Project Finance: in 45 Jurisdictions Worldwide

Project Finance
in 45 jurisdictions worldwide
Contributing editor: Phillip Fletcher
2015
Published by
Getting the Deal Through
in association with:
Al Busaidy Mansoor Jamal & Co
(Barristers and Legal Consultants)
Ali Sharif Zu’bi Advocates & Legal Consultants CPSC
Amarchand & Mangaldas & Suresh A Shroff & Co
Anzola Robles & Associates
Arbe Abogados Corporativos Financieros
Arzinger
Baker & McKenzie (Gaikokuho Joint Enterprise)
Baker Botts LLP
Bingham McCutchen LLP
Cárdenas & Cárdenas Abogados
Cassels Brock & Blackwell LLP
Chibesakunda & Co Advocates
Colibri Law Firm
Debevoise & Plimpton LLP
DFDL
Emery Mukendi Wafwana & Associates
ENSafrica
Fernanda Lopes & Associados
G Elias & Co
Guzmán Ariza
Hamzi Law Firm
Haynes and Boone LLP
Hunton & Williams LLP
Jeantet Associés AARPI
LLS Lungerich Lenz Schuhmacher
Lobo & de Rizzo Advogados
López Velarde, Heftye y Soria SC
Mehmet Gün & Partners
Milbank, Tweed, Hadley & McCloy LLP
Miranda Correia Amendoeira & Associados
Mkono & Co Advocates
Nagy és Trócsányi
Norton Rose Fulbright
PeliFilip
Rodríguez & Mendoza
Shearman & Sterling LLP
Simmons & Simmons LLP
Skadden, Arps, Slate, Meagher & Flom
Soemadipradja & Taher
Staiger, Schwald & Partner
Taxgroup pravno svetovanje d.o.o.
Vandenbulke
Žurić i Partneri Law Firm
CONTENTS
Project Finance 2015 Overview3 Dominican Republic 63

Phillip Fletcher and Aled Davies Fabio J Guzmán-Saladín,
Contributing editor: Milbank, Tweed, Hadley & McCloy LLP Alfredo A Guzmán-Saladín and
Phillip Fletcher Alberto Reyes Báez
Milbank, Tweed, Hadley & Angola7
Guzmán Ariza
McCloy LLP
Alberto Galhardo Simões
Miranda Correia Amendoeira & Associados England & Wales 69
Andrew Petry, Adam Cooper and
Getting the Deal Through is delighted to
Helen Forsey
publish the the fully revised and updated Brazil16
eighth edition of Project Finance, a volume in Fabrizio de Oliveira Sasdelli and
our series of annual reports, which provide Felipe Eluf Creazzo
international analysis in key areas of law Lobo & de Rizzo Advogados France78
and policy for corporate counsel, cross- Jean-François Adelle
border legal practitioners and business Jeantet Associés AARPI
Cambodia24
people.
Martin Desautels, David Doran and
Sambo Ly Georgia86
Following the format adopted throughout
the series, the same key questions are DFDL Revaz Javelidze and Nino Begalishvili
answered by leading practitioners in each Colibri Law Firm
of the 45 jurisdictions featured. New Canada29
jurisdictions this year include include Alison R Manzer and Charles Newman Germany94
Canada, China, the Dominican Republic, Cassels Brock & Blackwell LLP Claus H Lenz and Rouven F Bodenheimer
Greece and India. This year the publication LLS Lungerich Lenz Schuhmacher
again includes quick reference tables,
China35
focusing on public-private partnerships in
Andrew Ruff and Claude Jiang Greece100
US states.
Shearman & Sterling LLP Dimitris Assimakis and
Every effort has been made to ensure Alexandros Pavlopoulos
that matters of concern to readers are Norton Rose Fulbright
Colombia41
covered. However, specific legal advice Bernardo P Cárdenas Martínez and
should always be sought from experienced Daniela Mejía Mariño Hungary107
local advisers. Getting the Deal Through Cárdenas & Cárdenas Abogados Zoltán Varga and Viktor Jéger
publications are updated annually in print. Nagy és Trócsányi
Please ensure you are referring to the latest
print edition or to the online version at www. Croatia48
gettingthedealthrough.com. Dinka Kovac̆ević and India115
Dino Simonoski Bukovski Jatin Aneja
Getting the Deal Through gratefully Žurić i Partneri Law Firm Amarchand & Mangaldas &
acknowledges the efforts of all the Suresh A Shroff & Co
contributors to this volume, who were Democratic Republic of the Congo 56
chosen for their recognised expertise. We Indonesia121
Emery Mukendi Wafwana, Nady Mayifuila,
would also like to extend special thanks
Jonathan van Kempen and Rahmat Soemadipradja, Robert Reid and
to contributing editor Phillip Fletcher of Arnaud Tshibangu Mukendi Rachel Situmorang
Milbank, Tweed, Hadley & McCloy LLP for his Emery Mukendi Wafwana & Associates Soemadipradja & Taher
continued assistance with this volume.
Getting the Deal Through

London
August 2014
Publisher The information provided in this publication is

Gideon Roberton general and may not apply in a specific situation.
gideon.roberton@lbresearch.com Legal advice should always be sought before
taking any legal action based on the information
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ISSN 1755-974X
www.gettingthedealthrough.com 1
CONTENTS
Japan131 Oman199 Thailand273

Naoaki Eguchi, Gavin Raftery and Graham Mouat and Ravinder Singh Roy Lee, David Doran and
Yasuhisa Takatori Al Busaidy Mansoor Jamal & Co Duangkamol Ingkapattanakul
Baker & McKenzie (Barristers and Legal Consultants) DFDL
(Gaikokuho Joint Enterprise)
Panama207 Turkey280
Jordan138 Erika Villarreal Zorita Orçun Çetinkaya and
Khaled Asfour, Leena Nusseir and Anzola Robles & Associates Alişya Bengi Danışman
Dima Khuffash Mehmet Gün & Partners
Ali Sharif Zu’bi Advocates &
Peru215
Legal Consultants CPSC
César Arbe and Jessica Valdivia Ukraine287
Arbe Abogados Corporativos Financieros Oleksander Plotnikov and
Laos145 Oleksander Zadorozhnyy
Walter Heiser, David Doran and Arzinger
Republic of Congo 221
Duangkamol Ingkapattanakul
DFDL Emery Mukendi Wafwana,
Sancy Lenoble Matschinga, United States 296
Antoine Luntadila, Nady Mayifuila, David P Armstrong and Natascha G Kiernan
Luxembourg151 Jonathan van Kempen and Kekeli J Kodjo Skadden, Arps, Slate, Meagher & Flom
Denis Van den Bulke and Laurence Jacques Emery Mukendi Wafwana & Associates
Vandenbulke
Uzbekistan302
Romania228 Sofia Shaykhrazieva
Mexico159 Alina Stancu Bîrsan and Oana Bădărău Colibri Law Firm
Rogelio López-Velarde and Amanda Valdez PeliFilip
Venezuela311
Saudi Arabia 237 Reinaldo Hellmund, Carlos Martinez and
Morocco167 Babul Parikh, Sumit Soni and Keith Bullen Miguel Velutini
Zineb Idrissia Hamzi Baker Botts LLP Rodríguez & Mendoza
Hamzi Law Firm
Slovenia244 Vietnam318
Mozambique173 Miha Mušič and Dušan Jeraj Martin Desautels and Hoang Phong Anh
Fernanda Lopes Taxgroup pravno svetovanje d.o.o. DFDL
South Africa 250 Zambia324
Myanmar178 Eric le Grange, Noma Sibanda, Kim Eichorn Eustace Ng’oma
Jaime Casanova, James Finch and and Innes Du Preez Chibesakunda & Co Advocates
Bernard Cobarrubias ENSafrica
DFDL
Quick Reference Tables – US State PPP 329
Switzerland259
Netherlands185 Mark-Oliver Baumgarten and
Rutger de Witt Wijnen, Luc Cohen and Thiemo Sturny
Viviana Luján Gallegos Staiger, Schwald & Partner
Tanzania265
Nigeria193 Angela Thorns, Kamanga Wilbert Kapinga
Fred Onuobia, Oluwatoyin Nathaniel and and Jacqueline Tarimo
Okechukwu Okoro Mkono & Co Advocates
G Elias & Co
2 Getting the Deal Through – Project Finance 2015

Milbank, Tweed, Hadley & McCloy LLP OVERVIEW
The Art of Getting a Project Finance

Deal Through
Phillip Fletcher and Aled Davies
Milbank, Tweed, Hadley & McCloy LLP
What is project finance? countries, public-private partnerships have often required broad
Project finance is difficult to define, but rather easy to recognise. It reforms of regulatory regimes to accommodate them. Thus, as pro-
generally involves lending significant amounts of money to a thinly ject finance has moved into new areas, the legal issues have become
capitalised company whose primary assets consist of contracts and more challenging.
licences, but that is where the simplicity ends. Notwithstanding the
efforts of various governments to standardise private finance initia- What do project finance lawyers do?
tive (PFI) and similar documentation, the field defies the application In the most basic terms, project finance is a form of secured lending.
of fixed rules. The range of assets financed, from underground mines Much of the legal expertise is drawn from the discipline of banking.
to overhead cables, and the breadth of jurisdictions covered, from A lawyer who sees the beauty of the perfect covenant, the joy of an
Canada to Mozambique, mean that even the most basic rules must all-encompassing event of default or the elegance of a multi-tiered
flex to meet the facts and issues in question. In the absence of clear inter-creditor agreement has the capacity to excel in the field. The
market standards and agreed form documents, project finance law- inclination to do so comes from wanting to contribute meaning-
yers must assess not only the legal, but also the economic, technical fully to real economic undertakings. Projects lawyers need to know
and political risks presented by each project and draw on experience how to take security over every asset imaginable, but they must also
to help the parties reach a workable consensus in the face of often understand how the underlying facility operates and how to assess
unique challenges. its ability to generate revenues for periods often spanning decades.
The discipline is old. Some date the onset of the modern prac- They must work closely with leading law firms in the project’s
tice to the financing of the Panama Canal over a century ago. The host jurisdiction to assess the underlying legal regime in which it is
large mining deals in Africa and Latin America of the 1960s and being undertaken. Although the array of relevant legal issues varies
70s are perhaps a more realistic grounding for the field, and the by industry and country, the broad topics addressed in this guide
development of independent power projects in the US and natural are relevant in almost every transaction. Legal analysis is, however,
gas facilities in the North Sea after the 1978–79 oil crisis gave rise to but one element of the project finance due diligence effort. Technical
the model for many of our modern projects. Recent years have seen advisers assess the physical plant, market advisers provide projec-
this model used in an ever-broadening range of countries. Although tions as to the availability and cost of inputs and the value of the
projects lawyers are clustered in London, New York, Tokyo, Dubai future revenue streams, and model auditors assess the integrity of
and Singapore, as the application of project finance has spread, they the (often hugely complex) financial models. The lawyer works with
are now found in almost every city where complex transactions are these and other experts to identify risks and to generate an inte-
documented. grated due diligence report – often stated to be limited to legal issues,
Thirty years ago, debate raged over whether non-recourse (pro- but out of necessity based heavily on contributions from a variety of
ject) lending violated the regulations that required commercial banks experts. Out of this process the parties are asked to assess the ‘bank-
to limit themselves to ‘prudent banking practices’. More recently, ability’ of a potential risk or the project as a whole.
focus has been placed on the extent to which capital reserve require- That no project is the same should be apparent. Key variables,
ments should be increased on project loans in accordance with the such as the robustness of the underlying economics (often tested by
Basel III accords. The decades have shown that while restructurings reference to anticipated debt service coverage ratios), the degree of
are common (perhaps due to the pervasive covenants imposed on complexity and reliability of the facility’s technology, and the stabil-
borrowers), losses have nonetheless been relatively rare. ity and transparency of the host country’s political and legal envi-
Little has stemmed the flow of project finance deals. The world’s ronment, determine how accommodating investors are likely to be
rising demand for energy and other resources, driven in large part in relation to legal and other risks.
by the remarkable growth in the so-called ‘BRIC’ countries, has led
to enormous investment in natural resource projects. As a conse- What are the legal issues that a projects lawyer deals with in
quence, international oil and mining companies are exploring for making these assessments?
resources and developing processing facilities in ever more remote There are few legal disciplines that are not relevant. Projects law-
parts of Africa, Latin America, Asia and the Middle East, and the yers use all of the skills learned in university; the law of contracts,
resulting projects often entail billions of dollars of capital costs. property, trust, torts and equity feature regularly in their practice.
Many of the host countries have never seen transactions on this The best among them are able to advise from the inception of a
scale, and their laws and courts may never have had to consider project as it progresses from negotiating its concession agreement
the resulting issues. At the same time, a number of more developed and construction contracts to the day it secures financing from a
countries have used these techniques to broaden the participation full suite of lenders. As the financing sources may range from bank
of the private sector in traditional public sector activities, ranging loans to capital markets instruments to loans from export credit and
from utilities to roads, hospitals, schools and prisons. Although development agencies to a variety of shariah-compliant instruments,
the underlying commercial law may be reasonably settled in these they must be able to document the differing requirements of a wide
OVERVIEW Milbank, Tweed, Hadley & McCloy LLP
range of markets. They are also often called upon to perform the role London, New York or Zanzibar?
of ‘trusted adviser’, looking at issues that range far beyond the true A second area of regular focus is in respect of the selection of govern-
legal, and can become the focus for pulling together the multitude of ing law and the forum for dispute resolution. Sometimes the issue is
differing strands that, together, create a successful project financing. limited to the choice of the law governing the loan agreement, gener-
ally as between English or New York law. The preference is perhaps
Anticipating the worst-case scenario less substantive than first meets the eye, as much of the case law in
Perhaps the most fundamental debate projects lawyers encounter those jurisdictions on the enforceability of customary finance agree-
is over the terms and enforceability of long-term ‘take or pay’ or ments comes to similar conclusions. The debate can nonetheless be
similar contracts. These contracts, in all their permutations, under- heated in the ‘battle of the preferred forms’, as market practice does
pin most major projects. The sale of power, oil and gas, natural differ somewhat as to the style in which finance documents are pre-
resources, telecommunications capacity and a range of other prod- pared. The corresponding choice of forum for dispute resolution is,
ucts is generally framed in a contract in which the purchaser agrees however, perhaps more meaningful, as a variety of parties prefer to
to take a minimum level of output at a price based on some form litigate in either London or New York and not the other.
of set formula for a specified period. The project company is thus The question can have real substance as well. By way of exam-
contractually insulated, at least to some degree, from the one thing it ple, the choice of governing law in an offtake contract, such as one
can least control: long-term market conditions. documenting a forward purchase of future production, could affect
Minimum volume commitments can be particularly burden- key issues, including the circumstances in which title to the future
some on the buyer when they are matched by a fixed or ‘floor’ price production effectively passes from seller to buyer (to the extent not
on those volumes. As we have come to learn, if you try to sell 8 exclusively regulated by lex situs) and the enforceability of liqui-
cent output in what has become a 2 cent market, before long the dated damages for breach. The choice of forum raises other ques-
purchaser will try to find a way out of the deal. The claim could tions in turn, including what law will the forum apply and will the
be disingenuous: ‘we didn’t understand what the deal was about’. result differ as a result? Will judgments or awards be enforced in the
It could be mysterious: ‘the contract was entered into only because home jurisdiction of the borrower or the other project parties? A
you bribed our government’. It may even appear reasonable: ‘we decision focused merely on a preference for a familiar law or forum
can’t take the output because a hurricane sank our ship’. It may also could miss the significant changes in legal result that may turn on
be on the basis of defences at law: ‘we have no money, we can’t pay, these choices.
and the court says you can’t make us’. Or in equity: ‘you treated us The importance of the choice of law or forum may be even more
unfairly in persuading us to agree to pay this much over the market’. acute when the country in which the project is located either has no
There are court decisions in many jurisdictions addressing a broad tradition of reported case law or where domestic law, is, say, based
range of such circumstances. The decisions turn, of course, on the on shariah principles that prohibit such fundamental elements of
facts of the case, the terms of the underlying agreements, and the the transaction as the charging of interest on loans. In some cases, a
environment in which the dispute is heard. choice of foreign law and a selection of a neutral forum may be help-
The role of project finance lawyers is to seek to bring some ful even if enforcing an offshore judgment back in the host country
advance certainty to this process by identifying the key risks and may be challenging. In other cases, it may make better sense to struc-
getting the parties to reach agreement about who assumes them long ture the transaction to conform to shariah principles than to hope
before they arise. They focus the parties’ attention on the worst-case for enforcement of a non-Islamic transaction.
scenarios, thereby making them consider circumstances none of
them wishes ever to encounter. There is rarely any debate about the Creating security in an uncertain world
effect of an ‘act of God’ (most of which can be insured), but when A third area of regular challenge is structuring security packages,
the discussion turns, by way of example, to who takes the risk of an often across jurisdictions and over diverse assets. A lender’s collat-
‘act of government’, such as the imposition of a new tax or an import eral package serves two purposes: it allows it to deprive its borrower
restriction, any of which might change the fundamental economics of the pledged assets when the loan is in default (an ‘offensive’ pur-
of the deal, the debate can be heated. No party can easily assume a pose), and it assures it that no other creditor may take those assets
risk that is beyond its control, and governments rarely assure inves- in preference to it (a ‘defensive’ purpose). The availability of such
tors that such risks will not arise as they generally wish not to fetter packages has generally given lenders the confidence to extend long-
their own or their successors’ sovereign discretion. Whether there term, (relatively) low-cost loans. Where an asset is located in a coun-
are price re-openers to address huge, unanticipated shifts in market try with no filing or registration code, or where the enforceability
conditions can also be controversial. of contractual step-in rights granted to lenders may be uncertain,
These issues became heated during the crisis that hit many devel- the challenges may be significant. In addition, some countries charge
oping countries in the late 1990s. Currency devaluation caused the high fees for the registration of security, but often without provid-
cost of debt denominated in dollars, and the price of goods and ser- ing certainty that such security may be enforced. In such cases, the
vices acquired in dollars, to sky-rocket in local terms. Electric util- lenders are often asked by borrowers to do without the traditional
ity companies, paying for power and fuel in dollars, simply could security package and are asked to rely solely on pledges of offshore
not pass on the cost to local consumers whose incomes were set bank accounts, assignment of key export contracts and, in some
in local currency. Every defence imaginable emerged across projects cases, security over shares.
in Pakistan, Indonesia and India, among others. In the successful In some circumstances, there may be no clear answer at all.
restructurings, lenders deferred principal repayments, sponsors For example, who would fancy foreclosing on a satellite orbit-
accepted lower returns, and the tariff was consequently reduced, but ing the earth 35,000 kilometres above the Equator? More to the
perhaps more importantly (and quite unintentionally), the process point, because space is beyond the jurisdiction of individual states,
took so long that the local economies had time to recover and the whose laws would apply and where would one register the interest?
tariffs again became affordable. In the failed projects, amid alle- Treaties have addressed how to register security over aircraft and
gations of abuse of the original negotiating process, construction ships, which by their nature can operate in numerous jurisdictions.
halted and the assets were left to rust, with only the litigating attor- Until recently, no prospect existed for satellites. In March 2012, a
neys being the winners. new international protocol to an existing convention was adopted
under the auspices of the International Institute for the Unification

Milbank, Tweed, Hadley & McCloy LLP OVERVIEW
of Private Law (known as UNIDROIT) to provide for the registra- Unfortunately, this occurred part way through construction. A rea-
tion and priority of security, title-retention and leasing interests in sonable decision would have been to suspend funding under the debt
space assets. Known as the Space Assets Protocol, forming part of facilities. However, this would have caused the virtual write-off of
the Cape Town Convention of 2001 treaty system, it will come into the loan disbursements already made; there is little value in a half-
force once it has been ratified by 10 contracting states and following completed plant. The decision to continue funding and complete
the establishment of a functioning international registration system. the project while seeking to negotiate a settlement with the environ-
While a UNIDROIT Preparatory Commission is preparing regu- mental authorities required, at a minimum, nerve. Two tranches of
lations and an international registry for space assets, the Protocol senior lenders (commercial banks and insurance companies) and a
will not come into effect until its work is complete and the requisite syndicate of subordinated lenders had to reach that decision inde-
number of ratifications have been deposited; however, the absence pendently, and the construction contractor had to agree to complete
of international rules governing security over satellites has not pre- the project without increasing its price despite incurring cost from
vented satellites from being project financed. While the single most delays and the uncertain circumstances. Even more remarkably, the
valuable tangible item may be beyond the physical grasp of earth- original sponsor (an otherwise well-known and successful company)
bound secured creditors, careful structuring has allowed creditors had to recognise that it was now unwelcome in Florida and agree
constructively to repossess satellites and capture the intrinsic value to sell (at a loss) its project to a non-tainted third-party developer.
of the project by taking assignments of project and operating agree- Had the inter-creditor relationships and security package addressed
ments and licences (where permissible), revenue-generating cus- all of this? – No. But were the rules at least sufficient to define the
tomer contracts and launch and in-orbit insurance. procedures by which the parties would have to reach settlement? –
Yes. Had any party not demonstrated maturity and judgement, all
Ecological considerations would have been lost.
Back on earth, an area of increasing focus is environmental and Far-reaching changes in regulatory and economic conditions can
social planning. Local environmental legislation may simply not also impair the viability of existing projects. In the early 2000s, in
exist in some jurisdictions, but projects financed by national or mul- the face of regulatory reform and economic recession, the collapse
tinational credit institutions often have to comply with World Bank of large power traders such as TXU Europe and Enron, among oth-
or similar standards. These require the comprehensive mitigation ers, left much of the UK power independent generation sector effec-
of environmental impacts of the project, and management of the tively insolvent. Banks assumed de facto ownership over much of the
project’s affect on local populations. A wide variety of non-govern- industry. A few years later (as power prices recovered), the defaulted
mental organisations have pressured leading commercial banks into loans traded back at par, and many banks (or the hedge funds they
accepting similar standards. The adoption of the ‘Equator Principles’ sold to) recovered additional, unanticipated equity value. Having
by these banks has now largely aligned their requirements with those spent years, essentially, as insolvency practitioners, projects lawyers
of the World Bank Group. As a result, major projects generally have then again switched focus to work on floats, trade sales and other
to meet standards that far exceed those that would be required by exits from what had become very successful investments.
domestic law in the host country. Lenders have thereby assumed the The Gulf Wars, and more recently the Arab Spring, gave rise to
role of the absent global environmental regulator. similar issues. Faced with a deteriorating environment in the region,
lenders reviewed carefully material adverse change provisions in
Navigating troubled waters both underwriting commitments and credit agreements. In some
A host of challenges arise when projects encounter difficulties. In cases, the condition was clear, in others not; however, the region as
addition to relatively straightforward technical mishaps and breaches a whole responded in a considered manner, deferring closing dates
of contractual undertakings, a project may simply face an adverse where appropriate, accommodating price flex when needed and host
change in the environment in which it is being developed or oper- governments agreeing to absorb a certain degree of the risk associ-
ated, which may be well beyond its ability to manage. For example, ated with terrorism or war. As a result, few projects were disrupted
in a project in Florida, a change of governor led to an investigation in any of these periods, and the market has continued to flourish.
of the legitimacy of the grant of the project’s environmental permit.
Phillip Fletcher Aled Davies

pfletcher@milbank.com adavies@milbank.com
10 Gresham Street 21F Midtown Tower

London 9-7-1 Akasaka, Minato-ku
EC2V 7JD Tokyo 107-6221
United Kingdom Japan
Tel: +44 20 7615 3000 Tel: +813 5410 2801
Fax: +44 20 7615 3100 Fax: +813 5410 2891
www.milbank.com
OVERVIEW Milbank, Tweed, Hadley & McCloy LLP
Being more than a lawyer construction problems emerge. Trade-offs of this sort must be nego-
Against this mosaic of issues, the role of a project finance lawyer is tiated across legal traditions and even languages. The success of the
not limited to answering specific legal questions, but extends also largest projects, where the sources of debt finance will be located
to organising the process and setting priorities for what must be across the globe, is dependent on the projects lawyer’s ability to help
achieved. Negotiations take place among numerous parties. Each the parties reach a workable consensus.
has an interest in the deal, but each party’s interest is limited by Recognising who has negotiating leverage in this context is a
the scope of the role and the anticipated benefits to be derived. Ask subtle matter. In recent years, as global financial liquidity has become
too much of any party, and they will be deterred from participat- constrained, all but the largest sponsors and host governments have
ing; ask too little and the overall viability and security of the project had to accommodate the stringent demands of lenders. In order to
might be brought into question. A concession made to one party, attract finance in this environment, projects must meet the bench-
say, foregoing the requirement for the provision of a completion mark of ‘bankability’, and the projects lawyer is often called upon
guarantee, may simply impose burdens on another. Such a conces- to help form a view as to whether they do. Framing a huge number
sion may, for example, necessitate the provision by the contractor of of complex issues into a manageable process for effective decision-
enhanced performance warranties, or the agreement of the offtaker making, while allowing negotiating leverage to flow as the market
to accept delays in the development schedule or an increased tariff if demands, is the art of getting the deal through.

Miranda Correia Amendoeira & Associados ANGOLA
Angola
Alberto Galhardo Simões
Miranda Correia Amendoeira & Associados
Creating collateral security packages 2 How is a security interest in each type of collateral perfected
and how is its priority established? Are any fees, taxes or other
1 What types of collateral are available? charges payable to perfect a security interest and, if so, are there
In Angola, there are different types of guarantees with specific fea- lawful techniques to minimise them? May a corporate entity, in
tures in accordance to their scope (in rem and personal guarantees). the capacity of agent or trustee, hold collateral on behalf of the
project lenders as the secured party?
Personal guarantees Mortgages
By means of a personal guarantee, the assets of the guarantor, or part In order to be effective, a mortgage must be executed by means of
of them, are allocated, along with the principal’s own assets, for the a notary deed with a notary public and registered with the relevant
payment of the underlying obligation. The most common forms of Registry Office. Mortgages entitle the creditor to obtain repay-
personal guarantees are the fiança and aval. ment of credit through the sale of the mortgaged assets before and
with preference over other creditors of the debtor, except for some
In rem guarantees privileged credits and other credits previously guaranteed by mort-
The most frequently used in rem guarantees are mortgages and gages over the same assets. Specific authorisations may have to be
pledges. obtained in order to mortgage rights (eg, surface rights granted by
A mortgage can only be created on real estate assets or specific Angolan authorities).
moveable assets (mainly vehicles) or rights defined in the law (eg,
concession rights and surface rights). Pledges
Pledges are created over any moveable assets that cannot be As a rule, pledges are not subject to special formalities (other than
mortgaged, namely, intangible assets (eg, claims and receivables) and a written document) nor to any type of public registration, except
moveable assets not subject to registration. in the case of pledges of certain types of securities. Accordingly, the
Under Angolan law a pledge or mortgage over future assets is pledge is generally created by means of a written agreement and
not permitted. Therefore, as an alternative, security agreements may delivery of the relevant asset to the creditor or to a third party.
provide for a security of existing assets and a promise of security The pledge of share capital participations must observe specific
over future assets. In the latter case, a definitive pledge over the requirements to be deemed valid and binding. The requirements
assets is subsequently executed and delivered as a supplement to the vary depending on the type of project company. In the case of lim-
security agreement. ited liability companies by quotas, the company must consent on the
execution of the pledge, which must then be formalised by means
Commercial securities or quasi-securities of a notary deed entered before a notary public and registered with
An assignment of credits is an agreement whereby a party assigns a the Commercial Registry Office. As for limited liability companies
credit to a third party for purposes of paying or securing an obliga- by (nominative) shares, the pledge is deemed formalised by means
tion. This mechanism is deemed a form of commercial security or of executing a written agreement, inscription of the pledge in the
quasi-security in Angola. relevant share titles, and registration of the same in the company’s
share registration book.
Collateral available for projects Pledges entitle the creditor to obtain repayment of credit through
Collateral available in Angola to secure financing to project compa- the sale of the pledged assets before and with preference over other
nies are generally: creditors of the debtor, except for some privileged credits and other
• a pledge over the project company’s share capital (shares or credits previously guaranteed by pledges over the same assets (when
quotas); possible).
• a mortgage over real estate property held by the project com- It should be added that specific requirements may apply to
pany (when available); pledges depending on the type of asset being given as collateral.
• a mortgage over moveable assets (when possible); Certain specific economic sectors such as the financial, insurance,
• a pledge over the project company’s assets; media, mining and the petroleum sectors are subject to special
• a pledge over the project company’s credit rights; restrictions or approval requirements, or both. Therefore, certain
• a pledge over the project company’s bank accounts; and authorisations can be required from the government or other state
• an assignment of credits by way of security (though not gener- entities, or both, in order to pledge assets or equity interests in those
ally recognised under Angolan law as granting a prior security sectors.
interest to the assignee).
ANGOLA Miranda Correia Amendoeira & Associados
Assignment of credits 5 How does a bankruptcy proceeding in respect of the project

As a rule, assignments of credits are not subject to special formalities company affect the ability of a project lender to enforce its rights
(other than a written document) nor subject to any type of public as a secured party over the collateral? Are there any preference
registration. periods, clawback rights or other preferential creditors’ rights
(eg, tax debts, employees’ claims) with respect to the collateral?
Tax What entities are excluded from bankruptcy proceedings and
Pursuant to the Stamp Duty Code, all guarantees and securities, what legislation applies to them? What processes other than
irrespective of their nature or form, are subject to stamp duty (SD) court proceedings are available to seize the assets of the project
provided that one of the following requirements is met: company in an enforcement?
• the security is granted in Angolan territory; and Following the declaration of bankruptcy, the court will appoint an
• the security is granted outside Angola but submitted therein for administrator who will be responsible for managing the insolvent
any legal purpose (eg, enforcement). debtor’s estate under the supervision of a trustee.
The administrator shall provide for the preservation and exer-
Further, securities granted by non-resident entities to Angolan based cise of the debtor’s rights in the interest of the debtor and its credi-
entities, regardless of the place where the security is granted, are tors, and a thorough evaluation of the status of the debtor (assets
always subject to SD. and liabilities), the conditions in which the activities of the debtor
SD over securities is calculated over the amount secured and the were carried in the past and the motives that led the debtor into
rates may vary as follows: bankruptcy, for purposes of avoiding (to the greatest extent possible)
• securities granted for less than one year – 0.3 per cent over the further deterioration of the debtor’s economic condition.
amount secured; Angolan law also provides for pre-insolvency procedures, but at
• securities granted for one year or more – 0.2 per cent; and this stage the management powers remain with the debtor and an
• securities granted with no term or for more than five years – 0.1
administrator appointed by the court is only empowered to super-
per cent.
vise the management made by the debtor.
Payments to creditors can only be made after the sale of the
As a general rule, SD is due upon issuance of the security. Under the
debtor’s assets. In the case that there are creditors benefiting from
law, securities that are ancillary to other contracts (eg, loan agree-
guarantees in rem, payment of such creditors will occur immediately
ments) that are already subject to SD and are entered into simulta-
after the sale of the secured assets. Common creditors shall be paid
neously with the main contract, with the same date although in a
pro rata every time a value equivalent to 5 per cent of the amount in
different title, are not subject to SD in Angola.
debt to common creditors is deposited in the bank for the account
of the relevant bankruptcy.
3 How can a creditor assure itself as to the absence of liens with The Angolan Civil Procedural Code does not make distinctions
priority to the creditor’s lien? between foreign or national creditors for bankruptcy purposes.
Creditors may resort to the Angolan Registry Offices (property
registers and commercial registers) to obtain information on the Foreign exchange issues
existence of liens over assets (to the extent such assets and liens are
6 What are the restrictions, controls, fees, taxes or other charges
subject to registration). This is the case of liens over real property,
on foreign currency exchange?
moveable assets subject to registration and quotas.
As a rule, mortgages are subject to mandatory registration, mak- The Angolan Central Bank (BNA) acts as foreign exchange control
ing it easy to verify the existence of this lien over the relevant assets. authority, having a key role in terms of any repatriation of funds
Pledges are not subject to registration, though the general rule outside Angola. Corporations with a registered office in Angola and
is for the pledged asset to be delivered to the pledgee during valid- local branches qualify as resident entities for foreign FX exchange
ity of the pledge. The aim of this rule is to publicise the existence purposes (FX residents).
of the pledge. Among the exceptions to this rule (deliverance of the Any currency transfers between an FX resident and a non-FX
pledged good to the pledgee) are pledges granted in favour of credit resident are subject to different requirements depending on the
institutions. nature of the underlying transaction.
The pledge of nominative shares is subject to inscription in the Transfers of profits abroad qualify as invisible items of trade. A
relevant share title and annotation in the company’s share registry precondition for the right to transfer profits is the relevant company
book. A pledge of bearer shares is dependent on the delivery of the having approved an investment project under the Private Investment
relevant share certificates. Law (see question 20). Other conditions related to timings and sub-
mission of documentation will also apply.
Loans, guarantees and other financial contracts, deposits and the
4 Outside the context of a bankruptcy proceeding, what steps
acquisition and sale of shares, bonds and other securities, involving
should a project lender take to enforce its rights as a secured
rights or obligations between residents and non-residents qualify as
party over the collateral?
capital operations. The following rules apply:
In order to enforce the collateral (ie, sell the secured assets in order • capital operations are subject to BNA’s prior approval. The only
to cover the secured obligations), the creditor will have to resort to exception is for capital operations of a personal nature referring
judicial proceedings. Such judicial proceedings can take considerable to donations from abroad, as well as inheritances and legacies
time. At present, it should not be expected to take less than one year. made exclusively to individuals residing in Angola;
The only exception to the above rule is in regard to pledge agree- • the transfer of currency requests for a capital operation must be
ments. The Angolan Civil Code allows for the parties to agree under made to the intermediary financial institution, which will then
a pledge agreement that the sale of the pledged asset is to be made submit it to BNA; and
by means of a private sale. In this latter case, the process can be more • BNA’s authorisation for the transfers is valid for a period of 180
expedited. days. This period can be extended one or more times, in the case
Notwithstanding the above, there are contractual mechanisms that the licence was not wholly or partially used.
that may be put in place to allow for the execution of certain col-
lateral without the need to have the court’s intervention (an example
being the use of irrevocable of powers of attorney).

7 What are the restrictions, controls, fees and taxes on remittances entered into a Trade Investment Framework Agreement (TIFA) with
of investment returns or payments of principal, interest or the United States in May 2009.
premiums on loans or bonds to parties in other jurisdictions?
See question 6 for the regime applicable to the transfer of profits and 11 What restrictions, fees and taxes exist on insurance policies
capital operations. over project assets provided or guaranteed by foreign insurance
companies? May such policies be payable to foreign secured
8 Must project companies repatriate foreign earnings? If so, must creditors?
they be converted to local currency and what further restrictions Under Angolan General Insurance Law (Law No. 1/00 of 3
exist over their use? February 2000) and the Insurance Regulations (Decree No. 5/03
If the project company is an Angolan company, it will be subject of 24 January 2003), all insurance contracts with Angolan entities,
to the constraints arising from the Angolan foreign exchange regu- activities carried out in Angola or assets located in Angolan territory
lations. In order for companies to be able to receive foreign earn- have to be entered into by insurance companies duly authorised to
ings offshore, they would need to hold an offshore bank account, carry out insurance activity in Angola.
which is subject to BNA’s authorisation and seldom granted. If such However, the Minister of Finance may authorise that insur-
authorisation is not obtained, project companies will mandatorily ance contracts be entered into outside Angola with a foreign non-
have to receive payments directly in Angola. It should be noted that admitted insurer, subject to the favourable opinion of the Angolan
the oil and gas industry is subject to a specific regime. Insurance Regulator (ISS) whenever the specific insurance in ques-
tion cannot be obtained from a local insurer.
The consequence of taking insurance outside of Angola without
9 May project companies establish and maintain foreign currency the Minister of Finance’s authorisation is that the obligations arising
accounts in other jurisdictions and locally? from such contracts, as well as foreign court or arbitration deci-
An offshore bank account can only be opened by an Angolan project sions regarding the said insurance contracts, will be unenforceable
company in the rare situations where an authorisation from BNA in Angola.
has been obtained (see question 8). It is also worth mentioning article 16 of Decree No. 6/01 of 2
Angolan project companies may freely open foreign currency March 2001. This article sets forth a mandatory regime of coinsur-
bank accounts in Angola, though the operation of the said accounts ance for petroleum, diamonds, aviation and agricultural insurance.
is subject to limitations as follows. Credit operations in a foreign Thereunder, the leading co-insurer (usually AAA) is under the obli-
currency account are limited to: gation to place with other co-insurers a percentage of no less than 30
• deposit of foreign currency arising from its activities; and per cent of the total liabilities to be co-insured.
• deposit of interest accrued over funds in the relevant account. The PPL also requires contractors under a works contract to
take out the following insurance coverage from insurance compa-
Debit operations in the foreign currency account are limited to: nies established in Angola:
• withdrawal or sale of foreign currency; and • employer’s liability insurance, for all workers in the contractor’s
• foreign exchange transactions in accordance with Angolan for- service or employed on the works;
eign exchange regulations. • for damages suffered by the works, for the contract works value
indicated in the respective contract;
Foreign investment issues • third party civil liability;
• professional liability insurance; and
10 What restrictions, fees and taxes exist on foreign investment in or • execution of the works, when a clause to this effect is included in
ownership of a project and related companies? Do the restrictions the contract specifications.
also apply to foreign investors or creditors in the event of
foreclosure on the project and related companies? Are there
any bilateral investment treaties with key nation states or other 12 What restrictions exist on bringing in foreign workers, technicians
international treaties that may afford relief from such restrictions? or executives to work on a project?
Would such activities require registration with any government According to Decree-law 6/01 of 19 January 2001, which approves
authority? the Regulations on the Exercise of Professional Activities by Foreign
As a general rule, there are no restrictions on a foreign company’s Non-Resident Employees (Expatriate Employees), foreign nationals
ownership in an Angolan project company. However, depending on may only be hired for professional, technical or scientific qualified
the activities that will be carried out by the Angolan company (nota- job positions provided no Angolan nationals are available for such
bly if the said activities fall within the oil and gas sector) or by virtue job positions.
of requirements of a specific tender or project, the company may be Decree 5/95 of 7 April 1995 (which regulates the hiring of for-
required to be held, to some extent, by Angolan partners. eign non-resident employees) provides that national and foreign
Also, pursuant to the Private Investment Law (the NPIL), foreign companies in Angola, which have more than five employees, may
investment projects, such as the incorporation of a local company or only hire expatriates if 70 per cent of the workforce are Angolan
acquisition of shares in an existing Angolan company, are subject to nationals. This means that, pursuant to the general local content
the prior approval of the Angolan Private Investment Agency (see principle (Angolanisation policy), expatriate employees cannot com-
questions 20 and 15 for further information on this issue). prise more than 30 per cent of the whole staff.
The Angolan state has signed bilateral investment treaties (BIT) In order to work lawfully in Angola, an expatriate employee
with several countries, such as Cape Verde (BIT is not in place in must first obtain a work visa from the Angolan immigration author-
Angola yet), Cuba, Italy, Germany, Namibia, Portugal, Russia, Spain ities, which is, under Angolan law, the only visa that allows an indi-
and South Africa. vidual to carry out paid work in the employment of a third party.
Angola is a member of the Multilateral Investment Guarantee Work visas depend on a local employment relationship between
Agency (the MIGA), which provides dispute settlement assistance. the relevant expatriate employee and an employer with some sort
Its past efforts to resolve foreign investment disputes have proven of legal representation in the country (such as a branch or local
to be extremely successful and, as a result, expropriation of private company). As a result, regardless of the fact of an employee having
investment assets is today guaranteed to be fair. Angola has also entered into an employment contract in his or her home country, the
employee shall also have to enter into a local employment contract right of free economic initiative, already set forth in general terms
in order to perform legal work in Angola. by article 14.
The use of any other visa to perform work is illegal. In the event Article 37 of the Constitution also recognises the right to pri-
an employee works in Angolan territory without a work visa, the vate property and to its transmission, and the state protects property
Angolan Visa Law stipulates a fine of US$1,000 applicable to the and other real estate rights of individuals and legal entities, either
employee and a fine of US$5,000 applicable to the employer. In national or foreign national, as well as of local communities. Under
addition to this, the employee will be expelled from the country and the Constitution, it is only possible to temporarily seize the said
the employer will have to pay all related expenses. assets or carry out their expropriation for reasons of public interest,
upon payment of fair and prompt compensation, which shall be a
condition of effectiveness of the expropriation.
13 What restrictions exist on the importation of project equipment?
In light of these Constitutional provisions, the validity of the
Equipment entering Angolan territory that is to be used in the coun- old statutes on nationalisation and seizure of assets may even be
try must be declared to the customs authorities and subject to proper challenged.
importation procedures. Only companies duly registered in Angola
as importers are allowed to carry out import operations. NPIL
As a rule, importations are subject to prior licensing procedures In the case that a certain project is submitted under the NPIL regime,
with the Ministry of Commerce and attract payment of customs investors are expressly given:
duties and other customs charges (in aggregate up to a maximum • equality of treatment whereby the the Angolan state guarantees,
of 83 per cent of the customs value). In addition, depending on irrespective of the origin of the capital, fair, non-discriminatory
the nature of the equipment some specific authorisations may be and equitable treatment to companies and enterprises incorpo-
required (from the ministry supervising the use of the relevant equip- rated and to their respective assets, assuring them protection,
ment) and some additional procedures may apply. security and access to legal resources and the judicial system, and
Equipment to be used directly and exclusively in petroleum not hindering their management, maintenance and operation;
exploration and production (E&P) operations or in mineral explo- • the right of access to the Angolan courts for the defence of their
ration, evaluation, mining and processing operations may benefit rights and due legal procedure;
from customs exemptions. The importation of equipment under a • in the event of the private investment assets being expropriated
private investment project approved by ANIP may also benefit from or requisitioned for compelling and duly justified reasons of
customs exemptions. public interest pursuant to the law, the state guarantees the pay-
ment of a fair, prompt and effective compensation of an amount
14 What laws exist regarding the nationalisation or expropriation to be determined in accordance with the applicable terms of the
of project companies and assets? Are any forms of investment law;
specially protected? • a guarantee of such rights that may be acquired in terms of pos-
session, use and operation of land, under an appropriate title, as
Nationalisation
well as other domain resources; and
Law 3/76 of 3 March 1976, contains rules on nationalisation and
• the non-interference from public authorities in the management
seizure of assets that were held by Portuguese citizens or companies.
of private enterprises, except in such cases as are expressly pro-
These regulations were actively enforced for many years and led to
vided for in the law.
the nationalisation of companies and seizure of significant real estate
assets.
Fiscal treatment of foreign investment
Although still in force, this statute is clearly outdated and is
inconsistent with the present wording of the Angolan Constitution 15 What tax incentives or other incentives are provided preferentially
and with the protection that is granted to private investors under the to foreign investors or creditors? What taxes apply to foreign
NPIL. Nevertheless, the Angolan Constitution (article 97) recognises investments, loans, mortgages or other security documents,
the validity and irreversibility of nationalisation and seizures carried either for the purposes of effectiveness or registration?
out in accordance with the applicable laws, without prejudice to the
Private investment operations may benefit from tax and customs
provisions regarding reprivatisation of companies.
incentives provided that the investor’s project is submitted and
duly approved by ANIP (if the investment amount does not exceed
Expropriation
US$10 million, being the granting of tax and customs incentives
Expropriation procedures in Angola are regulated by the Angolan
subject to the Minister of Finance’s binding opinion) or by the presi-
Expropriation Law (Law 2030 of 22 June 1948), which is further
dent of Angola, upon consultation of the Council of Ministers (if the
regulated by Decree 43587 of 8 April 1961. Expropriation of a right
investment exceeds US$10 million). The granting of tax incentives
shall entitle the expropriated entity to compensation equivalent to
is not automatic and must be discussed on a case-by-case basis. The
the damages originated by the deprivation of the ability to enjoy the
key elements considered by the Angolan authorities when granting
right. The compensation should also cover, notably:
tax and customs incentives are the location of the investment (invest-
• any reduction of value of the remaining property; and
ments in the more depressed and poor regions qualify for larger
• any necessary infrastructure or other expenses resulting from the
exemptions) and the sector of activity (infrastructures, energy and
division of the yard in two separate plots of land, such as con-
water, telecommunications and manufacturing industries are within
struction of bridges or tunnels, etc.
the so-called priority sectors).
The tax benefits available for private investment operations
The most recent statutes on this matter reflect the following
include temporary exemptions from corporate income tax on prof-
principles.
its, withholding tax on dividends and conveyance tax on the acquisi-
tion of real estate property. Goods and equipment imported under a
Constitution
private investment project may also benefit from exemptions from
Article 14 of the Constitution sets forth that the state recognises and
customs duties and other customs charges.
protects the private property of individuals or legal entities and the
Foreign investors that incorporate a local company or register a
right of private entrepreneurship exercised in accordance with the
branch in the country are generally subject to full Angolan taxes like
terms of the Constitution and the law. Article 38 further details the
other domestic companies. If the investor or creditor has no legal

representation in Angola, funds received from Angola are generally granted through the execution of the relevant mineral investment
only subject to Angolan withholding taxes (rates vary between 5.25 contract.
per cent and 15 per cent). Please refer to question 2 for the SD due
on securities and related agreements. Water
Water resources are classified as a public domain asset. The use of
Government authorities water resources is subject to the rules contained in the Water Law
(Law 6/02 of 21 June 2002 (WL)) and in the Regulations on General
16 What are the relevant government agencies or departments with Use of Water Resources (Presidential Decree 82/14 of 21 April 2014
authority over projects in the typical project sectors? What is the (the Regulations)) and should comply with certain principles, such
nature and extent of their authority? What is the history of state as maintaining the balance between demand and supply and ensur-
ownership in these sectors? ing a rational use of water resources. Despite its collective interest
The relevant government agencies or departments may vary depend- and usefulness, the WL and the Regulations allow for private use
ing on the nature of a specific project. A project may fall under the of water resources for water collection, rejection of effluents and
authority of a specific ministry, but in certain cases several ministries commercial aquaculture, by means of either a licence or concession.
may have authority. This often occurs with large projects that need, Among other matters, the licence or concession title shall mention
for example, to obtain an environmental licence, in which case the the existence and location of any works that will be constructed to
intervention of the Ministry of Environment will always be required optimise the use of the water, the volume of water that can be used,
at a certain stage. and the respective purposes.
Regulation of natural resources Land

