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Government Promulgates Executive Re

Government Promulgates Executive Regulations for Electricity Law
On 23 May 2016, the Ministry of Electricity issued the Executive Regulations for the Electricity Law No. 87 of 2015.[1] The newly promulgated Regulations brought several new stipulations, with the aim of regulating “the competitive market of electricity”. This reflects the new philosophy adopted in the Electricity Law No. 87 of 2015, as the old legal and policy framework relied on designating a limited number of entities to carry out exclusively all activities related to distribution of electricity. The Executive Regulations established the basis that the Egyptian Electric Utility and Consumer Protection Regulatory Agency (“the Regulatory Agency”) should follow in determining electricity costs and tariffs. The Regulations also set forth the conditions and procedures for obtaining licenses for those wishing to invest in electricity. Furthermore, the Regulations introduced several stipulations regarding companies working in electricity transmission companies carrying out other relevant activities. In respect of possible disputes during the period of transition towards the competitive market of electricity, the Regulations determined the dispute resolution procedure, the rights and obligations of different stakeholders during the mentioned period.
Background
The publication of the Executive Regulations for the Electricity Law came ten months after the issuance of the law regulating the electricity sector in July 2015.[2] As per our Egypt Legal Update issue for August 2015, the new Law addressed all stages of the electricity utility (production, transmission, distribution, and consumption) after the said sector has always been regulated through several pieces of legislation. The law also regulated the role of the state, and cancelled its takeover and monopoly over the electricity sector, while keeping its regulatory and supervisory role which aims at guaranteeing non-speculation of electricity prices and provision of a better service. In general, the law differentiated between the different stages of the electricity cycle. It allowed investment and competition in the production, distribution, and sale activities, however, maintaining the monopoly of Egyptian Electricity Transmission Company and its exclusive right to transmit electricity and operate the transmission network. The new law differentiated between two new groups of electricity consumers which are small-scale consumers and qualified consumers. The law stated that the state should determine prices of the service provided to small-scale consumers - who the law referred to as "non-qualified consumers" - through the Regulatory Agency, since they do not have the freedom to choose their electricity suppliers. As for large-scale consumers such as factories – who the law referred to as "qualified consumers" - the law stated that the price of electricity should be agreed upon them and electricity suppliers (whether public or private sector companies). This implies that the law considered them qualified to choose their electricity supplier. On the institutional and regulatory side, the new law induced several structural changes with regards to the role and form of the Regulatory Agency. It transformed it into an independent agency of the Ministry of Electricity (similar to the National Telecom Regulatory Authority) with the goal of regulating, following-up, supervising, and developing all what concerns electricity activities. This includes approving the electricity sale tariff for non-qualified consumers, as well as setting the right economic rules and basis for calculating the sale tariff in return for using the transmission and distribution networks for non-qualified consumers. Moreover, the law gave the Regulatory Agency supervisory authorities with respect to commitment to the tariff and set prices. In order to provide the Regulatory Agency with the ability to undertake its new tasks, the law changed its administrative structure: to be chaired by the Minister of Electricity, and include three members from the Electricity Utility, four members that represent consumers (namely the Chairman of the Egyptian Competition Authority, Chairman of the Consumer Protection Agency, Chairman of the Federation of Industries, and Chairman of the Chamber of Commerce), in addition to two more members of expertise in the electricity field.
Expanding the role of the Regulatory Agency
In compliance with the major role the Electricity Law has given to the Regulatory Agency, the Executive Regulations devoted a large section to regulating the said Agency and detailing its new tasks. It stated details of its role, the criteria that should be followed in setting the economic rules and basis for calculating the electricity tariff and prices exchanged between different parts of the utility, as well as in exchange to using the transmission and distribution networks. For example, the Executive Regulations stated that the Regulatory Agency should prepare a study on the tariff, taking into consideration several goals that include covering the real cost, incentivizing electricity companies to decrease cost and increase efficiency, continuing to provide subsidies to low-income categories, and encouraging the use of renewable energy sources. In addition to setting rules and basis of the tariff, the Regulatory Agency Board has the authority to approve the tariff itself. It is worth noting that the term "tariff" in the Law and its Executive Regulations refers to the price of selling electricity, which set by the Regulatory Agency for non-qualified consumers. Therefore, it is essential to differentiate between the tariff and prices of exchanging electricity in the regulating market in return to using the transmission network. These are the prices that concern transactions undergone among several entities of the electricity utility. In addition to its role in setting the tariff and different prices, the Executive Regulations confirmed what has been stated in Law with respect to the role of the Regulatory Agency in supervising and following up on the commitment of different entities of the electricity utility to the determined prices, while also confirming the authorities of the Regulatory Agency in applying the provisions of the Law and its Executive Regulation in case of non-commitment from any of the parts of the electricity utility with respect to applying the tariff or the determined prices. In accordance with the philosophy of the new Law with regard to encouraging investment in the electricity sector, the Executive Regulations sought to approve some details concerning dealing with the investor (or the "licensed investor" as stated in the Law and Executive Regulations) in case the Cabinet of Ministers approved a lower tariff than the general one. The new Law stated that "if the Cabinet of Ministers determined a lower tariff rate than the approved one from the Regulatory Agency, the state is committed to the difference between both rates for the licensed ones". The Executive Regulations was set to clarify procedures for compensating licensed investors for such difference. This is done through calculating the amount of electricity, then calculating the difference between the two rates and calculating the amount of concerned electrify , then depositing the amount of the difference in an independent account, thereby compensating licensed investors separately with a percentage what has been born as a result of the difference.
