Bill. Nordsøenheden (the Danish North Sea Partner) and Nordsøfonden (the Danish North Sea Fund)

Transcription

1 Bill no. L 170 Folketinget (the Danish Parliament) UNOFFICIAL TRANSLATION Introduced on 26 March 2014 by the Minister for Business and Growth (Henrik Sass Larsen) Bill on Nordsøenheden (the Danish North Sea Partner) and Nordsøfonden (the Danish North Sea Fund) Part 1 The establishment, objective, etc., of Nordsøenheden 1. -(1) Nordsøenheden shall be set up as an independent State company. (2) The Minister for Business and Growth may change the name of the Company. 2. -(1) Within the framework of section 8 of the Danish Subsoil Act (undergrundsloven), the objective of Nordsøenheden is to create as much value as possible to the Danish State from Nordsøfonden s participation in the exploration and production of oil and gas in Denmark. (2) Nordsøenheden is administrated by Nordsøfonden, see Part 3. (3) Nordsøenheden cannot be operator of licences, nor can it apply for licences. (4) The Minister for Business and Growth may assign further tasks to Nordsøenheden. 3.-(1) The independent State company, Nordsøenheden, shall take over the activities so far undertaken including related assets and liabilities from the State-owned entity Nordsøenheden and shall be vested with all rights and duties in this respect. The Danish State and Nordsøenheden shall be jointly and severally liable for the liabilities which existed at the date of takeover. (2) The capital of Nordsøenheden shall be kept separate from the capital of the Danish State, and the Company shall be able to transact with respect to plant and operating equipment, etc. within the framework determined from time to time. (3) The Danish State shall bear expenses incurred for the operation of Nordsøenheden within the spending allocation assigned by the Danish Finance Act (finansloven). 4.-(1) The Minister for Business and Growth shall exercise such powers over Nordsøenheden as rest with the general meeting of a public company pursuant to the Danish Companies Act (selskabsloven) and the Danish Financial Statements Act (årsregnskabsloven), in that the Minister for Business and Growth is thus equivalent to a sole shareholder. (2) The general meeting of Nordsøenheden shall be held as a Company Meeting (virksomhedsmøde). (3) It is the duty of the Minister for Business and Growth to lay down the statutes of Nordsøenheden. (4) Nordsøenheden and its statutes shall be reported to and registered with the Danish Business Authority (Erhvervsstyrelsen)

2 2 pursuant to the provisions of Part 2 of the Danish Companies Act (selskabsloven). Part 2 Governance 5.-(1) Nordsøenheden shall be managed by a board of directors and a management. (2) It is the duty of the Minister for Business and Growth to appoint the members of the Board, which shall consist of 5-7 members, including the chairman and the deputy chairman, each acting for a period of maximum 2 years. The members of the Board may be re-elected. The Minister may at any time, at a Company Meeting, release the members appointed. (3) The members of the Board shall collectively possess the competences required for fulfilling the purpose of Nordsøenheden, including the necessary professional, commercial, managerial and financial insight. (4) It is the duty of the Minister for Business and Growth to determine the fees of the members of the Board. 6. After prior notification to the Minister for Business and Growth, it is the duty of the Board to appoint a management group to handle the day-to-day management. Part 3 Nordsøfonden 7.-(1) Nordsøfonden is a public fund responsible for the State s participation in licences for the exploration and production of hydrocarbons. (2) The Minister for Business and Growth may assign further tasks to Nordsøfonden. (3) It is the duty of the Minister for Business and Growth to lay down the statutes of Nordsøfonden. 8. Nordsøfonden receives income from the sale of its share of the oil and gas produced and from tariffs. 9. The income of Nordsøfonden shall first of all be applied to cover the costs and administrative expenses associated with State participation, including interest and repayment of the loans of Nordsøfonden. Surplus liquidity shall be transferred to the Treasury as profit while taking into account the cash flow requirements for future costs and investments. 10. The Minister for Finance is authorised, through State re-lending, to cover such part of Nordsøfonden s capital requirements that cannot be financed by income from the fund. Part 4 Accounting and auditing 11.-(1) Separate annual reports of Nordsøenheden and Nordsøfonden shall be prepared and presented. (2) The financial year of Nordsøenheden and Nordsøfonden shall follow the calendar year. (3) Nordsøenheden and Nordsøfonden shall present annual reports prepared under the Danish Financial Statements Act (årsregnskabsloven). The annual reports shall be audited pursuant to the Danish Act on the Audit of Public Accounts etc. (rigsrevisorloven). (4) The audited annual reports shall be presented for adoption at the Company Meeting. Part 5 Personnel 12.-(1) On the basis of directions issued by the Minister for Finance, Nordsøenheden may enter into collective agreements and make decisions in general about the conditions of pay and other conditions of tenure for the personnel of Nordsøenheden. (2) Officers employed by Nordsøenheden shall be governed by the law on civil servants, and it is the duty of the Company to pay the contributions spec-

