19.12.2013

EN

Official Journal of the European Union

L 343/63

(1)

By letter dated 7 January 2009, a complaint was filed against Narvik municipality (‘Narvik‘� regarding the sale of Narvik‘檚 entitlement to concession power to Narvik Energi AS (‘NEAS‘�. The letter was received and registered by the Authority on 14 January 2009 (2). By letter dated 16 July 2009 (3), the Authority requested additional information from the Norwegian authorities. By letter dated 2 October 2009 (4), the Norwegian authorities replied to the information request.

(2)

On 14 December 2011, the Authority initiated the procedure provided for in Article 1(2) of Part I of Protocol 3 to the Surveillance and Court Agreement by adopting Decision No 393/11/COL (‘楧ecision 393/11/COL‘�. By letter dated 23 February 2012 (5), the Norwegian authorities provided comments to the Decision.

(3)

On 26 April 2012, the Decision was published in the Official Journal of the European Union and in the EEA Supplement to it (6). By email of 25 May 2012 (7), the Authority received comments from an interested party. By email of 28 June 2012 (8), the Authority forwarded these to the Norwegian authorities. By letter dated 30 November 2012 (9), the Norwegian authorities submitted further information.

(4)

The complainant alleges that Narvik by entering into a contract with NEAS for the sale of 128 GWh of annual concession power for a period of 50,5 years, has sold its rights to buy the concession power significantly below the market price and thereby granted illegal state aid to NEAS.

(5)

The complainant further alleges that the decision to enter into the contract was adopted by Narvik Municipal Council on the basis of incorrect and/or incomplete information. Allegedly expert reports critical of the duration of the contract and the inherent difficulty in establishing a market price for electricity were not disclosed to the Municipal Council prior to taking the decision to enter into the contract.

(6)

In Norway, a concession is generally required for the operation of larger hydro power plants. The plants holding concessions for waterfall exploitation is obliged to sell a certain volume of their annual production to the municipality within which they are located. The volume of electricity that the municipality is entitled to purchase is referred to as concession power. This system is laid down in Section 2(12) of the Industrial Licensing Act (10) and Section 12(15) of the Waterfalls Regulation Act (11).

(7)

The legislative rationale is that the municipalities should be ensured a sufficient supply of electricity at a fair price, thus the volume of the concession power is determined on the basis of the general electric power supply needs of each individual municipality (12) and can be up to ten per cent of a plant‘檚 annual production. There are, however, no restrictions imposed on the municipalities‘�exploitation of concession power. Thus, the municipalities may use, sell or otherwise deploy it as they see fit.

(8)

The entitlement does not entail that the municipalities are under an obligation to buy concession power. For concessions pre-dating 1983, the caveat generally applies that once a municipality has decided not to exercise its right to concession power, it loses its right to concession power for the future.

(9)

The legislation sets out two pricing regimes for concession power; the first for concessions granted prior to 10 April 1959, the other for concessions granted on 10 April 1959 or later.

(10)

For concessions granted before 10 April 1959, the concession power price is calculated as a function of the individual power plant‘檚 cost-price, plus a premium of 20 %. This model is still applied to concessions granted prior to 10 April 1959, and is in the following referred to as the ‘榗ost price‘�model. Concession power sold according to this pricing model is in the following referred to as ‘榗ost price concession power‘�

(11)

For concessions granted after 10 April 1959, the concession price is set by the Ministry of Energy and Petroleum on the basis of the average cost for a representative sample of hydroelectric plants throughout the country. This pricing method is in the following referred to as the ‘榤inistry price‘�method. Concession power sold according to this pricing model is in the following referred to as ‘榤inistry price concession power‘�

(12)

The Industrial Licensing Act provides that the municipalities entitlement to concession power may be brought up for review by Norwegian Water Resources and Energy Directorate (‘NVE‘� 20 years after the concession was granted (13). The Norwegian authorities have explained that while the review process can lead to a fine-tuning, by NVE, of the volume of concession power, it cannot lead to substantial changes of the municipality‘檚 entitlement to concession power. The majority of Narvik‘檚 concession power entitlements are due for review in 2019.

(13)

The municipalities carry the cost of feeding the concession power into the grid.

(14)

Per year, Narvik is entitled to a total of approximately 128 GWh of concession power, of which approximately 116,3 GWh is priced according to the ministry price method and the remaining approximately 11,7 GWh is priced according to the cost price method. The Norwegian authorities have explained that the ministry price in 2000 was approximately NOK 0,10 and the relevant cost price for H氓kvik and Nyg氓rd in 2000 was in the range of NOK 0,14 to NOK 0,178.

(15)

NEAS is located in Narvik municipality in the county of Nordland. It produces and sells electricity. Until 2001, NEAS was 100 per cent owned by Narvik municipality. In 2001, Narvik sold off 49,99 % of its shares to two power companies, Vester氓lskraft AS and H氓logalandskraft AS.

(16)

After a merger in 2006 and a name change in 2009, NEAS is now part of the company Nordkraft AS (‘Nordkraft‘�.

(17)

Until the end of 1998, Narvik sold its annual entitlement of approximately GWh 128 of concession power to NEAS under short- or longer-term contracts. However, at the beginning of 1999, after failing to reach an agreement with NEAS, Narvik sold its concession power on a power exchange at spot prices.

(18)

In March 1999, the municipality arranged a tender procedure for the sale of its concession power for the remainder of 1999. On 30 March 1999, Narvik concluded a contract with the highest bidder, Kraftinor AS. The price was NOK 109,50 per MWh. Since it paid NOK 111,10 per MWh plus feeding costs of NOK 20 per MWh for the concession power, Narvik incurred a loss of approximately NOK 2,3 million under this contract. Narvik had initially expected a surplus of NOK 3,5 million.

(19)

On 19 October 1999, the Municipal Council Executive Committee (‘楨xecutive Committee‘� recommended to the Municipal Council that the overall goal for handling the municipality‘檚 concession power should be to maximize return on a long-term basis in order to obtain a stable planning horizon. The proposed strategy for achieving this goal had four elements:

(20)

The Municipal Council confirmed the recommendation of the Executive Committee with one adjustment, suggested by the Mayor and confirmed by way of an amendment to the strategy: instead of the Mayor being explicitly ‘�span class="italic">granted power of attorney to enter into agreements according to the strategy decided by the Municipal Council