Project Finance2 0 1 0 | D I G I T A L G U I D E

E X E C U T I V E V I E W M E D I A L I M I T E D

Edited by Oliver Hargreaves

shaping boardroom strategiese x e c u t i v e v i e w . c o m

w w w . e x e c u t i v e v i e w . c o m

shaping boardroom strategiese x e c u t i v e v i e w . c o m

A B O U T T H I S D I G I T A L G U I D E

This interactive Digital Guide has clickable hyperlinks throughout the document to improve your reading experience.

Internal hyperlinks are provided to help with navigation. On the Contents pages, you can click on a headline to jump directly to

that article. At the bottom of each page in the document is a ‘Return to Contents’ button, which takes you

back to the first Contents page.

You will also find external hyperlinks at the end of each article, which allow you to find out more information about an

author and their company. These hyperlinks will automatically open a window in your internet browser, and take you to the

corresponding profile on www.executiveview.com.

NOTE: To get the most from this document, please download the PDF to your desktop and open it with Acrobat Reader. Some

functions may not operate as intended if you view the PDF within an internet browser.

E X E C U T I V E V I E W M E D I A L I M I T E Dw w w . e x e c u t i v e v i e w . c o m

Project Finance

2 0 1 0 | D I G I T A L G U I D E

Editor | Oliver HargreavesPublished in the United Kingdomby Executive View Media Limited

29th Floor, 1 Canada Square, Canary Wharf London, E14 5DY, United Kingdom

Tel: +44 (0) 207 712 1779

© 2010 Executive View Media LimitedISBN: 978-1-907420-08-5

© Contributors to this Digital Guide retain copyright of their works, herein published under licence.

The information provided in this publication represents the opinions of the authors and not necessarily their firms. Information should not be considered as legal or financial advice, which should always be sought

independently. The publishers accept no responsibility for any acts or omissions contained herein.

Unauthorised reproduction of this publication, in whole or in part, is strictly prohibited.Requests for reprint material should be

sent to oliver.hargreaves@executiveview.com

1

C O N T R I B U T I N G F I R M S

Aelex

Baker & McKenzie

Carey y Cía

CMS Cameron McKenna

DLA Piper

Felsberg, Pedretti, Mannrich e Aidar

Hogan Lovells LLP

Kalikova & Associates

M&P Bernitsas Law Offices

Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados

Morais Leitão, Galvão Teles, Soares da Silva & Associados

Norton Rose

Pinheiro Neto Advogados

Shearman & Sterling LLP

Veirano Advogados

Webber Wentzel

Contents | www.executiveview.com

2

1 | G L O B A L

Global _________________________________________________________________________________ 5

Financing LNG Regasification Facilities _______________________________________________5

2 | A M E R I C A S

Brazil _________________________________________________________________________________ 9

Creation and Enforcement of Security Interests in Brazil ____________________________________9

Negotiating Project Finance Deals with the Brazilian Development Bank ________________________ 11

The Challenges of Infrastructure and the Trends of Project Finance in Brazil _____________________ 14

Financing Energy Projects in Brazil: Political and Regulatory Risks ____________________________ 19

Recent Trends in Project Financing in Brazil: What Mechanisms are Companies Using to Fund their

Projects when Project Finance is Difficult to Obtain? ___________________________________ 21

Step-in Rights in Brazilian Energy Project Finance _______________________________________24

Structuring Security Packages for Brazilian Project Finance _________________________________ 27

Venezuela ____________________________________________________________________________ 31

Project Finance Issues in Venezuelan Natural Resources Projects _____________________________ 31

Impact of Exchange Control Regulations on Project Finance in Venezuela _______________________33

Chile _________________________________________________________________________________ 36

Project Finance Trends in Chile ____________________________________________________36

3 | E U R O P E

Portugal ______________________________________________________________________________ 40

The Increasing use in Portugal of Bond Placement with banks as an Alternative to Traditional Credit

Facilities – Advantages of this Type of Structure ______________________________________40

Portugal’s Hospital PPP Programme: Challenges and Difficulties in Coordinating Clinical Services with

Infrastructure ______________________________________________________________43

The Effects of the Financial Crisis on the Portuguese Project Finance Market _____________________46

Greece _______________________________________________________________________________ 49

