Presentation is loading. Please wait.

Presentation is loading. Please wait.

JUNE 1, 2011 LEGAL ISSUES OF ESTABLISHING POWER PLANTS IN HUNGARY A LEGAL GUIDE.

Similar presentations


Presentation on theme: "JUNE 1, 2011 LEGAL ISSUES OF ESTABLISHING POWER PLANTS IN HUNGARY A LEGAL GUIDE."— Presentation transcript:

1 JUNE 1, 2011 LEGAL ISSUES OF ESTABLISHING POWER PLANTS IN HUNGARY A LEGAL GUIDE

2 IMPRESSUM Dr. Varga Ildikó Dr. Szilágyi Viktória Dr. Pásztor Tamás impressum Nagy és Trócsányi Ügyvédi Iroda©, This guide is intended for informational purposes only and nothing in this guide is to be considered as either creating an attorney-client relationship or constituting legal advice for any specific matter. Readers are responsible for obtaining legal counsel on any particular matter. Every effort has been made to ensure the accuracy of the information within this guide. However, no client or other reader should act or refrain from acting on the basis of any information contained in this guide without seeking appropriate legal advice on the particular facts and circumstances at issue. Any and all liability which might arise from the use of or reliance upon this guide is excluded. Nagy és Trócsányi Ügyvédi Iroda expressly disclaims any and all liability with respect to acts or omissions made by clients or other readers on the basis of this guide. Authors Copyright Disclaimer

3 TABLE OF CONTENTS Impressum Table of contents The Hungarian electricity sector - facts and regulation Legal environment 1. Purpose of project companyPurpose of project company 1.1 Land purchaseLand purchase 1.2 ConstructionConstruction 1.3 OperationsOperations 2. Project company formationProject company formation 2.1 EstablishmentEstablishment Simplified procedureSimplified procedure Normal procedureNormal procedure Steps of procedureSteps of procedure Required documentsRequired documents Required dataRequired data 2.2 AcquisitionAcquisition Due diligenceDue diligence SPA/QPASPA/QPA 3. FinanceFinance 3.1 Corporate financeCorporate finance Shareholder loanShareholder loan EquityEquity 3.2 Project financeProject finance Bank facilitiesBank facilities CollateralsCollaterals 1. Due diligenceDue diligence 1.1 Ownership status 1.2 EncumbrancesEncumbrances 1.3 Environmental mattersEnvironmental matters 1.4 ArcheologyArcheology 1.5 Zoning, site formationZoning, site formation 2. Real property purchaseReal property purchase 2.1 AgreementAgreement 2.2 RegistrationRegistration 2.3 Other rightsOther rights 2.4 Tax, dutyTax, duty 3. FinanceFinance 3.1 Corporate financeCorporate finance Shareholder loanShareholder loan EquityEquity 3.2 Project financeProject finance Bank facilitiesBank facilities CollateralsCollaterals 1. ProcessProcess 1.1 Selection, tenderSelection, tender 1.2 EngineeringEngineering 1.3 LicensingLicensing 1.4 ConstructionConstruction 2. Participants, agreementsParticipants, agreements 2.1 DeveloperDeveloper 2.2 EngineerEngineer 2.3 ConstructorConstructor 2.4 Technical supervisorTechnical supervisor 2.5 Payment agentPayment agent 2.6 OtherOther 3. FinanceFinance 3.1 Corporate financeCorporate finance Shareholder loanShareholder loan EquityEquity 3.2 Project financeProject finance Bank facilitiesBank facilities CollateralsCollaterals PROJECT COMPANY ISSUES LAND ISSUES CONSTRUCTION 0102

4 TABLE OF CONTENTS 1. FinanceFinance 1.1 Corporate financeCorporate finance Shareholder loanShareholder loan EquityEquity 1.2 Project financeProject finance Bank facilitiesBank facilities CollateralsCollaterals 1. Authorization of establishmentAuthorization of establishment 1.1 Authorization by the HEOAuthorization by the HEO Establishment permitEstablishment permit Operation permitOperation permit 1.2 Authorization by the building authority (HTLO)Authorization by the building authority (HTLO) Theoretical building permitTheoretical building permit Building permitBuilding permit Use permitUse permit 1.3 Environmental authorizationEnvironmental authorization 2. Connection to the transmission systemConnection to the transmission system 2.1 Connection agreementConnection agreement 2.2 Authorization by the HEOAuthorization by the HEO 2.3 Authorization by the building authority (HTLO)Authorization by the building authority (HTLO) Preliminary procedurePreliminary procedure Cable right permitCable right permit Operation permitOperation permit 2.4 Environmental authorizationEnvironmental authorization 3. ResourcesResources 3.1 Requirements regarding primary sourcesRequirements regarding primary sources 3.2 Resource stocksResource stocks 3.3 Establishment of direct cable (natural gas resource)Establishment of direct cable (natural gas resource) 4. Matters related to operationMatters related to operation 4.1 Security areaSecurity area 4.2 Mandatory offering and takeover of electricityMandatory offering and takeover of electricity 4.3 Technological-security requirementsTechnological-security requirements 4.4 Staff requirementsStaff requirements 4.5 TaxesTaxes 4.6 Carbon-dioxide quotaCarbon-dioxide quota FINANCE ESTABLISHMENT OF POWER PLANTS 0102 Impressum Table of contents The Hungarian electricity sector - facts and regulation Legal environment

5 THE HUNGARIAN ELECTRICITY SECTOR FACTS AND REGULATION Since January 1, 2008 the Hungarian electricity market is liberalized, which means that competition within the market may be restricted only for the purpose of consumer protection or prevention of abusing dominant position on the market. Customers and electricity traders are free to purchase and power plants (producers) are free to sell electricity on the market. Furthermore, since July 20, 2010 electricity may be sold and purchased on the organized electricity market (electricity stock exchange). An exception to the above is the mandatory transmission system established for the purpose of promoting the production of electricity jointly or from renewable resources. Such electricity is mandatorily taken over by the Hungarian transmission system operator (TSO) who allocates such capacities among traders, producers and end users purchasing from abroad in proportion to the amount of electricity sold (purchased) by them. back to the hungarian electricity sector - facts and regulation // the hungarian electricity market the hungarian electricity sector - facts and regulation The allover electricity consumption of the Hungarian electricity system in 2010 was 39 TWh; while 33,8 TWh of the consumed amount of electricity was produced in Hungary the imported amount was near 15%. Around 21,5% of the electricity was produced within the framework of the mandatory transmission system (source: Stocks of Hungary of conventional energy resources have basically been exhausted. For this reason the lack of necessary resources was intended to be supplemented by way of importing carbon hydrogen, especially natural gas from abroad which made the country somewhat dependent of other countries resources. For this reason proportion of carbon hydrogen in terms of the fuel sources of power plants has constantly been high. (29% in 2010). As far as other fuel sources are concerned, in % was fissile material, 14% was carbon, while 7% was renewable resource. 13% of the resource of power plants was imported. The Hungarian electricity market Production statistics Resources 0102

