Contributed by Mitrovic Attorney.
- Summary
In terms of oil & gas supplies, Slovenia is import-dependent and was heavily affected by the recent energy crisis. Following the reductions of natural gas supplies from Russia and the complete prohibition of fracking enacted in 2022, the government aims to reduce the import dependency on Russian gas and promotes the reduction of gas consumption. In this regard, Slovenia has entered into a long-term agreement with Algeria which is now covering approximately one-third of Slovenian natural gas consumption. There are also ongoing discussions with Croatia on the expansion of the LNG terminal on the island of Krk. During the energy crisis natural gas prices were regulated, for certain segments of customers, and the regulation of prices remained in force up until the end of April 2024.
Following the statutory prohibition of fracking in Slovenia in 2022, one of the foreign investors in the oil & gas fields in north-east Slovenia initiated an arbitration against Slovenia in front of the International Centre for Settlement of Investment Disputes. It claims damages in the amount of EUR 500 million. The case is still pending and it is the first such claim of a foreign investor against Slovenia in the field of oil & gas production in Slovenia.
In the oil sector, the prices of gasoline and diesel fuel are, following a brief period of full liberalization, again state-regulated as of June 2022. At the time being the regulation of prices applies to gas stations outside the highway and expressway grid. Fuel traders are challenging the price regulation and are claiming compensation from the state for damage caused by it. Their claims primarily concern the allegedly inadequate formula for calculating the regulated price under the government`s bylaws.
- Overview of The Country’s Oil & Gas Sector
2.1. Legal Framework – A Brief Outline of Your Jurisdiction’s Oil & Gas Sector
In its upstream segment Slovenian oil & gas sector is governed mainly by the Mining Act (Zakon o rudarstvu, MA-1) and its bylaws, such as the Rules on auctions for the selection of holders of mining rights for the exploration and exploitation of mineral resources (Pravilnik o drazbi za izbiro nosilca rudarske pravice za raziskovanje in izkoriscanje mineralnih surovin).
Midstream, the Slovenian gas sector is regulated by the Gas Supply Act (Zakon o oskrbi s plini, GSA) which came into force in January 2022. Regarding the midstream transportation of oil, there is no sector-specific legislation in place.
Downstream, the Slovenian gas market is governed by the GSA and the Decree on the operation of the natural gas market (Uredba o delovanju trga z zemeljskim plinom). During the recent energy crisis caused by the war in Ukraine, the prices of natural gas were regulated by the Price Control Act and its bylaws. For certain segments of customers, the regulation of prices remained in force up until the end of April 2024.
Following a brief period of full liberalization, the prices of gasoline and diesel fuel are again state-regulated as of June 2022. At the time being the regulation of prices applies to gas stations outside the highway and expressway grid. Fuel traders are challenging the price regulation and claiming compensation from the state for damage caused by it. Following the supply-chain dysfunctions and increases in prices in 2022, the new Law on mitigating the crisis in energy supplies (ZUOKPOE) has also broadened the state`s duty to create reserves of oil and oil derivatives.
Slovenian legislation governing the gas sector aims to ensure a competitive, secure, and accessible gas supply – taking into account the principles of sustainable development – and to establish comprehensive competitive, flexible, fair, and transparent gas markets. It also aims to reduce the import dependency on Russian gas and promotes the reduction of gas consumption. Similarly, the legislation governing the oil sector focuses on sustainable and effective use of this natural resource, with a particular emphasis on economic development and protection of the environment.
As stated above, recent legislative trends in the Slovenian oil & gas sector have mostly aimed to mitigate the consequences of the energy crisis that started in 2022.
2.2. Domestic Oil & Gas Production and Imports/Exports
Regarding natural gas and oil, Slovenia is almost entirely import-dependent. According to information in the media, the majority of the natural gas is still being imported from Russia through Austria. Slovenia is one of the few member states that failed to decrease natural gas consumption by at least 15% from 2022. Following the energy crisis in 2022, the government is striving to diversify its network of gas importers and has entered into a long-term agreement with Algeria which covers approximately one-third of Slovenian natural gas consumption. In the long term also the possibility of expanding and using the LNG terminal on the island Krk in Croatia is being explored and discussed together with Croatia.
