The Gassled tariff dispute in short

The Gassled Court Case is one of the largest cases in Norwegian legal history. The recent judgment from Borgarting Court of Appeal aquitted the Norwegian State from all claims.  The four Claimants have until 16 September 2017 to file an appeal with the Supreme Court. 

The case concerns the competence of the Ministry of Petroleum and Energy (the "MPE") to amend the tariffs for the transportation of gas in the Norwegian upstream gas pipelines (the "Gassled"). The Gassled tariffs are fixed in a formal Regulation (the "Tariff Regulation") based on a reasonable return of 7% real before tax on invested capital.

By an amendment to the Tariff Regulation in 2013 (the "Amendment"), the MPE reduced the tariffs for un-booked capacity by 90%. Tariffs for capacity booked prior to the Amendment remained unchanged. Thus, the Amendment meant reduced upside revenues from new capacity bookings, but did not affect the revenues from already booked capacity.

Four Gassled owners, Njord Gas Infrastructure AS, Solveig Gas Norway AS, Silex Gas Norway AS and Infragas Norway AS (the "Claimants") challenged the Amendment. Principally, they claimed that the Amendment was invalid. Alternatively, they claimed damages for alleged losses caused by the tariff reduction.

In a judgment by Oslo District Court on 25 September 2015, the claims were rejected. The Claimants appealed the judgment, and the Court of Appeal heard the case this spring, and rendering its judgment on 30 June 2017. The Court of Appeal agreed with the District Court that the Amendment adopted in 2013 was valid and that there was no basis for the Claimants claim for damages either. Thus, the appeal was rejected and the Claimants were ordered to cover the legal costs incurred by the State.

Gassled and the tariff dispute

Gassled is the world's largest offshore gas transportation system, consisting of a number of gas pipelines at the bottom of the North Sea and the Norwegian Sea, processing facilities onshore in Norway and receiving facilities in the UK, the Netherlands, France and Germany. Gassled was established in 2003 by a merger of several gas transportation systems owned by separate joint ventures, into a new joint venture ("Gassled JV"). Later, several other systems have been included.

For the transportation and processing of gas in Gassled the users (shippers) pay a predefined tariff to Gassled JV. The tariffs are laid down in the Tariff Regulation, initially enacted on 20 December 2002 and subsequently amended.

In the period from 2010 to 2012, the four Claimants acquired significant ownership interests in Gassled JV from ExxonMobil, Statoil, Eni, Total and Shell. Following these transactions, the four Claimants became owners of about 44 percent of Gassled JV. The total consideration paid was approx. NOK 32 billion.

The MPE consented to the transactions pursuant to the provisions in the Petroleum Act, section 10-12, according to which all transfers of ownership interests in production as well as infrastructure assets require the consent of the MPE.

In January 2013, the MPE initiated a public consultation process with the proposal to reduce tariffs for transport in Gassled. This proposal was implemented with some modifications on 26 June 2013 by enactment of the Amendment.

The fixed capital element in the tariff (K), which makes up the larger share of the tariff, was reduced by 90% for most of the tariff zones in Gassled. The change was given effect only for capacity bookings (transport agreements) made after 1 July 2013 for gas to be transported after 1 October 2016. All gas transported under agreements entered into before 1 July 2013 and all gas transported before 1 October 2016 continues to be charged according to the previous tariffs. Thus, the revenue stream from capacity tariffs for booked volumes – up to 2028 – was not affected at all. The only effect of the reduced tariffs was that the upside potential from additional capacity bookings was substantially reduced.

The Claimants asserted that the Amendment caused a significant loss, as the future tariff revenues from Gassled will be lower than they had assumed upon the acquisition of their ownership shares in Gassled JV.

The appeal case and judgment of 30 June 2017

Borgarting Court of Appeal rejected the appeal and confirmed the judgment from Oslo District Court. The Court of Appeal found that the Petroleum Act and the Petroleum Regulation provided the necessary legal basis for the Amendment, and thus that it was legally valid.

The Court of Appeal did not find that the owners at the time when Gassled JV was established had agreed that the tariffs should remain unchanged throughout the entire licence period up to 2028. In any case, the MPE did not give its consent to it, and thus the establishment of Gassled JV did not impose on the MPE any limitations in respect of amending the Tariff Regulation.

Further, the Court of Appeal found that the conditions set out in the Petroleum Regulation for amending the Tariff Regulation were fulfilled. The two criteria – promotion of the best possible resource management and a reasonable return on invested capital – were correctly interpreted and thoroughly assessed by the MPE prior to adopting the Amendment.

Also, the alternative claim for damages was rejected. The Court of Appeal found that the Claimants did not believe that the MPE was legally prevented from reducing the tariffs. On the contrary, all the Claimants were aware that the tariffs could be reduced if the rate of return in Gassled exceeded 7%. With the exception of Njord, the Claimants were also found to have been aware of the risk that the tariffs could actually be reduced.

Although the Court of Appeal expresses some criticism against the MPE for not having established a more transparent system for monitoring and publication of the accrued rate of return, the Court of Appeal did not raise any criticism against the MPE for not having informed the Claimants about the accrued rate of return. This information was readily available for the sellers and it was not for MPE to interfere in commercial negotiations between professional parties. Nor did the MPE fail to meet the relevant administrative standards for information and supervision.

Potential appeal to the supreme court

The four Claimants have until 16 September 2017 to file an appeal with the Supreme Court. Whether or not the Supreme Court will hear an appeal, is for the Supreme Court to decide.

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