Private ownership of land has been restricted in Angola since colo-
17 Who has title to natural resources? What rights may private nial times. Prior to independence, the acquisition of land was lim-
parties acquire to these resources and what obligations does the ited to certain areas of the Angolan territory (mainly the cities), and
holder have? May foreign parties acquire such rights? certain types of land (urban land). Upon independence, the newly
Oil and gas founded Angolan state confiscated all land that was held by foreign
Pursuant to the Angolan Constitution and article 3 of the Law 10/04 nationals (settlers from the old colonial power) and was abandoned
of 12 November 2004, the Petroleum Activities Law (PAL), all min- for more than 45 days. All land that was confiscated and all land
eral and natural resources found in the country’s subsoil belong that did not have a private owner was deemed as state land.
to the state, being deemed part of the latter’s ‘public domain’. The Presently, land in Angola is divided, in terms of ownership,
respective prospecting, exploration, development and production are into private land (whose property rights are held by private entities
normally carried out through a concession. Concession rights should and individuals) and state land (whose property rights are held by
be exclusively granted to the national concessionaire – Sonangol EP the state of Angola). State land is further divided into state private
(Sonangol). The PAL establishes the rules governing not only to domain land and state public domain land. Rights over state private
access to petroleum activities, but also the contractor group’s and domain land can be granted to private entities or individuals, while
Sonangol’s rights and duties vis-à-vis the Angolan state, and between the use of state public domain land is limited and subject to special
themselves. The PAL also contains provisions setting forth the main public law rules.
steps of each phase of the operations, governing the oil companies’ Land acquisition and use in Angola is mainly regulated by the
activities thereunder, and specific rules on hiring of goods and ser- Land Law (Law No. 9/04 of 9 November 2004, (the LL), the Land
vices. Sonangol may either explore for crude oil directly or through Law Regulations (Decree 58/07 of 13 July 2007, (the LLR), and the
an association with third parties. Any company that wishes to carry Civil Code (the CC). In certain cases, the rules contained in the LL
out petroleum operations in Angola outside the scope of a survey and the LLR may be subject to different interpretations and levels of
licence may only do so if associated with the national concession- implementation at a local level by the provincial governments.
aire, subject to the prior consent of the Angolan government.
18 What royalties and taxes are payable on the extraction of natural
Minerals
resources, and are they revenue- or profit-based?
The Angolan umbrella statutes governing the mining industry are
the Constitution of the Republic and the Mining Code (Law 31/11 The regime that is applicable varies, depending basically on the nat-
of 23 September 2011). Under the Constitution, mineral resources ural resource and not on the nationality of the company or entity
are the property of the state, which establishes the rules on access to, undertaking the extraction.
exploration, evaluation, mining and marketing of mineral resources. As for mineral extraction activities, the Angolan legal framework
The Mining Code applies to all activities in connection with the may be broadly described as a ‘contractual system’ since a signifi-
exploration, evaluation, reconnaissance, mining and marketing of cant portion of the substantive terms and conditions of the mining
mineral resources, except for liquid and gaseous hydrocarbons. operations are set forth in contractual instruments, inter alia, the tax
Minerals rights over ‘strategic’ minerals may be granted on an exclu- regime. Notwithstanding, under the Mining Code, the extraction of
sive basis to a specific state-owned entity, which shall take the role minerals is subject to a tax on the value of mineral resources (roy-
of national concessionaire. The national concessionaire is prevented alty). The royalty payable depends on the type of mineral. Royalty
from exercising directly the relevant mineral rights, but may exer- rates vary between 2 per cent (constructions and other minerals) and
cise such rights through wholly owned companies. The granting of 5 per cent (gold, uranium, diamonds and other precious stones). This
rights concerning ‘strategic’ minerals is subject to a public tender royalty is levied on the value of minerals extracted at the mine head
procedure. or, when processing takes place, on the value of concentrates.
The Mining Code has adopted a single-contract model, under Companies engaged in petroleum E&P operations may be sub-
which mineral rights are granted, from the outset, for the whole of ject to the payment of petroleum production tax, which is levied at
the mineral process including exploration, evaluation and reconnais- a general rate of 20 per cent upon quantities of all liquid and gase-
sance, as well as mining and marketing. Although an exploration ous hydrocarbons, as well as other substances, deducted from the
title and a mining title will still have to be issued separately as a quantities consumed in natura by petroleum operations. Petroleum
condition for the exercise of the relevant rights, all mineral rights are production tax is not applicable to petroleum E&P operations car-
ried out under production sharing agreements.
19 What restrictions, fees or taxes exist on the export of natural Angola for each financial year must make provision for the several
resources? financings, loans, as well as for the corresponding interest payments
The export of natural resources is, typically, subject to specific cus- or principal repayments (as the case may be) by the Republic of
toms regimes (eg, subject to special authorisations, formalities and Angola scheduled for the relevant financial year. If the expenditure
to specific fees) that vary depending on the type of natural resource. is not contemplated in the state budget for the relevant financial
By way of illustration, holders of mining rights are entitled to year, the related agreement or act cannot be pre-approved by the
trade the product of the mine operations, in the terms set forth in Audit Court or approved by the president, and the lender must be
both the law and the relevant investment contract. requested to pay back any payment received with interest.
The export of mineral resources duly extracted and processed
is typically not subject to customs duties and charges, except for Approval by the President
fees for services rendered by customs. In turn, the direct or indirect As a rule, project agreements are subject to prior approval of the
exportation of raw (not processed) mineral resources is subject to a president of the Republic in the form of a Presidential Decree, which
5 per cent customs duty on the market value of the relevant mineral. must be published in the Angolan Official Gazette. Pursuant to the
The exportation of Angolan mineral resources that is not expressly new Angolan Constitution, the president is the head of the executive
allowed under the Mining Code is prohibited. The exportation of branch. All executive responsibilities lie originally with the presi-
crude oil is also subject to a specific customs regime and specific dent. In discharging such responsibilities the president is assisted by
procedures must be followed. The exportation of crude oil is subject a Council of Ministers. However, the members of the Council of
to a statistical tax of 1/1000, ad valorem. Ministers (the Ministers) do not have autonomous responsibilities
or powers. Any responsibility of a minister must be expressly del-
Legal issues of general application egated by the president.
20 What government approvals are required for typical project finance Other regulatory approvals
transactions? What fees and other charges apply? Depending on the type and sector of the project, additional regula-
There are a range of general and specific approvals that can poten- tory approvals may be required. For example, the need to obtain an
tially apply to project finance transactions. Some approvals that may environmental licence, industrial licence, works permit (if applica-
be required are identified below. ble) and a commercial operations permit. As a rule, these licences
and permits are obtained by the project company. Also, if a given
Foreign exchange approvals project qualifies as a PPP, there is a specific launching and approval
BNA approvals for foreign transfers of profits and loan and security procedure that must be followed.
related (see question 6).
21 Must any of the financing or project documents be registered or
Private Investment Law filed with any government authority or otherwise comply with legal
If an investment project is submitted under the new Private formalities to be valid or enforceable?
Investment Law (NPIL) regime, additional approvals are required.
The approval of an investment project entails the negotiation and The general rule is that it will suffice that the agreements adopt a
execution of an investment contract between the state and the private written form. In the case of agreements over immoveable assets
investor. Its approval procedure is dependent on the amount of the or moveable assets subject to registration and pledges over equity
investment project. Projects of up to US$10 million are approved by interests, other requirements can apply. It is recommended that local
ANIP’s board of directors upon favourable opinion by the Ministry loans are certified by a notary so as to qualify as an enforcement
of Finance with regard to tax incentives to be granted. Projects over title.
US$10 million are approved by the president of the Republic upon All agreements to be submitted to Angolan public authorities,
analysis of the file by the Council of Ministers. Lastly, as regards including the Audit Court, BNA and Angolan courts, must be trans-
projects that exceed US$50 million the president of the Republic lated into Portuguese, and before the Angolan public authorities, the
may set up an ad hoc commission for the negotiation of incentives Portuguese translation prevails over the English language version.
in order to negotiate with the investor and prepare the final decision. Also, Angola is not a party to the Hague Convention Abolishing
the Requirement of Legalization for Foreign Public Documents of
Public procurement law (PPL)
1961. Therefore, documents executed by any party outside Angola
A project finance transaction is typically subject to public tender must be notarised, translated into the Portuguese language and con-
procedures, as detailed in the PPL (Law 20/10 of 7 September 2010). sularised at the Angolan Embassy in the country of execution to
The specific procedures and related approvals will depend on the be entirely enforceable before Angolan courts and other Angolan
specific characteristics of the project. public authorities.
Audit Court 22 How are international arbitration contractual provisions and

A project finance transaction will also typically be subject to approv- awards recognised by local courts? Is the jurisdiction a member
als by Angola’s Audit Court. The Audit Court is responsible for over- of the ICSID Convention or other prominent dispute resolution
seeing public entities spending. Under its organisational law (Law conventions? Are any types of disputes not arbitrable? Are any
No. 13/10 of 9 July 2010) any contracts or related acts that involve types of disputes subject to automatic domestic arbitration?
expenditure from the state or other public entities are subject to The primary domestic source of law relating to arbitration in Angola
the Audit Court control. If the transaction qualifies as a PPP under is the Voluntary Arbitration Law (VAL), Law No. 16/03, dated 25
Law 2/11 of 14 January 2011, the following approvals by the Audit July 2003. The VAL governs both domestic and international arbi-
Court will be required: (i) tender documents; and (ii) draft contract. tration. According to the VAL, arbitration will be of an international
nature when international trade interests are at stake, in particular
State budget restrictions when the parties to the arbitration agreement have business domi-
The Republic of Angola may enter into an agreement provided that ciles in different countries at the time of the agreement’s execution;
the public interest is served. However, the maximum financial expo- the place of performance of a substantial part of the obligations
sure that the state may incur must be set on an annual basis in the resulting from the legal relationship from which the dispute arises is
State Budget Law, which is approved each year. The state budget of

situated outside the countries where companies have their business state does not enjoy any right of immunity from suit, court jurisdic-
domiciles or when the parties have expressly agreed that the scope tion or other legal process with respect to its obligations. However, in
of the arbitration agreement is connected with more than one state. any proceedings taken in Angola or abroad, the state will be entitled
The general rule under the VAL is that parties are free to submit to claim immunity from a suit, or other process, including arbitra-
their disputes to arbitration, an exception being made to disputes tion, with respect to certain commitments and obligations thereun-
that fall under the state courts’ exclusive jurisdiction and disputes der if such commitments and obligations are of a public nature or
that relate to inalienable or non-negotiable rights. The PPP law imply the exercise or non-exercise of public powers or sovereign
also explicitly allows disputes arising from PPPs to be settled with powers (other than civil and commercial nature). Said commitments
recourse to arbitration (article 20). and obligations are governed by Angolan law, not by the law that
Angola is not a party to the New York Convention on the rec- the parties have agreed to govern the relevant agreement.
ognition of arbitration awards. In order to be enforced in Angola, As detailed below, the Angolan state’s assets may be divided
arbitration awards must be preceded by a recognition procedure between public domain assets and private domain assets. As a mat-
set forth in the Angolan Civil Procedural Code (CPC) whereby an ter of Angolan law, the state cannot waive immunity from execution
Angolan court will review and confirm the award. or attachment in respect of property belonging to the public domain
The review and confirmation process does not involve a merit of the state, which includes natural resources, public infrastructure,
revision, but a simple re-examination of the relevant decision and assets of cultural or historical value, land that could be used for
additional judicial procedures requirements. ports infrastructure and military assets, or in respect of property
In order for the arbitral award to be recognised, the following dedicated to a public or government use, which includes assets used
requirements must all be met: by state entities or departments (such as health care or education
• there are no doubts that the judgment can be understood; facilities) or assets designated for the use by diplomatic or consular
• it must constitute a final decision (not subject to appeal) in the missions of the state.
country in which it was rendered;
• the subject matter of the judgment is not subject to the exclusive Environmental, health and safety laws
jurisdiction of the Angolan courts, or that the jurisdiction of the
foreign court was not established in a fraudulent manner; 25 What laws or regulations apply to typical project sectors? What
• there is no case pending before or ruled by an Angolan court, regulatory bodies administer those laws?
except if it was the foreign court that prevented jurisdiction of The general principle set forth in the Angolan Constitution is that all
the Angolan courts; citizens ‘have the right to live in a healthy and unpolluted environ-
• the defendant was served proper notice of the claim in accord- ment’ and that the government must take ‘the necessary measures
ance with the law of the country in which the judgment was to protect the environment’. The Ministry of Petroleum of Angola
rendered and the process was conducted with observance of the (MINPET) supervises the oil industry in Angola and is responsible
principle of equal treatment; and for implementing national policy and coordinating, supervising
• the judgment is not in irreconcilable breach of the Angolan state and controlling all petroleum-related activities. The Environmental
international public policy principles. Framework Law No. 5/98 of 19 June 1998 provides guiding prin-
ciples for the prevention and control of pollution and standards to
protect the environment. A series of other laws and decrees provide
23 Which jurisdiction’s law typically governs project agreements?
for relatively extensive regulation of environmental protection and
Which jurisdiction’s law typically governs financing agreements?
industrial licensing.
Which matters are governed by domestic law?
Under the Environmental Licensing Decree No. 59/07 of 13 July
Project agreements are typically governed by Angolan law. Financing 2007, any project that uses the country’s natural resources and is
agreements are usually subject to foreign laws, such as English law. likely to cause significant environmental or social impact requires a
The general principle under Angolan law is that the creation, separate environmental licence from the Ministry of Environment
perfection and enforcement of contracts, as well as the contractual (MINAMB). Environmental licensing is mandatory in the case of
liability arising from such contracts, are governed by the law chosen construction, installation, refurbishment, extension, modification,
by the parties. However, there are limitations to the choice of a gov- operation and decommissioning of activities that require an environ-
erning law as follows: it must be justified by a serious interest of the mental impact assessment (EIA) study or in the case of activities that
parties in such a contract or have a relevant connection with any ele- are likely to have a considerable environmental and social impact.
ments of the contract. Moreover, that choice of law and the contract This means that in order to determine whether a specific activity is
may not violate any Angolan public policy principles. subject to environmental licensing one must, first, determine whether
In any event, Angolan law shall apply whenever overriding man- the said activity is subject to an EIA. Pursuant to Decree 51/04 (on
datory provisions thereof are at stake. This includes public order EIA), the following activities are subject to an EIA:
principles of the Angolan legal framework, such as clauses excluding • agricultural, forestry, industrial, commercial, residential, tourism
or limiting liability in cases of wilful misconduct or gross negligence. or infrastructure projects, which, by virtue of their nature, size
or location, may have implications for the environmental and
24 Is a submission to a foreign jurisdiction and a waiver of immunity social equilibrium and balance; or
effective and enforceable? • activities listed in Annex II to Decree 51/04 – those activities
that have a potentially hazardous nature and are thus subject
In the case of ‘international business contracts’ (a literal translation
to a prior EIA. In any event, Annex II only contains a non-
of the law, which is far from clear and does not help in the defini-
exhaustive list of the activities that require an EIA. The key crite-
tion of this broad concept), the parties may agree that any disputes
rion is whether the project may have an impact on the environ-
arising therefrom are settled before the courts of the country of any
ment and social equilibrium and balance.
of the parties or by international courts (article 99.2 of the Angolan
Civil Procedure Code).
Decree No. 1/10 of 13 January 2010, approved the regime on envi-
In transactions that have a commercial and private nature and
ronmental auditing process for activities harmful to environment.
in which the Republic of Angola’s obligations constitute private and
This statute sets forth the performance of mandatory environmental
commercial activities subject to civil and private commercial law
audits to public and private activities capable of causing significant
rather than governmental or public activities, our view is that the
damage to the environment. Companies may also carry out volun-

tary environmental audits. Update and trends
More recently, Presidential Decree No. 194/11 of 7 July 2011,
approved the Regulations on Liability for Environmental Damage. The lack of necessary regulations to the PPP law has delayed the
implementation of project finance projects in Angola. As far as
The wide scope of the regulations determines their applicability to we are aware, the Angolan lawmakers have decided to study in
all activities capable of causing environmental damage, which means more depth the mistakes made and the problems faced by PPP
they apply to all sectors of activity, including, among others, the projects in other countries (such as Portugal) before implementing
manufacturing, petroleum and mining industries. The regulations the required regulations to the PPP law. This is the reason why,
are also applicable to environmental damage and imminent threats despite the country’s need of several basic infrastructures,
PPP transactions are yet to become a reality. Once the relevant
thereof even if they occur as a result of incidents for which liability regulations are enacted, we believe that PPP transactions should
or compensation is on a subsidiary basis covered by the scope of be expected shortly. Apparently, there is a political will to do so, as
international conventions. the government has recently announced that it plans that 10 per
Crude oil exploration and production activities are subject to cent of all public investment is made by means of PPPs by 2017.
the Decree on Environmental Protection for the Petroleum Industry
No. 39/00 of October 2000. In addition to general obligations that
oil companies should ‘take the necessary precautions’ to protect the Project companies
environment and ‘limit to the greatest extent possible’ their impact,
26 What are the principal business structures of project companies?
the Decree needs several plans required for operations.
What are the principal sources of financing available to project
Decree No. 39/00 has been further regulated by a set of ancillary
companies?
statutes, as follows:
• Regulations on Management of Operational Discharges The PPP law is still relatively recent and there is no precedent of
(Executive Decree No. 97/14, of 8 April 2014); projects being implemented under its regime. However, we believe
• Oil Spill Alert Regulations (Executive Decree No. 11/05 of 12 that PPP project companies will adopt the general types available
January 2005); and for limited liability companies in Angola, namely, limited liability
• Regulations on Management, Removal and Deposit of Waste companies, either by shares or by quotas. Financing is expected to
Generated in the Course of Petroleum Activities (Executive be available from either domestic or foreign banks and also from
Decree No. 8/05 of 5 January 2005). multilateral financing institutions.
MINAMB shares responsibility for coordination, development, Public-private partnership legislation

implementation and enforcement of environmental policies and
27 Has PPP enabling legislation been enacted and, if so, at what
compliance with MINPET but its focus is on areas such as biodi-
level of government and is the legislation industry-specific?
versity, the institution of new environmental technologies, impact
prevention and assessment and environmental education. In 2011, a PPP law was enacted (Law 2/11 of 20 May 2011). The
The most relevant statutes on health and safety are the following: law was approved by the National Assembly (parliament) and
• Joint Executive Decree 171/10 of 14 December 2010 – which promulgated by the president of the Republic. This law is not indus-
approves the list of prohibited jobs to underage workers and of try-specific and it specifically provides that entities used as public
professions subject to special requirements; partners in a PPP may include the state and local authorities as well
• Joint Executive Decree 172/10 of 14 December 2010 – which as state-owned companies. The PPP law requires further regulations
approves the list of prohibited jobs to women; that are yet to be enacted.
• Decree 38/09 of 14 August 2009 – Petroleum Health and Safety The PPP Law covers, among others, the following matters:
Regulations; • definition of public partners;
• Executive Decree 128/04 of 23 November 2004 – which sets • identification of the contracts whereby a public-private partner-
forth the regulations on health, safety and environment signage ship may be implemented;
at workplace; • creation of rules on the study, preparation, evaluation, approval,
• General Labour Law (Law 2/00 of 11 February 2000, rectified inspection and monitoring of public-private partnerships;
on 14 September 2001 and 24 May 2001) – which approves the • risk allocation;
General Labour Law; and • creation of the public bodies that will support public-private
• Decree 31/94 of 5 August 1994 – Health, Safety and Hygiene partnerships;
Regulations. • launching of the public tender; and
• creation of rules on:
• financial balance of the contracts;
Alberto Galhardo Simões alberto.simoes@mirandalawfirm.com
Av Engenheiro Duarte Pacheco, 7 Tel: +351 21 781 48 00

1070-100, Lisbon Fax: +351 21 781 48 02
Portugal www.mirandalawfirm.com

• increase of costs; • a public sector comparator should demonstrate the advantages

• amendments to the partnerships; of the PPP model for the public partner regarding the traditional
• recourse to arbitration in the case of disputes; and procurement method;
• creation of a guarantee fund. • it should clearly identify the objectives, and contain a clear allo-
cation of responsibilities and risks; and
PPP – limitations • the procedure for launching a PPP project is complex and cum-
bersome and requires input from several entities, including
28 What, if any, are the practical and legal limitations on PPP favourable opinions by the Audit Court.
transactions?
There are practical and legal limitations on PPP projects. The PPP – transactions
option for the PPP model is subject, among others, to the following
limitations: 29 What have been the most significant PPP transactions completed
• PPP projects with an investment or contract price below 500 to date in your jurisdiction?
million kwanzas are excluded from the PPP law, as well as public The PPP law is still relatively recent and there is no precedent of
works contracts and public supply agreements; projects being implemented under this model. According to recent
• it should be included in a general PPP plan; announcements made by the authorities, the first PPP transactions
• it should comply with the law that approves the state’s annual should be expected shortly.
budget;
BRAZIL Lobo & de Rizzo Advogados
Brazil
Fabrizio de Oliveira Sasdelli and Felipe Eluf Creazzo
Lobo & de Rizzo Advogados
There are two types of collateral in Brazil: personal guarantees and lawful techniques to minimise them? May a corporate entity, in
in rem guarantees. the capacity of agent or trustee, hold collateral on behalf of the
Under a personal guarantee, the guarantor undertakes to ful- project lenders as the secured party?
fil certain obligations of the debtor. Personal guarantees are created As a general rule, instruments that create in rem guarantees must
pursuant to specific guarantee agreements governed by the Brazilian describe the following elements in order to be valid: the amount of
Civil Code (articles 818 et seq) or a representation by the guaran- the debt, its estimated amount or its maximum amount, the term of
tor in negotiable instruments ruled by specific regulations and the payment, the interest rate, if any, and specification of property given
Brazilian Civil Code (articles 897 et seq). as collateral. Personal guarantees do not require detailing of all these
The most commonly used in rem guarantees in Brazilian project elements. Mortgages must be created by means of a public deed
financing are pledges, mortgages and fiduciary assignments. Under a executed by the guarantor and the creditor before a public notary in
pledge or a mortgage, a lien is attached to certain assets or properties Brazil, while pledges, fiduciary assignments and personal guarantees
to secure the fulfilment of an obligation. A mortgage may be estab- may be created by private instruments.
lished over real estate properties, ships, aircraft and other proper- The perfection of security interests related to pledges, mortgages
ties listed in the Brazilian Civil Code (articles 1,473 et seq), whereas and fiduciary assignments in Brazil is subject to the registration of the
pledges are created over what Brazilian law classifies as moveable corresponding instrument with the competent registries (Registry of
assets (eg, equipment, machinery etc), receivables, equity interests Titles and Deeds or Real Estate Registry). Certain instruments that
in Brazilian companies and credit rights (articles 1,431 et seq). In a create personal guarantees must also be registered before the com-
mortgage or a pledge, the guarantor will continue to be the owner of petent Registry of Titles and Deeds in order to be effective before
the encumbered property or asset, subject to repayment of the debt, third parties.
though its possession is usually transferred to the creditor. In addition, certain types of assets may require additional spe-
A fiduciary assignment may be established over both real prop- cific measures in order to be perfected, for example, security inter-
erties and non-fungible moveable assets (eg, equipment, vehicles and ests over shares of Brazilian companies must be annotated on the
equity interests in Brazilian companies). Under a fiduciary assign- company’s share registry book, security interests over vehicles must
ment, the title of the property subject to the guarantee is temporarily be annotated on the vehicle’s licence, security interests over rights
transferred to the creditor as a guarantee of the fulfilment of the and receivables must be notified to the counterparty (debtor) of
obligations by the debtor, though direct possession may be kept with such rights and receivables, etc. Also, security documents must be
the guarantor. Once the obligations of the debtor are fulfilled, the in Portuguese (or, if applicable, translated by a sworn translator,
title of the real property or asset is transferred back to the guarantor. legalised and registered by the competent registry). Amendments to
In a bankruptcy scenario, fiduciary assignments create a signifi- security documents must follow the same procedures.
cant advantage for the secured creditor as the underlying asset sub- Priority of the above-mentioned security interests is established
ject to the guarantee will be excluded from the bankruptcy estate upon precedence of registration of the related security document
(see question 5). Certain types of fiduciary assignments are restricted with the competent public authority. Considering that the fiduciary
to Brazilian financial institutions, therefore, certain remedies related assignment entails transfer of the title of the property, it does not
to this type of guarantee may not be available in the case of enforce- admit multiple rankings of security interest.
ment of the security interest in cross-border project finance transac- As detailed above, the perfection of collateral under Brazilian
tions involving foreign lenders. law may be subject to filing the registration of the relevant instru-
The foreclosure of certain guarantees may be limited in the case ments with the competent Registry of Titles and Deeds or Real
of project financing of assets used for providing public services. In Estate Registry. Fees imposed on such registrations of the security
some cases, these assets may not be encumbered at all. agreements are based on the amount of the secured obligation and
must be paid directly to the relevant registry prior to registration.
Such fees are usually borne by the guarantor.
With the exception of the typical role of a fiduciary agent in
capital market transactions, the concept of a ‘trustee’ does not exist
under Brazilian law as it exists in common law systems. However,
similar structures may be adopted to allow syndicated transactions
to be effectively implemented, such as the appointing of a ‘trustee’ or
‘security agent’ (ie, an attorney-in-fact) to act as the secured parties’

Lobo & de Rizzo Advogados BRAZIL
representative, with powers to direct, to hold, manage and enforce the creditor at the perfection of the guarantee, and the creditor will
the collateral. have the right to simply claim possession of the asset or property.
No interest shall accrue on indebtedness of the company follow-
ing the adjudication of bankruptcy, except for interest on secured
3 How can a creditor assure itself as to the absence of liens with
credits up to the limit of the proceeds of the sale of the relevant
priority to the creditor’s lien?
encumbered asset. Also, after payment of the relevant secured credi-
As indicated above, in order to be effective against third parties, tor with such proceeds, any outstanding credit will be regarded
instruments creating security interests must be registered with the as unsecured debt under Law No. 11,101/2005 (the Brazilian
competent Registry of Titles and Deeds or Real Estate Registry. Upon Bankruptcy Law).
request, such registries issue certificates regarding the registration of Additionally, the Brazilian Bankruptcy Law sets forth certain
any such lien. Depending on the nature of the asset, the absence of post-petition credits, such as remuneration of the bankruptcy liq-
encumbrances may be verified through other specific procedures (eg, uidator, related bankruptcy court expenses and post-petition debts
verification of the company’s corporate books or certificates issued entered into with bankruptcy creditors’ consent, among others, that
by the custodian of shares). are also senior to all of the above-mentioned ranked claims.
Local and foreign creditors receive the same treatment under
4 Outside the context of a bankruptcy proceeding, what steps a bankruptcy proceeding, both having full access to the courts of
should a project lender take to enforce its rights as a secured Brazil. Note that it is not possible to seize assets from a debtor out-
party over the collateral? side a court proceeding. All claims in foreign currency are converted
into domestic currency at the exchange rate on the date of the court
Considering that contractual provisions allowing creditors to take
decision ordering the bankruptcy proceeding.
possession of assets or property given as collateral in the case of
Under the Brazilian Bankruptcy Law, companies may also be
default are null and void under Brazilian law, secured parties depend
subject to a court-supervised reorganisation proceeding, in which
on the sale of such collateral in order to raise funds for the pay-
case claims secured by collateral such as pledges and mortgages will
ment of the secured obligations. Only in exceptional situations will
be subject to such a proceeding, whereas claims secured by fiduci-
secured parties be entitled to keep the collateral as payment for the
ary assignments will not. Holders of secured claims are one of the
secured obligations (eg, fiduciary assignments of real estate proper-
three classes of claims that are entitled to vote on the reorganisa-
ties in accordance with Law No. 9,514/97 and enforcement through
tion plan (other classes are labour-related claims and unsecured
public auctions in which no bids for the assets are placed).
claims). A reorganisation plan confirmed and approved by the
The procedures for the sale depend on the nature of the assets
legally required percentage of creditors and by the relevant court
or property and on the type of collateral granted. For the enforce-
is binding on all creditors subject to it, including dissenting ones.
ment of mortgages or fiduciary assignments of real estate the rel-
Note that under a reorganisation plan, encumbered assets and
evant property will have to be seized and, thereafter, sold at a public
properties may not be sold or released without the consent of the
auction by order of the court. As for moveable assets, to the extent
relevant secured creditor. Additionally, the commencement of a court-
expressly permitted by the relevant security agreement (whether a
supervised reorganisation proceeding will also trigger a stay of pro-
pledge agreement or a fiduciary assignment agreement), if the debtor
ceedings against the company under reorganisation.
fails to fulfil the secured obligations, the creditor may privately sell,
On a general note, state-owned and state-controlled companies,
transfer or otherwise dispose of the assets given as collateral.
financial institutions, cooperatives and insurance companies, among
In either event, the proceeds from the sale of the collateral shall
others, are subject to special insolvency proceedings not governed by
be applied to pay the lender’s debt and collection expenses. The
the Brazilian Bankruptcy Law.
guarantor will be entitled to receive a remaining balance, if any,
or will remain liable for the portion of the debt that could not be
Foreign exchange issues
paid with the proceeds of the sale (except in some specific situations
described in Law No. 9,514/97, in which the debtor may be released 6 What are the restrictions, controls, fees, taxes or other charges
despite the fact that the highest bid for the property in the relevant on foreign currency exchange?
auction is lower than the amount of the debt).
The foreign currency exchange market in Brazil is regulated and
supervised by the Central Bank of Brazil and only authorised agents
5 How does a bankruptcy proceeding in respect of the project may intermediate foreign exchange transactions. Such transactions
company affect the ability of a project lender to enforce its rights are formalised by foreign exchange contracts, which shall be regis-
as a secured party over the collateral? Are there any preference tered in the Central Bank of Brazil’s information system. There are
periods, clawback rights or other preferential creditors’ rights no restrictions on the inflow or outflow of funds, provided that the
(eg, tax debts, employees’ claims) with respect to the collateral? underlying transaction is legal and duly documented. Exchange rates
What entities are excluded from bankruptcy proceedings and are freely negotiated between authorised market agents and between
what legislation applies to them? What processes other than them and their clients.
court proceedings are available to seize the assets of the project The Tax on Foreign Exchange Transactions (IOF) is charged
company in an enforcement? on the foreign exchange contracts required for the inflow and out-
The adjudication of bankruptcy of a project company will accel- flow of funds into Brazil. The rates vary according to the kind of
erate its debts and trigger a stay of proceedings against it. Claims transaction. Foreign exchange contracts required for the inflow of
secured by collateral such as pledges and mortgages will, therefore, funds related to foreign loans with an average term lower than 180
be affected by the bankruptcy proceeding. In terms of preference, days are subject to the IOF at a 6 per cent rate, while those with
secured creditors will rank second in the bankruptcy estate after an average period greater than 180 days are free from the IOF. At
labour-related claims (up to the limit of 150 minimum wages per present, the rate for most foreign exchange transactions is 0.38 per
employee) and before tax credits and unsecured and subordinated cent, including the inflow of funds required to pay in capital contri-
credits in general. Claims secured by fiduciary assignments, in con- butions. The IOF is a ‘regulation’ tax and rates may be changed by
trast, will not be affected by the bankruptcy proceeding (up to the means of a Decree enacted by the Brazilian President, which may be
amount of the assets given as collateral), since under this type of col- effective from the date it is published. Additionally, the payment to
lateral the title of property of the assets or property is transferred to which the foreign exchange transactions relate may also be subject
to specific taxes (eg, withholding income tax, tax on financial trans- Foreign investment issues
actions, etc).
10 What restrictions, fees and taxes exist on foreign investment in or
ownership of a project and related companies? Do the restrictions
7 What are the restrictions, controls, fees and taxes on remittances also apply to foreign investors or creditors in the event of
of investment returns or payments of principal, interest or foreclosure on the project and related companies? Are there
premiums on loans or bonds to parties in other jurisdictions? any bilateral investment treaties with key nation states or other
In general, there are no restrictions imposed by Brazilian laws on the international treaties that may afford relief from such restrictions?
remittances of investment returns or payments of principal, inter- Would such activities require registration with any government
est or premiums on loans to parties in other jurisdictions, provided authority?
that the relevant foreign investment or credit transaction, as the case As a general rule, there are no restrictions on the investment in or
may be, is properly registered in the Electronic Declaratory Registry ownership of Brazilian companies by foreign investors. However,
(RDE) of the Central Bank of Brazil’s information system (Sisbacen) Brazilian law limits foreign investment in certain segments deemed
in a specific module (ie, Foreign Direct Investments – RDE-IED for to be strategic, such as financial services, nuclear energy, media
investments or Financial Transactions Registry – RDE-ROF for for- (press, television and radio), air transportation, health services,
eign loans). For each registration, a specific RDE number will be postal services, mining, aerospace industry and ownership of rural
generated, which will be required for the currency exchange con- land and business on international borders.
tracts in connection with the inflow and outflow of funds, such as Foreign investors or creditors shall have the same right of full
capital return, payment of profits, dividends, principal and interests. access to the judiciary system in Brazil as Brazilians.
Taxes concerning such remittances will vary according to the
nature of the transaction and the country where the non-Brazilian
party is domiciled. Under present legislation, capital gains of foreign 11 What restrictions, fees and taxes exist on insurance policies
investors or loan interests paid by Brazilian borrowers are generally over project assets provided or guaranteed by foreign insurance
subject to withholding income tax at a rate of 15 per cent, except for companies? May such policies be payable to foreign secured
capital gains paid to foreign investors domiciled in tax haven coun- creditors?
tries, which are subject to a 25 per cent withholding income tax. According to Brazilian legislation (Supplementary Law No.
No withholding income tax is levied on distribution of dividends, 126/2007), Brazilian individuals and entities may only contract
repatriation of investment and repayment of loan principal. insurance policies provided by foreign insurance companies in excep-
tional cases (ie, if an equivalent type of insurance is not offered in
any Brazilian location or by any Brazilian insurance company, insur-
8 Must project companies repatriate foreign earnings? If so, must
ance policies for residents in Brazil staying a short period of time
they be converted to local currency and what further restrictions
abroad or insurance policies related to international trade approved
exist over their use?
by the National Congress). It should be noted that Brazilian compa-
Present regulations permit companies with overseas revenues to nies may contract foreign insurance policies to cover risk in foreign
maintain such earnings abroad for the repayment of their debts, as is locations, after informing the Brazilian insurance authorities. Also,
the case with pre-export financing. It should be noted that any such the creation of security interests over insurance proceeds is a com-
funds maintained abroad must be notified to the Central Bank of mon practice in project finance transactions, and such amounts can
Brazil. In the event that a project company decides to repatriate such be payable directly to lenders located in Brazil or abroad.
earnings into Brazil, they will have to be converted to local currency.
There are no legal restrictions as to the use of foreign earnings by
Brazilian project companies, provided that applicable taxes are paid 12 What restrictions exist on bringing in foreign workers, technicians
and registrations with Brazilian authorities are made. or executives to work on a project?
Foreign workers, technicians and executives must obtain a tempo-
rary or permanent work permit issued by the General Immigration
9 May project companies establish and maintain foreign currency
Coordination of the Ministry of Labour and Employment located
accounts in other jurisdictions and locally?
in Brasilia in order to work in Brazil. The most common visas for
Brazilian project companies may establish and maintain offshore such purposes are: temporary visas related to technical assistance
accounts. Foreign project companies are allowed to establish and or transfer of technology, temporary visas allowing foreign nation-
maintain bank accounts in Brazil, but, as a general rule, such bank als to work in Brazil for a limited and fixed period of time, and
accounts must be denominated in reais. Project companies engaged permanent visas for foreign nationals appointed as executives of a
in developing projects related to the generation and transmission of Brazilian entity.
electric energy and oil and gas exploration, production and trans- Temporary work visas are usually limited to a period of two
portation are authorised to establish and maintain foreign currency years, and may be extended for two more years. Also, a maximum
accounts in Brazil, subject to regulatory restrictions (Resolution of one-third of the workforce of legal entities may consist of foreign
No. 2,644/1999 from the Brazilian National Monetary Council). employees.
Amounts deposited in foreign currency must be equivalent to the Additionally, permanent visas for executives (ie, directors and
amount in reais received for the sale of petroleum, natural gas or officers) of Brazilian companies require that the relevant entity pro-
electric energy, after the deduction of local activity costs, taxes and vides proof of a minimum investment of 600,000 reais per foreign
other expenses. Also, withdrawals from the accounts are authorised executive hired or 150,000 reais subject to the company hiring at
only for the outflow of funds in payment of financial commitments least 10 new employees in the two years following the admission of
in connection with the above-mentioned projects. the foreign executive.

