ICLG

The International Comparative Legal Guide to: Project Finance 2019

8th edition

A practical cross-border insight into project finance

Published by Global Legal Group, with contributions from:

Abuka & Partners Kantenwein Allen & Gledhill LLP Lee and Li, Attorneys-at-Law Anderson Mōri & Tomotsune Milbank LLP Arthur Cox N. Dowuona & Company Baker McKenzie Oraro & Company Advocates Bignon Lebray Prager Dreifuss Ltd. Brigard Urrutia Rahmat Lim & Partners Cases & Lacambra RLA – Sociedade de Advogados, RL Cassels Brock & Blackwell LLP Sabeti & Khatami Cuatrecasas Sardelas Petsa Law Firm Cyril Amarchand Mangaldas Skadden, Arps, Slate, Meagher & Flom LLP Flor & Hurtado TGR Attorneys Global Law Office Veirano Advogados Gorrissen Federspiel Vieira de Almeida Grimaldi Studio Legale Zajednička advokatska kancelarija Marić & Mujezinović in Guilherme Daniel & Associados cooperation with Kinstellar IPFA Zaki Hashem & Partners PF19_Contents-Editorial_Layout 1 02/05/2019 16:51 Page 1

The International Comparative Legal Guide to: Project Finance 2019

General Chapters: 1 Why the World Needs Project Finance (and Project Finance Lawyers…) – John Dewar, Milbank LLP 1 2 Legal Issues of Cross-Border Project Finance Focusing on the Netherlands and Italy – Daphne Broerse & Matteo Trabacchin, IPFA 8 3 Common Structures and Market Trends in Holdco Financings in the US Power Industry – Contributing Editor José A. Morán & Juan Carlos Gonzalez Novo, Baker McKenzie 13 John Dewar, Milbank LLP 4 Current Trends in LNG Development and Construction – Julia A. Czarniak & Gregory D. Howling, Sales Director Skadden, Arps, Slate, Meagher & Flom LLP 16 Florjan Osmani Account Director Country Question and Answer Chapters: Oliver Smith 5 Andorra Cases & Lacambra: Miguel Cases & Marc Ambrós 22 Sales Support Manager Toni Hayward 6 Angola Vieira de Almeida and RLA – Sociedade de Advogados, RL: Manuel Protásio & Vanusa Gomes 31 Sub Editor Oliver Chang 7 Brazil Veirano Advogados: Ana Carolina Barretto & Amanda Leal Brasil 41

Senior Editors 8 Canada Cassels Brock & Blackwell LLP: Alison Manzer & Charles Newman 51 Caroline Collingwood 9 China Global Law Office: Dr. Xin Zhang & Shuhui Luo 60 Rachel Williams 10 Colombia Brigard Urrutia: Manuel Fernando Quinche & César Felipe Rodríguez 68 CEO Dror Levy 11 Denmark Gorrissen Federspiel: Morten Nybom Bethe & Tina Herbing 78

Group Consulting Editor 12 Ecuador Flor & Hurtado: Mario Flor & Daisy Ramirez 87 Alan Falach 13 Egypt Zaki Hashem & Partners: Sameh Kamal 96 Publisher 14 England & Wales Milbank LLP: John Dewar & Munib Hussain 104 Rory Smith 15 France Bignon Lebray: Sébastien Pinot & Serge Rastorgoueff 122 Published by Global Legal Group Ltd. 16 Germany Kantenwein: Marcus van Bevern & Sven Ceranowski 135 59 Tanner Street 17 Ghana N. Dowuona & Company: NanaAma Botchway & London SE1 3PL, UK Akosua Achiaa Akobour Debrah 143 Tel: +44 20 7367 0720 Fax: +44 20 7407 5255 18 Greece Sardelas Petsa Law Firm: Panagiotis (Notis) Sardelas & Email: [email protected] Konstantina (Nantia) Kalogiannidi 151 URL: www.glgroup.co.uk 19 India Cyril Amarchand Mangaldas: Santosh Janakiram & Subhalakshmi Naskar 159 GLG Cover Design F&F Studio Design 20 Iran Sabeti & Khatami: Behnam Khatami & Hooman Sabeti 168

GLG Cover Image Source 21 Ireland Arthur Cox: Matt Dunn & Charlotte Upton 177 iStockphoto 22 Italy Grimaldi Studio Legale: Riccardo Sallustio & Giuseppe Buono 189 Printed by 23 Japan Anderson Mōri & Tomotsune: Kunihiro Yokoi & Wataru Higuchi 199 Ashford Colour Press Ltd May 2019 24 Kenya Oraro & Company Advocates: Pamella Ager & James K. Kituku 207

25 Malaysia Rahmat Lim & Partners: Dzuhairi bin Jaafar Thani & Copyright © 2019 Global Legal Group Ltd. Syed Rashid bin Rahim Alsree 218 All rights reserved 26 Mozambique Vieira de Almeida and Guilherme Daniel & Associados: No photocopying Teresa Empis Falcão & Guilherme Daniel 230 ISBN 978-1-912509-71-3 27 Nigeria Abuka & Partners: Patrick C. Abuka & Sunday Edward, Esq. 240 ISSN 2048-688X 28 Portugal Vieira de Almeida: Teresa Empis Falcão & Ana Luís de Sousa 250 Strategic Partners 29 Serbia Zajednička advokatska kancelarija Marić & Mujezinović in cooperation with Kinstellar: Tijana Arsenijević & Branislav Marić 260 30 Singapore Allen & Gledhill LLP: Kok Chee Wai & Kelvin Wong 269 31 South Africa TGR Attorneys: Phologo Pheko 278 32 Spain Cuatrecasas: Héctor Bros & Javier Vivas 290 33 Switzerland Prager Dreifuss Ltd.: Daniel Hayek & Mark Meili 301 34 Taiwan Lee and Li, Attorneys-at-Law: Hsin-Lan Hsu & Pauline Wang 309 35 USA Milbank LLP: Daniel J. Michalchuk & Richard M. Hillman 318

Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

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Chapter 14

England & Wales John Dewar

Milbank LLP Munib Hussain

1 Overview trend comes in part from the US, where a growing (from 2016 to date) prevalence of greater infrastructure and energy sponsor focus on Term Loan B structures – used as refinancing tools, or sitting 1.1 What are the main trends/significant developments in alongside conventional financings and/or less conventional the project finance market in your jurisdiction? financings (for example, inventory and receivables financings) – is spreading to the European market. Here, commentators are 2019 has been an interesting year for project finance in and from the predicting that such a Term Loan B market will see increased use of UK, not least given the continued uncertainty following the UK’s forward purchase agreements, cash sweeps and power hedges in referendum vote to exit the European Union. transactions. The sector gained confidence over 2019, however, leaving Multilateral and bilateral institutions have continued to participate commentators with an optimistic view of 2020. in the market, and existing institutions (re-branded with additional products to help fill debt financing gaps) have continued to invest in The UK market breaks (broadly speaking) into two quite distinct the UK’s energy and infrastructure sectors (especially in light of the halves – a UK-oriented market where local (as in UK-sited) deals UK’s anticipated exit from the European Union, which has, are structured and financed, and a much larger and more seemingly, buoyed governmental commitment to investing in UK geographically diverse finance market where (for one reason or infrastructure, and the availability of funds for UK bilateral and another) international finance is structured, negotiated and multilateral institutions investing abroad – this is particularly the documented in the UK (in practice, London), but the underlying case in the government’s treatment of UKEF’s Direct Lending project is located elsewhere. The two markets are both relatively Facility, see below). large in terms of capital and debt requirements and flows, but the international English-law finance market far outstrips the domestic By way of example: UK market in both volume and size of deals. ■ the European Investment Bank continues to maintain its Europe 2020 Project Bond Initiative; As the UK emerges from the economic slowdown and moves into a period of economic growth, there is considerable demand for ■ the UK Green Investment Group, with a mandate to finance “green” projects, saw its £250 million energy-to-waste upgrading existing infrastructure or investing in new, greenfield project (Rookery South Energy Recovery Facility) reach projects. Each year, the UK Government publishes a “National financial close in March 2019; and Infrastructure and Construction Pipeline” (the “NIP”). Last year, ■ UK Export Finance’s (“UKEF”) Direct Lending Facility was the NIP confirmed that the current value of UK projects, relating to granted a £2 billion direct lending capacity expansion, which the transport, energy, utilities, digital infrastructure and flood and is expected to come on stream in two £1 billion amounts in coastal, science and research and social infrastructure sectors was at 2020/21 and 2021/22. over £188 billion (combined public and private investment), of The UK Green Investment Group was launched in October 2012 (at which over £125 billion is expected to be delivered by 2020/21. the time, as a non-departmental public body of the Department for Through these investments and projects, the government aims at Business, Energy & Industrial Strategy (“BEIS”), but it was sold to increasing living standards, driving economic growth and boosting Macquarie Group Limited in August 2017) and has since committed productivity. The Conservative Government expects that over the over £15 billion of financing to 100 green infrastructure projects, next decade to 2028, total public and private investment in the sector committing £3.4 billion to the UK’s green economy. From 17 is expected to reach around £600 billion. Already, public and August 2017 to 31 August 2018, for example, the UK Green private infrastructure investment has gradually increased over the Investment Group supported 10 new ‘green transactions’ and past three decades (since 2010, 4,500 infrastructure projects have arranged or invested over £1.6 billion. It is the first investment bank been delivered). The two largest sectors, energy (which boasts worldwide to invest solely in green infrastructure (their 2017–18 investment of £51.7 billion from 2018/19 to 2020/21) and transport progress report noted that the UK Green Investment Group had (£54.9 billion from 2018/19 to 2020/21), account for over half of the 7GW of renewable energy capacity either in development or infrastructure pipeline’s total value. construction). The funds have been used to leverage private-sector In the UK, the divide between conventional project finance and the capital to fund projects in priority sectors from offshore wind to bond and leveraged finance markets continues to narrow. The waste and non-domestic energy efficiency, with notable success market saw a continuation of diversification of both sources and stories over 2018 and 2019. For example, in December 2018, the types of project-related debt. As with the project bonds market, the UK Green Investment Group’s Galloper offshore wind farm (in

104 WWW.ICLG.COM ICLG TO: PROJECT FINANCE 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page105 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 decarbonisation asmorepowerplants aredecommissionedinthe at ensuringbothinvestment in infrastructure,alongside significant powerplantclosuresin recentyears–the Act wasaimed carbon electricity. Suchreformsarevital,astheUKhasseen required by2020toensureareliableanddiversesupplyoflow- billion (approximatelyUS$175billion)ofcapitalinvestment policy initiativepioneeredbytheUKGovernmenttomobilise£110 implements keyaspectsofElectricityMarketReform(“EMR”)–a To bolstertheUK’s efforts inachievingthis,theEnergy Act 2013 2020. achieve 15%ofitsenergy consumptionfromrenewablesourcesby The 2009RenewableEnergy Directivesetatarget fortheUKto The UK’s energy sectorcontinuestoundergo significantchange. The energymarkets Statement). enhance UKEFsupportforUKexportersannouncedinSpring export contracts’ (HMGovernmentpressrelease:Newmeasuresto working capitalrequirements,ratherthanlinkingsupporttospecific UKEF support.Itwillallow‘UKEFtosupportexporters’ overall with thestatedaimofallowingawiderrangeexporterstoaccess UKEF’s bow. A new‘GeneralExportFacility’ hasbeenannounced, The SpringStatement(14March2019)deliveredfurtherarrowsto provided certaincriteriaaremet. with anybankorinstitutiontodeliveritsdirectlendingsupport, partners toassistitsinvestments,UKEFnowhasfreedompartner previously UKEFwouldestablishapanelofinvitedlending institutions hasbeenwidenedandmademoreflexible. Whereas increased fundsforinvestment,thewayUKEFpartnerswithother EU hasalsoprecipitatedachangeinUKEF’s work.Inadditionto the 2016ReferendumresultandUK’s anticipatedexitfromthe generate revenuesinaforeigncurrency. As alreadytouchedupon, currency riskandvariabledebtcostswhereaprojectdoesnot Currency Financingisparticularlyusefulforreducingforeign goods/services fromanexporteroperatingintheUK.Local different currencies),provided theloanisusedtopurchasecapital overseas borrowerinalocalcurrency(itsupportsaround40 Under thisscheme,UKEFcanguaranteeacreditloangiventoan UKEF hasalsointroducedaLocalCurrencyFinanceScheme. available tooverseasbuyersofBritishexportssupportedbyUKEF. Facility aimstoboosttradebyensuringthatlong-termfundingis markets orothercommercialloans. The ExportRefinancing million thatareintendedtoberefinancedthroughthedebtcapital non-sterling buyercreditloans,typicallywithvaluesabove£50 yen. The ExportRefinancingFacilityisavailabletobanksfunding UK. Loanscanbemadeinsterling,USdollars,eurosorJapanese goods and/orservices,fromexporterscarryingonbusinessinthe in aggregatetooverseasbuyersfinancethepurchaseofcapital explained above,thisfigureisexpectedtorise£5billionby2022) loans upto£3billion(asthefundcurrentlystands,thoughas Under theDirectLendingScheme,UKEFprovidesexportcredit Refinancing Facility;andtheLocalCurrencyFinanceScheme. funding-related facilities:theDirectLendingScheme;Export for internationalprojectfinancerisk.UKEFhasthreeadditional UKEF hasalsoshownasignificantshiftinapproachandappetite sign forthegrowingstrengthofUKgreenenergy investment. expected mid-2019).Suchrobustmarketactivityisapromising subsidiary ofEnelGreenPowerNorth America (financialcloseis solar andenergy storageunitownedby Tradewind Energy, a Investment GroupalsoannouncedthatitwassettobuySavion,the South Energy, outlinedabove,inMarch2019theUKGreen 2019 Q1:inadditiontothefinancialclosereachedonRookery of £1.2billion. The UKGreenInvestmentGroupalsohadabusy which itholdsa25%stake)wassuccessfullyrefinancedtothetune

