Key Components of Legal Framework

• 1. Ownership and access to geothermal resources

• 1.1 What are the rules on ownership of geothermal resources? Can private parties hold ownership of geothermal resources?

  In general, no right of private ownership of land exists in Ethiopia. All land is state-owned and may be leased from the state for up to 99 (ninety-nine) years. The forms and practice of leasehold systems vary according to the various regions. As a result, private parties cannot hold ownership of geothermal resources. 

  The mineral resources existing in their natural condition on, in, and under the territory of Ethiopia are the property of the Government and all the peoples of Ethiopia, in accordance with the Constitution of the Federal Democratic Republic of Ethiopia. 

• 1.2 Who can grant access to geothermal resources, only state or also landowner?

  The Government which is the Licensing Authority acting through the Ethiopian Energy Authority, is the authority vested with the power to grant access to geothermal resources and exploration licenses. The Government, acting through the Licensing Authority, controls and administers mineral resources and grants, refuses and manages licenses. 

  Under the new Proclamation, a Proclamation to provide for geothermal resources development, (hereinafter the “Geothermal Proclamation”) the Licensing Authority is the Ethiopian Energy Authority (the “EEA”).  

• 1.3 Is exploration/exploitation open to foreign investment?

  Yes, it is in accordance with the relevant legislation

• 2. Involvement of administrative bodies

• 2.1 Which administrative bodies (ministry and/or governmental agencies) are involved in the licensing of geothermal resources, including licensing and developing?

  The administrative body that issues licenses for geothermal resources is the Ethiopian Energy authority.  

• 2.2 Do administrative bodies assign any of their respective roles to a third party, including but not limited to a peer review, during the period of exploration, exploitation and/or production of geothermal resources?

  Where necessary the licensing authority is permitted to delegate its powers and duties to the appropriate regional executive organs.

• 2.3 Is there a government policy in place concerning geothermal resources? If so, what is the object and to what end?

  The government understands the necessity to ensure that geothermal resources are utilized for the most economically benefits of the country, both for social and economic benefit and growth of the country. At the same time the government wants to ensure that the country’s geothermal resources are developed in an orderly, sustainable and environmentally responsible manner. Unlike the past, the government wants to promote the participation of the private sector in generation of energy resources. Thus, it has recently promulgated a new proclamation in 2016, specifically for geothermal resources to ensure the accomplishments of these goals, and fill gaps that were created due to a lack of legislations that specifically govern this area of the law. 

• 3. Allowed Exploitation

• 3.1 Is exploitation of resources subject to licensing? Do landowners have the right to exploit recourses without a license? If yes, to what extent?

  Yes, exploitation of resources is subject to licensing in Ethiopia. No person is permitted to undertake mining operations without having obtained the relevant license under the mining Proclamation. 

  There is no private land ownership in Ethiopia. A legitimate occupant of land may produce and use for non-commercial purposes, free of charge and with-out permission of the Licensing Authority, construction minerals from the area he occupies, provided that the area is not excluded or reserved pursuant to the Mining Operations Proclamation No. 678/2010, as amended (the “Mining Proclamation”) mining proclamation and provided that he does not disturb or damage the adjacent occupant’s land or property. In addition, any Ethiopian may conduct reconnaissance without having a license provided that he does not interfere with the rights of a licensee or any other person. 

• 4. Role and voice of landowner or “project affected people” in the licensing procedure and land lease agreements

• 4.1 Does the landowner or any “project affected people” have a role in the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  As stated above, there is no private land ownership under the Ethiopian legal system. Ethiopian law grants possessory right over a land. Although, the community at large will not have the final say on license matters, the community along with the government and other stakeholders have all a role to play in terms of ensuring sustainable community. The Geothermal Resources Development Proclamation has also provided that mining operations shall not be carried out within 500 meters from the boundary of a village, city or water reservoir or dam without the consent of the competent body.   

  Hence, the role and/or voice of the society are necessary in the licensing process. Accordingly, the community will be consulted during the regulatory process by which the public’s input on matters affecting them is sought. 

