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On licences to engage in the activity of transmission, distribution and storage of natural gas and on regulation of natural gas supply prices

Case No. 23/05-18/07

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF PARAGRAPH 2 (WORDING OF 10 OCTOBER 2000) OF ARTICLE 5 OF THE REPUBLIC OF LITHUANIA’S NATURAL GAS LAW AND ITEM 10 OF THE RULES OF LICENSING THE TRANSMISSION, DISTRIBUTION, STORAGE AND SUPPLY OF NATURAL GAS AS APPROVED BY THE RESOLUTION OF THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA (NO. 743) “ON THE APPROVAL OF THE RULES OF LICENSING THE TRANSMISSION, DISTRIBUTION, STORAGE AND SUPPLY OF NATURAL GAS” OF 19 JUNE 2001 WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA AND OF ITEM 37 (WORDING OF 23 DECEMBER 2002) OF THESE RULES WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA, PARAGRAPH 1 OF ARTICLE 15 OF THE REPUBLIC OF LITHUANIA’S LAW ON ENERGY, PARAGRAPH 1 OF ARTICLE 14 OF THE REPUBLIC OF LITHUANIA’S NATURAL GAS LAW, PARAGRAPH 2 OF ARTICLE 1.2, PARAGRAPH 3 OF ARTICLE 1.3 AND ARTICLE 2.80 OF THE CIVIL CODE OF THE REPUBLIC OF LITHUANIA AND WITH ARTICLE 4 OF THE REPUBLIC OF LITHUANIA’S LAW ON COMPETITION

29 April 2009
Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Armanas Abramavičius, Toma Birmontienė, Pranas Kuconis, Kęstutis Lapinskas, Zenonas Namavičius, Egidijus Šileikis, and Romualdas Kęstutis Urbaitis

The court reporter—Daiva Pitrėnaitė

Seimas member Julius Veselka (representing the Seimas of the Republic of Lithuania, a party concerned, in the part of the case subsequent to petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania, the petitioner), acting as the representative of the Seimas of the Republic of Lithuania, a party concerned

Neringa Pažūsienė, Director of the Law and Public Procurement Department of the Ministry of Economy of the Republic of Lithuania (representing the Government of the Republic of Lithuania, a party concerned, in the part of the case subsequent to petition No. 1B-29/2005 of the Vilnius Regional Administrative Court, the petitioner), Lina Lukoševičiūtė, Head of the Legislative and Law Application Division of the Law and Public Procurement Department of the Ministry of Economy (representing the Government of the Republic of Lithuania, a party concerned, in the part of the case subsequent to petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania, the petitioner) and Gintautas Danaitis, chief specialist of the Gas and Local Resources Division of the Energy Resources Department of the Ministry of Economy (representing the Government of the Republic of Lithuania, a party concerned, in the case subsequent to petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania and petition No. 1B-29/2005 of the Vilnius Regional Administrative Court), acting as the representatives of the Government of the Republic of Lithuania, a party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, in its public hearing, on 21 April 2009, considered constitutional justice case No. 23/05-18/07 subsequent to the following:

1) the petition of the Supreme Administrative Court of Lithuania, a petitioner, requesting an investigation into whether Paragraph 2 of Article 5 of the Republic of Lithuania’s Natural Gas Law and the provision “licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways” of Item 10 of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Resolution of the Government of the Republic of Lithuania (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 were not in conflict with Articles 46 and 54 of the Constitution of the Republic of Lithuania (petition No. 1B-16/2007);

2) the petition of the Vilnius Regional Administrative Court, a petitioner, requesting an investigation into whether the provision “37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of the Resolution of the Government of the Republic of Lithuania (No. 2091) “On Supplementing the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” of 23 December 2002 was not in conflict with Article 5, Paragraph 1 of Article 7, Article 23, Paragraph 1 of Article 46, Item 2 of Article 94 of the Constitution of the Republic of Lithuania, with the constitutional principle of a state under the rule of law, as well as with Paragraph 1 of Article 15 of the Republic of Lithuania’s Law on Energy, Paragraph 1 of Article 14 of the Republic of Lithuania’s Natural Gas Law, Paragraph 2 of Article 1.2, Paragraph 3 of Article 1.3 and Article 2.80 of the Civil Code of the Republic of Lithuania, and Article 4 of the Republic of Lithuania’s Law on Competition (petition No. 1B-29/2005).

By the Constitutional Court’s Decision “On Joining Petitions into One Case” of 1 October 2007, petition No. 1B-16/2007 (case No. 18/07) of the Supreme Administrative Court of Lithuania, a petitioner, and petition No. 1B-29/2005 (case No. 23/05) of the Vilnius Regional Administrative Court, a petitioner, were joined into one case and it was given reference No. 23/05-18/07.

The Constitutional Court

has established:

I

1. The Supreme Administrative Court of Lithuania, a petitioner, considered an administrative case. By its ruling, the said court suspended the consideration of the case and applied to the Constitutional Court with the petition requesting an investigation into whether Paragraph 2 of Article 5 of the Natural Gas Law and the provision “licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways” of Item 10 of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 (hereinafter also referred to as the Rules) are not in conflict with Articles 46 and 54 of the Constitution.

2. The Vilnius Regional Administrative Court, a petitioner, considered an administrative case. By its ruling, the said court suspended the consideration of the case and applied to the Constitutional Court with the petition requesting an investigation into whether the provision “37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of the Government Resolution (No. 2091) “On Supplementing the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” of 23 December 2002 was not in conflict with Article 5, Paragraph 1 of Article 7, Article 23, Paragraph 1 of Article 46, Item 2 of Article 94 of the Constitution, with the constitutional principle of a state under the rule of law, as well as with Paragraph 1 of Article 15 of the Law on Energy, Paragraph 1 of Article 14 of the Natural Gas Law, Paragraph 2 of Article 1.2, Paragraph 3 of Article 1.3 and Article 2.80 of the Civil Code, and Article 4 of the Law on Competition.

II

1. Petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania is based on the following arguments.

1.1. After the legal regulation which obliged enterprises seeking to get licences to transmit, distribute and store gas to have the gas systems under the ownership right or use them in any other legal ways has been established in Paragraph 2 of Article 5 of the Natural Gas Law and repeated in Item 10 of the Rules, one created artificial and disproportionally big barriers for the objective sought—an unlimited number of persons who seek to get the said licence in the corresponding territory were obliged even before the start of the licensed activity, to build gas systems or purchase them in other way for which big investments are necessary, however, the licence in the concrete territory could be granted only to one enterprise. In such a case, other enterprises which purchased gas systems, could experience damage (losses) the compensation of which was not provided for; the realisation of the unexploited gas systems could also become problematic.

Such legal regulation did not encourage the initiative of new enterprises, it artificially limited freedom of economic activity and competition in the gas sector, created legal preconditions for the formation of the monopolistic gas market, it could violate the interests of the consumers and harm the common benefit of society, as the licence was granted under the formal criteria, often favourable for one enterprise, when account was taken not of the fact what benefit would be provided for satisfying the society needs by the person who got the licence, but of the fact whether the enterprise had gas systems. Such legal regulation, in the opinion of the petitioner, might be in conflict with Article 46 of the Constitution.

1.2. By the said legal regulation, one created such situation where the purchased gas systems could remain unexploited and could impede rational exploitation of land and harm the natural environment, thus, the petitioner had doubts regarding the compliance of the said provisions with Article 54 of the Constitution.

2. The petition No. 1B-29/2005 of the Vilnius Regional Administrative Court, a petitioner, is based on the following arguments.

2.1. Under Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy, the principles of regulation (i.e. the way the price is regulated—by approving the price cap or otherwise) and nomenclature (i.e. what prices are regulated) of regulated prices in the state energy sector may be established only in the law. However, neither the Natural Gas Law, nor other laws established or establish the regulation of gas supply prices for free customers. Neither is the Government granted the right to amend or supplement the list of prices (regulated by law) of natural gas sector and to establish a different way of price regulation or to transfer such right to institutions authorised by the Government.

The fact that Paragraph 3 of Article 12 of the Natural Gas Law (wording of 10 October 2000) establishes the rights of gas suppliers to conclude gas supply contracts with free customers (in Item 24 of Article 2 of this law, the free customer is defined as “consumer having the freedom of choice in selecting a supplier”) and distribution enterprises, Article 7 thereof provides that one of the obligatory elements of the gas supply contract shall be the price and Article 14 which regulates the state regulation of gas prices, while consolidating a finite list of prices regulated by the state in the gas sector, does not provide for the regulation of prices for free customers, permits making the assumption that the legislature did not seek to regulate supply prices for free customers in the gas sector and left the right for the economic subject to independently establish or agree with free customers regarding the price of gas supply.

Therefore, the Government, having supplemented by its Resolution No. 2091 “On Supplementing the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” of 23 December 2002 the Rules by Item 37.9 which enshrined the duty of the enterprise which is engaged in gas supply “[to] establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission”, supplemented the finite list of prices regulated by the state in the gas sector established in Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law and thus created a legal norm of a new character, i.e. it regulated what is not regulated in the Natural Gas Law, thus, it exceeded its competence and, in addition, it restricted the natural gas suppliers’ right to ownership, i.e. the right to receive the corresponding income from business, as well as freedom and initiative of economic activity.