The Brazilian government generally imposes restrictions on imports,
except for strategic resources and goods that are not locally avail-
able. Import licences must be obtained prior to the import of certain

goods and require approval from different government bodies in There are certain tax benefits related to infrastructure projects
light of the nature of the goods and their condition (ie, used or that apply to both Brazilian entities and companies controlled by
new). The importation of used goods is generally not allowed under foreign investors (Law No. 11,488/2007), as well as tax exemption
Brazilian law, but may be authorised upon fulfilment of certain con- on income paid by infrastructure securities held by foreign investors
ditions, such as certification that there are no goods manufactured (Law No. 12,431/12). In addition, some states have also granted tax
in Brazil similar to the ones being imported. It should be noted that incentives that apply to foreign investments, especially in connec-
such certification is issued by certain private entities registered with tion with the state value-added tax (ICMS) levied on the import and
the federal government and will not be required for the importation subsequent sale of goods and assets.
of used equipment under the temporary admission regime (a special There are no specific taxes for the purpose of effectiveness or
customs regime whereby an importer is allowed to import goods on registration of foreign investments, loans, mortgages or other secu-
a temporary basis). Also, importation of goods with prices or condi- rity documents. It should be noted that there may be fees associated
tions that are not consistent with market practices may be restricted with the registration of security documents (see question 2).
by competent authorities.
Public bids may require local content as a condition for projects Government authorities
in certain infrastructure sectors. Projects that are financed by official
sources (eg, BNDES) may be conditional upon a certain percentage 16 What are the relevant government agencies or departments with
of local content or may have lower interest rates depending on such authority over projects in the typical project sectors? What is the
percentage. nature and extent of their authority? What is the history of state
ownership in these sectors?
The most relevant government agencies or departments in
14 What laws exist regarding the nationalisation or expropriation
Brazil with authority over projects in the typical project sec-
of project companies and assets? Are any forms of investment
tors are: the Brazilian Electricity Regulatory Agency, the National
specially protected?
Telecommunications Agency, the Petroleum, Natural Gas and
As a general rule, expropriations may only be carried out by Brazilian Biofuels National Agency, the National Health Surveillance Agency,
authorities for public interest purposes and with prior and fair the National Water Agency, the National Supplementary Health
indemnification to the owner of the expropriated asset, such an asset Agency, the National Agency for Waterways Transportation, the
being normally arbitrated in court. The procedure followed by the National Land Transportation Agency, the National Civil Aviation
competent public administration bodies (federal government, states Agency and the National Mining Agency.
and municipalities) is set forth in Decree-Law No. 3,365/1941. In These governmental bodies were created in the past decade as
certain urgent circumstances local authorities may even take imme- a result of the privatisation of certain sectors to award and oversee
diate possession of a particular asset upon proper compensation to the performance of private concessions in certain infrastructure sec-
the owner, even while the court procedure in connection with the tors such as electric power generation and transmission, oil and gas,
expropriation is still pending. ports, telecommunications and transportation. They are regulatory
If a concessionaire of public services fails to render adequate agencies politically, financially, normatively and managerially self-
services or to comply with applicable laws or regulations, or no employed and usually represent the public authority as counterparts
longer has the technical, financial or economic capacity to operate in concession agreements.
adequately, its assets associated with the rendering of public services Typical functions of these agencies include:
may also be forfeited after a final administrative decision. In any • oversight of the service quality, including with respect to regular-
case, upon termination of a concession based on expropriation or ity, continuity, efficiency, safety and accessibility;
forfeiture, the concessionaire will be entitled to indemnification for • disciplining the use of public land and oversight of the expro-
the investments made that were not fully amortised or depreciated priation of private land for the benefit of the public service;
at termination and all assets, rights and privileges that are materially • approval of any changes in the shareholding control structure of
related to the rendering of public services will revert to the granting the concessionaire; and
authority. • intervention in the concession to ensure the adequate perfor-
mance of services and full compliance with applicable contrac-
Fiscal treatment of foreign investment tual and regulatory provisions.
15 What tax incentives or other incentives are provided preferentially
In addition, these agencies require project companies to apply for
to foreign investors or creditors? What taxes apply to foreign
certain licences, enrolments, permits and authorisations, depending
investments, loans, mortgages or other security documents,
on their corporate purpose and the project. Licences, enrolments,
either for the purposes of effectiveness or registration?
permits and authorisations are usually environmental, health and
As a general rule, non-Brazilian residents are subject to withholding safety, construction, and labour-related and are in addition to
income tax in Brazil on any income, earning or capital gains received the Central Bank of Brazil and tax (federal, state and municipal)
from a Brazilian source or when related to assets located in Brazil. enrolments.
Foreign investors that comply with Resolution No. 2,689/2000 of
the Brazilian National Monetary Council may be exempted from Regulation of natural resources
withholding income tax on capital gains arising from transactions
within stock and commodities exchanges, as well as futures markets 17 Who has title to natural resources? What rights may private
or similar. Capital gains arising from investments in stock funds, parties acquire to these resources and what obligations does the
swaps and future transactions carried out outside a Brazilian stock holder have? May foreign parties acquire such rights?
exchange are subject to a 10 per cent withholding income tax rate, The Brazilian Federal Constitution grants all rights related to natu-
which is generally lower than the rates applicable to Brazilian inves- ral resources in the Brazilian territory, including minerals and other
tors. Foreign investors in local private equity funds that meet quota- resources on the surface and underground, oil and gas, and hydraulic
holder base diversification criteria and that are not located in a tax electric energy potential to the federal government. The states have
haven jurisdiction are also exempt from withholding income tax on title to natural resources related to the water and land not expressly
capital gains in Brazil. reserved in the Constitution to the federal government.
In this regard, it should be noted that the government may con- is equivalent to 6.75 per cent of the amount of hydropower produc-
cede its rights to natural resources to private parties through conces- tion, in accordance with a standard hydropower value, updated on
sion upon compensation. However, private parties are still prevented an annual basis by the federal government.
from participating in certain strategic economic sectors such as As for the exploitation of petroleum and natural gas, in the case
extraction of radioactive minerals used for electricity generation and of the concession regime, the concessionaire is subject to the pay-
exploitation and extraction of any kind of mineral resources in inter- ment of royalties according to the production of a particular field,
national border zones. which are limited to 10 per cent of the value of the oil and gas pro-
As for oil and gas, the Brazilian Federal Constitution grants the duction, according to its reference price and special participation in
federal government a monopoly on all oil and gas exploitation and the case of extraordinary profit or production, intended to work as a
production activities, including refining, import, export and trans- windfall profits contribution over fields with a very large production
port of crude petroleum or basic by-products. The government, or profitability, as defined in a presidential decree. In the production-
however, may grant concessions to public and privately-owned sharing regime, applicable to the pre-salt and other strategic areas,
companies to carry out such operations by means of contracts regu- the contractor is required to pay royalties established at 15 per cent
lated by the Petroleum Law (Law No. 9,478/97). In the pre-salt and of the value of the oil and gas production, according to its reference
other strategic areas established by federal decree, oil and gas must price. In both regimes, the reference price is equivalent to the higher
be exploited under the production-sharing regime and not by means of the average concessionaire’s oil or gas sale price or the minimum
of concession agreements. oil price set forth monthly by ANP, taking into account the aver-
Regarding minerals, every company organised under Brazilian age US dollar–reais exchange rate and the average oil market price,
law, with headquarters and management in Brazil and having as its adjusted for the quality of the local oil, during the preceding month.
corporate object the exploitation and use of mineral resources, is It should be kept in mind that other taxes may apply, depending
eligible to obtain an authorisation for research and a concession for on each individual situation.
mining extraction. It should be noted that there is no distinction
between national capital and foreign capital companies in terms of
19 What restrictions, fees or taxes exist on the export of natural
access to exploitation and of the use of the Brazilian underground
resources?
level, except in areas located in the international border zone.
However, exploration of certain mineral resources by foreign par- Depending on the nature and tax classification of the natural
ties, even through Brazilian entities, is currently the subject of certain resource to be exported, a prior licence from the proper authorities
discussions before the Brazilian courts. may be required. The list of natural resources subject to prior licens-
Regarding water resources, the Brazilian Federal Constitution ing may be obtained on the Ministry of Development, Industry and
states that the states are responsible for all bodies of surface water Commerce’s website.
except those lying in more than one state, which are controlled by For example, the export of crude oil and liquefied natural gas
the federal government. is subject to obtaining prior specific authorisation from the ANP,
As for forests, according to the Brazilian Forest Code they are which is granted to the company (ie, it is not required for each of the
deemed a common interest of the people of Brazil, regardless of company’s deliveries).
the actual ownership of the land, which can be public or private. Certain natural resources may also require special procedures
Therefore, owners’ rights in forests must be exercised in accordance for export (eg, payment of taxes, presentation of specific certifi-
with the provisions of the Code whenever using and exploiting for- cates prior to exportation, fulfilment of forms, etc). For instance,
ests and engaging in forestry activities. the export of diamonds would require the prior authorisation of
In addition, it should be noted that the Brazilian Federal the DNPM, and the export of raw wood would require the prior
Constitution recognises both the cultural and territorial rights of authorisation of the Federal Environmental Institute.
indigenous peoples based on their traditional heritage, establishing The natural resources that may be subject to export tax are
their rights to permanently live in their traditional territories, includ- unshelled cashews, leather and fur. The export tax rate may reach
ing the exclusive use of the natural resources necessary for securing up to 150 per cent, but for these products the rate varies from zero
their cultural integrity and welfare. The same land rights have been per cent to 30 per cent.
established for the ex-slave communities in Brazil.
Legal issues of general application
18 What royalties and taxes are payable on the extraction of natural 20 What government approvals are required for typical project finance
resources, and are they revenue- or profit-based? transactions? What fees and other charges apply?
Apart from the regular corporate taxation applicable to Brazilian A typical project finance transaction would involve, prior to the
legal entities, there are some taxes imposed on the extraction of execution of the project finance agreements, the creation of a special-
natural resources, depending on the kind of resources under exploi- purpose company under Brazilian law, in order to implement and
tation. There are no distinctions between the royalties and taxes on manage the project and also to contract loans and receive invest-
extraction payable by domestic and foreign parties. ments from foreign investors and lenders. In this case, normal regis-
The most common tax imposed on the extraction of natural tration with the Central Bank for cross-border investment or credit
resources is CFEM (or financial compensation for the exploitation transaction would be required. For further details in this regard, see
of mineral resources), which is levied on the revenues resulting from question 10.
their commercialisation at rates varying from 0.2 per cent to 3 per It should be noted, however, that most Brazilian infrastruc-
cent. If the legal entity is still in the stage of doing mineral research, ture industries have specific legal and regulatory frameworks, and
an annual tax by hectare, which is determined based on the size projects in these industries may be subject to prior authorisations,
of the mineral deposit, will be applicable. In this case, the current licences or even concessions, including the foreign supply of technol-
amount of this tax is of 2.02 reais per hectare for each year of the ogy or services. Thus, depending on the industry where a particular
research authorised period, and 3.06 for each year, in the case of an project is being developed or financed, transactions between the pro-
extension of the research period. ject company and parties related thereto may be subject to scrutiny
Besides that, there is a tax in connection with the exploitation by industry regulators in the interest of the object of the project.
(not extraction) of water resources for purposes of generating hydro-
power, a financial compensation locally known as CFURH, which

21 Must any of the financing or project documents be registered or Although a party’s choice of law is not excluded by Brazilian
filed with any government authority or otherwise comply with legal conflict of laws rules, its application may be limited in certain cases
formalities to be valid or enforceable? where Brazil is considered to be the place of contracting or perfor-
Financial or project documents may be required to be registered, mance of the obligations deriving from the related agreements. Also,
filed or submitted for examination with certain government authori- if a party is a government entity or in the case of security interests
ties, depending on the scope of activities to be carried out by the over property located in Brazil, the submission to Brazilian law may
project company or also in the case of auditing by such authorities. be mandatory.
In relation to collateral documents, see question 2. In addition, the submission to a foreign law will only be recog-
As regards foreign documents, certain additional formalities may nised and upheld by the courts of Brazil as a valid choice of law if:
be required. In order to be valid and enforceable against third par- • it is not contrary to Brazilian national sovereignty, public policy
ties in Brazil, including judicial and administrative authorities, docu- or morality (as provided for in the Law of Introduction to the
ments executed abroad shall have the signatures stated thereon duly Brazilian Civil Code);
notarised by a notary public and legalised by the nearest Brazilian • the contracts are executed outside Brazilian territory or are sep-
consulate authority. Documents drafted in a language other than arately proposed by a person resident or domiciled outside of
Portuguese must be further translated into Portuguese by a sworn Brazilian territory (as provided for in the Law of Introduction to
translator in Brazil. Finally, in either of these events, documents must the Brazilian Civil Code);
be registered with a Registry of Titles and Deeds in each place where • the relevant content of foreign law is duly proved, if applicable
a Brazilian contracting party is located. or required; and
• such agreements comply with the requirements of Brazilian law
as to essential legal form if the obligations are to be foreclosed
22 How are international arbitration contractual provisions and
in Brazil, as per the Law of Introduction to the Brazilian Civil
awards recognised by local courts? Is the jurisdiction a member
Code.
of the ICSID Convention or other prominent dispute resolution
conventions? Are any types of disputes not arbitrable? Are any
Most project finance agreements between Brazilian parties are gov-
types of disputes subject to automatic domestic arbitration?
erned by Brazilian law, whereas financing agreements entered into
The Brazilian Arbitration Law No. 9,307/96 authorises parties sub- with foreign lenders, as well as security agreements over assets
ject thereto to freely choose the rules related to arbitration, provided located abroad, are usually governed by the law where the lender
that there is no violation of customs or public policy, including those is located. EPC agreements can also be governed by either Brazilian
rules based on general principles of law, custom and usage and inter- or foreign laws, usually depending on the nationality of the parties.
national commercial rules. According to the Brazilian legal system,
arbitration is an alternative and free form of dispute resolution and,
as such, parties involved in a dispute must not be subjected to it 24 Is a submission to a foreign jurisdiction and a waiver of immunity
against their will. effective and enforceable?
In addition to complying with certain conditions set forth in As a general rule, the submission to a foreign jurisdiction and related
the Brazilian Arbitration Law, Brazilian courts will enforce any for- courts by the project company and its waiver of immunity are valid
eign arbitral award, provided that it does not offend Brazilian pub- and binding, except if one of the parties involved is a governmen-
lic order and sovereignty and good morals, and provided further tal entity or other cases where Brazilian courts have exclusive juris-
that the foreign arbitration award is homologated by the Brazilian diction (such as disputes over real estate properties) or concurrent
Superior Court of Justice (STJ). Once the foreign arbitration award jurisdiction (such as in the event of obligations contemplated to be
is confirmed by the STJ, the judgment creditor is entitled to enforce performed in Brazil).
the award in Brazil through Brazilian courts. Absent a choice of jurisdiction clause, the lawsuit shall be sub-
Brazil is not a member of the ICSID. However, it is a member mitted to the jurisdiction of Brazilian courts if the defendant is domi-
of the 1958 New York Convention and of the 1975 Inter-American ciled in Brazil, the obligation is performed in Brazil or the lawsuit
Convention on International Commercial Arbitration (the Panama derives from a fact or an act that occurred in Brazil.
Convention). As a result, Brazilian authorities must give the same Waiver of immunity clauses of all kinds are generally effective
treatment to foreign arbitration awards as they give to foreign judi- and enforceable against private Brazilian parties.
cial decisions.
It should be noted that, pursuant to the Brazilian Arbitration Environmental, health and safety laws
Law, arbitration would be applicable to solve disputes exclusively
related to disposable patrimonial relations. It means that some dis- 25 What laws or regulations apply to typical project sectors? What
putes are legally excluded from arbitration, for example, family regulatory bodies administer those laws?
disputes, taxation disputes, etc. In this sense, the use of arbitration The power to legislate on environmental issues is granted to the state
proceedings in public contracts has been the subject of controversy. and federal governments and, in some cases where local problems
In light of the above, it is not uncommon for project financing are involved, to municipal governments as well. Most sectors, such
documents relating to Brazilian projects to contemplate the elec- as oil and gas, refining, water, power, ports and telecommunications,
tion of jurisdiction as dispute resolution mechanisms rather than are regulated by specific laws and regulations, and nowadays have
arbitration. regulatory agencies responsible for supervising their activities.
Brazilian environmental laws require prior licences and authori-
23 Which jurisdiction’s law typically governs project agreements? sations by federal or state agencies (and, in some cases, municipal
Which jurisdiction’s law typically governs financing agreements? agencies) for the construction, installation, expansion or opera-
Which matters are governed by domestic law? tion of establishments and for activities that use natural resources
Brazilian law is silent about choice of law provisions. The contrac- or cause pollution. Please note that these requirements may vary
tual law chosen by the parties will be applicable in Brazil, absent according to the activities performed and the state where the estab-
any fraud or intention to defraud the local laws and with some of lishment or activity is located.
the connecting factors recognised by the principles of private inter-
national law (nationality of the parties, place of execution, place of
signing, language, etc) present.
Project companies
Update and trends
What are the principal sources of financing available to project Project financing in Brazil is expected to increasingly be used in
companies? local and foreign capital markets (including project bonds) and
also structures already used by other countries, like mezzanine
Project companies in Brazil are usually formed as special-purpose financing.
entities through limited liability companies or corporations for the In addition, to the extent that the main source of infrastructure
development of their projects in Brazil. In addition to providing lim- financing in Brazil, namely, the BNDES, reduces its participation in
ited liability to shareholders, corporations have more flexibility in large projects, private party financing should increase, especially in
those sectors with a sound regulatory framework.
certain areas, such as the issuing of certain securities in Brazil and
corporate governance.
The main financing sources for typical project financing trans-
actions have historically been, mainly due to the size and term of The Brazilian PPP Law governs the construction and opera-
infrastructure projects, multilaterals, development banks and institution of infrastructure facilities by private companies on a long-term
tional investors, such as the Brazilian Development Bank (BNDES), basis (from five to 35 years) by means of an administrative con-
and multilateral agencies, such as the Inter-American Development tract referred to as a ‘concession agreement’, which may contem-
Bank (IDB). plate a sponsored concession or an administrative concession. The
Note, however, that due to recent developments in the country, execution of these contracts must always be preceded by a bidding
its capital markets and more economic stability, some private inves- procedure. Mandatory provisions arc contemplated in the invita-
tors and investment funds have also participated in the financing tion to bid, whose procedure must follow Law No. 8,666/1993 and
and development of such projects. The Brazilian capital markets Brazilian PPP Law procurement rules.
have allowed the public offering of project securities (in the form
of debt and even equity in certain cases) to a large base of investors. PPP – limitations
Finally, tax incentives for investors in private equity funds invest-
ing in infrastructure have fostered the issuance of project bonds, a 28 What, if any, are the practical and legal limitations on PPP
measure that is expected to attract private citizens to this type of transactions?
investment. Also, more recently, as a result of the Olympic Games The PPPs are envisaged as concessions and, as a result, are also sub-
and the World Cup, some tax benefits were granted to investments ject to the general rules governing public procurement such as Law
in the infrastructure associated with such events. No. 8,666/1993 (the Bidding Law) and Law No. 8,987/1995 (the
Concessions Law).
Public-private partnership legislation The Brazilian PPP Law does not allow the execution of a PPP
agreement if:
• the total amount involved is less than 20 million reais;
• the period of the provision of services is less than five years; or
The most significant law regarding public-private partnerships in • its purpose is exclusive to the state (ie, regulatory prerogatives or
Brazil is Law No. 11,079/2004, which regulates the general terms the exercise of police force) with:
and conditions related to PPP projects and establishes general rules • the supplying of human resources;
about bidding and PPP-contracting, subject to the principles of the • the supplying and installation of equipment; or
public administration. Some states have also regulated the matter, as • the construction of public works.
is the case of São Paulo, Pernambuco, Bahia, the Federal District and
Minas Gerais, but in no case has the applicability of the PPP legisla- In addition, the Brazilian PPP Law sets forth the following manda-
tion been limited to a particular industry. tory provisions:
• term of duration (five to 35 years);
Fabrizio de Oliveira Sasdelli fabrizio.sasdelli@loboderizzo.com.br

Felipe Eluf Creazzo felipe.creazzo@loboderizzo.com.br
Av Brigadeiro Faria Lima, No. 3,900, 3rd floor Rua Lauro Müller, No. 116, 43rd floor, cj 4301
Itaim Bibi Edifício Torre Rio Sul
04538-132 São Paulo SP Botafogo
Brazil 22290-906 Rio de Janeiro
Tel: +55 11 3702 7000 Brazil
Fax: + 55 11 3702 7001 Tel: +55 21 3299 7100
Fax: +55 21 3299 7101
www.loboderizzo.com.br

• penalties applicable to private and public administration in the PPP – transactions

case of events of default;
• criteria for sharing of risks between public administration and 29 What have been the most significant PPP transactions completed
private partners, including force majeure and acts of God; to date in your jurisdiction?
• compensation and related adjustment conditions; One of the most significant PPP transactions completed in Brazil to
• mechanisms to ensure good and timely performance of services; date is the Line 4 Project of São Paulo’s subway (ViaQuatro), which
• events that indicate failure of the public administration to com- was originally conceived as an ordinary concession and was trans-
ply with financial obligations and available remedies; formed into a 30-year PPP for the operation and maintenance of a
• criteria based on which the performance of the private partner 12.8 km greenfield metro line in São Paulo.
will be assessed; This PPP transaction received financing of approximately
• guarantees to be offered by the private partner; US$350 million for the acquisition of rolling stock and the opera-
• sharing mechanisms with the public administration of the pri- tion of the ViaQuatro, and is the first project finance for a PPP in
vate partner’s earnings as a result of credit risk reduction; and Brazil. In this type of concession the concessionaire may receive
• appraisal of reversible assets. guaranteed payments from the public administration in addition to
a part of the fees or tariffs charged to the end-users.
Another PPP transaction completed to date is Sistema Produtor
Alto do Tiête, which was conceived as an administrative concession
and comprised the construction and operation of a system for collec-
tion and disposal of grey water for a period of 15 years.
Other projects are being structured at state and municipal levels.
The most important are related to toll roads, bridges, hospitals and
football and Olympic arenas.
CAMBODIA DFDL
Cambodia
Martin Desautels, David Doran and Sambo Ly
DFDL
Creating collateral security packages by the seller of a good to secure the payment of the relevant good by
the buyer or by a creditor other than the seller).
1 What types of collateral are available? If there is neither filing nor perfection for various security inter-
Collateral over which security can be created under Cambodian ests existing over a single collateral, the first attached security inter-
law includes both moveable property and immoveable property. est (on the basis of the date of the security agreement creating the
Examples of moveable property include serial-numbered vehicles, relevant security interest) has priority over the other security inter-
instruments, documents, secured sales contracts, goods (equip- ests. Collateral may be held by a corporate entity under the capacity
ment, inventory, consumer goods, consigned goods, leased goods, of agent or trustee of – and for and on behalf of – a secured party.
etc), intangible property and the proceeds of the aforementioned. As such, that collateral would not belong to the estate of that agent
Immoveable property such as land, buildings, rights in rem, and fix- or trustee in the event of their bankruptcy. The parallel debt clause
tures can also be secured as collateral. concept is not expressly recognised under Cambodian law and, con-
sequently, such clause is not commonly used in practice.
2 How is a security interest in each type of collateral perfected
and how is its priority established? Are any fees, taxes or other 3 How can a creditor assure itself as to the absence of liens with
charges (eg, stamp duty) payable to perfect a security interest priority to the creditor’s lien?
and, if so, are there lawful techniques to minimise them? May a Creditors may perform a search at the Secured Transactions Filing
corporate entity, in the capacity of agent or trustee, hold collateral Office at the Ministry of Commerce and, in the case of immoveable
on behalf of the project lenders as the secured party? property, a search at the Land Registry Office of the Ministry of
Under Cambodian law, a security interest is generally perfected Land Management, Urban Planning and Construction for any exist-
when it has been attached to the collateral and the relevant filing or ing security interest that has been filed. For a security interest that is
registration requirement has been fulfilled or the creditor has taken perfected without filing, there is no established mechanism to assure
possession of the secured collateral. the absence of such security interest in the collateral other than rep-
Governmental authority responsible for the registration var- resentations and warranties obtained from the debtor.
ies depending on the nature of the collateral. Filing for security
interests over moveable assets should be performed at the Secured
Transactions Filing Office of the Ministry of Commerce. The
Secured Transactions Filing Office has been functioning since early
2008, and the first notice was successfully filed in February 2008
via the e-filing website www.setfo.gov.kh. For immoveable assets, For secured interests over immoveable property, the secured party
it should be made with the Land Registry Office of the Ministry of cannot take ownership of the secured immoveable property upon
Land Management, Urban Planning and Construction. default of the debtor (unless there is no objection from the debtor
The filing of notice is not required to perfect certain security and its creditors, if any). The secured party can only claim for a com-
interests such as security interests over money proceeds and secu- pulsory sale of the secured immoveable property in court. The sale of
rity interests in the form of guarantees. A security interest in goods, the immoveable property must be made by public tender or auction.
instruments, documents, or secured sales contracts may be perfected The court may prescribe another method of sale if the sale cannot
by filing or by the secured party’s taking possession of the collateral. be made through public tender or auction. The secured creditor can
Only nominal fees are payable to file the notice to perfect a security participate in the sale of the property. There is no requirement that
interest. the sale must be completed in local currency.
In relation to security interests over immoveable assets in par- For security interests over moveable property, including goods
ticular, it should be noted that only the model security agreement is and intangible property, that are created and perfected in accordance
required to be registered for the purpose of the perfection require- with the Law on Secured Transactions, the secured party shall, upon
ment. To any possible extent and for greater protection of the lend- default, have the right of possession or control over the collateral
ers, the comprehensive agreement should also be filed; however, it even if the security agreement is silent on possession or control. The
should be noted that certain land offices are reluctant to accept the secured party may proceed directly against the debtor upon default
filing of the comprehensive agreement. with respect to its accounts or other intangible properties and is enti-
The time of filing or perfection generally determines the priority tled to notify an obligor on an account or on any other intangible
of the various security interests over the same collateral (except in property to make payment to the secured party, and also to take
the case of the ‘purchase money security interest’ – in the words of control of any proceeds.
the law and meaning, we understand, a security interest either taken For other collateral, the secured party shall be entitled to a spe-
cial and expedited order from the court granting to the secured party
possession or control over the collateral upon default. Issues at the

DFDL CAMBODIA
hearing are limited to the existence of a security agreement cover- 7 What are the restrictions, controls, fees and taxes on remittances
ing the collateral and at least one event of default. Alternatively, the of investment returns or payments of principal, interest or
secured party may take possession or control of collateral without premiums on loans or bonds to parties in other jurisdictions?
legal proceedings if the debtor has agreed in writing after default. A In general, there are no restrictions or controls on remittances of
secured party may sell, lease, license or otherwise dispose of any or investment returns or loan payments to other jurisdictions.
all of the collateral. Disposal of the collateral may be made publicly Nevertheless, the remittance of investment returns or loan pay-
or privately, in one or more contracts, and the secured party shall ments and other transfers overseas relating to the investment must
give reasonable notice to the debtor. The secured party may buy that be undertaken through banks established in Cambodia. Prior dec-
collateral at any public or private sale. The secured party is required laration to the National Bank of Cambodia is required for offshore
to inform any other secured party from whom the secured party has investment made by residents for amounts equalling or exceeding
received a written record of an interest in the collateral. The secured US$100,000. The payment of interest or dividends to non-residents
party shall act at all times in a commercially reasonable manner is subject to a 14 per cent withholding tax.
when disposing of the collateral.

5 How does a bankruptcy proceeding in respect of the project they be converted to local currency and what further restrictions
company affect the ability of a project lender to enforce its rights exist over their use?
as a secured party over the collateral? Are there any preference
Cambodian project companies are not required to repatriate foreign
periods, clawback rights or other preferential creditors’ rights
earnings.
What entities are excluded from bankruptcy proceedings and
what legislation applies to them? What processes other than 9 May project companies establish and maintain foreign currency
court proceedings are available to seize the assets of the project accounts in other jurisdictions and locally?
company in an enforcement? Cambodian project companies are not required to repatriate foreign
No action, proceeding or execution process may be commenced or earnings.
continued against a debtor or the estate of a debtor after the com-
mencement of an insolvency proceeding in respect of that debtor. Foreign investment issues
The administrator may, however, give written authorisation to
secured creditors to repossess and sell the encumbered assets in 10 What restrictions, fees and taxes exist on foreign investment in or
accordance with applicable law or in any other way avail themselves ownership of a project and related companies? Do the restrictions
of their security right. Employee wages, remuneration for the provi- also apply to foreign investors or creditors in the event of
sional administrator, administrative fees and court fees have priority foreclosure on the project and related companies? Are there
over the security in the proceeds of the liquidation. any bilateral investment treaties with key nation states or other
The bankruptcy proceedings provided under the Law on international treaties that may afford relief from such restrictions?
Insolvency do not apply to banks and financial institutions, insur- Would such activities require registration with any government
ance companies, and those governed by the Law on Issuance and authority?
Trading of Non-Government Securities. Instead, they would be sub- In general, foreign investors enjoy the same treatment as local inves-
ject to laws more specific to them (banking and financial institutions tors. However, there are some restrictions imposed on foreign own-
regulations, insurance regulations and regulations related to the issu- ership in some sectors such as landownership, printing and printing
ance and trading of non-government securities, for example). related services, radio and television activities. In the aforementioned
As discussed in question 4, immoveable property collateral sectors, the ownership of foreign investors is limited to 49 per cent.
can only be foreclosed through court proceedings. For accounts or In some other sectors such as exploitation of gemstones, making
other intangible property collateral, the secured party may collect bricks from clay and tile, rice milling, silk weaving and manufac-
the collateral without judicial action. The secured party may also turing of wood, and stone carving, local equity participation is
take possession or control of other collateral upon default outside of required. Except for the 14 per cent withholding tax that applies to
court proceedings if the debtor has agreed in writing after default. It the payment of dividends to non-residents, there are no specific fees
should be noted that the secured party is entitled to a special, expe- or taxes applicable to foreign investors over and above the general
dited order from the court granting the secured party possession or fees and taxes applicable to the project and the related companies.
control over the collateral. The hearing is limited to only two issues: No additional registrations and approvals are specifically required
the existence of a security agreement and the existence of an event for foreign investment besides the registrations and approvals that
of default. are required generally for the project and the related companies.

11 What restrictions, fees and taxes exist on insurance policies
6 What are the restrictions, controls, fees, taxes or other charges over project assets provided or guaranteed by foreign insurance
on foreign currency exchange? companies? May such policies be payable to foreign secured
creditors?
No restrictions are imposed on foreign exchange operations, includ-
ing purchases and sales of foreign exchange, transfers, all kinds of All insurance policies over project assets must be obtained through an
international settlements and capital flows in foreign or domestic insurance company registered and licensed to operate in Cambodia.
currency, between Cambodia and other countries. There are no Insurance contracts worth over US$500,000 are allowed to be rein-
taxes payable to any governmental authority on foreign currency sured with offshore insurance companies. Insurance policies may be
exchange. Nevertheless, the National Bank of Cambodia may impose payable to foreign secured creditors.
certain temporary restrictions – for up to three months, extendable
upon approval by the Prime Minister – on foreign exchange opera-
tions in the event of a foreign exchange crisis.
CAMBODIA DFDL
12 What restrictions exist on bringing in foreign workers, technicians power plants and coal-fired power plants, are new projects that have
or executives to work on a project? never been established or operated by the state; however, the owner-
The employment of foreign staff under Cambodian law is sub- ship of these projects will in most cases be transferred to the state or
ject to certain restrictions. Companies are only authorised to bring in state-owned enterprises after the end of the concession period.
foreign staff whose qualifications, skills and expertise are not availa-
ble among Cambodian citizens to work in Cambodia. The permitted Regulation of natural resources
number of foreign staff is limited to 10 per cent of the total work-
force. To employ foreign staff exceeding this ratio, approval must be 17 Who has title to natural resources? What rights may private
sought from the Minister of Labour and Vocational Training, who parties acquire to these resources and what obligations does the
generally approves such request from foreign investors. holder have? May foreign parties acquire such rights?
All natural resources including oil, gas, mineral resources, water
resources, etc are the property of the state. Private parties may acquire
production sharing rights in oil and gas, concession rights over other
Other than the payment of import tax and duties and customs clear- mineral resources, or water use right through a water licence or per-
ance, the import of project equipment and materials can be under- mit. In general, the aforementioned rights can be obtained by both
taken without any governmental approval except for the importation local and foreign parties. Holders of oil and gas production-sharing
of some hazardous and sensitive materials, which may require the rights and mineral concession rights are required to pay royalties
approval of the relevant government authority. Investment projects and surface rent, and have other obligations as specified in the rel-
that are entitled to the import exemption of production equipment, evant regulations, the petroleum or concession agreements, and the
construction materials and production inputs are required to obtain licences and permits issued by the relevant ministries.
prior approval of the CDC on the equipment and materials to be
imported under the import tax exemption.
Royalties applicable to petroleum shall be at least 12.5 per cent of the
value of the petroleum sold. As to other mineral resources, the royal-
ties for some types of mineral resources are set at a specific amount
Protection against nationalisation and expropriation is provided per unit of mines and the royalties for some mineral resources are set
under the Law on Investment and various bilateral and international at a percentage of the value of the mineral products sold. A 30 per
agreements to which Cambodia is a party. No form of investment cent tax applies to the profits realised from oil and gas production-
is especially protected. Nonetheless, it is advisable to register the sharing businesses and other natural resource businesses.
project as a qualified investment project (if the project qualifies for
such registration) to ensure that the project enjoys the protection
provided under the Law on Investment. 19 What restrictions, fees or taxes exist on the export of natural
resources?
Fiscal treatment of foreign investment Export of all natural resources is prohibited. Natural resources are
reserved for local supply and processed for export. Only processed
15 What tax incentives or other incentives are provided preferentially products of natural resources can be exported.
investments, loans, mortgages or other security documents, Legal issues of general application
Profit tax exemption for up to nine years or special depreciation (as 20 What government approvals are required for typical project finance
elected by the investors) and import tax exemption for the import transactions? What fees and other charges apply?
of production equipment, construction materials and production The government approvals required for typical project finance trans-
inputs (the latter is only granted to export and supporting indus- actions are substantially the same as those required for an infra-
try projects) are available for qualified investment projects. Large- structure project. For example, government approvals required
scale infrastructure projects will usually qualify for these investment for the financing of a large-scale power project would include the
incentives. general downstream approvals (including commercial registration
Other than certain tax exemptions granted to some multilateral with the Ministry of Commerce, tax registration with the General
and bilateral financial institutions, foreign creditors may not enjoy Tax Department, labour registration with the Ministry of Labour
any significant incentives. and Vocational Training, and, if the project qualifies for investment
Besides the 14 per cent withholding tax applicable to certain incentives, registration with the Council for the Development of
payments made to non-residents, only nominal fees are payable to Cambodia (CDC)) and upstream approvals, which notably include:
the government authority to register the security documents. • approval by the Council of Ministers of the project;
• electricity licence from the Electricity Authority of Cambodia;
Government authorities • approval and various permits from the Ministry of Environment;
• construction permit from the Ministry of Land Management,
16 What are the relevant government agencies or departments with Urban Planning and Construction; and
authority over projects in the typical project sectors? What is the • water use authorisation from the Ministry of Water Resources
nature and extent of their authority? What is the history of state and Meteorology.
See questions 20 and 25 on the relevant government agencies and The profits of the project company shall be subject to a 20 per
their respective authority. cent profit tax; however, the project company can enjoy a profit
Some infrastructure projects, such as airports, roads and rail- tax exemption for up to nine years if the project meets ‘qualified
ways, were originally owned and operated by the state or state- investment’ project criteria and other specified criteria. The payment
owned enterprises, before they were granted as concessions to of dividends, interest, rental and service and technical payments to
private investors. Some other projects, in particular hydroelectric

DFDL CAMBODIA
non-residents by the project company is subject to a 14 per cent • the losing defendant received service of summons or any other
withholding tax. order necessary to commence the action, or responded without
receiving such summons or order;
• the contents of the judgment and the procedures followed in the
action do not violate the public order or morals of Cambodia;
filed with any government authority or otherwise comply with legal
and
formalities to be valid or enforceable?
• there is a guarantee of reciprocity between Cambodia and the
For moveable property, only a notice of the security interests needs foreign country in which the court is based.
to be filed with the Secured Transactions Filing Office for perfec-
tion. However, it is advisable to also file the security agreement itself To our knowledge, Cambodia has not signed any treaty of guarantee
along with the notice. For the registration of a security interest in of reciprocity on foreign judgments with any other country.
immoveable property, the execution of an additional mortgage or There is no restriction on waiver of immunity. To date, the
hypothec agreement in Khmer and in the form provided by the Cambodian government has granted such waiver of immunity in
cadastral office is required. several instances.
22 How are international arbitration contractual provisions and Environmental, health and safety laws
25 What laws or regulations apply to typical project sectors? What
regulatory bodies administer those laws?
types of disputes subject to automatic domestic arbitration? The following are some key laws and regulations to which project
companies are commonly subject:
International arbitration and the enforcement of foreign arbitral
• business enterprise law, commercial registration law and regula-
awards are specifically recognised under the Law on Commercial
tions, and secured transaction law (Ministry of Commerce);
Arbitration and the Law on the Approval and Implementation of
• investment law and regulations (Council for the Development of
the Convention on the Recognition and Enforcement of Foreign
Cambodia);
Arbitral Awards. Cambodian courts may enforce foreign arbitral
• concession law (Council for the Development of Cambodia and
awards without examining the merits of the matter except where:
the ministry in charge of the relevant infrastructure project);
• the arbitration agreement is not valid under the law governing
• land law and regulations, and construction regulations (Ministry
that agreement;
of Land Management, Urban Planning and Construction);
• notice of arbitration was not properly given;
• factory law (Ministry of Industry and Handicrafts);
• the award is given in relation to disputes or matters falling out-
• law and regulations on the management and exploitation of
side the scope of the arbitration agreement;
mineral resources (Ministry of Mines and Energy);
• the composition of the arbitration tribunal is not in accordance
• environmental law and regulations (Ministry of Environment);
with the arbitration agreement or alternatively, the laws of the
• taxation law and regulations (Ministry of Economy and
country where the arbitration was held;
Finance);
• the award is not final and binding under the laws of the country
• labour law and regulations (Ministry of Labour and Vocational
in which the award was given;
Training);
• the subject matter is not capable of being settled by arbitration
• electricity law and regulations (Electricity Authority of
under Cambodian law; or
Cambodia);
• the recognition or enforcement of the award would be contrary
• petroleum regulations (Cambodian National Petroleum
to public policy.
Authority); and
• water resource management law (Ministry of Water Resource
While Cambodian courts are entitled to reject the enforcement of an
and Meteorology).
arbitral award if the courts find that the object of the dispute is not
arbitrable under Cambodian law, there is no clear regulatory guid-
Project companies
ance as to the types of disputes that are not arbitrable. Similarly, we
are not aware of any Cambodian law or regulation that subjects any 26 What are the principal business structures of project companies?
types of disputes to automatic domestic arbitration. What are the principal sources of financing available to project
companies?
23 Which jurisdiction’s law typically governs project agreements? Virtually all project companies take the form of a private limited
Which jurisdiction’s law typically governs financing agreements? liability company (two to 30 shareholders) or a single-member pri-
Which matters are governed by domestic law? vate limited liability company. Besides equity finance, project com-
Except for the concession agreement, which is required to be gov- panies can obtain finance from both offshore and local banks, as
erned by Cambodian law, other project agreements and financing well as from private financial institutions, bilateral financial insti-
agreements are typically governed by foreign laws such as English tutions, notably, Proparco (the French Investment and Promotion
law, New York law, Chinese law and Singaporean law. Security Company for Economic Cooperation) and Deutsche Investitions-
agreements are typically governed by Cambodian law, except those und Entwicklungsgesellschaft mbH (DEG) and multilateral financial
related to collateral located outside Cambodia. institutions, notably the International Finance Corporation and the
Asian Development Bank.
24 Is a submission to a foreign jurisdiction and a waiver of immunity Public-private partnership legislation

effective and enforceable?
It is specified in article 199 of the Cambodian Code of Civil 27 Has PPP enabling legislation been enacted and, if so, at what
Procedures that a final judgment of a foreign court shall be valid level of government (eg, national, provincial or state or municipal
only when all of the following conditions are fulfilled: or other local government) and is the legislation industry-specific?
• jurisdiction is properly conferred in the foreign court by law or The Law on Concessions was enacted on 19 October 2007 to
by treaty; promote and facilitate privately financed infrastructure projects
CAMBODIA DFDL
throughout the country. The Law on Concessions only provides for

the main legal framework related to the infrastructure project invest- Update and trends
ment. Comprehensive regulations (namely, an implementing sub-
decree) are expected to be enacted in the near future. In addition, a Besides hydro power plants and airport concessions, which have
been dominating the Cambodian PPP market over the past years,
number of industry-specific laws have been enacted (Electricity Law, there has been increasing interest and investment in power
Road Law, etc) or are expected to be enacted soon (the draft Law on transmission lines, telecommunication infrastructure, ports and
Telecommunications). toll roads and bridges.
PPP – limitations
PPP – transactions
28 What, if any, are the practical and legal limitations on PPP
transactions? 29 What have been the most significant PPP transactions completed
Under the present legal framework, certain legal restrictions on PPP to date in your jurisdiction?
transactions should be highlighted notably in relation to the term The most significant PPP transactions completed to date include the
of the concession and the governing law of the concession contract. 194.1MW Sinohydro Kamchay hydroelectric project, the 338MW
The term of the concession is limited to 30 years from the date of Lower Stung Russey Chrum hydroelectric project, the 246MW Stung
signing of the concession contract. However, the government is enti- Tatay hydro power plant, the 400MW Lower Sesan 2 hydro power
tled to grant a longer concession period if the nature of the infra- plant, the 100MW Sihanoukville coal-fired power plant, the 135MW
structure project requires a longer term. As to the governing law, the Sihanoukville coal-fired power plant and the 240MW Sihanoukville
concession contract must be governed by Cambodian law. coal-fired power plant, Phnom Penh International Airport, Siem
Reap International Airport and Sihanoukville International Airport
and CPTL’s 221km of 115kV transmission lines.
Martin Desautels martin.desautels@dfdl.com

