Summary

Decree-Law 185/2003 contains the first set of rules aiming at the progressive liberalisation of the Portuguese electricity market and its adjustment to the Iberian

Decree-Law 185/2003 of 20 August contains the first set of provisions aiming at the adjustment of the Portuguese electricity market to MIBEL. Although of a temporary nature, these rules shall be included in the comprehensive reform of the energy regulatory framework the Government is expected to enact until the end of 2003.

Under the provisions of this new Decree-Law, the trading of electricity shall take place in an organised market or under bilateral contracts. The agents of the National Electric System (Sistema Eléctrico Nacional – "SEN") that will be carrying out their activities in the market are the producers, the traders and the external agents.

The producers hold a production license and may sell the electricity they produce both in the organised market or under bilateral contracts. The traders are in charge of the purchase and sale of electricity and may also intervene in the organised market or under bilateral contracts. It should also be noted that traders shall be subject to public service obligations and may, upon decision of the General Directorate for the Energy market (Direcção-Geral de Energia – "DGE"), be also subject to universal service obligations (supplier of last resort). These two issues shall be addressed in a separate Decree-Law. As to external agents, they shall be in charge of the import and export of electricity between markets.

In the market of bilateral contracts, traders and producers may enter into contracts for the purchase of electricity with any SEN agents. In the organised market, supply and demand for electricity shall meet in a system that allows the closing of several types of contracts. There will be a market operator in charge of managing the organised market and of defining the price index for the types of contracts under negotiation and the disclosing of information.

The power purchase agreements ("PPA") entered upon by the National Transport Network (Rede Nacional de Transporte – "RNT") concessionary and the producers shall be terminated. These producers shall be entitled to an indemnification calculated so as to compensate the producers for the investments made and the obligations undertaken under the PPA, which may not be covered by the revenues obtained in the free market. The conditions of termination of the PPA and of the compensation shall be addressed in further detail in another Decree-Law.

However, any producers operating under PPA still in force should not cease the production of electricity as the RNT concessionary is obligated to sell the electricity purchased under the PPA entered upon with such producers in the organised market.

© Macedo Vitorino e Associados – August 2003

This information is provided for general purposes only and does not constitute professional advice. If you have any question on a matter of Portuguese law you should contact a lawyer registered to practice law in Portugal. If you are a client of Macedo Vitorino e Associados, you may contact us directly at mva@macedovitorino.com or your usual contact partner.