Sheet 1 www.wolftheiss.com

1
OIL AND GAS ANNUAL FORUMLegal Issues Related to
Oil and Gas Pipeline Projects in RomaniaBryan W.
Jardine, Managing PartnerWolf Theiss si
Asociatii SCA
2
Legal Issues Related to Oil and Gas Pipeline
Projects in Romania
3
CONTENTSGeneral BackgroundGeneral Legal
Framework for Major Infrastructure
ProjectsConcessionsChange in Law RiskOverlap
between the Petroleum Law and the Gas
LawTransportation/Transit of Natural
GasPropertyGovernmental Approvals and
LicensesEnvironmental AspectsSecurity Interests
over Pipeline SystemsConclusion
4
General Background

• Two major pipeline projects are currently planned
  that would cross Romania
• Nabucco
• A proposed natural gas pipeline that is planned
  to transport natural gas from Turkey to Austria,
  via Bulgaria, Romania, and Hungary
• The Nabucco project is included in the EU
  Trans-European Energy Network programme
• Blue Stream
• Is a major trans-Black Sea gas pipeline that
  carries natural gas from Russia into Turkey
• Construction of the second leg of pipeline will
  allow Russian gas exports to be transported to
  the west (i.e. to Central Europe via planned
  Turkey-Bulgaria-Serbia-Croatia-Hungary pipeline)
  and to the south (via Samsun-Ceyhan gas pipeline
  further to Israel and Lebanon).

5
General Legal Framework for Major Infrastructure
Projects

• GEO no 34/2006 abrogated former Concession Law
  219/1998 and GO 16/2002 re Public Private
  Partnerships and sought to reconcile
  inconsistencies between the prior Concession Law
  and PPP Law and transpose certain EU Directives
  in this area
• Directive 2004/18/EC on the coordination of
  procedures for the award of public works
  contracts, public supply contracts and public
  service contracts
• Directive 2004/17/EC coordinating the procurement
  procedures of entities operating in the water,
  energy, transport and postal services sectors
• Directive 89/665/EEC on the coordination of laws,
  regulations and administrative provisions
  relating to the application of review procedures
  to the award of public supply and public works
  contracts
• Directive 92/13/EEC coordinating the laws,
  regulations and administrative provisions
  relating to the application of Community rules on
  the procurement procedures of entities operating
  in the water, energy, transport and postal
  telecommunication sectors

6
Concessions

• The legal framework for concessions also includes
  Government Emergency Ordinance no. 54/2006
  regarding the regime of concession contracts for
  public goods, as further amended and approved by
  Law no. 22/2007 (GEO no. 54/2006)
• Upon concluding the concession contract for
  public goods, the contracting authority must
  transmit to the concessionaire the right and
  obligation to exploit a public good in exchange
  for a royalty to be paid by the concessionaire to
  the public authority
• Duration
• public work concession contracts and service
  concession contracts - not limited to a certain
  period of time
• concessions contracts for public goods maximum
  duration of 49 years, which can be extended up to
  a maximum of no more than half of the initial
  duration (i.e., the maximum term for such a
  concession contract with extension would be 73.5
  years)

7
Change in Law Risk

• Petroleum Law
• Art. 31 (2) - "the terms and conditions of the
  petroleum agreement remain valid throughout its
  entire term, with the exception of the enactment
  of legal provisions favourable to the title
  holder of the petroleum agreement "
• Art. 31 (3) - "if, during the carrying out of
  petroleum operations, certain situations arise
  which could not be foreseen when the agreement
  was executed, save for the provisions that led to
  the winning of the public tender, the parties, by
  their mutual agreement, shall execute additional
  acts/amendments, which will enter into force on
  the date when they are approved by the
  Government"

8
Overlap Between the Petroleum Law and the Gas Law

• The Romanian legal framework regarding the oil
  and gas sector consists of two principal laws
  (i) Law no. 238/2004 the Petroleum Law, and
  (ii) Law no. 351/2004 the Gas Law ( amended in
  May 2007)
• Petroleum Law petroleum is the combustible
  mineral resources consisting of mixtures of
  natural hydrocarbons, accumulated in the
  terrestrial crust and which, at the surface of
  the crust are in gaseous state, as natural gas,
  or in liquid state, as crude oil and condensate.
  