David Doran david.doran@dfdl.com
Sambo Ly sambo.ly@dfdl.com
33 Street 294 (Corner Street 29) Tel: +855 23 210 400

Phnom Penh Fax: +855 23 214 053
Cambodia www.dfdl.com

Cassels Brock & Blackwell LLP CANADA
Canada
Alison R Manzer and Charles Newman
Cassels Brock & Blackwell LLP
Creating collateral security packages There are generally no stamp taxes applicable to perfect a secu-
rity interest in personal property and limited charges to register a
1 What types of collateral are available? lien against real property.
Security can be taken against assets on an all-asset basis in Canada. An entity may act as agent or trustee to hold both personal and
This means that all types of collateral are available to secure the real property security for other lenders, as secured parties. Canada
project finance. There are two registration systems for security in fully recognises the concepts of agency and trust relationships and
Canada, one for personal property, which will include intangibles, accordingly no parallel debt clause concept is required.
and one for real property. Both systems work on a first in time by
registration priority system, with a limited number of claims against
the collateral which can achieve priority. All security can be taken by
the use of a written agreement and registration under the applicable
security registration system. Additional protection as to priority for Under centralised security registration systems in Canada the regis-
certain assets, particularly intangibles, certificated and un-certificated tration, or for limited types of assets possession, of that asset creates
securities and bank accounts can be achieved by having possession an absolute order of priority. The limited interests that can achieve
of additional documentation or certificates of ownership. Personal priority over the registered security interest in the collateral can be
property taken as collateral can include after-acquired property identified by a search of public systems. Government liens do not
and proceeds. Real estate taken as collateral will not include after- have priority in bankruptcy, but may achieve priority in processes
acquired property and each piece of real estate must be the subject other than bankruptcy. Government liens can be searched with the
matter of a specific charge. authority of the debtor. The status of litigation, employment, tax and
environmental claims can be searched in public records.

and how is its priority established? Are any fees, taxes or other 4 Outside the context of a bankruptcy proceeding, what steps
charges payable to perfect a security interest and, if so, are there should a project lender take to enforce its rights as a secured
lawful techniques to minimise them? May a corporate entity, in party over the collateral?
the capacity of agent or trustee, hold collateral on behalf of the A secured lender can enforce its rights using either judicial assistance
project lenders as the secured party? or on a self-help basis. The three methods by which enforcement of
Security interests can be taken in all types of collateral in Canada by rights is most generally taken are:
the use of a written agreement. Some types of personal property can, • the private appointment of a receiver or the taking of steps
alternatively, be secured by the holding of possession of that prop- directly by the lender;
erty. Perfection of a security interest in personal property requires • a proceeding in foreclosure or judicial sale by court intervention;
all of the following: a written agreement, creation of an interest in and
the collateral for the debtor, the provision of valid consideration by • application to the court for the appointment of a receiver, as a
the creditor and registration or, for those specific assets where so court officer, to undertake the steps requested pursuant to the
permitted, the holding of possession. Priority is established by the court order, generally including business operation and eventual
first in time of registration or possession. There are some limited sale.
instances where priority established by registration may be altered;
this is most commonly with regard to after-acquired property. A pur- Self-help remedies are available through the use of a direct sale, or
chase money security interest for after-acquired property can achieve seizure in lieu (foreclosure), a process by a lender-appointed receiver
priority over a prior perfected security interest that would otherwise or a process by the lender. A judicial sale is not necessary for either
exist in that collateral when acquired. Other limited liens can achieve personal property or real estate; the applicable statutes allow for sale
priority, these include mechanics or construction liens, storage liens without judicial intervention. A sale can be undertaken by either a
and statutorily imposed liens. Security over real estate is established public or a private process provided that minimal standards of com-
by the first in time to register. There are a limited number of interests mercial reasonableness are met. There are statutory notice periods
in real property that can achieve priority over a registered charge. dictated with respect to a sale of assets, which range from 15 to
These include construction liens, and on a practical if not registered 45 days. Lenders may participate as buyers in a sale. Sales can be
basis, environmental claims and real property taxes. conducted in the currency of the transaction, and there is no require-
ment that they be undertaken using Canadian currency.
CANADA Cassels Brock & Blackwell LLP
5 How does a bankruptcy proceeding in respect of the project 9 May project companies establish and maintain foreign currency
company affect the ability of a project lender to enforce its rights accounts in other jurisdictions and locally?
as a secured party over the collateral? Are there any preference Project companies in Canada, whether branches or domestically cre-
periods, clawback rights or other preferential creditors’ rights ated Canadian resident entities, may establish and maintain foreign
(eg, tax debts, employees’ claims) with respect to the collateral? currency accounts where they choose. These accounts can be main-
What entities are excluded from bankruptcy proceedings and tained in other jurisdictions or, if available through a bank or cur-
what legislation applies to them? What processes other than rency exchange office, locally. There is no restriction on operating in
court proceedings are available to seize the assets of the project foreign currency.
company in an enforcement?
A bankruptcy proceeding in Canada will generally affect a secured Foreign investment issues
creditor only by a limited reordering of priorities and by the imposi-
tion of a stay period. Once the existence and value of the security 10 What restrictions, fees and taxes exist on foreign investment in or
interest over the collateral is verified the secured party effectively has ownership of a project and related companies? Do the restrictions
the right to take steps to enforce its security outside the bankruptcy also apply to foreign investors or creditors in the event of
proceedings. Bankruptcy proceedings in Canada proceed either as a foreclosure on the project and related companies? Are there
liquidation or as a debtor in possession of a going concern pursuant any bilateral investment treaties with key nation states or other
to a plan. Preference periods do exist under Canadian law but have international treaties that may afford relief from such restrictions?
a limited effect in a commercial matter for a third party as a secured Would such activities require registration with any government
party. There are limited preferential creditors’ rights; a limited num- authority?
ber of tax debts and employee claims can have priority over the Restriction on foreign investment in, or ownership of, project and
secured creditors’ rights. Foreign creditors claims are treated identi- related companies, is very limited in Canada. Federal legislation, the
cally to the claims of local secured creditors. There is no difference Investment Canada Act, is the mechanism that requires a review of
in legal rights for a foreign secured creditor from that of a domestic acquisitions of control of an existing Canadian business or the estab-
secured creditor. lishment of a new Canadian business by non-Canadians in Canada.
The statutorily-dictated transactions that require such a review are
Foreign exchange issues limited, and are divided into two categories: one requiring only noti-
fication and the other requiring review. If the investors are from a
6 What are the restrictions, controls, fees, taxes or other charges World Trade Organization member country and the investment is in
on foreign currency exchange? a non-cultural Canadian business, the threshold level is C$1 billion
Canada does not have foreign currency exchange restrictions. of gross assets. If the investor is a non-World Trade Organization
Accordingly there are no restrictions, controls, fees or taxes with member the threshold levels are considerably lower. Canadian cul-
regard to the exchange of currency from Canadian currency to for- tural businesses have a lower threshold and a review will be required
eign, or foreign to Canadian currency, within Canada. Canadian if the government of Canada considers the investment injurious to
debtors and secured creditors can deal freely in the currency of their national security; however, this is rarely invoked. If the transaction
choice, subject only to laws of civil procedure which dictate that is reviewable then the authority to proceed will require that the
judgments given in Canada can only be given in Canadian dollars. It transaction be of net benefit to Canada. Net benefit to Canada is
is usual to have a foreign currency exchange clause that will require determined by the relevant federal government ministry and is based
reconciliation to a chosen foreign currency from the judgment ren- upon criteria set out in the Investment Canada Act. Some indus-
dered in Canadian currency. tries, such as financial services, require consent as to ownership cri-
teria, applicable to the foreign investor in the same manner as to the
domestic investor.
7 What are the restrictions, controls, fees and taxes on remittances
In the event that the debt investment has been made into Canada,
of investment returns or payments of principal, interest or
and the foreign investor or creditors are seeking to foreclose, or oth-
erwise exercise their remedies as secured creditors, the Investment
There are no restrictions or controls on the repatriation of invest- Canada restrictions would apply only to the extent that the foreign
ment returns or capital invested from Canada to any foreign investors intend to take and retain ownership of the project. The
jurisdiction. Capital may be returned, and dividends, interest or pre- restrictions otherwise do not apply to the realisation of security.
miums paid on investments made in Canada to foreign jurisdictions A foreign investment promotion and protection agreement –
without limitation other than general corporate law. Withholding a bilateral agreement aimed at protecting and promoting foreign
tax is not payable for Canadians paying interest on debt obligations investment – is available between Canada and a significant num-
to foreign lenders. Withholding tax is payable on amounts that are ber of jurisdictions. Canada is a member of a number of interna-
payable on loans or bonds as a participating premium, and is pay- tional trade agreements including the World Trade Organization,
able on dividends. There is no fee or tax payable on the repatriation the North American Free Trade Agreement and, more recently,
of capital. The amount of withholding tax payable will depend on other agreements extending Canada’s free trade zone. This provides
the nature of the payment and the country to which the payment is national treatment of most favoured nation status for foreign inves-
being made. Canada has an extensive system of bilateral tax treaties tors of many countries, such that they are treated equally and no less
that will reduce tax otherwise payable on a withholding tax basis. favourably than domestic investors. These treaties do not require
registration with any government authority on the part of investors
8 Must project companies repatriate foreign earnings? If so, must or nations seeking to access the benefits of those treaties.
exist over their use? 11 What restrictions, fees and taxes exist on insurance policies
Project companies are not required to repatriate foreign earnings to over project assets provided or guaranteed by foreign insurance
Canada or to export Canadian earnings to foreign investors. companies? May such policies be payable to foreign secured
creditors?
Insurers are restricted from carrying on business in Canada unless
they are appropriately regulated under Canadian law as to ownership

and product. Insurance can be provided outside Canada for risks in federal, provincial and municipal authorities can invoke powers of
Canada, including to Canadian domestic enterprises or to foreign expropriation to force the acquisition of the real property.
entities carrying on business in Canada. Provided that the insurer is Protection is provided by the restriction that expropriation must
not found to be carrying on business in Canada, insurance policies meet very specific government-determined projects and not be for
can be provided to persons resident in, or domestic to, Canada. In the purposes of nationalisation.
such an instance, fees and taxes will not be applicable in Canada
because the transaction will be found to be carried on entirely out- Fiscal treatment of foreign investment
side Canada. Insurance policies provided by foreign insurers, outside
Canada, for Canadian risks, may be payable to the foreign secured 15 What tax incentives or other incentives are provided preferentially
creditors without restriction by Canada, and without fees or taxes to foreign investors or creditors? What taxes apply to foreign
in Canada. investments, loans, mortgages or other security documents,
Canada has eliminated withholding tax on arm’s-length interest
12 What restrictions exist on bringing in foreign workers, technicians
paid or credited to non-residents. While withholding tax remains
or executives to work on a project?
payable on dividends, Canada has implemented lower rates pursu-
Canada imposes immigration restrictions on persons seeking to ant to several bilateral treaty agreements and further lower rates
enter and work in Canada. Visas, permanent residence or citizenship apply where the beneficial owner of the dividend is a company that
status will be required for foreign workers, of any nature, to work owns or controls a certain equity percentage of the payer, effectively
in Canada. The ability to obtain such a work visa in Canada will a parent company.
depend on the nature of the enterprise and the intended involvement Canada’s international tax rules adhere to the tax models
of the foreign workers sought to be brought into Canada. Where promoted by the Organization for Economic Cooperation and
Canadians are not available, such as where specialised technical Development. Foreign investors doing business in Canada through
expertise, management expertise or administrative tasks for cor- a separate legal entity will be considered to be Canadian residents as
porate integration are required, work visas will generally be avail- to that entity and will be taxed as such. Canadian residents are liable
able upon appropriate application and justification of the need for for taxes on income worldwide. Canada does, however, use models
the workers’ presence in Canada. In addition there is a temporary that avoid double taxation using tax credits and exemptions. Non-
foreign worker programme, which has been implemented by the residents that do business in Canada through a permanent establish-
government of Canada, which lets employers hire foreign workers ment, as a branch, and not using a separate legal entity are only liable
to fill temporary labour shortages. The employer will need to get for income taxes on the income attributable to the business con-
approval from Employment and Social Development Canada. This ducted in Canada. In addition there is a branch tax imposed on after-
will require a labour market opinion verifying that there is a need tax source income that is not reinvested in Canada. The statutory rate
for the foreign workers because there are no Canadians reasonably is 25 per cent but is reduced by many of the Canadian tax treaties.
available to do the job. Non-resident corporations that are incorporated in Canada as
principal business corporations can access special tax incentives.
13 What restrictions exist on the importation of project equipment? These corporations have principal businesses directly related to min-
ing or oil and gas, including exploration, development, and extrac-
Importation of goods into Canada has two aspects: the ability
tion and processing. These provide access to the flow-through share
to import goods and the taxes payable on the importation of the
mechanism for investment, a 100 per cent write-off and indefinite
goods. Foreign Affairs, Trade and Development oversees the import
loss carried for exploration and development and an accelerated 30
of goods into Canada. The Canada Revenue Agency, Excise Duties
per cent amortisation of the cost of acquiring resource properties.
and Tax division, oversees the payment of required taxes on the
There are also accelerated allowances for capital costs and greenfield
importation of goods. Canada freely allows goods to be imported
mines are major expansions.
into Canada subject only to compliance with some limited federal
Canada is also identified as a low corporate tax jurisdiction,
and provincial restrictions. There is a narrow range of goods that
with a progressive, duty-free manufacturing tariff regime. Canada
are fully prohibited. Some goods are restricted by the requirement
has a very large free trade geographic reach and is generally lowering
to meet specified standards and will require an import permit. There
tariffs on manufacturing inputs. Canada provides specific access to
are very few items listed on the restricted import control list.
reduced or no tariff for the importation of machinery and equip-
In addition, some goods will be required to meet standards
ment into Canada, particularly from parent companies.
that are also applicable to domestic goods. These include labelling
Canada provides favourable tax treatment for scientific research
laws for certain retail products, motor vehicles that are required to
and experimental development. The federal system of tax credits is
meet safety and emission control standards and food and agricul-
accompanied by an extensive provincial network of research and
ture products that have to pass health and sanitary checks. In the
development tax incentives, which are provided in addition to the
instance of the import of equipment, these limited restrictions may
federal level. Tax incentives in Canada are designed to assist compa-
be applicable, but, in general, project equipment can be imported
nies with reducing the cost for investment projects including reduc-
relatively freely.
ing costs of capital expenditure on machinery, equipment, land and
buildings, investments to increase productivity and direct involve-
14 What laws exist regarding the nationalisation or expropriation ment in research incentives of excellence.
specially protected? Government authorities
Canada strictly adheres to the concept of there being no expro-
16 What are the relevant government agencies or departments with
priation without equivalent compensation. Expropriation is limited
authority over projects in the typical project sectors? What is the
to the expropriation of real property required for government-
nature and extent of their authority? What is the history of state
sponsored projects, schools, hospitals, roads, power lines, govern-
ment facilities or transit lines. While land acquisition for these pro-
jects may involve a normal purchase of the land from a willing seller, Canada operates with two levels of government, the federal gov-
ernment having jurisdiction over specified constitutionally dictated
public matters and the provinces and territories over remaining
public sector matters. The municipal authorities are a subset of the of the jurisdiction of the provinces. The provinces generally have
provincial authorities and obtain their powers and authority from ownership of natural resources within the provincial territorial areas
the provincial authority. There is an element of government regula- and hold those rights over natural resources until they are otherwise
tion at either the federal or provincial level in the oil and gas, min- granted to individuals. Private parties can acquire rights by owner-
ing, refining, water treatment, power generation and transmission, ship or the right to exploit by lease, licence, or permit. The basis
transportation, ports, telecommunication sectors and similar sec- upon which these rights are granted has varied over time and in
tors. Each of these sectors has had some element of state ownership. many instances the granting of ownership rights to real property has
In areas where private delivery has been expanding to meet pub- not excluded the rights to the exploitation of the natural resources
lic delivery requirements, government authorities have been with- that are located on that property. The granting of title to real prop-
drawing from those sectors. This is the case for oil and gas, mining, erty has inherent in it the grant of title to the exploitation of the
refining and telecommunications. Government ownership continues resources attached to that property unless those natural resources
in areas such as water treatment, which is frequently municipally have been excluded from the grant.
delivered, power generation and transmission, which have extensive Aboriginal people have rights in Canada, and these rights can
provincial ownership in most provinces, and limited ownership in affect the granting and exploitation of rights to natural resources.
transportation, ports and telecommunications, as these are increas- The rights outside specific treaty territory are rights to consultation
ingly being devolved to private authorities or providers. and compensation where there is an impact on traditional rights.
In the power generation and transmission sector, large These rights are frequently recognised by accommodation agree-
government-owned integrated public utilities play the leading role in ments. The accommodation agreements, generally, will grant ben-
the generation, transmission and distribution of electricity. Ontario efits to the affected aboriginal peoples. Accommodation is generally
and Alberta have, however, created electricity markets to increase negotiated directly with the party holding and seeking to exploit the
investment and competition in this sector by private providers. natural resources.
The sector is organised under provincial and territorial authority
as a consequence of their jurisdiction over natural resources, and
all provinces and territories have utility boards that regulate trans-
mission and distribution rates. Interprovincial and international
power distribution is governed by the National Energy Board. The Payments required to be made with regard to the extraction of
Canadian Nuclear Safety Commission has jurisdiction over nuclear natural resources vary, dependent upon the basis on which the
safety, including in the power generation sector. Federal and provin- exploitation has been permitted and the natural resource under con-
cial governments share jurisdiction over environmental regulation. sideration. There is no distinction between the amounts that will
This has a significant impact on the regulation in the power genera- be payable between domestic and foreign parties; the differences
tion and transmission sectors. are dependent upon the nature of the exploitation rights and the
Natural resource development remains a significant concern resource to be extracted.
at both the federal and provincial levels. In Canada, the first right Where the resource being extracted is being exploited as a conse-
to develop resources adheres to land ownership. The basic rule is quence of the resource forming part of the attributes of real property
that the ownership of land carries with it the right to the renew- ownership, then taxation will be the applicable form of payment.
able resources such as crops, trees, fish and wildlife and in addition Where the resource is being exploited by the grant of a specific right
the right to extract non-renewable resources such as coal, minerals, from the owner or the relevant government authority, these rights
oil and gas. Land ownership can, however, be bifurcated, and many will range from lease payments to licence fees, permit costs, royalties
land grants have separated resource development rights. As to min- and taxation.
erals and forest lands, mining leases and limited cutting rights have Oil and gas, both petroleum and natural gas, is generally
been significantly replacing direct grants of ownership. royalty-based, with a freehold production tax being applied. The
Federal and provincial authorities continue to hold the rights to majority of taxation in this sector involves provincial legislation.
many of the resource properties in Canada. Provincial governments Northern or offshore exploitation, which falls under federal author-
are the largest holders of undeveloped resource rights and, in many ity, is governed by federal royalty and taxation systems.
instances, have retained those rights but have granted oil, mineral
and forest exploration and development rights to private enterprise. 19 What restrictions, fees or taxes exist on the export of natural
The federal government continues to control the rights over much of resources?
the natural resources of northern Canada and in the offshore regions
Fees and taxes are payable based upon the extraction and exploita-
outside of provincial jurisdiction.
tion of the natural resources. Additional fees and taxes are not pay-
Alberta is heavily oriented towards oil and gas, granting leases
able with regard to the export of these natural resources.
and receiving royalties. Manitoba, Quebec and Newfoundland and
Labrador have hydroelectric power resources, many under active
development with an intention to sell to the United States as well
as within Canada. Saskatchewan controls uranium and potash 20 What government approvals are required for typical project finance
reserves. In Canada native persons also have certain land claims to transactions? What fees and other charges apply?
natural resources arising from treaties and from traditional use.
A typical project finance transaction does not require approvals, nor
The fees and charges that will apply will generally be those of
are there fees and charges specific to the financing being obtained
taxation, lease payments and royalties, and these will be applicable
for project purposes or structured in the usual project finance man-
to domestic and foreign investors on the same basis.
ner. Approvals that are required do not differ between domestic
Canadian proponents of a project and foreign proponents. The
Regulation of natural resources
approvals, fees and charges depend on the requirements for specific
17 Who has title to natural resources? What rights may private consents and the acquisition of the rights necessary for the undertak-
parties acquire to these resources and what obligations does the ing of the project. These differ by the nature of the project, the loca-
holder have? May foreign parties acquire such rights? tion of the project and the approvals and charges for any resources
to be exploited, among other general requirements.
The federal government of Canada has rights over much of
Northern Canada and offshore natural resources that are outside

21 Must any of the financing or project documents be registered or is split between federal and provincial authority, and the regulatory
filed with any government authority or otherwise comply with legal bodies that will administer the laws will depend upon federal or pro-
formalities to be valid or enforceable? vincial authority. In addition, several different federal or provincial
Project finance documents do not require registration or filing with departments may have rights and obligations with regard to aspects
a government authority in order to be validated and enforceable. of the applicable legislation.
Financing documentation that creates a security interest will need Water is a crucial area for environmental protection in Canada,
to be registered, as has been discussed previously, to ensure priority and Canada’s coastal and inland waters are shared as to responsibil-
of the grant of security interest. If project rights are being obtained ity between the federal and the provincial and territorial govern-
from a government authority then the documentation required will ments. Fisheries are of significant concern in Canada and are dealt
generally be dictated by the specific requirements of that govern- with at both federal and provincial levels. There are, in addition,
ment authority. specific acts dealing with protection of the Arctic and Antarctic, spe-
cies at risk, migratory birds, wild animal and plant protection and
Canadian wildlife. Aboriginal rights will also have an effect on the
monitoring and implementation of legislation and regulation under
these acts.
Health and safety legislation is also imposed at both the federal
and provincial level. In particular, workplace health and safety is an
area of legislation at both levels and will affect project development
Canada has ratified the International Treaty on Investment Disputes, and finance.
accepting and ratifying the ICSID Convention. Canada, therefore, Specific sectors also have legislation that can affect the
accepts the rules under which investment disputes between states exploitation and financing of a project. As an example in the tel-
and nationals of other states may be resolved by the use of concili- ecommunications sector, federal legislation will affect broadcast, tel-
ation or arbitration. Most of the Canadian bilateral treaties and the ecommunications and the delivery of broadcasting under a number
Foreign Investment Promotion and Protection Agreement (FIPA) or of statutes and regulations. There is also legislation and regulation at
an FTA will dictate that the ICSID convention will apply. In states the federal level for ports and train transportation, with rail transpor-
where Canada does not have such a treaty the Convention allows tation acts involving matters such as bridges, international bridges
Canadian investors or investors into Canada to provide for ICSID and tunnels, railway relocations and crossings. Road transportation
arbitration in their contracts. An award rendered under the ICSID is governed at both the federal and provincial level. The federal level
is binding and any resulting financial obligation will be enforced deals with interprovincial and international aspects, while provinces
in Canada as if it were a final domestic court judgment in Canada. deal with intra-provincial transportation. Marine transportation is
Courts in Canada will generally recognise an agreement that also the subject matter of legislated authority, at the federal level
arbitration will be binding and final determination, and will accept dealing with matters such as shipping, transportation, environmen-
the awards granted thereunder. tal protection, marine health and safety and labour. Air transpor-
tation is also the subject of legislation and regulation in Canada.
23 Which jurisdiction’s law typically governs project agreements? Extensive legislation at both the federal and provincial level will
Which jurisdiction’s law typically governs financing agreements? apply to projects in the mining and oil and gas sectors. These will
Which matters are governed by domestic law? include not only the grant of rights to exploit the natural resources
Canada permits parties to elect the jurisdiction to govern their but will also deal with operations in the sector around environmen-
contractual agreements if there is a reasonable connection to the tal, health and safety issues.
selected jurisdiction. Financing agreements are most commonly
governed by the jurisdiction most familiar to, and where generally Project companies
administered by, the lender. Canadian law is generally selected in
Canada to deal with secured party rights, as Canada has a robust
and secured creditor-friendly system in connection with the granting
companies?
of security interests.
Project finance, as structured and undertaken in Canada, does
not differ from the structures normally used in jurisdictions such
24 Is a submission to a foreign jurisdiction and a waiver of immunity as the United States. Generally, the project is set up with a project-
effective and enforceable? specific entity that acquires the rights, undertakes the exploitation
Submission to a foreign jurisdiction and waiver of immunity will and obtains financing specific to the project. The nature of the
generally be recognised and accepted in Canada. Only overriding entity that is used is generally selected for tax planning, whether
public policy concerns would result in a refusal of the Canadian taxation in Canada as a domestic entity is desired or whether there
courts to recognise such a selection. Federal legislation in Canada will be direct repatriation to other countries. Different sectors tend
under the State Immunity Act specifically provides that foreign states to favour a different form of company for the project, depending
are immune from the jurisdiction of any court in Canada and that upon the nature of its agreements and financing arrangements. In
the court must give effect to the immunity conferred on the for- all instances Canadian law will support the separation of the project
eign state. The exceptions are if the state has waived immunity, the entity, its interest in the project and its business from the balance of
foreign state submits to the jurisdiction of the court or the matter a corporate group. Each of these types of entities will have the legal
relates to commercial proceedings of the foreign state. capability, given by statute or contractual agreement, to undertake
the necessary steps for the development and exploitation of the pro-
Environmental, health and safety laws ject, including its financing.
Financing is available from a broad range of potential sources.
25 What laws or regulations apply to typical project sectors? What The private markets in Canada involve investment through financ-
regulatory bodies administer those laws? ing by regulated financial institutions, pension plan and fund inves-
Canada does impose environmental, health and safety and similar tors and internationally-based debt sources that have an interest
laws and regulations in a manner that will affect a typical project, in Canada. In addition there is a strong domestic public securi-
including specifically in the sectors noted. Legislation in these areas ties market, with a particular interest in the financing of mining.
The Canadian domestic public securities market provides a very the preferred route. Governments in Canada may have limitations
substantial portion of the mining finance for the world. Financing on longer term obligations. Generally, an annual budget process
sourced in Canada is not limited to domestic Canadian projects. will dictate the ability of government in connection with non-
The range of sources of financing for projects in Canada essen- specific acquisition obligations, such as the provision of guaran-
tially encompasses all financing sector participants with an interest tees or additional support. Governments can enter into longer term
in longer term investment. The market for construction or devel- leases, licences and off-take agreements, and these can be the subject
opment financing may be more limited than take-out financing of longer-term agreements. Generally, it will be necessary to ensure
against assured revenue streams. Depending upon the importance that the appropriate legislative support for the longer-term contract-
of the project to the Canadian economy, government assistance may ing is in place but this will frequently be available.
be available by way of credit insurance, direct funding or project
finance guarantees. PPP – transactions
Public-private partnership legislation 29 What have been the most significant PPP transactions completed
to date in your jurisdiction?
27 Has PPP enabling legislation been enacted and, if so, at what The most significant public-private partnership transactions com-
level of government and is the legislation industry-specific? pleted in recent years have involved toll roads, bridges and power
Public-private projects have been developing in Canada for some generation and transmission.
time. All levels of government are able to participate in public- The recently completed federal government credit substitution
private partnerships for the development of needed infrastructure. guarantee for the Lower Churchill Hydroelectric Power Projects
The general legislative authority of each of the levels of government represents the most significant public-private transaction completed
in Canada permits participation without specific legislation in many in Canada in recent years. That transaction involved the financing
instances. There has been limited legislation in specific areas, gener- for the development of a large hydroelectric power generation plant
ally to permit the construction of significant projects in areas such as on the Lower Churchill River, with transmission facilities running
highways (toll roads), bridges, significant power projects and similar. from Labrador to the island of Newfoundland and from there to
the mainland through Nova Scotia. The project required significant
PPP – limitations federal government of Canada assistance, on a public-private basis,
through a federal credit-wrap-based financing assurance to allow
28 What, if any, are the practical and legal limitations on PPP access to favourable financing costs.
transactions? In addition, there have been two significant toll road pro-
The government is able to contract with private participants, subject jects completed in Canada, one being the Highway 407 Project in
to public procurement law. Public procurement law will generally Ontario and the other being the New Brunswick toll road project.
only require that there be a competitive process for the contracting When the Highway 407 Project was being undertaken it represented
for the project. The government, subject to ensuring an open and a very unique approach, providing for a highly developed partner-
transparent process, can enter into public-private partnerships with- ship agreement requiring open access tolling, and highway expan-
out a full public procurement process, but this will generally not be sion and extension based upon per-lane traffic counts.
Alison R Manzer amanzer@casselsbrock.com

Charles Newman cnewman@casselsbrock.com
2100 Scotia Plaza – 40 King Street West Tel: +1 416 869 5300
Toronto Fax: +1 416 360 8877
Ontario M5H 3C2 www.casselsbrock.com
Canada

Shearman & Sterling LLP CHINA
China
Andrew Ruff and Claude Jiang
Shearman & Sterling LLP
Creating collateral security packages underlying assets, either be void or have no priority over bona fide
third parties’ creditors. Theoretically, the priority of beneficiaries
1 What types of collateral are available? with security interests in the same asset is determined by the chrono-
The laws of the People’s Republic of China (PRC) recognise security logical order in which the beneficiaries’ interest is registered. In prac-
interest created in three principal categories over a variety of tangi- tice some registration authorities have refused to register a security
ble and intangible assets. interest over assets whose full value has already been mortgaged to
another creditor.
Mortgage
A PRC law mortgage allows security providers to retain possession Pledges
of the underlying assets after the creation of the security interest. In contrast to mortgages, a pledge requires ‘delivery’ of the underly-
Mortgages can be created in China over: ing assets to perfect the security interest created therein. Without
• buildings, fixtures, land use rights and land operation rights; delivery, a pledge is null and void. The ‘delivery’ can be made in
• aeroplanes or ships; the form of actual physical delivery or legal delivery, depending on
• extant equipment, raw materials, half-finished products and fin- the type of the underlying assets. PRC law recognises legal deliver-
ished products; ies for pledges created over account receivables, shares in a com-
• future equipment, raw materials, half-finished products and fin- pany and intellectual property. Legal delivery is effected in respect of
ished products; and these types of security by registration with the competent authority.
• automobiles. Generally, only one pledge can be created over an asset, with the
exception of accounts receivable pledges, which can be pledged to
Pledge secure debts to different beneficiaries with priority determined by
Under a PRC law pledge, the security provider has to deliver the the chronological order of registration.
underlying collateral to the creditor to establish a security interest.
Delivery can be made either physically or legally. A PRC law pledge Liens
can be created over: A PRC law lien is created when the creditor lawfully possesses the
• moveable assets; assets of the debtor on the condition that the assets have a certain
• cash; connection with the secured indebtedness. Under a development
• account receivables; project, the most common scenario would be an EPC contractor
• rights in negotiable instruments, bonds, cash deposit certificates, lawfully holding the property constructed by it as collateral until
warehouse receipts and bills of lading; its fees are paid. A PRC law lien does not require consent from the
• shares and funds; and debtor nor does it need to be perfected.
• intellectual property rights.
Fees and charges
Lien There are no fees or stamp duties payable to perfect a security inter-
A PRC law lien is a right that can only be created by operation of est in China. Registration authorities may charge a moderate regis-
law and not contractually. PRC law liens can only be created over tration fee for entering the security interest into their books.
moveable assets.
Security agent
While PRC law does not distinguish between legal title and ben-
eficial title of properties, a security agent typically acts more in the
capacity of a representative of the lending parties than as a trustee
charges payable to perfect a security interest and, if so, are there
under common law. The security agent will usually make it clear on
lawful techniques to minimise them? May a corporate entity, in
the face of the security registration book or certificate that the agent
the capacity of agent or trustee, hold collateral on behalf of the
is only holding the security assets on behalf of other lending par-
ties so that the security interest registered will be granted to lenders
The method of perfection of security interests differs depending on directly without passing through the security agent.
the form of the security interest and the underlying assets.
Mortgages 3 How can a creditor assure itself as to the absence of liens with
Typically, a mortgage will be perfected upon registration with the priority to the creditor’s lien?
administrative authority with jurisdiction over the asset mortgaged. As noted above, registration schemes are available for all mortgages
Absent registration, the security interest will, depending on the and a large portion of pledges, while other pledges require physical
CHINA Shearman & Sterling LLP
delivery of the assets. A creditor may check the registration book and the balance of its international currency inflow and outflow, but
retained with the registration authorities in the case of registrable have generally been trending towards greater liberalisation.
security interests or set delivery of the assets as a condition in the At present, SAFE is taking a bifurcated approach to regulate and
relevant agreement in the case of non-registrable security interests control foreign currency exchange matters. It categorises any foreign
(which are primarily moveable assets and negotiable instruments). exchange activity into either a current account activity or a capital
Certain registrations are easily accessible from online registration account activity. Current account activity generally refers to sales of
systems, such as account receivable pledges, while some other reg- goods or services while capital account activity refers to equity or
istration authorities may only allow access with authorisation from debt investment.
the security provider. Under a current account transaction, the parties may convert
foreign currency and receive or remit foreign currency by applica-
tion to a bank providing the relevant transaction documents (ie,
sales contract with a foreign party, invoice from or to a foreign party,
etc). The bank will examine the documents and a conversion and
remittance will be allowed if the bank is reasonably satisfied that
The 2012 revision of the Civil Procedural Law provides for a simpli- there is an authentic underlying current account transaction neces-
fied and expedited special procedure for the enforcement of security sitating foreign exchange.
interest. The enforcing party may enforce its interest in collateral Rules on capital account activities are slightly stricter in their
by means of public sale or auction by application to the competent control of the size of capital inflows and outflows. Broadly speak-
court referencing this special procedure. The court will examine the ing, foreign exchange may only enter China in respect of a capital
underlying debt agreements, security agreements and security reg- account transaction if it is in the form of equity contribution or loans
istrations. Where all these documents are in order, an enforcement to a project company. The aggregate amount of equity or loan must
order will be granted within one month from the date of accept- not exceed the size of the project as indicated in the approval certifi-
ance of enforcement application. Self-help is not practically feasible cate for the project company issued by the Ministry of Commerce
due to the various authorisations required by auction houses and (MOC) at the time it was established, or such higher amount as
by title transfer registration agencies. There is no prohibition on is subsequently approved by the authority. Equity and loan pro-
project lenders participating in the enforcement sale or auction. The ceeds must be paid into the specified foreign exchange accounts. No
sale or auction should be made in renminbi but the enforcement other funds may be remitted into these accounts. The balance in the
proceeds may be converted into foreign currency and remitted to accounts may be converted into renminbi at the request of the pro-
foreign lenders. ject company. To convert renminbi into foreign currency and remit
abroad under capital account transactions, the applicant must be an
5 How does a bankruptcy proceeding in respect of the project approved project company and it must present sufficient evidence of
company affect the ability of a project lender to enforce its rights the underlying capital account activity including repayment of prin-
as a secured party over the collateral? Are there any preference cipal and interest, liquidation or capital reduction of foreign invested
periods, clawback rights or other preferential creditors’ rights company, sales of shares by foreign investor to domestic investor
(eg, tax debts, employees’ claims) with respect to the collateral? and dividend distributions.
What entities are excluded from bankruptcy proceedings and There are no additional fees other than the banks’ regular
what legislation applies to them? What processes other than charges on currency exchange.
court proceedings are available to seize the assets of the project
company in an enforcement? 7 What are the restrictions, controls, fees and taxes on remittances
A bankruptcy proceeding generally suspends the creditors’ right to of investment returns or payments of principal, interest or
enforce their security interests until its conclusion. A bankruptcy premiums on loans or bonds to parties in other jurisdictions?
proceeding can take up to two years and typically lasts longer when As noted above, a remittance of investment returns must be asso-
a re-organisation is granted at the application of the bankrupt com- ciated with an approved project. A withholding tax at the rate of
pany or any creditor. A claw-back clause is provided under the PRC 10 per cent of the interest is payable by foreign lenders, subject to
bankruptcy law, which allows the bankruptcy administrator to reduction by applicable tax treaties.
request nullification of a repayment by the bankrupt company to
any particular creditor made within one year before the bankruptcy
proceeding. In practice, however, Chinese courts seldom grant claw- 8 Must project companies repatriate foreign earnings? If so, must
backs. Secured lenders’ rights are subordinated to certain statutory they be converted to local currency and what further restrictions
preferential rights such as employees’ claims occurring prior to 27 exist over their use?
August 2006, remunerations to the bankruptcy administrator and There are no repatriation provisions under PRC law.
other fees incurred in the enforcement of the security interest.
The bankruptcy procedure does not apply to partnerships.
In China, bankruptcy procedure will involve the administration
of the courts and the bankruptcy administrator will be appointed
by the court. Project companies may establish and maintain foreign currency
Claims of foreign creditors are treated in the same manner as the accounts in China as well as in other jurisdictions.
claims of local creditors.