3 3 ified by the Minister for Finance to cover the State s pension costs. Part 6 Cooperation and access to information 13. Nordsøenheden is entitled to use State expertise with its field of oil and gas, including to obtain, free of charge, existing information about the Danish subsoil from the Danish Energy Agency (Energistyrelsen) and the Geological Survey of Denmark and Greenland (GEUS). Part 7 Supervision 14.-(1) It is the duty of the Minister for Business and Growth to supervise the activities of Nordsøenheden and Nordsøfonden. (2) On request Nordsøenheden shall make available to the Minister for Business and Growth any information on the State participation and care hereof. Part 8 Commencement, transitional provisions, etc. 15.-(1) This Act shall come into force on 1 June (2) For accounting purposes, Nordsøenheden s takeover of the current activities shall become effective on 1 January (3) Section 16 shall become effective for the fiscal year 2015 and subsequent fiscal years. Part 9 Amendments to other legislation 16. The Hydrocarbon Tax Act (kulbrinteskatteloven), see Consolidated Act no. 971 of 20 September 2011, as amended by section 7 of Act no. 591 of 18 June 2012, section 6 of Act no. 792 of 28 June 2013 and section 1 of Act no of 26 December 2013, shall be amended as follows: 1. In section 3(3), 1st sentence, section 3 of the Tax at Source Act (kildeskatteloven), section 1(5) of the Tax on Estate of Deceased Persons Act (dødsboskatteloven), and section 3 of the Corporation Tax Act (selskabsskatteloven) shall be amended to: section 3 of the Tax at Source Act and section 1(5) of the Tax on Estate of Deceased Persons Act. 2. In section 3(3), 2nd sentence, section 4 shall be amended to: this Act. 3. In section 3 the following shall be inserted as subsection (4): (4) Tax paid on income subject to subsection (3), 2nd sentence shall accrue to the State. 17. Act no. 587 of 24 June 2005 on a Public Fund Responsible for State Participation in Hydrocarbon Licences and a State-owned Entity to Administer the Fund shall be repealed. Part 10 Territorial scope 18. This Act shall not apply to the Faroe Islands and Greenland.

4 4 Explanatory notes to the Bill General notes Table of contents 1. Introduction 2. The existing framework of Nordsøenheden and Nordsøfonden 3. Strengthening of State participation 3.1. Conversion of Nordsøenheden into an independent State company 3.2. Governance 3.3. Financing of the activities of Nordsøenheden and Nordsøfonden 3.4. Portfolio adjustments 4. Accounting and auditing 5. Personnel 6. Supervision, etc. 7. Taxation 8. Financial and administrative impact on the public sector 9. Financial and administrative impact on the corporate sector, etc. 10. Administrative implications for the citizens 11. Environmental impact 12. Relationship to Community law 13. Consultation 14. Summary table 1. Introduction The State s share of the Danish oil and gas licences represents significant values, and State participation in the licences is an important element in securing for the Danish society the largest possible share of the financial proceeds from the subsoil resources. State participation must therefore be carried out in a way that ensures the best possible management of the resources and creation of the greatest possible value for Danish society. On this basis, the objective of the Bill is to adapt and strengthen the existing framework of Nordsøenheden and Nordsøfonden. This is achieved by converting the Stateowned entity, Nordsøenheden, into an independent State company. Thus, with a board of directors Nordsøenheden can draw on external resources, while at the same time signalling to the Company s cooperating partners that its attention is directed at commercial interests. Furthermore, a clear division of work is introduced between the Board of Directors, the company Management that will handle the day-to-day business decisions, and the Minister who will be politically responsible for the Company. An amount from Nordsøfonden s income fixed on the annual Finance Act will be made available to Nordsøenheden to cover administrative costs. This financing model will replace the existing operating grant received by Nordsøenheden from the Finance Act. Nordsøfonden will remain a public fund. Nordsøfonden has been given the possibility of making certain portfolio adjustments in order to achieve as much value as possible from the State participation.

5 5 2. The existing framework of Nordsøenheden and Nordsøfonden Nordsøfonden and Nordsøenheden were established in 2005, see Act no. 587 of 24 June 2005 on a Public Fund Responsible for State Participation in Hydrocarbon Licences and a State-owned Entity to Administer the Fund, with the purpose of managing the State s participation in hydrocarbon licences as a result of the decision at that time to partially privatise DONG A/S. Nordsøfonden has no employees, nor any management. The administration of the fund is handled by Nordsøenheden which today is a State entity. Nordsøfonden holds a 20 per cent share of all Danish hydrocarbon licences awarded since Nordsøfonden furthermore joined the Danish Underground Consortium (DUC) mid 2012 with a 20 per cent interest following the North Sea Agreement (Nordsøaftalen) of It follows from the current Act that Nordsøfonden is to exercise active ownership of the licences administered by Nordsøenheden. Nordsøenheden is thus to exercise, on behalf of the fund, the voting rights and other rights generally possessed by partners in licences. This requires that Nordsøenheden should have the resources and expertise deemed necessary to safely exercise the ownership in relation to State interests. However, since its establishment Nordsøfonden has gained a significantly larger and more complex portfolio. Furthermore, the extent to which Nordsøenheden must decide, independently, on substantial technical and commercial issues under the licences was not anticipated at the time of drafting the current Act. It was thus anticipated that Nordsøfonden would generally be able to follow the decisions under the licences of the 80 per cent private participants. Experience shows, however, that Nordsøenheden is regularly required to make independent decisions on substantial commercial issues, including entering into and renegotiation of oil and gas sales contracts, decisions on the exercise of pre-emption rights and participation in minority activities where only some of the licence partners participate ( sole risk activities), tariff agreements on the use of facilities of other companies as well as insurance agreements. The licence participation has furthermore shown that Nordsøfonden on quite a few occasions tips the scale in decisions relating to the licences. Through its participation in practically all licences, Nordsøfonden at the same time has a unique position and opportunity of utilising its knowledge across different licences and thereby increasing the value creation. Consequently, the framework of Nordsøenheden and Nordsøfonden needs to be adjusted in order to handle the State participation in the best possible way and thereby secure as much value as possible to the State. 3. Strengthening of State participation 3.1. The restructuring of Nordsøenheden into an independent State company Nordsøenheden manages a national task on the basis of commercial principles. Some of the functions of Nordsøenheden are thus similar to those performed by private oil and gas companies. Nordsøenheden does not perform regulatory functions. A new governance model for Nordsøenheden is proposed, in which Nordsøenheden is changed into an independent State company with a board of directors. In cooperation with the management, the Board of Directors will ensure the necessary level of quality in the decisionmaking. By Danish standards, Nordsøenheden manages a significant oil and gas production. The restructuring into an independent State company with a Board of Directors will provide support to Nordsøenheden s work, role and responsibility which increasingly correspond to the work, role and responsibility of the other commercial licence partners.