The UK’s currentelectricitymixhaschangedsubstantially, and opportunities forfutureinvestment. ups wereapproved,ensuringsolid(albeitnotspectacular) Shelf. In2017and2018,12five(respectively)newfieldstart- gaining traction–particularlywithregardtotheUKContinental creating costsavingsand,despitetightbudgets,explorationis compared to2017and20%higherthan2014levels),competitionis levels arenowattheirhighestsince2011 (up4%in2018 market. Total production(includingbothoilandgasproduction) Business Outlook).However, thereisalsocautiousoptimisminthe and pressuresonmargins persist(accordingtoOil&GasUK’s 2019 Exploration andproductioncompaniesarekeepingtightbudgets, has depressedcapitalinvestmentinoilandgasprojectstheUK. “new normal”oflowcommoditypricessince2016,forexample, sector hasnotbeenimmunetotheeffects ofglobaltrends. The In broaderterms,theUKprojectfinancemarketinoilandgas “polluter pays”principle. environmental anddecommissioningactivityinlinewiththe allows thegovernmenttocontinuerecovercostsofits licences forenvironmentalanddecommissioningactivity. This comprehensive charging oftheoffshore oilandgas industryfor (“OGA”) asanindependentregulatorandenabledamore regulation. The Act formallyestablishedtheOilandGas Authority recommendations intoUKoffshore oilandgasrecoveryits focuses ontheoilandgassectorworkstoimplement The subsequentEnergy Act 2016furthersthe2013 Act’s work.It increase asmajorsectorssuchtransportandheatareelectrified. by theendofthisdecade,anddemandforelectricityissetto UK. Around afifthofcapacitythatwasavailablein2011 willclose economics offinancingforsuchprojects. programmes thatarespecifically designedtostabilisethe technology) intheUK,UKGovernment hasinstitutedaseriesof projects (andinparticular, thedevelopmentoflow-carbon private investmentinthedevelopmentoflarge-scale infrastructure coming fromconventionalthermalpower. Inaneffort topromote much as33GW comingfromrenewablesandtheremaining26GW developing approximately59GW newnetcapacityby2025,withas by 57%2030.Suchtargets areinformedbytheUK’s needof ambitious (butlegallybinding)target ofreducingcarbonemissions EU, inJune2016,theConservativeGovernmentannounced To allayfearsthatthistarget wouldbelostontheUK’s exitfromthe UK’s energy fromrenewablesources(notincludingnuclearpower). to achievethelegallybindingEUtarget ofsourcing15%the emissions (acrosstheeconomy)asagainst1990levelsand,by2020, driven bytheneed,2050,foran80%reductionincarbon deliver secureenergy anda sustainablelow-carbonfuture. This is The UKGovernment’s energy andclimatechangegoalsareto hydro plantsafurther2.9%oftherenewableenergy portion. record ofsolargeneration.Biomassplantscontributed20.8%,and energy percentage–5.2terawatt hours(27.1%),representinganew farms, too,contributedasizeableproportionoftherenewable generating 9.5terawatthoursofpowerovertheyear(49.2%).Solar farms contributedthemosttorenewableenergy percentage, windy conditionstheUKhasexperiencedoverpastyear;wind achievements weretoasubstantialextentreliantontheespecially (this isthefirsttimethishashappenedforoveracentury).Such the UK’s electricitywasnotgeneratedbycoal-firedpoweratall stations (comparedto40%in2012).Indeed,fortwodaysover2018 from renewablesources,andonly1.3%coal-firedpower patterns). InQ2of2018,31.7%UKelectricitygenerationcame renewable-generated electricity(atrendinlinewithglobal rapidly, overthepastcoupleofyears.Mostnotableisanincreasein

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105 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page106 106 England & Wales conditions intheUKforinvestmentnewnuclearpowerstations, active stepstoestablishandcementtherightframework Department forBusiness,Energy andIndustrialStrategy)istaking disposal costs,theOffice forNuclearDevelopment(withinthe decommissioning andtheirfullshareofwastemanagement nuclear powerstationsintheUK,includingmeetingfullcostsof it willbeforenergy companiestofund,developandbuildnew programme inItaly. Although theUKGovernmentemphasisesthat announced byGermanyandthecancellationofanew-buildnuclear result inareversalofthispolicy, unlikethenuclearphase-out Turkey. The eventsatFukushima,Japan(March2011) didnot political decisionsinotherjurisdictions,notablytheUAEand supply. The UKGovernment’s supportechoessimilarpro-nuclear dependable, safeandcapableofincreasingthediversityenergy This isbasedonnuclearpowerbeinglow-carbon,affordable, accounted for21.7%oftotalelectricitygeneratedinthatquarter. in theUK’s futureenergy mix.InQ2of2018,nucleargeneration nuclear, anddisplayedafirmcommitmenttotheroleitshouldplay The UKGovernmenthas,however, continuedinvestmentinnew Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM include thefollowing: stalled nuclearprojects.Notablewind projectsanticipatedin2019 the shortfallinlow-carbonenergy productionresultingfrom the Wind projectsintheUnitedKingdomareexpected tomakeupfor sector (andtheplantsthatmakeitup)remainstobeseen. of ‘Brexit’ willmean fortheeverydayrunningandoperationof during negotiationswiththeEuropeanUnion,andwhatoutcome sector remainsanareaofparticularcontentionintheBritishpress nuclear standardsandagencies. Treatment oftheUK’s nuclear ensure continuedcooperationwith,andadherenceto,European ‘Brexit’ meansthatthe UKmustestablishappropriatemeasuresto In addition,theprospectofleavingEuratomCommunityupon plants. Hitachi decidednottopursueitsplansforthe Wylfa andOlbury winding upitsNuGenerationsubsidiary, andinJanuary2019 Toshiba announceditwaswithdrawingfromtheprojectand Horizon NuclearPowerplanthavebeenstalled:inlate2018, It shouldbenoted,however, thatboththeNuGenprojectand ■ ■ ■ ■ dominated bythefollowingdevelopmentsinnuclearsector: of promisingdesigns.Infact,asJuly2018,theUKmarketwas as welltoassesstheirfeasibilityandacceleratethedevelopment development intoinnovativeadvancedandsmallmodularreactors, funding wouldbeavailableuntil2020tosupportresearchand of newnucleartechnologies. The governmenthasannouncedthat which plantscancomeonline,whilstalsofosteringthedevelopment well. Currentpolicyemphasisesestablishingahealthymarketin nuclear technologies,withasuiteofpolicyfocusespublishedas to becomeaworldleaderindevelopingthenextgenerationof in December2017,whenitannouncedthattheUKhadpotential The UKGovernment’s strongsupportfornuclearpowerwasshown from around2020. with theaimofhavingnewnuclearprojectsgeneratingelectricity generation atMoorside,Sellafield. NuGen hasproposedtobuildup3.8GW ofnuclearpower (2.7 GW each);and reactors (ABWRs)ateachofitssitesin Wylfa and Oldbury Energy Ltd,intendstobuild twoadvancedboilingwater Horizon NuclearPower, ownedbyHitachi-GENuclear Sizewell (3.2GW); EDF andCGNalsointendtoconstructtwofurtherEPRsat type ofreactor)atHinkleyPointC(3.2GW)); Company (NNBG))arecurrentlyconstructingtwoEPRs(a online in2025(EDFandCGN(asNNBGeneration Hinkley PointCisunderconstructionandplannedtocome

finance inthemarkets. The UKGScanissueupto£40billionof projects accessdebtfinancewheretheyhavebeenunabletoraise offering agovernment-backed guaranteetohelpinfrastructure projects doesnotstallduetoadversecreditconditions.Itworksby in nationallysignificantandfinanciallycredibleinfrastructure mechanism thataimstoenhanceliquidityensureinvestment Government introducedtheUKGuaranteeScheme,whichisa From apolicyperspective,theInfrastructure Act 2015,theUK Transformation oftheUKelectricitymarket sizeable amountisexpectedtobegrantedoffshore windfarms. £557 millionasideforsubsidiesrenewableenergy, ofwhicha employing 27,000people. The Britishgovernmenthasputafundof electricity needs,attracting$48billionininvestment,and Offshore windisanticipatedtogenerateoverathirdoftheUK’s ■ ■ ■ CfD thenpaysthedifference betweenanestimateofthemarket remain activeparticipantsinthewholesale electricitymarket. The CfD willselltheirelectricityintothe marketinthenormalway, and The CfDisaquasi-powerpurchase agreement:generatorswitha from 2018to2020,ifnecessaryconditionsaremet. has providedaguaranteeforupto£2billionthatwillbeavailable investment inHinkleyPointC,theSomersetnuclearpowerplant.It guarantee toEDF(France)assistinbringingforwardtheir UK Governmentconfirmedthatithadprovidedagovernment nuclear projectstobecommerciallyviable.InOctober2016,the Government guaranteeswerenecessaryinorderfornew-build sponsors andinvestors.IntheUS,itwasdeterminedthatUS requirements posesubstantialfinancialriskstonuclearpower horizon fornuclearnew-buildprojectsandmassivecapital costs forlow-carboninfrastructure.However, thelongplanning renewables) byhelpingdeveloperssecurethelarge upfrontcapital in low-carbonelectricitygenerationprojectssuchasnuclear(and The provisionofCfDsisintendedtostabiliserevenuesforinvestors electricity generators. consumers fromhighcostsandgivesgreatercertaintyofrevenuesto limited company)enterintoacontractthatultimatelyprotects Carbon ContractsCompany(“LCCC”–agovernmentowned instrument, wherealowcarbonelectricitygeneratorandtheLow generation istheprovisionofcontractfordifference (“CfD”) The keypolicymeasuretoincentivisenewlow-carbonelectricity energy supplythroughthe development oflow-carbontechnology. Government’s keypolicymechanismforensuringsecurityof in low-carbongeneratingtechnologies.EMRistheUK and hashadsignificantimplicationsfortheeconomicsofinvesting “once-in-a-generation transformation”oftheUKelectricitymarket, In addition,theEnergy Act 2013 wasaimedatbringingabouta bonds andloans,supportingover$4billionworthofinvestment. guarantees totalling£1.8billionof Treasury-backed infrastructure guarantees andisopentoatleast2026. To date,ithasissuednine Power. Iberdrola Renovables,andSwedishcompany Vattenfall Wind Renewables, asubsidiaryofSpanishenergy company operational by2020. The projectisownedbyScottishPower generating powerin2019,andisexpectedtobefully 714 MW East Anglia ONEprojectintheNorthSeawillstart Power Limited. SSE, CopenhagenInfrastructurePartners,andRedRock which issetforcompletionin2019. The projectisownedby Beatrice Offshore Wind FarminScotland’s MorayFirth, project isexpectedin2020. the UKgridinFebruary2019,andfullcompletionof offshore windfarm. The projectbegansupplyingenergy to company Ørsted,andisanticipatedastheworld’s largest coast. The projectisownedbyDanishrenewableenergy Hornsea One,a1.2GW offshore windfarmonthe Yorkshire

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PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page107 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 carbon pricingandtheCPF. Inthe2017 Autumn Budget,the CO2. There havebeenrepeatedcallsforlonger-term clarityon Government. Until2020,theCPF isfrozenat£18pertonneof market priceofcarbonandthefloor pricedeterminedbytheUK support rateswouldreflectthedifferential betweenthefuture by theaveragecarboncontentofeachfossilfuel. The carbonprice depending onthetypeoffossilfuelused,whichwillbedetermined Such suppliesarecharged attherelevantcarbonpricesupportrate, either theclimatechangelevy(“CCL”)orfueldutyfromthatdate. fuels usedinmostformsofelectricitygenerationbecamesubjectto greater supportandcertaintytothecarbonprice.Suppliesoffossil additional investmentinlow-carbonpowergenerationbyproviding price floorintroducedon1 April 2013,withtheaimofencouraging Amongst otherEMRpolicieswastheestablishmentofacarbon support anewcleantechnologyearlystageinvestmentfund. measures undertheStrategyincludeproviding£20millionto that businessesandconsumershaveaffordable energy. Practical cut greenhousegasemissions,achievecleangrowth,butalsoensure Climate Change Act 2008. This strategyconfirmsacommitmentto Growth Strategy”,announcedinOctober2017andbasedonthe These resultsandplansareconsistentwiththeUK’s new“Clean Scotland. auctions willincluderemoteislandwindschemesoff thecoastof energy projectstotakeplace asof29May2019. The upcoming The BEISannouncedanewroundofCfDauctionsforrenewable million willbemadeavailableforinvestment. and athirdroundisplannedforspring2019,whereupto£557 two offshore windprojects wereawardedCfDsat£57.50MWh), has beenrenewed. There wasasuccessfulroundin2017(where the UKGovernment’s commitmenttotheCfDauctionprogramme of supportinglow-carbonelectricitygeneration.Recently, however, partly causedbytheUKGovernment’s attemptstoreininthecosts would nottakeplaceuntiltheendof2016. This postponementwas Change confirmedthatthedelayedOctober2015CfDauction in November2015,theSecretaryofStateforEnergy andClimate the postponementofnextCfDauctionround,and,subsequently, Department forBusiness,Energy &IndustrialStrategy)confirmed July 2015,theDepartmentofEnergy andClimateChange(nowthe Market measures,which,inturn,createduncertaintyforEMR.In has beenadecreaseinpaceimplementingtheCfDandCapacity price. However, followingtheMay2015GeneralElection,there first auctionprocuredcapacityatalmosthalftheexpectedclearing It wasasimilarstoryfortheCapacityMarketauction,where than theoriginalstrikepricespublishedforsametechnologies. competitive allocationprocess,andthecostwas£105millionless The firstCfDauctioninJanuary2015wasasuccess,with electricity suppliers. the costofCfDswillultimatelybemetbyconsumersviaalevyon contract betweenalow-carbonelectricitygeneratorandtheLCCC, behind theCfDeconomics. Although aCfDisprivatelaw mechanism wasindirectresponsetoconcernsaboutthe“credit” act asthecounterpartytoeligiblegeneratorsunderCfD. This The Energy Act 2013includesaprovisionwherebytheLCCCwill substantially reducingthecommercialrisksfacedbytheseprojects. generator’s long-termexposuretoelectricitypricevolatility, fixed level,overthedurationofcontract. This mitigatesthe difference. Inthisway, CfDsstabilisereturnsforgeneratorsata investment, thecontractobligesgeneratortopayback However, ifthemarketpriceishigherthanneededtoreward is lowerthanneededtorewardinvestment,theCfDpaysa“top-up”. This meansthatwhenageneratorsellsitspower, ifthemarketprice bring forwardinvestmentinagiventechnology(thestrikeprice). price forelectricityandanestimateofthelong-termneededto