  The role to be played by the community in some cases may further stretch to the point of changing the granting of either an exploration or exploitation or power plant license. Notwithstanding, the government may, where it is in the national interest of the country, open the area for mining operations.

• 4.2 Will an opposition of a landowner or any “project affected people” have a bearing on the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  Disputes between land owners, project affected people and the potential license holder must be solved as amicable as possible. If the parties fail to resolve the objection within 60 days from the date fixed by the licensing authority to start the negotiation, the licensing authority will hear presentations from both parties and pass decision within 15 days. In most cases the licensing authority will uphold issuance of the license if it finds it is in the best interest of the country.

• 4.3 Are the terms of land lease agreements regulated and if so, (i) what is a general timeframe of land lease agreements and (ii) what are the obligations for decommissioning at the end of the term?

  (i) Land lease agreements are valid for limited number of years. Currently, all land is state-owned and may be leased from the state for up to 99 (ninety-nine) years. Nonetheless, licenses issued for geothermal resources are issued only for certain number of years depending on the type of license.

  (ii) The licensee is responsible for allocating funds to cover for the cost of restoration of the license area to conditions as good as or better than conditions prior to the license period. The licensee is required to obtain a geothermal operation closure certificate after proving that the closure of the project has been undertaken in accordance to this.

• 5. Criteria for granting of a license

• 5.1 Which documents need to be submitted and what is the criteria for obtaining a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  The Licensing Authority grants an exclusive Exploration License where: 

  • the applicant has demonstrated that it has acquired or has access to the financial resources and the technical ability to conduct the proposed exploration operation in accordance with the work program;
  • the estimated exploration expenditure is in accordance with the prescribed minimum exploration expenditure and the exploration work program; 
  • the environmental impact plan is approved; and 
  • the applicant is not in breach of any obligation of his reconnaissance license, if any. 

  The licensing authority shall grant a license for an exclusive Geothermal Well-Field Development and use to an applicant who satisfies the following condition:

  • who has submitted work program, feasibility study and environmental and social impact assessment and got approval from the licensing authority;
  • has acquired a valid power purchase agreement;
  • has demonstrated financial capability or access to the financial resources and the technical ability to conduct the proposed exploration in accordance with the approved work program; and
  • is not in breach of any obligation of a geothermal operation license, if any.

  Additionally, a geothermal well-field development and use licensee who qualifies for power generation activities on Grade 1 geothermal resources shall be granted a license to generate upon application to the licensing authority and will be issued a license provided that the licensee is compliant with all the relevant provisions of the Energy law.

• 6. Duration of Licenses and Renewal

• 6.1 What is the maximum duration of a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  An exploration license is valid for an initial period specified in the license. However, such period shall not exceed five years. The exploration license may be renewed twice for a period not exceeding one year each. The Licensing Authority may allow further extensions of one year at a time where the licensee proves the necessity to undertake exploration activity beyond the initial work program. However, the total exploration period shall not exceed five years.

  A geothermal well-field development and use license shall be valid for an initial period specified in the license and such period shall not exceed twenty five years.

• 7. Terms of License

• 7.1 What are the general terms of the license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) exploration drilling and other drilling,
     (iv) power plant (generation license)?

  Exploration- in general the exploration license gives the licensee the right to undertake activities that help to establish the dimensions, positions, characteristics and extent of geothermal resources by detailed geological, geochemical and geophysical studies. These include drilling, wells, and discharge of geothermal fluids for well testing. Additionally, the license gives the licensee the right/obligation to conduct environmental and social impact assessment, resource assessment and feasibility studies to establish the existence of geothermal resources and to determine its extent and economic value.

  Rights granted under an exploration license are, to remove and transport minerals or bulk samples found during the course of exploration in such quantities as may be required to conduct tests or other analysis with the prior written permission of the Licensing Authority. However, such minerals will remain the property of the government and the licensee may not sell them without the prior written approval of the Licensing Authority.

  Geothermal well-field development- the  license gives the licensee the right to undertake power generation activities on Grade 1 Geothermal resources, either as a standalone operation or combined with sale of used geothermal resources for direct use by Government or for self-use. Additionally, a holder of a geothermal well-field development and use licensee on a Grade 1 geothermal resources shall have the obligation to generate and to sell the electricity generated from geothermal resources to the competent body as promulgated in the relevant Energy and Investment laws of Ethiopia.