License and Permit to Practise Electricity-Related Business Activity
The Executive Regulations designated the Regulatory Agency to determine the conditions, procedures and documents for issuing licenses and permits to practise the activity of production, transmission or sale of electricity. The Regulations also determined that only permit holders are able to apply for licenses. Additionally, the Regulations enabled license or permit holders to transfer ownership of license or permit to a third party, but through a request submitted to the Regulatory Agency. The Regulatory Agency should issue a reasoned decision within 60 days of the request. The same procedure should take place in case of mergers. In respect of the continuity of the license, the Regulatory Agency shall issue an annual certificate indicating that the license is still in force. This shall take place after confirming that the licensed person is in respect of license conditions, and after reviewing some documents, such as financial statements, report of maintenance and sales data. Where the Regulatory Agency estimates that a license shall be abolished or suspended, the Regulations determined that this could not occur unless a contravention has been committed, and only after the Regulatory Agency has asked the licensee to rectify the contravention within a certain period. In the latter case, the Regulatory Agency is entitled to apply the sanctions provided for in the Law, by virtue of a reasoned decision by its Board. The Executive Regulations also determined the follow-up measures that the Regulatory Agency should undertake with a view to protecting the interests of the beneficiaries after a license has been abolished or suspended; this includes the Regulatory Agency’s right to assign another licensee to carry out the same activity to continue the activities of the sanctioned licensee. Furthermore, the Regulations outlined the conditions for exempting electricity production for personal use from the requirement to obtain a license or a permit. For instance, the beneficiary must own entirely the electricity station, and must be the sole beneficiary of the production of such an electricity station.
Miscellaneous
The Executive Regulations also dealt with a variety of matters. For instance, it regulated resolution of disputes between the different actors in the electricity business activity; namely, those working in activities of production, transmission, distribution and sale of electricity. In this regard, the Law and the Regulations assigned the Regulatory Agency to a crucial role; a committee within the Agency should be formed in order to settle such disputes. While the formation of the committee has been regulated in the Executive Regulations, it has also been established that this committee should issue its decisions in dispute resolution within 60 days of the application date. On a different note, the Executive Regulations provided comprehensive regulation of each activity related to electricity (production, transmission, distribution and sale). These stipulations dealt with in detail with the rights and obligations of the companies working in the mentioned activities. Furthermore, the Regulations set forth the rules related to enhancing the efficiency of use of energy.
Conclusion
The importance of the promulgation of the Executive Regulations stems from the fact that the Electricity Law No. 87 of 2015 had left many details for the Regulations to settle. The Regulations also holds special significance as it aims at regulating electricity-related activities amid a turning point in the State’s philosophy in managing electricity-related activities. Indeed, the unprecedented space left for investors to take part in business activity related to production, transmission, distribution and sale of electricity requires the creation of several guarantees for both investors and consumers. It is also clear that the Egyptian Electric Utility and Consumer Protection Regulatory Agency will play a considerable role in the forthcoming period, in order to take into effect the needed shift in electricity sector. In conclusion, it must be noted that, even though the Executive Regulations have entered into effect since 24 May 2016, the period of transition from the old system to the new one is regulated through an entire part of the Executive Regulations. [1] Minister of Electricity and Renewable Energy's Decision No. 230/2016 enacting the Executive Regulations for Electricity Law, Egyptian Gazette, Issue 118 (bis)(c), 23 May 2016. [2] Presidential Decree No. 87/2015 issuing the Electricity Law, Egyptian Gazette, Issue No. 27 (biz), 8 July 2015.