Transport of gas, including transport for import and export, is mostly carried out via the network of pipelines, whereas only a modest percentage is transported in the form of LNG.
Oil and oil products satisfy approximately 36% of Slovenian energy requirements. This means a 2% increase compared to 2021. The share of domestic production is negligible. In 2023, the quantities of imported oil and oil products amounted to 4,373,034 tons, according to the data published by the Statistical Office of the Republic of Slovenia. In the absence of oil pipelines in Slovenia, oil is being transported – including import – via sea and ground transport.
2.3. Foreign Investment and Participation
In May 2020, Slovenia introduced a screening of foreign direct investments in specified critical sectors – energetics being one of them. The screening is, ironically, regulated by the act named Investment Facilitation Act. If foreign investors from outside of the EU wish to acquire at least a 10% share in a domestic company acting in such critical sectors, they must notify the Ministry of the Economy, Tourism and Sport. The ministry assesses whether the investment poses a risk to security and public order in Slovenia and can either approve it, determine additional requirements for carrying out the transaction, or block it.
2.4. Protection Of Investment
With regard to international treaties protecting investments, in 1992 Slovenia became the successor to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and in 1994, Slovenia ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Furthermore, investments in these sectors are enhanced and protected also with bilateral investment treaties. Slovenia is also a signatory to the Energy Charter Treaty.
As an aftermath of the statutory prohibition of fracking in Slovenia in 2022, one of the foreign investors in the oil & gas fields in north-east Slovenia initiated an arbitration against Slovenia in front of the International Centre for Settlement of Investment Disputes. It claims damages in the amount of EUR 500 million.
Indirectly, the legislative goals of sustainability are influenced also by the Paris Agreement of December 12, 2015, which Slovenia ratified on November 25, 2016.
- Exploration of Oil & Gas
3.1. Granting of Oil & Gas Exploration Rights
Considering the very scarce domestic production and the statutory ban on fracking introduced in 2022, the national provisions in this field are in practice of no particular importance.
Exploration of oil & gas reserves is governed by the MA-1 and its bylaws. For the exploration of oil & gas reserves in Slovenia, an exploration approval (dovoljenje za raziskovanje) is required. The approval is granted in a public tender procedure by the Ministry of Infrastructure, for the exploration area, mineral resources, and the period defined therein. Exploration through fracking is prohibited.
3.2. Foreign Exploration
In the public tender procedure (see Section 3.1.) the exploration approval may also be granted to foreign investors from (i) the European Union; (ii) the European Economic Area; (iii) Switzerland; (iv) the members of the Organization for Economic Co-operation and Development (OECD); (v) third countries under the condition of material reciprocity. The legal status of such approval is an administrative decision granted by the Ministry of Infrastructure. The approval, regardless of whether the holder is a domestic or a foreign investor, is transferable only with the approval of the Ministry of Infrastructure.
3.3. Stages of the Exploration Process
Prospecting of mineral resources is free and not subject to administrative approvals. For exploration, an exploration approval is required (see Section 3.1.), whereas a concession is required for the exploitation of mineral resources (see Section 4.1.).
Within the exploration process, no separate authorizations are required for its different stages.
3.4. Obligatory State Participation
All mineral resources, including oil & gas, are owned by the Republic of Slovenia. Its direct pecuniary benefits are the compensations and fees imposed on the holders of exploration and/or exploitation rights.
3.5. Risks To Be Considered
Since the enactment of the explicit prohibition of fracking in 2022, there is no more legal unpredictability in this regard. Considering the scarcity of natural resources and the newly introduced statutory prohibition of fracking there are not many business opportunities for exploration of oil & gas in Slovenia. For the time being it seems highly unlikely that the laws would change, and that fracking would be allowed in the near future.
- Production of Oil & Gas
4.1. Granting Of Oil & Gas Production Rights
Production of oil & gas is governed by the MA-1 and its bylaws. For the production of oil & gas in Slovenia, a concession for the exploitation of mineral resources (koncesija za izkoriscanje mineralnih surovin) is required. The concession is granted in a public tender procedure by the Ministry of Infrastructure, for the exploitation area, mineral resources, and the time period defined therein.