• The concession agreement for the public service
  of natural gas transportation and the related
  assets appears to be executed with ANRM the
  regulatory authority in the oil sector, and not
  in natural gas sector (formerly ANRGN and since
  May 2007 ANRE)
• In conclusion, the natural gas sector appears to
  be regulated by both the Petroleum Law and the
  Gas Law

9
Transportation / Transit of Natural Gas

• Although the Gas Directive has abolished the
  distinction between transit flows and national
  transport and considers them within a unique
  category of transmission, the Gas Law continues
  to maintain the distinction
• Transportation of natural gas the activity
  organized for the carrying of natural gas through
  the National Transportation System of Natural Gas
  (the "SNT")
• Transit of natural gas the transportation
  through the SNT and/or through main pipelines
  dedicated to transit activities

10
Transportation of Natural Gas

• Natural gas transportation is a public service of
  national importance, and SNT is the public
  property of the Romanian State being of strategic
  importance and may be exploited based on a
  concession agreement (together with the related
  public natural gas transportation service)
• Pursuant to the Petroleum Law, investments made
  by title holder of the concession over the
  Petroleum SNT and the related public service, out
  if its own resources, in new assets "similar to"
  the assets that are qualified by the law as
  public property, which are not part of the
  Petroleum SNT, but which may be interconnected
  with the system, will be its private property
• The Gas Law does not have a similar provision ?
  not clear whether the provisions of the Petroleum
  Law were meant to also apply to assets related to
  natural gas transportation

11
Concession of the Transportation of Natural Gas

• The legal regime applicable to a concession
  agreement (with respect to termination and
  conditions and rights over the real estate of
  third parties, etc.) is regulated both by the Gas
  Law and the Petroleum Law
• Given that natural gas transportation may be
  deemed to fall under both laws, it is not clear
  which of the termination rules, for instance,
  will be applicable to natural gas transportation
  concession agreement. Consequently, legislative
  clarification of these aspects is necessary

12
Transit of Natural Gas

• It appears that no concession agreement would be
  required for natural gas transit activity
  performed either through the SNT or through
  dedicated main pipelines
• The dedicated main pipelines will be operated
  according to the domestic legislation in force
  and to the intergovernmental agreements to which
  Romania is a party, therefore it appears that
  they can be in the private property of the person
  who constructed them

13
Property

• Natural gas transportation and transit pipelines
  may be developed on plots of land held under any
  of the following forms of ownership
• public ownership of the Romanian State and/or the
  local administrative subdivisions (counties,
  towns or communes)
• private ownership of the Romanian State and/or
  the local administrative subdivisions
• private ownership of private persons, either
  individuals or legal entities

14
Property Rights over the Land

• Ownership right
• In relation to lands privately owned by public
  authorities (based on public tenders) and/or
  private persons
• Another means of achieving ownership over
  privately owned lands is expropriation such
  method could be used only if the project is
  structured such that the lands on which the
  pipelines are constructed shall remain in the
  public domain of the authorities. This procedure
  requires fair compensation to be paid to the
  former owner prior to the expropriation
• Right of superficies
• Includes ownership over the construction and a
  right of use over the land on which the
  construction is developed, granted for the entire
  lifetime of the construction. May only be
  acquired in relation to privately owned lands and
  only based upon a notarized deed
• Concession right
• If the land on which the pipeline would be built
  be public property of the Romanian State or of
  the local authorities

15
Property Specific Rights under the Gas Law

• Under the Gas Law, a concessionaire in the
  natural gas sector has the following rights over
  the lands and other goods, public or private
  property, of legal or natural persons, as well as
  upon the activities developed by legal or natural
  persons in the vicinity of the assets
• a right of use for carrying out the works
  required to build, rehabilitate or retool the
  assets
• a right of use to ensure normal operation of the
  assets by carrying out necessary upgrades,
  repairs and intervention works
• legal servitude for underground, ground or air
  passage to install grids, lines or any other
  facilities related to the assets and for access
  thereto
• right to limit or terminate certain activities
  that could put persons and goods in danger
• right of access to public utilities

16
Property Various Restrictions on the Use of Land

• ANRGN Technical Norms on the design and
  construction of the pipelines for supply and
  transportation of natural gas
• the location of pipelines in certain areas, such
  as railway stations, airports, river and sea
  ports, on and/or under bridges, viaducts,
  passages located on the national roads, as well
  as within railway or road tunnels is forbidden
• construction of pipelines should distances from
  various neighbouring installations
• in principle, pipelines should be routed
  primarily outside city limits
• Law 50/1991 on the authorisation for the
  performance of the construction works
• master pipelines should be routed outside the
  buildable areas in compliance with the
  territorial zoning plans
• Restrictions under the Land Fund Law re rezoning
• Various other authorisations
• If needed the construction works are performed
  near certain protected areas, such as historical
  monuments, water-related constructions,
  infrastructure of public interest, areas
  designated for national defence, etc.