6 THE HUNGARIAN ELECTRICITY SECTOR FACTS AND REGULATION Act LXXXVI of 2007 on electricity (Electricity Act) o Governmental Decree No. 273 /2007 (X.19.) on the enforcement of the Electricity Act (Electricity Decree) Act LXXVIII of 1997 on building activities o Governmental Decree No. 382/2007 (XII. 23) on building authorization procedures related to electricity works (Decree on Electricity Building Procedures) o Governmental Decree No. 320/2010 (XII.27.) on the Hungarian Trade Licensing Office as well as measuring and technological authorities o Ministerial Decree No. 122/2004 (X.15.) on the security area of electricity works o Ministerial Decree No. 8/2001 (III.30.) on the technological and security requirements of electricity works; o Ministerial Decree No. 44/2002 (XII.28.) on the minimum amount of mandatory resource stocks of power plants having a capacity higher than 50 MW; o Ministerial Decree No. 117/2007 (XII.29.) on the financial and technological conditions of connecting the public purpose transmission system; Act LIII of 1996 on nature protection; Act LIII of 1995 on the protection of environment; o Governmental Decree No. 314/2005 (XII.25.) on environmental authorization procedures; Act XLVIII of 1993 on mining; o Governmental Decree No. 203/1998 (XII.19.) on the enforcement of the Mining Act; o Ministerial Decree No. 96/2005 (XI.4.) on building authorization procedures conducted by the mining authority; o Ministerial Decree No. 80/2005 (X.11.) on the security requirements of gas transmission cables. back to the hungarian electricity sector - facts and regulation // legal environment the hungarian electricity sector - facts and regulation Legal environment of establishing power plants 0102

7 PROJECT COMPANY ISSUES back to table of contents table of contents 1. Purpose of project company 2. Project company formation 1.1 Land purchaseLand purchase 1.2 ConstructionConstruction 1.3 OperationsOperations 2.1 EstablishmentEstablishment Simplified procedureSimplified procedure Normal procedureNormal procedure Steps of procedureSteps of procedure Required documentsRequired documents Required dataRequired data Due diligenceDue diligence SPA/QPASPA/QPA 2.2 AcquisitionAcquisition 3. Finance 3.1 Corporate financeCorporate finance 3.2 Project financeProject finance Shareholder loanShareholder loan EquityEquity Bank facilitiesBank facilities CollateralsCollaterals

8 PURPOSE OF PROJECT COMPANY back to project company issues // purpose of project company project company issues Ownership of the land and related issues, including zoning, site formation, environmental issues, archeology issues can distinctly be separated from other project phases. Construction phase covers all construction related issues, including engineering and construction works, licensing, installation of equipment, handover, which may require special personnel and other special considerations. Greenfield projects maybe implemented within the framework of one business entity. It is also possible, however, that several project companies are established for the different phases of the project. It maybe beneficial from organizational, tax, project finance or other aspects to allocate different type of activities related to the project between separate entities. The main phases that maybe considered are the followings: 1.1 Land purchase 1.2 Construction 01 Operation of a greenfield power plant requires specific licenses, personnel, contracts and management. From this aspect it maybe required to organize and manage all operation related matters through a separate business entity. 1.3 Operations

9 PROJECT COMPANY FORMATION back to project company issues // project company formation project company issues 2.1 Establishment If the project company is a newly formed entity, it maybe established in two different procedures, both in electronic form. The below is applicable both for limited liability companies and companies limited by shares Mandatory to use sample deed of foundation provided by law Registration takes one business hour once the documents are filed to the court Electronic duty payment of HUF 15,000; no publication fee Deed of foundation maybe formed by the parties within the framework of provisions not prohibited by law Registration takes 15 business days once the documents are filed to the court Electronic duty payment HUF 100,000; publication fee HUF 5, Simplified procedure Normal procedure Steps of procedure Preparation and signing of corporate documents (special formalities, such as notarization and Apostille maybe required if the documents are not signed in Hungary) Opening bank account in Hungary, wiring the amount of initial capital Filing documents to the court of firms in special electronic form (legal representation is required in the procedure) Registration of new entity Issuing shares in case of companies limited by shares 03

10 PROJECT COMPANY FORMATION back to project company issues // project company formation project company issues 2.1 Establishment If the project company is a newly formed entity, it maybe established in two different procedures, both in electronic form. The below is applicable both for limited liability companies and companies limited by shares Deed of foundation Power of attorney for legal representation Declaration of acceptance of directors, supervisory board members, auditor Quotaholders list in case of limited liability companies Additional documents depending on the actual situation Name of the company Registered address address for company Initial capital amount and form (cash or in-kind) Main activity Data with respect to directors; directors maybe foreign persons, does not necessarily need to be Hungarian citizen Data with respect to supervisory board members (if any); maybe foreign persons, does not necessarily need to be Hungarian citizen Data with respect to auditor (if any) Additional data depending on the actual situation Required corporate documents Required data 03

11 PROJECT COMPANY FORMATION back to project company issues // project company formation project company issues 2.2 Acquisition Due diligence procedure concerning the company to be acquired Data room issues (electronic, physical data room, confidentiality) Preparation of due diligence report Due diligence SPA/QPA Share purchase agreement in case of companies limited by shares or quota purchase agreement in case of limited liability companies to be concluded Civil law and corporate law issues to be agreed in the SPA/QPA Liability for the obligations of the company undertaken before the acquisitions Representations and warranties Other matters

12 LAND ISSUES back to table of contents table of contents 1. Due diligence 2. Real property purchase 1.1 Ownership statusOwnership status 1.2 EncumbrancesEncumbrances 1.3 Environmental mattersEnvironmental matters 1.4 ArcheologyArcheology 1.5 Zoning, site formationZoning, site formation 2.1 AgreementAgreement 2.2 RegistrationRegistration 2.3 Other rightsOther rights 2.4 Tax, dutyTax, duty 3.1 Corporate financeCorporate finance 3.2 Project financeProject finance Shareholder loanShareholder loan EquityEquity Bank facilitiesBank facilities CollateralsCollaterals 3. Finance

13 DUE DILIGENCE Title deed review to verify facts and rights, including ownership, ownership stakes, area, zoning, encumbrances (mortgage, easement, option, pre-emption right, execution etc.), possible pending registrations, Title deed of the real property is publicly available from the on-line land registry system, which maybe searched by top. lot no. Rights and facts recorded in the land registry shall be construed as authentic proof, lack of knowledge of registered rights and facts shall not be an excuse under any circumstances back to land issues // due diligence land issues Encumbrances shall be registered in the land registry are effective towards any third person and attached to the real property, not the actual owner. Encumbrances if not registered in the land registry shall be effective only between the contracting parties and shall not burden any third party acquiring right over the real property in good faith. Non-exhaustive list of encumbrances falling into the above categories depending on whether registered or not: option, pre-emption, easements etc. Mortgage maybe established only upon registration in the land registry Facts, extent and nature of permanent environmental damage resolved by non-appealable court or administrative decision shall be registered in the land registry National Environmental Information System is operated by the Environment Protection and Water Management Ministry (www.okir.kvvm.hu), monitoring the status and use of environment and related matters, supported with data and other information by the local environment protection authoritieswww.okir.kvvm.hu Regional environment protection authorities and local municipalities also collect, organize and supply environment related data 1.1 Ownership status 1.2 Encumbrances 1.3 Environmental matters 0102