Foreign exchange is regulated in China by the State Administration
of Foreign Exchange (SAFE). The rules applicable to foreign cur-
rency exchange evolve, depending on the state’s currency strategy

Foreign investment issues China. In practice, a work permit will usually not be granted if the
employee does not have at least a college degree.
also apply to foreign investors or creditors in the event of 13 What restrictions exist on the importation of project equipment?
foreclosure on the project and related companies? Are there The PRC government organises imported items into three catego-
any bilateral investment treaties with key nation states or other ries: prohibited, restricted and unrestricted.
international treaties that may afford relief from such restrictions? Prohibited items, principally hazardous materials, are not
Would such activities require registration with any government allowed to enter into China.
authority? Depending on the item, restricted items may be imported either
China regulates inbound investments through a four-class catego- within the quota approved by the state or by obtaining a special
risation system. Projects in different industries are categorised into permit. The state maintains a catalogue of restricted items and
‘encouraged’, ‘permitted’, ‘restricted’ or ‘prohibited’ classes. Different updates it from time to time. The current catalogue principally clas-
restrictions and tax incentives are applicable to different categories sifies equipment with outdated technology as restricted. Restricted
of projects. The National Development and Reform Commission equipment covers a wide range of industries including petrochemi-
(NDRC) and MOC jointly maintain and update from time to time cal, smelting, construction, transportation, power generation and
a catalogue that lists all encouraged, restricted and prohibited pro- transmission and food processing and packaging.
jects. Projects that are not specifically mentioned in the catalogue are Import of equipment that is neither prohibited nor listed in the
‘permitted’ projects. catalogue for restricted items may be undertaken without adminis-
Encouraged projects are most easily approved and may enjoy trative approvals.
tax incentives as described below. Permitted projects tend to undergo
a relatively smooth approval process but enjoy no general tax incen- 14 What laws exist regarding the nationalisation or expropriation
tives. It is more difficult to obtain approval for restricted projects. of project companies and assets? Are any forms of investment
These projects enjoy no tax incentives, and frequently entail addi- specially protected?
tional requirements such as majority Chinese ownership and tech-
nology licensing. Foreign investors are barred from participating in The Regulation on the Expropriation of Buildings on State-owned
prohibited projects. Land and Compensation allows the state to expropriate a project
In addition to the approval process and tax incentives, the company’s real assets, provided that reasonable compensation (cal-
catalogue also imposes ownership limitations on different projects. culated based on the market price of similar real assets) has been
Ownership limitations are not applicable to a category generally but paid and the expropriation is necessary for public interest. This regu-
are rather project-specific. Such limitations are principally to address lation makes no exceptions based on the forms of investment.
national security and state-owned assets concerns. In the most recent
version of the catalogue, there are 37 projects that require a Chinese Fiscal treatment of foreign investment
party to be the majority shareholder (including unmanned aerial
vehicle design and manufacture, nuclear power plant construction
and operation, and ocean transportation) and 40 projects that can-
not be wholly owned by foreign investors (including prospecting,
exploitation and utilisation of coalbed methane, processing of cel-
lulose diacetate and manufacture of large scale coal-to-chemical Foreign-invested companies used to be subject to a separate income
processing equipment). tax law that offered preferential tax treatment including exemption
of income tax for the first two years after commencing to be profit-
able and thereafter a 50 per cent reduction for three years. These
11 What restrictions, fees and taxes exist on insurance policies incentives have been phased out over time as China’s market has
over project assets provided or guaranteed by foreign insurance matured. The 2008 revision of the Chinese income tax law officially
companies? May such policies be payable to foreign secured brought foreign invested companies under the same tax regime as
creditors? domestic companies.
Both the Law on Chinese-Foreign Equity Joint Ventures and the Projects in the ‘encouraged’ category generally enjoy exemption
Law on Foreign-funded Enterprises require a Chinese project from import duty and import value added tax on imported equip-
company, in the form of a joint venture or wholly foreign-owned ment and materials. In addition, encouraged projects located in the
company, to purchase insurance from an insurer located in China. western region (which is the less-developed area in China) enjoy a
Domestic insurance providers to project companies can, however, be 15 per cent income tax deduction.
foreign-invested. A stamp duty at the rate of 0.005 per cent is payable by the lend-
While Chinese insurance law does not adopt the concept of ‘co- ers on the facility amount of a loan agreement for the loan agree-
beneficiary’, in practice, insurance policies will typically have a ‘pro- ment to be enforceable in China. This stamp duty applies to both
ceeds assignment clause’, which states that the secured lenders are domestic and foreign lenders. No stamp duty is payable on security
the direct payees of insurance proceeds. This allows the insurance documents.
proceeds to be paid to the foreign secured lenders without routing
through the borrower. Government authorities

12 What restrictions exist on bringing in foreign workers, technicians authority over projects in the typical project sectors? What is the
or executives to work on a project? nature and extent of their authority? What is the history of state
A work permit is required for foreign employees to work in China, ownership in these sectors?
unless the employee is paid outside China and stays in China for The establishment, development, financing and operation of a pro-
no longer than three months. Technicians and executives may enter ject in China generally requires intersection with three levels of regu-
China first and then apply for a work permit as soon as practica- lating authority: national, regional and industry sector-specific.
ble. Other workers must obtain a work permit before they enter
The key national regulator across all sectors is NDRC, which has Royalties applicable to domestic parties are the same as those
the power to review and approve a prospective project. Approval applicable to foreign parties.
will be granted based on its review from a state interest perspective.
Other key authorities that govern all sectors include MOC, which
approves the establishment of the project company and the Ministry
resources?
of Environmental Protection, which approves the EIA reports, where
required by a project. There is no specific legislation concerning the export of natural
Local government at the provincial level, capital city level and resources. The state may impose a quota on the export of certain
specially approved self-administrated city level has the authority to resources from time to time within its general export regulation
develop their own regulations including foreign investment incentive scheme. Exporters of these items have to apply for a quota on an
policies within the scope set by national authorities. Incentives from annual basis. At present, natural resources that can only be exported
local governments typically include monetary governmental subsi- subject to a quota include coal, crude oil, rare earth, and certain
dies, discounted rental and low interest rate loans. Lower-level gov- rare metals. Certain other items may require a special permit to be
ernmental agencies such as administrators of industrial parks may exported including platinum, alumina and fluorite.
also offer incentives to attract foreign investors. While those agencies
typically do not have comprehensive policy-making power, they will Legal issues of general application
often offer a variety of incentives including reduction of local tax
20 What government approvals are required for typical project finance
(structured, often illegally, as return of taxes after collection) and
transactions? What fees and other charges apply?
discounted rental of the premises located in an industrial park.
Industry sector-specific regulators may come into play, for exam- The project approval process generally commences with an approval
ple, in respect of investments in fixed assets in relation to coal, petro- from NDRC, which is essentially a planning level approval based on
leum, natural gas, power, new energy and renewable energy. These review of a detailed feasibility study for the project. This approval
may require approval from the National Energy Administration. is generally preceded by a series of MOUs or formal cooperation
agreements that facilitate the preparation of the feasibility study and
Regulation of natural resources often, in parallel, some of the project agreements. NDRC approval is
tied to the scope and scale of the project in the feasibility study and
17 Who has title to natural resources? What rights may private may need to be re-issued if the structure of the project changes in the
parties acquire to these resources and what obligations does the course of development. Once NDRC approval is obtained, the spon-
holder have? May foreign parties acquire such rights? sors may apply for the approval from MOC for the establishment
In principal, title to all natural resources belongs to the state or the of the project company, which entails a simultaneous review and
collective ownership of a locality. The collective ownership concept approval of the shareholders agreement in the case of a joint ven-
is a legacy of the communist command economy, which has largely ture, and may entail review and approval of key project documents.
been re-engineered but vestiges of which continue to exist. Following the approvals from NDRC and MOC, the sponsor or pro-
A private party may acquire the right to utilise natural resources. ject company will need to obtain a series of administrative approvals
Utilisation rights permit a party to dispose of and benefit from the and certificates including a business licence from the Administration
natural resources extracted from land and are generally obtainable of Industry and Commerce, approval from SAFE for opening
by foreign and domestic parities. Utilisation rights can be obtained and operating foreign exchange accounts, an Institutional Code
by grant from the state, transfer from a private party that already Certificate for the project company from the General Administration
holds these rights, or by exploitation. Exploitation of natural of Quality Supervisions, Inspection and Quarantine for a unique ID
resources requires approval from the competent regulating author- code for the project company, a tax registration certificate from the
ity. Farming land, wild animals, forest assets and certain other scarce state and local tax authorities and a loan card from the People’s
resources are subject to resource preservation rules and regulations. Bank of China for borrowing in renminbi. Moderate application or
The four-class categorisation system applicable to foreign invest- registration fees are charged in respect of these approvals.
ment may affect a foreign investor’s ability to own utilisation rights.
At present, certain resources, such as molybdenum, tungsten and 21 Must any of the financing or project documents be registered or
rare earth are in the ‘prohibited’ exploitation class. Foreign inves- filed with any government authority or otherwise comply with legal
tors may not obtain utilisation rights of these natural resources by formalities to be valid or enforceable?
exploitation but may only purchase them after they are extracted
As mentioned above, project documents may entail review and
from the land by a Chinese party.
approval by MOC, loan agreements with foreign lenders and certain
cross-border security documents must be registered with SAFE and
18 What royalties and taxes are payable on the extraction of natural certain security agreements must be registered to perfect the security
resources, and are they revenue- or profit-based? interest created therein.
Statutory royalties on extraction are revenue-based. The royalties
are charged on the market price (or regulated price if the price is 22 How are international arbitration contractual provisions and
regulated by the state) instead of actual sales price. The rate differs awards recognised by local courts? Is the jurisdiction a member
depending on the type of resource with a statutory range from 0.5 of the ICSID Convention or other prominent dispute resolution
per cent to 4 per cent. Royalties are paid semi-annually with the first conventions? Are any types of disputes not arbitrable? Are any
half of the annual royalty paid before 31 July and the second half types of disputes subject to automatic domestic arbitration?
paid before 31 January of the following year.
An international arbitration award can be enforced in China under
With the approval of the state or local financial administrators
the scheme of the New York Convention to which China is a sig-
and applicable natural resource regulators, royalties can be reduced
natory. China acceded to the convention with both the reciprocity
or exempted in certain situations, including extraction from waste
reservation and the commercial reservation adopted. The former
rocks, extraction from low grade minerals and extraction of under-
provides that China will recognise and enforce only those arbitral
ground minerals located under existing buildings without destroying
awards made in other states that are signatories to the Convention.
the building.
The commercial reservation limits the scope of recognition and

enforcement only to arbitral awards that have been rendered in Industry sector-specific regulators may impose additional environ-
commercial cases. mental requirements. Sector-specific regulators imposing additional
Chinese courts have certain limited rights to review an arbitral environmental requirements include the Ministry of Industry and
award and enforcement can be refused if it determines that there are Information Technology for certain metal mining and smelting
procedural flaws. Enforcement may also be refused if the Chinese projects, the Ministry of Energy for power projects and the State
court determines that the award is against public interest. Rejection Oceanic Administration for offshore exploitation projects.
by the courts on either of these grounds has been extremely rare to
date. Project companies
In enforcing the arbitral award, a Chinese court will usually
require that the relevant documents (ie, arbitral award, the agree- 26 What are the principal business structures of project companies?
ment under which disputes arise) be translated into Chinese. What are the principal sources of financing available to project
companies?
Project companies in China are typically structured as ring-fenced
bankruptcy-remote limited liability companies. Depending on the
structure of the sponsor consortium, these may be either wholly
Chinese-owned, wholly foreign-owned or sino-foreign joint venture
China used to restrict choice of foreign law to contracts that were companies. Funding is typically provided by sponsors (both inter-
determined to have ‘substantial nexus with foreign elements’. national and domestic) in the form of equity or shareholder loans,
Based on that principle, contracts between two Chinese parties or both, and a consortium of lenders (sometimes only domestic and
(foreign-invested or pure Chinese-owned) could not be governed sometimes both international and domestic depending on the scale
by foreign law. This is no longer the case following issuance of the of the investment) in the form of debt. Project bonds have not yet
Interpretations of the Supreme People’s Court on Several Issues gained traction in China due to regulatory restrictions and a per-
Concerning Application of the Law in 2012. This judicial interpreta- ceived cost disadvantage.
tion loosens the ‘substantial nexus’ requirement and allows parties
to a contract that have any ‘foreign element’ to freely choose a for- Public-private partnership legislation
eign governing law. It further provides that execution of a contract
outside China is sufficient to establish the ‘foreign nexus’. 27 Has PPP enabling legislation been enacted and, if so, at what
Sino-foreign cooperation agreements (such as joint venture level of government and is the legislation industry-specific?
agreement and shareholders agreement) and Sino-foreign joint China briefly flirted with a concession structure in the late 1990s
exploitation agreements are statutorily required to be governed by but currently has no independent regulations governing PPP struc-
Chinese law. tures. Rules on PPP-related matters can be found in the Measures
In practice, it is common to see English law and New York for the Administration on the Franchise of Municipal Public Utilities
law project agreements (other than the cooperation agreements (which is only an administrative ordinance) and even lower level reg-
and joint exploitation agreements mentioned above) and financing ulatory instruments developed by municipal people’s congresses and
agreements. Security documents are usually governed by PRC law to by municipal governments. These instruments are usually not sector
ensure a smooth enforcement. specific. The state government did announce in its October 2013
state plan that legislation on the Concession Law of Infrastructures
24 Is a submission to a foreign jurisdiction and a waiver of immunity and Utilities will be drafted and promulgated under the lead of the
effective and enforceable? State Council in the near future.
As there is no centralised regulator for PPP transactions, they
Yes, submission to a foreign jurisdiction would be effective and
can be subject to regulation by different governmental instrumen-
enforceable under PRC law with the condition that the dispute has
talities, typically the NDRC, the Ministry of Housing and Urban-
a foreign element (eg, a foreign party or the involvement of foreign
Rural Development, the State-Owned Assets Supervision and
assets). The decisions of foreign courts will not, however, generally
Administration Commission and sector-specific regulators.
be enforced by the PRC courts absent bilateral treaty or reciprocal
treatment on mutual recognition and enforcement of foreign judg-
PPP – limitations
ments with the state in which the foreign court is located. Waivers
of immunity are generally effective and enforceable in commercial 28 What, if any, are the practical and legal limitations on PPP
settings. transactions?
As indicated above, China is still developing its PPP laws and, there-
Environmental, health and safety laws
fore, the most significant legal risk to PPP transactions in China is
25 What laws or regulations apply to typical project sectors? What the lack of a regulatory framework. A striking example of this risk
regulatory bodies administer those laws? is the Da Chang Water Treatment Plant owned by Thames Water,
which was repurchased by the Shanghai government in 2004 due
The Environmental Protection Law sets out key regulations on envi-
to a change in the law that made certain key project agreements no
ronmental issues while the Labour Contract Law sets out key regu-
longer enforceable.
lations on occupational health and safety. Depending on the industry
A further procedural impediment is the prohibition since 2002
sector, sector-specific regulatory requirements may also be applica-
on project structures that guarantee a fixed return to foreign inves-
ble. To ensure compliance with these regulations, lenders’ counsel
tors. This has resulted in a virtual cessation of all foreign invest-
will usually conduct sector-specific diligence to ensure that authori-
ment on base-load power projects outside the renewable sector, as
sations by applicable regulators for that sector have been obtained
the authorities have challenged the take-or-pay provisions under
before the first disbursement.
long term PPAs as a violation of the prohibition on guaranteed fixed
The Ministry of Environmental Protection and the Ministry
returns.
of Human Resources and Social Security are the key regulators
administering these laws and regulations across sectors generally.
Update and trends
SOE privatisation Free trade zones

During the National People’s Congress held on 5 March 2014, The free trade zones programme, launched during the last quarter
Chinese Premier Li Keqiang announced that the government is of 2013, is a groundbreaking experiment in economic and financial
developing policies to allow private capital to take equity stakes in reform on mainland China. It offers tariff-free port areas and
projects featuring investment by state-owned enterprises (SOE). This measures designed to encourage investment by overseas companies.
announcement by the pro-forma Parliament of China reconfirms the In addition, companies registered in the free trade zone will also
Communist Party’s same decision made in the Central Committee’s be exempted from most of the restrictions on foreign investment.
meeting last November, which is viewed as a sign that the In particular, the four-category system does not apply to companies
implementation of this initiative will officially start in the near future. located in free trade zones, which allows companies registered in
While it remains to be seen how this policy will be implemented, free trade zones to engage in more activities than foreign-invested
it clearly has the potential to open avenues of significant PPP companies in other parts of China.
opportunity as well as opportunities for private investment in sectors
previously monopolised by the state. Cross-border security
Under the previous security regime, the provision of domestic assets
Internationalisation of renminbi to secure offshore loans was largely prohibited by SAFE. Similarly, the
China initiated efforts to internationalise the renminbi in 2002 and ability of a downstream subsidiary to offer security in respect of their
continues to pursue the goal of full convertibility for the currency. parent’s indebtedness was severely restricted under the ‘dui wai dan
While the regulations on cross-border renminbi transactions are still bao’ prohibitions. SAFE’s new Cross-border Security Regulation, which
developing, the policy trend is clear, namely to regulate cross-border became effective on 1 June 2014, allows upstream guarantees and
renminbi transactions more loosely than those for foreign exchange removes approval requirements for security under most structures,
in order to promote the denomination of transactions in renminbi. most registration requirements and approval for enforcement. This can
A large portion of the regulatory approval and registration process be expected to have a positive effect on offshore financing of Chinese
required for foreign exchange cross-border investments will no longer projects, which frequently entails loaning money to an offshore holding
be required if the transaction is denominated and settled in renminbi. company that then pushes these loans down to onshore operating
This has resulted in an increasing reliance by international financiers companies. These loans can now be secured by onshore assets,
lending into China on renminbi funds raised through bond offerings in which is expected to make the offshore borrowing structure far more
mainland China or Hong Kong (panda or dim sum bonds). attractive to lenders.
PPP – transactions Hangzhou Metro Line 1

The project involves the investment, construction and operations of
29 What have been the most significant PPP transactions completed Hangzhou Metro Line 1 (48km and 31 stations). Hangzhou Metro
to date in your jurisdiction? group supplied 62 per cent for the US$3.45 billion project. A newly
The most significant PPP transactions in China include the following. established joint venture invested US$1.25 billion and will deal with
the operation of the line for 25 years starting from 2012.
Beijing Subway Line 14
This is one of the latest PPP projects in China (November 2012) Beijing Subway Line 4
sponsored by the Beijing municipality for the implementation, This project was built in 2004 and managed by the Beijing MTR
together with the private sector, of the construction and operation Corp Ltd, a three-way joint venture involving the Hong Kong MTR
of underground Line 14 (total length 47.3km), with a total invest- Corporation, the Beijing Capital Group (BCG), and the Beijing
ment of 32.9 billion renminbi. The municipality will be joined in the Infrastructure Investment Co (BIIC). Total investment is 15.38 bil-
project implementation by MTR Corp Ltd, a joint venture including lion renminbi. The Hong Kong MTR, which operates the Hong
MTR Corp (49 per cent), Beijing Capital Group (49 per cent) and Kong Mass Transit Railway, and the state-owned BCG each have
Beijing Infrastructure Investment Corp (2 per cent), with the latter a 49 per cent stake in the venture with BIIC holding the remaining
providing 70 per cent of the investment necessary for civil engineer- 2 per cent. The joint venture is responsible for 30 per cent of the
ing works. MTR will additionally be responsible for the develop- investment capital to build Line 4, mainly to finance the purchase
ment of the mechanical and electrical systems, supply of rolling of electrical and mechanical equipment, while the Beijing municipal
stock and the 30-year operation and maintenance of the project. government provided the remaining 70 per cent, to cover civil engi-
neering, station and track work costs.
Andrew Ruff aruff@shearman.com

Claude Jiang claude.jiang@shearman.com
11th Floor, Platinum Tel: +86 21 6136 5000

233 Taicang Road Fax: +86 21 6136 5001
Shanghai 200020 www.shearman.com
China

Cárdenas & Cárdenas Abogados COLOMBIA
Colombia
Bernardo P Cárdenas Martínez and Daniela Mejía Mariño
Cárdenas & Cárdenas Abogados
Colombian Congress enacted Law 1676 of 2013 (Law 1676), which lawful techniques to minimise them? May a corporate entity, in
regulates the guarantees (security) over moveable assets. This law the capacity of agent or trustee, hold collateral on behalf of the
allows security to be granted over any type of goods, agreements, project lenders as the secured party?
or rights, subject to an economic valuation by the parties, including The security interest granted by means of a pledge with possession
future assets. agreement is perfected at the time physical possession of the pledged
Pledges can be granted either with or without physical posses- assets is transferred to the creditor, or a third party designated by the
sion of the pledged assets by the creditor. Pledges without possession parties. No fees, taxes or other charges would be applicable, except
may be granted over goods deemed to be necessary for the com- for any fees charged by the third party holding possession of the
mercial exploitation of a going concern, or that are destined to or goods if the parties wish to make use of that option. The pledge with
a product of such commercial exploitation. Pledges without posses- possession agreement may be oral. If an asset is subject to a pledge
sion can also be established over going concerns (the commercial with possession, no additional pledges may be established over it,
establishment) and will be understood to include commercial names, and priority over the security and the assets is guaranteed by means
trademarks, patents, inventory, credits, moveable assets and instal- of the possession.
lations, lease agreements and all other rights and obligations that In the case of pledge without possession agreements, the secu-
derive from the relevant commercial activity. Law 1676 includes the rity interest is perfected with the written agreement between the
possibility of granting a pledge over all present and future assets and pledgor and pledgee, bearing the notarised signatures of the par-
economic rights of the borrower or guarantor without the need to ties, but it is enforceable against third parties only with its regis-
pledge the commercial establishment, tration in the new national registry of liens over moveable assets
Mortgages can be granted over real estate properties. (National Registry) maintained by the Confederation of Chambers
Guarantee trust agreements, which involve the conveyance of of Commerce. A small fee is payable for the notarisation of the sig-
ownership of the goods over which the security is granted to a trust, natures. Registration of the agreement with the National Registry
are also a means of establishing a security interest over moveable is subject to a nominal registration fee. Priority is given to the first
and immoveable assets as well as over contractual rights. Guarantee registered pledge. No stamp tax is due with regard to the execution
trusts can also be used to establish a security interest over receivables of a pledge without possession agreement.
or onshore and offshore bank accounts. Mortgages over real property need to be executed by means of
Another type of security used in projects is the conditional a public deed. In order for the security interest to be perfected, the
assignment of contracts by means of which contracts are condition- public deed shall be registered with the land registry office of the city
ally assigned by the borrower to the relevant lenders or collateral or town where the property is located. The amount of the registra-
agent so that the lenders or the collateral agent may undertake the tion tax depends on whether the mortgage secures existing or future
operation of a project should an event of default occur. In this case, obligations.
prior acknowledgement and consent is executed by the conditionally As a general rule guarantee trust agreements over moveable
assigned party accepting that upon notice given by the lenders or assets are perfected with the written agreement between the trustee
collateral agent they accept the assignment of the contract and will and settlor, but they need to be registered with the National Registry
continue to perform the same with the assignee. for the security to be enforceable against third parties, giving rise
Law 1676 permits the execution of accounts control agree- to a small registration fee that is payable upon filing for registra-
ments, which were previously not regulated under Colombian law. tion. Certain exceptions for particular types of companies that are
This is an agreement between the bank, the guarantor and the guar- exempted from the general insolvency regime apply (such as domi-
anteed party whereby the bank accepts to follow the instructions ciliary utility companies, among others), in which case registration
of the guaranteed party with respect to the funds deposited in the is not required.
bank accounts. Trust agreements over immoveable assets that involve the con-
Licence or concession rights cannot be used as collateral as they veyance of property to a trust company shall be effected by means of
are intuitu personae and not subject to assignment without the prior a public deed, and notary fees apply. Perfection of the security occurs
authorisation of the relevant governmental agency. when the agreement is registered with the land registry office of the
town or city where the property is located. Registration tax is due
at the time of filing and is calculated as a percentage of the value of
the property.
Accounts control agreements are perfected with a written agree-
ment between the bank, the guarantor and the guaranteed party, and
COLOMBIA Cárdenas & Cárdenas Abogados
priority over the security is guaranteed by means of the control of 5 How does a bankruptcy proceeding in respect of the project
the bank account. company affect the ability of a project lender to enforce its rights
A corporate entity, in the capacity of an agent or trustee may as a secured party over the collateral? Are there any preference
hold collateral on behalf of the project lenders as a secured party. periods, clawback rights or other preferential creditors’ rights
The assets included in a trust are separate from the trustee’s (eg, tax debts, employees’ claims) with respect to the collateral?
assets and will be excluded in the event of the trustee’s bankruptcy. What entities are excluded from bankruptcy proceedings and
Assets included in a trust that has been registered in the National what legislation applies to them? What processes other than
Registry as a guarantee trust will be bankruptcy remote. court proceedings are available to seize the assets of the project

In the event of an insolvency proceeding in respect of the project
company the rights of the project lenders under any pledges or mort-
gages will be stayed. In a reorganisation proceeding the duly regis-
The existence of any type of security or pledges without posses- tered collateral that it is not a fundamental asset for the business
sion and guarantee trust agreements can be verified by reviewing may be foreclosed by the lender. In a liquidation proceeding, duly
the records of the National Registry, which are publicly available. If registered collaterals are excluded from such a proceeding.
there are no liens registered it does not necessarily mean that no lien In the event that an insolvency proceeding is initiated in respect
exists, but such a lien will not have priority over the creditor’s lien to the settlor of a guarantee trust and the trust agreement was duly
once registered. Likewise, the existence of any pledge over shares registered with the National Registry, the assets transferred to the
can be verified by reviewing the company’s shareholders’ ledger trust will not be taken into account for the reorganisation proceed-
and it may be verified also by reviewing the records of the National ing. However, the lenders will not be able to enforce the guarantee
Registry. during the insolvency proceeding, unless the assets in the trust are
The existence of mortgages can be verified by requesting in the not fundamental assets for the business.
relevant registry office a certificate as to ownership of the relevant In the event of a bankruptcy proceeding labour and tax debts
property that will reveal any prior mortgages. will be paid preferentially over other credits.
The general bankruptcy regime is set forth in Law 1116, 2006.
4 Outside the context of a bankruptcy proceeding, what steps However, there are several types of companies that are expressly
should a project lender take to enforce its rights as a secured excluded from said regime, including all companies that provide
party over the collateral? public utility services, which includes all companies involved in
activities related to water and sewerage, power generation, trans-
Foreclosure is very simple in the case of guarantee trust agreements.
port and distribution of electric energy and others, as well as finan-
The agreement should contain specific instructions to the trustee as
cial entities, government entities, stock exchanges and agricultural
to how to proceed with the assets or rights if an event of default
exchanges, which are subject to special regimes.
occurs (eg, sell the assets and pay the secured party with the pro-
Companies providing public utility services are subject to Law
ceeds, or transfer the assets or rights to the secured party).
142, 1994, which does not provide for a restructuring or reorgani-
Private foreclosure is allowed under Law 1676. It is now pos-
sation procedure such as the one provided under Law 1116, 2006.
sible to agree that the lender will receive the collateral as payment of
Law 142 provides that the insolvency regime provided under the
the guaranteed obligations in the event there is a default under the
Financial System Statute for financial entities is also applicable to
guarantee agreement. Foreclosure before the Colombian courts will
companies that provide public utility services. The Superintendency
no longer be required if this alternative is established in the agree-
of Public Utilities may take possession of the management of the
ment. Also, a special foreclosure proceeding before public notaries
business or carry out the administrative liquidation thereof. Taking
and chambers of commerce is provided by Law 1676. Although Law
of possession can only take place if the insolvency of the company
1676 provides for a procedure for the enforcement before these enti-
can be deemed to affect the delivery of the public utility service pro-
ties, the procedure can be modified by the parties in the guarantee
vided by the insolvent company. Taking of possession can lead to
agreement. If none of the alternatives mentioned before is agreed
the control of the management of the company being restored to its
between the parties, the judicial foreclosure is available.
owners or the liquidation of the company.
In the case of mortgages, there are strict rules under Colombian
The claims of foreign creditors and local creditors have equal
law that forbid any action that leads to a secured creditor gaining
treatment.
direct access to mortgaged assets. A proceeding before a Colombian
court needs to be initiated, as a result of which the mortgaged assets
are to be sold in auction, and the secured party paid with the pro-
ceeds thereof. The project lenders may participate as buyers in any 6 What are the restrictions, controls, fees, taxes or other charges
sale. Judicial sales are made in Colombian pesos. on foreign currency exchange?
In order for secured lenders to enforce their rights over the col-
lateral it is necessary that they issue the pertinent instructions to the The Colombian foreign exchange market is divided by law into
trustee as to how to proceed with the collateral or enforce the mort- the ‘commercial exchange market’ and the ‘free market’. The com-
gages before the relevant courts. mercial exchange market is the main market since most trade and
financial transactions have to be mandatorily traded in said market
through authorised exchange market intermediaries (which include
local commercial banks, local mortgage banks, local financial cor-
porations and local exchange bureaus, among others). Payments
between Colombian residents and foreign residents that are manda-
torily required to be channelled through the commercial exchange
market include import and export transactions, equity investments
made by Colombian residents abroad, foreign indebtedness trans-
actions and foreign investments in Colombia. The exchange rates
at which commercial exchange market transactions are made can
be freely negotiated between the parties involved. Colombian resi-
dents are entitled to hold accounts in foreign currency with financial

institutions abroad, but not in Colombia. As a general principle, Foreign investment issues
payments between Colombian residents may not be made in foreign
exchange. Foreign investments in Colombian companies or assets 10 What restrictions, fees and taxes exist on foreign investment in or
need to be duly registered with the Colombian Central Bank as ownership of a project and related companies? Do the restrictions
well as investments by Colombian residents abroad. Foreign loans also apply to foreign investors or creditors in the event of
to Colombian residents must be duly informed to the Colombian foreclosure on the project and related companies? Are there
Central Bank. Non-compliance with any of these requirements can any bilateral investment treaties with key nation states or other
give rise to the imposition of fines. international treaties that may afford relief from such restrictions?
Would such activities require registration with any government
authority?
Foreign investment in Colombia is generally permitted in most
sectors of the economy and there are no restrictions, fees or taxes
that affect such investments. Taxes are the same as for any invest-
In order for a Colombian project company to legally convert ment made by a local investor. At present, foreign investment is
Colombian pesos into foreign currency to make payments under not allowed in defence or national security activities or in activities
a foreign loan, the lender shall be included in the list of lenders related to the processing, disposal and discarding of toxic, danger-
recognised by the Colombian Central Bank. In addition, a foreign ous or radio-active waste not produced in Colombia. The restric-
exchange declaration form needs to be filed every time a disburse- tions also apply to foreign investors or creditors in the event of
ment is made under the loan. foreclosure of the project and related companies.
The Colombian Central Bank is vested with the authority to Foreign investment shall be registered with the Colombian
establish, when it deems it advisable to control the volatility of the Central Bank. Registration is automatic with the filing of the foreign
value of the Colombian peso, a mandatory deposit equal to a per- exchange declaration at the time of conversion of foreign currency
centage of each disbursement made under a foreign loan. At present, into Colombian pesos, and is required to ensure that the project
this deposit is set at zero per cent. company has access to the foreign exchange channel to receive pay-
Remittances of investment returns have no restrictions from a ments and to avoid onerous fines.
foreign exchange point of view so far as they have been duly regis- Colombia has entered into bilateral investment treaties with sev-
tered with the Colombian Central Bank. Registration of such invest- eral countries: Chile, China, Guatemala, India, Japan, Peru, Spain,
ments grants the investors a guarantee that they will have access to Switzerland and the United Kingdom. The agreements entered into
foreign currency through the controlled foreign exchange market. with China, Guatemala, India, Peru, Spain and Switzerland are cur-
No taxes are applicable to the remittance of dividends so long as the rently enforceable. The agreements executed with Chile, Japan and
company generating the same has paid its relevant taxes. the United Kingdom are not yet enforceable. Registration require-
Loan payments to other jurisdictions also have no foreign ments and foreign exchange regulations still apply.
exchange restrictions so far as the relevant loan has been duly
informed to the Colombian Central Bank – payment of interest to
foreign lenders is considered local source income and subject to a 11 What restrictions, fees and taxes exist on insurance policies
14 per cent withholding by the borrower making the payment if the over project assets provided or guaranteed by foreign insurance
loan agreement is for a term exceeding one year, otherwise a 33 per companies? May such policies be payable to foreign secured
cent withholding tax rate would apply. creditors?
The Colombian Financial Statute, as recently amended by Law 1328,
2009, provides that insurance agreements cannot be entered into
in Colombia with foreign insurance companies not authorised to
operate in Colombia or with their representatives or agents. Foreign
insurance companies may only enter into agreements in Colombia
Export-generated earnings are required to be repatriated within that cover transported goods, the vehicle in which they are trans-
three months of accruing. When repatriated, earnings are required ported and civil liability, in relation to international sea transport,
to be converted into local currency through the commercial foreign international commercial aviation and space launches and transport
exchange market. Colombian investments abroad are to be duly (including satellites).
registered.
There is a special foreign exchange regime for companies that
explore and exploit oil, natural gas, coal, ferronickel and uranium. 12 What restrictions exist on bringing in foreign workers, technicians
These companies are not required to repatriate foreign earnings and or executives to work on a project?
they can maintain foreign currency accounts abroad. Foreign workers, technicians and executives require a work visa
(TP-4) to legally work and reside in Colombia. This type of visa can
be obtained at a Colombian consulate abroad or at the Ministry of
Foreign Affairs in Colombia (the visa may also be obtained via the
internet). The TP-4 can be issued for multiple entries for up to three
Project companies may maintain foreign currency accounts with for- years. Exceptionally, when the companies require urgent specialised
eign financial institutions abroad. Foreign currency accounts may technical assistance, foreign workers (depending on their national-
belong either to the free market or to the commercial exchange mar- ity) may apply for a TP-13 visa or a PIP-7 permit, which can be
ket. A foreign exchange account can be registered as a compensation granted for up to 180 calendar days (visa) in the same calendar year
account, in which case it can be used to pay for obligations that or 30 calendar days (permit).
must be mandatorily channelled via the commercial exchange mar- Also, it should be noted that additional to the visa, where
ket, though certain reporting obligations apply. the profession of the foreign national is a regulated profession in
Under Colombian foreign exchange regulations, no foreign cur- Colombia, and he or she will perform a position that requires the
rency accounts may be held in Colombia. use of the knowledge derived from his or her profession, the for-
eign national must obtain a temporary licence to perform his or
her profession in Colombia, otherwise, the competent authority (ie,
for engineers the competent authorities are the Consejo Profesional Fiscal treatment of foreign investment
Nacional de Ingenieria (COPNIA) or the Consejo Profesional
Nacional de Ingenierias Eléctricas, Mecánica y Profesiones Afines) 15 What tax incentives or other incentives are provided preferentially
may impose fines on the foreign national and also on the company. to foreign investors or creditors? What taxes apply to foreign
Not all the authorities grant licences; therefore, in those cases the investments, loans, mortgages or other security documents,
foreign national will have to revalidate their professional title before either for the purposes of effectiveness or registration?
the Ministry of Education. There are no tax incentives provided preferentially to foreign inves-
For local companies operating in the oil sector, besides the immi- tors or creditors in Colombia. Payment of interest to foreign lenders
gration provisions indicated above, a special regulation applies pur- is considered local source income and subject to 14 per cent with-
suant to which they must pay to the Colombian personnel not less holding tax by the borrower making the payment if the loan is for
than 70 per cent of the total value of the payroll of the qualified a term exceeding one year, otherwise a 33 per cent withholding tax
personnel or specialised or the direction and trust (including local rate would apply.
and foreign personnel) and not less than 80 per cent of the value of
the payroll of the non-qualified employees (including local and for- Government authorities
eign personnel). A company could hire a number of foreign employ-
ees that exceeds the percentages mentioned above, as long as it has 16 What are the relevant government agencies or departments with
authorisation from the Ministry of Labour and only for the suitable authority over projects in the typical project sectors? What is the
preparation of the Colombian personnel, otherwise, the Ministry of nature and extent of their authority? What is the history of state
Labour may impose discretionary fines on the company. ownership in these sectors?
Oil and gas
The National Hydrocarbons Agency manages the oil and gas
resources of the nation and has charged with assigning explora-
The import of certain goods is subject to an import licence granted tion and exploitation areas since 2003. The Ministry of Mines and
by the Ministry of Trade, Industry and Tourism. Such goods include Energy oversees the general policy of the sector. Oil and gas com-
radioactive isotopes and radioactive materials, hydrocarbons and panies are required to file reports with the Ministry of Mines and
petrol as well as any assets that are subject by law to compliance Energy.
with technical regulations, environmental emissions certificates or
control pursuant to international treaties or protocols to secure the Mineral extraction
protection of the environment. Other imports are subject to the free The National Mining Agency, Ingeominas, which is responsible for
import regime, within which some imports require registration and administering the mineral resources of the nation, is charged with
others do not. granting concessions over the exploitation of mineral resources.
Payments made with respect to import and export operations
are to be mandatorily channelled through the commercial exchange Chemical refining
market. In addition, if credit for the down payment of the price The environmental authorities (see below).
of the imported assets is obtained, the operation is deemed to be
a foreign indebtedness operation and shall be registered with the Water treatment
Colombian Central Bank to avoid onerous fines. Activities are regulated by the CRA (Regulatory Commission for
Water and Sanitation). The Superintendency of Public Utilities has
14 What laws exist regarding the nationalisation or expropriation the authority to impose fines and other sanctions in the event of non-
of project companies and assets? Are any forms of investment compliance with applicable laws and regulations.
Power generation and transmission
Article 58 of the Colombian constitution provides that private prop- Activities are regulated by the Regulatory Commission for Energy
erty is guaranteed. Exceptionally, based on reasons related to public and Gas (CREG). In addition the Superintendency of Public Utilities
utility or the public interest, the state may expropriate private prop- has the authority to oversee the activities of the participants in said
erty; however, prior indemnification of the owner is required. activities and impose penalties.
As a general rule, expropriation must be ordered by a court;
however, the law provides certain extraordinary conditions where a Transport
public authority may carry out expropriation by means of an admin- General public policy regarding transport is the responsibility of the
istrative proceeding (administrative expropriation), namely: expro- Ministry of Transport. In addition the Superintendency of Ports and
priation can be deemed to be urgent as per the definition of Law Transport has the authority to oversee activities and impose penal-
388, 1997; and the administrative authority deems that there are ties. Aerocivil is in charge of airports and air transport.
sufficient specific reasons of public utility and public interest to jus-
tify the expropriation. In addition, the local town council shall have Ports
indicated generally which local authority is charged with determin- General public policy regarding transport is the responsibility of
ing the occurrence of the urgency requirement and such authority the Ministry of Transport. The National Agency of Infrastructure
shall have effectively declared such urgency. (ANI) (formerly the National Concessions Institute (INCO)) has the
There are no particular forms of investment that are specially authority to grant port concessions and to extend current conces-
protected from nationalisation or expropriation. No nationalisation sions granted by other authorities. The Superintendency of Ports
or expropriation of project companies and assets has taken place in and Transport has the authority to oversee activities and impose
Colombia in its recent history. penalties.
Telecommunications
Telecommunications are regulated by the Regulatory Commission
for Telecommunications (CRC). The Superintendency of Companies
has the authority to undertake control and surveillance over these

companies and to impose fines and other penalties in the event of 19 What restrictions, fees or taxes exist on the export of natural
non-compliance with applicable laws and regulations. resources?
With respect to environmental matters in all of the above areas, the Export of natural resources is subject to general provisions appli-
Ministry of the Environment and local environmental authorities cable to all types of exports. In addition, the Ministry of Mines and
having jurisdiction over the area in which the activity is carried out Energy has the authority to establish restrictions on the export of
are charged with granting environmental permits and licences, and non-renewable resources. Colombia is a party to the Convention on
overseeing the compliance with applicable environmental regula- International Trade in Endangered Species of Wild Fauna and Flora,
tions. Since the enactment of the new Constitution in 1991, govern- and consequently export of such resources is subject to a licence
ment participation in these sectors has been largely privatised. from the Ministry of the Environment.
Regulation of natural resources Legal issues of general application
17 Who has title to natural resources? What rights may private 20 What government approvals are required for typical project finance
parties acquire to these resources and what obligations does the transactions? What fees and other charges apply?
holder have? May foreign parties acquire such rights?
No government approvals are required for project finance transac-
Title to all resources found in the subsoil, including oil, gas and min- tions. When the lender party is foreign, it must be included in the
erals is with the nation, irrespective of where the property of the land list of foreign lending parties recognised by the Colombian Central
lies. All rivers and waters that run through their natural beds are also Bank.
state property and for public use, except rivers that are born and die
in one property, which belong to the proprietor of the river banks.
Land can be owned by private individuals and companies or by the 21 Must any of the financing or project documents be registered or
state and other public entities. Any natural resources growing from filed with any government authority or otherwise comply with legal
the land (eg, plants) and animals that live on the land belong to the formalities to be valid or enforceable?
owner of the land. Agreements that need to be registered with the National Registry
Private parties may acquire the right to exploit the non- (namely guarantee over moveable assets agreements, pledge with-
renewable natural resources found in the subsoil by means of a legit- out possession agreements and guarantee trust agreements over
imate title given by the appropriate authority, for example, it can be moveable assets) are not required to contain the notarised original
a mining concession agreement granted by the appropriate author- signatures of the parties, however, it is advisable to notarise the
ity. The right to exploit natural resources is granted by environmen- original signatures. In order to be registered, the agreements must
tal authorities such as the National Authority for Environmental be in Spanish; if the agreement was executed in English, an official
Licences (ANLA), and the Regional Autonomous Corporations translation is required. Official translators are duly certified by the
(CAR) through special permits and authorisations. As consideration Ministry of Foreign Relations. It is uncertain whether the guaran-
for the right to exploit a natural resource granted by means of a tee trust agreements entered into by project companies that are of
concession, the concessionaire is required to pay royalties or rights the type excluded by the general insolvency regime (which include
of use. urban utility services such as electricity, water and sewage, among
others), need to be registered with the National Registry, but it is
advisable to register them. Mortgage agreements and guarantee trust
agreements over immoveable assets must be contained in a public
deed executed before a public notary. Public deeds are to be granted
The percentage that must be paid under royalties on the extrac- in Spanish.
tion of natural resources depends on the type of natural resource Pledge with possession agreements are not required to be in
exploited. Relevant authorities have determined different percent- written form, however, it is advisable to execute a written agreement
ages depending on the extracted material. However, as a general rule setting forth the rights and obligations of each party. Its registration
royalties are calculated based on a determined reference price for the with the National Registry is required.
extracted material.
Under Colombian legislation there is no distinction between the
royalties that a domestic and a foreign party must pay. 22 How are international arbitration contractual provisions and
In addition to the mentioned royalties, there is a profit-based awards recognised by local courts? Is the jurisdiction a member
income tax. Domestic parties are taxed on worldwide income. of the ICSID Convention or other prominent dispute resolution
Foreign parties are taxed on Colombian-source income only. An conventions? Are any types of disputes not arbitrable? Are any
individual is considered resident for tax purposes if he or she stays types of disputes subject to automatic domestic arbitration?
continuously or discontinuously in the country for more than 183 Pursuant to Law 1563, 2012, international arbitration can be val-
calendar days including arrival and departure, during any period of idly agreed to in Colombia, provided there is an international ‘ele-
365 consecutive calendar days, with the understanding that when ment’ in the relationship of the parties to the arbitration agreement
the continuous or discontinuous permanence in the country occurs or their dispute.
in more than one taxable year or period, the person is considered as Pursuant to Colombian law only disputes that can be settled
resident as from the second taxable year or period. can be subject to arbitration. Disputes that cannot be the subject of
Foreign individuals and foreign companies are levied with arbitration proceedings include:
income tax at the rate of 33 per cent, however some withholding tax • disputes concerning an individual’s civil state;
rates are lower than 33 per cent and, in some cases, the income tax • disputes concerning the validity of decisions issued by the share-
withholding is the final tax. The income tax for Colombian individu- holders’ meeting or board of partners of certain commercial
als is based on a progressive rate that reaches a maximum of 33 per vehicles, such as corporations or limited liability companies;
cent. For Colombian companies the income tax is at a fixed rate of • the validity of administrative acts (namely, resolutions or other
25 per cent and there is a new tax named the income tax for fairness acts issued by Colombian authorities); and
tax (CREE) the rate of which is 9 per cent. • collection procedures – enforcement of security such as pledges
and mortgages shall always be brought before Colombian
courts.
The general rule is that arbitration cannot be imposed by the law, Labour administers those laws, may investigate complaints filed by
and the decision to submit a dispute to arbitration shall come from employees and can impose fines if applicable rules are not complied
both parties involved in the conflict. There is one event, however, with.
in which disputes are automatically subject to domestic arbitration, With regard to environmental laws, these are of a general nature
and that is disputes between an employer and its workers. and are provided mainly under Law 99, 1993, Decree 2811, 1974,
Colombian courts are bound by article III(2) of the New Decree 2820, 2010 and Decree 2150, 1995. In addition, there are
York Convention for the enforcement of arbitration agreements. specific rules applicable to mining under the ‘Environmental Guides’
Colombian civil procedure rules are consistent with the rule con- issued by the Ministry of the Environment. The Ministry of the
tained in the Convention. Foreign arbitral awards can be enforced Environment as well as local environmental authorities, which
in Colombia once they have been recognised by the Colombian includes towns (for example, the Administrative Department of the
Supreme Court through exequatur, which follows the rules of the Environment in Bogotá), and regional authorities are charged with
New York Convention on the Recognition and Enforcement of overseeing compliance with these rules, and have the authority of
Foreign Arbitral Awards, approved in Colombia by Law 39 of 1990. granting environmental licences and approvals when required by
In addition to this, Colombia is a party to the following conventions: law.
• the Inter-American Convention on International Commercial
Arbitration of 1975 (the Panama Convention), approved by Project companies
Law 44 of 1986;
• the Inter-American Convention on Extraterritorial Validity 26 What are the principal business structures of project companies?
of Foreign Judgments and Arbitral Awards, (the Montevideo What are the principal sources of financing available to project
Convention) approved by Law 16 of 1981; and companies?
• the Convention on the Settlement of Investment Disputes Companies that provide public utility services are required to take
between States and Nationals of other States (the Washington the form of any of the business vehicles provided under local law in
Convention), approved by Law 267 of 1996. which the capital of the company is represented in shares (corpora-
tion, partnership limited by shares, and a simplified stock company).
The most common form for project companies is the corpora-
tion; however, with the introduction of a new simplified corporation
in December 2008, which has a very simple corporate structure and
is not subject to many of the limitations provided under the law for
Financing documents are typically governed by foreign law (typi- corporations, this trend is likely to change.
cally the laws of the state of New York). All agreements relating The principal sources of financing for project companies are
to security granted over assets located in Colombia are invariably foreign banks, multilateral agencies (such as, the Inter-American
governed by Colombian law. Development Bank, the International Finance Corporation,
Article 869 of the Colombian Code of Commerce provides that Corporación Andina de Fomento and DEG) and local banks. Other
an agreement that is performed in Colombia is subject to Colombian sources of financing are the issue of Rule 144A bonds, securitisation
law. Whether party autonomy can alter this conflict of law rule is of assets and the issuing of local debt.
debated. Under Colombian law any agreement, including those
performed in Colombia, can be subject to foreign law if the par- Public-private partnership legislation
ties have agreed to submit their disputes to international arbitration
(provided said stipulation is valid due to the existence of an interna- 27 Has PPP enabling legislation been enacted and, if so, at what
tional ‘element’ as defined under Law 1563, 2012). In addition, the level of government and is the legislation industry-specific?
title over property located or registered in Colombia is also subject Since 1998, Law 489 authorised the creation of public-private part-
to Colombian law. nerships at any level of government, by authorising the creation of
‘mixed economy companies’, which are companies in which the
24 Is a submission to a foreign jurisdiction and a waiver of immunity capital is held by a state entity and private individuals or entities.
effective and enforceable? The legislation is not industry-specific. Law 489 is set up in differ-
ent ways to involve the private entities in the planning, execution,
Submission to a foreign jurisdiction is effective and enforceable,
construction and maintenance of the work.
although it does not derogate the jurisdiction of Colombian courts
Law 1508, 2012 was enacted by Congress on 10 January 2012
over the matter, where Colombian law grants them such jurisdic-
and provides the general legal regime of public-private partnerships
tion. However, any decision obtained abroad must be recognised by
in Colombia. Law 1508, 2012 was regulated by means of Decree
the Colombian Supreme Court through exequatur, under the rules
1467, 2012. In general terms, the Decree regulates the form in which
established in the Code of Civil Procedure.
PPPs of private and public initiative shall be structured. By the
Waiver of immunity of the Colombian state is not effective and
same token, Resolution 3656, 2012 enacted by the Director of the
enforceable unless provided under a treaty that has undergone all
National Planning Department on 20 December 2012 set forth the
the steps and approvals provided under the Colombian Constitution
parameters, applicable to public entities, to evaluate PPP projects.
to be effective.
In Colombia, as a general rule, the state may enter into agree-
ments with private individuals. Concession agreements among state
entities and private individuals are often entered into to provide a
25 What laws or regulations apply to typical project sectors? What public service, the development or modernisation of which cannot
regulatory bodies administer those laws? be afforded by the public entity for the provision of public goods
and its related services in a more cost-efficient way. In these agree-
As a general rule, pursuant to article 57 of the Substantive Labour
ments risk is allocated among the parties as well as the payment
Code, employers are required to provide employees with all the pro-
mechanisms. Under a concession agreement, a private entity or an
tection required to protect them from the health and safety risks
individual is granted the right to exploit a public asset in exchange
involved in the tasks they perform. Resolution 2400, 1979 issued
for the state’s participation in a percentage of the earnings.
by the Ministry of Labour is the main regulation that provides par-
ticular health and safety rules for each type of risk. The Ministry of