6 6 The restructuring will take place on the basis of an opening balance laid down in a ministerial document. The document is expected to be presented to the Finance Committee of the Danish Parliament (Folketingets Finansudvalg) after the Bill has been introduced, since a draft opening balance for the company cannot be prepared until the State-owned entity has made up the results for 2013 and the results have been audited by the Auditor General (Rigsrevisionen) Governance As a result of the restructuring of Nordsøenheden into an independent State company, the Minister for Business and Growth will be sole owner of the company. The Minister will be equivalent to a sole shareholder and will, accordingly, exercise the powers normally held by the general meeting of a limited company. The exercise of such powers will mainly take place at an Annual Company Meeting. At the Annual Company Meeting, the financial statements of the preceding year will be submitted for approval. In addition to the Annual Company Meeting, the Minister for Business and Growth or his/her deputy is intended to hold briefing sessions with Nordsøenheden as required. At such meetings, information will be provided about state of affairs and development as well as other matters of substance. The statutes will stipulate detailed directions for the meetings, including the convening of extraordinary Company Meetings. The Bill proposes that Nordsøenheden be directed by a Board of Directors of 5-7 members who will be responsible for the overall and strategic management of Nordsøenheden. The Minister for Business and Growth will appoint the members of the Board of Directors for a period of maximum 2 years with the possibility of reelection. It will be the role of the Board of Directors to support commercial, technical, organisational and financial decisions. The Board will thereby be given overall commercial responsibility for Nordsøenheden and its administration of Nordsøfonden. The framework for the board members activities will be stipulated by the Minister for Business and Growth in the statutes of Nordsøenheden. The board members should collectively represent a combination of professional, commercial, managerial and financial competences. At the appointment the Minister for Business and Growth must ensure that the board is able to handle their task independently of other interests in the oil and gas industry in Denmark. After prior notification to the Minister for Business and Growth, the Board of Directors is to appoint the chief executives of the Company. The Bill thus establishes a more distinct separation between the commercial responsibility and the Minister s political responsibility and overall supervision of compliance with the law, including the existence of an at any time well-functioning board of directors Financing of the activities of Nordsøenheden and Nordsøfonden Currently, Nordsøenheden receives an operating grant laid down in section of the Finance Act. Entity to administer the fund for State participation in hydrocarbon licences. The proceeds of Nordsøfonden are received pursuant to section of the Finance Act. Proceeds from Nordsøfonden, and are included in the State s revenue budget. The division in the Finance Act separates administrative expenses from the fund s cashflows related to the licence participation. The Bill proposes by converting Nordsøenheden into an independent State company that this separation be maintained, but that all State participation costs (licence costs and administrative expenses) be financed from the income of the fund and that a ceiling on administrative expenses be introduced.

