Monday, May 18, 2015

Desalination Facilities of a Special Nature: Expansion of the Electricity Sector Law's Regulator Regime

The Law for the Regulation and Privatisation of the Electricity and Related Water Sector promulgated by Sultani Decree 78 of 2004 as amended (the “Sector Law”) originally provided the statutory and regulatory framework for the electricity and “related water” sector in Oman. “Related water” referred only to water desalination projects which were combined with, or co-located on the same site as, power generation. This meant that “unrelated” water desalination projects (i.e. desalination projects which were not combined with, or located on the same site as, electricity generation) were not subject to the Sector Law.

However, on 1 October 2013, an amendment to the Sector Law promulgated by Sultani Decree 47 of 2013 (the “Amendment”) was published which provided that unrelated water desalination projects which were designated “desalination facilities of a special nature” would be subject to the Sector Law. In accordance with the Amendment, the Public Authority for Electricity and Water (the “PAEW”) was granted the statutory power to designate unrelated water projects as “special nature” desalination projects, in accordance with criteria to be issued by a decision of the Chairman of PAEW.

On 8 December 2014, PAEW Decision 245/2014 (the “Decision”) was published, promulgating the Criteria for Determining Special Nature Desalination Facilities (the “Criteria”). In accordance with the Criteria, an unrelated desalination project/facility will be deemed a “desalination facility of a special nature” if,

  1. it has a minimum capacity of ten thousand (10,000) cubic meters/day as published in OPWP’s annual Seven Year Statement, or
  2. it has a capacity of less than ten thousand (10,000) cubic meters/day but has been approved by the Authority for Electricity and Related Water (the “AER”) as a “special nature desalination facility”.

Under the Decision, PAEW may in its discretion determine whether new desalinated water capacity will be procured by means of a special nature desalination facility on the basis of the Criteria, and if so, will notify Oman Power and Water Procurement Company SAOC (“OPWP”) of this determination. Where PAEW makes such a decision, the project in question will be procured by OPWP in accordance with the Sector Law, the operation of the project will become a regulated activity under the Sector Law, and in accordance with the Sector Law’s regulatory regime, the special nature desalination water project company will be required to obtain a licence (or, exceptionally, an exemption) from AER in order to lawfully operate the project.

Accordingly the Amendment and the Decision together have expanded the ambit of the Sector Law and its regulatory regime to provide for the possibility, as determined by PAEW, of including unrelated desalinated water projects. In this connection, the Amendment and the Decision also allow for the possibility for existing unrelated water projects (including Oman’s existing IWPs) to now be designated by PAEW as “special nature desalination projects” by a decision of PAEW’s Chairman. Where this occurs, existing projects are required to rectify their regulatory status within a year of PAEW’s notification, by obtaining a Sector Law licence in order to lawfully conduct their desalination activities going forward.