14 DUE DILIGENCE Archeological protection is registered in the land registry National Office of Cultural Heritage maintains public, official registry including archeological sites, exploration permits, exploration areas Developments involving ground leveling may not affect archeological sites, unless the authority approves exploration which shall be carried out prior to the ground works. For such exploration the competent museum and the investor shall conclude agreement. The authority may impose fine on the investor if cultural heritage is damaged due to lack of necessary permits or activity performed differently as approved in the permit back to land issues // due diligence land issues Zoning of lands is regulated on national and local level, local municipalities must implement their own laws regarding local zoning The objective of zoning is to outline the utilization of areas and real properties and the infrastructure network within the territory of the local municipality General development strategy and structural plan shall be implemented by the local municipality and local building regulation and zoning map shall be implemented in the form of Municipality Decree Real properties may belong to inner area, designated for construction and public areas, or outer area, primarily used for agriculture. For reclassification of outer area to become inner areas approval of the municipality is needed Outer areas maybe registered as arable (agricultural land), which maybe the form of farmland, vineyard, forest and some other special purpose arable land. Acquisition of arable land is restricted in size for Hungarian nationals and prohibited for foreign nationals, except EU nationals under certain circumstances Formation of new sites from currently existing sites (division, merger, redistribution, regulation of land boundaries) requires permission of the land registry office 1.4 Archeology 1.5 Zoning, site formation 0102

15 REAL PROPERTY PURCHASE Special formalities are required to ensure that the purchase agreement is suitable for registration with the land registry Documents issued in Hungary shall contain: family and surname, including full maiden name when applicable, year of birth, mother's maiden name, address and the personal identification number of the person concerned name, registered office, statistical number, and the court or company registration number of organizations full address and description of the property in question (settlement, topographical lot number) detailed description of the right or fact legal grounds for the change agreement of the parties concerned, statement of authorization by the registered owner contracting parties' statement concerning their respective citizenship Private document issued in Hungary shall only be accepted for real estate registration purposes if the date and location of issue are clearly indicated, and if it was written and signed by the person named therein, or it was signed by two witnesses, name and address included, verifying that the person named therein signed the document, if not written by him, before them, or has pronounced the signature as his own, or the document was prepared by a notary public, or countersigned by an attorney, furthermore, if was properly signed under authority on behalf of an artificial person if the document contains more than one page, each page has the initials of the contracting parties, of the person it was drafted by, the counter-signatory and of the witnesses, and satisfies the formal requirements specified by law for notarial documents contains the signatures of authorized persons and the parties to be clearly identified based on the document. Creation, modification or termination of ownership, usufruct, right of use, easement right, purchase right and mortgage (independent lien) may be registered on basis of public documents, or private documents countersigned by an attorney. Legal counsel may also act as a counter-signatory if either of the contracting parties is an organization represented by such legal counsel. Document drafted and countersigned by an attorney, or one witnessed and notarized by a notary public who is named as contracting party may not be accepted for registration purposes. Countersigned private document may be accepted for registration purposes if it contains the name, signature, registered office of the counter-signatory, the date of execution and the note "countersigned". Countersigning by an attorney shall be valid only if sealed by embossed stamp. back to land issues // real property purchase land issues 2.1 Agreement 0102

16 REAL PROPERTY PURCHASE In order to acquire ownership of real property contract of the parties and registration with the land registry is required. Request for registration shall be filed with the competent land registry office on special request form and with several documents proving the transfer and providing other related information. Between filing request and registration the requested change will be listed as side note on the title deed. File number assigned to an application shall be entered on title deed in the side note on the day when submitted, and this fact shall be indicated on the application. Side note on title deed shall evidence commencement of real estate registration proceedings. Side note shall be removed upon registration of a change in title deed, or upon registration of rejection of application for registration. back to land issues // real property purchase land issues Other rights may be established and other agreements maybe concluded in relation to the real property purchase, some of these is listed herein Memorandum of understanding, letter of intent, term sheet maybe signed by the parties Option right maybe concluded for the benefit of the purchaser, which is registered with the land registry. Based on such right the purchaser may acquire ownership by its unilateral declaration addressed to the seller at a purchase price agreed in the option agreement. Preliminary agreement maybe concluded between the parties in which they undertake to conclude real property purchase agreement at a later time. Stamp duty. Stamp duty is payable on the purchase of property. The general rate is 4%, however, there are several exemptions (e.g. acquisition of land property to be built for residential purposes, preferred asset transfer, etc.) VAT. The sale of land which has not been built in other than the sale of building land is exempted from VAT. Local property taxes are also payable and vary per location. 2.2 Registration 2.3 Other rights 2.4 Tax, duty 0102

17 CONSTRUCTION back to table of contents table of contents 1.1 Selection, tenderSelection, tender 1.2 EngineeringEngineering 1.3 LicensingLicensing 1.4 ConstructionConstruction 2. Participants, agreements 2.1 DeveloperDeveloper 2.2 EngineerEngineer 2.3 ConstructorConstructor 2.4 Technical supervisorTechnical supervisor 2.5 Payment agentPayment agent 2.6 OtherOther 1. Process 3. Finance 3.1 Corporate financeCorporate finance 3.2 Project financeProject finance Shareholder loanShareholder loan EquityEquity Bank facilitiesBank facilities CollateralsCollaterals

18 PROCESS In general it is not mandatory to issue tender for the selection process of the construction phase participants, in these cases the investor is free the establish its own tender rules within the framework provided by civil law rules. In some cases (e.g. if assets of local municipality is involved) tendering maybe mandatory. In these cases local municipalities usually issue there own framework rules for tender procedures. back to construction // process construction Engineering may be a separate phase of the construction and engineering services maybe performed by a separate engineering company. It is also possible to conclude turnkey agreement which includes both engineering and construction works. Engineering works cover the preparation of construction-technical design documentations for the purpose of construction of buildings and building parts, expansion, renovation, rehabilitation, demolition, relocation and modification of function. For the purpose of construction several types of designs shall be drawn up, including construction permit designs of the complete building planned to be built (this design shall be licensed by the construction authority), construction work designs supplementing the construction permit designs for the purpose of actual construction and not be licensed, as built drawings reflecting the actual physical status of construction, not to be licenses. Licensing, although strongly related to the engineering and construction phases, shall be treated as specific issue of the construction phase Selection, tender Engineering Licensing 01 The actual construction works are based on the designs engineered and licensed and the permits obtained and the agreements concluded with several participants of the construction works. Construction