7 7 Licence costs including costs directly related to license activities which Nordsøfonden only rarely is at liberty to refuse if they are adopted pursuant to the decision-making procedures of the individual license under the joint operating agreements. These costs make up the majority of Nordsøfonden s costs. This category also comprises costs which the Company cannot avoid, such as the fund s costs of oil and gas transportation, gas storage, insurance and purchase of substitute gas. Administrative expenses are expenses related to the administration of Nordsøfonden and are characterised by their settlement being, to a large extent, at Nordsøenheden s own discretion. The administrative expenses include personnel costs and office expenses, etc. Furthermore, expenses driven by activities under and relating to the licences are included. Examples of this are expenses for commercial, technical and legal assistance relating to, for example, own assessment of project proposals under the licences and relating to conclusion and renegotiation of sales contracts. This type of expenses also includes membership fees for professional organisations, auditing of financial statements and contributions for interdisciplinary knowledge coordination. The State will continue to provide the necessary guarantees for Nordsøfonden s share of decommissioning costs and other obligations in connection with the production of oil and gas. As previously, the necessary authority in this respect will be provided in the Finance Act Portfolio adjustments With the existing framework, Nordsøfonden cannot increase or extend its share of the licences, unless through a preemption right or Sole Risk activity procedure under a licence in which Nordsøfonden already participates. The pre-emption right will be maintained in Nordsøfonden s statutes, since the exercise of such rights is still deemed advantageous to the State. The exercise of a preemption right is subject to the approval of the Minister for Business and Growth. The exercise of a pre-emption right will entail that the State s share of the licence will exceed 20 per cent. In the new statutes, a more flexible decision-making process will be laid down with respect to Sole Risk activities which, in some cases, have to be decided at very short notice. In the future, Nordsøenheden will be able to decide on participation in such activities at its own discretion, provided that the costs involved in such participation do not exceed DKK 200 million. Participation in Sole Risk activities exceeding the maximum limit will, as in the past, require the consent of the Minister for Business and Growth. The procedure for approval will thus reflect the financial exposure and the time-limit allowed for deciding on each activity. In practice the maximum limit means that participation in developments which typically involve costs to Nordsøfonden of more than DKK 200 million will require the Minister s consent, whereas participation in more technical Sole Risk activities will normally be below the DKK 200 million limit. The statutes will now furthermore provide the opportunity of acquiring shares in licences which border on licences in which Nordsøfonden already participates. The Bill proposes that the acquisition of such shares be subject to the approval of the Minister for Business and Growth, as it will constitute participation in licences which are not placed in Nordsøfonden under normal award procedures. It is furthermore a requirement that the new licence be acquired at market price and that no unreasonable competitive advantages be given to Nordsøfonden in relation to any other companies which might be interested. As previously, Nordsøfonden is entitled to take over the State shares held by DONG, as was the case for licence 4/98 (Svane).

8 8 For any type of portfolio adjustment, the principle applies that Nordsøfonden s licence share may not exceed 40 per cent. An exception to this rule, however, will be circumstances where a licence partner is unable to perform and therefore breaches his obligations. Under such circumstances, Nordsøfonden s share of the licence in question will automatically be increased proportionally and may thus exceed 40 per cent. 4. Accounting and auditing The accounting and auditing principles for Nordsøfonden will remain unchanged. Equivalent accounting and auditing principles will be stipulated for Nordsøenheden. 5. Personnel The Act on the Legal Position of Employees in the event of Transfers of Companies (lov om lønmodtageres retsstilling ved virksomhedsoverdragelse), see Consolidated Act no. 710 of 20 August 2002, applies to the establishment of Nordsøenheden as an independent State company. This means inter alia that rights and obligations existing at the time of the transfer pursuant to collective agreement and provisions on wages and labour conditions laid down or approved by public authority shall be vested with the independent State company. After the conversion to an independent State company, the conditions of employment of the employees thus continue with the same rights and obligations as before. This Bill, thus, confers on Nordsøenheden the bargaining right currently held by the Agency for the Modernisation of Public Administration (Moderniseringsstyrelsen), except that the Ministry of Finance is to authorise the collective bargaining, see section 12 of the Bill and the explanatory notes to section Supervision, etc. This Bill converts the State-owned entity Nordsøenheden into an independent State company, i.e. an independent administrative entity which, by law, handles a specific part of the public administration and which has its own income and capital. Nordsøenheden is in the Bill designated as an independent State company, since Nordsøenheden is an independent administrative entity with commercial functions. As a result of its new status as independent, Nordsøenheden will no longer be included in the general administrative hierarchy in the State. Thus, the Minister for Business and Growth will not, as within the general state administration, have powers of direction in relation to Nordsøenheden except for the authority laid down in the Bill, and there will be no right of appeal to the Minister for Business and Growth. However, the Minister for Business and Growth is authorized to give directions at the Company Meetings. The Bill proposes that the Minister for Business and Growth as the sole owner of Nordsøenheden shall monitor the activities of Nordsøenheden and Nordsøfonden, including that Nordsøenheden is complying within the framework of this Act. However it is pointed out that the Minister will not have any further powers of direction in relation to Nordsøenheden than his/her powers exercised as owner at the Company Meeting. Thus, the Minister s supervision will correspond to that undertaken in relation to State-owned limited companies. On account of its status as an independent administrative entity, Nordsøenheden will remain subject to, inter alia, the Danish Public Information Act (Offentlighedsloven) and the Danish Public Administration Act (Forvaltningsloven). In order to ensure that the Minister has insight into the affairs and projects of Nordsøenheden, which is a condition for the Minister s compliance with his/her monitoring duty and for exercising active ownership, briefing sessions in addition to the Company Meetings are expected to be held. The briefing sessions will be held between the Minister for Business and Growth or his/her deputy and Nordsøenheden s executives, i.e. the chairman of the Board of Directors and the Man-