new nucleardesigns,whichallowsthesafety, securityand undertaking aprocessofGenericDesign Assessment (“GDA”)of industry. The ONRandtheEnvironment Agency aretogether Nuclear Regulation(“ONR”),toregulatethenuclearpower measures tocreateanewindependentstatutorybody, theOffice for management anddisposal. The Energy Act 2013also introduced the fullcostsofdecommissioningandtheirsharewaste stations willhavesecurefinancingarrangementsinplacetomeet Energy Act 2008toensurethatoperatorsofnewnuclearpower built bytheendof2025. The UKGovernmentlegislatedinthe consultation –identifyingsitesfornewnuclearpowerstationstobe installation ofnuclearreactors,including–followingpublic investors. A planningregimehasbeenproposedtoaidthe which areaimedatreducingregulatoryandplanningrisksfor The Office ofNuclearDevelopmenthasfocusedontakingactions Regulatory framework into alow-carbon,energy-efficient future. energy usetodecreasetheirenergy billsandtransition UKindustry by £315millionofinvestment,aimstoaidbusinesseswithhigh established IndustrialEnergy Transformation Fund,which,backed Savings generatedfromthiswillbereinvestedinanewly- technologies ontheEnergy Technology Listasof April 2020. Enhanced Capital Allowances (ECAs)andFirst Year Tax Creditsfor In the2018budget,UKGovernmentannouncedremovalof reform theEUETS. Commission considered,butultimatelyrejected,asimilarsystemto price untilunabatedcoalisnolongerused. The European set attherightlevel,andwillcontinuetotarget asimilartotalcarbon Government stateditwas“confident”thatthe Total CarbonPriceis Climate Change(nowtheDepartment forBusiness,Energy & 2016, certainfunctionspassedfrom theDepartmentofEnergy and In April 2015andfollowingtheintroduction oftheEnergy Act trillion cubicfeet. Bowland-Hodder shaleinnorthernEnglandisapproximately1,300 Survey (BGS)haveestimatedthatthetotalvolumeofgasin scheme inLancashire.ScientistsfromtheBritishGeological government overturnedlocalcouncilobjectionstoafracking UK, theindustrywonanimportantvictoryin2016when While UKshaleoilisstillintheearlystagesofexploration European exporters. currently one-thirdofthose Western Europe–amajorissuefor investment byoilandgasbuyersinUSshaledevelopment)are England. USenergy costs(partlyasaresultofsignificant unexplored depositsthroughoutmuchofeasternandsouthern of theUK’s landareamightbesuitableforfracking,includingasyet for Business,Energy &Industrial Strategy)reportedthatuptohalf Department ofEnergy and ClimateChange(nowtheDepartment and southernEngland.InDecember2013,theUKGovernment’s UK gasconsumption.Furtherreservesarelikelytoexistincentral Liverpool andBlackpool)–equivalenttoapproximately50yearsof England (primarilyintheBowlandshalebeneathManchester, could beupto1,300billioncubicfeetofshalegasinthenorth within theUK–BritishGeologicalSurveyestimatesthatthere Shale gasfrackingremainsanareaofgreatinterestandpotential Shale gas reactor intheUK. significant oneintheoverallprocesstoconstructanewtypeof suitable forconstructionintheUK. The completionofthisstepisa Reactor (UK ABWR) wasgrantedapproval,andconfirmedas late December2017,theHitachi-GEUK Advanced Boiling Water are grantedtoaparticulardesignofreactoronsite.In assessed beforeanapplicationismadeforalicenceandpermissions environmental implicationsofnewnuclearreactordesignstobe

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107 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page108 108 England & Wales north ofEngland).Interestingly, someoftherejectionscamefrom to sevenin2018alone(mainlyfocusedaroundtheMidlandsand cumulative totalofplanningrejectionsagainstfrackingcompanies South Yorkshire wasrejectedbylocalcouncillors,raisingthe March 2018,theapplicationbyIneostoexploreforshalegasin Fracking remainsacontroversialissueintheUK,however. In Outstanding NaturalBeautyand World HeritageSites. specified groundwaterareasoutsideNationalParks, Areas of hydraulic fracturingcanonlytakeplacebelow1,200metresin prohibited. The draftregulationsensurethattheprocessof defined theprotectedareasinwhichhydraulicfracturingwillbe On 16July2015,theUKGovernmentlaiddraftregulationsthat environmental impactassessment. needs landownerandplanningpermission,whichmayrequirean rights toanareaincompetitivelicencerounds. The operatorthen conventional orunconventionalgas:operatorsbidforexclusive well isthesameirrespectiveofwhetherdrillsfor Following thischange,theprocessofobtainingconsenttodrilla Industrial Strategy)totheOGA,anewlycreatedexecutiveagency. Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM specific. Ingeneralterms,currency exchangevolatility(thepound Brexit’s effects ontheprojectfinancemarketarebothgeneraland forward areonthetable. Parliament. A varietyofdifferent, oftenmutuallyexclusive,ways 23–26 May2019,theUKmusttakepartinelectionstoEuropean next stepsbefore12 April. IftheUKisstillamemberofEUon Conservative GovernmentmustcometotheEUwithaclearplanof Article 50to12 April 2019.Underthetermsofsuchextension, requested anextensiontothenegotiationperiodwarrantedby unprecedented margins ofdefeatoverthe Withdrawal Bill, not bemet. The ConservativeGovernment,followingnearly date onwhichtheUKwasplannedtoexitEU(29March)will At thetimeofwriting(lateMarch2019),itisclearthatoriginal contentious pieceoflegislation. “major swathesofthestatutebook”. As such,itisahighly by theHouseofCommonslibrary. Itprecipitatesanexaminationof “one ofthelargest legislative projectseverundertakenintheUK” achieved intheimmediateaftermathofexitingEU.Itisseenas UK domesticlaw, sothatassmoothatransitionpossibleis of JusticeoverUKcourts.ItwilltransferallcurrentEUlawinto exit. ItalsoaimstoremovethejurisdictionofEuropeanCourt determine theUK’s position Kingdom fromtheEU.Itisprimarypieceoflegislationthatwill other provisionsinconnectionwiththewithdrawalofUnited that willreplacetheEuropeanCommunities Act 1972andmake European Union,andhastabledabill,“theEU Withdrawal Bill” then, theConservativeGovernmenthasbeennegotiatingwith In June2016,theUKvotedtoleaveEuropeanUnion.Since Brexit negotiationsandthe EU Withdrawal Bill processes havefurtherimpededgrowthoftheshalegasindustry. review theregulations.Protestsandslow, costlyplanningpermission significantly –particularlyastheBritishgovernmenthasnoplansto a result,believethefrackingindustryisunlikelytodevelop Industry stakeholdershavecalledtheregulationsunworkableand,as Cuadrilla, forinstance,hadtohaltitsactivitiesseveraltimesin2018. halt ifseismiceventsof0.5oraboveinmagnitudearedetected. However, current regulationsrequirefrackingactivitiestocomea gas bytheearly2030s. that frackinghasthecapacitytoeliminateBritain’s needtoimport The UnitedKingdomOnshoreOil&Gasindustrygroupforecasts Labour Party, ontheotherhand,isanti-fracking). Manifesto promiseofdevelopingashalegasindustryintheUK(the Conservative councils,despitetheGovernment’s

vis-à-vis

currentEUlegislationpost-

Public ContractsRegulations2015SI2015/102). This meansthat continue tobesubjectEUprocurementdirectives(suchasthe During anypossibletransitionperiod,itislikelythattheUKwill clarity ontheGovernment’s positiononthisissue. those commerciallenderscanprovide. The sectorawaitsmore translates intolosingaccesstocheaperandlonger-term loansthan Additionally, theCommitteeworriedthatlosingaccesstoEIB profits, interestordividendsthattheEIBhasaccumulated. EIB backover12years,theUKwillnotreceiveanyshareof despite theUKreceivingits€3.5billioncapitalinvestmentin highlights themonetarycostofleavingEIB:itisenvisagedthat they criticisetheGovernment’s silenceontheissue. The reportalso the UK’s relationshipwiththeEuropeanInvestmentBank,inwhich House ofLordspublishedapaperanalysingtheimpactBrexiton EIB. InlateJanuary2019,theEuropeanUnionCommitteein any publicstatementabouttheintendedfuturerelationshipwith UK asathirdcountry. Nevertheless,theGovernmenthasnotmade future relationshiptheUKhaswithEIBwilllikelybe the EIBifitisnotalsoanEUMemberState. This meansthatany the positionappearstobethatUKcannolongeramemberof one-third oftotalinvestmentinUKinfrastructure). At highlevel, £5.6 billionfor40different projects,amountingtoapproximately smaller-scale UKprojects(in2015,forexample,theEIBprovided which uptothevotehadbeenanimportantsourceoffundingfor continued accessoftheUKtoEuropeanInvestmentBankFunding, market. Inparticular, thevotecreatesuncertaintyover credit marketsbothnegativelyimpactedontheUKprojectfinance the subsequentthreeyearssincevote),andarestrictionto substantially weakenedfollowingthevoteandhashitnewlowsin government fundingisavailable.One suchwindfarmisthe Walney – throughContractsforDifference, forwhichupto£557million of generation –particularlyviatheconstruction ofoffshore wind farms The Britishgovernmentseeksto encouragelow-carbonenergy public-private partnership(“PPP”)refinancing. Thameslink Project,andtheIntercityExpressProgrammePhase1 project, theGalloperOffshore Wind Farm,the£6.5billion Wind Farmproject, the£2.2million Thames Tideway Tunnel the BeatriceOffshore Wind Farmproject,the Triton KnollOffshore Project inSomerset,theMorayEastOffshore Wind Farmproject, Notable recentprojectfinancedealsincludetheHinkleyPointC 1.2 Finance PLCandConsortHealthcare(Salford)PLC). example, Alpha Schools(Highland)Project, Aspire Defence financings havebeendowngradedfromstabletonegative(for higher inflationaryenvironment.Ontheotherhand,fiveproject also noticedthatintheshortterm,projectshavebenefittedfrom finance initiativesshouldmaintaintheircreditstrength. They have infrastructure. StandardandPoorshavecommentedthatprivate potential policiestostimulatetheeconomyviainvestmentin Brexit suchastheadoptionofaloosermonetarypolicyinUKor optimism regardinggovernmentliquiditysupportforprojectspost- It hasbeensuggestedinthelegalpressthattherearereasonsfor directives. would havetocontinueapplyallEUpublicprocurement UK seekstoretainmembershipoftheEuropeanSingleMarket,it repeal therelevantlegislationunlessapressingneedarises.If and post-transitionperiod,butitislikelythatParliamentwillnot is unclearwhatthepositionwillberegardingprocurementpost-exit awarding publiccontractsinaccordancewiththeEUdirectives.It organisations underthe rules mustcontinueadvertisingand have takenplaceinyourjurisdictionrecentyears? What arethemostsignificantprojectfinancingsthat

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PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page109 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 contracts isnecessaryandwilldiffer onacase-by-casebasis. application for, andmaintenanceof,permits, licences andkey analysis oftheregulatoryandpractical conditionsapplicabletothe expressed tobenon-assignableintheabsenceofconsents. A careful personal totheinitiallicence-holder;contractualrightscanbe terminable. Certaintypesoflicencesandpermitsare,ineffect, result inpermitsandlicencesbeingbreachedand/orbecoming example, breachoflicenceconditionsorchangecontrolcan paid totheconsequencesofdefaultinwidersense–byway or ownerofpermitsandlicences,specialattentionwillneedtobe concern isdependentuponthecontinuingavailabilitytoanoperator Where (asisveryoftenthecase)viabilityofaprojectasgoing “cure” and“step-in”rights. contractual arrangementsprovidinglenderswithspecificnotice, conventional legalsecurityisoftensupplementedbybespoke security isnormallyinsufficient toachievethistypeofoutcome; (or selling)therelevantassetasagoingconcern.Basiclegal them inapositionofdefault,steppingifnecessaryandoperating security onaUK-basedprojectorasset. This isaimedatputting More oftenthannot,lenderswilllooktoachieve“goingconcern” by wayofseparatesecurityagreementsforeachtypeasset. and assets(bothpre-existingafter-acquired) or(lesscommonly) agreement, suchasadebenture,whichcoversalltheSPV’s rights Security isnormallygrantedbywayofageneralsecurity those associatedwiththeproject. “SPVs” withnopre-existingbusinesses,rightsorliabilitiesbeyond finance borrowingvehiclesarenormallyspecialpurposeor over all,orsubstantiallyaprojectcompany’s assets.Project the usualrequirementofalltypeslenders)istocreatesecurity In domesticUKprojectfinancings,theintentionofparties(and 2.1 developments. such asliftingconstraintsonfuturehousingandother and widereconomy. Itwillalsobringotherregenerationbenefits people directlywithseveralthousandmorejobsinthesupplychain will beginin2019. The Tunnel constructionwillemployover4,000 future needsofthecity. Constructionbeganin2017,andtunnelling aiming toupgradeLondon’s seweragesysteminordertomeetthe The Thames Tideway Tunnel isamajorinfrastructureproject Crayford. will entailaddingover30kmoftunnelsbetween Wimbledon and completed inFebruary2018.Phase2willbeginmid-2019,and maintenance moreefficient andlessdisruptivetoroaduserswas project soughttoreplacedatedenergy circuitsandmake network ofcabletunnelsinandaroundthecapital.Phase1 electricity networks,LondonPower Tunnels isbuildinganew As partoftheNationalGrid’s £750millioninvestmentinLondon’s wind capacityeachyearasof2020. enable theprivatesectortoproduceup2GW ofnewoffshore awarded in2014.Itishopedthatsuchgovernmentsupportwill received governmentfundingthroughaContractforDifference Cumbria. The Walney Extensionbecameoperationalin2018and and PFA adjacenttothe367MW Walney project off thecoastof Extension, a659MW offshore windfarmownedby Ørsted,PKA 2 what istheprocedure? required inrelationtoeachtypeofasset?Briefly, general securityagreementorisan Is itpossibletogiveassetsecuritybymeansofa Security

