After Hinkley: implications for the UK and the EU internal energy market

Today's announcement of the UK Government's decision to give the final go ahead to the delayed Hinkley nuclear power plant project is undoubtedly a significant one. However, the accompanying proposals to "impose significant new safeguards for future foreign investment in critical infrastructure" will raise concerns about the future alignment of the UK regulatory regime with the requirements of the EU internal energy market.

15 September 2016

Today's announcement of the UK Government's decision to give the final go ahead to the delayed Hinkley nuclear power plant project is undoubtedly a significant one. However, the accompanying proposals to "impose significant new safeguards for future foreign investment in critical infrastructure" will raise concerns about the future alignment of the UK regulatory regime with the requirements of the EU internal energy market.

In announcing today that the UK Government will finally give the go ahead to the Hinkley project, Ministers stated that, "There will be reforms to the Government’s approach to the ownership and control of critical infrastructure to ensure that the full implications of foreign ownership are scrutinised for the purposes of national security. This will include a review of the public interest regime in the Enterprise Act 2002 and the introduction of a cross-cutting national security requirement for continuing Government approval of the ownership and control of critical infrastructure".

The announcement goes on to state that, "These changes will bring Britain’s policy framework for the ownership and control of critical infrastructure into line with other major economies. This will allow the UK Government to introduce a consistent approach to considering the national security implications of all significant investments in critical infrastructure, including nuclear energy, in the future. The changes mean that, while the UK will remain one of the most open economies in the world, the public can be confident that foreign direct investment works in the country’s best interests".

There is a long history of EU Member States seeking (often without success) to convince the EU Commission and European Court of their entitlement to place restrictions on the acquisition of control in 'strategic' industries, including those concerned with the ownership of critical infrastructure. The key objection to such measures is that they constitute restrictions on the free movement of capital contrary to EU law.

In 2012 the Court underlined that such restrictions - even if they do not, on their face, treat foreign and domestic investors differently - can only be invoked if there is a genuine and sufficiently serious threat to a fundamental interest of the society and if the circumstances in which intervention might take place are set out in sufficient detail to allow investors to assess in advance when grounds for intervention might exist.

Were restrictions of the sort described today to be imposed, then important questions would arise as to their compatibility with the EU internal market, whether under the broad free movement of capital regime or the more specific rules governing ownership of infrastructure (e.g. those applicable to gas and electricity transmission). To the extent those restrictions to purport to treat non-UK investors differently from UK investors (in particular where those non-UK investors are established in other EU Member States), then those questions would become even more challenging.