4.2. Foreign Production
Exploitation concession may also be granted to foreign investors from (i) the European Union; (ii) the European Economic Area; (iii) Switzerland; (iv) the members of the OECD; and (v) third countries under the condition of material reciprocity.
Granting of the concession is first foreseen in the concession act issued by the government. Based on the concession act, a public tender is carried out by the Ministry of Infrastructure. The selected bidder then signs a concession contract with the Ministry of Infrastructure. In legal terms, a concession is thus a contract with the ministry, based on an administrative decision on the selection of the best bidder. The concession, regardless of whether the holder is a domestic or a foreign investor, may be transferred only with the approval of the Ministry of Infrastructure and only if the statutory conditions for such transfer are fulfilled – e.g., the new holder should meet all the conditions for obtaining the concession, which have been set in the concession act and the public tender. The exploitation concession may be issued for a maximum period of 50 years.
4.3. Stages of the Production Process
See Section 3.3. Within the production process, there are no different concession procedures envisaged for different stages of the production. The stage and method of exploitation are described in the concession contract.
4.4. Obligatory State Participation
The concession holder is obliged to pay an annual concession fee and the reserve funds for the remediation. The concession fee is calculated in line with the decree determining the mining site reclamation payment (Uredba o rudarski koncesnini in sredstvih za sanacijo), depending on the size of the exploitation area and the average price of the mineral resource being exploited.
Regarding the state`s ownership interest, see Section 3.4.
According to the GSA, in case of a severe energy crisis, the export of natural gas can be restricted.
4.5. Risks To Be Considered
See Section 3.5.
- Termination of Production of Oil & Gas
5.1. Abandonment and Decommissioning
Abandonment and decommissioning of infrastructure used in oil & gas production are governed by the MA-1. If the concession holder intends to terminate the exploitation of oil or gas, it has to notify this in advance of the mining inspection and at the same time request permission from the Ministry of Infrastructure for the termination of mining works. The ministry then appoints a commission for the technical inspection which inspects the mining site and checks whether the conditions for safe termination of mining works are fulfilled. After the technical inspection, the holder of the mining right submits a proposal to the mining authority at the ministry for the approval of the mining project for the termination of mining operations. If the ministry approves it, the concession holder carries out the termination and decommissioning in line with the approval. Afterwards, the concession holder provides the ministry with evidence thereof and applies for a decision on the termination of the exploitation right. After receiving such an application, the ministry again appoints a commission that examines whether the required termination and decommissioning works have been done adequately. If the commission`s findings are positive, the Ministry of Infrastructure issues the decision on the termination of the exploitation right.
5.2. Environmental and HSE Consideration
The commission appointed by the Ministry of Infrastructure (see Section 5.1.) is composed of the representatives of ministries responsible for mining (including its health and safety aspects), spatial planning, environmental protection, and the local commune representatives. Considering its composition, the commission examines also the environmental, health, and safety issues of the abandonment, and decommissioning process.
- Safety of Oil & Gas Exploration and Production
6.1. International Treaties to Which the Jurisdiction Is a Party
Slovenia is a party to the Energy Charter Treaty and to the Protocol on Energy Efficiency and Related Environmental Aspects.
6.2. Offshore Safety Directive
With the amendment of the MA-1 in 2013, Slovenia partially implemented the OSD. In article 1 of the MA-1, it is explicitly stated that the prospecting, exploration, and exploitation of oil & gas at sea (offshore) is forbidden.
- Import, Export, and Sales of Oil & Gas
7.1. Import and Export of Oil & Gas
Cross-border sales and deliveries of natural gas have to be entered into the Virtual Trading Point established by the Slovene Transmission System Operator (TSO) – Plinovodi d.o.o. For such transactions, the parties have to acquire sufficient cross-border capacities at the transmission systems connecting points. The primary allocation of capacities is carried out by the TSO through electronic auctions on an online reservation platform – in line with the Slovenian rules on terms and conditions for capacity allocation mechanisms at interconnection points of the transmission system through auction, congestion management procedure, and capacity trading on the secondary market. In case of severe energy crisis, export of natural gas may be restricted.