assignee hasanequitableassignment,whichdoesnotgranttherightto assignments. Iftherequirementsundersection136arenotmet, and contractsusedforthepurposesofprojectfinancingareequitable section 136;thevastmajorityofassignmentsreceivables,accounts own name.Itisoftennotpossibleinprojectfinancingtocomplywith been perfected,theassigneehasrighttosuethirdpartyinits assigned rightsneedtobenotifiedinwriting.Iftheassignmenthas only, andanythirdpartiesagainstwhomtheassignorcouldenforce to thebenefitinaction)andnotbesetoutbywayofcharge the assignor, beabsolute(meaningthattheassigneehasentireright out theprocedure. A legalassignmentmustbeinwritingandsignedby a legalassignmentofrightsbywaysecurity, thensection136sets Law ofProperty Act 1925.Ifthesecuredlenderwishestoimplement A legalassignmentofanassetmustcomplywithsection136the security (butseequestion2.2belowregardingregistration). prescribed procedureorformofdocumentrequiredtocreate land) but,inpractice,securityisalwaysdocumented. There isno It ispossible,intheory, tocreatesecurityorally(unlessitrelates land andshares. assets (includingsecurityinterests)and,inparticular, asregards English lawdifferentiates betweenlegalandequitableinterestsin on thenatureofsecurityassets. include arangeofmortgages,charges andassignmentsdepending enforcement ofthetwotypessecuritydiffers. A debenturewill security. Assignments maybelegalorequitable;theprocessfor charges andassignmentsarethemostfrequentlyusedformsof (broadly equivalenttocharges), pledgesandliens.Mortgages, (equitable andlegal),charges (fixedandfloating),assignments The maintypesofsecuritiesunderEnglishlawaremortgages and rankingincaseofthechargor’s insolvency. Registration isimportantforthechargee tosecureitspriority rights ■ ■ ■ ■ registration: The followingarethemaintypesofsecuritywhichrequire foreshore orininternationalwaters. arise overthecreationofsecurityassetslocatedon analysing thelegalstandingofanassetisimportant.Complications which theyareaffixed) andmoveablesor“chattels”–sofully “fixtures” (whicheffectively becomepartofthelandorpropertyto constitute fixtures. The depreciationpositiondiffers between of thatland;pipesandcablescanincertaincircumstancesalso and machinerywhichisfixedtolandnormallydeemedbepart way ofafixedcharge over plant,machineryandequipment.Plant leasehold interest.Securityovermoveablesisnormallyeffected by over (ideally)afreeholdtitle,orbythecreation(orassignment)of Security isusuallytakenoverrealestatebywayofalegalmortgage 2.2 debenture. The debentureis executedasadeed. charges overalltheborrower’s assets,ifagreed,andassetoutinthe Debentures cancreatelegalmortgagesandfixedfloating in writing,whichcanbeeffected bymeansofadebenture. Other securities,suchasacharge andamortgage,requireevidence can onlybebywayofequitableassignment. sue thethirdpartyinitsownname. Assignments offuturecontracts security overshipsandaircraft. security overcertainIP rights;and mortgages andcharges overinterestsinland; company charges; procedure? underground oroverground)?Briefly, what isthe machinery andequipment(e.g.pipeline,whether Can securitybetakenoverrealproperty(land),plant,

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109 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page110 110 England & Wales 2.3 example, atthe Trade MarksRegistry). property mayalsobesubjecttoseparateregistrationprocedures(for Land Charges Department.Notethatsecurityoverintellectual real estateinterestswillberequiredattheLandRegistryor any creditor. Separateregistrationsregardingsecurityoverlandand insolvency officer, appointedinrespectofthechargor andagainst to registerwillresultinthesecuritybecomingvoidagainstan House within21daysofthedatecreationsecurity. Failure any securityitgrants(subjecttosomeexceptions)atCompanies Under theCompanies Act 2006,acompanymustregisterdetailsof execution ofthedebenture,securityhastoberegistered. to perfectalegalmortgageandfixedcharge followingthe terms andconditionssettingtheseoutinadebenture.Inorder The procedureisthesameassetoutabove,namelybyagreeing Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM of controlonthisassetclass,an equitable assignmentorfloating As itmaybeimpracticaltoservenotice ortoimposeahighdegree accounts. include transferringtothelenders full controloverreceivablesand security. Inthecontextofreceivablesandbankaccounts,thiswill will triggerdefault;defaultpermitthelenderstoenforce permitted undertherelevantaccountsoraccountbankagreement actual orpotentialEventofDefault. Any withdrawalwhichisnot Withdrawals will ceasetobepermittedupontheoccurrenceofan from thoseaccounts. agreement willestablishstrictrulesastopermittedwithdrawals Cash Flow Waterfall). A typicalprojectaccountorbank out clearrulesonthepriorityofapplicationavailablecash(the dedicated accountsheldbypre-agreedaccountbanksandwillset to theproject’s cashflows–thiswillrequirerevenuestobepaidinto Project financingswillinvariablyestablishastrictregimeinrelation 2.4 other priorrankingclaims. the proceedsoffloatingcharge enforcementaresubjecttocertain floating charges rankbehind fixedcharges intermsofpriority, and created. The formalitiesforthisformofsecurityarefewerbut by dealingpre-defaultwithitsreceivablesasifnosecurityhadbeen restricting oraffecting the chargor’s abilitytocarryonitsbusiness, security enablesthechargee totakesecuritywithoutunduly charge isoftenusedasanalternative formofsecurity. This formof of controlonthisassetclass,anequitableassignmentorfloating As itmaybeimpracticaltoservenoticeorimposeahighdegree impracticable wherethereareawiderangeofdebtors. of theassignmentmustbeservedonaccountdebtors–often under section136oftheLawProperty Act 1925,noticeinwriting is assignedtothelender, then,inordertoachievealegalassignment terms ofassetsecuritymaybelimited.Ifthebenefitreceivables covers onlyontheoccurrenceofacrystallisationevent)tolenderin practical valueofafloatingcharge (which“fixes”ontheassetsit receivables canalsobetakenbywayofafloatingcharge, butthe practical matterinthecontextofatypicalproject.Securityover are paidwhencollected;thisisalmostalwaysimpossibleasa lender tocontrolboththereceivablesandaccountintowhichthey Fixed charges overreceivablesorbankaccountsrequirethesecured Security overreceivablesisnormallytakenbywayofassignment. of thesecurity?Briefly, whatistheprocedure? absence ofadefaultandthedebtorsarenotnotified chargor isfreetocollectthereceivablesin Can securitybetakenoverreceivableswherethe accounts? Briefly, whatistheprocedure? Can securitybetakenovercashdepositedinbank

agent ortrusteeforthelenders,enablinglenderstotakealegal normally protectedbymeansofapowerattorneyinfavouran liabilities andreputationalrisk.Equitablesharecharges are for awiderangeofreasons,includingincurringshareholder resist becomingshareholdersofrecordinanSPV orprojectvehicle charge; lenderswillalways(subjecttoverylimitedexceptions) context ofprojectsisforsecuritytobeeffected bywayofequitable convention inEnglishlawfinancingsforsecurityoversharesthe governing lawofthemortgageshouldalwaysbeEnglishlaw. The charge overtheshares(anequitablemortgageorcharge). The Wales caneitherbetakenbywayoflegalmortgage,or Security oversharesincompaniesincorporatedEnglandand 2.5 assignment ofareceivable. English lawandinvalidatesaclausewhichpurportstoprohibitthe Receivables) Regulations2017,appliestocontractsgovernedby The newlaw, theBusinessContract Terms (Assignmentof other priorrankingclaims. the proceedsoffloatingcharge enforcementaresubjecttocertain floating charges rankbehindfixedcharges intermsof priority, and created. The formalitiesforthisformofsecurityarefewerbut by dealingpre-defaultwithitsreceivablesasifnosecurityhadbeen restricting oraffecting thechargor’s abilitytocarryonitsbusiness security enablesthechargee totakesecuritywithoutunduly charge isoftenusedasanalternativeformofsecurity. This formof security byacompany. The feedoes notvaryaccordingtotheclass A nominalfeeispayabletoCompanies Houseonregistrationof 2.6 equitable mortgagesovertheirsharesheldinCREST. The CREST systemallowsCREST memberstograntlegaland with thechargor untilanEventofDefaultoccurs. Voting rightsandtherighttoreceivedividendswillnormallyremain nominee) ifanEventofDefaultorenforcementeventoccurs. forms canbecompletedbythelender(infavourofitselfora transfer formswiththelender, onthebasisthatstocktransfer will normallyberequiredtolodgeitssharecertificatesandstock transferring onlyitsbeneficialinteresttothelender. The chargor as aregisteredshareholderandretainslegaltitletotheshares, With anequitablemortgageorcharge ofshares,thechargor remains shareholder. assets paidinrelationtotheshares,andwillbeentitledvoteasa as ashareholder, itwillreceivealldividendsandanyothermoneyor lender alltherightsofashareholder. While thelenderisregistered mortgagee. As aresult,thetransferwilloperatesoastogive fully entitledshareholderofthecompany, andnotjustasa lender willberegisteredinthecompany’s registerofmembersasa agreement fortheirre-transferoncethesecureddebtisrepaid. The shares inthecompanytolenderfromoutset,subjectan A legalmortgageofsharesinvolvesthetransferrelevant shares untilanEventofDefaultand/orenforcementeventoccurs. happy forthesponsors/relevantchargors toretainlegaltitle In theordinarycourseofevents,securedlenderswillnormallybe transfer ofsharesifdefaultoccurs,whereabsolutelynecessary. certificated form?Briefly, whatistheprocedure? incorporated inyourjurisdiction? Are thesharesin Can securitybetakenoversharesincompanies receivables andchattels)? of assets(inparticular, shares,real estate, otherwise) inrelationtosecurityoverdifferenttypes and otherfees(whetherrelatedtopropertyvalueor What arethenotarisation,registration,stampduty

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PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page111 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 ■ ■ ■ Principal featuresofthenewregistrationregimeinclude: existing proceduresandtoreduceuncertaintyoverregistration. Regulations 2013No.600. This regimeisintendedtostreamline into forceviatheCompanies Act (AmendmentofPart25) On 6 April 2013,anewregimefortheregistrationofsecuritycame House. registries relatedtotheassetinquestion,aswellatCompanies rights, shipsandaircraft,needtoberegisteredatotherspecialist Charges overcertainassets, suchasland,intellectualproperty risk ofrejectionandthelosstime(andpriority). particulars canbepre-agreedwithCompaniesHousetoreducethe particulars inadvanceoffinancialclose.Ifnecessary, these documents, itisessentialtodraftandagreetheregistration correction. As aresult,inthecontextofcomplicatedsecurity registrar identifiesadefectandreturnstheregistrationformfor weekends anddoesnotstoprunningiftheCompaniesHouse or itsadvisors). The 21-dayperiodincludesbankholidaysand registered particularslieswiththepresenter(inpractice,chargee registration. Responsibilityforensuringtheaccuracyof can haveseriousconsequencesasregardspriorityandeffective guarantee theiraccuracy).Inaccuraciesintheregisteredparticulars registered particulars(acceptanceofthedoesnot Companies Houseisnotresponsibleforinaccuraciesinthe other creditors. creation ofthesecurity, oritwillbevoidoninsolvencyandagainst specified formandmustbeundertakenwithin21daysofthe Registration withCompaniesHouserequiresthecompletionofa 2.7 registration ofsecurity. context oftheoveralltransaction.Nostampdutyispayableon fees areregistrationandwillnotusuallybesignificantinthe or LandCharges Departmentasregardssecurityoverland. These Additional feesarealsopayableforregistrationtotheLandRegistry the electronicfilingprocess. security documentusingthepaperfilingprocess,and£15for security document. The feeiscurrently£23forregisteringa of assetortypesecurity. Separateregistrationisrequiredforeach involve asignificantamountoftimeorexpense? in relationtosecurityoverdifferenttypesofassets Do thefiling,notificationorregistrationrequirements document toCompaniesHouse. There isnolongeranyneedtosendanoriginalcharging information (suchasbankaccountdetails)canberedacted. available toviewonline,althoughcertainpersonal of thecharging document. The entirecharging documentis particulars mustbefiledonlinetogetherwithacertifiedcopy an electronicfilingsystem.Underthissystem,astatementof wishing toregistersecurityhavetheoptionofregisteringvia Filing, e-filingandstatementsofparticulars the 21-daywindow. continue toapply. Securityshouldstillberegisteredwithin and anysecureddebtbecomesimmediatelyre-payable) becomes voidagainstaliquidator, administratororcreditor for non-registration(wherebynon-registeredsecurity longer acriminaloffence. However, commercialsanctions “Voluntary” registration is entitledtoregisterthecharge. The companyandanyperson“withaninterestinthecharge” are registrableexceptforanarrowrangeofexcludeditems. Scope ofchargescovered

