25 Mar 2010
NGERS treatment of joint ventures clarified
The Supplementary Guidelines on the application of the National Greenhouse and Energy Reporting Scheme to joint ventures will be of interest to the petroleum and mining industries where unincorporated joint ventures are common.
The Department of Climate Change recently issued Supplementary Guidelines on the application of the National Greenhouse and Energy Reporting Scheme (NGERS) to joint ventures.
What's a joint venture?
The Supplementary Guidelines clarify that the regulator will consider only unincorporated joint ventures to be joint ventures under NGERS. Participants in unincorporated joint ventures may then nominate a participant to be responsible for NGERS obligations in respect of the joint venture's facilities. If no nomination is made, each participant's group may be required to include the joint venture's facilities in its NGERS reporting.
By contrast, incorporated joint ventures will not be considered joint ventures for NGERS purposes. Instead, where the joint venture company meets the thresholds and otherwise fulfils the definition of a controlling corporation, it will be required to register and report in its own right. This will generally be true for companies in which there is no participant who holds more than 50 percent of the shares, can control the composition of the company's board or can cast more than one-half of votes at a general meeting of the company's members.
Alternatively, where the joint venture company falls within the definition of a subsidiary, it will be included in the group of its controlling corporation. This will generally apply for companies which are majority-controlled by another company.
Responsibility for registration and reporting
The Supplementary Guidelines provide that where there is a third party that runs a joint venture's facility and is considered to have operational control of the facility, responsibility for registration and reporting in relation to the facility will be that of the controlling corporation of the third party's group. Neither the joint venture nor the joint venture participants will be responsible for registration or reporting in this case, whether the joint venture is incorporated or unincorporated.
Similarly, the Supplementary Guidelines state that, where a group member is a participant in a joint venture (incorporated or not) but has operational control of the joint venture's facility, then the controlling corporation of the member's group and not the joint venture will be responsible for registration and reporting for the facility.
Unhelpfully, the Supplementary Guidelines do not provide any guidance on when a participant or third party may be considered to have operational control of a facility rather than the joint venture itself. This will remain to be considered by participants in the particular circumstances of each joint venture, having regard particularly to section 11 of the National Greenhouse and Energy Reporting Act, which looks to the entity having the greatest authority and implement any or all of the operating policies, health and safety policies, and environment policies for the facility.
Using the Supplementary Guidelines
The Supplementary Guidelines, which do not have the force of law, will be of interest to participants in petroleum and mining industries where unincorporated joint ventures are common. In setting up their NGERS compliance plans, participants may have considered that such joint ventures fell naturally within the definition for NGERS purposes. However, the Supplementary Guidelines may be most useful for incorporated joint ventures and their participants as they resolve uncertainty as to whether such incorporated joint ventures fall within the NGERS definition.
The Supplementary Guidelines were issued too late for use by NGERS-registered corporations for their initial reporting due in October 2009. Nevertheless, joint venturers should consider whether their agreements and compliance plans are consistent with the Supplementary Guidelines for future reporting obligations or whether corrections should be made to an earlier report. Relevant issues include:
Importantly, whether the joint venture is incorporated or not, participants should consider whether the parties have appropriately documented any arrangements for reporting entities to meet and be compensated for their obligations, particularly where a participant or third party has operational control, or a responsible entity is nominated. For instance, do the joint venture operating agreements allow a joint venture operator or other nominated entity to access relevant information and to recover NGERS-related costs?
whether a joint venture company needs to register and report in its own right (if it meets the definition of a controlling corporation and the relevant thresholds);
whether they have made invalid nominations for a participant in an incorporated joint venture to be the responsible entity for the joint venture;
whether the controlling corporations of groups of which participants are members have, or should have, included the joint venture in their reporting; and
if the joint venture has been incorrectly included in reporting for a participant's group, whether this affects the participant's group meeting NGERS thresholds.
whether a participant or third party may be considered to have operational control of the joint venture's facilities in its own right;
if no such party has operational control, whether the participants have made, or wish to make, a nomination for one participant to be the responsible entity for the joint venture for NGERS purposes;
if no nomination has been made, whether each participant's group has included the joint venture's facilities in their reporting; and