In the absence of oil pipelines, there are no sector-specific rules governing the import and export of oil. Cross-border sales are agreed bilaterally between the parties and there is no particular state-governed system for carrying out these transactions. In the event of disruptions and instability of oil supplies, certain limitations may be imposed on the export of oil pursuant to the decree on emergency procedures in the event of disruptions and instability in the supply of oil and petroleum products.
7.2. Transportation
Pursuant to Article 19 of the GSA, the transmission of natural gas is performed as an obligatory public service by virtue of a concession. The TSO is the company Plinovodi d.o.o., owned by the holding company Plinhold d.o.o. in which the state is one of the shareholders. The operation of the system is governed by the network code for the natural gas transmission system (Network Code), whereas the network fees are calculated in line with the act on the methodology for determining network charges for the natural gas transmission system.
For the construction and operation of the natural gas transmission system (besides the building permit and other administrative permits pertaining to construction), a concession issued by the Government is required. Pursuant to Article 24 of the GSA, the transmission system pipelines have to be owned by the TSO.
7.3. Land Rights
For the construction of pipelines, a building permit is required. After the construction and before the start of operations it is obligatory to obtain the operating permit – confirming that the pipeline and the accompanying infrastructure have been built in accordance with the building permit. Depending on the scale and specifics of the pipeline, several other administrative approvals may be required, such as the environmental permit or allowances under the Water Act or under the decree on waste management.
Pursuant to the Spatial Management Act, the state or a municipality may, for adequate compensation, expropriate the landowners or limit their ownership rights in the interest of the public good, under the condition that such measures are necessary and proportionate. If the construction of pipelines is in the interest of the public good and if these conditions are met, the land necessary for the construction of pipelines may be expropriated.
7.4. Access and Integration
The GSA provides for regulated third-party access to the transmission system. Conditions for the access are further defined in the network code in which the TSO sets out clear and efficient procedures and tariffs for non-discriminatory access of producers, storage facilities, LNG plants, and industrial customers to the transmission system.
The transmission network consists of four major pipelines. Through connection points, these pipelines are connected to the distribution systems of 16 distribution system operators (DSO) which distribute gas to 86 local communities and more than 135,000 end customers. Cooperation between the TSO and the DSOs is governed by the GSA and the network code. The latter sets out the conditions for the connection of the distribution system to the transmission network (i.e., technical conditions, conditions pertaining to the stability of the system, and criteria for the economic viability of the connection) and duties of the TSO and DSOs regarding the balancing of the transmission network.
The Slovenian natural gas transmission system is connected to the transmission systems of Italy, Austria, and Croatia and is an integral part of the European gas transmission system. For the import and export of natural gas through connecting points between these transmission systems see Section 7.1.
7.5. Gas Transmission and Distribution
The natural gas transmission network is owned by the company Plinovodi d.o.o. The sole shareholder in this company is the holding company Plinhold d.o.o. with dispersed ownership – the state, state-owned companies, and several other companies being among the shareholders. The owner of the transmission network is also the TSO. The operation of the transmission system is governed by the GSA and the network code.
Pursuant to Article 58 of the GSA, the distribution of natural gas is performed as an optional local commercial public service. The DSO is appointed by the Slovenian Energy Agency. The DSO has to be either the owner or a tenant of the distribution pipelines. For the construction and operation of the pipelines, depending on their scale and specifics, several other administrative approvals may be required, such as the environmental permit or allowances under the Water Act or under the decree on waste management. Among the 16 DSOs are state-owned as well as entirely private-owned companies. To the DSOs with less than 100,000 end customers, the unbundling provisions of the GSA do not apply.
The GSA provides for regulated third-party access to the distribution system. The DSO has to grant access to the network on an objective and non-discriminatory basis. Fees for accessing the distribution network are regulated and calculated in line with the methodology set out in the GSA.
- Trading
8.1. Trading License
In line with the decree on the operation of the natural gas market (Uredba o delovanju trga z zemeljskim plinom), natural gas is traded on the balancing market and the open market. On the open market, the participants can freely negotiate the conditions of the contract. For the trading itself, no particular license is required, but as the transactions are done through the Virtual Trading Point (VTP), the traders have to register with the TSO before starting trading on the VTP. TSO charges the traders an annual cost of registering and a cost for every transaction with natural gas. The price list of services in the VTP is published on the TSO’s website. The market is monitored by the Slovenian Energy Agency.