Greek PPPs: A Sponsor’s “Survival Guide” _____________________________________________49

RETURN TO CONTENTS

www.executiveview.com | Contents

3

Hungary ______________________________________________________________________________ 52

Insolvency Law Issues in Project Finance Transactions in Hungary ____________________________ 52

Ukraine ______________________________________________________________________________ 56

Legal Framework for PPPs in Ukraine ________________________________________________ 56

Ukraine: PPP Environment Overview ________________________________________________ 59

4 | A S I A P A C I F I C

Singapore ____________________________________________________________________________ 64

Singapore’s Public Private Partnership Infrastructure Programme - Developments and Future _________64

5 | M I D D L E E A S T

Middle East ___________________________________________________________________________ 68

The Outlook for Middle East Infrastructure Financing ____________________________________68

Middle East PPP – How and Where will the Money Come From? _____________________________70

IWPP Financings in 2010 – Moving Forward from the Global Financial Crisis ____________________ 72

Abu Dhabi ____________________________________________________________________________ 76

Mafraq-Ghweifat Highway Project – Paving the Way for Future Regional Infrastructure Projects _______ 76

Kyrgyzstan ____________________________________________________________________________ 79

Kyrgyzstan Mining Industry: New Legislative Changes for Development ________________________ 79

Kyrgyzstan’s Electric Power Sector: Investment Potential __________________________________82

6 | A F R I C A

South Africa ___________________________________________________________________________ 86

An Overview of the South African Public Private Partnership Regulatory Framework ________________86

Nigeria _______________________________________________________________________________ 89

Structures in Nigeria for Lenders in Control of the Project __________________________________89

RETURN TO CONTENTS

www.executiveview.com | Kyrgyzstan

79

Kyrgyzstan Mining Industry: New Legislative Changes for Development

BY MURAT MADYKOV | KALIKOVA & ASSOCIATES

After facing significant challenges for many years, the economy of the Kyrgyz Republic is at a turning point. There

are reasons to expect a big step in the country’s development, rather than slow growth. At the moment, there are

crucial changes in almost all spheres of the state regulation system, including: (i) reorganisation of the Central

Government; (ii) strengthening the taxation and pricing system; and (iii) privatisation of strategic assets in the

electric energy sector and telecommunications.

Reforms in the mining industry are a key part of the current developments. The implementation of the reforms

will be based on proposed new laws and regulations – among which are mining concession laws, subsoil use and

protection laws, law on production sharing, and amendments to the existing tax and land codes. Currently these

laws are only at the discussion stage, however, the concept behind them is likely to remain and the laws will be

adopted and enter into force in 2010.

Ministry of Natural Resources

The central authority responsible for the upcoming major changes in the mining industry in the Kyrgyz Republic

is the Ministry of the Natural Resources (the “Ministry”), the new structure absorbed the powers of a number of

authorities including the former State Geology Agency, Environmental Agency, State Registrar, State Inspectorate

of Industrial Safety and Mining Supervision, and others. Pursuant to the recently adopted Regulation No. 734

on the Ministry dated December 4, 2009, the Ministry is entitled to maintain the state policy in various spheres

including subsoil use, cartographic and geodetic service, supervision over the use and protection of land, allocation

of water, industrial safety, environmental protection with regard to the exploration and mining projects, and fuel

resources policy.

According to the Regulation, the duties of the Ministry, among other, are as follows:

• issuance, suspension and revocation of licences for use of natural resources;

• issuance, suspension and revocation of licences for designing and use of hazardous industrial facilities,

blasting permits, certificates for obtaining and storage of explosives;

• issuance of opinions with regard to conversion of lands from one category to another;

• organisation of state reserve of the lands of mineral resources deposits and management thereof;

• expert review and issuance of expert opinions with respect to compliance of the construction, exploration

and mining project to the technical, environmental safety and subsoil protection requirements.

K Y R G Y Z S T A N

RETURN TO CONTENTS

Kyrgyzstan | www.executiveview.com

80

Once a licence is obtained, companies are required to elaborate a technical project of exploration or mining works

and agree it with various state authorities. Previously these powers were vested in different state bodies and

companies were required to knock on many doors to obtain approvals for exploration and mining works and

documentation. Now, as it can be concluded upon review of the powers of the Ministry, the procedure of obtaining

such approvals becomes easier as the Ministry is able to deal with the mining safety and environmental protection

matters.

