A new law is issued to liberalize the downstream and midstream segments of the gas chain of business in Egypt; it is the Gas Market Law No. 196 of 2017 (“Law”) which was officially issued and published on 1/8/2017. The Law excludes from its application the upstream segment which will continue to be governed by concession agreements without prejudice to the provisions of Law No. 20 of 1976 regarding the Egyptian General Petroleum Corporation.
The Law aims at liberalizing the gas market by opening it up to the private sector to participate in the shipping, transmission, storage, distribution, sale, importation and marketing of gas. The activities which were monopolized by the government before. Qualified consumers will be allowed to choose their gas suppliers. Licensed third parties will be allowed on a non-discriminatory basis to access the gas transmission and distribution grids and the storage and liquefied gas facilities (which are currently owned and run by the government).
The Law is expected to enhance competitiveness, guarantee non-discrimination between the gas market stakeholders, as well as prevent monopolistic practices.
Establishing a Regulatory Authority
The Law provides for the establishment of a public body to be the regulator; it is the Gas Market Regulatory Authority (“Authority”). The Authority shall be responsible for regulating, licensing and overseeing all gas-related activities. The Authority is particularly competent, inter alia, to:
- Regulate the relationship between all stakeholders in the gas market.
- Issue licenses for all gas activities.
- Set the mechanism of calculating the tariff for transmission, distribution and usage of storage grids and facilities.
- Putting the rules of using transmission, distribution and storage grids and facilities on a non-discriminatory basis.
- Drafting model contracts related to all gas activities.
- Handling complaints submitted by stakeholders and resolve it according to the rules to be decided by the executive regulations.
The Law prohibits the exercise of any gas-related activity without obtaining a license from the Authority. A license will be issued, modified, renewed, suspended or cancelled by virtue of a decision of the board of directors of the Authority.
The Authority is authorized to issue a license for each separate activity for a specified fee with a maximum amount of 0.1 of US dollars per each Million British Thermal Unit payable in Egyptian pounds, in addition to the expenses of publishing the decisions issued by the Authority regarding the licenses.
The executive regulations shall decide the forms, supporting documents and the insurance to be submitted by an applicant to obtain a license and shall decide the timeframe for issuing the license as well its duration.
A license may not be assigned without the prior consent of the Authority. Also, the ownership structure of a licensee may not be changed without the prior written consent of the Authority.
Gas Market Activities
The Law divided gas-related activities into, (1) Services Activities, and (2) Market Activities. Service Activities includes the operation of gas grids and facilities through transmission, storage, distribution of gas as well as LNG/Regasification activities. While Market Activities covers gas shipping and supply.
For those entities which carry out multiple activities, a separate special purpose vehicle with independent organizational structure must be established in the following case:
- an entity would like carry out two activities, one belongs to the Service Activity and the other belongs to the Market Activity; and the gas subject to the Market Activity is owned by the licensee.
One entity can however carry out two activities in the following 3 cases:
- One activity belongs to the Service Activities and the other to the Market Activities, and the gas subject to the Market Activity is not owned by the licensee.
- If the two activities belong to the Market Activities.
- If one of the two activities is not regulated by the Law.
To ensure independence and non-conflict, persons who are responsible for managing and operating any of the Services Activities may not participate in a direct or indirect way in the Market Activities.
Entities currently carrying out multiple activities are given 5 years to take the procedures required to comply with the requirement of the Law. This period can be extended to up to another 3 years by virtue of a decision of the board of directors of the Authority.
Gas Market Participants
Participants in the gas market are those who are licensed to carry out one of the gas activities as following:
1.Transmission system operator
A license can be granted to one or more transmission system operator (TSO) to operate the national gas high pressure pipelines grid system. A TSO is required to allow shippers to access its grid on a non-discriminatory basis for a tariff to be agreed by the Authority. A TSO is allowed to stop the transmission of the agreed gas quantities in case the shipper fails to pay the agreed transmission tariff, consumes higher quantities of gas or ships gas with specifications different than those agreed upon.
2.Distribution system operators
The Law allows several distribution system operators to be licensed. The distribution system includes the medium and low pressure gas pipelines from the gas entering point to the delivery point to the consumers. Licensees are required to allow third parties to accesses the distribution system on a non-discriminatory basis against a fee that is approved by the Authority.
3.Regasification facilities operators
A license can be given to a company or more to operate regasification facilities. Licensee is required to allow third parties to access unused facilities on a non-discriminatory basis for a tariff to be approved by the Authority.
4.Storage facilities operators
Licensed operators of storage facilities are required to allow third parties to access unused facilities on a non-discriminatory basis for a tariff to be approved by the Authority. Storage facilities means the underground and over the ground containers and warehouses of gas in its gaseous, compressed or liquefied form. It does not however include storage facilities related to production activities or those used by TSO.
Gas shippers are entitled to use gas grids and facilities by paying their operators a tariff to be
approved by the Authority. They are also allowed to buy or import gas and sell it to local suppliers or other shippers.
Gas suppliers are those who are licensed to buy gas from shippers and sell it to end customers or other suppliers. Gas suppliers are entitled to suspend supplying the gas to qualified customers in case the latter fails to pay the agreed tariff or consumed amounts above the agreed quantities. The executive regulations shall provide for the procedures for a supplier to suspend supplying the gas to qualified customers.
7.Qualified and Unqualified consumers
Qualified customers are those entitled to choose their own gas suppliers through direct agreements specifying gas prices and quantities. Unqualified customers are those who cannot choose their suppliers and are supplied by gas according to the rules set by the government against a pre-specified tariff approved by the Cabinet.