On 23 May 2016, the Ministry of Electricity issued the Executive Regulations for the Electricity Law No. 87 of 2015.[1] The newly promulgated Regulations brought several new stipulations, with the aim of regulating “the competitive market of electricity”. This reflects the new philosophy adopted in the Electricity Law No. 87 of 2015, as the old legal and policy framework relied on designating a limited number of entities to carry out exclusively all activities related to distribution of electricity. The Executive Regulations established the basis that the Egyptian Electric Utility and Consumer Protection Regulatory Agency (“the Regulatory Agency”) should follow in determining electricity costs and tariffs. The Regulations also set forth the conditions and procedures for obtaining licenses for those wishing to invest in electricity. Furthermore, the Regulations introduced several stipulations regarding companies working in electricity transmission companies carrying out other relevant activities. In respect of possible disputes during the period of transition towards the competitive market of electricity, the Regulations determined the dispute resolution procedure, the rights and obligations of different stakeholders during the mentioned period.
Background
The publication of the Executive Regulations for the Electricity Law came ten months after the issuance of the law regulating the electricity sector in July 2015.[2] As per our Egypt Legal Update issue for August 2015, the new Law addressed all stages of the electricity utility (production, transmission, distribution, and consumption) after the said sector has always been regulated through several pieces of legislation. The law also regulated the role of the state, and cancelled its takeover and monopoly over the electricity sector, while keeping its regulatory and supervisory role which aims at guaranteeing non-speculation of electricity prices and provision of a better service. In general, the law differentiated between the different stages of the electricity cycle. It allowed investment and competition in the production, distribution, and sale activities, however, maintaining the monopoly of Egyptian Electricity Transmission Company and its exclusive right to transmit electricity and operate the transmission network. The new law differentiated between two new groups of electricity consumers which are small-scale consumers and qualified consumers. The law stated that the state should determine prices of the service provided to small-scale consumers - who the law referred to as "non-qualified consumers" - through the Regulatory Agency, since they do not have the freedom to choose their electricity suppliers. As for large-scale consumers such as factories – who the law referred to as "qualified consumers" - the law stated that the price of electricity should be agreed upon them and electricity suppliers (whether public or private sector companies). This implies that the law considered them qualified to choose their electricity supplier. On the institutional and regulatory side, the new law induced several structural changes with regards to the role and form of the Regulatory Agency. It transformed it into an independent agency of the Ministry of Electricity (similar to the National Telecom Regulatory Authority) with the goal of regulating, following-up, supervising, and developing all what concerns electricity activities. This includes approving the electricity sale tariff for non-qualified consumers, as well as setting the right economic rules and basis for calculating the sale tariff in return for using the transmission and distribution networks for non-qualified consumers. Moreover, the law gave the Regulatory Agency supervisory authorities with respect to commitment to the tariff and set prices. In order to provide the Regulatory Agency with the ability to undertake its new tasks, the law changed its administrative structure: to be chaired by the Minister of Electricity, and include three members from the Electricity Utility, four members that represent consumers (namely the Chairman of the Egyptian Competition Authority, Chairman of the Consumer Protection Agency, Chairman of the Federation of Industries, and Chairman of the Chamber of Commerce), in addition to two more members of expertise in the electricity field.
Expanding the role of the Regulatory Agency
In compliance with the major role the Electricity Law has given to the Regulatory Agency, the Executive Regulations devoted a large section to regulating the said Agency and detailing its new tasks. It stated details of its role, the criteria that should be followed in setting the economic rules and basis for calculating the electricity tariff and prices exchanged between different parts of the utility, as well as in exchange to using the transmission and distribution networks. For example, the Executive Regulations stated that the Regulatory Agency should prepare a study on the tariff, taking into consideration several goals that include covering the real cost, incentivizing electricity companies to decrease cost and increase efficiency, continuing to provide subsidies to low-income categories, and encouraging the use of renewable energy sources. In addition to setting rules and basis of the tariff, the Regulatory Agency Board has the authority to approve the tariff itself. It is worth noting that the term "tariff" in the Law and its Executive Regulations refers to the price of selling electricity, which set by the Regulatory Agency for non-qualified consumers. Therefore, it is essential to differentiate between the tariff and prices of exchanging electricity in the regulating market in return to using the transmission network. These are the prices that concern transactions undergone among several entities of the electricity utility. In addition to its role in setting the tariff and different prices, the Executive Regulations confirmed what has been stated in Law with respect to the role of the Regulatory Agency in supervising and following up on the commitment of different entities of the electricity utility to the determined prices, while also confirming the authorities of the Regulatory Agency in applying the provisions of the Law and its Executive Regulation in case of non-commitment from any of the parts of the electricity utility with respect to applying the tariff or the determined prices. In accordance with the philosophy of the new Law with regard to encouraging investment in the electricity sector, the Executive Regulations sought to approve some details concerning dealing with the investor (or the "licensed investor" as stated in the Law and Executive Regulations) in case the Cabinet of Ministers approved a lower tariff than the general one. The new Law stated that "if the Cabinet of Ministers determined a lower tariff rate than the approved one from the Regulatory Agency, the state is committed to the difference between both rates for the licensed ones". The Executive Regulations was set to clarify procedures for compensating licensed investors for such difference. This is done through calculating the amount of electricity, then calculating the difference between the two rates and calculating the amount of concerned electrify , then depositing the amount of the difference in an independent account, thereby compensating licensed investors separately with a percentage what has been born as a result of the difference.