In 2013, Congress enacted Law 1682 of 2013 whereby the regu-

latory framework for transport infrastructure was established. Law Update and trends
1682 provides that any private party may request permission for the
development at their own risk of transport infrastructure projects of On 20 August 2013, the Colombian Congress enacted Law 1676
of 2013 (Law 1676) with the purpose of increasing the access to
public interest. credit by allowing new types of liens over assets, rights, accounts
and shares. Law 1676 simplifies the creation, publicity, order of
PPP – limitations priority and foreclosure of guarantees over moveable assets in
Colombia. Law 1676 provides for a new and innovative regulation
28 What, if any, are the practical and legal limitations on PPP for the granting of security in Colombia, overcoming certain
transactions? concepts and formalities that have made it cumbersome for the
debtor to offer guarantees and for the lenders to enforce them.
Law 1508, 2012 provides, as a general rule, that the PPPs may only This law provides new mechanisms for foreclosure such as direct
be used in projects where the required investment is higher than payment to the creditors with the pledged assets or sale of the
6,000 minimum legal wages (approximately US$1.895 million). In assets through expedited mechanisms. Further, Law 1676 creates
a national registry of moveable collateral that is publicly available
addition, the PPPs will have a maximum term of 30 years, including and replaces the local registrations in the Chambers of Commerce
extensions, and the public participation shall not exceed 20 per cent of the place where the collateral was located.
of the estimated investment. Law 1607, 2012 provides a five-year
exception counted from the date when the PPP is approved regard-
ing the minimum required investment for projects developed in the PPP – transactions
Department of San Andres, Providencia and Santa Catalina.
Concession agreements are the most common structure used 29 What have been the most significant PPP transactions completed
in PPP transactions, which are regulated under Law 80, 1993 and to date in your jurisdiction?
Law 1150, 2007. Law 80 and Law 1508 provide that, as a general Concession agreements are traditionally used to finance and fos-
rule, the selection of the private contractor by a state entity is to be ter the development of basic infrastructure with the intention of
carried out by means of a public procurement process summoned promoting development in the country. In the past few years, the
at the state entity’s or a private contractor’s initiative. In addition, Aeronautical Authority has opened up for concession the operation
concession agreements are strictly regulated, which means that, and modernisation of several airports that were previously under its
among other legal provisions, there are several stipulations that are direct control. In addition, the Infrastructure Authority is undergo-
deemed to be included in them even if the parties fail to include them ing the structuring and tender of more than 20 PPP projects. These
expressly, mainly: include:
• the state entity has the right to unilaterally modify, terminate or • the operation and modernisation of Bogotá Airport, the coun-
interpret the agreement to prevent the paralysis of the delivery try’s most important airport;
of the public service to which the agreement relates; and • the construction and modernisation of the two largest road
• all the infrastructure built and the assets used by the concession- improvement projects are underway;
aire to perform the agreement are transferred to the state entity • the construction of the roads connecting the centre of the coun-
when the term of the agreement expires. try with the north coast (la Ruta del Sol);
• the construction of a road tunnel connecting Colombia’s ports
on the Pacific Ocean coastline with the rest of the country;
Under concession agreements the concessionaire is required to pay
• the construction of the road that will connect the municipalities
monetary consideration, which usually consists of a percentage of
of La Estrella and Bolombolo through 46 kilometres of road-
the revenues obtained from the development of the projects.
extension and the construction of a dual-carriageway and two
The public functions or duties that involve the exercise of
road tunnels (Conexión Pacifico 1);
authority cannot be transferred to private entities or individuals.
• the construction of the road that will connect the municipalities
Law 1508, 2012 and Decree 1467, 2012 set legal limitations on
of Bolombolo and La Pintada through 41 kilometres of dual-
PPPs. According to this regulation, private contractors’ initiative for carriageway (Pacifico 2); and
PPPs in the following projects is prohibited: • the construction of the road that will connect the municipalities
• those that modify existing concession agreements; of Girardot, Honda and Puerto Salgar through 22 kilometres of
• projects already structured by public entities; or new roads, 135 kilometres of enlargement of the existing road
• projects that require the state to grant a guarantee or a disburse- and two bridges.
ment from the general budget of the nation, territorial entities or
other public funds higher than those set forth in Law 1508, 2012. No PPPs have been approved since the enactment of Law 1508 in
2012. Approvals are expected in the short term.
Bernardo P Cárdenas Martínez bcardenas@cardenasycardenas.com

Daniela Mejía Mariño dmejia@cardenasycardenas.com
Carrera 7, No. 71 – 52 Torre B 9th Floor Tel: +57 1 313 7800

Bogotá Fax: +57 1 312 2420
Colombia www.cardenasycardenas.com
CROATIA Žurić i Partneri Law Firm
Croatia
Dinka Kovac̆ević and Dino Simonoski Bukovski
Žurić i Partneri Law Firm
Creating collateral security packages purpose of securing a financial obligation. Financial security instru-
ments are financial instruments, monetary funds and credit claims.
1 What types of collateral are available? Financial instruments are defined by legislation governing the capital
In general, Croatian legislation recognises almost all types of col- market, namely, transferable securities (shares, bonds, etc), money
laterals that are common in the international business environment. market instruments (except payment instruments), units in collec-
The rules governing specific types of security and their perfection tive investments undertakings and derivatives (options, futures,
depend primarily on the type of the respective collateral. The system swaps, forward rate agreements, etc). Monetary funds are defined
of collaterals is primarily regulated by the Ownership and Other as a monetary claim on the grounds of an account or deposit in any
Proprietary Rights Act, which sets out rules on establishment of currency, except for ‘hard’ cash. A credit claim is a claim created
security over real estate, moveables and property rights. Some types by a credit agreement or loan agreement in which the credit pro-
of collaterals are regulated by specific legislation, such as financial vider or loan provider is a credit institution defined by the act that
collaterals. regulates the activity of credit institutions, the Croatian National
Croatian law regulates two separate types of security that can be Bank, the Croatian Bank for Reconstruction and Development or
created over real estate, namely, hypothecation and fiduciary own- one of certain subjects of financial markets defined by the Financial
ership (transfer of ownership as security). Other available collater- Collateral Act, provided, in any case, that the other contracting party
als include pledges over, inter alia, shares, share interests, securities, is not a consumer under the act regulating consumer crediting. On
contractual rights and claims, trademarks, concessions, the floating these assets two types of financial security can be created as a special
charge (entirety of moveables at a certain location) and other stand- pledge in the form of a limited proprietary right or a transfer of
ard collaterals. Further, security can be created over moveables hav- financial security instruments.
ing special legal treatment, such as ships and yachts (also over those
in construction) and over aircraft or parts thereof. On the other
hand, for example, onshore and offshore bank accounts could be
considered as the available collateral, but the perfection and estab-
lishment of security over bank accounts still remains an open issue in
Croatian legislation and practice, without a straightforward answer.
However, in order to conduct out-of-court collection of claims, debt-
ors are often required to provide the creditor with a debenture note
or a blank debenture note, which constitutes grounds for the credi- The rules on perfection of collateral and its priority establishment
tor to seize the monetary funds of the debtor that are in accounts differ, depending on the type of collateral in question, and are as
or on deposit in Croatian credit institutions through the Financial follows:
Agency by sending the debenture note or a blank debenture note • real estate – security interest is perfected by registration of the
along with a request for direct collection. collateral with the Land Register that is maintained by the
Available collaterals can be established as voluntary (by agree- competent municipal court, with the priority order of the reg-
ments as well as in the form judicial or notary public security, cre- istration in accordance with the moment of submission of the
ated under special rules of the Enforcement Act) and coercive in the motion for registration. Related to this type of perfection, there
form of the court pledge (created by a court decision, created in is a specific principle called the ‘principle of trust in the Land
enforcement proceedings or coercive security proceedings), admin- Register entries, which provides that everyone interested in par-
istrative security (created by decisions of administrative bodies) and ticular real estate can rely on the facts from the Land Register;
the statutory security (by virtue of law due to fulfilment of certain • moveables – perfection of the security over ships and yachts
statutory preconditions). (also over those in construction) and over aircraft or parts
The claim can also be secured by (fiduciary) transfer of owner- thereof is regulated in a similar manner as over real estate by
ship over moveable or real estate as security (fiduciary ownership), special legislation, namely, by registration with the relevant reg-
as well as by fiduciary transfer of certain other rights. Such security isters in which ownership titles are recorded. Therefore, for these
is always voluntary under special rules of procedure contained in the types of moveables, it is possible to rely on the principle of trust
Enforcement Act. There are some further possibilities involving real in the register entries. For other types of moveables, the security
estate as collateral, as quasi-security, by retention of property rights, rights can be also registered with the Court or Notary Public
execution of retention and others. Created Security Interest Register maintained by the Financial
Financial collateral, as a specific type of collateral, is regulated Agency. However, such registration is not a condition for per-
by the Financial Collateral Act. Financial collateral (or security) is fection of security over moveables, but merely serves as a form
defined as the transfer of financial security instruments or creation of extra security for the creditor when determining the priority
of a special type of pledge over financial security instruments, for the rank. Bank accounts, on the other hand, are not considered as

Žurić i Partneri Law Firm CROATIA
moveables on which a pledge can be registered and, therefore, to the borrower or, in the case of transfer, funds actually acquired
it is highly questionable whether and how security on bank by the borrower.
accounts is perfected and established, and, moreover, how it can
be enforced;
• securities – collateral over non-materialised securities is per-
fected by registration with the securities account with the
Central Clearing and Depository Company, as provided by the The priority rank of the creditor’s security, which requires registra-
Capital Market Act; tion with specific public registers for perfection, is determined by
• shares – security over shares issued in materialised form is per- insight in the relevant public register. To such registers the ‘principle
fected by registration with the share ledger maintained by the of trust’ in public register entries applies. With regard to most reg-
issuing company; isters, the priority rank is established according to the moment of
• share interest – collateral over share interest is perfected by submission of the motion or application to register the respective
registration with the share interest record maintained by the security interest with the respective registers.
company, but it is also recommended to register the collateral For security over moveables (except ships, yachts and aircraft)
with the Court Register and the Court or Notary Public Created and property rights, although it is not necessary to register the
Security Interest Register; and acquired security interest with the respective public register (eg, the
• trademarks – security over trademarks can be registered over Court or Notary Public Created Security Interest Register) for pur-
with the Trademark Register maintained by the State Institute poses of their perfection, the creditors risk regarding determining
for Intellectual Property. the priority rank is decreased by conducting registration of security
interest. However, even conducting registration of security interest
For securities that are perfected by registration, the priority right is does not give absolute assurance as to the absence of other non-
determined by the moment of submission of applications for regis- registered liens over moveables.
tration of security. In cases of security for which the registration is
not a precondition of its perfection, there is a certain risk of estab- 4 Outside the context of a bankruptcy proceeding, what steps
lishing priority right. To avoid or at least minimise the risk, creditors should a project lender take to enforce its rights as a secured
also tend to register their security rights over moveables and prop- party over the collateral?
erty rights with relevant registries, most commonly with the Court
Outside the context of a bankruptcy proceeding, a project lender
Register and the Court or Notary Public Created Security Interest
can enforce its rights as a secured party over the collateral through
Register.
enforcement proceedings. This type of proceedings is regulated by
There are no specific fees, taxes or other charges necessary for
the Enforcement Act. A secured party can enforce its pledge either
the perfection of security interest. Nevertheless, competent registries
through proceedings before the court or, in some events, before a
would condition finalisation of registration with payment of court
notary public over the collateral. In these cases, the duration of
and administrative fees and costs within the proceedings for registra-
enforcement may be shortened by including an enforcement clause
tion of security.
(clausla exequendi) in the loan agreement or a pledge agreement that
As in most continental legal systems, it is highly disputable
enables the secured creditor to initiate immediate enforcement pro-
whether in practice a corporate or any other entity can hold col-
cedure after the notary public establishes the debtor’s default upon
laterals on behalf of the project lenders as the secured party in the
the request of the secured party. The formal requirement for that is
capacity of an agent or a trustee, especially if the loan agreement is
that the respective agreement is executed in the form of a notarial
governed by Croatian law. In Croatia, this is due to the provision of
deed or solemnised private document.
the Ownership and Other Proprietary Rights Act, which provides
On the other hand, for debt that is not directly enforceable and
that a security can be created for the benefit of a creditor of a certain
there is no directly enforceable deed against the debtor a creditor
claim for the purpose of securing that claim. Consequently, it is not
can initiate enforcement proceedings before a notary public by
possible to hold a security if the security holder has no claim against
submitting an enforcement motion based on what is called a ‘cred-
the security debtor. The security is accessory to the debt and shares
ible document’, which serves as proof of existing debt (eg, business
the faith of the debt.
record excerpt, invoice or promissory note). After the notary passes
However, the concept of the security agent or trustee is com-
an enforcement decision and it becomes final, a creditor may request
mon in project finance practice in Croatia. The security agent or
direct collection (as a type of out-of-court enforcement) by submit-
trustee could potentially hold collaterals, but only in the capacity of
ting this decision to the Financial Agency in order to seize the debt-
the creditor regarding all respective claims secured by certain col-
or’s accounts and deposits or, in the event that the debtor is a natural
lateral. The preferable solution is that the lender and the security
person, or to the debtor’s employer in order to seize the debtor’s
agent or trustee are the same entity. Another option is to have the
salary or to any other subject paying the debtor’s other continuous
loan agreement (as the ground for the claim) governed by foreign
income in order to seize it. Generally, if a creditor cannot collect his
law, which somehow makes the security agent or trustee a credi-
or her claim in the described manner, the creditor can motion for
tor with regard to the secured claim. Having said that, the concept
seizure and auction of the debtor’s moveables, property rights or real
of parallel debt is being increasingly used in international transac-
estate before the court.
tions and, consequently, Croatian law security documents increas-
If the debt is directly enforceable, a creditor can initiate enforce-
ingly secure creditors who are not the actual lenders but are security
ment proceedings before the court by motioning for seizure and auc-
agents or trustees. Such security documents are regularly being reg-
tion of the debtor’s moveables, property rights or real estate, except
istered with the competent registers. To the best of our knowledge,
in certain cases when the directly enforceable deed can be and is
there is no court practice and professional literature addressing the
enforced beyond proceedings before the court or the notary public
legal concept of parallel debt in the Croatian legal system, meaning
(eg, a debenture note enforced directly over the debtor’s accounts in
that this has not been tested in litigation or otherwise before the
direct collection before the Financial Agency).
Croatian courts. Consequently, in each particular case there is a risk
In any of the above cases, the exact steps in enforcement depend
that the parallel debt provisions may be set aside, as the court may
on the type of enforcement object. It is not possible to generally
hold that the debt owed to the replacement security agent did not
define the duration of enforcement, as it is dependent on the type of
have a lawful cause as it did not arise from any funds actually lent
the enforcement object and actions of the debtor as well as on the can be settled from the bankruptcy estate only after the secured
circumstances of the particular case. claims. Only after claims of creditors from the preceding payment
Since Croatia’s accession to the European Union on 1 July 2013, priority rank are settled, claims of creditors of a lower payment
the provisions of the Enforcement Act referring to the European rank may be settled. Among non-secured claims, the highest priority
Enforcement Order are in force and regulate the procedure for certi- rank is given to costs of the bankruptcy proceedings and obligations
fication and execution of European Enforcement Orders for uncon- of the bankruptcy estate, employees of the bankruptcy debtor and
tested claims in accordance with Regulation (EC) No. 805/2004 taxes, while incidental claims (eg, interest, shareholder’s loans to the
of the European Parliament and of the Council of 21 April 2004 bankruptcy debtor) are at the bottom of the priority rank list.
creating a European Enforcement Order for uncontested claims. The Bankruptcy Act also provides unfair preference periods. As
Competent Croatian authorities are authorised to issue an enforce- a consequence, the transactions undertaken by the bankrupted com-
able European enforcement deed regarding uncontested claims. pany in such periods can be contested in litigation in order to have it
Further, an enforcement deed that is confirmed in another member annulled. In general, the bankruptcy administrator or the bankruptcy
state of the European Union in accordance with the Regulation as creditors have the authority to dispute transactions undertaken by
an European Enforcement Order is enforceable in Croatia under the the bankruptcy debtor prior to bankruptcy, subject to specific condi-
same conditions as domestic enforcement deeds without conducting tions of Bankruptcy Act, if the bankruptcy administrator considers
a document recognition procedure, obtaining declaration of enforce- that such transactions distort the equality of creditors in settlement
ability or deciding on document recognition as a preliminary and of their claims or in any way place specific creditor in a preferential
without the need to decide on document recognition as a prelimi- position against the bankrupt company’s other creditors.
nary issue. In 2012 the Financial Dealings and Pre-Bankruptcy Settlement
In addition to the above rules, in accordance with Regulation Act entered into force, introducing a completely new regime into
(EC) No. 1896/2006 of the European Parliament and of the Council the Croatian legal system. It has already been amended a few times.
of 12 December 2006 creating a European order for payment pro- Since the Act is rather new and amended, the implementation of this
cedure, it is possible to submit an application for issuance, exami- Act and practice varies depending on the consolidated version that
nation and enforceability confirmation of a European order for applies in a particular case. Further amendments are planned, since
payment before the exclusively competent Commercial Court in it is widely considered that the Act and the pre-bankruptcy settle-
Zagreb for collection of pecuniary claims. Further, it is provided that ment procedure have not yet obtained the adequate form. Generally,
a European payment order issued by a Croatian court is an enforce- the pre-bankruptcy settlement proceedings precede the bankruptcy
ment deed on the grounds of which enforcement can be conducted proceedings and the reasons for opening of both of the proceedings
in Croatia. are similar. In the event that the pre-bankruptcy settlement is not
concluded, the bankruptcy proceedings shall be opened over the for-
mer pre-bankruptcy debtor, thus becoming the bankruptcy debtor.
5 How does a bankruptcy proceeding in respect of the project
company affect the ability of a project lender to enforce its rights
periods, clawback rights or other preferential creditors’ rights 6 What are the restrictions, controls, fees, taxes or other charges
(eg, tax debts, employees’ claims) with respect to the collateral? on foreign currency exchange?
Under the Foreign Exchange Act and the Decision of the Croatian
what legislation applies to them? What processes other than
National Bank on Payments in Foreign Currency in the Country, pay-
ments made in foreign currency under loan arrangements between
residents and non-residents are allowed. There are exceptions for
Generally, in the event that bankruptcy proceedings are opened payments in foreign currency between domestic and foreign entities,
with regard to a security debtor with a Croatian-registered address, where such payments are not allowed. These exceptions are:
Croatian legislation provides exclusive jurisdiction of Croatian • purchase of real estate in the territory of Croatia;
courts for the bankruptcy proceedings. In the event of a claim based • purchase of share interests in Croatian limited liability
on a foreign court decision or arbitral award, the rights of the credi- companies;
tor are recognised in accordance with the requirements for recogni- • purchase of shares in investment funds regulated by Croatian
tion of foreign court rulings. Under the Bankruptcy Act, bankruptcy law; and
proceedings cannot be conducted over the Republic of Croatia, • purchase of securities listed on a Croatian stock exchange or
funds financed from the state budget, pension or disability funds, the issued in Croatia, except for securities issued in Croatia but
Croatian Institute for Health Insurance, Croatian Pension Institute listed abroad.
and counties and municipalities.
Within bankruptcy proceedings, different rules apply, depending The latter limitation does not apply to purchase of securities issued
on the type of security in question. A financial collateral shall not by the Republic of Croatia denominated in a foreign currency on the
be affected by the opening of bankruptcy according to the Financial primary market.
Collateral Act, with certain exceptions. In our view, this would not prevent a bank from granting financ-
A claim secured by hypothecation or fiduciary title or other ing in the form of a loan to a buyer in foreign currency. However,
form of pledge registered with a public register is considered as a ownership-based financing (eg, transfer or retention of title) could
right to separate collection, but assets that constitute the collateral be affected by this provision. No taxes or stamp duties, for which a
are considered as part of the bankrupt estate. In this case, the credi- foreign project lender may be liable in Croatia, on foreign loans are
tor has a priority right over other non-secured claims, as well as applicable.
the right of enforcement either within or beyond the bankruptcy
proceedings. However, costs of enforcement (a lump sum of up to 10
per cent of the achieved auction price) have priority over settlement 7 What are the restrictions, controls, fees and taxes on remittances
of the secured creditor as well as taxes burdening the sale. of investment returns or payments of principal, interest or
The bankruptcy creditors whose claims are not secured by premiums on loans or bonds to parties in other jurisdictions?
pledges registered with a public register are arranged in payment pri- There are no specific restrictions, controls and fees on remittances of
ority ranks depending on the type of the claim. Non-secured claims investment returns (dividends and capital) or payments of principal,

interest or premiums on loans or bonds to parties in other jurisdic- According to information provided by the Croatian National
tions. However, an amendment to the Income Tax Act has intro- Bank and the State Bureau for Trade Policy, Croatia has entered
duced some changes regarding the taxation of dividends. According into over 60 bilateral treaties for the protection and promotion of
to the amendments, a withholding tax at the rate of 12 per cent investments and 50 bilateral treaties on avoiding double taxation
is payable on dividends and shares in profit paid to non-residents, with Austria, Germany and France, as the biggest foreign inves-
while a tax at the rate of 15 per cent is payable on interest paid to tors in Croatia, as well as with other countries within and beyond
non-residents. the region. On 1 July 2013, Croatia became a member state of the
It should also be noted that, due to the fact that there are a great European Union and took over the provisions of free trade agree-
number of exceptions applicable to non-residents based on bilateral ments that the EU has entered into with certain states or groups
agreements and EU directives, most non-residents will be excluded of states, which are, among other topics, related to liberalisation of
from this taxation or a lower tax rate will apply. trade in agricultural, food and industrial products and protocols of
With Croatia’s accession to the EU, changes related to withhold- origin. As a consequence, Croatia will, in relation to EFTA coun-
ing tax on dividends and profit shares in relation to parent compa- tries, CEFTA and Turkey enter into subsequent relationships as a
nies and affiliated companies from different member states entered new party, namely, a member state of the EU.
into force, allowing certain tax benefits.
8 Must project companies repatriate foreign earnings? If so, must over project assets provided or guaranteed by foreign insurance
they be converted to local currency and what further restrictions companies? May such policies be payable to foreign secured
exist over their use? creditors?
Repatriation of foreign earnings is allowed, but not required. There are no restrictions, fees and taxes existing on insurance poli-
According to the Foreign Exchange Act, the transfer of profits from cies over project assets provided or guaranteed by foreign insurance
one state to another is not restricted and may be effected after all tax companies, and policies are payable to foreign secured creditors.
and other statutory obligations in Croatia have been met. The gen- However, for certain types of projects there is an obligation to con-
eral rule is that the amount remaining after the corporate income tax tract a local insurance policy.
is paid can be repatriated. Therefore, the rules regarding repatriation
are fairly liberal.
Additionally, it is important to underline the possibility of trans-
ferring the profit through the company’s foreign currency account
that is held at one of the authorised local banks. This is possible in Subject to the conditions set by the Foreigners Act, it is possible to
the event that the company’s profits are to be transferred and that obtain a work and residence permit (RWP) for a foreign employee in
it owns foreign currency income from exports of goods or services. Croatia. However, there are some limitations and restrictions for the
employment of foreign nationals, such as annual quota of permitted
foreign employees, which is in compliance with the unemployment
9 May project companies establish and maintain foreign currency rate and needs of the market. An RWP is issued for a maximum
accounts in other jurisdictions and locally? period of a year and can be extended for another year. Apart from
Since 2011, in line with the decision of the Croatian National Bank, employees within the quota, there are some groups of employees
domestic entities are able to open bank accounts abroad without that can be employed beyond the annual quota, for example, key
prior approval of the central bank and, additionally, foreign project personnel (directors, procurators and similar) and internally trans-
companies may also open and maintain foreign currency accounts ferred employees from within the group.
in Croatia. Due to Croatia’s accession to the EU, the regime for citizens of
states of the European Economic Area is as provided by EU leg-
Foreign investment issues islation, provided that there are no reservations made by Croatia
regarding the respective member state’s citizens. The EEA citizens
10 What restrictions, fees and taxes exist on foreign investment in or regime requires the respective EEA citizen to obtain the certificate
ownership of a project and related companies? Do the restrictions on application of residence for the purpose of work. In the event
also apply to foreign investors or creditors in the event of that there is a reservation, it should also be pointed out that, for
foreclosure on the project and related companies? Are there example, the criteria for EU citizens who are key personnel work-
any bilateral investment treaties with key nation states or other ing beyond the annual quota are more liberal than with regard to
international treaties that may afford relief from such restrictions? non-EU citizens.
authority?
As a general rule, there are no restrictions on foreign investment in
a project. However, for purposes of setting up a project or acquir- From 1 July 2013 (ie, Croatia’s accession to the EU), Croatia became
ing the ownership over project and performing business activities on a part of the EU single market. In practice, this means that in trade
a permanent basis in Croatia, a foreign investor depending on the with other EU member states, all customs and non-tariff barriers as
state of origin may have to set up at least a domestic branch office or well as measures having equivalent effect are abolished, the costs
even a subsidiary. According to the Companies Act, if a foreign per- of cross-border operations should be reduced, competition should
son incorporates a company in Croatia, the company is considered increase and there are no particular restrictions on the import of
to be a domestic legal entity and it may acquire rights and undertake project equipment. However, some additional requirements may
the obligations in the same manner as any other domestic entity. remain or occur in relation to specific industries, all in accordance
However, non-EU entities (natural and legal persons) may with EU legislation.
acquire ownership of real estate in Croatia under the condition With regard to trade with non-EU states, custom tariffs and cer-
of reciprocity, if the Minister of Justice issues the consent to such tain non-tariff barriers are still applicable and the specific measures
an acquisition. Also, it should be noted that non-EU entities may depend on the type of product intended for import.
acquire ownership of real estate on the Croatian territory by inherit-
ance that is legal succession under the condition of reciprocity.
14 What laws exist regarding the nationalisation or expropriation • the Croatian Energy Market Operator – institution with certain
of project companies and assets? Are any forms of investment authority in the energy market;
specially protected? • the Agency for the Protection of Environment – the authority in
Croatian legislation recognises expropriation, however, only to a minerals extraction;
limited extent. According to the Expropriation Act, real estate may • Croatian Waters – the institution supervising water treatment;
be expropriated in favour of the expropriation beneficiary, but only • the Croatian Agency for Post and Electronic Telecommunications
if the existence of the interest of the Republic of Croatia or certain – the agency with supervision over the telecommunications sec-
public interest has been established, and provided that the envisaged tor; and
use of the real estate gives greater benefit than the use of the real • the Croatian Financial Services Supervisory Agency.
estate before the expropriation. Interest of the Republic of Croatia is
established by the government and in some cases by law. The expro- Apart from Croatian Waters, which is an institution, all of the above
priation proceedings are defined as administrative proceedings and mentioned agencies are legal entities with public authority, directly
are conducted before the bureau of state administration in counties responsible to the Croatian Parliament.
or the city of Zagreb, competent for property affairs. In the event The history of state ownership in these important sectors is
that real estate is expropriated, a prior owner will, in return, receive widely different. Some sectors remained state-owned (eg, HEP dd –
new real estate of approximately the same value and in the same the provider of electricity), while some were partially privatised (eg,
area or, if that is not possible, an amount equivalent to the market INA dd – oil and gas company) or fully privatised (eg, HT dd – the
value of the real estate. telecommunications provider). Legal persons who have been given
competence to manage state property include the State Bureau for
Fiscal treatment of foreign investment Managing State Property and the Centre for Restructuring and Sale.
15 What tax incentives or other incentives are provided preferentially Regulation of natural resources
investments, loans, mortgages or other security documents, 17 Who has title to natural resources? What rights may private
either for the purposes of effectiveness or registration? parties acquire to these resources and what obligations does the
The Act on Investment Promotion and Advancing the Investment
Environment envisages: Generally, depending on the type of natural resource, the state can
• tax incentives; have the title to natural resources, the natural resources are in the
• customs incentives as well as incentives related to new jobs and legal regime of a common good, which are procured for and man-
eligible training costs associated with the investment project; aged by the state, or natural resources can be objects of special inter-
• incentives related to development and innovation activities, est for the state, which can be the object of property rights, but can be
business support activities and services with high added value; subjected to certain restrictions. Further, private entities can obtain
• incentives for capital costs of investment projects; and a concession for utilising natural resources. Issuance of concessions
• incentives for labour-intensive investment projects. With regard is strictly supervised by the authorised state bodies or agencies with
to tax incentives, the profit tax rate may be decreased for certain public authorities. Therefore, a private party may obtain the right to
investors depending on the investment value. utilise natural resources for consideration − concession fee. Foreign
parties may also obtain concession rights if they meet the conditions
In addition to the above, foreign investors may also be entitled to EU for a non-resident to perform business in Croatia.
subsidies or national subsidies depending on the type of investment Also, based primarily on the Proposal for a Directive of the
and industry. European Parliament and of the Council on the award of conces-
As a general rule, a foreign entity gaining a certain type of sion contracts (COM (2011) 897) of 2011, the Croatian Parliament
profit in Croatia must pay withholding tax. Profit includes interest. passed the Concessions Act, which entered into force on 29 December
However, withholding tax shall not be charged on interest paid on 2012. The Concessions Act provides, inter alia, for a possibility to
commodity loans for the purchase of goods used for the carrying out grant sub-concessions for commercial use of maritime domains, a
of a taxpayer’s business activity, on loans granted by a non-resident possibility to create pledges on the concession right for the benefit of
bank or other financial institution and interest shall not be charged financial institutions, an obligation to form a committee to monitor
holders of government or corporate bonds who are non-resident performance of concession agreements that have the characteristics
legal persons. With regard to withholding tax on dividends and of a public-private partnership and several other procedural regula-
profit shares, see question 7. tions aimed at facilitation of the concession granting and monitoring
Foreign investors may also be obliged to pay income tax. process. One of the major novelties introduced by the Concessions
However, due to the fact that Croatia has bilateral agreements with Act is the possibility to grant concessions on demand, but these are
50 countries, payment of this particular tax is subject to the provi- provided only for certain events (eg, when granting minor conces-
sions of these agreements. sions as part of a larger concession project).
This Act, however, does not apply to concessions that are
Government authorities awarded in accordance with an international agreement between
Croatia and one or more third countries, signed in accordance with
16 What are the relevant government agencies or departments with the Treaty on the Functioning of the European Union and which
authority over projects in the typical project sectors? What is the include works, goods or services intended for the joint implementa-
nature and extent of their authority? What is the history of state tion or use of a project by the signatory states. The concession pro-
ownership in these sectors? vider has to inform the European Commission on this international
Competence over typical project sectors (eg, oil and gas, mineral agreement.
extraction, telecommunications, etc) is given either to the competent
ministry or to one of the agencies that are serving as legal entities 18 What royalties and taxes are payable on the extraction of natural
with the public authority. Some of these agencies are: resources, and are they revenue- or profit-based?
• the Croatian Energy Regulatory Agency – the agency with the
authority in energy sector; Apart from the concession fee burdening the concession holder,
extraction of natural resources is not subject to specialised taxes and

royalties. This falls under the provision of the Company Income Tax legal formalities in order for the documents to be valid or enforce-
Act. A mine, oil and gas well, quarry or any other source of extrac- able would, primarily, depend on the type of specific transaction or
tion of natural resources is also considered to be a business unit of a project in question.
company. Therefore, companies that are extracting natural products The project documents issued abroad that would serve as the
are subject to profit tax. Due to the fact that different state agencies, basis for registration with government authorities in Croatia would
bureaus and institutions are responsible for issuance of permits and have to be notarised and potentially apostilled. For purposes of con-
licences within the natural resources sector, obtaining these permits firmation of the validity of public documents issued abroad (unless
is subject to the payment of different fees regulated by specialised otherwise provided by bilateral or multilateral treaties) the docu-
tariffs. ments should be apostilled in accordance with the laws of the coun-
try of issuance.
resources? 22 How are international arbitration contractual provisions and
As Croatia is seeking to gain more relevance as an export country, awards recognised by local courts? Is the jurisdiction a member
rules regulating the export of natural resources are quite export and of the ICSID Convention or other prominent dispute resolution
market-oriented and thus fairly liberal. Since Croatia is a part of conventions? Are any types of disputes not arbitrable? Are any
the EU, it has gained access to the single EU market. The benefits types of disputes subject to automatic domestic arbitration?
of this are yet to be fully seen. For example in 2009 the Croatian It is possible and advisable to stipulate arbitration, subject to arbi-
Parliament passed the Strategy on Energy Development of the trabition requirements and practical concerns that may, in some
Republic of Croatia. This Strategy supports the export-oriented cases, require or suggest that the parties should go to regular courts.
policy regarding the energy sector in Croatia. The new Strategy is in However, if exclusive competence of the Croatian courts is provided
the preparation phase. by law, foreign arbitration cannot be contracted. Further, foreign
The energy sector in Croatia is supervised by public bodies. As arbitration may not be agreed upon between two domestic entities.
far as exports are concerned, Croatia is currently exporting only a Also, there is no automatic arbitration.
limited amount of products and mostly to EU member states and Croatia is a contracting party to the United Nations Convention
neighbouring countries, and there are no particular restrictions on Recognition and Enforcement of Foreign Arbitral Awards (the
beyond the ones provided for local enterprises. Tourism and related New York Convention) of 1958. Croatia has adopted both the com-
services remain one of the most important Croatian export prod- mercial and reciprocity reservations of the New York Convention.
ucts, so to speak. Thus, arbitral awards rendered in commercial matters to a contract-
ing party to the New York Convention are, in general, recognised
Legal issues of general application and enforced in the Republic of Croatia under the conditions set out
in the New York Convention.
The loans or credits and collaterals granted by the state are subject
to the approval of the Ministry of Finance or the government in
accordance with the applicable legal provisions. In the case that the
approval of corporate bodies or the competent state body is required, When it comes to the law governing project agreements, as a rule,
the approvals have to be obtained prior to contracting and drawing parties may agree on the governing law. In practice, it will usually be
the loan or issuance of the collateral. Whether the approval of cor- the law of the lender’s state of domicile.
porate bodies is required, as well as the particular corporate body Croatian courts have exclusive jurisdiction for disputes regard-
that is relevant, depends on the content of the company’s corporate ing proprietary rights (and some other rights) on real estate and in
documents in which such an approval is provided and defined. For some other events provided by the law. Consequently, security agree-
example, a provision in the company’s articles of association may ments concerning real estate situated in the Republic of Croatia are
require the approval of the supervisory board or the shareholders’ governed by Croatian law and subject to the jurisdiction of Croatian
meeting for each transaction beyond a certain value or for a certain courts (or Croatian arbitral tribunals). Judgments of foreign courts
type of transaction. may be enforced in Croatia subject to the fulfilment of conditions
In the event that the loans and collaterals are given by the state, for the recognition and enforcement of the foreign judgment.
the approval is granted for a specific project and, at the same time, Where financial instruments are in the form of non-materialised
up to the amount of funds provided for that purpose in the state securities, under the Financial Collateral Act, the financial collateral
budget (specifically defined and designated by the Act on Execution agreement shall be exclusively governed by the law of the state where
of the State Budget passed each year for the specific year). The gov- the register where the account with the authorised institution is situ-
ernment passes the decision on the issuance of state guarantees. ated with those financial instruments that are registered with regard
State guarantees and sureties have to be approved by the govern- to the legal nature and proprietary effects, procedural requests and
ment (upon proposal of the Ministry of Finance) and the Ministry forms for conclusion and realisation of the financial collateral agree-
of Finance takes part in the negotiations for the loans, for which the ments, as well as in matters concerning the impact of potentially
state will provide guarantees. existing rights of third parties over those financial instruments.
For private projects, generally, government approvals are not
required, apart for licences, approvals and consents of regulatory 24 Is a submission to a foreign jurisdiction and a waiver of immunity
entities, where required. effective and enforceable?
With regard to non-EU lenders, under the Conflict of Laws Act,
21 Must any of the financing or project documents be registered or submission to a foreign jurisdiction is allowed and effective if one
filed with any government authority or otherwise comply with legal of the parties is a foreign natural person or legal entity, except in
formalities to be valid or enforceable? cases of exclusive jurisdiction of the Croatian courts. Also, a deci-
Whether financing or project documents would have to be registered sion of a foreign court decision is equal in effect to a decision of a
or filed with any government authority or otherwise comply with
Croatian court, provided that such a decision has been recognised by

a Croatian court within the recognition procedure. Update and trends
With regard to EU-domiciled lenders, the Council Regulation
(EC) No. 44/2001 on Jurisdiction and the Recognition and On 1 July 2013, Croatia acceded to the European Union.
Consequently, in recent years a number of new acts and
Enforcement of Judgments in Civil and Commercial Matters (the amendments have been introduced in order to be compliant with
Brussels Regulation) applies and it is generally allowed to submit to relevant EU legislation. For example, with regard to the energy
a foreign jurisdiction, in accordance with the Brussels Regulation. sector, Croatia has implemented the EU Third Energy Package,
It should be noted that Croatian courts have exclusive juris- meaning that cooperation between Croatia and the EU in relation
diction for disputes regarding proprietary rights (and some other to gas shall increase.
The issuance of various permits necessary for international
rights) on real estate, as well in some other events eg, bankruptcy, and domestic investors interested in project finance in Croatia has
proprietary rights on aircraft and ships. Further, enforcement deci- been simplified to some extent and it can be assumed that there
sion implementation is also reserved for Croatian courts. could be further developments in that direction.
By its accession to the EU Croatia became part of the single
market of the EU, which should have positive effect on Croatian
exports to EU member states. It has been predicted that this will
cause a small decrease in trade with non-EU states in the region
25 What laws or regulations apply to typical project sectors? What due to the stricter import-export regime with these states, however,
regulatory bodies administer those laws? it has not proved to be a significant decrease.
The Croatian Parliament has made significant efforts to
There are a number of laws and regulations that apply to specific
harmonise Croatian legislation with EU legislation, and the
project sectors, for example: state bodies have adapted to a number of new provisions and
• the Nature Protection Act, OG 80/13; procedures. This adaptation has been most rapid and efficient
• the Agricultural Land Act, OG 39/13; in the area of banking and finance. Therefore, it can be assumed
• the Waters Act, OG 153/09, 63/11, 130/11, 56/13, 14/14; that 2014 will be a year of further rapid adjustment in the area of
project finance.
• the Electronic Media Act, OG 153/09, 84/11, 94/13;
• the Sustainable Waste Management Act, OG 94/13;
• the Energy Act, OG 120/12, 14/14;
• the Oil and Oil Derivatives Market Act, OG 19/14; In recent years, European Union pre-accession funds have been
• the Gas Market Act, OG 28/13, 14/14; available as a source of financing. Today EU funds are also available
• the Electricity Market Act, OG 22/13; for certain types of projects.
• the Thermal Energy Market Act, OG 80/13, 14/14;
• the Utilities Act, OG 36/95, 109/95, 21/96, 70/97, 128/99, Public-private partnership legislation
57/00, 129/00, 59/01, 26/03, 82/04, 110/04, 178/04, 38/09,
79/09, 153/09, 49/11, 84/11, 90/11, 144/12, 94/13, 153/13;
• the Railways Act, OG 94/13;
• the Mining Act, OG 56/13; From 2012, the main act that regulates public-private partnership
• the Tourism Services Act, OG 68/07, 88/10, 30/14; and in Croatia is the Public Private Partnership Act. Croatian legislation
• the Roads Act, OG 84/11, 22/13, 54/13, 148/13. does not exclude any industry from the possibility of PPP model
projects – while the Public Private Partnership Act is a lex gener-
In 2013 and 2014, most of these laws have been amended so that alis. Consequently, there are a number of laws that regulate the PPP
they are compliant with the relevant EU legislation. These laws are model in specific areas (eg, the gas market, water, agriculture).
administered by a number of bodies. In principle, there are sectors in The main regulatory body for PPP projects is the Agency for
particular ministries that regulate and monitor the implementation Public Private Partnership, which is a legal entity with public author-
of these acts. Also, rather large authority is given to local bodies that ity and serves as the central authority for evaluating, approving and
are competent the implementation of in their area. However, spe- monitoring the implementation of PPP projects, organising and
cialised state-founded companies that are competent in particular keeping the register of PPP contracts, applying the best international
areas should also be mentioned. The management board of these practices and establishing a system of training in the field of PPP.
companies is usually elected by the Croatian government, whether In the preparation and implementation of PPP projects, the
directly or indirectly. In general, these companies are widely under Agency for Public Private Partnership has a key role with the
the control of the state and, even though they are organised as sepa- Ministry of Finance, which gives approval for PPP projects regard-
rate legal entities, most of their features are similar to those in public ing their compliance with budget projections and plans, fiscal risks
administration bodies. and constraints regulated by special regulations, as well as the finan-
cial and fiscal sustainability of the project proposal. In 2012, the
Project companies preparatory and advisory component in the implementation of a
PPP project was given to the then founded Centre for Monitoring
26 What are the principal business structures of project companies? Business Activities in the Energy Sector and Investments.
companies? PPP – limitations
Most commonly, project companies in Croatia are incorporated as
limited liability companies, except where another company type or
transactions?
other entity type is provided by law.
Capital projects are mainly financed through bank loans. Quite The main drawback of PPP is that the choice of a private partner
often, when there is a capital project of greater value, a group of is subject to mandatory public procurement procedure in accord-
first-class banks provide a syndicated loan. In recent years, some ance with the Public Procurement Act and the specific PPP project
capital projects (eg, the building of schools) were financed through can be proposed only by the public partner. Also, the duration of
the PPP mode. a PPP project model is limited in time (between five and 40 years).
In specific sectors (eg, the energy sector), there are specialised Under the Private Partnership Act, the procedure has been simpli-
funds established for the promotion and financing of such industries fied to some extent, but nevertheless, it still remains a complex and
(eg, the Environmental Protection and Energy Efficiency Fund).