19 PARTICIPANTS, AGREEMENTS The developer is the beneficiary of the licenses and permits required to start and carry on construction works. The following matters shall be the responsibility of the developer: obtaining required licenses and permits, conclude necessary agreements selection of engineer to prepare designs, tendering out engineering works if required by law arrangement for construction works documentation in the form required by law controlling of building log book participation in technical handover and handover/takeover procedure controlling of financial settlement of certified performance arrangement for payment agent if required other actions required by law. back to construction // participants, agreements construction Engineer shall be engaged in written agreement for the purpose of drawing the designs required for the construction works. Engineering agreement shall include the minimum information required by law, such as precise description of required designs, performance deadlines, fee, payment method and deadline, undertaking to redraw the designs if so requested by the design controller, number of required hard copies and electronic copies. The engineer shall attach its declaration to the construction work designs regarding compliance with laws and technical standards. The developer may engage general constructor who shall be responsible for the overall construction and engaging subcontractors, or, alternatively, the developer may engage several constructors for the different parts of construction works. Construction agreement shall be concluded in writing and shall include all those information required by laws (191/2009 Government Decree). It is also possible to use international standard agreements, such as FIDIC. Nevertheless, if using FIDIC, the special terms shall included all mandatory information required by law and not provided by the general terms. Developer Engineer Constructor 0102

20 PARTICIPANTS, AGREEMENTS Mandatory to engage technical supervisor for the purpose of licensed construction works if the construction is performed by several general contractors or the construction is based on public procurement or the construction is part of significant national matter or the construction effects cultural heritage or payment agent is required. Technical supervision maybe performed only by qualified and licensed supervisor, w ho shall be responsible for the overall supervision of the construction works, including control of the works, registration of the building log book, approval of performance and issuing performance certificates etc. back to construction // participants, agreements construction It is mandatory to engage payment agent if the value of construction exceeds the treshold set for community level public procurements. Payment agent services maybe performed by the Hungarian State Treasury and commercial banks. As to our knowledge, the only commercial bank providing such service in Hungary until today is Commerzbank. The developer shall conclude agreement with the payment agent. Based on such agreement the payment agent provides access to the electronic subcontractor registry system, where all details of the construction work shall be registered and approved by both the developer and the general contractor. Payments from the developer are wired to the payment agent account maintained by the payment agent, and the payment agent wires the approved payments to the general constractor once convinced that all subcontractors of the general contractor ar e paid. The purpose of the system is to follow up on payments made in significant projects and ensure payment to the subcontractors. Other participants, such as project manager, design controller, responsible technical controller etc. may also be engaged in the construction phase depending on legal requirements and expectations of the developer. Technical supervisor Payment agent Other 0102

21 FINANCE back to finance finance 1.1 Shareholder loanShareholder loan 1.2 EquityEquity 2.1 Bank facilitiesBank facilities 2.1 CollateralsCollaterals 2. Project finance 1. Corporate finance

22 CORPORATE FINANCE Shareholders are free to grant loans to the company The loan agreement between the shareholder and the company shall be approved by resolution of the shareholders meeting. Major thin capitalization rules: Pre-tax profit of the company shall be increased by the interests - shown under expenses or claimed as part of the cost of an asset during the tax year - on the receivables (with the exception of receivables due from financial institutions) in an amount proportional to the part of such receivables that is in excess of three times the equity. The equity may not fall under half of the registered capital or may not fall under the registered capital in two consecutive years. In these cases shareholders meeting shall be convened to arrange for additional funds to be provided to the company. back to finance // corporate finance finance 1.1 Shareholder loan Equity The equity of the company consists of several accounting items. Shareholders of the company are obliged to pay up the registered capital of the company upon establishment or within a limited period of time after registration. In general, the shareholders of the company may not be obliged to provide additional funds. Nevertheless, in some cases and under some conditions, the shareholders meeting may resolve on additional funding, the major possibilities are: in limited liability companies so called additional payment maybe resolved if such possibility is provided in the articles of association of the company both in limited liability companies and companies limited by shares the shareholders meeting may resolve to increase the registered capital of the company and, simultaneously, the capital reserve of the company

23 PROJECT FINANCE back to finance // project finance finance 2.1 Bank facilities The main forms of finance include the use of the companys or company groups own funds, which is normally combined with bank lending or syndicate lending. Bank and syndicate lending can be found in the form of credit and loan, generally secured on several assets of either the borrower and subsidiaries of the borrower as guarantors. Facilities are available from Hungarian and foreign commercial banks Collaterals The following collaterals are most commonly used with banking facilities: Mortgage Floating charge Fixed charge Pledge over quotas and shares Bank account pledge Pledge and assignment of receivables Security deposit

24 ESTABLISHMENT OF POWER PLANTS back to table of contents table of contents 1. Authorization of establish- ment 2. Connection to the transmission system 3. Resources 4. Matters related to operation 1.1 Authorization by the HEO >>Authorization by the HEO >> 1.2 Authorization by the building authority (HTLO) >>Authorization by the building authority (HTLO) >> 1.3 Environmental authorizationEnvironmental authorization 2.1 Connection agreementConnection agreement 2.2 Authorization by the HEOAuthorization by the HEO 2.3 Authorization by the building authority (HTLO) >>Authorization by the building authority (HTLO) >> 2.4 Environmental authorizationEnvironmental authorization 3.1 Requirements regarding primary sourcesRequirements regarding primary sources 3.2 Resource stocksResource stocks 3.3 Establishment of direct cable (natural gas resource)Establishment of direct cable (natural gas resource) 4.1 Security areaSecurity area 4.2 Mandatory offering and takeover of electricityMandatory offering and takeover of electricity 4.3 Technological-security requirementsTechnological-security requirements 4.4 Staff requirementsStaff requirements 4.5 TaxesTaxes 4.6 Carbon-dioxide quotaCarbon-dioxide quota Establishment permitEstablishment permit Operation permitOperation permit Theoretical building permitTheoretical building permit Building permitBuilding permit Use permitUse permit Preliminary procedurePreliminary procedure Cable right permitCable right permit Operation permitOperation permit

25 AUTHORIZATION OF ESTABLISHMENT Power plants in Hungary may be established by companies limited by shares having a registered seat in Hungary and fulfill the requirements laid down by the Electricity Act and other sector specific legal instruments. In order to establish a power plant the following authorization procedures must be conducted.Electricity Act Authorization procedures. In order to establish a power plant in Hungary basically three different and mainly parallel authorization procedures must be conducted: An energetic authorization conducted by the Hungarian Energy Office (HEO); A building and construction authorization conducted by the Hungarian Trade Licensing Office (HTLO); Depending on the circumstances environmental authorization procedure conducted by the Environmental Authority. Depending on the actual type, functions, and purpose of the power plant, other authorization procedures (among others, water authorization, if water is stored and used for the purpose of cooling the electricity works) may also be necessary for the establishment and operation of a power plant. back to establishment of power plants // authorization of establishment establishment of power plants General Authorization procedures

26 AUTHORIZATION OF ESTABLISHMENT back to establishment of power plants // authorization of establishment establishment of power plants