Referring to the Constitutional Court doctrine, the petitioner also noted that by means of a substatutory legal act one realises the norms of the law, however, such legal act may not replace the law itself and create any new legal norms of general nature which in view of their legal force would compete with the norms of the law (the Constitutional Court’s ruling of 14 January 1994); legal acts of lower level may not conflict with legal acts of higher level, and no legal act may conflict with the Constitution (the Constitutional Court’s ruling of 12 July 2001).

Therefore, the petitioner, referring, inter alia, to the doctrinal provisions of the Constitutional Court’s rulings of 14 January 1994, 20 April 1995, 18 April 1996, 21 April 1998, 14 March 2002, 3 December 2003, and 26 January 2004, had a doubt whether the impugned government resolution, to the extent that it supplements the Rules by Item 37.9 which enshrined the duty of the enterprise which is engaged in gas supply “[to] establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” was not in conflict with Article 5, Item 2 of Article 94, Paragraph 1 of Article 7, Article 23 and Paragraph 1 of Article 46 of the Constitution, as well as with the principle of a state under the rule of law which, according to the petitioner, is enshrined in the Preamble to the Constitution, also with Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law and the provision enshrined in Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy that the principles of regulation of state regulated prices and nomenclature may be established only in energy sector laws.

2.2. Having supplemented the Rules by the said provision, the Government, exceeding the competence granted to it, regulated the civil relations which had not been regulated by law yet, enshrined the administrative method which was not provided for in the laws, whereby the activity of the natural gas suppliers was regulated, and unlawfully restricted the right of the gas enterprises to freely establish the price of gas supply for free customers which was guaranteed by Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy and Paragraph 1 (wording of 10 October) of Article 14 of the Natural Gas Law.

Therefore, the petitioner had a doubt whether Item 37.9 (wording of 23 December 2002) of the Rules was not in conflict with the prohibition on limiting the rights in other way than by means of a law which is consolidated in Paragraph 2 of Article 1.2 of the Civil Code, with the requirement for the Government and other state institutions to adopt legal acts only in cases and to the extent provided for in the Civil Code and other legal acts which, according to the petitioner, is enshrined in Paragraph 3 of Article 1.3 of the Civil Code, and with the imperative requirement to consolidate the application of administrative methods for civil legal relations in laws and not in the substatutory legal acts, which, according to the petitioner, is enshrined in Article 2.80 of the Civil Code.

2.3. Natural gas may be replaced by other resources of energy, i.e. it competes with them, for example, with fuel oil and other petroleum products the prices of which were not regulated for free customers, therefore, Item 37.9 of the Rules, which enshrines the duty of the enterprise which is engaged in gas supply “[to] establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” did not ensure the freedom of fair competition and the preconditions were created to distort the conditions of competition in the market of supply of energy resources, one discriminated the natural gas suppliers and restricted their rights to freely compete with other suppliers of energy resources which in this case fall into a better position.

Therefore, the petitioner, referring, inter alia, to the doctrinal provisions of the Constitutional Court’s ruling of 6 October 1999 that the guarantee of the protection of fair competition means a prohibition for state authority or local government institutions regulating economic activity against adopting decisions which distort or are capable of distorting fair competition, had a doubt whether Item 37.9 (wording of 23 December 2002) of the Rules which enshrined the duty of the enterprise which is engaged in gas supply “[to] establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” was not in conflict with Paragraph 4 of Article 46 of the Constitution and with the principles of fair competition and the prohibition on discrimination which, according to the petitioner, are enshrined in Article 4 (wording of 23 March 1999) of the Law on Competition.

III

In the course of preparation of the case for the Constitutional Court’s hearing, written explanations from the former representative of the Seimas, a party concerned, who was P. Vilkas, a Member of the Seimas (representing the Seimas, a party concerned, in the part of the case subsequent to petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania, the petitioner), the representatives of the Government, a party concerned, who were N. Pažūsienė and G. Danaitis (representing the Government, a party concerned, in the part of the case subsequent to petition No. 1B-29/2005 of the Vilnius Regional Administrative Court, the petitioner), L. Lukoševičiūtė and G. Danaitis (representing the Government, a party concerned, in the case subsequent to petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania, the petitioner) were received in which it is stated that the impugned legal regulation was not in conflict with the corresponding legal regulation of higher legal force, inter alia, the Constitution.

1. As regards petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania, a petitioner, the position of P. Vilkas, a Member of the Seimas, the representative of the Seimas, a party concerned, is based on the following arguments.

1.1. The requirement enshrined in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law is equally applied to all enterprises which seek to get the licence for transmission, distribution and storing activities. In addition, also in other sectors of energy (electricity and heating), for enterprises which seek to get the licence for transmission and distribution activities, an analogous requirement is established.

1.2. The enterprise which, under the procedure established in the Rules, has been issued the licence to transmit, distribute and store gas, immediately gains the right and the duty to carry out the activity of the transmission, distribution and storing of gas which is not possible at all without having the system of the transmission, distribution and storing of natural gas which is equipped according to the established requirements and connected with the functioning system, without which the person could not satisfy the needs of consumers in the gas sector and would be of no use both for oneself and for other members of society.

1.3. Paragraph 1 (wording of 16 May 2002) of Article 13 of the Law on Energy enshrines an imperative provision—the territories of transmission and distribution in which the operator has exclusive rights to carry out its activity shall be specified in the transmission and distribution licences. Therefore, in order to ensure the safe and continuous transportation of gas to its consumers, the activity of transmission and distribution of natural gas through pipelines remains a natural monopoly, while only the extraction (production) and supply (trade) of gas is liberalised.

2. By Ordinance of the Speaker of the Seimas No. 9 “On Amending Ordinance of the Speaker of the Seimas No. 142 of 25 April 2007” of 15 December 2008, the representative of the Seimas, the party concerned, was replaced: J. Veselka, a Member of the Seimas, was authorised to represent the Seimas at the Constitutional Court. In his letter of 9 April 2009 to the Constitutional Court, J. Veselka specified that he virtually consented to the arguments set forth in the written explanations of P. Vilkas, a Member of the Seimas, the former representative of the Seimas, and he also stated that there were doubts regarding the compliance of the impugned law and Rules with the Constitution.

3. The position of L. Lukoševičiūtė and G. Danaitis, the representatives of the Government, a party concerned, regarding petition No. 1B-16/2007 of the Supreme Administrative Court of Lithuania, a petitioner, is based on the following arguments.

3.1. One of the requirements for the enterprises which seek to get the licence for transmission, distribution or storing activity (obligation to build or purchase otherwise the systems of natural gas even before the beginning of the licensed activity) enshrined in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law is equally applied to all enterprises which seek to get the licence for transmission, distribution or storing activity and due to that no artificial and disproportionate obstacles are created for the objective sought. Before issuing the licence, one must verify the enterprise’s technological, financial and management capabilities to fulfil the established conditions of the licensed activity. In other energy sectors (electricity and heating), an analogous requirement for enterprises which seek to get the licence for transmission and distribution activity is established.

3.2. A person, who, under the procedure established in the Rules, was issued the licence of gas transmission or distribution, immediately gains the right and the duty to perform the function of the operator of the transmission or distribution system (i.e. to supply the service of gas transmission or distribution in the territory specified in the licence), therefore, in order to be able to carry out the activity of the transmission, distribution and storing of natural gas and to ensure the continuous and safe supply of gas to consumers at the lowest cost, it must have the facilities.

The licence may not be conditional, i.e. no “postponement” condition may be raised to it so that the conditions necessary for the implementation of the licensed activity, for example, acquisition of technological equipment (gas system) would be carried out already after issuing a licence, as it would be in conflict with the aims and principles of licensing and the provisions of Article 46 of the Constitution would be violated. Such a case would bring about a situation where an enterprise, which has the licence to transmit, distribute or store natural gas, would not be able to carry out this licensed activity, as it would have no necessary technological capabilities and it is not clear whether it would ever acquire them. Therefore, the requirement that those who wish to get a licence to engage in the corresponding activity must have the right to the facilities without which the licensed activity is impossible is established while seeking to defend the public interest and the rights of consumers by ensuring safe and reliable transmission and distribution of gas to consumers.

3.3. The activity of transmission and distribution is not linked to building the systems of transmission or distribution. Under Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law, in order the licence to transmit, distribute and store natural gas would be issued, it is not necessary to possess the natural gas systems by right of ownership, it is not necessary to build them, but it is sufficient to use them on other legal grounds, i.e. it is sufficient to have acquired the right to natural gas systems by any of the transactions provided for in the Civil Code and this does not mean that building the natural gas system or investments for such building are obligatory.

3.4. Paragraph 1 (wording of 16 May 2002) of Article 13 of the Law on Energy consolidates an imperative—in transmission and distribution licences, one specifies the territories of transmission and distribution in which the operator has exclusive rights to carry out its activity. Therefore, in the natural gas sector (as in electricity and heating sectors), the activity of transmission and distribution of natural gas through pipelines remains a natural monopoly, while the extraction (production) and supply (trade) of gas is liberalised.