• 7.2 Are exploration license holders granted pre-emptive rights with regards to exploitation or do exploration licenses automatically convert into exploitation licenses if the resource has been substantiated? If so, are there any conditions?

  Pre-emptive right comes to exist if and where created by an agreement. An exploration license does not automatically convert into an exploitation license.

• 7.3 Is an exploitation license included in a power plant license or are these licenses separate?

  Exploitation license is separate from power plant license. 

• 7.4 Are there any encumbrances in place for the licence holder to keep a license, once granted?

  Once a license is issued the licensee has several obligations related to the maintenance or usage of the license. Those include:

  1. an obligation to have records available within the territory of Ethiopia and submit such reports to the licensing authority pertaining to the operation, employment and financial data;
  2. an obligation to minimize impacts on the environment and communities and where appropriate provide mitigation for those impacts
  3. an obligation to give employment preference to Ethiopian citizens, provided that such personas have the required qualification
  4. an obligation to take proper precautions not to interfere with other legitimate occupants of the license area and adjacent land
  5. an obligation to contribute financially to the construction and maintenance of infrastructure, such as roads, to be used jointly with other licensees within the licensed area, as agreed upon, based on proportional use of the infrastructure.

• 8. Termination and revision of licenses

• 8.1 What actions by the license holder would warrant revision of exploration-, exploitation- and power plant (generation) licenses?

  Rights shall terminate if:

  • a licensee relinquishes the whole area or surrenders the license;
  • a license is revoked by the Licensing Authority pursuant to the provisions of the Proclamation, regulations and directives;
  • a license expires without being renewed; or
  • without prejudice to the rights of heirs, a licensee dies, or where the licensee is a legal person, it is liquidated or declared bankrupt.

  Upon termination of Geothermal Operation License mining rights of the holder of a small scale or large-scale mining license, the Government may, unless an agreement specifies otherwise, acquire all of the immovable and movable property used in the mining operations at a price equal to the then unamortized value of such assets, as shown in the financial book of accounts of the licensee.

  If the Government does not exercise such right, the licensee shall be free to dispose such assets to another person in accordance with the applicable laws, or otherwise he shall be obliged to remove them as required by his environmental obligations.

  The licensee shall be required on termination of a small scale or large-scale mining license, to fence and safeguard, to the satisfaction of the Licensing Authority, any pits and other works in area covered by the license. 

• 8.2 Does the license granting authority license have the power to revoke or terminate licenses? If yes, what actions of the license holder would warrant the termination of the license?
     (i) exploration license,
     (ii) exploitation license,
     (iii) power plant (generation license)?

  The Licensing Authority may suspend mineral rights partially or fully where it believes that the activity of the Licensee is likely to pose an imminent threat to the local community, the environment or its employees provided that such suspension is the only remedy under the prevailing rules. 

  The Licensing Authority shall inform the licensee of the date by which the suspension lapses and it may resume operations.

  The Licensing Authority may revoke any license if the licensee:

  • fails to comply with the financial obligations prescribed in the Proclamation, regulations or directives;
  • conducts mining operations in a grossly negligent or willfully improper manner
  • breaches any material term or condition of his License;
  • is not conducting his mining operations in accordance with the work program;
  • is in breach of the approved environmental impact assessment, and safety and health standards;
  • has submitted false or fraudulent information in connection with any matter required to be submitted under the Proclamation, regulations or directives;
  • fails to maintain complete, accurate and current books and records or other documents or materials required or fails to file reports or other documents or fails to give notices where required; or
  • fails to grant a duly authorized official of the Licensing Authority access into the license area, the area covered by a lease or to any other site or premises of the mining operations or to his books, records, other documents or materials, or fails to carry out a lawful order or instruction of such official.

  Before any action, the Licensing Authority shall give notice in writing to the Licensee: setting out the grounds for considering the suspension or Revocation of the license; directing the licensee to take specified measures to remedy any contravention, breach or failure; and specifying a reasonable date of not less than 20 working days, before which the licensee may, in writing, submit any matter for the Licensing Authority to consider.