27 AUTHORIZATION OF ESTABLISHMENT General. An establishment permit is required for the establishment of power plants with a maximum capacity of over 50 MW. The actual construction of the plant may be started only in the possession of such permit. Validity. An establishment permit is valid for a definite period, however, the period of validity may, upon request, be extended. Duration. The HEO decides about the authorization within 90 days. Application. The application for the establishment permit must be submitted to the HEO using the application form disclosed on the website of the HEO. Conditions. An establishment permit may be issued by the HEO if the documents prescribed by the Governmental Decree are duly attached to the application form and such documents fulfill the legal requirements;Governmental Decree if the power plant fulfills the requirements prescribed by law in terms of the minimal energetic efficacy; in case of new power plants using natural gas as fuel source, if the natural gas supply of the plant can be ensured via alternative sources or if certain requirements as to the storage of natural gas are fulfilled (see Sources). Natural gas. As far as power plants using natural gas as fuel source are concerned some special rules apply in terms of authorization. The establishment of such power plants may be authorized only if either the natural gas supply of the power plant can be substituted by an alternative source up to the amount and by the means prescribed by Ministerial Decree No. 44/2002;Ministerial Decree No. 44/2002; or (i) natural gas sources are stored in a natural gas container or continuous supply is ensured by means of an agreement, (ii) the operator of the power plant is entitled to dispose of such sources on an exclusive basis, without any limitation, and (iii) access to such sources does not endanger the forwarding, distribution, and storage of gas and the enforcement of laws on the security of gas supplies is not hindered. back to establishment of power plants // authorization of establishment establishment of power plants 1.1 AUTHORIZATION BY THE HEO Establishment permit

28 AUTHORIZATION OF ESTABLISHMENT Documents to be attached. The applicant must attach the following documents to the application for an establishment permit: Statements of that (i) the company is not subject to dissolution, liquidation or bankruptcy proceedings; (ii) the company acknowledges and fulfills the rules of the Hungarian electricity system; (iii) no permit of the company governed by the Electricity Act was withdrawn in the previous 10 years; (iv) whether the company pursues any activities governed by the Electricity Act; (v) the company obtained all permits from required by laws other than the Electricity Act;Electricity Act Proof of the transfer of the fee of the authorization process (currently HUF 2 million, and HUF 5 million above 200 MW; Deed of foundation of the company Extract from the register of companies not older than 30 days; Description of the availability of the suitable number of personnel who have the appropriate education; Original or notarized copy of the connection agreement concluded with the electricity network operator; Annual reports for the previous 3 years (or, if that is not possible, report for the term of operation as a NewCo subject to registration); Business plan for ten years as audited by an independent auditor considering also the requirements as laid down by the Electricity Decree (Annex 18);Electricity Decree Feasibility report prepared on the basis of the requirements laid down by the Electricity Decree (Annex 19);Electricity Decree Description of financing the investment; Copy of permits issued by other authorities on the basis of laws other than the Electricity Act;Electricity Act In case of using natural gas as source the proof of storage requirements as laid down by the Electricity Act;Electricity Act Data related to the expected time of (i) starting the establishment; (ii) starting operation; (iii) start of commercial business; Technological data related to the power plant as determined in the application form, such as electricity circuit diagram, heat scheme, technological data of the main installations (Annex 22 of the Electricity Decree), emission data, energetic efficacy.Electricity Decree back to establishment of power plants // authorization of establishment establishment of power plants 1.1 AUTHORIZATION BY THE HEO Establishment permit

29 AUTHORIZATION OF ESTABLISHMENT General. In the possession of an operation permit the producer is entitled to produce, use, and sell electricity. Validity. The operation permit is valid for a definite period, however, its validity may, upon request, be extended. Duration. The HEO decides about the authorization within 90 days. Application. The application for the operation permit must be submitted to the HEO using the application form disclosed on the website of the authority. Conditions. An operation permit may be issued by the HEO following a successful installation of the plant it complies with the technological data determined in the establishment permit; the applicant possesses all elementary instruments to perform the activity (determined by the HEO); the application fulfills the requirements laid down by the Electricity Decree.Electricity Decree back to establishment of power plants // authorization of establishment establishment of power plants 1.1 AUTHORIZATION BY THE HEO Operation permit

30 AUTHORIZATION OF ESTABLISHMENT Documents to be attached. The applicant must attach the following documents to the application for an operation permit: Statements of that (i) the company is not subject to dissolution, liquidation or bankruptcy proceedings; (ii) no permit of the company governed by the Electricity Act was withdrawn in the previous 10 years; (iii) the company has a proper insurance for environmental damages; (iv) the applicant possesses all elementary instruments to perform the activity.Electricity Act Proof of the transfer of the fee of the authorization process (currently HUF 2 million, and HUF 5 million above 200 MW) Deed of foundation of the company; Extract from the register of companies not older than 30 days; Description of the availability of the suitable number of personnel who have the appropriate education; IPPC; Original or notarized copy of the connection agreement concluded with the electricity network operator; Annual reports for the previous 3 years (or, if that is not possible, report for the term of operation as a NewCo subject to registration); Business plan for 10 years as audited by an independent auditor considering also the requirements as laid down by the Electricity Decree (Annex 18);Electricity Decree Draft Code of Conduct (mandatory content determined by the Electricity Decree, Annex 20 );Electricity Decree Feasibility report prepared on the basis of the requirements of the Electricity Decree (Annex 19);Electricity Decree Minutes prepared of the installation of the plant; Plan and deadline of a quality assurance system; Description of financing the investment; In case of using natural gas as source the proof of storage requirements as laid down by the Electricity Act;Electricity Act Data related to the expected time of starting commercial business; Technological data related to the power plant as determined in the application form, such as electricity circuit diagram, heat scheme, technological data of the main installations (Annex 22 of the Electricity Decree) emission data, energetic efficacy.Electricity Decree back to establishment of power plants // authorization of establishment establishment of power plants 1.1 AUTHORIZATION BY THE HEO Operation permit

31 AUTHORIZATION OF ESTABLISHMENT General. Prior to the application for a building permit the investor may apply for a theoretical building permit in order to clarify the technological feasibility of the plant as well as any archeological, nature and environmental protection requirements that may apply. Application. The applicant must provide the HTLO with the data prescribed for the application for a building permit (Building permit) and a limited scope technological documentation. Duration. The HTLO decides about the application within 2 months. Validity. The theoretical building permit is valid for 1 year. Effect. Within the period of validity, if an application for a building permit is submitted, any statement made in the theoretical permit is mandatory for the authorities, even if in the meantime any laws applicable have changed. On the other hand, however, no actual construction works may be performed on the basis of the theoretical building permit. back to establishment of power plants // authorization of establishment establishment of power plants 1.2 AUTHORIZATION BY THE BUILDING AUTHORITY (HTLO) Theoretical building permit

32 AUTHORIZATION OF ESTABLISHMENT General. A building permit is necessary for the performance of any construction works in relation to the power plant. The HTLO issues a building permit upon the application of the investor. Application. In the application the investor must indicate the following information: Data related to the real property upon which the building will be built; Documents which prove the right to build upon the real estate; Functions of the building; Number and date of HEO establishment permit (if available); Data related to the investment (purpose, financial data, etc.); Data of the designer and of the contractor. Technological documentation. The application must also be furnished with a technological documentations, which must contain the followings: Data of the investor; Technological plan documentation of the building prepared by qualified designers in compliance with the relevant legal instruments; Plans related to access to the spot, transport, public utilities and the connections thereof, plans related to the preparation of the territory (landscaping, land works, etc.); Declarations of public utilities, operators concerned and other interested persons; Declaration of the designer of (i) that the technological plans comply with all relevant laws and prescriptions of authorities; (ii) that protection of life, nature, environment, and cultural heritage is ensured; (iii) that he/she is entitled to design the power plant; (iv) the technological standards and regulations applied during the design; Valid IPPC, and other permits that may be necessary subject to specific laws. back to establishment of power plants // authorization of establishment establishment of power plants 1.2 AUTHORIZATION BY THE BUILDING AUTHORITY (HTLD) Building permit