9 9 aging Director. The purpose of the meetings is to inform the Minister of matters of financial or political importance and decisions of wide strategic scope, etc. 7. Taxation Nordsøenheden and Nordsøfonden are not, in principle, liable to tax, in that they - as is the case for a number of state institutions and other entities - are covered by the general tax exemption provisions of the Corporation Tax Act. However, in certain cases where such institutions and entities have income subject to the Hydrocarbon Tax Act, this principle is derogated from. In this connection, the law distinguishes between income from production of oil and natural gas, and income which is not generated from direct production activities, but from activities associated with production (associated activities). If a State-owned institution or other entity generates income from production activities, the entity is subject to tax from such income, even if it is otherwise exempt from taxation. The tax is payable, partly, as corporate tax and additional corporate tax, partly as a special hydrocarbon tax. If the income is not generated from production activities, but is exclusively income from associated activities, the general tax exemption is not derogated from and, accordingly, the State-owned institution or other entity is not taxed on such income. The rule that institutions and entities otherwise exempt from taxation are subject to taxation on income from production activities was introduced in When introduced it was assessed that the rule would not in practice affect the State or the municipalities. By its participation in all hydrocarbon licences awarded since 2005 and by joining the Danish Underground Consortium (DUC) in 2012, Nordsøfonden, today, has income from both extraction activities and from associated activities. Whereas the income from production activities is already taxed pursuant to the rules mentioned, the income from associated activities is today exempt from tax. When Nordsøfonden was established in 2005, there were no significant associated activities in connection with hydrocarbon production, but since then associated activities have increased. In order to treat Nordsøfonden the same way as the commercial players who are Nordsøfonden s partners in the individual licences, the Bill proposes that the general tax exemption under the Corporation Tax Act is derogated from, not only - as at present - in respect to income from production activities, but also income from associated activities. This proposal ensures that Nordsøfonden and other entities covered by the exemption provisions of the Corporation Tax Act will in future be liable to taxation of the two types of income covered by the Hydrocarbon Tax Act. Nordsøfonden will thereby in fact be operating under the same conditions as those which currently apply to Nordsøfonden s license partners. As opposed to Nordsøfonden, Nordsøenheden has no income from production activities, or from associated activities. The proposed amendment of the tax rules will therefore not affect Nordsøenheden. 8. Financial and administrative impact on the public sector The Bill has no financial or administrative impact on the regions and the municipalities. Nordsøfonden will bear all costs related to the State participation. The costs, including costs which are an inevitable consequence of the licence participation, are expected over a substantial period of time to be more than covered from the income from sale of Nordsøfonden s oil and gas. The Bill will have financial consequences to the State, as the Bill entails that the State-owned entity s assets and liabilities are transferred from the State to the inde-

10 10 pendent State company. The transfer of assets and liabilities will be presented to the Finance Committee of the Danish Parliament for approval by a ministerial document which will be drafted as soon as an audited 2013 financial statement for Nordsøenheden is available. The Bill will furthermore entail that the existing operating grant on the Finance Act for 2014 covering Nordsøenheden s administrative costs will be cancelled. Instead, the possibility will be provided of covering Nordsøenheden s administrative expenses from Nordsøfonden s revenues before including Nordsøfonden s proceeds in the State s revenue budget. On the annual Finance Acts, an amount will be fixed to be transferred to Nordsøenheden to cover administrative expenses, etc. Nordsøenheden will furthermore be given the possibility of transporting unused funds for expenses into future financial years due to annual fluctuations in Nordsøenheden s expenses. The extension of tax liability to include entities and institutions covered by section 3 of the Corporation Tax Act, including Nordsøfonden, is assessed to have no financial impact on the public sector. The amendment will cause increased tax payment from Nordsøfonden on income from associated activities. The increased tax payment will mean that the State s proceeds from Nordsøfonden will be reduced correspondingly. In general, the overall public finances will not be affected. 9. Financial and administrative impact on the business sector, etc. Nordsøfonden and Nordsøenheden were established in 2005, see Act no. 587 of 24 June 2005, at the time when DONG was no longer to handle the State s participation in oil and gas licences in Denmark. The State s participation will continue to be handled by Nordsøfonden. Hence, the Bill is not expected to entail new or increased administrative and financial consequences to the business sector. 10. Administrative implications for citizens The Bill is not expected to entail administrative implications for the citizens. 11. Environmental impact Implementation of the Bill is not expected to have any impact on the environment, as the Bill concerns financing and strengthening of State participation in hydrocarbon licences. State participation is already today handled by Nordsøfonden and is an established element in the award of licences. Furthermore, it is pointed out that it is established practice, prior to the award of new licences for the exploration and production of hydrocarbons, to consult the State environmental authorities (Miljøstyrelsen) in this respect. 12. Relationship to EU law Pursuant to Article 6 of the Concession Directive (Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons) requirements for State participation in hydrocarbon licences may be laid down. The Concession Directive has been implemented in section 8 of the Subsoil Act. Since its establishment in 2005, Nordsøfonden has been State participant in all licences awarded in Denmark. Nordsøfonden has furthermore joined the Danish Underground Consortium (DUC) mid Nordsøfonden s costs in respect of participation in licences and its general conclusion of contracts with companies will be paid and carried out so as to comply with the State aid rules of Articles 107 and 108 in the Treaty on the Functioning of the European Union. 13. Consultation During the period of January 20 th 2014 to February 14 th 2014 a draft Bill was submit-

