Eni (Energy - Conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons - Judgment) [2019] EUECJ C-364/18 (07 November 2019)

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(Reference for a preliminary ruling — Directive 94/22/EC — Energy — Conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons — Royalties — Methods of calculation — QE and PFOR indices — Discriminatory nature)

REQUEST for a preliminary ruling under Article 267 TFEU from the Tribunale amministrativo regionale per la Lombardia (Regional Administrative Court for Lombardy, Italy), made by decision of 14 February 2018, received at the Court on 4 June 2018, in the proceedings

Autorità di Regolazione per l’Energia, Reti e Ambiente, formerly Autorità per l’energia elettrica e il gas e il sistema idrico,

composed of D. Šváby, acting as President of the Chamber, K. Jürimäe and N. Piçarra (Rapporteur), Judges,

having regard to the written procedure and further to the hearing on 4 April 2019,

– Eni SpA and Shell Italia E & P SpA, by F. Todarello and F. Novelli, avvocati,

– the Italian Government, by G. Palmieri, acting as Agent, and P.G. Marrone, avvocato dello Stato,

– the European Commission, by G. Gattinara, K. Talabér-Ritz and O. Beynet, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 13 June 2019,

1 These requests for a preliminary ruling concern the interpretation of Article 6(1) of 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 (OJ 1994 L 164, p. 3), read in conjunction with the sixth recital thereof.

2 The requests have been made in proceedings between, on the one hand, Eni SpA and the Ministero dello Sviluppo Economico (Ministry of Economic Development, Italy) and the Ministero dell’Economia e delle Finanze (Ministry of Economy and Finances, Italy) and, on the other, Shell Italia, SpA (‘Shell’), those two ministries and the Autorità di Regolazione per l’Energia, Reti e Ambiente, formerly Autorità per l’energia elettrica e il gas e il sistema idrico (Authority for Energy, Networks and Environment, Italy; ‘the Authority’), concerning the method of calculation of the amount of the royalties owed by those companies for the exploitation of underground minerals.

‘Whereas Member States have sovereignty and sovereign rights over hydrocarbon resources on their territories;

Whereas steps must be taken to ensure the non-discriminatory access to and pursuit of activities relating to the prospection, exploration and production of hydrocarbons under conditions which encourage greater competition in this sector and thereby to favour the best prospection, exploration and production of resources in Member States and to reinforce the integration of the internal energy market;

Whereas, for this purpose, it is necessary to set up common rules for ensuring that the procedures for granting authorisations for the prospection, exploration and production of hydrocarbons must be open to all entities possessing the necessary capabilities; whereas authorisations must be granted on the basis of objective, published criteria; whereas the conditions under which authorisations are granted must likewise be known in advance by all entities taking part in the procedure;

Whereas Member States must retain the options to limit the access to and the exercise of these activities for reasons justified by public interest and to subject to the payment of a financial contribution or a contribution in hydrocarbons, the detailed arrangements of the said contribution having to be fixed in such a way as not to interfere in the management of entities; whereas these options must be used in a non-discriminatory way; whereas, with the exception of the obligations related to the use of this option, steps must be taken to avoid imposing on entities, conditions and obligations which are not justified by the need to perform this activity properly; whereas the activities of entities must be monitored only to the extent necessary to ensure their compliance with these obligations and conditions.’

‘Whenever an area is made available for the exercise of the activities set out in paragraph 1, Member States shall ensure that there is no discrimination between entities as regards access to and exercise of these activities.’

‘1. Member States shall ensure that the conditions and requirements referred to in Article 5(2) and the detailed obligations for use of a specific authorisation are justified exclusively by the need to ensure the proper performance of the activities in the area for which an authorisation is requested, by the application of paragraph 2 or by the payment of a financial contribution or a contribution in hydrocarbons.

3. The rules for payment of contributions referred to in paragraph 1, including any requirement for State participation, shall be fixed by Member States in such a way as to ensure that the independence of management of entities is maintained.

6 Directive 94/22 was transposed into Italian law by Legislative Decree No 625 of 25 November 1996 (GURI No 293, 14 December 1996). That legislative decree, as amended by Law No 239 of 23 August 2004 (GURI No 315, 13 September 2004) (‘Legislative Decree No 625/96’), provides in Article 19(1) and (5a):

‘1. In the case of production obtained on or after 1 January 1997, the holder of each extraction licence shall contribute annually to the State the value of a share of the product of extraction equal to 7% of the quantity of liquid and gaseous hydrocarbons extracted onshore, and 7% of the quantity of gaseous hydrocarbons and 4% of the liquid hydrocarbons extracted at sea.

