By Zelalem Argaw and Mekdes Mezgebu
A new Council of Ministers Regulation No. 521/2022 (“Regulation”) setting out the powers and duties of the recently established Petroleum and Energy Authority (“PEA or the Authority”) was published in the Federal Negarit Gazette. This follows the restructuring of the executive branch of the government through Proclamation No.1263/2021 (“Executive Proclamation”), which resulted in the merger of the previous Ethiopian Energy Authority (“EEA”) and the Ethiopian Petroleum Product Supply and Distribution Regulatory Authority (“EPPSDA”).
In this brief note, we highlight the changes introduced by the reconstitution of the EEA and EPPSDA as the PEA, and the power and duties granted to the latter.
Executive Restructuring: in September 2021, the Executive Proclamation overhauled the executive structure of the government introducing the merger, consolidation or division of ministries, and changes in names and accountability structures of government offices. Aside from the reorganization of government offices, the proclamation elaborated the general functions of administrative agencies organized as Ministries, Commissions, Authorities, Services, Offices and Institutes. Previously, a clear distinction or understanding of the regulatory mandates of the different government agencies structured in one form or another was not known. The Executive Proclamation provided an indicative differentiation between the various administrative agencies. Consequently, government offices established as an “Authority” generally have three main functions: a) Perform regulatory functions, issuing standards and ensuring compliance b) issue standards when required mainly in its sector, or implement standards issued by other concerned organs: c) Issue license for the activity that required licensing and regulate the same. An “Authority” will be accountable to a Ministry or where there is a conflict with a Ministry, to another government organ or to the Prime Minister.
Accordingly, the Executive Proclamation introduced two key changes to the petroleum and energy regulatory regime. First, it dissolved the EEA and EPPSDA and established the PEA as a new regulatory authority for the petroleum and energy sectors. Previous powers and duties that were granted to the EEA and EPPSDA were transferred to the PEA. Second, it changed the accountability structure of the PEA. Previously, the EEA was accountable to the Ministry of Water, Irrigation and Energy (MOWE), which was changed to the Ministry of Trade and Regional Integration. This is likely due to the perceived conflict of interest between the energy regulatory body (EEA) and the energy policy body (MOWE). As a supervisory ministry, PEA reports to the Ministry of Trade and Regional Integration, which will be overseeing, coordinate and support its activities.
Powers and Duties of the PEA: EEA and EPPSDA were both previously authorized to regulate the energy and petroleum sectors respectively. Their core regulatory task involved issuing directives, standards and codes for their respective sectors, and granting competence certifications and licenses. The PEA maintained many of the powers and duties that were granted to the EEA and EPPSDA. However, a few additional mandates were granted. Previously, the EEA/EPPSDA issued competence certifications and sector licenses, such as electricity generation, transmission and distribution licenses. Under the new Regulation, the PEA is additionally empowered to issue Business Licenses. Ordinarily, the granting of business licenses is the prerogative of the Ministry of Trade. This is now assigned to the PEA for the petroleum and energy sectors, which will handle business licensing in addition to competence certification and licensing. This will likely reduce the transactional cost of shuffling between different government agencies.
Additionally, the Regulation introduced a new role for the PEA as a dispute adjudication body. Under the Energy Proclamation, the EEA was previously authorized to mediate or arbitrate disputes between a licensee and customers on claims related to service fees and service qualities. While this is still the case, the new Regulation further permits the Authority to assume jurisdiction over disputes that are submitted to it by parties working in the energy and petroleum sectors. This means parties may agree to resolve their disputes through arbitration or mediation and the PEA is authorized to act as the dispute resolution body. To this end, the PEA is required to follow mediation and arbitration procedures provided under the newly enacted Arbitration and Mediation Working Procedure Proclamation No. 1237/2021.
Source of Income: previously the budget of the EEA and EPPSDA were limited to a government-allocated budget. The new Regulation has expanded the potential sources of income for the PEA to include fees collected from services provided by the Authority (which may include service and licensing fees) and other incomes.
In sum, the merger of the Ethiopian Energy Authority (“EEA”) and the Ethiopian Petroleum Product Supply and Distribution Regulatory Authority (“EPPSDA”) brings regulatory consolidation of the energy and petroleum sectors. This is a common practice in other countries such as Kenya. While the nature of the powers and duties of the PEA does not significantly depart from those that were exercised by the EEA and EPPSDA, the capacity of the PEA to effectively regulate these two important sectors will seriously be tested. Institutional capacity issues faced by the EEA, will likely be inherited, if not worsened unless the functional expansion is matched with an increase in financial and institutional support to PEA.