11 11 ted for consultation to the following authorities and organisations, etc.: The Danish Bar and Law Society (Advokatrådet Advokatsamfundet), the Economic Council of the Labour Movement (Arbejderbevægelsens Erhvervsråd), the Danish Working Environment Authority (Arbejdstilsynet), the Central Organisation of Industrial Employees in Denmark (CO- Industri), the Danish Fishermen s Association (Danmarks Fiskeriforening), the Central Bank of Denmark (Danmarks Nationalbank), the Danish Society for Nature Conservation (Danmarks Naturfredningsforening), Danish Shipowners Association (Danmarks Rederiforening), the Confederation of Danish Employers (Dansk Arbejdsgiverforening), the Danish Energy Association (Dansk Energi), the Confederation of Danish Industry (Dansk Industri), Energinet.dk, the Danish Energy Agency (Energistyrelsen), the Danish Business Authority (Erhvervsstyrelsen), GEUS (the Geological Survey of Denmark and Greenland), Greenpeace Denmark, the Danish Federation of Small and Medium Sized Enterprises (Håndværksrådet), Local Government Denmark (Kommunernes Landsforening), the Danish Competition and Consumer Authority (Konkurrence- og Forbrugerstyrelsen), the Danish Confederation of Trade Unions (Landsorganisationen i Danmark (LO)), the Agency for the Modernisation of Public Administration (Moderniseringsstyrelsen), Oil Gas Denmark (Olie Gas Danmark), the Danish National Auditors (Rigsrevisionen), and the Danish Maritime Authority (Søfartsstyrelsen). 14. Summary table Positive impact/less costs Negative impact/additional costs Financial impact on the State, municipalities and regions Administrative impact on the State, municipalities and regions Financial impact on the business sector Administrative impact on the business sector Administrative implications for citizens Environmental impact Relationship to EU aw Nordsøfonden s costs in respect of participation in licences and its general conclusion of contracts with companies will be paid and carried out so as to comply with the State aid rules of Articles 107 and 108 in the Treaty on the Functioning of the European Union.

12 12 Explanatory notes on the individual provisions of the Bill Section 1 The objective of the Act is to convert the State-owned entity Nordsøenheden into an independent State company. The Minister for Business and Growth is assumed, pursuant to the provision, to set up Nordsøenheden as an independent State company. The Company will not be part of the general administrative hierarchy in the State but is nevertheless subject to supervision by the Minister for Business and Growth. Hence, there will be no right of appeal to the Minister for Business and Growth. It follows from the establishment as an independent State company that Nordsøenheden will become a separate legal entity and that it can operate as such within the constraints of the law and the statutes. It follows from the structure that Nordsøenheden will exercise its activities without liability for the State. However, the State will be jointly and severally liable with the Company in respect of the obligations existing at the time of the transfer, see section 3(1). By the separation into a public fund, Nordsøfonden, and an independent State company, the separation between costs related to the licence shares and administrative costs is maintained. Thus, the separation will also in future provide a high degree of transparency. Pursuant to the provisions of subsection (2), the Minister for Business and Growth may change the name of Nordsøenheden. If relevant, such change will take place at a Company Meeting. Section 2 Within the framework of section 8 of the Subsoil Act, the objective of Nordsøenheden is to create as much value as possible to the State from Nordsøfonden s participation in the exploration and production of oil and gas in Denmark. The role of Nordsøenheden thus continues to be to protect the interests of the State in licence group decisions on matters of importance to future revenues and costs. Basically, the most important decisions will pertain to the proposals, etc., made by the licence operator regarding exploration, development and production activities. Nordsøenheden, furthermore, will have to make a number of important decisions on its own, including various commercial decisions about matters such as sale of oil and gas, insurance, tie-in to existing infrastructure as well as tariffs. It follows from section 8 of the Subsoil Act that it may be stipulated as a term in a licence that the State or a State-owned company must become involved in the activities covered by this licence. The State participant will have the same rights and obligations as the other partners in the licence except for a few commercial decisions, such as selection of the Operator s suppliers. It is furthermore a general requirement for the State participant s exercise of its voting right that the State participant only protects the interests provided for under the Subsoil Act. The voting right is furthermore to be exercised in a way not preventing the activities of the licensee to be performed according to commercial principles. Pursuant to subsection (2), the role of Nordsøenheden will continue to be to administer Nordsøfonden, which handles the State s ownership of the shares in hydrocarbon licences acquired through State participation. As administrator, Nordsøenheden will not be liable for the obligations of Nordsøfonden. Nordsøfonden will be bound pursuant to the general law of agency when Nordsøenheden acts on behalf of Nordsøfonden; furthermore, Nordsøfonden will be bound by Nordsøenheden s other transactions deemed to fall within work performed by Nordsøenheden on behalf of Nordsøfonden. Nordsøfonden will not be bound by transactions performed by