5a. In the case of production obtained on or after 1 January 2002, the unit values of the share of production shall be determined: … (b) as regards gas, in the case of all licences and all licence holders, on the basis of the arithmetic mean for the reference year of the QE index, the energy share of the cost of the raw material gas, expressed in EUR per MJ (megajoule), determined by [the Authority] pursuant to Decision No 55/99 of 22 April 1999 …’

7 Article 45(1) of Law No 99 of 23 July 2009 (GURI No 176, 31 July 2009) increased the share of the extraction product provided for in Article 19(1) of Legislative Decree No 625/96, due by holders of natural gas extraction licences to the State, to 10%.

8 Decree-Law No 7 of 31 January 2007, converted into Law No 40/2007 (GURI No 77, 2 April 2007), provides, in Article 11(1), for the transfer, by the holders of extraction licences, of the shares of product payable to the State on the regulated market in extraction capacity, in accordance with the detailed rules laid down by decree of the Minister for Economic Development.

9 Pursuant to Article 11 of that decree-law, Article 4 of the Ministerial Decree of the Ministero dello Sviluppo Economico of 6 August 2010 (GURI No 200, 27 August 2010) provides that licence holders must offer natural gas shares, corresponding to the royalties due to the State, on the regulated market in extraction capacity, known as the PSV market. According to the information provided to the Court, the PSV is a virtual platform administered by Snam Rete Gas, namely the main operator of the natural gas network in Italy, over which it is possible to trade in and transfer gas inserted into the national network of gas pipelines. The principal objective of the PSV is to provide users with a meeting point between supply and demand in order to be able to carry out bilateral OTC (over-the-counter) gas transactions on a daily basis.

10 As is apparent from Article 4(1), (3) and (4) of the Ministerial Decree of 6 August 2010 on the PSV market, the functioning of the mechanism for the transfer of natural gas shares, corresponding to the royalties due to the State, is based on auction. Offers at a price below the QE index cannot be accepted. When the gas share offered on that market remains unsold, it remains at the disposal of the licence holder, who is required to pay to the Italian State the equivalent in currency, valued at an amount corresponding to the QE index.

11 Article 13 of Decree-Law No 1 of 24 January 2012 laying down urgent provisions for competition, development of infrastructure and competitiveness, converted into Law No 27 of 24 March 2012 (GURI No 71, 24 March 2012), provides:

‘From the first quarter following the entry into force of this decree, [the Authority], in order to adjust the reference prices for natural gas, for the vulnerable customers referred to in Article 22 of Legislative Decree No 164 of 23 May 2000, as amended, to European values, in the context of determining the variable amounts covering the costs of supply of natural gas, shall gradually introduce, among the parameters on which the update is based, the reference, as regards a gradually increasing share, to gas prices noted on the market. Pending the establishment of the natural gas market referred to in Article 30(1) of Law No 99 of 23 July 2009, the reference markets to be taken into consideration are the European markets identified in accordance with Article 9(6) of Legislative Decree No 130 of 13 August 2010.’

12 In accordance with that provision, the Authority, by Decision 196/2013/R/gas, abandoned, with effect from 1 October 2013, the QE index as a parameter for calculating the cost of gas for the purposes of determining the conditions for its supply to vulnerable customers. Under that decision, the index to be adopted is the CMEM index, made up of the sum of various elements, including the PFOR index. That index covers the costs of supplying natural gas and is determined exclusively on the basis of the forward quarterly prices of that product on the OTC market at the gas exchange of the Netherlands.

The disputes in the main proceedings and the questions referred for a preliminary ruling

13 Eni and Shell hold licences for the extraction of natural gas on land and sea. In their capacity as licence holders, they are required to pay royalties for exploitation of underground minerals, the amount of which is fixed by reference to the value of a share of extracted gas determined by law.

14 By their action in the main proceedings, Eni and Shell dispute various measures adopted by the defendants in the main proceedings, including, in particular, the decision of 24 March 2016 of the Ministero dello Sviluppo Economico — Direzione generale per la sicurezza dell’approvigionamento e l’infrastrutture energetiche (Ministry of Economic Development — Directorate-General for the security of supplies and energy infrastructure), by which they maintained, in respect of 2015, the QE index — based on the medium- and long-term prices of oil and other fuels — as a frame of reference for the calculation of those royalties. According to those companies, determination of the value of those shares and, consequently, of the amount of those royalties should be based on another index, namely the PFOR index, linked to the price of natural gas on the short-term market.