3.5. The building of gas systems must meet the environmental requirements established by means of legal acts, in addition, the gas transmission enterprise has the duty to inform, under the established procedure, the Ministry of Economy about the beginning of building and use of the transmission systems. The Natural Gas Law provides that permits to install the transmission and distribution systems are not issued if the existing capacities are not used. The transmission and distribution systems must meet the requirements of designing, building and exploitation so that the compatibility of containers and mechanisms and safe operation would be ensured. Thus, following the specified provisions of the legal acts whereby one seeks to protect the interests of consumers, natural environment and to ensure the step-by-step and effective development of gas systems, a situation, where different persons would build different gas systems in the same territory, is impossible. The competitive gas transmission systems may not be installed. By these provisions, the state fulfils the duty to take care of natural environment which is established in Article 54 of the Constitution.

3.6. Seeking to ensure compensation for damage, Paragraph 2 (wording of 10 October 2000) of Article 21 of the Natural Gas Law provides that “persons shall compensate for the damage caused by their illegal activities to other persons, enterprises, institutions and organisations, in accordance with the procedure established by law”. The general principle of responsibility for damage committed by the unlawful actions of state institutions is also established in Article 6.271 of the Civil Code, according to which the persons who think that due to unlawful actions of the state institutions, damage was incurred to them, shall have the right to apply to court under procedure established by means of legal acts.

4. The position of N. Pažūsienė and G. Danaitis, the representatives of the Government, the party concerned, regarding petition No. 1B-29/2005 of the Vilnius Regional Administrative Court, a petitioner, is based on the following arguments.

4.1. The Law on Energy (wording of 16 May 2002) granted the Government the right to regulate the principles of establishment of prices regulated by the state; the law also prescribed that the Government or institutions authorised by it, while implementing the state management of energy, shall approve the rules for licensing the activity in the field of energy, shall have the right, in cases established by law, to impose public-interest-related obligations on the enterprises engaged in energy activities and to implement other functions established in the Law on Energy and other laws. The Natural Gas Law (wording of 10 October 2000) does not regulate the price of gas supply directly, however, Paragraph 2 (wording of 16 May 2002) of Article 1 of the Law on Energy provides that the provisions of other laws which regulate the activity in the energy sector shall be valid inasmuch as they are not in conflict with the Law on Energy.

Article 8 of the Republic of Lithuania’s Law on Prices enshrines the right of the Government to restrict price and tariff increases for a period not exceeding 6 months, if the dynamics of market prices and tariffs cause or are likely to cause a disturbance in the functioning of economy, which, in its turn, affects the interests of the economy of the Republic and its residents. The representatives of the Government, a party concerned, drew one’s attention to the fact that the provision which is impugned by the petitioner was effective as from 28 December 2002 to 19 July 2003.

Therefore, taking account of the specified provisions of laws in which the administrative methods of economic gas supply activity are established, the conclusion is drawn that the Government had the grounds established by law for regulating the prices of gas supply.

4.2. In Lithuania, natural gas is supplied from the only external source of gas supply—the Russian Federation open joint-stock company “Gazprom” which owns part of the shares of the main Lithuanian gas systems’ operators. Lithuania has no gas pipes’ connections with the natural gas networks of other states (except Russia, Belarus and Latvia). Without a necessary infrastructure and with only two natural gas suppliers operating in the market, which are not competing with each other, the free customers have no possibilities of choosing another supplier and they have no technical possibilities of using fuel of a different kind. Thus, Lithuania is absolutely dependent on one enterprise and the gas supplier may dictate any conditions of gas supply agreements (inter alia, groundlessly big prices for gas supply). Therefore, in this case there are no conditions in the gas sector to fully implement a free and competitive market, as well as to fully implement the competition of natural gas with other resources of energy in such gas market, and the principle of contractual freedom is not applied.

When natural gas is used for production of energy and/or heating, and energy is supplied for several hundred thousand consumers, in order to avoid the abuse of the dominant position by gas supply enterprises and to avoid violation of interests of the consumers upon establishment of the prices of gas supply which are not fair, the state has the right and at the same time the duty to regulate the activity of the gas supply enterprises and the prices of gas which is supplied to the consumers. Therefore, following the Law on Energy, the Natural Gas Law and the Law on Prices, the Government had the right to regulate the activity of natural gas supply, as well as establishment of prices for gas supply as one of the constituent parts of regulation of the natural gas supply activity.

The impugned government resolution established the regulation of the natural gas supply activity for all economic subjects engaged in this activity, and this means that equal conditions were established for all the economic subjects which have licences to supply natural gas. Thus, this government resolution did not distort the competition conditions.

4.3. The representatives of the Government, the party concerned, noted that in the cover letter-proposal of the draft Government Resolution (No. 2091) “On Supplementing the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” of 23 December 2002 to the Government, it is specified that the purpose of the impugned legal regulation was to restrict the increase of prices of natural gas for free customers and, at the same time, the increase of prices of energy for all the consumers.

Therefore, by adopting the impugned resolution, whereby it partially regulated the price of gas supply for free customers, the Government did not violate the constitutional principle of contractual freedom, as it took account of the then situation in the Lithuanian gas market, the unfavourable situation of consumers and of the principles of good faith, reasonableness and justice (these principles should not be in conflict with any conditions of any contract established upon agreement between the parties), and, by protecting society and the weaker party of the agreement—the consumers—from the groundlessly big prices for gas supply (it needs to be emphasised that the said government resolution virtually restricted not the price itself, but the difference between the price of gas which is bought by the gas supplier and the price of that which is sold, i.e. the margin), i.e. by defending the public interest, the Government implemented the provision of Paragraph 3 of Article 46 of the Constitution that “the State shall regulate economic activity so that it serves the general welfare of the Nation” and the provision of Paragraph 5 of Article 46 thereof that “the State shall defend the interests of the consumer”.

IV

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations from R. A. Stanikūnas, Chairperson of the Competition Council of the Republic of Lithuania, V. Poderys, Chairperson of the National Control Commission for Prices and Energy, D. Kriaučiūnas, Director General of the European Law Department under the Ministry of Justice, and V. Miškinis, Head of the State Energy Inspectorate under the Ministry of Economy, were received.

V

1. At the Constitutional Court’s hearing, J. Veselka, a Member of the Seimas, the representative of the Seimas, a party concerned, virtually reiterated the arguments set forth in his written explanations, as well as provided additional explanations.

2. At the Constitutional Court’s hearing, N. Pažūsienė, L. Lukoševičiūtė and G. Danaitis, the representatives of the Government, a party concerned, virtually reiterated the arguments set forth in their written explanations and answered to the questions of the justices of the Constitutional Court, and N. Pažūsienė also provided additional explanations.

The Constitutional Court

holds that:

I

1. The Supreme Administrative Court of Lithuania, a petitioner, requests an investigation into whether Paragraph 2 of Article 5 of the Natural Gas Law and the provision “licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways” of Item 10 of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 are not in conflict with Articles 46 and 54 of the Constitution.

In its ruling whereby it applied to the Constitutional Court, the petitioner did not specify which wording of Paragraph 2 of Article 5 of the Natural Gas Law it impugns, however, it is obvious from the arguments of its petition that it impugned Paragraph 2 of Article 5 of the Natural Gas Law which was set forth in its wording of 10 October 2000.

2. The Vilnius Regional Administrative Court, a petitioner, requests an investigation into whether the provision “37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of the Government Resolution (No. 2091) “On Supplementing the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” of 23 December 2002 is not in conflict with Article 5, Paragraph 1 of Article 7, Article 23, Paragraph 1 of Article 46, Item 2 of Article 94 of the Constitution, with the constitutional principle of a state under the rule of law, as well as with Paragraph 1 of Article 15 of the Law on Energy, Paragraph 1 of Article 14 of the Natural Gas Law, Paragraph 2 of Article 1.2, Paragraph 3 of Article 1.3 and Article 2.80 of the Civil Code, and Article 4 of the Law on Competition.

2.1. It is obvious from the arguments of the petition of the Vilnius Regional Administrative Court, a petitioner, that the Constitutional Court is requested to investigate the compliance of the provision “The enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules with the Constitution, as well as with the provisions of the Law on Energy, the Natural Gas Law, the Civil Code and the Law on Competition.

2.2. It is obvious from the arguments of the Vilnius Regional Administrative Court, a petitioner, that the Constitutional Court is requested to investigate, inter alia, the compliance of the provision “The enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules with:

not entire Article 23 of the Constitution, but only with Paragraphs 1 and 2 of the said article;

not only Paragraph 1 of Article 46 of the Constitution, but also Paragraph 4 of this article;

Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy;

Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law;

Paragraph 2 (wording of 18 July 2000) of Article 1.2 of the Civil Code, Paragraph 3 (wording of 18 July 2000) of Article 1.3 thereof and Article 2.80 (wording of 18 July 2000) thereof;

Article 4 (wording of 23 March 1999) of the Law on Competition.