33 AUTHORIZATION OF ESTABLISHMENT Duration. The HTLO decides about the application within 2 months. Fee. (i) HUF 900,000 (50 MW – 100 MW); (ii) HUF 950,000 (100 MW – 250 MW); (iii) HUF 1,250,000 (250 MW – 400 MW); (iv) HUF 1,500,000 (above 400 MW). Notification. The investor, after obtaining the building permit, must notify the HTLO, certain other authorities, as well as all persons who have any registered rights upon the real estates being in connection with the territory upon which the power plant is built of the beginning of the construction works and the expected completion thereof. Technological requirements. The HTLO, during the authorization procedure and also while the construction works are performed and thereafter, supervises the fulfillment of the requirements of Ministerial Decree No. 8/2001.Ministerial Decree No. 8/2001 The Ministerial Decree contains detailed rules in connection with the content of the internal by-laws of the plant; personal requirements of safe operation; specific requirements of the design process; specific requirements of the construction process; installation; and operation of electricity works. Expert authorities. During the authorization procedures, subject to the actual circumstances, the HTLO request certain authorities – for example environmental, water, and nature protection, health protection, fire protection, etc. – authorities to act as expert authorities and to revise and authorize the building of the power plant within their specific area. back to establishment of power plants // authorization of establishment establishment of power plants 1.2 AUTHORIZATION BY THE BUILDING AUTHORITY (HTLD) Building permit

34 AUTHORIZATION OF ESTABLISHMENT General. Once the construction of the power plant is completed, prior to the application for a use permit, the investor is required to conduct an installation process as prescribed by the detailed rules of Ministerial Decree No. 8/2001.Ministerial Decree No. 8/2001 During the installation process the investor must cooperate with the relevant network operator and the transmission system operator. Detailed rules of such cooperation and of the technological conditions of installation are governed by the regulations of the network operator and the transmission system operator. The power plant, once built and installed, may be used only in the possession of a valid use permit issued by the HTLO. Application. In the application the applicant must indicate the following information: Data related to the real property upon which the building was built; Functions of the building; Number and date of HEO establishment permit; Data related to the investment (purpose, financial data, etc.); Data of the contractor and information related to the construction works (starting and completion date); Data of the operator; Date of the installation process; Data of the real estates connected to the territory upon which the power plant was built; Number and date of the building permit. Technological documentation. The application must also be furnished with the following documentation: Declaration of engineers of that (i) construction works were performed in compliance with the building permit, the technological documentation and the construction plans; (ii) technological and security requirements as well as requirements laid down by the building permit were fulfilled, and the building is suitable for proper and secure use; (iii) obligations prescribed by expert authorities as to security, health protection, environment protection, water protection, fire protection, etc. were fulfilled. These fact must be proven by the relevant documentation. Completion documentation which contains reference to any difference in the building compared to the original technological documentation and the technological plan documentation applicable to the actual status of the building. Duration. The HTLO decides about the application within 2 months. Fee. (i) HUF 900,000 (50 MW – 100 MW); (ii) HUF 950,000 (100 MW – 250 MW); (iii) HUF 1,250,000 (250 MW – 400 MW); (iv) HUF 1,500,000 (above 400 MW). back to establishment of power plants // authorization of establishment establishment of power plants 1.2 AUTHORIZATION BY THE BUILDING AUTHORITY (HTLD) Use permit

35 AUTHORIZATION OF ESTABLISHMENT General description. Construction or operation permit of power plants maybe requested only if the power plant received suitable environmental permit. Environmental permits are of different types depending on the actual activity, level of emission and level of use of environment. The main source of law is Act LIII of 1995 on the General Rules of Environment Protection, which is supplemented by 314/2005 Government Decree on Environment Impact Studies and IPPC Permit Procedures.Act LIII of 1995 on the General Rules of Environment Protection 314/2005 Government Decree on Environment Impact Studies and IPPC Permit Procedures Environmental permit. Environmental permit is issued by the authority for activities requiring environment impact study and not requiring IPPC permit. The activities requiring environmental permit are of two types depending on how much impact they have on the environment. Based on environment impact study environmental permit is always required in the energy sector for the following activities: for heat power plants from 20 MW capacity, other burning equipment from 300 MW output heat capacity; for water power plant on nationally significant protected environmental area; for wind energy power plant from 10 MW total capacity on nationally significant protected environmental area; for atomic power plant and several parts of such power plant; for electricity air cable from 220 kV voltage and from 15 km length; for the use of underground waters from one underground geographic object or object group from 5 million m3/year exploitation; for transmission of underground water from 100 million m3/year delivery capacity. Based on environment impact study environmental permit is required in the energy sector for the following activities, provided that the expected environmental impact of the activity is significant: for water power plants from 5 MW electric capacity at some protected areas; for geothermal power plant from 20 MW electric capacity at some protected areas; for wind energy power plant from 600 kW electric capacity, or from 200 kW electric capacity at some protected areas; for electric air cable from 20 kW; for underground pipeline through protected outer areas from 1 km length; for gas division pipeline from 40 bar operation pressure; for heat energy plants from 50 MW output capacity; for several other underground water and drinking water facilities. back to establishment of power plants // authorization of establishment establishment of power plants 1.3 Environmental authorization

36 AUTHORIZATION OF ESTABLISHMENT IPPC permit. IPPC permit is issued by the authority in order to state the necessary measures preventing emissions and decreasing and terminating emissions and factors affecting the environment, based on the best available techniques. IPPC permit is required: for burning equipment above 50 MW input heat capacity; for oil and gas processors; for other facilities related to coal industry; in some cases where only environmental permit would be required but the law provides additional requirements and conditions, therefore IPPC permit is required instead of the environmental permit. back to establishment of power plants // authorization of establishment establishment of power plants 1.3 Environmental authorization

37 CONNECTION TO THE TRANSMISSION SYSTEM In order to connect the power plant to the Hungarian transmission system the investor must Conclude a transmission system connection agreement (Connection Agreement) with the relevant network operator; and Establish a so-called production cable which is suitable to transport the electricity produced in the power plant to the connection point of the transmission system. For the purpose of concluding the Connection Agreement, beyond the general rules laid down by the Electricity Act and the Electricity Decree, the procedural rules as provided by the Electricity System Connection Regulations (Annex 2 of the Electricity Decree), and by the Operation Rules and the Code of Conduct of the transmission system operator apply.Electricity ActElectricity DecreeElectricity Decree On this basis, the conclusion of the Connection Agreement is rather subject to a planning and conciliation process among the investor, the transmission system operator, and the relevant network operator. Further, connection to the transmission system is a highly technical matter regulated in detail by the regulations of the network operators and the transmission system operator. In this respect this Guide provides only a general overview of the connection process. On the other hand, establishment of production cables is subject to building and environmental authorization procedures as detailed by the Decree on Building Requirements and Governmental Decree No. 314/2005.Governmental Decree No. 314/2005 back to establishment of power plants // connection to the transmission system establishment of power plants