time-consuming process. The Public Private Partnership Act recog- some significant pending projects. During the last three years, 32
nises two types of PPP projects; the contractual PPP and the PPP/ schools were either built or renovated in Varaždin County and the
SPV model. County Palace was renovated with the PPP model. One big pro-
ject that is currently in the final phase of preparation is the renova-
PPP – transactions tion and construction of a new terminal at Zagreb Airport Pleso.
The project of building a new bus terminal in Rijeka has also been
29 What have been the most significant PPP transactions completed accepted and will be realised through the PPP model.
to date in your jurisdiction? One large PPP project is in process, namely the construction of
Although the previous Public Private Partnership Act came into Justice Square in Zagreb. The idea behind the project is to locate all
force in 2009 and the Public Private Partnership Act at present in of Zagreb’s courts and a few other judicial bodies in one place, in
force entered into force in 2012, the model is still not fully enough order to maximise the efficiency of judicial bodies in Croatia. This
recognised, probably due to the recent global economic crises. project will be one of the biggest performed PPP projects in Croatia
However, there are a few good examples of its practice, as well as to date.
Dinka Kovac̆ević dinka.kovacevic@zuric-i-partneri.hr

Dino Simonoski Bukovski dino.simonoski-bukovski@zuric-i-partneri.hr
Ivana Luc̆ića 2a/15 Tel: +385 1 5555 630

10000 Zagreb Fax: +385 1 4856 704
Croatia www.zuric-i-partneri.hr
DEMOCRATIC REPUBLIC OF THE CONGO Emery Mukendi Wafwana & Associates
Democratic Republic of the Congo

Emery Mukendi Wafwana, Nady Mayifuila, Jonathan van Kempen and
Arnaud Tshibangu Mukendi
Creating collateral security packages A pledge can be given as collateral for existing or future debts,
provided that they be determined or determinable. Professional
1 What types of collateral are available? equipment can also be pledged. If the equipment is part of a business,
The Democratic Republic of the Congo (the DRC) is a member state all or part of them may be pledged, either separately or together. A
of the organisation for the harmonisation of business law in Africa pledge over a motor vehicle can be given and must also be recorded
(OHADA), which provides for a common system of security inter- on the motor vehicle’s registration document.
ests in the OHADA region, except for security interests governed Further, raw materials, agricultural or industrial exploitation,
by particular laws. Three types of security interests are available to merchandise inventories can be pledged. The creation of non-pos-
investors in the DRC: personal security interests, security interests sessory pledge over inventories can give rise to a surety bond, issued
over moveable assets and mortgages. In addition, specific security by the court’s clerk or by a competent authority. In that case, the
interests governed by particular laws are available. Security interests pledge agreement must include the name of the insurer covering the
can be created, registered, and enforced by a security interests agent. pledged inventories against robbery, fire, and total or partial deterio-
ration risks and the designation of the institution where the surety
Personal security interests bond is registered.
Personal security interests consist of suretyship and independent
guarantee and counter-guarantee. Pledges over intangible assets
Pledges over intangible assets are commonly used to finance pro-
Security interests over moveable assets jects. Any current or future intangible asset can be pledged as collat-
Security interests over moveable assets consist of right of retention, eral for any current or future debt, provided that they be determined
retention or assignment of title, pledges over tangible assets and or determinable. Intangible assets that can be pledged include debts,
pledges over intangible assets. bank accounts, shares and financial instruments, business assets,
and intellectual property rights. These pledges can be contractual
Right of retention or court-ordered.
The right of retention is a creditor’s right to withhold a debtor’s A written document is required to evidence a pledge over debts
property until full payment of its debt. The right of retention can that includes the designation of the secured debts and the pledged
be exercised only if the debt is uncontested, due and payable; the debts. In the case of future debt, the document must enable the indi-
retention of the debtor’s property is related to the debt; and the vidualisation of the debt or contain elements allowing it to be identi-
retained property has not been seized before being withheld by the fied, such as the place of the payment, the amount of the debt, its
creditor. Title to a moveable asset can be retained as collateral for an evaluation and its maturity date. When the pledge is over a future
obligation. This is achieved by way of a title retention clause. This debt, the secured creditor acquires a right over the debt as soon as
clause suspends the conveyance of the title until full payment has the debt arises. The pledge can cover part of the debt, unless the
been made. debt is indivisible. The pledge can also extend to accessories of the
pledged debt, unless the parties agree otherwise.
Retention or assignment of title A debtor’s or third party’s bank account can be pledged in favour
Similarly, ownership of an existing or future asset can be used as of a creditor. The same rules governing pledges over debts apply.
collateral for the payment of an existing or future debt. Debt assign- However, the pledged bank account only consists of the balance
ment can also be used as collateral for loans given by foreign or available on the account the day the security interest is enforced,
domestic financial institutions. The debtor cannot raise against the including pending operations.
assignee the debt’s non-transferability in the event the debt origi- Shares and financial instruments of commercial companies,
nates from a contract and from the debtor’s professional activities. cooperative companies, economic interests groups and all other
The debt assignment has to be in writing that includes all the infor- legal entities’ transferable shares, subject to registration with the
mation required by law. In the case of future debt assignment, the competent commercial registry (RCCM), can be pledged. A pledge
writing must enable the individualisation of the debt or contain ele- over shares must be evidenced by a written document that includes
ments allowing it to be identified, such as the place of the payment, information required by law.
the amount of the debt, its evaluation and its maturity date. Financial instruments initially deposited on the pledged account,
as well as any subsequent or additional deposits, can be pledged.
Pledges over tangible assets Such pledge is created by a declaration of pledge dated and signed
A pledge is created by contract by which the debtor gives a creditor by the holder of the account in which the financial instruments are
the right to be paid preferentially on an existing or future tangible deposited. This declaration must contain all information required
asset. The pledge agreement must be in writing and include informa- by law.
tion required by law.

Emery Mukendi Wafwana & Associates DEMOCRATIC REPUBLIC OF THE CONGO
Intellectual property rights, including industrial, artistic, and lit- 2 How is a security interest in each type of collateral perfected
erary property rights, as well as invention, utility models, brands, and how is its priority established? Are any fees, taxes or other
industrial sketches and designs, commercial names and vegetal find- charges payable to perfect a security interest and, if so, are there
ings can be subject to a contractual or court-ordered pledge over lawful techniques to minimise them? May a corporate entity, in
intellectual property. An intellectual property right pledge is a con- the capacity of agent or trustee, hold collateral on behalf of the
tract by which the pledgor gives, as collateral, all or part of its exist- project lenders as the secured party?
ing or future intellectual property rights. This agreement evidencing Pledges must be registered with the RCCM by filing a form. The
the pledge must include information required by law. form must detail the nature and designation of the collateral, the
Business assets consisting of goodwill, lessee’s leasehold rights, duration of the security interest registration, the identity of the credi-
inventories, equipment, furniture, logos and commercial names, tor and of the debtor. When the collateral is a debt, the description
patents, trademarks, drawings, designs and any other intellectual of the debt submitted to the RCCM should be detailed, including,
property rights necessary for the exploitation of the business can the place of payment, the amount of the debt, its evaluation, and its
be pledged. maturity date. The registration of pledges is done at the request of
the creditor, the pledgor or the security interests agent.
Mortgages Contrary to pledges, mortgages must be registered otherwise
A mortgage is the transfer of an identified or identifiable real prop- they are deemed void. The registration application must be filed
erty owned by the pledgor to secure existing or future debts pro- with the custodian of real estate titles of the district in which the
vided that they are determined or determinable. It can be statutory, property is located. Conventional mortgages must be established in
contractual or court-ordered. A contractual mortgage is one of the an authentic form.
most commonly used security interests in project finance. Priority ranking of security interests is set by articles 225 and
226 of the OHADA Uniform Act on security interests. When there
Specific security interests is only one creditor, the proceeds from the sale of the collateral
There are specific security interests organised by particular laws such (principal, interests and fees) are paid to that creditor. The balance
as maritime, fluvial, lake and mining security interests. is returned to the debtor. In the event there are several creditors,
Vessels can be subject to a conventional mortgage. Mortgages they can agree on a price allocation and send their agreement to the
on vessels are valid provided that the mortgaged vessels are regis- clerk’s office or to the judicial officer who holds the funds necessary
tered, specifically designated and the secured debt is determined. The to perform the repartition. If creditors cannot agree, one of the credi-
same rules apply for a mortgage on ships and boats. tors shall file a petition with the president of the competent court to
Further, aircraft can be mortgaged, partially or totally, by a con- decide on the distribution.
vention concluded by the parties. The mortgage contract can attach For pledges, the proceeds from the sale will be distributed in
one or more aircraft belonging to the same owner, provided that the following priority ranking: reimbursement of legal costs pertain-
the contract specifically individualises the aircraft. Mortgages on air- ing to the enforcement of the pledges; reimbursement incurred in
craft have to be registered with the civil aviation authority and are safeguarding the pledged assets; creditors of privileged salaries; ben-
valid for five years unless renewed. eficiaries of a pledge, in chronological order of registration with the
The Mining Code provides that the following can be mortgaged: RCCM; creditors who are beneficiaries of special preferential rights;
exploitation permits, tailing exploitation permits, exploitation per- creditors who are beneficiaries of a general preferential right; and
mits for small-scale mines, authorisation of exploitation for perma- finally, unsecured creditors.
nent quarries in whole or in part, fixtures located on the perimeter For mortgages, the proceeds from the sale will be distributed
of the mining exploitation (machines, factories, and other facilities), in the following priority ranking: reimbursement of legal costs per-
and buildings assigned to the mining exploitation. The Minister taining to the enforcement of the mortgage; creditors of preferen-
of Mines must first approve the mortgage contracts on the assets tial salaries; mortgage-holders, in chronological order of the dates
described above at the request of the creditor or the titleholder. The of registration of their respective mortgages; beneficiaries of general
mortgage is opposable to third parties only after an annotation is preferential rights; and, finally, unsecured creditors.
made on the back of the mining or quarry title and registered in the Concerning mining mortgages, the Minister of Mines must first
registry held at the mining registry (CAMI). approve mortgage contracts on the assets described above. The
approval request is subject to a cadastral investigation conducted by
Security interests agent the CAMI to verify the existence of prior mortgages on the assets,
The creation, registration, management and enforcement of the the authenticity of the mortgage contract and the validity of the
aforementioned security interests can be done by a domestic or for- mining or quarry title, which covers the perimeter subject to the
eign financial or credit institution acting in its own capacity as secu- mortgage. The approval request is also subject to a technical investi-
rity interests agent on behalf of the creditors of the secured debts. gation conducted by the Directorate of Mines to check whether the
The security interests agent is appointed by a written document that mortgage contract is duly established to ensure the financing of the
includes the following information: mining activities of the mining or quarry titleholder on the perim-
• information related to the secured debts or, in the case of future eter covered by its title. Once these investigations are completed, the
debts, the elements allowing their individualisation; Minister of Mines generally approves the mortgage contract, unless
• the identity of the creditors of the secured debts at the date of the one or several of the enumerated conditions in the Mining Code has
appointment of the security interests agent; not been met. The Minister of Mines’ refusal of approval must be
• the identity and registered office of the security interests agent; duly motivated. The mortgage is registered on the CAMI registry
• the duration of its mission and the scope of its management and subject to a fixed fee and an annotation is made on the back of the
disposition authority; and mining or quarry title.
• the conditions under which the security interests agent reports Commercial products, namely, mineral substances of any form,
back on its mission to the secured creditors. extracted according to the mining or quarry exploitation rights as
well as any product made of these mineral substances in concen-
tration, treatment, or transformation factories for commercial pur-
poses, can be pledged following the general law regime.
3 How can a creditor assure itself as to the absence of liens with as delay of penalties, except for loan agreements having a term equal
priority to the creditor’s lien? or superior to one year.
Creditors can check the RCCM to obtain information on existing Creditors must be diligent in registering their security interests,
registered liens. since the opening of bankruptcy proceedings prevents further reg-
istration of security interests. Further, all creditors must submit a
proof of claim with the trustee to prevent their claim being barred.
4 Outside the context of a bankruptcy proceeding, what steps The filing suspends the operation of the statute of limitation.
party over the collateral? Foreign exchange issues
Prior to enforcing security interests, creditors must usually obtain an
enforceable order from the competent jurisdictions. Afterwards, the 6 What are the restrictions, controls, fees, taxes or other charges
collateral can be enforced either by proceeding to a public sale, or by on foreign currency exchange?
being awarded up to the amount of the secured obligations. Financing in foreign currencies and payments to and from abroad
However, where the collateral is cash or an asset whose value is are free. Capital inflows as direct investments and other investments,
subject to an official quotation, the parties can contractually agree must originate from lawful transactions. Repayment of loans, prin-
that the creditor will become the owner of the pledged asset in the cipal and interests are made in accordance with the agreements
event of default. between parties and require a specific form (RC declaration) to be
In addition, when the debtor is a professional debtor, namely, issued by a DRC approved bank.
a debtor whose debt arises from its professional activity or is in
direct connection with one of its professional activities, the parties
can provide for a contractual attribution clause stating that all tan- 7 What are the restrictions, controls, fees and taxes on remittances
gible pledged assets can be awarded to the creditor in the case of of investment returns or payments of principal, interest or
default. However, the pledged assets must be valued by an expert premiums on loans or bonds to parties in other jurisdictions?
appointed by the parties or the court, if no expert has been contrac- The following fees and restrictions apply to remittances:
tually appointed. • the Central Bank of Congo (BCC) levies a change royalty of 2
per cent on any payment to or from a foreign country regardless
of the status of the transferor and transferee;
• cross-border transfers from and to the DRC, with a value equal
to or greater than US$10,000 (including, entry of capital as
direct investment, portfolio and other investments, including
pre-financing of exports) must be made through an approved
credit institution or intermediary and are subject to an RC dec-
laration; and
• revenues (remuneration, direct investment, portfolio, and other
investments income, such as profits, dividends, leasehold inter-
ests) can only be received or transferred through an approved
There are three types of bankruptcy proceedings: preventive settle- bank.
ment, reorganisation and liquidation.
The goal of the preventive settlement proceeding is to prevent
the company defaulting and stopping its activities. The preven- 8 Must project companies repatriate foreign earnings? If so, must
tive proceeding operates as a stay applicable to all provisional and they be converted to local currency and what further restrictions
enforceable measures against the debtor. Such a stay is applicable exist over their use?
to all creditors including the project lender, unsecured creditors There is generally no obligation to repatriate foreign earnings to the
and holders of a general or special privilege and of a security inter- DRC, except amounts received in payment for the export of goods
est over a moveable asset. Legal or contractual interests, as well as or services. These must be repatriated through an approved bank
default interests, and surcharges continue to run but are not payable within the time frame specified in the BCC’s exchange regulations.
at this time. Throughout the proceeding, the debtor may not pay In the mining sector, companies holding mining rights are allowed
all or part of the debts that arose prior to the decision and cannot to keep in a foreign bank account 60 per cent of their export earn-
take any action other than the normal operation of its activities. The ings and must repatriate the remaining 40 per cent from their main
preventive settlement can impose grace periods up to two years, and national bank account.
debt forgiveness, even if creditors were opposed to it, unless these
jeopardise the creditors’ companies.
When a company is in default, it will either be subject to a reor-
ganisation proceeding or to a liquidation proceeding. The compe-
tent court that decides on reorganisation or liquidation, appoints Congolese companies can have bank accounts in foreign currencies
a supervising judge to oversee the ensuing proceedings and one or in the DRC or abroad.
many trustees who are in charge of representing the creditors’ inter-
ests. The decision ordering a reorganisation proceeding creates an
obligation for the debtor to be assisted by a trustee in all its actions
concerning the administration of its assets. The debtor can continue
to perform its activities in the normal course of business, provided
that it reports on all such activities to the trustees.
However, the decision ordering liquidation entails the debtor’s
removal from its business administration. Such a decision also oper-
ates as a stay to all provisional and enforceable measures against
the debtor. Further, both reorganisation and liquidation operate as a
stay to the accrual of interest, legal and contractual interests, as well

Foreign investment issues Welfare, some areas of employment are exclusively reserved to
Congolese nationals.
also apply to foreign investors or creditors in the event of 13 What restrictions exist on the importation of project equipment?
foreclosure on the project and related companies? Are there There are no barriers to the entry of equipment, as long as the nec-
any bilateral investment treaties with key nation states or other essary taxes and customs are paid. However, the Investment Code
international treaties that may afford relief from such restrictions? provides for an exemption from taxes and duties on imports of
Would such activities require registration with any government machinery, tools and new equipment as long as it does not exceed 10
authority? per cent of the CIF (cost, insurance, freight) value of such equipment.
The Constitution ensures the protection of private domestic and for- Two types of investments can benefit from this exemption: public
eign investments. Subject to certain exceptions set out below, the utility investments, with the exception of the administrative fee and
DRC generally provides no restrictions on foreign investment. investment from companies approved by the National Agency for
Concerning land, only Congolese individuals are eligible to per- the Promotion of Investments (ANAPI), with the exception of the
petual concessions. Foreign nationals are only eligible, under spe- administrative fee due to Customs, fixed at 5 per cent of the CIF
cific conditions, to 25-year ordinary concessions, renewable under value of the equipment. There are also some advantages on import
certain conditions. In the agriculture sector, a law currently under taxes and customs for the holders of mining titles accounted for in
revision prevents foreign nationals from acquiring agricultural con- the Mining Code.
cessions and from being majority shareholders in companies’ hold-
ers of agricultural concessions. 14 What laws exist regarding the nationalisation or expropriation
11 What restrictions, fees and taxes exist on insurance policies specially protected?
over project assets provided or guaranteed by foreign insurance Although the Constitution protects and encourages domestic and
companies? May such policies be payable to foreign secured foreign private investment, it also provides that an individual can
creditors? be deprived of its property by the state for a public interest cause,
At present, the national insurance company (SONAS) has a monop- but only against just and preliminary compensation that is awarded
oly over all insurance operations in the DRC. However, SONAS may under the conditions set by law. The law limits this public interest
insure against risks in coinsurance with foreign insurance compa- cause to specific sectors: real property, real property rights (exclud-
nies. Foreign companies, approved by SONAS to perform coinsur- ing mining operating permits and mining concessions), creditors’
ance operations must appoint a local representative, subject to the interests in acquiring or using property and local communities’
approval of the Minister of Finance and SONAS. SONAS can also rights of usufruct of public land.
sign reinsurance contracts. As for nationalisation, there is a trend towards the liberalisation
Generally, foreign banks would require that the insurance of state-owned companies and of some areas over which the state
policies’ programme that covers project risks be reinsured by an previously had a monopoly.
internationally recognised insurance. The DRC insurance sector is
undergoing changes. A bill on the Insurance Code was introduced in Fiscal treatment of foreign investment
the Parliament in 2013, and is still under discussion. This bill aims at
modernising and liberalising the insurance sector in the DRC. 15 What tax incentives or other incentives are provided preferentially
12 What restrictions exist on bringing in foreign workers, technicians either for the purposes of effectiveness or registration?
The Investment Code provides for certain advantages for foreign
Any employer who intends to hire an expatriate worker must first investments. It sets the conditions, benefits and rules for direct
submit the job offer to the Bureau of Placements of the Directorate investment, domestic and foreign made in areas other than mining,
for Employment and Professional Training. If no answer meets the oil, banks, insurance and reinsurance, arms production and military
said offer within 30 days, the employer is allowed to hire a foreign related activities, production of explosives, assembling equipment
national by submitting a request for work permit to the National and military equipment and paramilitary or security services and
Commission for Employment of Foreigners. In the event such commercial activities. Investors can only benefit from these advan-
request is denied, the foreign employee must be dismissed. The tages for a specific period of time depending on the geographical
recruitment, execution and termination conditions of the employ- location of their investment.
ment agreement for foreign workers are no different than those for To benefit from Investment Code advantages, the investment
Congolese workers. must be equal or superior to US$200,000 and the investor, which
The main difference is the application for a work permit for must be a legal entity under Congolese law, must agree to the specific
foreign nationals at the National Commission for Employment of rules set by the Investment Code.
Foreigners. The cost of the work permit depends on the sector in The Ministries of Planning and Finance must also approve the
which the foreign worker is hired. investment before it can receive the Investment Code advantages.
Further, there are quotas for the employment of foreign workers The Investment Code does not govern investments in the min-
in some sectors such as agriculture, extractive industries, manufac- ing sector. The Mining Code provides for some incentives to private
turing industries, construction and public works, electricity, water investors, including exemption from customs duties on the export
and sanitary services, commerce, bank, insurance and real estate, of samples for analysis and industrial tests, exemption from cus-
transportation, services and new communication and information toms duties on the import of foreign expatriate staff’s property, full
technologies. However, the Minister of Employment, Labour and exemption of customs duties on exports in relation to the mining
Social Welfare can grant derogations to these quotas, by decree, project, a reduced rate on professional profit tax contribution and a
within a limit of 50 per cent of the authorised quotas. Last, except reduced rate on the exceptional contribution on the compensation
by derogation of the Minister of Employment, Labour, and Social of expatriates.
In all cases, foreign or Congolese companies are subject to sched- and must necessarily set up a local company, which will hold the
uled income taxes, whose rates vary based on the origin. Some of the exploitation right.
taxable revenues are income from building or land in the DRC, even The main obligations of holders of mining and quarry rights is
if the beneficiaries do not live in the DRC, income from shares in to begin work within the time frame specified by the Mining Code
companies having their headquarters and principal administrative and to pay the annual surface area fees before the deadline set by the
establishment in the DRC and professional income. There is also a Mining Code. Other obligations pertain to compliance with envi-
tax charged based on the size of landholdings in the DRC, vehicles, ronmental protection, safety and hygiene regulations.
and the area of mining and hydrocarbons concessions. Hydrocarbons are also the state’s inalienable property. In the
hydrocarbons sector, any individual having an elected domicile in
Government authorities the DRC and any Congolese legal entity whose corporate purpose
is limited to exploration, exploitation, and processing of hydrocar-
16 What are the relevant government agencies or departments with bons as well as the operations promoting such purpose are eligible
authority over projects in the typical project sectors? What is the to hydrocarbons rights. Hydrocarbons rights are granted through
nature and extent of their authority? What is the history of state an agreement and the holder will have to realise agricultural and
ownership in these sectors? social investment programmes within six months of the first year of
ANAPI is the agency in charge of coordination of investments. exploitation or approval.
However, investment in some sectors such as mining and hydro- In the forestry sector, the Forest Code provides that the granting
carbons, banks, insurance and reinsurance, commercial activities, of forest concessions shall be done through a tendering process, but,
among others, are regulated by specific laws. Nevertheless, investors exceptionally, forest concessions can be granted outside such a pro-
in these sectors are still required to submit a copy of their investment cess. Forest exploitation is also subject to the prior development of a
files to ANAPI. plan of exploitation. The exploitation must comply with the provi-
For example, in the hydrocarbon sector, oil agreements are initi- sions of the development plan and with the related laws regarding
ated on behalf of the government by the Ministry of Energy and are protection of nature, hunting, and fishing.
signed by both the Minister of Energy and the Minister of Finance
and Budget. When oil agreements provide for the participation of
the state, the Minister of Portfolio also signs on behalf of the state.
In the mining sector, the President of the Republic is competent,
among other things, to enact Mining Regulations for the implemen- Royalties to be paid in relation to the exploitation of natural
tation of the Mining Code and to classify or reclassify minerals into resources vary depending on the sector of activity. In the mining
mines or quarry products and vice versa. The Minister of Mines is sector, mining royalties are applicable to all commercial products
competent, among other things, to grant or refuse to grant mining from the effective date of the commencement of the activity, even
or quarry or minerals rights and to allow exports of raw miner- if the mining titleholder does not make profits. Mining royalties
als. CAMI is in charge, among other things, of the registration of are calculated on the basis of the value of sales made, less the costs
the request for granting of mining or quarry rights, mining security of transport, quality control analysis of the commercial products,
interests and transfers of mining rights. The Directorate of Geology insurance and any costs related to the sale transaction. Finally, the
and Directorate of Mines are other regulating bodies in the mining Mining Code does not fiscally discriminate between foreign nation-
sector. als and Congolese nationals.
In the water treatment sector, the use of natural waters is subject
to the prior approval of the Ministers of Mines and Energy, on the 19 What restrictions, fees or taxes exist on the export of natural
technical advice of REGIDESO, the public water company. resources?
In the transportation sector, the Ministry of Transportation and
With respect to mining products, the Mining Code provides that the
Communication Channels is the regulating body.
commercialisation of mining products that originate from exploita-
In the telecommunications sector, the Minister in charge of Posts
tion perimeters is free and the holder of an exploitation permit can
and Telecommunications must develop and propose a general devel-
sell its products to clients of its choice at prices freely negotiated.
opment policy of the sector to the government, implement the policy
However, the authorisation of the Minister of Mines is required for
defined by public authorities in the sector of telecommunications
the exportation of raw minerals for treatment outside of the national
and define and update the regulatory framework for the sector.
territory. The authorisation will be granted to the titleholder if it can
establish the impossibility of treatment within the national territory
at an economically viable cost for the project and the advantage that
17 Who has title to natural resources? What rights may private will result for the country.
parties acquire to these resources and what obligations does the
holder have? May foreign parties acquire such rights? Legal issues of general application
The Mining Code provides that the ownership of the state, over 20 What government approvals are required for typical project finance
deposits of mineral substances, including artificial deposits, transactions? What fees and other charges apply?
groundwater, geothermal deposits on surface or in the subsoil or
The exercise of certain activities is subject to procedures or admin-
in waterways of the national territory, is exclusive, inalienable, and
istrative authorisations that vary depending on the different sectors
imprescriptible.
(telecommunication, electrical energy, mines and hydrocarbons,
Anyone is authorised to engage in research or exploitation
agriculture and forests). In the forestry sector for instance, conces-
of non-artisanal mineral substances provided that they hold a
sions are granted though a tendering offer procedure.
valid mining right (research permits, exploitation permits or tail-
National and foreign investors exercising a lawful activity,
ing exploitation permits) or quarry right (research authorisation
benefit from general guarantees from the Investment Code. Some
for quarry products, exploitation authorisation for permanent or
investments may also benefit from customs, fiscal and parafiscal
temporary quarries). Individual foreign nationals are eligible for
advantages provided by the Investment Code providing that they
research mining and quarry rights and are required to elect domicile
have been duly approved by ANAPI.
with a mines and quarry agent established in the DRC. Foreign legal
entities are not eligible for mining and quarry exploitation rights

21 Must any of the financing or project documents be registered or interests, tax and customs law, and labour law will necessarily be
filed with any government authority or otherwise comply with legal subject to Congolese law.
Financing or project documents are not subject to any particular 24 Is a submission to a foreign jurisdiction and a waiver of immunity
formality, except those pertaining to corporate law, real estate law effective and enforceable?
and security interests.
The DRC may validly waive its immunities from jurisdiction and exe-
cution in accordance with the rules established by the Constitution
22 How are international arbitration contractual provisions and and the relevant legislation. It should be noted that article 30 of
awards recognised by local courts? Is the jurisdiction a member the OHADA Uniform Act organising simplified recovery procedures
of the ICSID Convention or other prominent dispute resolution and enforcement measures, as well as the related jurisprudence of
conventions? Are any types of disputes not arbitrable? Are any the common court of justice and arbitration (CCJA), offers immu-
types of disputes subject to automatic domestic arbitration? nity from enforcement to state-owned companies of its member
The DRC is a member of the Washington Convention establish- states. Therefore, if the state or its companies have not expressly
ing the International Center for Settlement of Investment Disputes waived their immunity from enforcement, creditors will be unable
(ICSID) applicable to disputes between the DRC and nationals of to enforce a judgment or arbitral award on the state’s property or
other ICSID contracting states. The DRC is also party to several its companies.
bilateral investment treaties that provide for arbitration in the case
of disputes between the DRC and a national of a bilateral investment Environmental, health and safety laws
treaty-contracting state.
At present, other foreign arbitral awards rendered outside of the 25 What laws or regulations apply to typical project sectors? What
OHADA member states are recognised and enforced in the DRC regulatory bodies administer those laws?
after a Tribunal of High Instance of the competent authority that The Law on Fundamental Principles related to the Protection of the
has rendered an enforcement decision. Nevertheless, this situation is Environment provides that all infrastructures or industrial, commer-
deemed to change as a law authorising the ratification of the 10 June cial, agricultural, forest, mining, telecommunication or other activi-
1958 Convention on the Recognition and Enforcement of Foreign ties affecting the environment must be subject to an environmental
Arbitral Awards (New York Convention) was recently promulgated. and social impact study along with an approved management plan.
The New York Convention will enter into force in the DRC on the The same law also provides that the evaluation and approval of the
90th day following the date of deposit by the DRC of its instrument environmental impact study, as well as the implementation of this
of ratification or accession. It should be noted, however, that the study, be done by a public institution. The Law also provides that
DRC has made some reserves to the New York Convention. classified sites are subject either to prior declaration or prior author-
Arbitral awards rendered in other OHADA member states are isation certified by a national or provincial exploitation permit.
recognised and enforced in the DRC according to the rules estab- Among the relevant sectors, there is the mining sector. Particularly,
lished in the Uniform Act on Arbitration. This Uniform Act also mining activities conducted under mining exploitation rights and
applies to states and other local and public institutions. authorisations to operate permanent quarries are subject to obtain-
The Mining Code and Investment Code provide for interna- ing an environmental exploitation permit established by the Law
tional arbitrations in the case of disputes between the DRC and on the Protection of the Environment. Moreover, this law punishes
investors. violators of hygiene and safety rules.
The Mining Code specifically provides that any legal dispute Further, specific codes set environmental, health, and safety
arising directly out of the interpretation or enforcement of the provi- rules. International initiatives such as the extractive industries trans-
sions of the Mining Code may be settled, at the request of the most parency initiative (EITI) and the equator principles can also have
diligent party, by arbitration pursuant to the ICSID Convention, an impact on environmental, health and safety aspects of mining
provided that the mining title holder is a national of another con- activities.
tracting state under article 25 of the ICSID Convention. The min-
ing titleholder who is not a national of another contracting state Project companies
may submit disputes arising in connection with the interpretation or
enforcement of the provisions of the Mining Code to any tribunal of 26 What are the principal business structures of project companies?
their choice, provided that the choice is notified to the DRC govern- What are the principal sources of financing available to project
ment at the time the mining title is granted by the CAMI. companies?
The Investment Code specifically provides that to be eligi- The most commonly used SPV legal structures are the SA, a joint-
ble to the general guarantees provided by the Investment Code, stock company, and the SARL, a limited liability company. In these
including the international arbitration clause, a company must types of companies, the liabilities of the project developers are lim-
meet, among other matters, the following criteria: be a legal entity ited to their contribution in the SPV and collaterals given as security
under Congolese law, invest a minimum amount equivalent to US$ interests.
200,000 and guarantee an added value rate equivalent to or greater The Revised Uniform Act on Commercial Companies and
than 35 per cent. Economic Interest Groups of 30 January 2014 introduced a new
form of company modelled on the French contractual limited liabil-
ity company, the SAS. It provides greater flexibility in terms of cor-
porate structuring, share capital and types of securities that the SAS
can issue.
There is no stock market in the DRC and the sources of financ-
Financing agreements are not typically subject to DRC law, but ing for projects vary depending on the type of the project and the
rather to the law of the jurisdictions of major financial centres such cycle of the project. Usually, the main sources of financing are equity
as London or New York. Congolese judges, will, in principle, enforce from investors (developers, infrastructure funds and institutional
financing agreements governed by foreign law, subject to their com- investors), bank debts and debts financed by multilateral agencies.
pliance with imperative or public order rules. Matters relating to Public offering on foreign exchange markets are also a source of
real estate law, incorporation of companies and creation of security financing.
Update and trends
Since 12 September 2012, all provisions of the OHADA Treaty as in minerals and investments in these sectors should keep the
well as OHADA Uniform Acts are applicable law in the DRC. This set economy growing. Output of the mining sector continued to be the
of applicable laws brings increased modernity and reliability to the main driver with copper production alone exceeding 900,000 tons.
domestic legal system, as well as a new court, the CCJA, as the The provinces of Katanga, Kinshasa, Bas-Congo and parts of the
highest competent court in matters covered by the OHADA Uniform Province Orientale are the main targets for foreign investment in the
Acts. mining sector.
Legal areas not covered by the OHADA Uniform Acts are also The mining industry contributes about 28 per cent to the country’s
being reformed. Reformed insurance and electricity legislation are GDP.
planned to end the state’s monopoly in these areas. Further, the DRC The DRC, notably through the creation of ANAPI and the steering
is drafting a new Agriculture Law and a new Hydrocarbons Code and committee for the improvement of the business and investment
revising its 2002 Mining Code. climate as well as its legal reforms, has shown a desire to facilitate
In economic terms, according to the IMF, the DRC’s economy grew and increase investment. This desire is confirmed by the DRC’s
8.5 per cent in 2013, and as agriculture and extractive industries imminent accession to the New York Convention.
remain pillars of the Congolese economy, increasing global demands
Public-private partnership legislation In principle, the Congolese legal system does not prevent the
state from being a party to a PPP contract. However, there are some
27 Has PPP enabling legislation been enacted and, if so, at what legal impediments to the development of PPPs in the DRC, such as
level of government and is the legislation industry-specific? the fact that Congolese or foreign legal entities can only hold title
Under Congolese law, the state can divest its interest in state-owned to ordinary concession with a renewable maximum duration of 25
companies in several ways, one of which being a PPP that invites years.
private initiative in the capital or management of the concerned
state-owned company and is overseen by the steering committee on PPP – transactions
state-owned companies of the state’s portfolio’s reform (COPIREP)
that is under the responsibility of the Ministry of Portfolio. 29 What have been the most significant PPP transactions completed
PPP – limitations At present, in application of the State Divestiture Strategy, COPIREP
has undertaken several operations through PPP procedures for the
28 What, if any, are the practical and legal limitations on PPP rehabilitation of the means of production and management of some
transactions? state-owned companies. For example, COPIREP has selected a spe-
In general, there is no clear legal framework governing PPPs and cialised operator with which it has entered into a concession contract
their process. This necessarily constitutes a barrier to PPPs’ use in of the type ROT (rehabilitate, operate and transfer) for the Karavia
project finance in the DRC. However, the new Law No. 14/005 of Hotel (Lubumbashi) for a period of 15 years. COPIREP has also
11 February 2014 on PPP creates a legal framework and provides launched a call for tenders for a concession of the type BOT (build,
specific tax, custom and change advantages for large investment pro- operate and transfer) for the N’djili airport terminal in Kinshasa.
jects that meet certain criteria, among others, having a value not less
than the equivalent in Congolese francs of US$1 billion.
Emery Mukendi Wafwana ewafwana@cabemery.org

Nady Mayifuila mayifuila@cabemery.org
Jonathan van Kempen vankempen@cabemery.org
Arnaud Tshibangu Mukendi atshibangu@cabemery.org
Croisement Boulevard du 30 juin – Avenue Batetela Tel: +243 99 99 15247 / +243 15 12 4738
Crown Tower 7th Floor, Suite 701-702  Fax: +1 646 786 4680
Kinshasa/Gombe BP 14379 Kin I  www.cabemery.org
Democratic Republic of the Congo