13 13 Nordsøenheden in its own name, such as hiring of staff and purchases for Nordsøenheden. It furthermore follows from subsection (3) that Nordsøenheden will remain unentitled to handle operatorships of any licence on behalf of Nordsøfonden, nor can it apply for licences. The reason for this is that Nordsøenheden is not to act as a competitor to the oil companies. Subsection (4) proposes that Nordsøenheden, as previously, may perform functions assigned to it by the Minister for Business and Growth, for example performance of other tasks in relation to exploration and production activities. Section 3 Nordsøenheden is converted into an independent State company, in that the company is established, for accounting purposes, with effect as from 1 January 2014, see section 15(2). The assets and liabilities of the State-owned entity Nordsøenheden will in that connection be contributed to the Company. The independent State company will take over all the assets and liabilities of the State-owned entity and will succeed to all rights and obligations in this connection. In line with the principle laid down in section 40(6) of the Companies Act, the conversion of the State-owned entity into an independent State company will take place retroactively as from 1 January 2014, as the takeover is that of an existing company. The size of Nordsøenheden s equity will be determined in its opening balance while taking into account that Nordsøenheden should initially have adequate capital through, inter alia, the transfer of accumulated profits from the State-owned entity. All real and personal property, etc., and all liabilities and obligations, including staff obligations, will be taken over by Nordsøenheden, and Nordsøenheden will succeed to all contracts and other legal undertakings on the same terms as those applicable to the State-owned entity. After the conversion, the State will not become liable for any obligations of the independent State company arising after the transfer, regardless of whether they ensue from previous legal relations. After the conversion, the State will become liable for the Stateowned entity s existing obligations which are taken over by the independent State company. However, the State will not become liable for obligations where creditors pursuant to the general law of property and obligations must be deemed to have accepted in full the independent State company as new contractual partner (debtor). According to subsection (2), Nordsøenheden s capital will be kept separate from the capital of the State, as Nordsøenheden shall be able to act s a separate legal entity. At the same time, Nordsøenheden will be given control of its fixed and current assets within the framework laid down in the statutes. On the annual Finance Acts, an amount will be fixed to cover Nordsøenheden s costs, etc., see subsection (3). Nordsøenheden may apply to the Finance Committee of the Danish Parliament for additional funding. Section 4 As a result of the organisation of Nordsøenheden as an independent State company, the Minister for Business and Growth will become sole owner of Nordsøenheden. The Minister will be equivalent to a sole shareholder and will exercise the powers normally held by the general meeting of a limited company. The powers of the general meeting of a limited company will mainly be exercised at the Company Meeting, but the Minister or his/her deputy is furthermore to hold briefing sessions with the Company. The Minister for Business and Growth may furthermore convene ad hoc meetings whenever the Minister finds it appropriate. The statutes will specify the rules of briefing sessions and ad hoc meetings.

14 14 The powers of the Minister for Business and Growth include the overall political direction of Nordsøfonden s work, decisions concerning certain adjustments of Nordsøfonden s portfolio, including the exercise of pre-emption rights, participation in Sole Risk activities and purchase of shares in neighbouring licences as well as approval of annual reports, fixing of the fees of the members of the Board of Directors as well as appointment of members of the Board of Directors. Subsection (2) proposes that the general meeting of Nordsøenheden be held as a Company Meeting. The Company Meeting thus corresponds to the general meeting of a limited company. The details regarding the holding of the Company Meetings will be stated in the statutes. Subsection (3) proposes that the Minister for Business and Growth lay down the statutes of Nordsøenheden. The statutes must contain detailed rules for the discharge of the business activities. The statutes will include provisions on the transactions to be presented to the Minister for Business and Growth for approval, and it will be stipulated that the chairman of the Board of Directors is required to inform the Minister for Business and Growth about matters of significance to the Company. The Minister for Business and Growth may change the statutes as required. Subsection (4) proposes that Nordsøenheden be registered with the Danish Business Authority. The registration is to include the name and address of the company, the first financial reporting period of the company as well as the complete name, position and address of the members of the board of directors, executives and accountants. The statutes must furthermore be registered with the Danish Business Authority and will be made available to the public. Section 5 Subsection (1) proposes that Nordsøenheden be managed by a board of directors and a management team. The Board of Directors is to ensure that Nordsøenheden is run responsibly and in accordance with its objective. The Board of Directors is thus responsible for Nordsøenheden s commercial management and makes decisions on all essential issues, including the overall organisation of Nordsøenheden s work within the guidelines laid down by the Minister for Business and Growth. The Board of Directors will be responsible to the Minister for Business and Growth for Nordsøenheden s organisation and activities and may incur liability pursuant to the general rules of Danish law. The Board of Directors will appoint the management team which is to handle the day-to-day management on the basis of the guidelines issued by the Board of Directors. The activities of the Board of Directors and the management team will be governed by the statutes. The Board of Directors furthermore lays down the specific framework for its activities in the rules of procedure and, with respect to the management team, in the instructions for the management team. The distribution of roles and responsibilities between the Minister for Business and Growth (owner), the Board of Directors and the Management Team follows the distribution of roles and responsibilities of a Stateowned limited company as set out in the Danish Companies Act. It is proposed that the Minister for Business and Growth appoint 5-7 members of the board of directors, amongst them the chairman and the deputy chairman, see subsection (2). The members of the board of directors are appointed for a period of maximum 2 years with the possibility of re-election. The framework for the activities of the board members is stipulated by the Minister for Business and Growth in the statutes. As sole owner, the Minister for Business and Growth may at any time release a board member, but it must be done at a Company Meeting or, if relevant, at an