38 CONNECTION TO THE TRANSMISSION SYSTEM back to establishment of power plants // connection to the transmission system establishment of power plants

39 CONNECTION TO THE TRANSMISSION SYSTEM General. The condition of the connection to the transmission system is to obtain all necessary permits and certificates that are required by law for the purpose of technological connection to the transmission system. The requirer is also obliged to accept the provisions of the Operation Rules and the Code of Conduct as mandatory. Declaration of intent. The investor must declare its intent to connect to the transmission system. The declaration must be sent to the transmission system operator 1 year in advance to the planned connection at the latest and must contain the planned date of connection and all technological data that may have relevance in respect of the connection. Examination of the request and notification. Once the declaration of intent is received the transmission system operator examines the request and notifies the investor of the requirements and process of connection. Feasibility report. A feasibility report must be prepared by the investor which contains several alternatives in terms of the actual connection to the system and analysis of the pros and cons of such alternatives. Connection plan. Once the most feasible way of connection is chosen a connection plan must be prepared in accordance with the provisions laid down by the Code of Conduct. The connection plan is first analyzed by the relevant network operator and, if it fulfills the requirements laid down by the Code of Conduct, it approves the plan. Conclusion of Connection Agreement. On the basis of the approved connection plan the investor negotiate and conclude the Connection Agreement in which the parties lay down technological parameters, requirements to be fulfilled in order to connect to the system, conditions of installation and requirements of operation. Mandatory content of the Connection Agreement is determined by Annex 2 of the Electricity Decree.Electricity Decree Fee. In consideration of the connection a connection fee must be paid to the relevant network operator. Effect. Construction and other works related to the realization of connection may be performed only once the Connection Agreement came into effect. back to establishment of power plants // connection to the transmission system establishment of power plants 2.1 Connection agreement

40 CONNECTION TO THE TRANSMISSION SYSTEM The establishment of a production cable is not subject to any establishment or operation authorization obligation, provided that the production cable serves exclusively for the purpose of connecting the power plant to the transmission system. back to establishment of power plants // connection to the transmission system establishment of power plants PRELIMINARY PROCEDURE Track designation. Prior to the submission of the application for the authorization of cable right the investor must conduct a preliminary procedure. During the preliminary procedure the designer of the investor must prepare a track designation documentation which contains the technological data of the cable planned to be built as determined by Annex 3/1 of Governmental Decree No. 382/2007.Governmental Decree No. 382/2007 Visit at the spot/Statements. The investor may organize a visit at the spot where the cable is planned to be built. The HTLO, expert authorities, public utilities, system operators and persons concerned by the building (among others, owners of the foreign real property) must be invited to the visit and they must be provided with the track designation documentation. Visited persons may comment the documentation. In the absence of organizing a visit the track designation documentation must be sent to the mentioned authorities and persons who may make comments on the documentation; in this case such comments and statement must be attached to the application for a cable right permit. 2.2 Authorization by the HEO 2.3 Authorization by the building authority (HTLO)

41 CONNECTION TO THE TRANSMISSION SYSTEM back to establishment of power plants // connection to the transmission system establishment of power plants CABLE RIGHT PERMIT General. A cable permit is necessary for the performance of any construction works in relation to the production cable both in case of own and foreign real properties. The HTLO issues a cable right permit upon the application of the investor. On the basis of the cable right permit cables, rail constructions, transmission and switch equipment may be established either upon own or foreign real properties. Application. In the application the investor must indicate the following information: Data related to the investment (purpose, financial data, etc.); Data of the designer, the contractor, and the operator; Name of the cable to be established; Data related to the cable to be established (power, length of the track, type of transmission and switch equipment, etc.); Description of the track; Statement of the investor that the building of the cable does not hinder significantly the proper use of real properties concerned. Technological documentation. The application must also be furnished with a technological documentations, which must contain the followings: Documents of the preliminary procedure (minutes of the visit and/or statements and comments of authorities and persons concerned); Final version of the track designation documentation; Technological data of the cable as further specified by Annex 3/4 of the Decree on Electricity Building Procedures;Decree on Electricity Building Procedures Data related to the real properties concerned as further specified by Annex 3/4 of the Decree on Electricity Building Procedures;Decree on Electricity Building Procedures Environmental permit, if applicable. Duration. The HTLO decides about the application within 2 months. Fee. Varies between HUF45,000 and HUF90,000/1 or 0,5 km depending on the power of the cable and the place of establishment. Notification. The investor, after obtaining the building permit, must notify the HTLO, certain other authorities, as well as all persons who have any registered rights upon the real estates being in connection with the territory upon which the power plant is built of the beginning of the construction works and the expected completion thereof. 2.3 Authorization by the building authority (HTLO)

42 CONNECTION TO THE TRANSMISSION SYSTEM back to establishment of power plants // connection to the transmission system establishment of power plants CABLE RIGHT PERMIT Technological requirements. The HTLO, during the authorization procedure and also while the construction works are performed and thereafter, supervises the fulfillment of the requirements of Ministerial Decree No. 8/2001Ministerial Decree No. 8/2001 The Ministerial Decree contains detailed rules in connection with the content of the internal by-laws of the plant; personal requirements of safe operation; specific requirements of the design process; specific requirements of the construction process; installation; and operation of electricity works. Expert authorities. During the authorization procedures, subject to the actual circumstances, the HTLO request certain authorities – for example environmental, water, and nature protection, health protection, fire protection, etc. – authorities to act as expert authorities and to revise and authorize the building of the power plant within their specific area. OPERATION PERMIT General. Once the production cable is installed in accordance with the requirements of Ministerial Decree No. 8/2001 on the technological and security requirements of electricity works the operator must apply for an operation permit within 90 days as from the installation.Ministerial Decree No. 8/2001 During the installation process the investor must cooperate with the relevant network operator and the transmission system operator. Detailed rules of such cooperation and of the technological conditions of installation are governed by the regulations of the network operator and the transmission system operator. Application. In the application the applicant must indicate the following information: Data related to the cable and its functions; Number and date of the cable right permit; Data related to the investment (purpose, financial data, etc.); Data of the contractor and information related to the construction works (starting and completion date); Data of the operator; Date of the installation process. 2.3 Authorization by the building authority (HTLO)

43 CONNECTION TO THE TRANSMISSION SYSTEM back to establishment of power plants // connection to the transmission system establishment of power plants OPERATION PERMIT Technological documentation. The application must also be furnished with the following documentation: Declaration of engineers of that (i) construction works were performed in compliance with the building permit, the technological documentation and the construction plans; (ii) technological and security requirements as well as requirements laid down by the building permit were fulfilled, and the building is suitable for proper and secure use; (iii) obligations prescribed by expert authorities as to security, health protection, environment protection, water protection, fire protection, etc. were fulfilled. These fact must be proven by the relevant documentation. Completion documentation which contains reference to any difference in the building compared to the original technological documentation and the technological plan documentation applicable to the actual status of the building. Duration. The HTLO decides about the application within 2 months. Fee. 50% of the fee of cable right authorization procedure. 2.3 Authorization by the building authority (HTLO) 0203 See 1.3 Environmental authorization.1.3 Environmental authorization. 2.4 Environmental authorization