: All charges createdbyacompany : Failuretoregistersecurityisno

: Persons

3.1 Act 1989. Environment forwaterandsewerage,undertakenunderthe Water the instrumentsofappointmentbySecretaryStatefor sewage industryinEnglandand Wales) mayalsoberequiredunder over anasset. The consentofOfwat(theregulatorthewaterand affect thegrantingofanymortgage,charge orotherform ofsecurity of hydrocarbonassetsortheFinancialConduct Authority, may regulatory authoritiesinrelationtoexplorationforanddevelopment Ofgem (thegasandelectricityregulatorinEngland Wales), water andtransmissionbusinesses).Inaddition,licencesgrantedby assets vestedinspecifictypesofprivatisedbusinesses(forexample, production andreprocessingplantsrelatedsitescertain those associatedwithdefence),nucleargeneration,fuel for example,certaintypesofgovernmentalassets(inparticular, legal regimesapply, however, todifferent typesofregulatedassets– rights orinrelationtomosttypesofprivatelyheldassets.Specific similar consentsarerequiredinrelationtomostlandandrealestate Government-owned, strategicandregulatedassets,noregulatoryor Subject tolimitedexceptionsinrelationcertaintypesofUK 2.8 This isnotapplicableinourjurisdiction. Seequestion3.1above. 3.2 fall withinthetrustee’s estateifthetrusteebecomesinsolvent. ownership remainswiththesecuredpartysotrustassetsdonot law trustsarenormallylong-termarrangements;beneficial transaction and(onaresidualbasis)fortheborroweritself.English security forthebenefitofitself,othersecuredlendersin such asanyLawDebentureorBanker’s Trust) whomayholdthe – eitheraneligiblefinancialinstitutionoraspecialisttrustcompany conveyance bytheborrowertoatrustee(usuallytrustcorporation The creationofatrustbyborrowerwillnormallyinvolvethe regulate theholdingofsecurityoverassets. often usedalongsidedebenturesinEnglandand Wales tocreateand differ fromthestrictlegalownership ofthoseassets. Trust deedsare normally usedtocreatebeneficialinterestsinassetswhichmay England and Wales fullyrecognisetheconceptoftrusts. Trusts are 3 Regardless ofwhetheryourjurisdictionrecognises Security Trustee whether undergroundoroverground),etc.? (land), plant,machineryandequipment(e.g.pipeline, respect tothecreationofsecurityoverrealproperty Are anyregulatoryorsimilarconsentsrequiredwith enforce theirsecurityseparately? lenders sothatindividualdonotneedto the facilityagent)toenforceclaimsonbehalfofall would allowoneparty(eitherthesecuritytrusteeor status) toachievetheeffectreferredabovewhich (such asaparalleldebtorjointandseveralcreditor jurisdiction, isanalternativemechanismavailable If asecuritytrustisnotrecognisedinyour lenders? proceeds fromthesecuritytoclaimsofall separately) toenforcethesecurityandapply trustee oragent(ratherthaneachlenderacting security trusteeoragentandallowthe the conceptofa“trust”,willitrecogniserole

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111 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page112 112 England & Wales The FinancialCollateral Arrangements (No.2)Regulations and (whererequired)properlyregistered. will opposeanysuchproceedingswheresecuritywasvalidlygiven secured assetsfollowingenforcement,butgenerallyEnglishcourts injunctive relieftopreventenforcementofsecurityorthesale It isimpossibletoexcludethepossibilityofthirdpartiesseeking requirement forapublicauctionfollowingenforcementofsecurity. In general,no.relationtounregulatedassets,thereisno 4.1 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM enforcement ofsecurity. businesses establishedinEngland and Wales inrelationtothe English law, foreigninvestorsaretreateddifferently from secured debtfinalisedbyittothe mortgagor. Ingeneral,under “equity ofredemption”)toreturn anyexcessproceedsoverthe reasonable priceonsaleofamortgagedasset,and(pursuanttothe obligations tothemortgagor–includinganobligationobtaina Even inthesecircumstances,amortgageenormallyhascertain once theliabilitiessecuredbymortgagehavebecomerepayable. the ownerofproperty. A mortgagee’s righttoforeclosearises The mortgageecouldobtainacourtorderunderwhichitbecomes asset becomesbestedinthemortgagee. (the mortgagor’s equityofredemptionisextinguished),andthat which themortgagor’s rightsinthesecuredassetareextinguished Foreclosure inthecontextofsecurityoveranassetisprocessby does intheUS. “Foreclosure” hasanarrowermeaningunderEnglishlawthanit 4.2 administration orthesubjectofacompanyvoluntaryarrangement. interest, whichwouldotherwisebeapplicablewhenacompanyisin permission ofthecourt,isrequiredtoenforcesuchasecurity means thatneithertheconsentofadministrator, northe or otherwisearisingunderafinancialcollateralarrangement. This Insolvency Act 1986willnotapplytoanysecurityinterestcreated Following theFCA,paragraph43(2)ofScheduleB1to collateral. force on6 April 2011 andincludedcreditclaimsasfinancial 2010/2993) (FCA Amendment Regulations2010). These cameinto Collateral Arrangements) (Amendment)Regulations2010(SI Markets andInsolvency(SettlementFinalityFinancial The FCA Regulations2003werefurtheramendedbytheFinancial amendments providedforchangesintheCompanies Act. 2009 (SI2009/2462)whichcameintoforceinOctober2009. These Arrangements (No2)Regulations2003(Amendment) The FCA Regulations2003wereamendedbytheFinancialCollateral and warrants)creditclaims. security overcash,financialinstruments(includingshares,bonds (2002/47/EC), withtheaimofsimplifyingenforcement in ordertoimplementtheFinancialCollateralDirective (“FCA”) cameintoforceinEnglandand Wales inDecember2003 4 assets) regulatoryconsents? bankruptcy/liquidator), or(b)(inrespectofregulated creditors/the company(oritstrusteein availability ofcourtblockingprocedurestoother (a) arequirementforpublicauctionorthe impact thetimingandvalueofenforcement,suchas Are thereanysignificantrestrictionswhichmay Enforcement ofSecurity companies? in theeventofforeclosureonprojectandrelated Do restrictionsapplytoforeigninvestorsorcreditors

able toappointanadministrativereceiver, subjecttocertain only lendersholdingsecuritycreatedbefore15September2003are charges. Sincethecoming intoforceoftheEnterprise Act 2002, any ofthecompany’s charges which,ascreated,werefloating the wholeofcompany’s assetsby, oronbehalfof,theholdersof businesses). An administrativereceiverisgenerallyappointedover Enterprise Act 2002,theseruleswerecapableofapplyingtoall apply tosecuritycreatedby“ProjectCompanies”(priorthe substantially all,theProjectSPV’s rightsandassets.Specialrules Lenders toaprojectnormallyinsistontakingsecurityoverall,or receivership arethemostimportantregimes. From alender’s perspective,administrationandadministrative ■ ■ ■ ■ ■ law: There aredifferent typesofinsolvencyproceedingsunderEnglish 5.1 as a“hardeningperiod”.Suchtransactions includetransactionsatan when suchtransactionsarevulnerable tobeingchallengedisknown before thestartofrelevantinsolvency procedure. The period liquidator maychallengetransactions enteredintobythecompany Following theformalinsolvencyofacompany, anadministratoror 5.2 above), thatlendermayvetotheappointmentofadministrator. has therighttoappointanadministrativereceiver(asdescribed objective istorescuethecompanyasagoingconcern.Iflender duties toallcreditors,notonlytheprojectlenders.Hisprimary administration tooccur. Onceappointed,theadministratoroweshis documentation. A companyneednotbeinsolventinorderfor company hastriggeredanEventofDefaultunderthefinancing whole orsubstantiallytheofcompany’s assets,andthe “qualifying” floatingcharge, providedthatthecharge relatestothe Out ofcourt,anadministratorcanbeappointedbytheholdera lender morecontrolovertherealisationofassets. over thesecuredassets. Appointing itsownreceiveroffers the assets, thelendermayappointoneormorefixed-charge receivers lender hasthehighest-priorityfixedcharge overthecompany’s appointed him,butheisalsoanagentofthecompany. Ifthesecured administrative receiver’s primary dutyistothesecuredlenderwho least £50millionforthepurposesofcarryingoutproject. The when theagreementisenteredinto,expectedtoincur)adebtofat agreement relatingtotheproject,aprojectcompanyincurs(or, subject tostep-inrights. A projectis“financed”if,underan company isnotpreventediftheprojecta“financed”and states thattheappointmentofanadministrativereceiverbyaproject set outundersection72EoftheInsolvency Act 1986.Section72E exceptions. The keyexception inthecaseofprojectfinanceisthat 5

schemes ofarrangement. company voluntaryarrangements(CVAs); and compulsory liquidation; receivership/administrative receivership; administration; security? to enforceitsrightsasasecuredpartyoverthe project companyaffecttheabilityofalender How doesabankruptcyproceedinginrespectofthe Proceedings Bankruptcy andRestructuring employees’ claims)withrespectto the security? other preferentialcreditors’ rights(e.g. taxdebts, Are thereanypreferenceperiods,clawbackrightsor

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PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page113 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 of ascheme,itishighlyflexible deviceandisavailabletoany practice. Sincethelegislationdoes notprescribethesubjectmatter scheme andagreenottotakeenforcement action,arecommonin whereby creditorscommitinadvance tovoteinfavourofthe moratorium attachedtothescheme,althoughlock-upagreements, and/or thefairnessofclasscomposition. There isnostatutory the provisionofinsufficient informationornoticeofthescheme consider anyobjectionsfromcreditors,whichcommonlyrelateto sanction oftheHighCourtEnglandand Wales. The courtwill creditors holding75%invalueofeachaffected class,andthe scheme. A schemerequirestheapprovalofamajorityinnumber relevant class(es)iftherequisitemajoritiesvotetoapprove (or anyclassofthem),whichwillbebindingonallcreditorsinthe companies tomakeacompromiseorarrangementwithitscreditors Part 26oftheCompanies Act 2006providesaprocedurefor 5.5 (for example,certainpipelinesandtransmissionassets). the preservationofcertaintypesstrategicallyimportantassets PPP andpublicfinanceinitiative(“PFI”)projectsinrelationto There arespecificinsolvencyregimesrelatingtotheof ■ ■ will include: questions 2.1to2.5above,typicalprojectsecurityarrangements and/or extremecircumstances. As describedintheresponsesto Injunctive reliefmaybeavailablefromtheEnglishcourtsinunusual 5.4 and Wales. generally notexcludedfrombankruptcyproceedingsinEngland Private-sector entitiesincorporatedinEnglandand Wales are 5.3 but aboveallotherunsecuredcreditors. floating charges, whicharerankedbelowthefixed-charge creditors creditors. Preferentialcreditorsarepaidfromtheproceedsof way ofmortgageorfixedcharge willrankaheadofanypreferential contributions topensions).Inorderofpriority, apartysecuredby of theEnterprise Act 2002(theywillreceivewages,holidaypayand are usuallytheonlypreferentialcreditorsfollowingintroduction and 386,Insolvency Act 1986)isapreferentialcreditor. Employees and theprescribedpart(Schedule6sections175,176,328,347 creditors and(incorporateinsolvencies)tofloatingcharge holders A creditorwithaclaimthatranksinprioritytootherunsecured undervalue) tosixmonths(preferences). hardening periodrangesfromtwoyears(transactionsatan of floatingcharges andtransactionsdefraudingcreditors. The undervalue, preferences,extortionatecredittransactions,avoidance matters. against borrowernon-performance,insolvencyandother counterparties tokeyprojectdocumentsprovidingprotection “step-in” andrelatedcontractualarrangementswith and bankaccounts; detailed contractualcontrolsoverprojectreceivables,cash the projectcompanyinanenforcement? that areavailabletoacreditorseizetheassetsof Are thereanyprocessesotherthancourtproceedings applicable legislation? bankruptcy proceedingsand,ifso,whatisthe Are thereanyentitiesthatareexcludedfrom cramdown ofdissentingcreditors? to achievearestructuringofitsdebtsand/or proceedings thatareavailabletoaprojectcompany Are thereanyprocessesotherthanformalinsolvency

to defraudcreditors)canalsoextenddirectors,whomaybe knowingly carryingonthebusinessofcompanywithintent (even ifinfacttheydonot).Liabilityforfraudulenttrading(thatis, prospect thatrestructuringnegotiationswillsuccessfullyconclude continuing totrade,providedtherecontinuesbeareasonable financial difficulties sufficient timetoorganise arestructuringwhile Act 1986). This willgenerallygiveconscientiousdirectorsfacing creditors whichheoughttohavetaken(section214(3),Insolvency with aviewtominimisingthepotentiallosscompany’s up orenteringinsolventadministration,thedirectortookeverystep there wasnoreasonableprospectofavoidinganinsolventwinding- defence if,afterthatdirectorkneworshouldhaveconcluded (section 214(2),Insolvency Act 1986). A directorwillhavea going intoinsolventliquidationorenteringliquidation” that therewasnoreasonableprospectthecompanywouldavoid up ofthecompany, that[director]kneworoughttohaveconcluded trading if“atsometimebeforethecommencementofwinding Under Englishlaw, adirectorwillpotentiallybeliableforwrongful 5.6 creditors orbankaccounts,willtypicallybeconsideredsufficient. presence ofEnglishlawgoverneddebt,oftentogetherwith England isestablished. This isadeterminationonthefacts,but and foreigncompanies,providedasufficient connectionwith This includesUK-registeredcompanies,unregisteredcompanies company whichcanbewoundupundertheInsolvency Act 1986. rights, witharound120countries. The UKhassignedbilateralinvestment treaties,protectinginvestor 6.2 invest inorowncertainassets. Compliance withEUdirectivesmayimpactanentity’s abilityto thresholds. with UK,EUorglobalbusinessturnoversexceedingspecific UK andEUcompetitionrulesmayimpactownershipbycompanies nuclear industry, banking,media,financialservicesanddefence. required forinvestmentinspecificregulatedareasincludingthe statutory regimesinplaceforcertainindustries. Authorisation is companies asageneralruleunderEnglishlaw, buttherearespecific There arenorestrictionsonforeigninvestorsinvestinginUK 6.1 1986. Disqualification Act company forupto15yearsundertheCompanyDirectors and areliabletodisqualificationfrombeingadirectorofany false representationsundersections206to211, Insolvency Act 1986 of thecompany’s books,materialomissionsfromstatementsand could alsofacecriminalliabilityforfraud,misconduct,falsification personally liableinanactionbroughtbyaliquidator. Directors 6 financial difficultiesinyourjurisdiction. any) forcontinuingtotradewhilstacompanyisin Please brieflydescribetheliabilitiesofdirectors(if from suchrestrictions? international treaties)thatwouldprovideprotection Are thereanybilateralinvestmenttreaties(orother on foreignownershipofaprojectcompany? Are thereanyrestrictions,controls,feesand/ortaxes Restrictions Foreign InvestmentandOwnership