8.2. Products
Natural gas is being traded on the VTP which was established by the TSO in 2015. At the VTP it is also permissible to carry out a transaction with quantities of natural gas without the participant having a gas transmission contract. However, an appropriate transmission contract must be in place for the quantities involved in the transaction at both the entry and exit points for the accounting period to which the transaction pertains. Transactions at the VTP may be intra-day, day-ahead, or in advance.
- Competition
9.1. Authorities
The authority responsible for the regulation of competition aspects in the oil & gas sector is the Slovenian Competition Protection Agency (CPA). Criteria for determining whether conduct is anti-competitive are set out in Articles 5 (anti-competitive agreements) and 8 (abuse of a dominant position) of the Prevention of Restriction of Competition Act (PRCA) which are Slovenian equivalents of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). Pursuant to Article 10 of the PRCA, the CPA also has authority to assess concentrations and to disapprove mergers or other changes in control over businesses if they significantly impede effective competition on the Slovenian market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.
9.2. Anti-Competitive Actions
The CPA may ex officio commence procedures to examine alleged restrictive agreements and abuses of a dominant position. When price rigidity or other circumstances indicate the possibility of a restriction or distortion of competition on the territory of the Republic of Slovenia, the agency may also conduct a study of an individual sector of the economy or certain types of agreements.
After carrying out the assessment procedure, the agency may issue a decision finding an infringement of Article 5 or Article 8 of the PRCA or Article 101 or Article 102 of the TFEU, and require the undertaking concerned to bring such infringement to an end. With the same decision, it may impose on the undertaking the obligation to take reasonable measures to bring an infringement and its consequences to an end, in particular through the disposal of a business or part of the undertaking’s business, division of an undertaking, or disposal of shares in undertakings, transfer of industrial property rights and other rights, the conclusion of license and other contracts which may be concluded in the course of operations between undertakings, or ensuring access to infrastructure. Within its authorities, the CPA may also impose fines in case of PRCA violations.
In merger clearance procedures the agency shall within 25 working days (Phase 1) examine the merger notification and decide that either (i) the concentration does not fall within the scope of the PRCA; or (ii) the concentration does not raise serious doubts as to its compatibility with competition rules and is thus allowed; or (iii) the concentration raises serious anti-competitive doubts and shall thus be further assessed in Phase 2. After carrying out the assessment in Phase 2, the PCA either issues a decision declaring the concentration compatible with competition rules or issues a decision declaring the concentration incompatible with competition rules and prohibits it. The criterion for the assessment is aligned with Council Regulation (EC) No. 139/2004. A decision in Phase 1 shall be issued within 25 working days, whereas a decision in Phase 2 shall be issued within 60 working days. In practice, the proceedings at the PCA may take longer than it is envisaged in the PRCA.
- Stability Clause and Dispute Resolution
10.1. Stability Clause
No statutory stability clauses for oil & gas companies have been identified.
10.2. Compulsory Dispute Resolution Procedure
The Energy Agency is competent to decide disputes between the users of the natural gas pipelines, natural gas suppliers, TSO, and DSOs regarding the (i) access to the network; (ii) network fees; (iii) breaches of the network code; (iv) balancing obligations; (v) self-sufficiency provisions. Other than that, no compulsory dispute resolution procedures applying to the oil & gas sectors have been identified.
10.3. International Treaty Protection
In 1992, Slovenia became the successor to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and in 1994 Slovenia ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Furthermore, the investments in these sectors are enhanced and protected also with bilateral investment treaties.
According to experience and the publicly available data, there are no special difficulties in litigating or seeking to enforce judgments or awards against government authorities or state organs. According to information from the media, a British investor has in 2021 initiated an arbitration proceeding against Slovenia over a dispute regarding the permits for the extraction of gas using hydraulic fracturing in Petisovci, claiming that Slovenia has breached its obligations under the UK – Slovenia bilateral treaty and the Energy Charter Treaty. Allegedly, the claimant claims compensation in the amount of EUR 500 million.