44 RESOURCES According to the Electricity Act, during the authorization of power plants (Section 1.1) examines whether the resource planned to use as fuel in the power plant enhances energy efficiency. Furthermore, on the basis of the Electricity Act the minister responsible for energy policy may restrict the use of certain resources, and the extent and duration thereof, for energy policy purposes.Electricity ActSection 1.1 Electricity Act Up to date no such restrictions were introduced by the minister. back to establishment of power plants // resources establishment of power plants According to the Electricity Act producers who produce electricity in a power plant with a capacity of over 50 MW from non-renewable resources must permanently store normative resource stocks as well as security resource stocks as detailed by Ministerial Decree No. 44/2002.Electricity ActMinisterial Decree No. 44/2002 The amount of the normative as well as the security resource stocks depend upon the type of resource. For example, in case of carbon and lignite, and as a main rule, in case of carbon hydrogen it must equal the amount of necessary resources for the general production of an eight day period. Compliance with the regulations on resource stocks is supervised by the HEO, on the basis of the report of producers submitted on a quarterly basis. In case of power plants using natural gas as fuel may provide the normative and security resource stocks in natural gas only if natural gas resources are stored in a natural gas container or continuous supply is ensured by means of an agreement; the operator of the power plant is entitled to dispose of such sources on an exclusive basis, without any limitation, and access to such sources does not endanger the forwarding, distribution, and storage of gas and the enforcement of laws on the security of gas supplies is not hindered. (See also Section 1.1.1, Establishment Permit).1.1.1, Establishment Permit 3.1 Requirements regarding primary sources 3.2 Resource stocks 0102

45 RESOURCES General. Beyond the authorization procedures described in Sections 1-2, if the power plant is intended to use natural gas, as fuel, further permits must be obtained from the authorities in terms of the direct cable in which the natural gas can be transported to the power plant. Definition. A direct cable is a natural gas pipeline that is connected to the natural gas production point, a cross- border natural gas system, or a transmission or distribution pipeline used exclusively for delivering natural gas to the service location (power plant). The HEOs consent. A direct cable may be established for supplying the power plant with natural gas with the HEOs prior consent. The HEO grants its consent if there is no capacity available for purchase in the interconnected natural gas system, if the installation and maintenance of such direct cable ensures a better solution in terms of feasibility, as opposed to any investment in the transmission or distribution pipeline, and if the requirements of specific legislation is fulfilled. The application for the HEOs consent must be furnished with the declarations of the relevant gas transmission operator or gas distribution system operator as to the supply of the power plant and the detailed technological documentation of the direct cable. Fee for granting a consent is HUF 1 million. Role of the Mining Authority. In terms of establishing a direct cable the Mining Authority acts as building authority. For the purpose of establishing a direct cable, if built on a real estate owned by the builder, the following permits issued by the Mining Authority are necessary: Theoretical building permit (not mandatory) which serves for the purpose of determining issues that may have relevance in terms of the establishment, such as legal, technological, geometric, design requirements. Building permit, in the possession of which the construction works may be started. The Mining Authority decides, among others, on the basis of a technological documentation attached to the application for the building permit on that whether the planned direct cable fulfills the legal requirements, especially those laid down by the laws on the technological and security requirements of gas transmission cables (Application fee is HUF 15,000/km). Use permit, which is necessary for the use and operation of the direct cable, once the construction works have finished in accordance with the prescriptions of the building permit (Application fee is HUF 19,000/km). back to establishment of power plants // resources establishment of power plants 3.3 Establishment of direct cable (natural gas resource) 0102

46 MATTERS RELATED TO OPERATION back to establishment of power plants // matters related to operation establishment of power plants According to the Electricity Act for the purpose of environmental surrounding electricity works, production cables, and direct cables a security area must be designated around the electricity work, production cable and direct cable. The detailed rules of designating security areas, its extension as well as prohibitions and restrictions applicable within such security areas are governed by Ministerial Decree No. 122/2004.Electricity ActMinisterial Decree No. 122/2004 Producers of electricity are, pursuant to the Electricity Act, obliged to offer the capacity of the power plant for the purpose of the provision of system services as laid down by electricity supply regulations. Such capacities and its production may not be restrained gratuitously.Electricity Act Pursuant to the Electricity Act, producers of electricity who supply electricity to customers directly are obliged to take over electricity that is subject to takeover obligation (mainly produced from renewable resources) in proportion to the electricity supplied to customers, on the basis of an agreement to be concluded with the transmission system operator.Electricity Act This Section describes certain legal aspects of operating power plants. The list of such aspect is not exhaustive, it only aims to present the most important areas which may give rise to legal issues in relation to operation. Beyond the legal instruments detailed above (Legal environment) the operation of power plants is governed by the different regulations of network system and transmission system operators as approved by the HEO. These regulations provide for highly technical provisions and thus are not described here.Legal environment 4.1 Security area 4.2 Mandatory offering and takeover of electricity 0102 In accordance with Ministerial Decree No. 8/2001 (and Ministerial Decree No. 80/2008) the technological and security requirements fulfilled during the authorization of building the power plant must continuously complied with during the operation. Compliance is continuously supervised by the building authority (HTLO in case of power plants and production cables and the Mining Authority in case of direct cables).Ministerial Decree No. 8/2001Ministerial Decree No. 80/ Technological- security requirements

47 MATTERS RELATED TO OPERATION As far as the establishment of power plants is concerned both in case of the Establishment Permit as well as the Operation Permit the availability of the necessary personnel with the appropriate education is a conditions of issuing the permit. Special requirements applicable to such personnel is provided by specific laws such as Ministerial Decree No. 21/2010 (V.14.) on the education necessary for the pursuance of certain commercial activities; and Ministerial Decree No. 3/1981 (V./.) on the education necessary for the pursuance of activities related to the control and handling of electricity works and consumer cable system. back to establishment of power plants // matters related to operation establishment of power plants According to Act LXXXVIII of 2003 on energy tax, public utility power or gas companies, energy commercial firms, legitimated consumers, energy producers, network permission holders and in certain cases end consumers are subject of this tax. The base of the tax is the quantity of the electric energy in megawatt-hours, the quantity of the gas in gigajoules and the quantity of coal measured in thousand kilograms. The tax rates vary per units. In order to reflect the impact of the financial crisis special tax was introduced on the energy industry in 2010, the tax rate is 1.05 of sales regardless of the size of the company (Act XCIV of 2010 on the special tax levied on certain industries). According to Act XV of 2005 on the trade of emission units of greenhouse gases, under certain circumstances activities determined by the Act that trigger the emission of greenhouse gases are subject to emission authorization. The emission permit is issued by the Environmental Authority. Further, the Act determined the rules applicable to the national allocation plan concerning emission units as well as provisions applicable to the sale and purchase as well as use of such emission units. 4.4 Staff requirements 4.5 Taxes 4.6 Carbon-dioxide quota 0102

48 back to table of contents table of contents


Download ppt "JUNE 1, 2011 LEGAL ISSUES OF ESTABLISHING POWER PLANTS IN HUNGARY A LEGAL GUIDE."

Similar presentations


Ads by Google