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113 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page114 114 England & Wales special legalrighttoexpropriateprivate-sectorassets. in financialinstitutionscertaincircumstances),theStatehasno exceptions (forexample,theState’s abilitytoacquireshareholdings and otherassets(suchasnewrailwaylines).Subjecttolimited “market value”compensation)forthedevelopmentofinfrastructure (subject topublicprocessesandappealrights,thepaymentof compulsory purchasepowers;isalsopossible financial marketturmoil.Certainpublic-privateassetsaresubjectto the absenceofhostilities,breachinternationalsanctionsor Expropriation ofassetsorcompaniesisgenerallyrareintheUK 6.3 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM Great Britain. The HSEistheprincipalregulator forallhealthandsafetyissuesin Health andSafetyExecutive(“HSE”) Commission Wales. for Wales alongsidetheCountrysideCouncilfor Wales andForestry which, on1 April 2013,wasmerged intoanewenvironmentalbody air pollution. There isa separate Welsh Environment Agency a varietyofareasincludingwastemanagement,waterpollutionand responsible fortheenvironmentalpermittingregime,whichcovers The EA isthemainenvironmentalregulatorinEnglandand (“EA”) Environment Agency projects arein Wales. of StateinEnglandwillbemadebythe Welsh Ministerswhen these Planning decisionswhichwouldbetakenbytherelevantSecretary WelshGovernment Assembly of StateforEnergy andClimate Changeinthecaseofenergy projects. such projectswillbetherelevantSecretaryofState,e.g. Major InfrastructurePlanningUnit). The ultimatedecision-makerfor these willbedealtwithbythePlanningInspectorate(specifically major roadschemes),planningpermission/developmentconsentfor Significant InfrastructureProject(e.g.powerplants,airportsand Where aproposeddevelopmentinEnglandisclassedasNationally National Infrastructure Planning and payforthemaintenanceoflocalinfrastructure. development onceithasbeengrantedplanningpermission,tofund Infrastructure Levyin April 2010,whichisacharge attachedto authorities, andtheLondonMayor, introducedtheCommunity hazardous substances,suchasnaturalgasandchemicals.Local responsible forgrantingconsentthestorageoflarge quantitiesof by thelocalauthorityofrelevantarea.Localauthoritiesarealso the natureofproject.Planningpermissionsareusuallygranted and theidentityofbodygrantingplanningpermissiondependson The majorityofonshoreprojectswillrequireplanningpermission, Local Authorities project sectors. overarching functioninrespectofdevelopmentrelatedtothetypical project. However, thereareanumberofbodieswhichhavean bodies and/orUKGovernmentagencieswillhaveauthorityoverthe The exactnatureoftheprojectwilldeterminewhichregulatory 7.1 7 Government Approvals/Restrictions any formsofinvestmentspeciallyprotected? expropriation ofprojectcompaniesandassets? Are What lawsexistregardingthenationalisationor project sectors? departments withauthorityoverprojectsinthetypical What aretherelevantgovernmentagenciesor

Water sector land. licence, noristhereanygeneralbaronforeignownershipofprivate- To ownlandinEnglandand Wales thereisnorequirementfora Land 7.3 with therelevantregistrationrequirements. House and/orotherapplicableregistrarsmust,however, comply In general,no.RegistrationofprescribedparticularsatCompanies 7.2 Authority (Ofwat)andtheOffice ofCommunications(Ofcom). and ElectricityMarkets(Ofgem),the Water ServicesRegulation may includeNaturalEngland,theCrownEstate,Office ofGas have authorityoverprojects,dependingontheirexactnature. These A numberofotherpublic,privateorsemi-publicregulatorsmayalso licensing systeminrespectofalloffshore constructionworks. The MMOimplementsandregulatestheUK’s marineplanningand Marine ManagementOrganisation(“MMO”) Estate. laying pipelinesontheseabedmust beobtainedfromtheCrown Within UKterritorial waters,consentforplacinginstallationsand must alsoseekthepermissionofCoal Authority (seebelow). or drillthroughcoalseamsforcoal-bedmethaneandminegas permissions andenvironmentalpermits.Licenseeswishingtoenter consents requiredunderotherlegislation,suchasplanning from therelevantlandowner, andthelicenseesmustalsoobtainany licences donotincludeanyrightsofaccess,whichmustbeobtained petroleum withinGreatBritain. The rightsgrantedbyonshore OGA grantsexclusiverightsto“searchandboreforget” (to thelimitsofcontinentalshelf)isvestedinCrown. The Ownership ofallonshoreandoffshore oilandgasinGreatBritain Oil andgas oil andcoal. the UKforeshoreandcontinentalshelf,withexceptionofgas, The CrownEstategenerallyholdstherighttoexploitallmineralson a previouslandowner. owner ofthesurfaceland,althoughtheserightsmayberetainedby (except oilandgas,coal,goldsilver)willgenerallyresideinthe Ownership rightsofmineralslocatedinprivatelyownedland Minerals (other thanoiland gas,coal,goldandsilver) Energy andIndustrialStrategy. a licence)mustalsobeobtainedfromtheDepartmentforBusiness, licence togenerateelectricity(oranexemptionfromobtainingsuch carry outconstructionandengineeringworkswillberequired. A although theusualplanningpermissionsandconsentsrequiredto No licencesarerequiredtouseanyrenewableenergy resources, Wind, wave,tidalandsolar energy licence mustbeobtainedfromtheEnvironment Agency. In ordertoimpoundorabstractgroundwaterandsurfacewater, a

can suchalicencebeheldbyforeignentity)? operation ofsuchassets,requirealicence(andifso, pipeline, orundertakingthebusinessofownership Does ownershipofland,naturalresourcesora enforceable? otherwise complywithlegalformalitiestobevalidor registered orfiledwithanygovernmentauthority Must anyofthefinancingorprojectdocumentsbe

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PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page115 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 accounts inotherjurisdictions. and maintainonshoreforeigncurrency accountsand/oroffshore Regulations, projectcompaniesin England and Wales canestablish Subject toUKandEUsanctionstheMoneyLaundering 7.7 are broughtinto(remitted)theUK. tax onUKincomeandgainsanyforeignorthat or onthe“remittancebasis”. The latteriswhentheindividualpays domiciled UKresidentcanchoosetopaytaxonthe“arisingbasis” Remittance appliesonanindividualbasiswhenanon-UK companies andthereisnorequirementtoreinvestprofitsintheUK. against NorthKorea). There isnodiscriminationinfavouroflocal subject tointernationalsanctionsthatmaybeinplace(forexample, regulation, whichmeansthatrepatriationoffundsisstraightforward relatively lowlevelsofbureaucracy). There isnoexchangecontrol The UKisbusiness-friendly(gatewaytotheEuropeanUnion,and 7.6 losses, dependingontheassetorliabilityinquestion. currencies. Corporationtaxesmayariseonexchangegainsand Fees maybeimposedbybanksintheUKwhendealingforeign financial sector. all categoriesofbusinesses,includingthoseactiveintheUK The MoneyLaunderingRegulationscouldberelevant,andapplyto There arenogeneralrestrictionsonforeigncurrencyexchange. 7.5 Customs proceduresand/ordutiesmayapplyoncertainexports. it believestherewillbeadetrimentalenvironmentaleffect. Agency hasdiscretiontorefusegrantwaterabstractionlicencesif exploitation ofnaturalresources.Forexample,theEnvironment may berestrictionsinplacerelationtotheextractionand rather than50/50toincomeandcapitalgainstax,asbefore. There From April 2013,allmineralroyaltiesaretaxed100%toincometax extraction ofminerals.SuchroyaltieswouldbesubjecttoUKtax. Owners ofmineralsmayreceiveroyaltiesinrelationtothe 7.4 through theCrownMineral Agent. metals mustbeobtainedfromtheCrownEstateCommissioners the Crown,andalicenceforexplorationdevelopmentofthese Rights togoldandsilverinmostofEngland Wales areownedby Gold andsilver which grantslicencesforcoalexplorationandextraction. ownership ofalmostallcoalnowresideswiththeCoal Authority, Following theprivatisationofcoalindustryin1994, Coal

returns orloanpaymentstopartiesinother on theremittanceandrepatriationofinvestment Are thereanyrestrictions,controls,feesand/ortaxes on foreigncurrencyexchange? Are thereanyrestrictions,controls,feesand/ortaxes resources? payable ontheextractionorexportofnatural Are thereanyroyalties,restrictions,feesand/ortaxes accounts inotherjurisdictions? onshore foreigncurrencyaccountsand/oroffshore Can projectcompaniesestablishandmaintain jurisdictions?

contaminated land.Undertheregime,liabilityforclean-upof either polluteslandand/orwaterorislocatedonpreviously Environmental Protection Act 1990mayapplytoanyprojectthat The contaminatedlandregimecontainedinPart2A ofthe Contaminated landregime when applyingforplanningpermission/developmentconsent. environmental impactassessmenttotherelevantplanningauthority environment, thedeveloperwillberequiredtosubmitan Where adevelopmentmayhaveadverseimpactsonthe Environmental impactassessment already mentionedabove,thatmayaffect aprojectinclude: Legislation andregulations,inadditiontothepermitslicences 7.9 specific taximplications,however. project company, itslendersandtheparent. There areUK-andEU- No; onlyasagreedcontractuallyamongsttheshareholdersofa 7.8 pollution. Directive, suchaswastemanagement, airpollutionandwater pollution, includingthosecovered bytheEUIndustrialEmissions regime whichregulatesarangeof activitieswhichmaygiveriseto The EnvironmentalPermittingregime isanintegratedpermitting Environmental Permittingregime installation. Directive from7January2014,butthisdependsonthetypeof Most installationswillhavetocomplywiththeIndustrialEmissions administrative burdenonoperators. reporting andmonitoringrequirementstosimplifyreducethe its scopetooperateunderapermitandstreamlinespermitting, industrial installations. The Directiverequiresinstallationswithin aiming topreventorreduceemissionsair, landandwaterfrom The IndustrialEmissionsDirectiveisthemainEUinstrument, EU IndustrialEmissionsDirective (2010/75/EU) authorities as“statutorynuisances”. Certain nuisancessuchasnoiseanddustareregulatedbylocal Statutory nuisance loss. the rulein under thecommonlawofnuisance,negligence,ortrespassand/or other pollution,mayinsomecasesbeentitledtobringacivilclaim environmental orhealthandsafetyissuessuchasnoise,odour A person(includingacompany)whohassuffered lossasaresultof Common law land regime. planning regimewillgovernclean-upratherthanthecontaminated project involvesredevelopmentofasite,thenitislikelythatthe regardless oftheirawarenessthecontamination.However, ifa found, thenliabilitypassestothecurrentownersand/oroccupiers, permits contaminationin,onorunderland.Ifsuchpeoplecannotbe contaminated landfallsonanypersonwhocausesorknowingly

administer thoselawsorregulations? project financingandwhichgovernmentalauthorities safety lawsorregulationsthatwouldimpactupona Are thereanymaterialenvironmental,healthand jurisdiction orabroad? company wheretheparentisincorporatedinyour dividends fromaprojectcompanytoitsparent practice orbindingcontract)onthepaymentof exchange control,otherlaworbindinggovernmental Is thereanyrestriction(undercorporatelaw,

Rylands vFletcher

againstthosewhohavecausedthe

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115 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page116 116 England & Wales protect certainspeciesandhabitats. (2009/147/EC) andtheEUHabitatsDirective(92/43/EC),which enforcing lawsimplementingtheEU Wild BirdsDirective The Environment Agency andNaturalEnglandareresponsiblefor Nature conservationlegislation damage occurringorremediatewhereitdoesoccur. require thoseresponsibletotakeimmediateactionprevent water, orriskstohumanhealthfromcontaminationofland,and regulations in Wales. They applytodamagesspecies,habitatsor Directive (2004/35/EC)inEngland. There areequivalent These RegulationsimplementtheEUEnvironmentalLiability (England) Regulations2015 Environmental Damage(Prevention andRemediation) and energy supply. Business, Energy andIndustrialStrategyfocusesonclimatechange economically credibleemissionsreductionpath. The Departmentfor The ClimateChange Act 2008establishedaframeworktodevelopan Climate change Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM insurance companyovertheproject assets. Foreign banks,andotherforeigncreditors, canbeco-insuredbythe 8.2 Financial Services Act 2012andispartoftheBankEngland. “passporting” rightsorotherexclusions. The PRA wascreatedbythe the PRA rules,unlessitcanrelyonEuropeanEconomic Area (“EEA”) Regulation Authority (“PRA”),andmaythereforehavetocomplywith insurance intheUK,itmayrequireauthorisationbyPrudential If theforeigninsurancecompanyiscarryingoutandeffecting the company iscarryingoutandeffecting theinsuranceinUK. provided byforeigninsurancecompanies,unlessthe There arenorestrictionsoninsurancepoliciesoverprojectassets 8.1 governments, localauthoritiesorotherpublic-sectorbodies. EU procurementlawsapplytocontractsawardedbycentral principles ofequaltreatment. process istransparent,non-discriminatoryandrespectsthe exceed certainfinancialvalues. The rulesensurethattheaward projects, ifthepubliccontractsfallwithinscopeofrulesand are applicabletoprojectcompaniesdevelopingpublic-sector The EUprocurementlaws(asimplementedinEnglandand Wales) 7.10 projects. Accident HazardsRegulations2015/483mayalsoapplytomajor major projects.OtherlegislationsuchastheControlofMajor authorities, althoughingeneraltheHSEwillberegulatorfor The Act isenforcedbytheHealthandSafetyExecutivelocal framework forhealthandsafetyregulationinEngland Wales. The HealthandSafetyat Work etc. Act 1974providesthe Health andsafetylegislation 8 foreign (secured)creditors? Are insurancepoliciesoverprojectassetspayableto guaranteed byforeigninsurancecompanies? on insurancepoliciesoverprojectassetsprovidedor Are thereanyrestrictions,controls,feesand/ortaxes Foreign Insurance procurement byprojectcompanies? Is thereanyspecificlegal/statutoryframeworkfor