  The Licensing Authority may lift the notice for suspension or revocation of a mineral right where:

  • the licensee complies with the notice, by rectifying, removing, or as appropriate by mitigating the grounds for suspension or revocation, or by preventing the recurrence of such grounds within the time specified in the notice; or
  • it accepts the reasons supplied by the licensee for the lifting of the notice.

• 8.3 Can the license granting authority set forth conditions into licenses which provide for (i) stricter terms and conditions of licensees or (ii) more lenient terms and conditions for licensees, when such terms and conditions (whether stricter or more lenient) are not otherwise provided for by law?

  No, the licenses provided will be in accordance with the law and no special terms and conditions will be applicable.

• 8.4 What remedies does the License granting authority have in order to enforce compliance to the terms and conditions of a license, other than by revoking the license?

  If a licensee fails to make payments on the due date, the Licensing Authority may by order prohibit the disposal of any geothermal resources from the mining area concerned, or from any other licensed area held by the licensee until all outstanding payments have been paid or until an arrangement has been accepted by the Licensing Authority for the payment thereof. Furthermore, it could be punishable with a fine up to Birr 200,000 or an imprisonment up to five years or both. 

• 9. Regulatory and information obligation

• 9.1 Briefly outline the surveillance carried out by the regulatory authorities during the license period, e.g. with regards to reporting duties and/or on-site visits.

  Any authorized inspector of the Licensing Authority may enter, during office hours, any license area and may:

  • inspect any activity or process carried out in or upon the area in question;
  • inspect any book, record, statement or other document and make copies or extracts thereof;
  • examine any material or appliance found in the area;
  • take samples of any material and test, examine, analyse and classify such samples;
  • seize any material, appliance, book, record, statement or other document which might be relevant to a legal proceeding involving the violation of the Proclamation, regulations or directives and keep it in the custody of the Licensing Authority; and
  • require support necessary for the accomplishment of his inspection.

• 9.2 Which information is required to be submitted to regulatory authorities during the license period for the holder of a license for:
     (i) exploration,
     (ii) exploitation,
     (iii) power plant (generation license)?

  Records and Reports:

  Any licensee shall maintain, in the country, proper records containing the following information and submit reports thereof to the Licensing Authority: 

  • information pertaining to his mining operations and the results connected therewith, including borehole core and core- log data; 
  • employment, financial, commercial and other relevant information. 

  The licensee may not dispose of or destroy any record, borehole core or core-log data specified herein above, without the prior written consent of the Licensing Authority.

• 10. Power purchase agreements

• 10.1 Are general terms and conditions, such as duration of Power Purchase Agreements regulated? If no, are there any soft law or general recommendations in place in your jurisdiction?

  The details of a power purchase agreements are regulated by the Ethiopian Energy Authority. The Energy Proclamation No 810/2013 is the law that regulates energy, including geothermal energy. Apart from that, Ethiopia does not have a special law that lays out the principles of power purchase agreements. The current practice is for the producers and the government acting through the Ethiopian Energy Authority to negotiate the terms and conditions of Power Purchase Agreements. 

• 10.2 What is the permitted or general duration of PPA's?

  There is no specific law that governs PPA’s. The terms of PPA’s, including duration, are negotiated with the Ethiopian Energy Authority and vary depending on the agreement reached.

• 10.3 Are public and/or national regulatory authorities involved in any way in forming the terms of PPA's, either directly or indirectly?

  The terms of PPA’s are negotiated and signed between the Independent Power Producer and Ethiopian Electric Power (EEP is authorized to purchase electric power on transmission lines above 66 kilo Volt level). Such PPA’s still need the approval of the Ethiopian Energy Authority.  However, no other third parties are specifically involved in forming the terms of PPAs directly.

  Although Implementation Agreements are not required, they are usually signed between the Independent power producers, EEP and the government acting through the Ministry of Water, Irrigation and Electricity and The Ministry of finance and Economic Cooperation.

• 11. Incentives

• 11.1 Is there any governmental support or funding available for exploration activities?