15 In that context, the Tribunale amministrativo regionale per la Lombardia (Regional Administrative Court for Lombardy, Italy) is doubtful as to whether the Italian legislation at issue complies with Directive 94/22 and, in particular, in Article 6(1), read in the light of the sixth recital thereof, which imposes an obligation on the Member States to ‘guarantee non-discriminatory access’ to the extraction of hydrocarbons ‘in conditions which encourage greater competition in that sector’.

16 That court states, first, that the Italian legislature, as is apparent from Article 13(1) of Law No 27 of 24 March 2012, decided progressively to abandon the QE index as a parameter for determining the reference price for natural gas intended for vulnerable customers, in order to adapt that price to European values. It also states that, by Decision 196/2013/R/gas, the Authority definitively abandoned the QE index in favour of the PFOR index as a parameter for calculating the cost of natural gas on the protected market.

17 Second, the referring court notes that the price, calculated by reference to the value of the QE index, on the basis of which the licence holders remain bound to value the gas shares corresponding to the royalty which they have to pay is ‘significantly higher’ than that of the gas calculated using the PFOR index. As a result of the higher price of those shares, they would remain unsold following their placing on the PSV market.

18 In those circumstances, the methods for calculating the value of the product shares extracted, corresponding to the royalties due to the Italian State, are liable to place licence holders in a position which is unfavourable compared with that of other entities operating on the natural gas market which are not subject to the obligation to apply the QE index.

19 Moreover, the referring court notes that the Consiglio di Stato (Council of State, Italy), by its judgment No 290 of 19 January 2018, validated the method for calculating the value of the royalties due to the State, based on that index. By that judgment, the Consiglio di Stato (Council of State) held that, having regard to the alternatives provided for in Article 6(1) of Directive 94/22, the Italian legislature was able to opt for payment of a financial contribution by the licence holders. That provision does not require that that contribution be equivalent to the market value of the gas share extracted. The Consiglio di Stato (Council of State) states that the method based on the QE index enables the revenue from the extraction licences to be made sufficiently stable and predictable. Moreover, abandoning the method based on the QE index would result in a reduction in the revenue obtained by the Italian State pursuant to Article 19(5a) of Legislative Decree No 625/96.

20 In those circumstances, the Tribunale amministrativo regionale per la Lombardia (Regional Administrative Court for Lombardy) decided to stay the proceedings and to refer the following question, formulated in identical terms in the two cases, to the Court for a preliminary ruling:

‘Do Article 6(1) and the sixth recital of Directive 94/22 preclude national legislation, in particular Article 19(5a)(b) of [Legislative Decree No 625/96], which, by reason of the interpretation provided by the Consiglio di Stato [(Council of State)] in judgment No 290/2018, allows the imposition, in the context of the payment of royalties, of the QE index, based on the listed prices of oil and other fuels, rather than on the basis of the PFOR index, which is pegged to the price of gas on the short-term market?’

21 By its question, the referring court asks, in essence, whether Article 6(1) of Directive 94/22, read in the light of the sixth recital thereof, must be interpreted as precluding national legislation under which the amount of royalties payable by holders of licences for the extraction of natural gas is calculated on the basis of an index based on the listed prices of oil and other fuels in the long term and not an index reflecting the market price for natural gas in the short term.

22 It should be noted, in the first place, that it is clear from the sixth recital of Directive 94/22 that the Member States must ensure non-discriminatory access to the activities of prospecting, exploration and extraction of hydrocarbons in order to promote greater competition in that sector.

23 Similarly, Article 2(2) of that directive requires the Member States to ensure that there is no discrimination between interested economic entities regarding access to and pursuit of those activities (judgment of 27 June 2013, Commission v Poland, C‑569/10, EU:C:2013:425, paragraph 50).

24 In the second place, it must be borne in mind that it follows from Article 6(1) of Directive 94/22, read in the light of the eighth recital of that directive, that Member States may require payment of a royalty in cash or in kind, from economic entities involved, as consideration for the activity of extraction of hydrocarbons located in their territory, a resource over which, as stated in the fourth recital of that directive, those States ‘have sovereignty and sovereign rights’.

25 In the third place, as the Advocate General observes in point 43 of his Opinion, Directive 94/22 leaves the Member States broad discretion as regards the methods of calculation and application of such a royalty.