10.1 applications toenterandstayintheUKwork. 2–5. Tier 1categoriesrequiremigrantstomaketheirown Immigration (UKVI)beforetheycanemploymigrantsunder Tiers UK employersneedtoobtainasponsorlicencefrom Visas and be “sponsored”beforetheycanapplytoenterorremainintheUK. under oneofthetiers. With theexceptionof Tier 1,migrantsmust tiers) ofthePBSorbeadependantmigrantcomingtoUK one ofthenewtiers(employersmustbeawaretherearefivedistinct in theUKunderPoints-BasedSystem(“PBS”)byfallinginto these categories,theymustobtainimmigrationpermissiontowork permission toworkintheUK.Unlessanindividualfallsintooneof grandparent bornintheUKorBritishIslandshavebeengranted Swiss citizensandCommonwealthnationalswhohavea to workintheUKbyvirtueofbeinganEUcitizen.Inaddition, The generalpositionisthatEEA nationalshavetheautomaticright 9.1 force majeure provided thattheyareproperlydefinedintheagreement.Normally such provisionsandexclusionsareenforceableunderEnglishlaw from FrenchlawwithnorecognisedmeaningunderEnglishlaw, project documents,andalthoughtheterm“ Force majeure 11.1 This isnotapplicable.Pleaseseetheresponsetoquestion10.1. 10.2 importing constructionequipment. no legalrestrictionsorcontrolswhichapplyexclusivelyto are deleterioustohealthandsafetytheenvironment,there EU. Apart fromthegeneralrestrictionsconcerningmaterialsthat requirements andwithcommoncustomstariffs thatapplyacrossthe from outsidetheEU,itmayhavetocomplywithimportlicensing and excisedutywillnormallystillapply. IfaUKcompanyimports from othermembercountrieswithoutrestrictions–although VAT As theEUisacustomsunion,UKcompaniescanbuymostgoods 10 9 11 construction contractors? on importingprojectequipmentorusedby Are thereanyrestrictions,controls,feesand/ortaxes by aprojectcompany? technicians, engineersorexecutivesbeingemployed Are thereanyrestrictionsonforeignworkers, Foreign EmployeeRestrictions enforceable? Are exceptions available? If so,whatimportdutiesarepayableand Equipment ImportRestrictions Force Majeure force majeure exclusionsdonotapplytopaymentobligations. provisionsandexclusionsaresetoutinvirtuallyall

ICLG TO:PROJECT FINANCE2019 exclusionsavailableand

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” isderived

PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page117 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 briefing forallstaff likelytobeaffected bytheprovisionsof Act. means ofseekingapprovalinuncertain cases,andtraining behavioural limits,proceduresto record allrelatedeventswitha These wouldincludeestablishing policies whichdefineacceptable show thatithadadequatebribery preventionproceduresinplace. associated withtheorganisation. A company’s onlydefenceisto management maybeheldaccountablefortheactionsofpersons The corporateoffence offailingtopreventbriberymeansthatsenior conviction extendswellbeyonditsemployees. list ofthosewhocanexposethecompanyandriskacriminal presents asignificantcompliancechallenge,notleastbecausethe which justifysmalladditionalfinancialincentives,theBribery Act opportunity toaccumulatepersonalwealthandasinvolvingtasks government offices areseenbysomeinpositionsofinfluenceasan For naturalresourcescompaniesoperatingincountrieswhere to havegiventheirconsentorconnivancetheoffence. commercial organisations may alsobeconvictediftheyaredeemed can receiveanuncappedfine.Directorsandseniorofficers of Commercial organisations found guiltyofanytheaboveoffences imprisoned forupto10yearsand/orreceiveanuncappedfine. Individuals foundguiltyofcertaintheseoffences canbe (4) (3) (2) (1) that person’s duties. These are: person withtheintentofbringingaboutimproperperformance bribery (theoffering orreceipt offinancialorotheradvantages)a who dobusinessintheUK,andcreatesfournewoffences relatedto The Act affects allUKbusinesses andthoseincorporatedabroad Foreign CorruptPractices Act. than equivalentlegislationinotherjurisdictions,suchastheUS enforce suchlegislation;however, the Act raisesthebarevenhigher Bribery, aswellanincreasedlevelofinternationalcooperationto globally inlinewiththeOECDConventiononCombatingof years. The Act reflectsageneraltighteningofanti-briberylaws criminal courtsforcorruptiononnumerousoccasionsinrecent corruption whichhasseenprosecutorsbringcompaniesintothe coincides withasignificantshiftintheUK’s approachtofighting prosecute anypotentiallycorruptactivity. The Bribery Act’s arrival will coverawiderangeofconductthattheymayemployto legislation armsprosecutorswitharangeofcriminaloffences which of Corruption Act 1916(the“Bribery Act” orthe“Act”). The Act 1889,thePreventionofCorruption Act 1906andthePrevention relation tobribery, includingthePublicBodiesCorruptPractices came intoforceon1July2011. Itrepealspreviousstatutesin The Bribery Act 2010receivedRoyal Assent in April 2010and 12.1 12 organisation isfoundguilty ofbribery, thentheorganisation behalf oftheorganisation. Ifanypersonassociatedwithan Failure ofcommercialorganisations topreventbriberyon to gainanadvantageintheconductofbusiness. Bribing aforeignpublicofficial inordertoretainbusinessor intending thatdutieswillbeperformedimproperly. Accepting (orrequestingoragreeingtoaccept)abribe, them forhavingdoneso). another personperformtheirdutiesimproperly(orrewarding Offering (orpromisingor giving)abribe,intendingthat criminal penalties? the projectssector)?Whatareapplicablecivilor practices andbribery(particularlyanyrulestargeting Are thereanyrulesprohibitingcorruptbusiness committing bribery. adequate proceduresinplacetopreventthosepeoplefrom is deemedguiltyofanoffence, unlessitcanshowhad Corrupt Practices

13.3 located throughouttheworldareoftensubjecttoEnglishlaw. by Englishlaw. Financingagreementsforabroadrangeofprojects Financing agreementsforEnglishprojectsaregenerallygoverned 13.2 subject toanumberofqualifications. in Scotland.NorthernIrishlawisbroadlysimilartoEnglishlaw, applies tosomeorallprojectdocumentsrelatingprojectslocated Scottish lawissubstantiallydifferent toEnglishlawandnormally Wales aregenerallygovernedbythelawsofEnglandand Wales. Project agreementsrelatingtoprojectslocatedinEnglandand 13.1 connection withthecompany’s business. providers willexposethecompanytocriminalliabilitybybribingin procedures alsoneedtoaddresstheriskthatthird-partyservice adequate anti-corruptionproceduresareinplaceinternally. Such throughout theiroperationsintheUKandabroadtoensurethat examine theirapproachtoassessingandmanagingbriberyrisk in theUK,andUKcompanieswhichdobusinessoverseas,tore- The Act hasforcednaturalresourcescompanieswhichdobusiness (e.g. formultipledamages). justice, oriscontrarytotheProtection of Trading Interests Act 1980 based uponfraud,iscontraryto English publicpolicyornatural or internationalconventionobligations; orwherethejudgmentis procedural irregularities;proceedingsbroughtinbreachofstatutory regimes include:judgmentsobtainedfollowingfundamental court; namely, territorialorsubmission. Typical exceptionstothese recognise thebasisonwhichjurisdictionwasacceptedbyruling through newEnglishproceedingsandthecourtsmust Judgments ofcourtsallotherStateswillusuallybeenforced Foreign Judgments(ReciprocalEnforcement) Act 1933. registration underthe Administration ofJustice Act 1920orthe conventions existwillbeenforcedbyadifferent processof (mainly Commonwealthmembers)withwhichreciprocal Lugano Convention.Judgmentsofcourtssomenon-EUStates apply toIceland,NorwayandSwitzerlandpursuantthe2007 the RecastBrusselsRegulation(EU1215/2012).Similarrules 2015 onwards,willbeenforceableinEnglandand Wales pursuant to EU MemberStatecourts(exceptDenmark),datedfrom10January fulfilled. Judgments,relatingtocivilandcommercialmatters,of conditions forrecognitionandenforcementofthosejudgmentsare jurisdiction maybelegallybindingandenforceable,providedthe Judgments obtainedthroughaparty’s submissiontoaforeign 14.1 project. consents, arenormallygovernedbythelawoflocation Land-related agreements,concessionsandthelike,permits 13 14 What mattersaretypicallygovernedbydomesticlaw? What lawtypicallygovernsfinancingagreements? What lawtypicallygovernsprojectagreements? waiver ofimmunitylegallybindingandenforceable? Is aparty’s submissiontoaforeignjurisdictionand

Applicable Law Jurisdiction andWaiver ofImmunity

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117 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page118 118 England & Wales Contractual provisionsinprojectdocumentsgovernedbythelaws 15.1 entitled toclaimsovereignimmunityfromsuitorattachment. entity isactinginaprivateorcommercialcapacity, itwillnotbe proceedings beenbroughtintheUK.Ordinarily, whereasovereign immunity ifitwouldnothavebeenabletoclaimhadthe enforcement ofajudgmentarefulfilled,Statewillnotbenefitfrom consensual waiver. Iftheusualconditionsforrecognitionand several waysinwhichacourtcandisregardthisimmunity, suchasa immunity frombothsuitandattachment.However, the Act contains The startingpointisthataStateorentitywillenjoysovereign Sovereign immunityisgovernedbytheStateImmunity Act 1978. Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM determination ofwhetherapatent hasbeeninfringedcouldbe not. Forexample,inadispute overpatentinfringement,a In somedisputes,partsofclaimsmay bearbitrableandotherparts insane forpublicpolicyreasons. courts inrespectofenforcementclaimsagainstminorsandthe enforcement willbesubjecttothesameconstraintsasapply involving minorsandtheinsaneissometimespossible,but help ofanarbitratorinreachingasettlement. Arbitration ofissues to adifferent methodofsharingouttheestateandcouldenlist might wellbearbitrated. Again, thebeneficiariesofawillcanagree only contestedincourt,thoughcertainmattersinvolvingtrusts issues donotlendthemselvestoarbitrationandwillsareusually involved intheinitialdivorceproceedings.Similarly, succession arbitration proceedings,providedthatthearbitratorwasnot Wales, thoughthedivisionof propertymightbesubjectto arbitrated andcanonlybegrantedbythecourtsinEngland property, asthesewouldbecivilactions).Divorcealsocannot (for example,inrespectofaclaimfortrespasstothepersonor for compensationarisingoutofacriminalactmaywellbearbitrated criminality, cannotbesubmittedtoarbitration.However, aclaim Disputes inwhichtheUKGovernmenthasadirectinterest,suchas relating tostatus,arenotcapableofbeingsubmittedarbitration. civil proceedings.Criminalorfamilylawmatters,matters on acase-by-casebasis,althougharbitrationis,ingeneral,limitedto Whether ornotamattercanbesubjecttoarbitrationisdetermined 15.3 since December1975. The UKhasbeenaContractingStatetotheNew York Convention 15.2 which arbitralawardsmayberecognisedandenforced. 1996). The UKisasignatory totheNew York Convention,under the arbitrationagreementitselfisnullandvoid(Arbitration Act brought inbreachofthatagreementunlessthecourtissatisfied agreement isinwriting,theEnglishcourtswillstayanyproceedings the courtsofEnglandand Wales. Providedthearbitration international arbitrationaregenerallyrecognised,andsupportedby of Englandand Wales requiringsubmissionofdisputesto 15 awards recognisedbylocalcourts? disputes tointernationalarbitrationandarbitral Are contractualprovisionsrequiringsubmissionof law? Are anytypesofdisputesnotarbitrableunderlocal conventions? Convention orotherprominentdisputeresolution Is yourjurisdictionacontractingstatetotheNew York International Arbitration

16.1 jurisdiction clauseinacontract. parties, thenitissubjecttotherelevantdisputeresolutionand mandatory. Ifamatterisarbitrablepursuanttoagreementbythe As ageneralprinciple,arbitrationisconsensualratherthan 15.4 relation tothisissueand,therefore,someambiguityremains. However, therehasnotyetbeenanyrulingbyanappellatecourtin case hassubsequentlyreceivedpositivejudicialtreatment. Cadworx & Analysis SolutionsInc subsequent cases(see [2009] relating tomandatoryEUlaw(see as itpurportstorequirethesubmissionarbitrationofissues agreement wouldbeconsidered“null,voidandinoperative”insofar although theEnglishcourtsatonepointsuggestedthatanarbitration registration baseduponitsdetermination.Itisrelevanttonotethat, have nopowertoordertherelevantbodyrectifyanypatent to asystemofpublicregistration. Therefore, anarbitralpanelwould of apatentwouldnotordinarilybearbitrated,aspatentsaresubject adjudicated uponbyanarbitrationtribunal.However, thevalidity which inmanycaseswillreducewithholding tax. authorities. Doubletaxtreatiesexist withmanyotherjurisdictions, interest paymentandaccountforthis withheldamounttotheUKtax security willgenerallyhaveanobligationtodeduct20%ofsuch Consequently, aUKcompanypayingyearlyinterestondebt (currently 20%)onanypaymentofyearlyinterestarisingintheUK. The UKimposesawithholdingtaxatthebasicrateofincome 17.1 “change inlaw”risk. safeguarding thegenerator/guaranteedbeneficiaryagainstUK reason, boththeCfDandIUKGuaranteecontainprovisions retroactive changescanhaveonaproject’s economics.Forthis in therenewablessectoranddamagingeffect thatsuch renewable energy areunderstandably waryof“changeinlaw”risk Spain, Greece,BulgariaandtheCzechRepublic,investorsin support regimesforrenewableenergy projectsincountriessuchas UK-based projects.Followingretroactivechangestoregulatory by lenderswithkeyprojectcontractcounterpartiesinalltypesof PPP orPFIproject.Directagreementsarecommonlyenteredinto direct agreementswithgovernmentalauthoritiesiftheprojectisa England and Wales inrecentyears.Lenderswilltypicallyrequire There havenotbeenanycallsforpoliticalriskguaranteesin 16 17 such asdirectagreementswithcentralgovernmentor Has therebeenanycallforpoliticalriskprotections domestic arbitrationproceedings? Are anytypesofdisputessubjecttomandatory security? under aguaranteeortheproceedsofenforcing or foreignlenders,(b)theproceedsofaclaim from (a)interestpayableonloansmadetodomestic Are thereanyrequirementstodeductorwithholdtax political riskguarantees?

