Cyprus: Maintenance Of Oil Stocks

Introduction

It has been reported that the European Commission has moved to refer Cyprus to the Court of Justice of the EU for failure to transpose into national law the provisions of EU Directive 2009/119/EC relating to the obligation of Member States to maintain minimum stocks of crude oil and/or petroleum products. The deadline for transposition was 31 December, 2012 and Cyprus has missed that deadline without taking any steps to introduce transposing legislation.

This article will look briefly at the provisions of the Directive and the procedure that has been commenced against Cyprus.

Directive 2009/119/EC

Cyprus has introduced in 2003 legislation transposing Directive 68/414/EEC which provides for (i) the establishment of COSMOS and (ii) setting out the obligations for the monitoring and maintaining of minimum oil stocks. Directive 2009/119/EC was introduced following on from the European Council's Action Plan so as to enhance security of supply and to mitigate any supply crisis. The Directive is aimed at:

(i) Setting out detailed rules aimed at ensuring a high level of security of oil supply through reliable and transparent mechanisms;

(ii) Maintaining minimum stocks of crude oil and/or petroleum products; and

(iii) Putting in place the necessary procedural means to deal with a serious shortage.

The Directive also aims at bringing the mechanisms utilised (such as methods of calculating minimum stocks) in line with those utilised by the International Energy Agency (IEA) which is welcome since not all EU member states (such as Cyprus) are members of the IEA.

The Maintenance of Oil Stocks Law already contained provisions relating to the manner of maintaining minimum stocks of oil and how they were reported. It is useful to examine what differences Directive 2009/119 has introduced.

(i) Establishment of Central Stockholding Entities (CSEs).

Under the precious regime not all member states established separate bodies to perform obligations of holding of minimum stocks - for e.g. Cyprus and Ireland did, but UK did not. Now under the Directive each member state may establish a CSE – in the case of Cyprus this can be performed by ΚΟΔΑΠ which was established under the Maintenance of Oil Stocks Law. Under Directive 2009/119 the CSE must be a not-for-profit body which will acquire, maintain and sell oil stocks for the purposes of complying with stocking requirements. Only one CSE can be established in each member state, although it is possible for a member state to establish the CSE anywhere in the Community. A CSE is not an economic operator for the purposes of Directive 2009/119. A CSE can for a limited period delegate tasks relating to the management of emergency and specific stocks, but cannot delegate the acquisition and sale of specific stocks. Any tasks that are delegated cannot be subdelegated. The delegation can be to either (a) economic operators or (b) another member state where the stocks are located or the CSE set up by that member state. The CSE is required under Directive 2009/119 to publish information relating to the volumes of stocks they are able to maintain for economic operators.

(ii) Stockholding obligation

Under the previous system, the minimum stockholding obligation was 90 days of consumption for each of 3 product categories, which could have been reduced by a maximum of 25% where a member state had indigenous oil production. Under the new regime the obligation is to hold 90 days of net imports or 61 days of consumption whichever is higher, in respect of crude oil and all products except naphtha and there are no reductions. These stockholding obligations introduce stricter requirements on most member states, however there is a two year transitional period for non-IEA countries relying fully on imports. The Directive sets the minimum obligation, it is possible for member states to adopt higher obligations. The Annexes to the Directive set out the various methods for calculating stocks and stock levels.

(iii) Availability of Stocks

The requirement as to the availability of stocks has been made stricter. Member states must ensure that "at all times....emergency stocks and specific stocks are available and physically accessible....." There must also be arrangements put in place to allow for identification, accounting and control of those stocks so as to permit their verification at any time.

There must be no obstacles or encumbrances that could hamper the availability of emergency stocks and specific stocks. It is possible for such stocks to be used as collateral, however enforcement or foreclosure against them is not permitted.

(iv) Emergency Stocks and Specific Stocks.

The Directive 2009/119 introduces the concepts of emergency stocks and specific stocks. Emergency stocks are at the centre of the Directive and the maintenance of sufficient levels of emergency stocks is what the Directive is trying to achieve. The definition of "emergency stocks" lacks specificity but in essence it relates to stocks of all products which must be maintained by a member state at the levels provided in Article 3.1. Under the provisions of the Directive, member states may undertake to maintain a minimum level of oil stocks calculated in terms of the number of days consumption which stocks will be owned by the member state or the CSE. The relevant specific stocks are listed in Article 9.2 of the Directive. If a member state does not commit for a full calendar year to maintain at least 30 days of specific stocks, it must ensure that one-third of its stockholding obligation is held in the form of products comprising specific stocks. Each member state is obliged to keep a continually updated register of specific stocks held within its territory containing all information necessary to pinpoint the exact location of those stocks.

The provisions of the Directive are of vital importance to the maintenance of oil stocks and provide necessary mechanisms to deal with an emergency in supply at the Community level. These minimum rules need to apply across the European Union, and Cyprus is the only member state yet to introduce transposition measures.

Infringement Proceedings

Whilst it appears that transposing legislation has this month (February 2014) been introduced into the Cyprus parliament, the EU Commission announced on 20th February, 2014 that it was referring Cyprus to the Court of Justice of the EU, which has jurisdiction, inter alia, to hear infringement proceedings.

Under Article 258 of the Treaty on the Functioning of the European Union (TFEU), if the Commission considers that a member state has failed to fulfil an obligation under the Treaties (such as failing to introduce national measures to transpose a directive by the appointed deadline), it shall give a reasoned opinion on the matter after giving the member state an opportunity to submit its observations. If the member state does not comply with the opinion within the time laid down, the Commission may bring the matter before the Court of Justice.

Cyprus has not made any observations and has not acted in accordance with the reasoned opinion, thus it is being referred to the Court of Justice.

These proceedings are in two phases:

  • phase 1 – the administrative phase (or known as "infringement proceedings"). Here the Commission sends a letter to the relevant member state requesting its observations on a problem of application of EU law within a specified time limit. The Commission will then issue a reasoned opinion which will set out the Commissions position and determine the action required, giving the member state a time limit within which to comply.

    No response was received by the Commission during the infringement proceedings phase commenced against Cyprus.
  • phase 2 – Litigation. In the event of a finding of infringement, the remedies include a judgement requiring remedy of the infringement and/or a financial penalty.

Footnotes

1 Maintenance of Oil Stocks Law, Law 149(I)/2003 (as amended).

2 As amended by Directive 98/93/EEC. This was repealed by Directive 2006/67/EC which in turn has been repealed by Directive 2009/119/EC.

3 Cyprus Organisation for Management of Oil Stocks (ΚΟΔΑΠ in Greek).

4 Energy Policy for Europe (2007-2009).

5 As to which see further below at point (iv) below.

6 The 3 categories were: (1) Motor spirit and aviation fuel, (2) gas oil, diesel oil, kerosene, and jet fuel of kerosene type and (3) fuel oils.

7 Article 25.1 of Directive 2009/119. Cyprus as a non-IEA member benefits from this transitional period.

8 Article 5.1

9 As defined in Regulation (EC) 1099/2008.

10 The product categories are those defined in Regulation (EC) 1099/2008.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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