26 In the cases in the main proceedings, Eni and Shell, which carry out the activity of natural gas extraction as licence holders, submit that, because of the adoption of the QE index as the method of calculation of the royalty, the price of the extraction product share price which forms its basis is higher than the price of natural gas exchanged on the PSV market. Thus, on the one hand, those shares remain unsold when the licence holders try to sell them in the auctions governing the functioning of the PSV market. On the other, those licence holders would be forced, in essence, to buy the unsold natural gas corresponding to those shares and to pay, by way of royalty, to the Italian State, for the gas shares at a price higher than the market price.

27 The other entities operating on the PSV market, which are not required to pay such a royalty to the Italian State, can purchase and exchange natural gas at a lower price, determined by the operation of supply and demand on that market.

28 Such a situation, according to Eni and Shell, constitutes discrimination between, on the one hand, undertakings holding licences for the extraction of natural gas and, on the other, undertakings operating on the PSV market for the purposes of the sale, distribution and marketing of that product.

29 In that regard, it must be recalled that, according to settled case-law, the principle of equal treatment, as a general principle of EU law, requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified (judgment of 28 November 2018, Solvay Chimica Italia and Others, C‑262/17, C‑263/17 and C‑273/17, EU:C:2018:961, paragraph 66 and the case-law cited).

30 It is appropriate to note that licence holders, such as Eni and Shell in the main proceedings, are not, as regards the imposition of a royalty such as that at issue, in a situation comparable to that of other operators on the PSV market, whose activity consists solely in selling, distributing and marketing gas shares on that market.

31 It is apparent from the information available to the Court, which it is for the national court to verify, that the payment of that royalty is imposed only on holders of an extraction licence, as consideration for the right to have exclusive access to the activity of extracting hydrocarbons in a determined geographical area.

32 In those circumstances, national legislation, such as that at issue in the main proceedings, which provides that the amount of the royalties payable by holders of natural gas extraction licences is determined by reference to a different index from that used to determine the market value of extracted natural gas, does not constitute discrimination against those licence holders.

33 It follows that the fact that the QE index is not linked to the market price of natural gas is irrelevant for the purposes of assessing the discriminatory nature of that legislation. That finding is supported by the fact that Directive 94/22 does not lay down any provision requiring the Member States to adopt a specific method for determining the royalty in question or to provide that the value of that royalty is to be related to the price of natural gas exchanged on the PSV market.

34 In that regard, as the Advocate General observes in point 58 of his Opinion, it is not unreasonable for a Member State, as a means of lending greater stability and predictability to the public income to be derived from the extraction of hydrocarbons, to use a method for calculating the royalties due in respect of the exercise of that activity, linked to a less volatile indicator based on the medium- or long-term price for oil and other hydrocarbons, such as the QE index rather than an index reflecting the short-term market price of natural gas, such as the PFOR index.

35 It is also necessary to point out that Directive 94/22, in particular Article 6 thereof, lays down certain requirements which the Member States must take into account when they exercise their discretion to establish the detailed rules for calculating royalties such as those at issue in the main proceedings.

36 Thus, as the Advocate General points out in paragraphs 60 and 67 of his Opinion, it follows from Article 6(1) and (3) of Directive 94/22 that the Member States cannot impose royalties the level of which would, in practice, render non-viable the activities of prospection, exploitation and extraction of natural gas, or which does not make it possible to guarantee the independence of entities as regards management.

37 It is for the national court to assess, in the light of all the relevant circumstances, whether the limits established by Directive 94/22 have been disregarded in the context of the disputes pending before it.

38 In the light of all the foregoing considerations, the answer to the question referred is that Article 6(1) of Directive 94/22, read in the light of the sixth recital thereof, must be interpreted as not precluding national legislation under which the amount of royalties payable by holders of licences for the extraction of natural gas is calculated on the basis of an index based on the prices of oil and other fuels in the medium and long term and not an index that reflects the short-term market price of natural gas.

39 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Article 6(1) of 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, read in the light of the sixth recital thereof, must be interpreted as not precluding national legislation under which the amount of royalties payable by holders of licences for the extraction of natural gas is calculated on the basis of an index based on the prices of oil and other fuels in the medium and long term and not an index that reflects the short-term market price of natural gas.

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Eni (Energy - Conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons - Judgment) [2019] EUECJ C-364/18 (07 November 2019) URL: http://www.bailii.org/eu/cases/EUECJ/2019/C36418.html Cite as: [2019] EUECJ C-364/18, ECLI:EU:C:2019:938, EU:C:2019:938

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