EWHC 2655 Change ofLaw/PoliticalRisk Tax

), thisapproachhasnotbeenfollowedin Fern ComputerConsultancyLtdvIntergraph ICLG TO:PROJECT FINANCE2019

[2014] Accentuate Ltdv ASIGRA Inc. England &Wales

EWHC 2908

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PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page119 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 For example,anissuerwillbesubject tomorestringentobligations Rules. Rulesmayalsodiffer accordingtotheissuer’s investorbase. additional disclosurerequirements setoutinChapter6oftheListing example, mineral,oilandnatural gas companiesaresubjecttothe Rules maydiffer accordingtotheissuer’s marketsector. For Standards andtherelevantDisclosure Transparency Rules. to tradingmustcomplywiththeLSE’s Admission andDisclosure be listedinaccordancewithChapter4. All debtsecuritiesadmitted Debt securitiesadmittedtotheProfessionalSecuritiesMarketmust listed inaccordancewithChapters2and17oftheListingRules. Debt securitiesadmittedtotheMainMarketofLSEmustbe information toprospectiveinvestors. remuneration toaccountingstandardsandfulldisclosureof cover principlesrangingfromcorporategovernanceandexecutive and bondholdersforthedurationoflisting. The ListingRules securities, and(ii)thecontinuingobligationsthatapplytoissuers Listing Rulescontain(i)therulesandregulationsforlistingdebt body responsibleforregulatingallsecuritieslistedontheLSE. The The UKLA,adivisionoftheFinancialConduct Authority, isthe Listing Authority (“UKLA”)’s ListingRules(the“ListingRules”). on theLondonStockExchange(“LSE”)mustcomplywithUK Any projectcompanyseekingtoissuedebtinstruments(securities) instruments. companies seekingtoissuebondsorsimilarcapitalmarkets There arenolegalrequirementsthatapplyexclusivelytoproject 18.2 assets. business mightinvolvedealingwithsanctionedpersons,entitiesor EU, US,UKandUNsanctionscanbeanissueifaprojector the legislativehandsofitssuccessors. regime intheUK),giveninabilityofanyadministrationtotie examples includetheearlyclosureofRenewableObligation investors intheUK(albeitariskofverylowmagnitude,but Change oflawremains(asinallotherjurisdictions)ariskfor sterling-based. investors inUK-basedprojects,whererevenuesarealmostalways Currency exchangeriskwillalwaysbeaconsiderationforforeign 18.1 operation ofprojectsandbusinessesinspecifiedlocations. afforded toforeigninvestorsinrelationtheconstructionand specifically toforeigninvestorsorcreditors.Specificincentivesare There arenoUKtaxincentivesprovidedpreferentiallyor 17.2 18

instruments. requirements fortheissuanceofcapitalmarket Please brieflydescribethelocallegalandregulatory issuing bondsorsimilarcapitalmarketinstruments? Are thereanylegalimpositionstoprojectcompanies financings inyourjurisdiction? investors orlenderswhenparticipatinginproject should betakenintoaccountbyeitherequity Are thereanyothermaterialconsiderationswhich of effectivenessorregistration? or othersecuritydocuments,eitherforthepurposes taxes applytoforeigninvestments,loans,mortgages preferentially toforeigninvestorsorcreditors?What What taxincentivesorotherareprovided Other Matters

19.2 loans totheprojectcompany, withfullrecoursetothesponsors. working capitalfacilitytotheprojectcompanyorequitybridge Murabaha floating profitmargin calculatedbyreferencetoLIBOR. A comprising thepurchasepriceofassetaswellafixedand/or construction periodofaprojectfinancingasrentalconsideration profit margin arereturnedtothefinancierduringpost- Ijarah indirect owneroftheassets)toprojectcompany, pursuanttothe such assetswouldthenbeleasedbythefinancier(asdirector construction oftheassetsduringpre-completionperiod,and arrangement wouldbeusedforthepurposesoffinancing be employed,thenitwouldlikelythatan in theprojectfinancingcontextEnglandand Wales. Were theyto corporate financeandcapitalmarkets),theyhavenotyetbeenused contexts inEnglandand Wales (suchasacquisitionfinance, Although theseinstrumentshavebeenusedinotherfinancing 19.1 professional investors. if marketingitssecuritiestoretailinvestorsasopposedsolely submitting toarbitration.Under section 46ofthe Arbitration Act determined andresolvedinaccordance with Parties maystillelecttohavea dispute inrelationtoacontract sukuk unenforceable onanumberofgrounds,onewhichwasthatits based intheUAE)wasattemptingtorenderits Sukuk Ltd&Ors[2017]EWHC2928 a recentEnglishHighCourtcase, Ltd Shari’ah ruling orcommentingonthecomplianceofagreementwith ordinary principlesofEnglishlaw, andanEnglishcourtwillavoid agreement. Insteadthedisputewillbedealtwithbyapplying English courtswillrarelyinterferewith)andnotthelegal is deemedasformingpartofthecommercialagreement(which not justiciableintheEnglishcourts. That elementoftheagreement of anIslamicfinanceagreementbyrulingthat distinguish betweenthe The approachoftheEnglishcourts,inmain,hasbeento legislation, bycountriessuchasSaudi Arabia). particular country(albeitthat must belongtoacountry, and Convention), whichrequiresthatagoverninglawofanagreement Applicable toContractualObligations1980(theRome national law. This isbasedontheConventionLaw choice orapplicationofasystemlawotherthan contract, onthebasisthatEnglishlawdoesnotprovidefor recognise Shari’ah 19

[2003] 2 All ER wasnot . The In whatcircumstancesmay Islamic projectfinancinginyourjurisdiction. instruments mightbeusedinthestructuringofan Explain how Shari’ah issues, theapplicabilityof been anyrecentnotablecasesonjurisdictional governing lawofacontractordispute?Havethere (see isnotappliedintheUK,andEnglishlawdoes instrumentcouldbeusedtomakeavailableeithera Islamic Finance Shari’ah Ijarah Shamil BankofBahrainvBeximcoPharmaceuticals Shari’ah andlocallawrelevanttothefinancesector? isthemechanismbywhichprincipaland asasystemoflawcapablegoverning ( Istina’a Comm

-compliant. Shari’ah ) , 84 Ijarah Shari’ah ). This approachwasreaffirmed in andthecontractualgoverninglaw

Shari’ah Dana GasPJSCv Shari’ah

, England &Wales Shari’ah Wakala , whereDanaGas(anissuer hasbeenadopted,through doesnotbelongtoa WWW.ICLG.COM Shari’ah ortheconflictof and

lawbecomethe Shari’ah Istina’a mudarabah sukuk Murabaha principlesby or

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119 England & Wales PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page120 120 England & Wales contractual provisionforpaymentofahigherrateinterestafter ParkingEye LtdvBeavis 79 Pneumatic Tyre CoLtdvNewGarages&Motor deemed apenaltyoffending theruleslaiddownin England and Wales, unlessthatinterestpaymentobligationis agreement wouldnotaffect itsvalidityand/orenforceabilityin Generally, theinclusionofaninterestpaymentobligationinaloan 19.3 considerations (including to eitherthenationallawchosenbypartiesoranyotheragreed 1996, arbitraltribunalsareobligedtodecidedisputeswithreference Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London WWW.ICLG.COM and could betakentomitigatethisrisk? enforceability inyourjurisdiction?Ifso,whatsteps in aloanagreementaffectitsvalidityand/or Could theinclusionofaninterestpaymentobligation Cavendish Square HoldingBV vElMakdessiand

[2015] Shari’ah

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). Notethata

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reason oftheincreasedcreditriskrepresentedbyadebtorindefault. and (iii)theincreaseismodestcommerciallyjustifiableby before); (ii)themainpurposeofclauseisnottodeterdefault; (i) theincreaseisleviedonlyfromdateofdefault(andnot increase ondefaultisnotlikelytobeheldgiveriseapenaltyif: it isapenalty. Furthermore,aprovisionthatprovidesforinterestto interest tochallengethevalidityofsuchaprovisiononbasisthat it willnowbemuchharderforthepartypayinghigherrateof level playingfieldandwiththeassistanceofprofessionaladvisors, transaction and,wherethepartieshavenegotiatedacontract,on English courtwillnowconsiderthewidercommercialcontextofa legitimate interest oftheinnocentparty a detrimentonthecontractbreaker“ out in however, thiswillbedifficult toestablishinviewofthenewtestset default inpaymentbyaborrowercouldbedeemedtopenalty; Cavendish whichrequiresthattheclauseinquestionimpose ICLG TO:PROJECT FINANCE2019 England &Wales out ofallproportion toany ”. Indeterminingthis,an

PF19_19_03_05-E-Edition_Layout 103/05/201909:29Page121 Milbank LLP © Publishedandreproduced withkindpermissionbyGlobal LegalGroupLtd,London ICLG TO:PROJECT FINANCE2019 raised morethanUS$125billionforinfrastructureprojectsworldwide. and pioneeringinfrastructureprojectsacrosstheglobe.Overpastthreeyears,Milbankhasclosedmorethan140projectf clients recogniseourProject,EnergyandInfrastructureFinanceGroupastheleadingchoiceforfinancingdevelopment From afirst-of-its-kindtollroadinLatin America, toawirelesstelecombuild-out inSoutheast Asia tothelargestwindand Frankfurt, Seoul,Singapore,HongKongand Tokyo. partners, inouroffices worldwide.We operateonanintegratedbasiswithprojectfinanceteamsineachofouroffices inthe Energy andInfrastructureFinanceGroupcomprisesmorethan100dedicatedProject,attorneys, institutions, individualsandgovernments,achievetheirstrategicobjectives.ProjectFinanceisamongourfirm’s corepracti Milbank’s lawyerscollaborateacrosspracticesandoffices tohelptheworld’s leadingcommercial,financialandindustrialent ago, Milbankhasoffices inBeijing,Frankfurt,HongKong,London,Los Angeles, Munich,SãoPaulo,Seoul,Singapore, Tokyo and Milbank LLP isaleadinginternationallawfirmthatprovidesinnovativelegalservicestoclientsaroundtheworld.Foundedi Islamic institutions. including thoseinvolvingmultilateralandexportcreditagencies projects. Hehasparticularexpertiseinmulti-sourcedfinancings, renewable energy, telecommunications,satelliteandotherinfrastructure financing ofoilandgas,naturalresources,independentpower, world. Hispracticefocusesonadvisingpartiesinthedevelopmentand the mostinnovativeandsignificant“market-first”transactionsaround an extremelybroadpracticeandoutstandingreputationforadvisingon Global among the1 number ofjournals,amongthem: Group. Johniswidelyrecognisedasaleadingindividualinhisfieldby member ofthefirm’s GlobalProjects,EnergyandInfrastructureFinance John DewarisapartnerintheLondonoffice ofMilbankLLP anda ; The Legal500 st tierofProjectFinancelawyersintheUK); ; and URL: Email: Fax: Tel: United Kingdom London EC2V7JD 10 GreshamStreet Milbank LLP John Dewar Who’s WhoofProjectFinance www.milbank.com [email protected] +44 2076153100 +44 2076153004 Chambers UK

(whichdesignatedhim

. Hehasbuilt Chambers

Who’s WhoLegal100 Business UnitandisrecognisedasanexpertforIslamicFinancein and Islamicbanks.Heisalsoamemberofthefirm’s IslamicFinance multi-sourced financingsinvolvingECAs,multi-laterals,commercial and gas,power, andminingsectors,inparticularspecialises international projects,energyandinfrastructurefinancingsintheoil advising lenders,sponsorsandsovereignson“first-of-a-kind” Infrastructure FinanceGroup.Munibhassignificantexpertisein LLP andamemberofthefirm’s GlobalProject,Energyand Munib HussainisaseniorassociateintheLondonoffice ofMilbank . URL: Email: Fax: Tel: United Kingdom London EC2V7JD 10 GreshamStreet Milbank LLP Munib Hussain www.milbank.com [email protected] +44 2076153100 +44 2076153000

England &Wales

ce areasandourProject,

US,SãoPaulo,London,

solar farmsintheworld, WWW.ICLG.COM

n New York 150years erprises, aswell of themostcritical

Washington, D.C. inancings, which including20

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