15 15 extraordinary Company Meeting. Likewise, the Minister may decide at an Annual Company Meeting that the entire Board of Directors be released, initiate an investigation or make specific decisions on matters relating to the Company. Subsection (3) proposes that the Board of Directors, collectively, should have sufficient competences to protect the interests of Nordsøenheden. The competences required from the board of directors thus include professional, commercial, managerial and economic qualifications. The members of the Board of Directors are intended, collectively, to have business experience from the oil and gas industry and qualifications within both business economics and administration, which will enable them to run the company in an appropriate manner. As previously, Nordsøenheden is to have the opportunity of obtaining external expertise if the expertise or capacity is not available within the State. Subsection (4) proposes that the board member fees be fixed by the Minister for Business and Growth. The size of the board member fee will be fixed in accordance with existing practice for board member fees in comparable State-owned companies. Section 6 The day-to-day management of Nordsøenheden will be handled by a management team which is employed and dismissed, if relevant, by the Board of Directors after prior notification to the Minister for Business and Growth. The Board of Directors will lay down the guidelines for the work of the management team. The management board is to carry out the tasks and follow the guidelines and directions for the running of Nordsøenheden as are laid down by the Board of Directors. The activities of the management team will be governed by the statutes of Nordsøenheden and by the instructions for the management team. The Board of Directors is furthermore to ensure that the management team duly performs its functions, i.e. that the management team runs the company in a responsible manner and in accordance with its objective and the guidelines of the Board of Directors. Section 7 Nordsøfonden will remain a public fund. The objective of the fund is to handle the ownership of the State s shares in hydrocarbon licences. In order to maintain a certain degree of flexibility, subsection (2) proposes that Nordsøfonden may perform functions assigned to it by the Minister for Business and Growth. It follows from the authorisation in subsection (3) that the Minister for Business and Growth is to lay down the statutes for the activities of Nordsøfonden. The new statutes for Nordsøfonden will include provisions on its right to adjust the portfolio, see clause 3.4 above, and on its expiry. Section 8 Nordsøfonden will receive revenue from the sale of its share of the oil and gas produced. Nordsøfonden will furthermore be able to receive revenue from tariffs if third parties use infrastructure of which Nordsøfonden is co-owner. Section 9 provides for the use of the revenue with a view to ensuring that Nordsøfonden to the greatest possible extent becomes financially selfsufficient. Section 9 Section 9 describes the liquidity management of Nordsøfonden. The placing of the licence shares in a public fund entails that any surplus liquidity is transferred to the Treasury as proceeds. The surplus liquidity from the fund s activities is to be used, in order of priority, first of all for the fund s costs of State participation, including administrative costs. Interest and repayment on Nordsøfonden s loans are to be paid before any surplus liquidity is transferred to the Treasury as proceeds.

16 16 Nordsøfonden is thus subject to rigorous liquidity management. Hence, there will be no accumulation over time of liquidity in the fund. Section 10 Due to the need for flexible financing of Nordsøfonden s costs, it will remain expedient to finance the costs by way of State re-lending. The practical handling of the raising of loans will be carried out by the Central Bank of Denmark in its capacity of the agent of the State in national debt matters. However, the costs of State participation in the licences are expected to be more than covered for many years by the revenue from sale of Nordsøfonden s oil and gas. The terms of financing through re-lending are stipulated by the Minister for Finance. Nordsøenheden is responsible for Nordsøfonden s borrowing. The re-loans available to Nordsøfonden are set out in the Central Bank s surveys. Nordsøenheden is to ensure risk management of the loan portfolio. Nordsøenheden is furthermore to ensure consistency between the borrowing and the borrowing requirements determined. Section 11 Subsection (1) proposes that financial statements be submitted for Nordsøenheden and Nordsøfonden. The requirement of individual financial reporting entails that the internal accounts of Nordsøenheden and Nordsøfonden must be kept separate. Subsection (2) proposes that the financial year of Nordsøenheden and Nordsøfonden be the calendar year, i.e. 1 January - 31 December. Subsection (3) proposes that the financial statements of Nordsøenheden and Nordsøfonden be audited by the Auditor General. An agreement is to be made of the framework of the internal auditing of the accounts of Nordsøenheden and Nordsøfonden and the cooperation between the internal auditors and the Auditor General. The internal auditing, which is to be performed by a state-authorised public accountant, is to be carried out jointly for the financial statements of Nordsøenheden and Nordsøfonden. The provision furthermore specifies that the auditing is to be carried out in accordance with sound public auditing standards, see section 3 of the Auditor General s Act which covers financial auditing, performance auditing and legal-critical auditing. This means that the auditors are to verify whether the financial statement is correct and whether the transactions covered by the financial statement are in compliance with legislation and other regulations, with agreements made and customary practice. Furthermore, an assessment is made as to whether the administration of funds and the running of the companies covered by the financial statement have been carried out with due regard to economy. The Minister for Business and Growth will be presented with the audited annual reports for approval at a Company Meeting, see subsection (4). Section 12 According to this provision, Nordsøenheden, on the basis of directions issued by the Minister for Finance, may enter into collective agreements or make decisions in general about the conditions of pay and other labour issues within Nordsøenheden. The provision allows the Minister for Finance, after consultation with the management of Nordsøenheden, to lay down the overall principles of pay and other labour conditions, including the framework for Nordsøenheden s negotiations regarding, for example, a company-wide collective agreement. After the conversion of the State-owned entity into an independent State company, the staff will remain in their employment and retain the rights and obligations which applied in their employment with the State-owned entity. After the conversion, however, the Agency for the Modernisation of Public Administration (Moderniseringsstyrelsen) will continue to moni-