Gassled: Norwegian Supreme Court upholds government's right to amend gas transport tariffs

The long-running ‘Gassled’ saga has reached the Supreme Court of Norway: the court dismissed the appeal by four companies with an interest in Gassled, the owner of the system of pipelines that transports gas from the North Sea and Norwegian Sea to Norway, the UK and Central Europe.

The legal battle commenced in 2013, when the Norwegian Ministry of Petroleum and Energy (“MPE”) introduced an amendment to certain regulations (the “Tariff Regulations”), which had the effect of reducing the tariffs Gassled was able to charge to shippers for new bookings from 1 October 2016 – thereby substantially reducing Gassled’s future income.

Four companies, with a total ownership interest in Gassled of approximately 45% (the “Appellants”), brought an action against the Norwegian state challenging the legal basis for the amendment to the Tariff Regulations. As detailed in our earlier Law-Nows, they were unsuccessful before the District Court in Oslo, and again before the Court of Appeal.

The Supreme Court has upheld the decision of those lower courts and affirmed the Norwegian government’s power to regulate the oil and gas industry, and also commented on the countervailing considerations which may be taken into account when regulating the interests of stakeholders.

Appeal

In the lower courts, the Appellants sought to argue that the Norwegian government did not have the authority to amend the Tariff Regulations: firstly, because MPE had agreed that the tariffs would remain unchanged during the whole of Gassled’s licence period, from 2002 to 2028; secondly, because MPE did not have statutory authority to do so; and thirdly, because the amendment was in contravention of Gassled’s rights under the European Convention on Human Rights (“ECHR”). In the alternative, the Appellants sought compensation on the basis that the state had provided insufficient guidance in relation to the tariff regime when the Appellants had purchased their interests in Gassled, in breach of Norwegian administrative law.

However, only two of these arguments were put before the Supreme Court:

1. MPE lacked statutory authority to amend the Tariff Regulations. The Appellants argued that an adjustment of already established tariffs could only be made in accordance with section 4-8 subsection 2 of the Norwegian Petroleum Act. This subsection gives the MPE the right to change tariffs for gas transport if it is necessary “to ensure that projects are completed with due regard to concerns relating to resource management and that the owner of the facility is provided with a reasonable profit taking into account, among other things, investments and risks”. The Appellants claimed that the change in tariff was not necessary for this purpose.
2. MPE’s decision interfered with the Appellants’ ECHR right to enjoy their possessions under Article 1 of the first Protocol (“A1P1”) – which, the Appellants argued, included the right to a return on the possession in question. The level of interference with the Appellants’ possessions was disproportionate, and could not be justified in terms of any effect on resource management.

Decision

The Supreme Court rejected both points and dismissed the appeal.

Did MPE have statutory authority?

The court first considered the legal basis for the original Tariff Regulations (2003) applicable to Gassled. The court found that it was “clear” that, when originally established, the tariff regime was implemented on “the assumption […] that the tariffs could be adjusted based on return.” In order to adjust tariffs based on return, however, MPE required to amend the Tariff Regulations to adjust the capital element of the tariff formula. This is exactly what MPE had done in 2013.

Further, the court did not agree with the Appellants that MPE’s power to amend the capital element was restricted by section 4-8 subsection 2 of the Petroleum Act. Subsection 2 related to the right to adjust tariffs for shipper agreements already entered into, however the amendment to the Tariff Regulations related to general tariffs for future agreements. In the circumstances, the relevant subsection was subsection 1 – which gave MPE far wider powers to stipulate “further rules in the form of regulations and may impose conditions and issue orders relating to such access in the individual case”.

On this basis, the Supreme Court concluded that MPE did have statutory authority to amend the Tariff Regulations in 2013.

Was there an interference with ECHR A1P1 right?

Two questions faced the court in considering the Appellants’ A1P1 argument. Firstly, whether the tariff adjustment is an interference with the Appellants’ possessions; and secondly, whether that interference was proportionate, having regard to the right of states to control the use of property in accordance with the general interest of the community.

Interestingly, the court left open the first question, and did not decide whether an interference with an ownership interest protected by A1P1 had taken place. This is in contrast to the Court of Appeal, which had previously found that there was no legitimate expectation on the part of the Claimants that the tariffs would remain unchanged until 2028, and therefore there was no proprietary right afforded protection by A1P1.

In relation to the second question, the Tariff Regulation was not a disproportionate interference for three principal reasons. Firstly, the Appellants knew their ownership interests were tied to a regulatory regime, and were aware of the risk of adjustments to that regime. Secondly, MPE’s decision to reduce the tariff was “handled in a manner to which [the court] [has] no objection.” Notably, the decision had been subject to consultation, including with the Appellants. Thirdly, the adjustment had not in fact affected the Appellants particularly harshly; most of the capacity for the duration of the licence period (which would expire at the end of 2028) had already been booked before 1 July 2013, and was therefore not affected by the change which only took effect from 1 October 2016.

Against this background, the Supreme Court held there was no basis for concluding that the Tariff Regulation in 2013 was a disproportionate interference with the Appellants’ right to protection of property under ECHR A1P1.

Comment

The Supreme Court’s decision is another clear statement of the latitude afforded to the Norwegian state to regulate its oil and gas industry. Notably, the court considered in some detail the principles of the Norwegian regime which guided MPE’s decision to amend the Tariff Regulations – including that “profit is earned from the fields and not the infrastructure”.

Further Law-Nows will consider whether there are any regulatory parallels (and, perhaps, cautionary tales) for those working in the UKCS within the regulatory remit of the Oil and Gas Authority. In both the UK and Norwegian systems there is a balance to be achieved between, on the one hand, upholding national energy policy seeking to maximise resources and revenue from oil and gas fields and, on the other, the commercial interests of other stakeholders. Gassled brings into focus the tension which can arise when those competing interests conflict.

As noted above, the Appellants relied heavily on their rights under the ECHR when litigating before the Supreme Court. Whilst they have now exhausted all domestic avenues to appeal, it remains to be seen whether they will attempt to appeal further, to the European Court of Human Rights.