2.3. Therefore, the Vilnius Regional Administrative Court, a petitioner, requests an investigation into the compliance of the provision “The enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 with Article 5, Paragraph 1 of Article 7, Paragraphs 1 and 2 of Article 23, Paragraphs 1 and 4 of Article 46 and Item 2 of Article 94 of the Constitution, with the constitutional principle of a state under the rule of law, with Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy, Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law, Paragraph 2 (wording of 18 July 2000) of Article 1.2 of the Civil Code, Paragraph 3 (wording of 18 July 2000) of Article 1.3 thereof and Article 2.80 (wording of 18 July 2000) thereof, and with Article 4 (wording of 23 March 1999) of Article 4 of the Law on Competition.

3. It needs to be noted that, on 20 March 2007, the Seimas adopted the Republic of Lithuania’s Law on Amending the Natural Gas Law which came into force on 19 April 2007. By this law, the Natural Gas Law (wording of 10 October 2000 with subsequent amendments and supplements) was amended and set forth in its new wording.

On 15 July 2003, the Government adopted the Resolution (No. 908) “On Amending the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” which came into force on 19 July 2003 and by which Item 37.9 (wording of 23 December 2002) of the Rules was recognised as no longer effective.

On 5 December 2007, the Government adopted the Resolution (No. 1304) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” which came into force on 16 December of the same year and whose Item 1 approved the Rules of Licensing the Transmission, Distribution, Storage, Liquefaction and Supply of Natural Gas and Item 3 recognised the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 (with subsequent amendments and supplements) as no longer effective.

The Constitutional Court has held more than once that in such cases, when a court investigating a case applies to the Constitutional Court after it has had doubts concerning the compliance of a law or other legal act applicable in the case with the Constitution (another legal act of higher legal force), the Constitutional Court has the duty to investigate the request of the court regardless of the fact whether the impugned law or other legal is valid or not.

II

On the compliance of Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law with Articles 46 and 54 of the Constitution.

1. In this constitutional justice case, inter alia, the fact is impugned whether the legal regulation established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law was not in conflict with the Constitution.

2. It needs to be noted that before the entry into force of the Natural Gas Law (wording of 10 October 2000), the relations linked to the economic activity in the sphere of natural gas were regulated by the legal acts which regulated the relations of energy activities (the activities linked to prospecting for energy resources, extraction, transportation, distribution thereof, energy production and transmission, trade in energy or exploitation of energy installations).

2.1. For instance, on 31 August 1992, the Government adopted the Resolution (No. 642) “Regarding the Situation in the Energy System of the Republic of Lithuania and Improvement of Consumers’ Supply with Energy Resources”. By this resolution, the Government, “taking account of the difficult situation which arose in the energy system”, decided to demonopolise, as from 1 September 1992, the procedure of supply for the consumers of the Republic of Lithuania with energy resources by creating economic conditions which would encourage the legal and natural persons to supply these resources (Item 1), it permitted for state and private enterprises to freely import into the Republic of Lithuania and realise oil, oil products, coal, gas and other resources of energy without limiting the amounts that are imported and without applying to them the customs duty and general and individual excise duties (Item 1.1), obliged the Ministry of Energy and the municipalities of cities (regions) to permit the legal and natural persons—the suppliers of natural gas—to use the trunk and local gas pipelines according to the agreements (Item 2.1).

2.2. On 28 March 1995, the Seimas adopted the Law on Energy which came into force on 14 April of the same year. This law established the general provisions for energy activity, the grounds for energy development, functioning and management, inter alia, purposes of energy policy, the main provisions for the use of energy resources, the rights and duties of consumers of energy, the principles of formation of the national energy strategy and the grounds for administration and management of energy.

2.3. Article 17 (wording of 28 March 1995) of the Law on Energy prescribed that a licence shall be required for engaging in energy activity (Paragraph 1) and that the procedure for issuing energy licences shall be established by the Government (Paragraph 2).

On 22 March 1996, the Government adopted the Resolution (No. 383) “On Approving the Rules of Licensing Energy Activity” whereby it approved the Rules of Licensing Energy Activity (Item 1) and prescribed that these rules shall come into force as from 1 June 1996 (Item 2). Item 10 of the rules approved by this government resolution prescribed, inter alia, that enterprises, which wish to get the licence to engage into energy activity linked to transportation of gas, its distributions by pipes, shall present the certificates from the corresponding institutions about the preparation to carry out the specified work.

2.4. On 26 March 1998, the Seimas adopted the Republic of Lithuania’s Law on Amending Articles 1, 3, 4, 5, 6, 8, 9, 11, 12, 13, 14, 15 and 17 of the Law on Energy which came into force on 10 April 1998. Article 13 of this law amended Article 17 (wording of 7 October 1997) of the Law on Energy and it prescribed, inter alia, that only the enterprises which have been granted a licence issued according to the procedure established by the Ministry of Economy may engage in the exploitation of energy facilities (electricity, heating, combustible natural gas and liquefied hydrocarbon gas); the licences shall be issued by the State Energy Inspectorate under the Ministry of Economy.

On 28 August 1998, the Government, while following Article 17 (wording of 26 March 1998) of the Law on Energy, adopted the Resolution (No. 1036) “On Recognising the Resolution of the Government of the Republic of Lithuania (No. 383) ‘On Approving the Rules of Licensing Energy Activity’ of 22 March 1996 as no Longer Effective and on Establishing the Terms for Changing the Licences of Energy Activities into the Permits for Energy Facilities Exploitation Business” which came into force on 3 September 1998. This resolution prescribed, inter alia, that the licences of energy activity which were issued following government resolution No. 383 of 22 March 1996 shall be changed into the permits for energy facilities exploitation business.

2.5. While comparing the legal regulation established in Article 17 (wording of 28 March 1995) of the Law on Energy with the one established in Article 17 (wording of 26 March 1998) of the Law on Energy, it needs to be held that under Article 17 (wording of 26 March 1998) of the Law on Energy, enterprises wishing to engage themselves in energy activity, instead of energy licences which had been required until then according to Article 17 (wording of 28 March 1995) of the Law on Energy had to get permits for energy facilities exploitation business. It needs to be noted that both licences and business permits are essentially documents of the system of permits, which grant the right to a corresponding economic subject to engage into a certain economic activity, therefore, according to their purpose, they may be regarded as identical documents.

3. On 10 October 2000, the Seimas adopted the Natural Gas Law which, under Paragraph 1 (wording of 21 December 2000) of Article 23 of this law, came into effect as from 1 July 2001 (save the exception specified in the law). Under Article 1 of the Natural Gas Law, it was designed for establishing the general principles of the natural gas sector and the activities of natural gas enterprises and relations with the consumers (in the supply, distribution, transmission and storage of natural gas).

4. Article 5 titled “Licences” of the Natural Gas Law (wording of 10 October 2000) established the following:

1. Gas enterprises must hold a licence for the following types of activities:

1) transmission;

2) distribution;

3) storage;

4) supply.

2. The licences for the transmission, distribution and storing of gas shall be issued to enterprises having ownership right of the gas systems or using them by other legal means.

3. The licences shall be issued, suspended, and revoked and the licensed activity shall be controlled by the State Prices and Energy Control Commission (hereinafter—the Commission) The Government or an institution authorised by it shall establish the licensing rules.

4. Licences shall not be required of gas owners to transport gas by transit across the State territory and for the supply of gas used as raw material”.

5. The Natural Gas Law (wording of 10 October 2000) established such legal regulation, under which enterprises seeking to engage themselves in transmission, distribution, storage or supply of natural gas had to get a licence; thus, in essence, the system of permits in order to engage in energy activity which existed until the entry into force of this law, persisted.

6. The Natural Gas Law (wording of 10 October 2000) was amended and supplemented by the Republic of Lithuania’s Law on Amending and Supplementing Articles 2, 5, 8, 12, 15, 20, 21, 22 and 23 of the Natural Gas Law which was adopted by the Seimas on 19 June 2001 and which came into force on 1 July 2001, by the Republic of Lithuania’s Law on Amending and Supplementing Article 5 of the Natural Gas Law which was adopted on 4 June 2002 and which came into force on 21 June 2002, and by the Republic of Lithuania’s Law on Amending Article 20 of the Natural Gas Law which was adopted on 28 January 2003 and which came into force on 19 February 2003, however, Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law which is impugned in this constitutional justice case, was not amended or supplemented.

7. The legal regulation enshrined in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law should be construed in the context of other provisions of the Natural Gas Law (wording of 10 October 2000) and the provisions of the Law on Energy (wording of 16 May 2002).