License and Permit to Practise Electricity-Related Business Activity
The Executive Regulations designated the Regulatory Agency to determine the conditions, procedures and documents for issuing licenses and permits to practise the activity of production, transmission or sale of electricity. The Regulations also determined that only permit holders are able to apply for licenses. Additionally, the Regulations enabled license or permit holders to transfer ownership of license or permit to a third party, but through a request submitted to the Regulatory Agency. The Regulatory Agency should issue a reasoned decision within 60 days of the request. The same procedure should take place in case of mergers. In respect of the continuity of the license, the Regulatory Agency shall issue an annual certificate indicating that the license is still in force. This shall take place after confirming that the licensed person is in respect of license conditions, and after reviewing some documents, such as financial statements, report of maintenance and sales data. Where the Regulatory Agency estimates that a license shall be abolished or suspended, the Regulations determined that this could not occur unless a contravention has been committed, and only after the Regulatory Agency has asked the licensee to rectify the contravention within a certain period. In the latter case, the Regulatory Agency is entitled to apply the sanctions provided for in the Law, by virtue of a reasoned decision by its Board. The Executive Regulations also determined the follow-up measures that the Regulatory Agency should undertake with a view to protecting the interests of the beneficiaries after a license has been abolished or suspended; this includes the Regulatory Agency’s right to assign another licensee to carry out the same activity to continue the activities of the sanctioned licensee. Furthermore, the Regulations outlined the conditions for exempting electricity production for personal use from the requirement to obtain a license or a permit. For instance, the beneficiary must own entirely the electricity station, and must be the sole beneficiary of the production of such an electricity station.
Miscellaneous
The Executive Regulations also dealt with a variety of matters. For instance, it regulated resolution of disputes between the different actors in the electricity business activity; namely, those working in activities of production, transmission, distribution and sale of electricity. In this regard, the Law and the Regulations assigned the Regulatory Agency to a crucial role; a committee within the Agency should be formed in order to settle such disputes. While the formation of the committee has been regulated in the Executive Regulations, it has also been established that this committee should issue its decisions in dispute resolution within 60 days of the application date. On a different note, the Executive Regulations provided comprehensive regulation of each activity related to electricity (production, transmission, distribution and sale). These stipulations dealt with in detail with the rights and obligations of the companies working in the mentioned activities. Furthermore, the Regulations set forth the rules related to enhancing the efficiency of use of energy.
Conclusion
The importance of the promulgation of the Executive Regulations stems from the fact that the Electricity Law No. 87 of 2015 had left many details for the Regulations to settle. The Regulations also holds special significance as it aims at regulating electricity-related activities amid a turning point in the State’s philosophy in managing electricity-related activities. Indeed, the unprecedented space left for investors to take part in business activity related to production, transmission, distribution and sale of electricity requires the creation of several guarantees for both investors and consumers. It is also clear that the Egyptian Electric Utility and Consumer Protection Regulatory Agency will play a considerable role in the forthcoming period, in order to take into effect the needed shift in electricity sector. In conclusion, it must be noted that, even though the Executive Regulations have entered into effect since 24 May 2016, the period of transition from the old system to the new one is regulated through an entire part of the Executive Regulations. [1] Minister of Electricity and Renewable Energy's Decision No. 230/2016 enacting the Executive Regulations for Electricity Law, Egyptian Gazette, Issue 118 (bis)(c), 23 May 2016. [2] Presidential Decree No. 87/2015 issuing the Electricity Law, Egyptian Gazette, Issue No. 27 (biz), 8 July 2015.