  Financing for exploration activities are funded privately, however the licensing authority will assist the licensee in facilitating the financing process by providing the necessary documents and permissions required. 

• 11.2 Are there any incentives offered by the government or local authorities for utilization of geothermal energy? If yes, in what form (e.g. tax and/or feed-in tariffs) and what are the maximum amounts permitted?

  N/A

• 11.3 What requirements must the project fulfil in order to be eligible to receive such incentives?

  The requirements vary depending on the incentive, but overall it must hold a valid license, give notice prior to importation. Also, the project must follow directives issued by the Ethiopian Tax and Customs and Authorities as to specifically allowed make and model of imported materials.

• 11.5 In the case of production of electricity from geothermal, are there any incentives/rewards for utilizing the geothermal energy for other than producing electricity, such as waste heat?

  There are no incentives or rewards in place specifically for utilizing geothermal energy for other than producing electricity. However, Geothermal Well-Field Development License holders are allowed to utilize, for non-electrical purposes, geothermal fluids generated from the facility within the licensed area in consistent manner with the licensing requirement of geothermal resources.

• 12. Participation and authority of indigenous people

• 12.1 Are the rights of indigenous peoples in connection to geothermal resources regulated?

  Even though Ethiopia is without a particular law designated to regulate such matters, the right of indigenous peoples under Ethiopian law is very much taken into consideration. Indigenous municipalities here again will not have the final say when deciding the grating of a license to an applicant. But as a stakeholder, their voice might impact the outcome of a license application.

• 12.2 To what extent are indigenous municipalities involved in the process of granting licenses?

  Indigenous municipalities will be considered interested parties per the Geothermal Proclamation. If there are any objection from an indigenous municipality and the objection cannot be resolved amicably the licensing authority will look to the objections in its decision-making process depending on how convincing or reasonable the objection is.

• 13. Alteration of law and regulation

• 13.1 What are the principles regarding retroactivity of laws and regulations, can changes in such rules affect license holders?

  The change or alteration of regulation might or might not affect license holders. Such a matter depends totally on the particular law to be issued. Licenses are at times dealt with in accordance with the laws in force prior to the coming into effect of the new law. And at times the opposite applies, licenses are subject to laws which are not in effect when the license is issued. 

  Under the new Geothermal Proclamation, the transitory provisions are as follows:

  Article 48 of the draft geothermal law: 

  “Transitory Provisions

  • Any license issued and agreement concluded that is related to geothermal operations under Mining Proclamation No. 678/2010 prior to the coming into force of this Proclamation shall continue in force for the remaining period of its validity.  Thereafter, this Proclamation and Regulations and Directives issued hereunder shall apply.
  • A holder of a license issued or agreement concluded that is related to geothermal operations under Mining Proclamation No. 678/2010 prior to the coming into force of this Proclamation may apply at any time for a License described in this Proclamation and Regulations and Directives issued hereunder.
  • Any cause of action created or legal proceeding started before the coming into force of this Proclamation shall be dealt with in accordance with the laws in force prior to the effective date of this Proclamation.”

• 14. Taxation and capital controls

• 14.1 How does taxation in the sector affect license holders?

  Any licensee holder shall pay income tax in accordance with the Federal Income Tax Proclamation No. 979/2016). According to this proclamation, the business income tax rate applicable to a licensee is 25%.

• 14.2 Please describe and provide information on the applicable tax rate and resource tax.

  Turn Over Tax - 2-10% 

  Excise Tax - 10-100% 

  Withholding Tax - 2% 

  Value Added Tax - 15% 

  Royalty - 5% 

  Dividend - 10% 

• 14.3 Is the sale of energy subject to VAT?

  This is not clear as yet.

• 14.4 Is VAT refundable and what is the procedure for VAT refunding?

  Yes, VAT is refundable provided that the purchase price of a given asset is greater than that of its sales price.

• 14.5 Is the flow of foreign capital restricted with capital controls? If so, briefly describe the nature of such controls.

  Currently foreign exchange is regulated strictly. The regulating body is the National Bank of Ethiopia (NBE). All payments cross-border payments require the permission of NBE.  In addition, exporters of goods and services can retain indefinitely 30% of their foreign exchange proceeds but must sell the remaining 70% to commercial banks within 28 days. Foreign investors may repatriate all of their profits abroad subject to 10% repatriation profit tax. 

