/2017 on Organizing the Activities of the Gas Market, Official Gazette, Issue No. 30 (bis) (b), 1 August 2017.