Regulated industries
FDI screening and regulated tariff systems
FDI screening
Currently, a number of Dutch screening mechanisms are applicable in the electricity, gas and telecommunications sectors. In addition, a legislative proposal for a general direct investment screening mechanism ('Wet veiligheidstoets investeringen, fusies en overnames' or "DIS Act") is going through the legislative process.
Regulated tariff systems
Companies in regulated sectors (e.g. energy, transport, telecoms) are subject to regulations which limit prices or increases thereof. These systems have generally been developed for ‘normal’ market situations – and often do not cater for extraordinary circumstances. In particular tariff increases are often linked to a consumer price index (CPI) or retail price index (RPI).
Broader considerations on FDI screening
Currently, several Dutch screening mechanisms are applicable in the electricity, gas and telecommunications sectors, pursuant to the Electricity Act ('Elektriciteitswet'), Gas Act ('Gaswet') and Telecommunications Act ('Telecommunicatiewet'). In addition, a legislative proposal for a general direct investment screening mechanism ('Wet veiligheidstoets investeringen, fusies en overnames' or "DIS Act") is currently being considered by the Dutch House of Representatives. The DIS Act is envisaged to cover transactions relating to vital processes (e.g. nuclear energy, storage of gas or air transportation) or involving sensitive technologies (i.e. dual use and military goods subjected to export controls). A ministerial decree will further specify which vital processes and sensitive technologies are included within the scope of the DIS Act. The proposal was submitted to the Dutch House of Representatives on 30 June 2021, and in light of the recent geopolitical developments – including the war between Russia and Ukraine – is likely to be met with approval and enter into force in the course of the second half of 2022.
Any envisaged changes of control or increase of significant influence over companies within the scope of the applicable FDI screening regime must be notified to the Dutch Investment Screening Agency ('Bureau Toetsing Investeringen' or "BTI"). In regard to the assessment of transactions, the recent geopolitical developments have resulted in the BTI applying a strict and rigorous screening process. This is predictably the case for transactions involving Russian investors, regardless of the size of their shareholding. Importantly, however, we have found that a ripple effect can also be observed in relation to other transactions where investors are based in other, unrelated jurisdictions, and still face considerable scrutiny by the BTI. This is especially the case when non-NATO investors are involved. In this context, a materiality threshold is also not always applied. In private equity, for example, we recommend the investor base be carefully considered at any early stage in the transaction in order to anticipate whether any of the envisaged investors may face increased scrutiny, and if changes to the transaction structure or potential remedies may potentially be required.
Broader considerations on REGULATED TARIFF SYSTEMS
Companies in regulated sectors (e.g. energy, transport, telecoms) are subject to regulations which limit prices or increases thereof. These systems have generally been developed for ‘normal’ market situations – and often do not cater for extraordinary circumstances. In particular tariff increases are often linked to a consumer price index (CPI) or retail price index (RPI). However, these indices always have a delay compared to actual market developments. In addition, a general index does not cater for the impact of specific price increases, e.g. the gas or oil price (especially in business who have high fuel or electricity consumption). Furthermore the regulations generally do not cover sudden volume decreases, eg. due to sanctions, insolvency of offtakers or general economic downturn. It is key to discuss with regulator and other market parties – e.g. the ministries concerned – changes to the regulations to deal with these extraordinary circumstances.
For companies that apply – or have to pay – regulated tariffs it is good to check whether the tariff adjustment system (e.g. retail or consumer price indexation) reflects actual market circumstances. If not, consulting the competent authority is a logical next step.