Obtaining Mining Rights

In contrast to the previous regimes, the procedure for obtaining exploration and mining rights will change and

become more flexible to allow companies to choose the most appropriate regime under which exploration and

mining rights are granted. Currently, absolute majority of exploration and mining rights are granted through a

licence issued upon direct negotiations with the Ministry except for the rights to deposits of “state significance”,

which are granted through competitions.

Working under licence means that companies are required on a regular basis to apply for licence extension,

strictly follow licensing requirements which might be too general and not preferable for their individual needs.

In most cases, small failures to meet licensing terms could lead to disproportionate punishment in the form of

revocation of the licence by the Ministry.

As for the general licensing regime, the proposed draft laws stick to a more transparent procedure providing

for issuance of a licence on a “first come first served” basis. This approach, in comparison to the direct negotiations

which seem rather covert and known only to insiders, will eliminate future disputes on the validity of rights.

Moreover, the draft laws stipulate that if a licence holder does not fulfil the licensing terms, the licence can be

revoked only by court decision.

Should the proposed changes become effective, companies will have a choice to either obtain a licence or

enter into more negotiable concession or production sharing agreements. As opposed to licensing, concession and

production sharing agreement regimes will allow companies to negotiate with the state individual terms that meet

the companies’ needs. This may be achieved through favourable or discounted tax treatment, legislation stability

clauses and longer mining rights validity periods. In order to ensure obtaining the additional permits and smooth

operation of the company in the future, such agreements may provide for the obligation of the licensor to assist

in resolving the issues with the state and local authorities. Additionally, in order to avoid the state courts, the

concession or production sharing agreement can provide for the jurisdiction of international arbitration courts if

any legal disputes occur.

In addition to the new draft laws, the Kyrgyz laws provide the investors operating in the mining industry with

another option. This option can be realised through the public-private partnership, another new mechanism for

investment offered by the Law on Public-Private Partnership No. 154 dated May 11, 2009. The advantages of

the public-private partnership agreement are similar to those of concession and production sharing agreements,

however, the peculiarity of this regime is that it gives more freedom to investors. The latter are empowered to

stipulate in the public-private partnership agreements the provisions other than those provided in law. However

it should be taken into account that the parties may not agree on the terms contradictory to the current regulations

on:

• public security;

RETURN TO CONTENTS

www.executiveview.com | Kyrgyzstan

81

• security of the state;

• land, natural resources and environmental protection;

• healthcare;

• sanitary safety;

• military defence and mobilisation.

Transactions with Mining Rights

The proposed changes are another step towards free market relations in the mining industry. One of the significant

obstacles that companies face nowadays is a number of restrictions related to transfer and pledge of exploration

and mining rights in whole in or part. A company wishing to transfer or pledge its licence and rights granted by

such licence for the purposes of establishing a joint venture or attracting additional financing to the project must

obtain prior consent from the Ministry. The Ministry at its sole discretion may or may not consent to such transfer

or pledge. Pursuant to new draft laws, companies will have a right at their sole discretion to sell, transfer or pledge

their rights. Such actions need to be registered with the Ministry as well, as they entail payment of a bonus.

To minimise the state authorities’ interference and grant more freedom to companies, the proposed changes

introduce a number of economic tools to fight speculators who are just buying and selling licences or holding

licences for a long time without conducting any works. One of the proposed amendments is to apply bonuses

each time a licence is transferred, including when ownership in a company holding exploration or mining rights

changes. In order to encourage companies to actively explore and relinquish explored areas, the Ministry intends

to apply progressive licence fees payable per each hectare of the non-relinquished licensed area.

Surface Rights

Legal reforms will also affect current regulation of land use rights. As opposed to some of the jurisdictions, the

Ministry grants to companies only the right to explore or develop a certain part of subsoil. The relevant land

access and use rights shall be granted separately by the local authorities where licence areas are located after

companies obtain exploration and mining rights. Such local authorities are not under the control of the Ministry.