7.1. In the constitutional justice case at issue, the following provisions of the Natural Gas Law (wording of 10 October 2000) should be noted:

– “System means a main pipeline owned by the gas enterprise and/or operated by the gas enterprise and/or distribution network, and/or liquefied natural gas facilities, including other facilities of this and related enterprises, necessary for providing access to transmission and distribution” (Paragraph 15 of Article 2);

– “Transmission means the transport of gas through a high-pressure pipeline network and into storage facilities” (Paragraph 3 of Article 2);

– “Distribution means the transport of gas through the distributing pipeline network, with view to its delivery to customers” (Paragraph 5 of Article 2);

– “Storage means the stocking of gas in a facility and keeping it in a gas storage facility” (Paragraph 9 of Article 2);

– “The systems of transmission and distribution, gas storage facilities and liquefied gas facilities must meet the requirements of planning, construction and operation in order to ensure the compatibility and secure operation of systems, gas storage facilities, and facilities. <...>” (Paragraph 1 of Article 4);

– “The gas transmission, distribution and storage enterprises must operate and develop the gas systems in a way that they would operate safely and efficiently and with due regard to assurance of environmental protection” (Paragraph 1 of Article 9); “The transmission, distribution and storage enterprises shall be prohibited from discriminating between system users, and classes of system customers in favour of other customers or the enterprises linked with these enterprises” (Paragraph 2 of Article 9); “Should the gas enterprises interrupt their operation or/and a threat arise against the safe gas supply to customers, the Government shall have the right to adopt a decision regarding assumption of the management of the enterprise or purchase of the assets thereof” (Paragraph 3 of Article 9);

– “Gas transmission systems, storage structures and facilities and terminals shall be established based upon the provisions of the National Energy Strategy and Government programme, after preparing corresponding drafts of development. The Government or an institution authorised by it, shall adopt decisions regarding the construction, enhancement of the main gas pipeline or/and equipping of a storage facility, which are necessary to ensure the safety of the gas supplying. <...>” (Paragraph 1 of Article 15); “A licence for constructing a main gas pipeline, which cuts across the border of the Republic of Lithuania, may only be issued with the approval of the Government of Lithuania. Licences for the construction of transmission and distribution systems shall not be issued, if the existing capabilities fail to be used” (Paragraph 2 of Article 15); “Gas enterprises shall enable access to their systems for the systems of other gas enterprises and customers, if the productivity of the system is sufficient and the technical conditions have been met, and also, if the accessing will not interfere with the implementation by the gas enterprises of the obligations set by this Law. Should the productivity of the system prove to be insufficient to satisfy the gas needs of the future customer, the gas enterprise must enhance its productivity, if the technical opportunities are there. The gas enterprises which are provided access and the customers shall cover the costs of access and, if necessary, shall also cover the costs of enhancement of the productivity of the system. Upon co-ordinating with the Commission, the amount of the valuations of accessing shall be set by the transmission and distribution enterprises, which they access” (Paragraph 3 of Article 15).

7.2. The Law on Energy (wording of 16 May 2002) shall regulate general energy activities, the basic principles of energy development and management, energy and energy resources efficiency (Paragraph 1 of Article 1), while peculiarities of activities of individual energy systems and of relations between energy enterprises and consumers shall be established by other laws, whose provisions which regulate energy activities shall be applicable to the extent they are not contrary to this law (Paragraphs 1 and 2 of Article 1).

7.2.1. In the context of the constitutional justice case at issue, the following provisions of the Law on Energy (wording of 16 May 2002) should be noted:

– “For the purposes of this Law, natural gas shall also be treated as energy” (Paragraph 3 of Article 2);

– “Energy facilities means <...>; natural gas systems; natural gas storage facilities; liquefied natural gas import, export terminals and storage facilities; <...>” (Paragraph 12 of Article 2);

– “Energy facilities of national importance means <...>; main gas pipelines; natural gas storage facilities with a capacity of 25,000,000 m3 or more; liquefied natural gas import terminals and storage facilities; <...>” (Paragraph 13 of Article 2);

– “When carrying out State management of the energy sector, the Government or its authorised institution shall: <...> (3) approve the rules for licensing activities in the energy sector; <...>” (Item 3 of Paragraph 2 of Article 5);

– “Energy facilities shall be constructed in accordance with the procedure laid down in the Law on Construction, Law on Territorial Planning, Law on Environmental Protection and other legal acts. <...>” (Paragraph 1 of Article 11); “<...> The energy enterprises engaged in energy transmission, distribution shall develop energy transmission, distribution facilities within the territory of their operation” (Paragraph 2 of Article 11);

– “Energy enterprises shall carry out their activities in such a manner as to ensure safe, efficient and environment friendly energy production, supply, transmission, distribution up to the connection point of the supplied energy metering equipment to the customer's system, not exceeding the set State-regulated prices. <...>” (Paragraph 1 of Article 12); “Within the territory of their operation the energy enterprises shall connect, according to the established procedure, the energy generating and/or consuming equipment of the energy generators, customers to the operating energy transmission or distribution networks. The connection costs shall be covered by the appropriate generators or customers according to the set tariffs. The connection work shall be carried out under a mandatory contract between the energy enterprise and energy generator or customer” (Paragraph 3 of Article 12); “The energy enterprises which own or in any other lawful way control energy transmission or distribution networks and systems shall provide transmission or distribution services to a third party under objective, non-discriminatory conditions, taking account of the technical possibilities of the networks and systems” (Paragraph 4 of Article 12);

– “The territory of activities of energy transmission, distribution enterprises shall be defined in the licences” (Paragraph 1 of Article 13).

– “Activities in the energy sector shall be subject to licences or authorisations. The types of licences activities shall be set out in the laws on the energy sector and other laws. A list of activities subject to licensing shall be approved by the Government” (Paragraph 1 of Article 16); “Activities in the energy sector without a licence or an authorisation where these are required shall be unlawful” (Paragraph 2 of Article 16).

7.2.2. The Law on Energy (wording of 16 May 2002) was amended and supplemented by the Republic of Lithuania’s Law on Amending and Supplementing Articles 6, 12, 16, 17 and 18 of the Law on Energy which was adopted by the Seimas on 24 June 2003 and which came into force on 10 July 2003, the Republic of Lithuania’s Law on Amending Articles 1, 5 and 20 of the Law on Energy and on Supplementing the Law with an Annex which was adopted on 15 November 2005 and which came into force on 1 January 2006, by the Republic of Lithuania’s Law on Amending and Supplementing Articles 5, 19 and 20 of the Law on Energy which was adopted on 3 May 2007 and which came into force on 19 May 2007, by the Republic of Lithuania’s Law on Amending and Supplementing Articles 2, 4, 6, 16, 17, 21, 27 and 28 of the Law on Energy and on Supplementing the Law with Article 71 which was adopted on 6 November 2008 and which came into force on 1 January 2009 (save the exceptions specified in the law), and by the Republic of Lithuania’s Law on Amending Articles 4, 6, 7, 8, 10, 17, 18, 24 and 25 of the Law on Energy which was adopted on 12 January 2009 and which came into force on 1 February 2009.

It needs to be noted that upon the amendments and supplements of the Law on Energy (wording of 16 May 2002), the former Item 12 (wording of 16 May 2002) of Paragraph 2 of Article 5 of this law became Item 13 (wording of 15 November 2005), and later—Item 14 (wording of 3 May 2007); Article 16 (wording of 24 June 2003) prescribed, inter alia, that, for energy (inter alia, natural gas) activity, in addition to the licences or authorisations, one may establish, by means of laws, also certificates of attestation, as well as that enterprises which exploit energy (inter alia, natural gas activity) facilities, shall be subject to attestation; in addition, in Paragraph 3 (wording of 15 November 2005) of Article 1 it is specified that the provisions of this law are harmonised with the legal acts of the European Union which are specified in the annex to this law (wordings of 15 November 2005 and 3 May 2007). Having assessed the legal regulation established by the said amendments and supplements of the Law on Energy (wording of 16 May 2002), it needs to be noted that there have not been any essential changes in the provisions of this law (Article 1, Paragraphs 3, 12, 13, 19 of Article 2, Paragraph 2 of Article 5 and Articles 11, 12, 13 and 16 of the Law on Energy) related with the impugned legal regulation established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law.

8. While summing up the specified provisions of the Natural Gas Law (wording of 10 October 2000) and the Law on Energy (wording of 16 May 2002), the following conclusions linked to the impugned legal regulation should be drawn:

transportation of natural gas through the main pipeline to consumers and to the storage places (transmission), transportation of gas through the distribution networks in order to deliver it to consumers (distribution) and the storing and keeping of gas in gas storage facilities (storage) were/are a licensed economic activity; without a licence, such kinds of activity were/are prohibited;

the National Control Commission for Prices and Energy could issue the licences to transmit, distribute and store gas only, inter alia, to those enterprises which either, under the right of ownership, had the gas systems necessary for the implementation of the corresponding activity (main pipelines, distribution networks, gas storage facilities, etc.) or possessed the said systems in other legal ways;

in the licences, one specifies the territory of activity, in which gas enterprises could/can transmit and distribute natural gas; in this territory, only the enterprise to which the licence was issued could/can engage in the corresponding activity;

in the territory of activity which is specified in the licence, the gas enterprises which transmit and distribute gas, had/have to develop the facilities of gas transmission and distribution; gas enterprises had/have to connect the systems of other gas enterprises to their systems; if the capacity of the system is not sufficient in order to satisfy the future gas needs of the consumer, the gas enterprise had/have to increase the capacity provided that there are technical possibilities;

gas systems are built under procedure established by means of laws and other legal acts; the licences for installation of gas transmission and distribution systems are not issued if the existing capabilities are not used;

gas enterprises which have the right to engage in gas transmission, distribution and storage activity, had/have to exploit gas systems so that they would operate safely and efficiently and that environmental protection would be ensured.