• 15. Environmental Impact Assessment

• 15.1 What demands are there regarding environmental impact assessment prior to exploration, exploitation and or production of geothermal energy?

  Except for reconnaissance licenses, retention licenses, any applicant for a license shall submit an environmental impact assessment and obtain all the necessary approvals from the competent authority required by the relevant environmental laws of the country. 

  Except as concerns holders of reconnaissance licenses, retention licenses or artisanal mining licenses, any licensee shall allocate funds to cover the costs of rehabilitation of environmental impact. 

  Based on the license area and by agreement, mineral licensees and, as appropriate, exploration licenses shall participate in community development plan of the peoples within the license area and shall allocate money for such expenses. 

• 16. Other regulatory requirements or permits needed

• 16.1 What other licenses are needed in order to commence exploration, exploitation and/or production with geothermal energy?

  Before applying for an exploration, applicants are required to be registered with the Ministry of Trade and obtain a Registration Certificate. The entity may be registered as a wholly owned subsidiary or branch of an overseas company. 

• 16.2 Which other regulatory requirements are in place, including but not limited to the need to provide insurances or guarantees, in connection with the commencing or continuing of exploration, exploitation and/or production of geothermal energy?

  Currently there are no legally mandated regulatory requirements in regard to insurances or guarantees in connection to the exploration or production of geothermal energy.

• 17. Legislation

• 17.1 Have there been any recent amendments to the legislation for licensing, exploration and/or exploitation of geothermal energy in the last 15 years? If so, have these amendments made a noticeable impact on the increase or decrease of production of electricity from geothermal resources?

  Prior to September 2016, licensing for exploration and exploitation was governed by the Proclamation 678/2010- A Proclamation to Promote Sustainable Development of Mineral Resources. In September 2016, Ethiopia promulgated Proclamation 981/2016- A Proclamation to Provide for Geothermal Resources Development – the new proclamation specifically governs licensing for geothermal exploration or exploitation. 

  There has yet to be regulations published implementing the new proclamation.

  The legislations mentioned above have yet to make impact on geothermal energy production. The legislation is expected to facilitate and expedite future production licensing requests once investors reach production stage.

• 17.2 Have any other factors made a strong impact on the production of electricity from geothermal in the last 15 years? If so, for what reasons.

  Answer not provided. 

• 17.3 Is there a specific legislation in place regarding geothermal extraction?

  Yes, Proclamation no. 981/2016 “A Proclamation for Geothermal Resources Development”

• 18. Alternative or cascade use of resources

• 18.1 When applying for a licence, is it possible to apply for one license or authorization, which provides for multiple or cascade use of the resource, e.g. direct and indirect utilization (generation of electricity, district heating and cooling)?

  No, a separate license for the extraction or use of other resources is required. However, a licensee will have some general rights as to the use of the resources found on the license area for its required activities (such as the use of water). Additionally, a licensee can utilize or sell for non-electrical purpose geothermal fluids generated from the facility within the license area or adjacent to it in a consistent manner with the licensing requirement of geothermal resource on Grade 1 geothermal resources. 

• 18.2 Could mineral extraction from geothermal fluid be included under such cascade usage clauses?

  As mentioned above the sell or utilization of geothermal fluids for non-electrical purposes is allowed.  Additionally, the extraction or use of geothermal resources allowed per the geothermal well-field development and use license includes geothermal by-products (excluding oil, hydrocarbon gas and helium) where due to the quantity, quality or technical difficulties in extraction and production are not of sufficient value to warrant extraction and production by themselves. 

• 19. Water rights

• 19.1 Once an exploitation license has been granted for the operation of a power plant, along with access to fresh water for power plant operation, can the licence allow for sales and distribution of fresh water to local communities?

  Neither the exploitation nor the geothermal development well field license allows the licensee the right to sale and/or distribute fresh water to local communities. The licensee can only use the water situated on, under or flowing through the license area for use of the required activities subject to the relevant water laws, this does not include the right to sale or distribute.