17
Governmental Approvals and Licences (I)

• Construction of pipeline/operations
• Building permit
• Authorizations/permits for labour safety and fire
  security
• Environmental authorizations and permits
• Authorizations/licenses specific to the natural
  gas industry
• Authorization for the establishment of facilities
  (for both transportation and transit facilities)
• Authorization for running the facilities (for
  transportation facilities)
• Authorization for the modification of facilities
  (necessary in case the transportation facilities
  already authorized are modified)
• Transportation license
• Transit license

18
Governmental Approvals and Licences (II)

• Authorizations under Decision No. 1342/2004
  regarding the approval of the regulation for the
  authorization of design, execution and
  exploitation works in the natural gas sector
• activities may be carried out only by companies
  authorized by former ANRGN, currently ANRE
• only by personnel authorized by former ANRGN,
  currently ANRE (authorized fitters/plumbers)
• Authorizations for the use of explosives/precursor
  s
• depending on the specific activities involved by
  the construction of the pipelines or any related
  constructions
• Authorizations for equipment under pressure and
  for the metering equipment

19
Environmental General Principles and Obligations

• General principles for environmental protection
  apply, such as "the polluter pays", the
  coordination of the environmental related
  requirements with the strategies prepared in
  other areas, information and participation of the
  public within the environmental decision-making
  process, access of the public to justice with
  respect to environmental matters, and increase of
  international cooperation for the purpose of
  environment protection and preservation
• Obligations relating to dangerous chemical
  substances
• Obligations relating to the protection of soil,
  sub-soil, water and atmosphere
• The construction of large-diameter gas pipelines
  one of the activities that are most likely to
  have a negative environmental trans-boundary
  (cross-border) impact

20
Environmental Various Authorizations

• Environmental permit
• Establishes the environment-related obligations
  as parts of a conformation program, to be
  observed by the interested parties
• Necessary if a concession agreement is concluded
• Its issuance may require an environmental balance
• If the environmental impact is significant, the
  environmental balance should be accompanied by a
  risk assessment study
• Environmental approval
• Enables an entity to carry out a specific project
  that may have significant impact over the
  environment
• For projects that might have a significant impact
  on the environment, its issuance is subject to
  the performance of an environmental impact
  assessment
• Additional rules on projects having
  trans-boundary implications

21
Environmental Various Authorizations

• Environmental authorization
• Establishes the conditions and/or functioning
  parameters for certain existing activities or for
  the initiation of new activities having potential
  environmental impact
• Integrated environmental authorization
• Allows the total or partial exploitation of an
  installation, under certain conditions which
  ensure that the installation meets pollution
  standards

22
Security Interests Over Pipeline Systems

• Security interests over pipelines
• Depends on whether it is considered as public
  property of the Romanian State, in which case
  security rights cannot be created or private
  property, when it would be possible to create
  security rights
• Depends whether the pipelines are considered
  immovable or movable assets
• Security over compressor stations
• Follows the legal regime of the pipeline to which
  they are attached
• Security over gas
• Can be validly created in accordance with the
  provisions of the Security Interests Law
• Uncertainties regarding the enforcement of such
  security exists
• Security over whole business
• Uncertainty whether it will also cover the
  immovable assets of a business

23
Conclusion

• Although most aspects of domestic law that one
  would normally expect to apply to oil gas
  transport and transit pipelines (e.g. property
  rights, concession, environmental concerns,
  etc.), do apply in Romania, the overlap between
  the Petroleum Law and the Gas Law creates some
  uncertainties as to the overall legal regime
  applicable to these pipelines and legislative
  clarifications are necessary

24

• BRYAN W. JARDINE
• Wolf Theiss si Asociatii SCA
• 58-60 Gheorghe Polizu Street, 13th Floor
• 1st District, Bucharest
• Tel [phone]
• bryan.jardine_at_wolftheiss.com