9. It has been mentioned that the Supreme Administrative Court of Lithuania, a petitioner, requests an investigation, inter alia, into the compliance of Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law with Articles 46 and 54 of the Constitution.

10. The Constitutional Court has held more than once that the principles enshrined in Article 46 of the Constitution constitute a whole, which is the constitutional basis of the economy of this country; the provisions of all paragraphs of this article are interrelated and supplement each other, there is a balance between these principles, each of them is interpreted without denying the other principles; and that a legal norm which is in a certain paragraph of this article is violated, the legal norms laid down in the other paragraphs of this article are violated as well, or preconditions are created for their violation.

10.1. Paragraph 1 of Article 46 of the Constitution provides that Lithuania’s economy shall be based on the right of private ownership, freedom of individual economic activity and initiative. The Constitutional Court has held more than once that the freedom of individual economic activity and initiative is the whole complex of legal opportunities which creates preconditions for an individual independently to adopt decisions necessary for his economic activity and which implies, inter alia, freedom of conclusion of contracts, freedom of fair competition, opportunities to restructure economic subjects without restrictions, to change the character of their activity, not to obstruct establishment of new economic subjects or liquidate the existing ones when one reacts to changes in the market; it is inseparable from an opportunity of a person, who is willing to engage in an economic activity or, conversely, who is willing to drop it, to get into the market without artificial barriers and to abandon it without artificial barriers.

The Constitutional Court has also held more than once that freedom of economic activity is not absolute, persons make use of it only by following certain obligatory requirements and limitations. On the other hand, under the Constitution, the state is not allowed to interfere with the economic activity of persons without limitations, therefore, it is impermissible by means of established limitations to deny such essential provisions of freedom of economic activity as the equality of rights of subjects of economic activity, fair competition etc. (the Constitutional Court’s rulings of 20 April 1995, 13 May 2005, 31 May 2006 and 2 March 2009).

10.2. Paragraph 2 of Article 46 of the Constitution provides that the state shall support economic efforts and initiative that are useful to society. This provision, as the Constitutional Court has held more than once, implies the duty of the state and municipal institutions and officials by no decisions or actions to hinder the expression and development of the initiative of persons, if it is not harmful to society. At the same time, this provision constitutes constitutional legal preconditions for a possible differentiated legal regulation of economic activity, the main criterion whereof is the common welfare of the Nation. In itself, the differentiated legal regulation, when it is applied to certain groups of persons which are distinguished by the same signs, and in case it strives for positive and socially significant goals, or if the establishment of certain limitations or conditions is linked with peculiarities of regulated social relations, is not regarded as discrimination (the Constitutional Court’s rulings of 11 November 1998, 13 May 2005 and 31 May 2006).

10.3. Paragraph 3 of Article 46 of the Constitution provides that the state shall regulate economic activity so that it serves the general welfare of the Nation.

The Constitutional Court has held the following: the formula “the State shall regulate economic activity” of Paragraph 3 of Article 46 of the Constitution means not the right of the state to administer all or certain economic activity at its discretion, but its right to establish legal regulation of economic activity, i.e. the establishment of limitations (prohibitions) on and conditions of economic activity, and the regulation of procedures in legal acts (the Constitutional Court’s rulings of 13 May 2005 and 4 December 2008).

The Constitutional Court has held more than once that, while regulating economic activity, the state has to follow the principle of coordination of interests of the person and society and has to guarantee the interests of both the private person (a subject of economic activity) and society; by means of regulation of economic activity the state must seek the welfare of not individual persons but precisely the general welfare of the Nation; the general welfare of the Nation cannot be opposed to the welfare, rights and legitimate interests of the economic subject (whose economic activity is regulated) itself as well as those of other persons who have established and are running the said economic subject or are otherwise related to the said subject; in addition, it is not permitted to ground or to justify, by invoking the general welfare of the Nation, any regulation by which the rights and legitimate interests of a certain economic subject are limited more than necessary, and whereby unfavourable and unequal economic conditions are established to economic subjects, their initiative is restricted and opportunities for its manifestation are not created.

As a rule, regulation of economic activity is linked with establishment of conditions for economic activity, regulation of certain procedures, control over economic activity, as well as with certain limitations and prohibitions on this activity (the Constitutional Court’s rulings of 13 May 2005, 5 March 2008, and 30 June 2008). In its rulings, the Constitutional Court has held more than once that, according to the Constitution, it is permitted to restrict the human rights and freedoms, including freedom of economic activity, in case the following conditions are observed: this is done by law; the restrictions are necessary in a democratic society in order to protect the rights and freedoms of other persons and the values entrenched in the Constitution as well as the constitutionally important objectives; the restrictions do not deny the nature and essence of the rights and freedoms; the constitutional principle of proportionality is followed.

10.4. Paragraph 4 of Article 46 of the Constitution provides that the law shall prohibit monopolisation of production and the market and shall protect freedom of fair competition.

The Constitutional Court has held more than once that the provision “the law shall prohibit monopolisation of production and the market” means that it is prohibited to introduce a monopoly, i.e. it is prohibited to grant, by law, an economic subject exceptional rights to operate in a certain sector of economy due to which this sector would become monopolised, however, the prohibition on monopolisation of production and the market does not mean that it is prohibited, under certain circumstances, to state in the law the existence of monopoly in a certain sector of economy or to reflect factual monopolistic relations otherwise and to regulate them accordingly, i.e. to create legal preconditions in order to apply corresponding requirements to a monopolist (including, inter alia, the restriction on the establishment of discriminatory prices, the state regulation of the size of prices and tariffs for the goods of the monopolistic market, the establishment of the requirements for the quality of goods as well as the control implemented by the state institutions on how the economic subjects follow the established requirements) while protecting the rights and legitimate interests of other economic subjects and consumers.

The Constitutional Court has held also more than once that protection of fair competition is the main way to ensure the harmony between the interests of a person and the interests of the state while regulating economic activity, to create self-regulation of economy as a system which would encourage distribution of economic resources in an optimal manner, using them efficiently, increasing economic growth and improving the welfare of consumers. The constitutional guarantee of the protection of fair competition obliges the institutions of state power and municipal institutions to ensure freedom of fair competition by legal means; such legal means are the prohibition against such agreements among economic subjects, whereby one seeks to limit competition and which limit or may limit competition, the prohibition on abusing the dominant position, control over market concentration and corresponding prohibitions on concentration, the prohibition on unfair competition, control over the observance of the rules of the protection of fair competition which are established in laws and liability for violations thereof (the Constitutional Court’s rulings of 6 October 1999, 9 April 2002, 17 March 2003, 26 January 2004, and 2 March 2009).

10.5. Paragraph 5 of Article 46 of the Constitution provides that the state shall defend the interests of the consumer. The Constitutional Court has held more than once that this provision implies that laws and other legal acts ought to establish various measures of protection of the interests of consumers, that state institutions ought to control economic subjects how the latter are following such measures, and if the production and the market are virtually concentrated in the area of certain economic relations, a duty falls on the institutions of state power to establish an additional legal regulation which would ensure the protection of the interests of consumers.

11. The state must regulate the economic activity so that it would also ensure, inter alia, the public interest established in Article 54 of the Constitution—the protection of the natural environment and individual objects of nature as well as areas of particular value, and the rational use, restoration and augmentation of natural resources to guarantee which is a constitutional duty of the state (the Constitutional Court’s rulings of 13 May 2005 and 14 March 2006).

12. While deciding whether Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law was not in conflict with Article 46 of the Constitution, it needs to be noted that, as it has been held in this ruling, the licences to transmit, distribute and store gas could be issued only, inter alia, to those enterprises which either had, under the right of ownership, the gas systems necessary for the implementation of the corresponding activity (main pipelines, distribution networks, gas storage facilities, etc.) or possessed the said systems in other legal ways; and only the enterprises to which the corresponding licences were issued could engage in the gas transmission and distribution activity in the concrete territory. Therefore, by the impugned legal regulation, the right to engage in the economic activity—gas transmission, distribution and storage—was related with certain conditions, inter alia, possession of the corresponding gas systems or legal use thereof and holding the licence to engage in the concrete kind of activity.

In this ruling it has been mentioned that, under the Natural Gas Law (wording of 10 October 2000), in the territory of activity which is specified in the licence, the gas enterprises which transmit and distribute gas, had/have to develop the facilities of gas transmission and distribution; the licences for installation of gas transmission and distribution systems were not issued if the existing capabilities were not used; gas enterprises had/have to connect the systems of other gas enterprises to their systems; if the capacity of the system was not sufficient in order to satisfy the future gas needs of the consumer, the gas enterprise had to increase the capacity provided that there are technical possibilities; gas systems were built under procedure established by means of laws and other legal acts.

In this ruling, it has also been mentioned that, under the Constitution, the state has the right to establish the legal regulation of economic activity, inter alia, the conditions, limitations (prohibitions) on economic activity, regulation of procedures in legal acts, however, while establishing such restrictions, it may not deny such essential provisions of freedom of economic activity as the equality of rights of subjects of economic activity, fair competition etc.; it is prohibited to grant, by law, an economic subject exceptional rights to operate in a certain sector of economy due to which this sector would become monopolised; while regulating economic activity, the state has to follow the principle of coordination of interests of the person and society and has to guarantee the interests of both the private person (a subject of economic activity) and interests of society, and to seek not the welfare of individual persons but precisely for the general welfare of the Nation.

