Regulatory and competition (antitrust) law issues will need to be considered in relation to the construction and operation of a pipeline and merger filings to relevant competition (antitrust) authorities may be needed in relation to the establishment of the project company.
The regulatory and competition (antitrust) rules may require the operator of a pipeline to operate the pipeline in a way which is less than optimal with regards to its interests, and by extension, those of the lenders. For example, in the European Union, refusing third parties access to spare capacity in the pipeline could fall foul of the EU regulatory regime and/or infringe the competition law prohibition on the abuse of a dominant position within the market, since as a general rule EU law requires third parties to be granted access to a pipeline where capacity is available (subject to limited exceptions) on the basis of non-discriminatory and cost-reflective tariffs. Depending on the relevant jurisdiction through which the pipeline passes, the charge which the third party then pays the project company may be set either by the project company (and the project company may be obliged to publish such rates on, for example, an annual basis) or by that jurisdiction’s government.
It is, however, possible for major new infrastructure (including pipelines) to be granted an exemption from the regulatory third party access requirements for a certain period of time, since the European Commission and national energy regulators in the individual EU Member States recognise that investments in such infrastructure – whether cross-border or not – may be risky. An exemption may be granted if a number of conditions are satisfied. For example, it needs to be shown that the investment will enhance competition in the supply of gas in the EU; charges will need to be levied on any users of the infrastructure, and the level of risk attached to the investment should be such that the investment would not take place unless an exemption was granted.
The regulatory regime in the EU also requires the ownership and operation of a pipeline to be separated (“unbundled”) from any gas production, electricity generation and gas or electricity supply operations, which means that in many of the EU Member States the ownership of the pipeline and its operation must be fully separated from any production or supply operations.