Moreover, existing land regulations contain restrictions over the land rights of foreign companies, which are the

majority among the holders of rights to the most significant deposits in the Kyrgyz Republic. For instance, if a

mining company is at least 20% owned by a foreign entity or controlled by a foreign entity in any manner, it may

obtain land use rights only by obtaining a resolution of the Central Government. This procedure may take up to

eight months and involve approvals from three to five different state agencies at different levels. This is a very

complicated process, as companies often face difficulties in dealing with local authorities. Moreover, the absence

of valid land use rights prevents companies from starting operation on the site and therefore imposes risks of

revocation of licence.

In order to minimise barriers related to obtaining land rights, the Ministry proposed changes that will enable

it to grant land use rights simultaneously when exploration and mining rights are granted. For this purpose, the

Ministry has initiated the amendments to the Land Code introducing the new type of land, the state reserve of

lands for mineral resources deposits. Currently, the Ministry is in the process of identifying the exact location of

such lands and registering them in the name of the Ministry.

RETURN TO CONTENTS

Kyrgyzstan | www.executiveview.com

82

Conclusion

It is evident that the proposed laws tend to introduce changes aimed at the improvement of the entire mining sector

of the Kyrgyz Republic. As we can see, the draft laws eliminate major difficulties that companies face under the

current legal framework as well as transform the state into the “night watchman”. The meaning of the anticipated

reforms clearly demonstrates the state’s willingness to dialogue with current and new investors for comprehensive

economic recovery in the mining industry.

Murat Madykov is a Lawyer at Kalikova & Associates.

Click here to view COMPANY profile

Kyrgyzstan’s Electric Power Sector: Investment Potential

BY MAGOMED SAADUEV | KALIKOVA & ASSOCIATES

General Data on Electric Power Sector

Kyrgyzstan (Kyrgyz Republic) is one the countries in Central Asia with enormous energy resources. The hydropower

sector is the country’s major energy source, producing 90% of total electricity. By the amount of electric power

produced at hydropower plants (“HPPs”), Kyrgyzstan is ranked third among CIS countries after Russia and

Tajikistan.

The main power production facilities were built and put into operation during the 1960 – 1980 years.

As of today, Kyrgyz electricity grid consists of:

• power producing (generating) companies (mainly, Electric Stations OJSC, owning the cascade of Toktogul

HPPs, Central Heating and Power Plants (“CHPPs”) of Bishkek and Osh cities);

• power transmitting companies (mainly, National Electric Grid of Kyrgyzstan OJSC, owning a countrywide

network of high-voltage transmission lines);

• power distributing companies (Severelectro OJSC, Vostokelectro OJSC, Oshelectro OJSC, Jalalabatelectro

OJSC, owning distribution networks in the provinces of Kyrgyzstan and supplying electricity to ultimate

consumers: industrial enterprises, the general public, etc.) and one heat distribution company –

Bishkekteploset OJSC.

All of the above power companies are controlled and owned by the state.

Aside from state-owned power companies, Kyrgyzstan has private corporations actively engaged in producing

power at small and medium HPPs such as Chakan HPP JSC, Bystrovskaya and Kalininskaya HPPs. Kyrgyz electric

power system consists of 17 electric power plants with the capacity of 3,680 MW, including 15 HPPs (2,950 MW)

and two CHPPs (730 MW) in Bishkek and Osh. Average annual power production in Kyrgyzstan is 14.486 billion

kWh. The electric power industry produces about 3.9% of GDP, 16% of industrial production volume, and 10% of

the republican budget revenue.

However, whereas Kyrgyzstan’s hydropower industry has capacity to produce about 140 billion kWh per year,

RETURN TO CONTENTS

A B O U T E X E C U T I V E V I E W M E D I A L I M I T E D

In today’s competitive business environment, the need for intelligent advice and comprehensive analysis has never been greater. Business leaders around

the world have come to rely on the guidance of intermediaries and consultants to successfully maintain a competitive advantage.

Executive View delivers unparalleled insight and comprehensive professional coverage of the issues driving the global business community. This unique

platform provides leading business advisers with a channel to publish thought leadership on issues relevant to corporate leaders around the world.

Visit us at www.executiveview.com

E X E C U T I V E V I E W M E D I A L I M I T E D

ISBN: 978-1-907420-08-5

shaping boardroom strategiese x e c u t i v e v i e w . c o m

w w w . e x e c u t i v e v i e w . c o m