It needs to be noted that the legal regulation established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law was applied to all the enterprises seeking to get the licence to engage in natural gas transmission, distribution and storage activity in a certain territory, therefore, by means of such legal regulation one did not deny the equal rights of economic subjects. It also needs to be noted that the requirement for the enterprises, which seek to get the licence to engage in gas transmission, distribution and storage activity, to have gas systems under the ownership right or use them in any other legal ways was natural and necessary for the licensed natural gas transmission, distribution and storage activities, which, without these systems, are impossible at all. Therefore, there are not enough legal grounds for stating that the legal regulation established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law denied the freedom of fair competition, the possibility for the person willing to engage in the said economic activity to enter into the market, or that the constitutional principle of proportionality was deviated from.

It also needs to be noted that, in itself, the establishment of certain conditions of the said economic activity—gas transmission, distribution and storage—may not be regarded as the creation of preconditions for monopolising the market. The condition—to have the gas systems under the ownership right or use them in any other legal ways—established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law in order to get the licence was not an end in itself. By means of such legal regulation one sought to ensure proper execution of the specific kind of economic activity—natural gas transmission, distribution and storage—to ensure security, reliability and continuity of natural gas supply to its consumers, therefore, to ensure the interests of gas consumers equally. Therefore, there are also not enough legal grounds for stating that the impugned legal regulation established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law deviated from the prohibition on monopolising production and the market which stems from Article 46 of the Constitution, or disregarded the constitutional imperative to regulate economic activity so that it would serve the general welfare of the Nation, or created preconditions for violating the interests of consumers.

Taking account of the arguments set forth, the conclusion should be drawn that the legal regulation established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law, which is impugned in this constitutional justice case, did not violate the imperatives which stem from Article 46 of the Constitution.

13. While deciding whether Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law was not in conflict with Article 54 of the Constitution, it needs to be noted that, as it has been mentioned in this constitutional justice case, while regulating economic activity, the state must guarantee the public interest which stems from Article 54 of the Constitution—the protection of the natural environment and individual objects of nature as well as areas of particular value, and to ensure the rational use, restoration and augmentation of natural resources.

Meanwhile, Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law established the requirement for the enterprises to which the licences for transmission, distribution and storage of natural gas were issued to have the gas systems under the ownership right or use them in any other legal ways. Therefore, Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law regulated the relations of different nature than those which are regulated in Article 54 of the Constitution. On the other hand, Paragraph 1 (wording of 10 October 2000) of Article 9 of the Natural Gas Law established the requirement for the enterprises which had the right to engage in gas transmission, distribution and storage activities, to exploit the gas systems so that they would operate safely and efficiently and that environmental protection would be ensured.

Thus, there are no grounds for stating that by the legal regulation established in Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law one deviated from the imperatives of protection of natural environment established in Article 54 of the Constitution.

14. Taking account of the arguments set forth, the conclusion should be drawn that Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law was not in conflict with Articles 46 and 54 of the Constitution.

III

On the compliance of the provision “licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways” of Item 10 of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 with Articles 46 and 54 of the Constitution.

1. In this constitutional justice case, inter alia, the constitutionality of the provision of Item 10 of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 is impugned.

2. On 19 June 2001, the Government adopted the Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” which came into force on 23 June 2001. Item 1 of this resolution approved the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas which, under Item 3 of the resolution, came into force on 1 July 2001.

3. Item 10 of the Rules established the following:

Licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways.

The licences to supply gas may be issued to the enterprises whose authorised capital is not smaller than 10 percent of their annual amount of the gas supplied by the said enterprises, which is expressed in the price of its purchase. In addition, the enterprises which wish to get the licences to supply gas must assure the amounts of the supplied gas with an insurance company operating in the Republic of Lithuania.”

4. On 10 August 2002, the Government adopted the Resolution (No. 1256) “On Amending the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” which came into force on 15 August 2002. Item 1 of this resolution amended the second paragraph (wording of 19 June 2001) of Item 10 of the Rules and set it forth as follows: “The licences to transmit, distribute, store and supply gas shall be issued to the enterprises the authorised capital of which is one million Litas or more.”

5. On 14 May 2003, the Government adopted the Resolution (No. 593) “On Amending the Resolution of the Government of the Republic of Lithuania No. 743 ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” which came into force on 16 May 2003. Item 7 of this resolution supplemented Item 10 (wording of 10 August 2002) of the Rules with this paragraph:

The Commission shall ground its decision to issue or change the licence on the basis of the received documents specified in Item 16 of these Rules. According to the data specified in the documents, the technological, financial and management abilities of the enterprise which would permit engaging into the licensed activity must be assessed. The Commission shall establish the procedure for an assessment of these abilities.”

6. While amending and supplementing Item 10 of the Rules by the said government resolutions, the provision “licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways” of this item which is impugned in this constitutional justice case, has not been amended or supplemented.

7. It needs to be mentioned that, on 5 December 2007, the Government adopted the Resolution (No. 1304) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage, Liquefaction and Supply of Natural Gas” which came into force on 16 December 2007. Item 1 of this resolution approved the Rules of Licensing the Transmission, Distribution, Storage, Liquefaction and Supply of Natural Gas and Item 3 thereof recognised the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas (wording of 19 June 2001 with subsequent amendments and supplements) approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 as no longer valid.

8. It has been mentioned that Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law established the following: “Licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways.”

9. It has also been mentioned that Item 10 of the Rules established, inter alia, the following: “Licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways.” Therefore, the provision of Item 10 of the Rules which is impugned in this constitutional justice case established the legal regulation analogous to the one established in the impugned Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law.

10. In this ruling of the Constitutional Court, it has been held that Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law was not in conflict with Articles 46 and 54 of the Constitution.

11. Having held that Paragraph 2 (wording of 10 October 2000) of Article 5 of the Natural Gas Law was not in conflict with Articles 46 and 54 of the Constitution, it also needs to be held that the provision “Licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways” of Item 10 of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 was not in conflict with Articles 46 and 54 of the Constitution, either.

IV

On the compliance of the provision “The enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 with Article 5, Paragraph 1 of Article 7, Paragraphs 1 and 2 of Article 23, Paragraphs 1 and 4 of Article 46, Item 2 of Article 94 of the Constitution, with the constitutional principle of a state under the rule of law, as well as with Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy, Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law, Paragraph 2 (wording of 18 July 2000) of Article 1.2, Paragraph 3 (wording of 18 July 2000) of Article 1.3, Article 2.80 (wording of 18 July 2000) and Article 2.80 of the Civil Code, and Article 4 (wording of 23 March 1999) of the Law on Competition.

1. On 23 December 2002, the Government adopted the Resolution (No. 2091) “On Supplementing the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” which came into force on 28 December 2002. This resolution supplemented Item 37 of the Rules with, inter alia, the provision: “37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission.”

2. On 15 July 2003, the Government adopted the Resolution (No. 908) “On Amending the Resolution of the Government of the Republic of Lithuania (No. 743) ‘On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas’ of 19 June 2001” which came into force on 19 July 2003. By this resolution, Item 37.9 of the Rules was recognised as no longer valid.

3. It needs to be held that the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules which is impugned in this constitutional justice case established the legal regulation whereby as from 28 December 2002 gas supplying enterprises were obliged to establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission. Therefore, this government resolution prescribed that prices of gas supply for free customers are subject to regulation.

4. It has been mentioned that the Vilnius Regional Administrative Court, a petitioner, requests an investigation into the compliance of the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 with Article 5, Paragraph 1 of Article 7, Paragraphs 1 and 2 of Article 23, Paragraphs 1 and 4 of Article 46, Item 2 of Article 94 of the Constitution, with the constitutional principle of a state under the rule of law, as well as with Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy, Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law, Paragraph 2 (wording of 18 July 2000) of Article 1.2, Paragraph 3 (wording of 18 July 2000) of Article 1.3, Article 2.80 (wording of 18 July 2000) and Article 2.80 of the Civil Code, and Article 4 (wording of 23 March 1999) of the Law on Competition.

5. It needs to be noted that government resolution No. 743 of 19 June 2001 which approved the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas was adopted following, inter alia, Article 5 of the Natural Gas Law (wording of 10 October 2000). It has been mentioned that Article 3 of this law established, inter alia, the following: “The Government or an institution authorised by it shall establish the licensing rules.” Therefore, government resolution No. 743 of 19 June 2001 was designed for the implementation of the Natural Gas Law, thus, while deciding whether the provision of Item 37 (wording of 23 December 2002) of the Rules approved by this resolution which is impugned in this constitutional justice case, was not in conflict with the Constitution, first of all, it is necessary to elucidate whether this provision was not in conflict with the Natural Gas Law.

6. In this ruling, it has been held that the Law on Energy (wording of 16 May 2002) shall regulate general questions of energy activities, while peculiarities of activities of individual energy systems and of relations between energy enterprises and consumers shall be established by other laws, whose provisions which regulate energy activities shall be applicable to the extent they are not contrary to this law (Paragraphs 1 and 2 of Article 1 of the Law on Energy). In this context, it needs to be noted that one of such laws regulating the peculiarities of energy activity in the natural gas sector was/is the Natural Gas Law.

