Hydro Annual Report 2011b

48
BusIness DesCrIptIon
Regulation and taxation
lead to the suspension of aluminium tariffs with such third
countries.
Chemicals legislation – REACH
The European Union Regulation (EC) No. 1907/2006 concerning
the Registration, Evaluation, Authorization and
Restriction of Chemicals (known as “REACH”) was adopted
in late 2006 and entered into force in the EU on June 1, 2007.
Aluminium is covered by this regulation and the regulation
has also been applicable in Norway since June 2008 through
the EEA agreement.
The main aim of REACH is to protect European citizens and
the environment from exposure to hazardous chemicals. This
will be achieved by requiring producers and importers of
chemicals to register them formally and to evaluate their health
and safety impacts. In some cases, REACH may require producers
and importers to replace hazardous chemicals with
those of less concern. The registration of chemicals will be a
lengthy process over a number of years, and will be prioritized
by volumes produced.
Hydro is on track to implement REACH, having successfully
completed the first stage in the legal process, i.e. the full registration
of substances produced and/or imported above 1,000
metric tons/year by the legal deadline of November 30, 2010.
The next step in the implementation of REACH is the registration
of substances produced and/or imported in volumes
above 100 metric tons/year by June 1, 2013.
Energy – regulation and taxation
The Norwegian regulatory system
for hydropower production
The ownership and utilization of Norwegian waterfalls for i.e.
hydropower production, other than small-scale power production,
requires a concession from the Ministry of Oil and
Energy. According to new legislation passed in 2008, new concessions
may no longer be granted to private entities such as
Hydro. Moreover, private entities may not acquire nor own
more than one-third of the shares in companies that own
hydropower plants.
Our waterfall rights and hydropower plants in Norway were
acquired and developed under previous legislation that allowed
for private ownership. Approximately one-third of our normal
annual production in Norway – about 3 TWh per year – was
acquired before concession laws were enacted and does not
contain any compulsory reversion to the Norwegian state.
About two-thirds of our normal annual production, or 6 TWh
per year, are subject to concessions granted at the time the
waterfall rights were acquired. Such power plants operate
under concession terms of Norwegian state reversion, with
individual concessions expiring in two main parts around
2022 and 2050. Hydro’s power plants at Røldal-Suldal, with a
normal annual production of 2.8 TWh, will be the first significant
production facilities to revert to the Norwegian state
towards the end of 2022. Reversion to the Norwegian state can
be avoided if the power plants, or two-thirds or more of the
shares of the entity that owns the power plants, are sold to a
public entity prior to reversion.
Under the new legislation, private entities like Hydro may be
granted a concession to lease a waterfall for up to 15 years.
Taxation of hydropower production
in Norway
Profits from Hydro’s hydropower production in Norway are
subject to ordinary income tax, currently 28 percent. Revenue
for ordinary income tax purposes is based on realized prices.
Dams, tunnels and power stations are, for tax purposes, depreciated
on a linear basis over 67 years, and machinery and generators
over 40 years. However, such fixed assets are depreciated
over the concession period if that is shorter. Transmission and
other electrical equipment are depreciated at a 5 percent
declining balance.
A natural resource tax of NOK 13 per MWh is currently levied
on water-generated electricity. The tax is fully deductible from
the ordinary income tax.
In addition, a special resource rent tax, currently at 30 percent,
is imposed on hydropower production in Norway. Unlike the
ordinary income tax, financial costs are not deductible against
the basis for the resource rent tax. Uplift is a special deduction
in the net income, computed as a percentage of the average tax
basis of fixed assets (including intangible assets and goodwill)
for the income year. The percentage, which is determined
annually by the Ministry of finance, essentially provides for a
certain return on fixed assets above which income becomes
subject to the resource rent tax. The percentage used to calculate
the uplift for 2011 was 2.1 percent.
Revenue for resource rent tax is, with certain exceptions, calculated
based on the plant’s hourly production, multiplied by the
area spot price in the corresponding hour. However, revenues
from sales under certain long-term contracts are valued at contract
price, and power supplied to Hydro’s own industrial production
facilities is valued at the price in the so-called
“Statkraft’s 1976 contracts” for tax purposes, which for 2011,
was 246.46 NOK/MWh. As most of Hydro’s hydropower
production is used for our own industrial production or sold
under qualifying contracts, only a minor portion of our production
has been subject to spot-price taxation.
other information
As a public limited company organized under Norwegian law,
Hydro is subject to the provisions of the Norwegian Public Limited
Companies Act. Our principal executive offices are located at
Drammensveien 260, vækerø, N-0240 Oslo, Norway; telephone
number: +47 2253 8100. Hydro’s internet site is www.hydro.com