6.1. Under Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy, prices in the energy sector shall be contract and state regulated prices; prices shall be regulated by setting prices for services or energy, establishing their price caps or the procedure of regulation; the nomenclature and principles of regulation of state regulated prices shall be laid down in the laws of appropriate energy systems. In the context of the constitutional justice case at issue, it needs to be noted that the nomenclature of state regulated prices and principles of regulation in the natural gas sector were/are established in the Natural Gas Law.

6.2. Article 14 (wording of 10 October 2000) of the Natural Gas Law established, inter alia, the following:

1. The following prices shall be regulated in the gas sector:

1) transmission prices;

2) distribution prices;

3) storage prices;

4) gas prices for regulated customers.

2. The Commission shall establish the price caps for gas transmission, distribution and storage for a three-year term.

3. The Commission shall establish the price caps for gas for the regulated customers for a three-year term.

4. The gas enterprises shall annually establish the prices for gas transmission, distribution and storage which would not exceed the established price caps.

5. Every six months, the gas enterprise shall establish the gas prices for the regulated customers which would not exceed the price caps. <...>”

In this context it needs to be noted that, under Article 2 of the Natural Gas Law (wording of 10 October 2000), customer means any legal or natural person or enterprise not having the rights of a legal person, which purchases gas (Paragraph 22); free customer means a consumer having the freedom of choice in selecting a supplier (Paragraph 24); regulated customer means a consumer, who has no right to select a supplier (Paragraph 25); supply means delivery and/or sale of gas to consumers (Paragraph 7).

6.3. It needs to be noted that the Natural Gas Law is a lex specialis with regard to the Law on Energy. The essence of the principle lex specialis derogat legi generali is that in case there is rivalry between a general and a special norm, the special norm should be applied (the Constitutional Court’s rulings of 18 October 2000 and 7 January 2008).

Because of the fact that the Natural Gas Law is a lex specialis with regard to the Law on Energy and namely Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law established the nomenclature of the regulated prices in the gas sector, it needs to be held that until Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas law was amended, one could regulate only the prices for gas transmission, distribution and storage and the gas prices for regulated customers, while other prices, inter alia, the prices of gas supply for free customers were contractual (they could not be regulated).

7. While deciding whether the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules was not in conflict with Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law, it needs to be noted that, as it has been held in this ruling, the impugned provision established the legal regulation whereby as from 28 December 2002 gas supplying enterprises were obliged to establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission, i.e. this government resolution prescribed that prices of gas supply for free customers are subject to regulation. In this ruling it has also been held that, under Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law, one could regulate only the prices for gas transmission, distribution and storage and the gas prices for regulated customers, while other prices, inter alia, the prices of gas supply for free customers were contractual (they could not be regulated). Thus, by the legal regulation established in the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules one provided for something that was not provided by the legal regulation established in Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law. Therefore, the legal regulation established in the said provision of Item 37.9 of the Rules competed with the one established in Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law.

It also needs to be noted that the legal regulation established in the impugned provision of Item 37.9 of the Rules could not be grounded on Item 8 (wording of 16 May 2002) of Paragraph 2 of Article 5 of the Law on Energy in which it is prescribed that the Government or the institutions authorised by it, while implementing the state management of energy, shall have the right, in cases established by law, to impose the public-interest-related obligations on the enterprises engaged in energy activity, because, as it has been mentioned in this ruling, the Natural Gas Law is a lex specialis with regard to the Law on Energy and namely this law (i.e. the Natural Gas Law) established the nomenclature of the regulated prices in the gas sector. In addition, under Paragraph 19 (wording of 16 May 2002) of Article 2 of the Law on Energy, the public-interest-related obligations means imposition in the cases prescribed by law, upon the decision of the Government or its authorised institution, of obligations relating to security of energy supply, while the Natural Gas Law (wording of 10 October 2000) did not prescribe that the Government or its authorised institutions, while implementing the state management of energy, have the right to impose any public-interest-related obligations linked to the regulation of prices for free customers on the enterprises engaged in energy activity.

It also needs to be noted that the material of this constitutional justice case does not provide the legal ground to state that the Government, when adopting, on 23 December 2002, resolution No. 2091 and supplementing Item 37 “The enterprise which is engaged in gas supply, must” of the Rules by the provision “37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” implemented Article 8 (wording of 26 July 1990) of the Law on Prices, under which the Government may suspend or restrict price and tariff increases for a period not exceeding 6 months, if the dynamics of market prices and tariffs cause or are likely to cause a disturbance in the functioning of economy, which affects the interests of the economy of the state and its residents.

8. Taking account of the arguments set forth, the conclusion should be drawn that the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 was in conflict with Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law.

9. Having held that the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules was in conflict with Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law, the Constitutional Court will not further investigate whether this provision was not in conflict with Paragraph 1 (wording of 16 May 2002) of Article 15 of the Law on Energy, Paragraph 2 (wording of 18 July 2000) of Article 1.2, Paragraph 3 (wording of 18 July 2000) of Article 1.3, and Article 2.80 (wording of 18 July 2000) of the Civil Code, and Article 4 (wording of 23 March 1999) of the Law on Competition.

10. The Constitutional Court has held more than once that, under the Constitution, the Government, while adopting legal acts, must follow the valid laws and, while enforcing certain laws, it may not violate other laws; the legal acts adopted by the Government, which are substatutory legal acts, may not contain any legal regulation competing with that established in laws. The Constitutional Court has also held that the duty of the Government to adopt substatutory acts which are necessary so as to implement laws stems directly from the Constitution, while in case of a commissioning by the Seimas to do so, it also stems from the laws and Seimas resolutions concerning implementation of laws; it is important that the Government adopt substatutory legal acts without exceeding its powers, and that these substatutory legal acts be in conformity with the Constitution and laws (the Constitutional Court’s rulings of 18 December 2001, 5 March 2004, 31 May 2006, and 13 August 2007).

The Constitutional Court has also held in its acts more than once that the principle of a state under the rule of law entrenched in the Constitution implies the hierarchy of legal acts as well, inter alia, the fact that substatutory legal acts may not be in conflict with laws, constitutional laws and the Constitution, that substatutory legal acts must be adopted on the basis of laws, that a substatutory legal act is an act of application of norms of the law, irrespective of whether the act is of one-off (ad hoc) application, or permanent validity. The Constitutional Court has also held that if the legal regulation established in the government resolutions competed with the legal regulation established in the laws or were not grounded on the laws, not only the constitutional principle of a state under the rule of law and Item 2 of Article 94 of the Constitution would be violated but also Paragraph 2 of Article 5 of the Constitution, in which it is prescribed that the scope of power shall be limited by the Constitution; the constitutional principle of the separation of powers could also be violated (the Constitutional Court’s rulings of 31 May 2006 and 13 August 2007).

11. It has been held in this ruling that the provision “The enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 was in conflict with Paragraph 1 (wording of 10 October 2000) of Article 14 of the Natural Gas Law.

Having held that, it also needs to be held that the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 was in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution and with the constitutional principle of a state under the rule of law.

12. Having held that the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Government Resolution (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 was in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution and with the constitutional principle of a state under the rule of law, the Constitutional Court will not further investigate whether this provision was not in conflict with Paragraph 1 of Article 7, Paragraphs 1 and 2 of Article 23 and Paragraphs 1 and 4 of Article 46 of the Constitution.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 54, 55 and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

1. To recognise that Paragraph 2 (wording of 10 October 2000, Official Gazette Valstybės žinios, 2000, No. 89-2743) of Article 5 of the Republic of Lithuania’s Natural Gas Law was not in conflict with the Constitution of the Republic of Lithuania.

2. To recognise that the provision “licences to transmit, distribute and store gas shall be issued only to enterprises which have the gas systems under the ownership right or use them in any other legal ways” of Item 10 (Official Gazette Valstybės žinios, 2001, No. 53-1878) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Resolution of the Government of the Republic of Lithuania (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 was not in conflict with the Constitution of the Republic of Lithuania.

3. To recognise that the provision “the enterprise which is engaged in gas supply, must: <...> 37.9. Establish for free customers the price of gas supply which would not exceed the price cap of gas supply established by the Commission” of Item 37 (wording of 23 December 2002; Official Gazette Valstybės žinios, 2002, No. 124-5665) of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas as approved by the Resolution of the Government of the Republic of Lithuania (No. 743) “On the Approval of the Rules of Licensing the Transmission, Distribution, Storage and Supply of Natural Gas” of 19 June 2001 was in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution of the Republic of Lithuania, with the constitutional principle of a state under the rule of law and with Paragraph 1 (wording of 10 October 2000) of Article 14 of the Republic of Lithuania’s Natural Gas Law.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court: Armanas Abramavičius
                                                                      Toma Birmontienė
                                                                      Pranas Kuconis
                                                                      Kęstutis Lapinskas
                                                                      Zenonas Namavičius
                                                                      Egidijus Šileikis
                                                                      Romualdas Kęstutis Urbaitis