Guzmán Ariza DOMINICAN REPUBLIC
Dominican Republic
Fabio J Guzmán-Saladín, Alfredo A Guzmán-Saladín and Alberto Reyes Báez
Guzmán Ariza
Creating collateral security packages security via the issuance of a creditors registry certificate, which ena-
bles such creditor to collect its debt, when the collateral is foreclosed,
1 What types of collateral are available? before any other registered mortgage creditor.
Under Dominican law, security interests, such as mortgages, liens,
privileges, encumbrances, pledges or endorsement may be granted Documents
on the following assets: • Mortgage agreement, authenticated by a Dominican notary
• real estate properties (collateral may cover the land and the (including evidence of the authority of the signatories);
improvements built thereon); • owner’s duplicate of the deed of title;
• moveable assets (motor vehicles, boats, aircraft, machinery, • certification of payment of the corresponding Real Estate
equipment, inventory, fixtures, furniture, goods, etc); Property Tax; and
• intellectual and industrial property rights (patents, industrial • receipt of payment of mortgage registration taxes.
designs, trademarks, commercial names, etc);
• contractual rights (credits, receivables, concessions, licences, Shares of a Dominican company
promissory notes, insurance policies, etc) as long as such rights Requirements for perfection of collateral and how priority is
are transferrable; and established
• financial instruments and securities (bank accounts, investments, The requirements to perfect the collateral based on the shares of a
certificates of deposit, shares, bonds, income derived from secu- Dominican company will depend on the type of entity (stock corpo-
rities, etc). ration, simplified stock corporation or LLC) and on the proceedings
established by the company’s bylaws.
It is important to bear in mind that Dominican law does not rec- In most cases, the shareholder who wishes to pledge his or her
ognise the possibility of granting blanket security interests over shares to a third party must notify his or her fellow shareholders,
an entire business. Security interests must be granted over specific directly or via the board of directors, to receive approval prior
assets. Last, Dominican law does not recognise security interests to executing a share pledge agreement and registering the pledge
over after-acquired property. inscription.
Nevertheless, with the enactment of the Dominican Trust Law All pledges over shares must be registered in the Companies
189-11, it is possible to conceive an instrument that may warrant all Registry Office at the Chamber of Commerce of the location of the
the assets enumerated above under a single instrument denominated company that issued the shares to be opposable to third parties.
Fideicomiso en garantía or Warranty Trust. This instrument has the If the issuing company operates in a regulated sector, such as
peculiarity of being able to encompass all types of assets and credits; telecommunications, energy or the financial sector, government
however, with the caveat of incurring administrative costs for the approval or notification would also be required.
fiduciary. It is important to mention that, according to local law, shares
can only be pledged once at a time.
Documents
• Company bylaws;
• share pledge agreement;
• shareholders’ meeting minutes;
• shares certificates (only applicable to stock corporations); and
• shares transfer book (only applicable to stock corporations).
Real estate properties
Requirements for perfection of collateral and how priority is Moveable assets
established Requirements for perfection of collateral and how priority is
Mortgage securities are created by the execution of a mortgage established
agreement, which must be subject to local law and executed between There are various types of pledges over moveable assets pursuant to
the owner of the property or its representative and the creditor; local laws. For instance, a civil pledge, which requires that the debtor
however, the credit agreement that originates the mortgage agree- hands over possession of the asset to the creditor or to a designated
ment may be subject to foreign legislation and executed abroad. third party for it to be valid.
Priority and enforcement rights regarding third parties are per- Chattel Mortgages, created by the Agricultural Promotion Law
fected by filing the corresponding documentation before the Land No. 6186 are commonly used for securing machinery, inventory and
Registry Office in the jurisdiction where the property is located. other moveable assets. This type of pledge enables the debtor to keep
The first creditor filing its mortgage security obtains a first-ranked possession of the asset while the security is in place. In this case,
DOMINICAN REPUBLIC Guzmán Ariza
the pledge agreement must be subject to local law, even though the • original of the certificate of registration of the corresponding IP
financing agreement itself may be subject to a foreign legislation. right.
Both types of pledges can only be given once over any asset.
In the case of chattel mortgages, registration is undertaken by Financial instruments and securities
filing the documents before the corresponding Peace Court (lowest Requirements for perfection of collateral and how priority is
ranked court, designated by law as registers of these securities). On established
the other hand, civil pledges are registered in the corresponding Civil There are various types of pledges over financial instruments and
Registry Office. securities pursuant to local laws. For instance, a pledge over financial
In addition to the above, with respect to motor vehicles, creditors instruments must be performed via a notarised agreement between
may file a transfer opposition before the Motor Vehicles Department parties and must be duly notified to the financial entity where the
and the Internal Revenue Office to further secure the pledge and instrument is held.
make it effectively enforceable against third parties. On the other hand, a pledge over a book-entry security must
As for aircraft, security agreements need to be drafted before a be performed by its holder through an authorised broker who will
notary public and executed and filed before the Civil Registry Office proceed to notify and file the said pledge before the corresponding
and the National Institute of Civil Aviation. Securities over ships are authority and depository.
registered before the Mercantile Marine Agency and the Navy. As per the endorsement of certificate of deposits and insurance
policies, the agreement must be notified to the institution who issued
Documents it for their final approval and formal registry.
• Pledge agreement, duly executed and notarised;
• inventory of assets; and Documents
• the original of the ownership certificate is required for aircraft, • Pledge agreement, duly notarised;
ships and vehicles, otherwise, a list of the assets subject to the • original of the certificate of deposit; and
pledge will suffice. • original of the insurance policy certificate.
Contractual rights Mortgage securities have to pay taxes at the moment of registration,
Requirements for perfection of collateral and how priority is which amount to approximately 2 per cent of the amount of the
established mortgage (not of the value of the land).
Pledges over contractual and other intangible rights are regulated Securities over aircraft generate a registration fee for the authen-
by article 91 of the Commercial Code and article 2075 of the Civil tic act formalising the security. This document needs to be registered
Code, which require the execution of a pledge agreement, its notifi- before the Civil Registry Office and a tax equivalent to the sum of
cation to the contract’s counterparty and registration of the notified 7 per cent for every 1,000 Dominican pesos of the secured amount
documentation in the corresponding Civil Registry Office. It usually and 12 per cent of such an amount. Additionally, minor filing fees
is required by contract that the counterparty approves the pledge are applicable for the registration of the security before the National
agreement. Institute of Civil Aviation. Securities over ships and boats also gener-
Contractual rights cannot be pledged more than once. To guar- ate a registration fee similar to aircraft.
antee its enforceability against third parties the pledge agreement Other securities, such as pledges, will generate stamp duties and
must be notified to the counterparty via a bailiff act, and registered fees, which are fixed and minimal.
as explained above. There is no legal technique to minimise the impact on taxes
applicable to the registration of mortgages and other securities,
Documents aside from not registering them in the corresponding public records.
• Pledge agreement, duly notarised; and However, not doing so would imply that the lender will not have
• Bailiff Act. priority over the collateral regarding third parties, and may not have
the possibility of foreclosing on such collateral until the registration
Receivables and have to pay the corresponding taxes.
Requirements for perfection of collateral and how priority is The recently enacted Law 189-11 for the Development of the
established Mortgage Market and Trusts, introduced trusts and collateral agent
Receivables are collateralised through the execution of a pledge structures for mortgage securities as an alternative and better protec-
agreement, its notification to the corresponding debtors and reg- tion of collaterals and included an expedited process for foreclosure.
istration of the notified documentation in the corresponding Civil Multiple service banks, savings and loan associations or any other
Registry Office. financial intermediary or foreign bank authorised by the Monetary
Receivables cannot be pledged more than once. To guarantee Board can act as collateral agents, as well as any other commercial
its enforceability against third parties the pledge agreement must be company incorporated under the laws of the Dominican Republic
notified via bailiff act and registered as detailed above. or foreign laws with the specific and exclusive purpose of acting as
collateral agents.
Documents In the case of debts or bankruptcy of the trust company col-
• Pledge agreement; and lateralised assets are not considered as part of the trust’s estate for
• Bailiff Act. foreclosure purposes, except when fraud is involved.
Intellectual property rights

Requirements for perfection of collateral and how priority is
established
Intellectual property rights are collateralised through the execution In general terms, creditors may research the legal status of the assets
of a pledge agreement and its registration at the National Office of of a potential debtor in the public registry records on such securities.
Intellectual Property. For example, for real estate properties, a certification of liens
and encumbrances from the Land Registry Office of the jurisdic-
Documents tion where the property is located can be sought and obtained. This
• Pledge agreement, duly notarised; and

certification will identify the recorded owner of the property and if entitled to pro rata distributions as an unsecured creditor upon the
there are any registered mortgages in that property. debtor’s liquidation.
On the other hand, for moveable assets, the certification may
be issued by the Peace Court of the jurisdiction where the assets Foreign exchange issues
are located, except with respect to aircraft and boats, which can be
researched at the corresponding governmental authorities in charge 6 What are the restrictions, controls, fees, taxes or other charges
of registering such security interests, as explained above. on foreign currency exchange?
As to intellectual property rights, research on securities can be There are no local restrictions, controls or taxes on foreign currency
undertaken at the National Office of Intellectual Property. exchange in the Dominican Republic.
Securities over shares can be identified by performing a search at
the Mercantile Registry of the Chamber of Commerce with jurisdic-
tion over the area where the company’s headquarters are located.
As per assurance over collateral of contractual rights or receiva-
bles, the creditor must keep on file a copy of the notification via the
Bailiff Act sent to the debtor. No restrictions or controls apply on the remittance of investment
Finally, in relation to assurance over collateral of financial instru- returns or loans repayments abroad. As for taxes, the general prin-
ments and securities, the creditor must require its debtor to authorise ciple is that Dominican source income (income derived from invest-
the bank to disclose such information, when a bank is involved, or ments or interests located in the Dominican Republic) is subject to
can search for it at the registry of the corresponding authorities. taxation. In that regard:
• interest payable abroad is subject to a 10 per cent withholding;
• remittance of dividends is subject to a 10 per cent withholding
4 Outside the context of a bankruptcy proceeding, what steps tax; and,
should a project lender take to enforce its rights as a secured • all other payments made abroad are subjected to a 28 per cent
party over the collateral? withholding tax.
As mentioned above, the first step every creditor must undertake
is to register their securities with the corresponding governmental On the other hand, regarding the restrictions of payments of princi-
authorities or registries. pal, interest or premiums on loans, on 1 May 2014, the Dominican
When foreclosure is the appropriate course of action the steps Internal Revenue Office published a norm establishing some con-
will vary depending on the type of collateral, but all of them entail trols and limitations in this regard, including:
sending a notice to the debtor via Bailiff Act (a document notified by • the interest rates must be in the range of the rates offered in the
an officer of the court) indicating the existence of an event of default, market to avoid transfer pricing regulations coming into effect;
filing a lawsuit to seek the foreclosure of the assets granted as secu- and
rity and ultimately going through a public auction of such assets, • the leverage ratio of the company must be 3 to 1 of the amount
whereby if there are no interested buyers willing to pay the amount of its social capital.
necessary for paying the debt, the lenders may end up receiving the
asset in payment for the value of such debt.
These processes are carried out in the local currency of the
Dominican Republic. Proceeds from the sale may be converted into
foreign currency without restrictions to be transferred abroad as
desired. There are no restrictions in terms of repatriation of earnings or
Private disposal of collateralised assets and provisions that ena- conversion.
ble a creditor to take control of them without undergoing a public
process is prohibited by Dominican law. Creditors can bid on the 9 May project companies establish and maintain foreign currency
assets that are undergoing a public sale or request the court oversee- accounts in other jurisdictions and locally?
ing the process to assign them to the creditors for the amount of the
Yes, they may establish and maintain foreign currency accounts in
debt.
other jurisdictions as well as locally.
5 How does a bankruptcy proceeding in respect of the project Foreign investment issues
as a secured party over the collateral? Are there any preference 10 What restrictions, fees and taxes exist on foreign investment in or
periods, clawback rights or other preferential creditors’ rights ownership of a project and related companies? Do the restrictions
(eg, tax debts, employees’ claims) with respect to the collateral? also apply to foreign investors or creditors in the event of
What entities are excluded from bankruptcy proceedings and foreclosure on the project and related companies? Are there
what legislation applies to them? What processes other than any bilateral investment treaties with key nation states or other
court proceedings are available to seize the assets of the project international treaties that may afford relief from such restrictions?
company in an enforcement? Would such activities require registration with any government
authority?
Bankruptcy proceedings are regulated by the Dominican Commercial
Code, but are seldom followed or completed due to its complexity There are no restrictions with respect to ownership of project com-
and length. However, it is important to mention that secured credi- panies. A proof of this is that in 1995 Law No. 16-95 was created to
tors, regardless of their nationality, will not be affected by the initia- foster foreign investment in the Dominican Republic and grants spe-
tion or continuation of a bankruptcy process. They will still maintain cial benefits. Local and foreign investments are treated equally under
their priority rights over the collateral granted to them, although local legislation. In 2003 the Centre for Exports and Investment of
labour debts and tax obligations, as a general rule, are privileged the Dominican Republic (CEI-RD) was created by law 98-03. The
credits, thus, upon collection, precede other credits. A secured credi- main objective of this government entity is to foster both Dominican
tor may voluntarily release its collateral during the process and be exports and foreign investment. For instance, they created a one stop
shop to assist foreign investors with their new business ventures in
the Dominican Republic centralising all the permits and red tape Fiscal treatment of foreign investment
required to launch the project.
As for registration, the applicable requirements vary depending 15 What tax incentives or other incentives are provided preferentially
on the industry. For instance, registration of a company (including to foreign investors or creditors? What taxes apply to foreign
its shareholders and directors) operating in the financial services, tel- investments, loans, mortgages or other security documents,
ecommunications, energy and mining sectors is required. Moreover, either for the purposes of effectiveness or registration?
certain industries, such as insurance companies, have special require- According to the equal treatment principle set by Law 16-95 on
ments as to the nationality of the owners of the social capital. Foreign Investment, foreign investors are entitled to the same rights
and obligations available to national investors. Tax incentives are
granted in the Dominican Republic to tourism projects located in
specific areas of the country, free zone companies, projects settled in
over project assets provided or guaranteed by foreign insurance
the provinces located near the border with Haiti, renewable energy
generation companies, and companies operating in the cinemato-
creditors?
graphic sector.
Insurance in the Dominican Republic is regulated by Law No. 146-
02. Pursuant to this law, insurance policies on assets and interests Government authorities
located in Dominican territory have to be issued by companies
duly authorised to operate as insurance companies in the country. 16 What are the relevant government agencies or departments with
However, insurance policies issued by local companies may be rein- authority over projects in the typical project sectors? What is the
sured by foreign insurers. nature and extent of their authority? What is the history of state
Insurance policies issued for assets located in the country may ownership in these sectors?
be paid, as instructed by the owner of the asset, into the hands of the • Oil and gas: the Ministry of Industry and Commerce regulates,
secured creditors. supervises and controls the oil and gas distribution, importation
Notwithstanding the above, creditors may issue foreign insurance and commercialisation in the Dominican Republic;
policies for assets or interests located in the Dominican Republic; • mining: the General Mining Directorate of the Energy and
however, such claims would not be governed by Dominican Law. Mining Ministry of the Dominican Republic, is the governing
body in charge of overseeing mining activities in the country and
12 What restrictions exist on bringing in foreign workers, technicians granting exploration and extraction permits and concessions to
or executives to work on a project? private parties. The Ministry of the Environment and Natural
Resources also grants environmental licences and permits to
In principle, there are no restrictions on bringing foreign workers to mining projects in the country;
work on a project on Dominican soil. However, article 135 of the • chemical refining is regulated by the Ministry of Public Health
Dominican Labour Code establishes that the workforce of compa- and the Ministry of Environment and Natural Resources;
nies operating locally must be composed of at least 80 per cent of • water rights are regulated by the National Institute of Potable
Dominican employees and 80 per cent of the payroll of a local com- Water and Sewerage (INAPA), the General Directorate of
pany must also be directed toward Dominican workers. Personnel Water Resources and each city’s local water and sewer system
carrying out executive or managerial duties and workers in technical administrator;
positions for which there is no trained Dominican workforce are • power generation, distribution and transmission: the energy
exempted from this rule. sector is regulated by the General Electricity Law No. 125-
01. The governmental bodies in charge of regulating the sec-
13 What restrictions exist on the importation of project equipment? tor are the Superintendence of Electricity and National Energy
There are no restrictions applicable to the importation of pro- Commission. The Ministry of the Environment and Natural
ject equipment to Dominican territory provided the correspond- Resources also grants environmental licences and permits to
ing custom duties are paid. Moreover, there are laws such as the energy projects in the country;
Competitiveness and Industrial Innovation Law 392-07, which grant • transportation: this sector is divided into three subsectors:
classified and registered companies exemptions to import equipment ground transportation, regulated by the National Board of
and machinery necessary to execute their industrial processes. Directors of Transit and Ground Transportation; air transporta-
tion, regulated by the National Institution of Civil Aviation; and
maritime transportation, regulated by the Dominican Navy;
14 What laws exist regarding the nationalisation or expropriation • ports and construction are regulated by the Ministry of Public
of project companies and assets? Are any forms of investment Works and the Dominican Port Authority. The Ministry of the
specially protected? Environment and Natural Resources also grants environmental
The Dominican Constitution, under article 8-13, provides that no licences and permits to these types of projects in the country;
one can be deprived of their property rights unless there is a public and
utility or social interest need, in which case, the owner will be enti- • telecommunications: the regulatory body is the Dominican
tled to receive payment for the property at a fair value to be deter- Telecommunications Institute.
mined by a competent court. Any expropriation process followed by
the Dominican government must comply with this and all other con- Regulation of natural resources
stitutional provisions, including the guarantee of due process. There
17 Who has title to natural resources? What rights may private
are no forms of incorporation or investment specially protected.
The Dominican government has ownership over all natural resources
and may grant concession to private parties to exploit, extract
or use such resources as regulated in the appropriate Concession
Agreement. Foreign parties may acquire such concession rights, but

in most cases local companies must be incorporated to operate a noted that securities involving real estate assets and moveable assets
concession in the country. (chattel mortgages) located in the Dominican Republic are subject to
There are no laws or regulations recognising any rights over Dominican law as a matter of public policy
natural resources in favour of aboriginal or indigenous groups.
24 Is a submission to a foreign jurisdiction and a waiver of immunity
18 What royalties and taxes are payable on the extraction of natural effective and enforceable?
resources, and are they revenue- or profit-based? Yes. However, judgments from foreign jurisdictions are not enforce-
Royalties and taxes may vary according to the sector. Most are able in the country until a Dominican court authorises their valid-
revenue-based. ity and enforceability in the Dominican Republic via an exequatur
(court authorisation rendered after analysing the merits of the deci-
sion) or via an homologation (court authorisation rendered after
resources?
analysing the due process of law, the defence rights of the parties
involved and the merits of the decision): this particular homologa-
Concession agreements will provide general guidelines for the tion procedure is mandatory for an arbitral award to be executed in
export of such resources. At the present time, there are no taxes or the Dominican Republic.
fees applicable for such exports.
Government approval of project finance transactions is only required
Project sector Law Regulatory body
in certain sectors, such as free zones, telecommunications, energy,
and mining concessions and non-objection in connection with port Mineral extraction, oil • Law 64-00 on the • Ministry of Industry
and gas Environment and and Commerce via
concessions. However, in most cases involving a governmental pro-
Natural Resources the National Mining
ject or a concession, approval by the government is recommended to Directorate
• Law No. 146-71,
secure the enforceability of the security rights, sharing of communi-
related to the • Ministry of Energy and
cations related to the project, among other details. regulation of mining Mines
activities • Ministry of
• Law No. 100-13, which Environment and
creates the Ministry of Natural Resources
filed with any government authority or otherwise comply with legal Energy and Mines
Water • Law No. 5994-62 and • National Institute of
Security agreements, as explained above, must all be registered and the Regulation of its Potable Water
for such purposes they must be executed or translated into Spanish Application; • National Institute of
and duly notarised. If executed abroad, such documents must also • Law No. 5852 Water Resources
be apostilled to be registered with the appropriate authorities. • Law No. 238-62
The financing agreement only needs to be translated if it will be • Law No. 5994-62,
enforced pursuant to local laws. Most of the time these agreements which creates INAPA
are governed and executed under foreign legislation. Electricity (generation, • Law 125-01 and the • Superintendence of
distribution and Regulation for its Electricity
transmission) application. • National Energy
Commission
Ports • Law No. 70, dated 16 Port Authority
December 1970
• Regulation No. 1673-
80 related to Port
The Dominican Republic has been a member of the 1958 New Services
York Convention on the Recognition and Enforcement of Arbitral • Regulation No. 309-
Awards since 2001. Therefore, local courts are bound to recognise 98 related to Port
arbitration agreements as well as the mandatory referral of disputes Concessions
relating to these agreements to arbitration. Judicial enforcement of Telecommunications General National Institute of
foreign arbitral awards are subject to a court order, called an exe- Telecommunications Telecommunications
Law 153-98 and the
quatur, issued by local courts, which makes such awards enforceable Regulation for its
in Dominican territory. In sum, all public order matters cannot be application
subject to arbitration Tourism (hospitality) • Law 84-79, that • Ministry of Tourism
Criminal, real estate and estate disputes may not be subject to creates SECTUR • Ministry of
arbitration according to Dominican law. • General Tourism Law Environment and
No. 541-69 Natural Resources
23 Which jurisdiction’s law typically governs project agreements? • Law 158-01 on

Promotion of Tourism
Development
• Law 64-00 on the
As a result of the principle of contractual freedom, foreign law may Environment and
be chosen as the applicable law to an agreement to the extent that Natural Resources
such a choice of law is not contrary to public policy. New York Law Insurance Law 146-02, Insurance Insurance
and the laws of England and Wales are frequently chosen for finance Law Superintendence
agreements. As for matters governed by domestic law, it should be
Public-private partnership legislation

Update and trends
In recent years, there has been a market and industry level of government and is the legislation industry-specific?
consolidation in several sectors of the Dominican economy via Not as of this date.
important mergers and acquisitions, such as the Cervecería
Nacional Dominicana/Ambev Dominicana merger, BHD Bank/León
Bank merger and the acquisition of Orange Dominicana by Altice. PPP – limitations

transactions?
Project companies
Most of the limitations derive from the state’s ability to incur in obli-
26 What are the principal business structures of project companies? gations or delegate functions, which are subject to Congressional
What are the principal sources of financing available to project approval. Obtaining such approval may become a lengthy pro-
companies? cess as it entails the review by both the Senate and the Chamber
Under certain regulated sectors, such as telecommunications and of Representatives and the subsequent enactment of a Presidential
insurance, the project company needs to be organised under the laws Decree. The contracting power of the state is subject to the restric-
of the Dominican Republic. Subject to certain limitations, the same tions set forth under the Constitution. The executive branch has lim-
applies when the project is state-owned as, pursuant to local law, a ited powers and to the extent that the agreement has an effect on
percentage of the company’s equity must be held by a local investor. national income or grants tax benefits to a third party, it should be
The typical form of a project company is a stock corporation (socie- approved by Congress.
dad anónima), which is, among other corporate vehicles, the entity
that requires more strict corporate governance, and which brings a PPP – transactions
perception of safety to both the lenders and the sponsors.
29 What have been the most significant PPP transactions completed
Local and foreign financial institutions remain the most frequent
option in terms of financing.
Not applicable.
Fabio J Guzmán-Saladín fabio@drlawyer.com

Alfredo A Guzmán-Saladín aguzman@drlawyer.com
Alberto Reyes Báez areyes@drlawyer.com
Pablo Casals Street No. 12 Tel: +1 809 255 0980

Serrallés Fax:+1 809 255 0940
Santo Domingo www.drlawyer.com
Dominican Republic

Simmons & Simmons LLP ENGLAND & WALES
England & Wales

Andrew Petry, Adam Cooper and Helen Forsey
Creating collateral security packages the assignor, absolute and notified in writing to any persons against
whom the assignor could enforce the assigned rights. If any of these
1 What types of collateral are available? formalities are not complied with, it will be an equitable assignment
English law recognises four basic forms of security interest: charges, and will not be enforceable against a bona fide purchaser of the
mortgages (legal and equitable), pledges and liens. For project assets for value without notice.
finance the first two are the most important. Typically, a composite Legal assignments are the preferred method of taking security
security document, often referred to as a debenture, is used to take over specific contractual rights and are required, together with asso-
security, which, generally, must be executed as a deed. ciated direct agreements, for the project finance exception described
above to apply.
Charges
These constitute charges over specified assets of a chargor as security Pledges
for the performance of obligations, including the repayment of debt. A pledge is a way of creating security by the delivery of a tangible
Companies are able to grant floating charges over all or substan- moveable asset to a creditor as security for the performance of con-
tially all their assets from time to time, which can crystallise either tractual obligations. The security is created by the pledgee taking
automatically, or at the discretion of the chargee, on the occurrence delivery or the pledgor vesting control of the asset with the pledgee
of specified events. with an intention to create security.
However, these rights do not entitle the chargee to take control
of the company and its assets, unless the chargee has also entered
into direct agreements with key contractual counterparties and satis-
fied certain other conditions, allowing the project finance exception
to apply. Where this applies, a floating charge holder can appoint
an administrative receiver acting on its behalf to take control of a
company from its directors. If the project finance exception does not
apply, an administrator can be appointed to control the company’s
affairs acting on behalf of all the company’s creditors, rather than on Perfection
behalf of the chargee. Since 6 April 2013, any charge, mortgage or assignment created by
Charges may be created over tangible and intangible assets a company must be registered at Companies House by submitting
including real estate, operating or other licence rights or conces- a certified copy of the security document (which, on registration,
sions, leaseholds, buildings, moveable property, contractual rights, becomes a publicly available document), a completed form MR01
cash receivables, shares, securities, onshore and (subject to typical and a cheque for £13. This must be completed within 21 days of
lex situs issues) offshore bank accounts, insurance policies entire creation of the security and time continues to run after submission;
enterprises, after-acquired property, proceeds from investments and for example, if particulars need to be corrected. Failure to register
the sale of collateral, in each case, subject to any restrictions appli- within this period causes the security to be void against a liquidator.
cable to the asset itself. The requirement to register security at Companies House applies
Fixed charges, which give a chargee preferred rights on insol- to companies incorporated in England and Wales, and to companies
vency over certain other creditors, require that the chargor must that have an establishment in England or Wales.
have sufficient control over the charged assets whereas floating Companies do not need to register charges over certain assets,
charges allow the chargee to continue to deal with the charged assets most notably shares, although this has little effect in practice since
until crystallisation. A fixed charge with insufficient control for the charges over dividends and other assets derivative of shares are
chargee will take effect as a floating charge. registrable.
Security over assets requiring registration in a specialist register
Mortgages (such as land, intellectual property rights, ships and aircraft) must
Most assets can be secured by a mortgage; however, mortgages are also be registered in the relevant specialist register. The priority of
most commonly used to grant security over land. Under English law, such security interests will normally be determined by the order of
mortgages over land are essentially equivalent to a mortgage transfer registration in the specialist register.
of legal title to the mortgagee, preventing the mortgagor from deal- Pledges are not registrable.
ing with the mortgaged assets while providing the mortgagee with a
right to sell on default. Priority
Mortgages over assets other than land are often described as Generally, subject to certain restrictions applying on insolvency
assignments by way of security, and can be legal or equitable. For an to transactions at an undervalue, preferences and fraudulent
assignment to be a legal assignment, it must be in writing, signed by
ENGLAND & WALES Simmons & Simmons LLP
conveyances, registrable security interests that have been registered document. A receiver or administrative receiver owes only limited
will have the following priority: duties to subordinated creditors.
• fixed charges, mortgages or pledges will have priority over float- The particular circumstances of each case would determine the
ing charges even if subsequently created; most appropriate enforcement procedure (specialist advice should
• fixed charges and mortgages rank according to the date of crea- be taken first in taking the security and then in relation to enforce-
tion although care needs to be taken regarding the priority of ment including advice in respect of the tax consequences of the
further advances if subsequent security has been taken; and particular enforcement strategy). The sale by the receiver could be
• floating charges rank according to the date of creation. public or private but the receiver must be able to demonstrate that
the best price reasonably obtainable in the circumstances for the col-
Creditors often enter into subordination arrangements in order to lateral asset has been obtained.
contractually modify or reinforce the priority position, or both, that
the law confers on them.
Taxes
No taxes are payable to perfect a security interest, except in the case
of a mortgage over shares where legal title to the shares is trans-
ferred to the mortgagee. Exercising rights under a security interest
may involve the transfer of underlying assets, which for some assets
would attract transfer taxes (eg, stamp duty, stamp duty land tax
or stamp duty land reserve tax). Some Islamic finance structures in
respect of loans relating to land benefit from special exemptions
from stamp duty land tax so that purchasers are not faced with a There are two main forms of company bankruptcy in the UK:
double tax charge. administration and liquidation. Administration prevents a lender
Corporate entities can hold security as a trustee on behalf of from enforcing its security, however, the administrators will need the
the project lenders as secured parties. On the insolvency of the trus- lender’s consent to sell any assets subject to a fixed charge and if
tee the collateral would not form part of the estate of the insolvent a lender has prior-ranking security, it can appoint its own admin-
trustee and a new solvent trustee would be appointed. The concept istrators to take control of the insolvency of the project company.
of parallel debt is not required in the United Kingdom as trusts are Liquidation does not prevent the appointment of receivers of admin-
recognised in English law. istrative receivers by the project lenders. On administration and
liquidation the assets of the project company will be realised and
distributed in accordance with the statutory regime, as well as any
3 How can a creditor assure itself as to the absence of liens with contractual arrangements between the creditors. This would gener-
priority to the creditor’s lien? ally mean that project lenders will receive the realisations of any
A Companies House charges register search shows all registered assets, subject to fixed charge security (minus the costs of sale).
charges (including fixed and floating charges, mortgages and The Insolvency Act 1986 sets out certain types of antecedent
assignments). transactions, which may be challenged in certain circumstances, sub-
Searches of specialist registers (eg, land, intellectual property ject to applicable time limits.
rights, ships and aircraft) should also be conducted. For land there Following the introduction of the Enterprise Act 2002, the only
is a category of rights known as overriding interests, which are not category of preferential creditors is now employees and there are
discoverable from the Land Registry, and assets may be subject to statutory limits on the amounts to which each employee is entitled.
unregistrable liens. Preferential creditors are, however, paid from floating charge realisa-
tions and so in most instances this will not affect the project lenders
who will seek to recover under their fixed charge security, which
ranks in priority to floating charge security.
As a general rule, registered companies incorporated in England
and Wales can be subject to all forms of UK insolvency proceedings.
Prior to enforcing security, a secured creditor will often seek to However, when analysing the insolvency risk in projects involving
reserve its rights under the finance documents to ensure that no the public sector, care needs to be taken to analyse the extent of cen-
breach of any of their terms is inadvertently waived, thereby poten- tral government support for the contracting entity, the exact nature
tially depriving the secured creditor of its ability to fully rely on and of which varies from sector to sector.
exercise its rights under the finance documents. Tailor-made insolvency regimes apply to sectors such as water
Self-help remedies such as receivership and administrative and sewerage undertakings, railway companies, air-traffic services,
receivership are much more common in project finance transac- PPP agreements and other essential infrastructure, including utility
tions in England and Wales than foreclosure. A receivership applies companies.
to specified assets of the project-company, while administrative Typically, options available to secured creditors without recourse
receivership, which is only possible where the project finance excep- to the courts include receivership and administrative receivership,
tion described above applies, takes control of the company from its and administration. These procedures, while differing in nature and
directors. Administrative receivership also enables creditors to block objective, are all derived from powers contained in security instru-
administration proceedings commenced by the project company or ments, which enable creditors to seek redress without incurring the
its creditors. time and costs associated with court procedures. Before enforcing its
Assuming a project company breaches its obligations under a security in this way, the secured creditor would need to ensure that
project loan facility, the project lenders would have the right to issue the project company was in breach of the security instrument and
a formal demand for repayment of the loan and, if they hold a float- that it was entitled to exercise its security rights. Law of Property Act
ing charge over all or substantially all of a company’s assets and the receivership is available to a legal mortgagee of land in England and
conditions of the project finance exception are satisfied, appoint an Wales and gives the mortgagee the power to appoint a receiver over
administrative receiver over the company or a receiver over specified specific property of the mortgagor in order to manage or realise the
assets pursuant to the powers granted to it in the applicable security asset (or both) to make a return to the lender. The receiver acts as

the agent of the project company, which offers a degree of protection Business Service Oil & Gas Sector of HMRC is responsible for APAs
to the lender. involving North Sea and other offshore operations.
Administrative receivership is available to holders of floating
charges contained in a debenture over the whole or substantially
the whole of the project company’s property. Administrative receiv-
ers owe their principal duty to their appointer. The advent of the
‘rescue culture’, inaugurated by the Enterprise Act, brought with it a
general prohibition on the appointment of administrative receivers There is no requirement on UK companies to repatriate foreign
in an attempt to foster a more collective approach to insolvency pro- earnings and no requirement to convert foreign earnings to domestic
cedures in England and Wales. Consequently, in respect of charges currency if they do repatriate foreign earnings.
created after 15 September 2003, administrative receivership is not
available unless one of the exceptions applies. The exceptions to the 9 May project companies establish and maintain foreign currency
general prohibition include securitisation vehicles, project finance, accounts in other jurisdictions and locally?
utilities, registered social landlords and railway companies.
Subject to any political sanctions, UK companies may have accounts
A secured creditor with a ‘qualifying floating charge’ can gener-
in any currency both at home and overseas.
ally use the out-of-court procedure introduced by the Enterprise Act
2002 to appoint their choice of administrator. This offers secured
Foreign investment issues
creditors a more streamlined process but is also intended to be a
more ‘collective’ procedure, in that the administrator’s duty is owed 10 What restrictions, fees and taxes exist on foreign investment in or
to the general body of creditors rather than just to the appointing ownership of a project and related companies? Do the restrictions
party. In relation to key infrastructure industries of the type described also apply to foreign investors or creditors in the event of
above, special administration regimes apply prohibiting out-of-court foreclosure on the project and related companies? Are there
procedures. The secured creditor wishing to enforce security would any bilateral investment treaties with key nation states or other
be required to adhere to the special insolvency regime applicable to international treaties that may afford relief from such restrictions?
that particular sector. Would such activities require registration with any government
The claims of foreign creditors are treated in the same way as authority?
those of local creditors, except that in certain circumstances a for-
There is no specific law restricting foreign investment. Foreign com-
eign creditor may be required to provide security for the debtor’s
panies are treated in the same way as UK-owned businesses.
legal costs by making a payment into court. Once a project company
The Third Energy Package (the EU Commission’s 2009 mar-
is in an insolvency process, foreign claims are treated exactly the
ket opening legislation) promotes separation of ownership/control
same as the claims of local creditors.
of electricity and gas transmission networks on the one hand from
ownership/control of generation, production and supply assets on
the other hand, which generally forces parties who were not verti-
6 What are the restrictions, controls, fees, taxes or other charges cally integrated in 2009 to choose which side of the line they wish to
on foreign currency exchange? fall. In addition, ownership of transmission systems by entities from
non-EU countries is restricted by articles 11 in Directives 2009/73/
Subject to any current political sanctions, there are no controls or
EC and 2009/72/EC. In order for a foreign operator to gain certifi-
taxes on foreign currency exchange itself. Banks impose fees in
cation from a National Regulatory Authority, energy transmission
respect of currency exchanges. Entering into a foreign exchange
networks have to be run independently from the production and
contract is generally an exempt supply for value added tax (VAT)
supply side and, as an additional requirement for a non-EU operator,
purposes. Foreign exchange gains and losses are generally brought
the certification must not jeopardise security of energy supply.
into charge or may be relievable for UK corporation tax purposes in
Export control restrictions may also apply. Bilateral Investment
accordance with accounting treatment.
Treaties (BITs) are international bilateral agreements between gov-
ernments that can protect and encourage overseas investment. The
7 What are the restrictions, controls, fees and taxes on remittances UK has concluded over 100 BITs with other countries.
Subject to any political sanctions, there are no controls on remit- over project assets provided or guaranteed by foreign insurance
tances or investment returns or loan payments to parties in other companies? May such policies be payable to foreign secured
jurisdictions. Banks charge for remittances of investment returns but creditors?
these are not material.
There are no restrictions on policies being provided by foreign
Withholding taxes may apply on certain cross-border payments,
insurance companies located outside the EEA in respect of project
including interest. The current UK interest withholding tax rate is
assets located in the UK, as long as the insurance company provid-
20 per cent, which may be reduced or eliminated under applicable
ing the policy is not carrying out and effecting the insurance in the
double taxation treaties. There is currently no UK withholding tax
UK. A number of factors may be taken into account in determining
on dividends.
whether insurance is being carried out or effected in the UK, includ-
Worldwide debt capitalisation rules may apply, limiting deduct-
ing whether the terms of the insurance contract have been negoti-
ibility of interest and other financing expenses of UK companies in
ated in the UK and if the insurance policies have been issued in the
large groups by reference to the external financing expenses of the
UK. If the foreign insurance company is acting through an establish-
worldwide group as a whole.
ment or an agent in the UK, it could be deemed to be carrying out
Transfer-pricing tax legislation could be applied to impose a tax
and effecting the insurance in the UK. As a result, it would require
charge or deny a relief if transactions between associated entities are
authorisation by the UK Financial Conduct Authority (FCA) and
not entered into on arm’s-length terms. Advance Pricing Agreements
the Prudential Regulation Authority (PRA) and the policy would be
(APAs) with HM Revenue & Customs are possible for determin-
required to comply with FCA/PRA rules and regulations. Foreign
ing the method for determining transfer pricing issues. The Large
insurance companies, which are EEA insurance companies, can
carry out and effect insurance in the UK through passporting their long term unemployment and training issues, those measures cannot
services (freedom of services) or through the establishment of a for- be used as a means of discrimination – some helpful guidance is set
eign branch in the UK (freedom of establishment). In general, an out in the European Commission’s communication, Buying Social, A
EEA insurance company will be regulated by its home state regu- Guide to Taking Account of Social Considerations in public procure-
lator (the regulatory authority in its state of incorporation or the ment (2010) and in the Office of Government Commerce note on
state in which its head office is situated); however, it will also have social issues in purchasing (2006).
to comply with certain FCA/PRA provisions under the principle of
the ‘general good’ (a principle that allows the FCA/PRA to apply its
normal customer protection rules).
Insurance premium tax may apply in relation to insurance con- There are no general barriers to entry so long as the appropriate tax
tracts where the risk is located in the UK. and customs and import duty is paid on entry into the European
Union, except in sensitive areas such as defence, where specific
restrictions or permits apply.
12 What restrictions exist on bringing in foreign workers, technicians The European Commission may impose anti-dumping duties if
or executives to work on a project? it concludes that a non-EU company is exporting a product to the
Most EEA nationals have the right to work in the UK. For some EU at prices lower than normal value of the product (the domestic
EEA nationals, certain registration requirements apply. Non-EEA prices of the product or production cost) on its own domestic mar-
nationals require a visa or leave to remain in the UK, which entitles ket and that this has caused harm to the EU’s own industry. The
them to work. The UK operates on a points-based immigration sys- Commission had planned in June 2013 to impose duties on Chinese
tem for non-EEA nationals who wish to apply for a visa to come to solar panels and key components. Ultimately, a negotiated settle-
work in the UK. The points-based system is made up from different ment (essentially an undertaking to import solar panels into the EU
‘tiers’ and a non-EEA national would have to apply under one of at an agreed minimum price) was agreed between China and the EU.
the tiers that make up the system. For many individuals, they will
need to be sponsored by their prospective employer. The prospective
employer must have a sponsorship licence issued by the UK immi-
gration authorities in order to be able to sponsor employees. Before
taking on any employee, UK employers should check that the indi-
viduals have the right to work in the UK. There is a list of documents Political risk and the risk of nationalisation or expropriation are per-
prescribed by the UK immigration authorities that must be checked ceived as very low in the UK. Primary acts of Parliament are needed
and copied before the person starts working to demonstrate an indi- to nationalise any asset of any significant size. Nationalisations in
vidual’s immigration status. The employer must take all reasonable recent years have generally been driven by unique external events,
steps to ensure that the documents are valid and be satisfied that such as the credit crunch, which led to the effective nationalisa-
they apply to the person they want to employ. tion of a number of banks, or the failure of a private sector entity
Employers looking to recruit non-EEA nationals in the UK will entrusted with the provision of essential services (such as in the rail
also need to be aware of the new immigration cap on non-EEA sector). The buying-out of the shareholders of the various London
workers introduced in April 2011, which enforces a permanent PPP rail concession companies can be seen as being politically engi-
cap of 21,700 on skilled immigration into the UK. The cap applies neered but it is not seen as expropriation. In certain specific sectors,
to a tier system. Tier 1 is restricted to entrepreneurs, investors and there are obligations binding on, for example, power stations, to
‘exceptionally talented’ individuals (eg, those who are internation- be run at the behest of state-controlled committees in the case of a
ally recognised as world leaders or potential world-leading talent in national emergency.
the fields of science and the arts) and Tier 2 is restricted to non-EEA
nationals entering graduate occupations with a job offer and spon- Fiscal treatment of foreign investment
sorship. While the new ‘exceptionally talented’ route is restricted to
1,000 applicants a year, there is no limit on the number of entre-
preneurs and investors that can enter into the UK. The rest of the
annual cap, 20,700, is allocated to applications for Tier 2 visas.
However, the cap of 20,700 only applies to Tier 2 applicants with
an annual salary below £152,100. There is no cap on the number of There are no UK tax incentives provided preferentially or specifically
Tier 2 applicants with an annual salary of £152,100 or above. The to foreign investors or creditors. HMRC do, however, offer a dedi-
20,700 cap also does not apply to migrants who come to the UK in cated inward investment service for businesses considering making a
an ‘intra-company transfer’ with their multinational employer. The ‘significant’ investment into the UK. By ‘significant’, HMRC usually
former Tier 1 general route that was open to highly skilled migrants means investments that are intended to total £30 million or more,
without a job offer is now closed. In addition, it was announced but HMRC will also assist on smaller investments that they agree
on 25 March 2013 that Tier 3 (which was envisaged as the tier for may be of importance to the national or regional economy.
unskilled migrants but never became operational) is also to be shut Transfers of shares in UK companies generally require stamp
down. duty to be paid before the transfer can be registered (currently at a
In addition to employment law, the rules on public procure- rate of 0.5 per cent, rounded to the nearest £5, for share transfers
ment set out in the Public Contracts Regulations 2006, the Utilities where the purchase consideration exceeds £1,000). If the shares are
Contracts Regulations 2006, Defence and Security Public Contracts not in registered form, stamp duty reserve tax at 0.5 per cent of the
Regulations 2011 and the general EU Treaty principles prohibit dis- consideration may be payable instead of stamp duty.
crimination on grounds of nationality, for example, by requiring the UK companies with foreign subsidiaries may be subject to
supplier to use UK employees. These rules apply to public bodies and reporting requirements in relation to certain high value transactions
many utilities companies. The rules apply in favour of firms from (in excess of £100m). Very broadly, this covers:
any member state of the EEA in addition to those third countries • an issue of shares or debentures by a foreign subsidiary;
that have signed up to the Government Procurement Agreement • a transfer of shares or debentures of a foreign subsidiary; or
(including, notably, the United States and Switzerland). Although • any situation that results in a foreign subsidiary becoming, or
the rules allow some measures to be taken to address issues such as ceasing to be, a controlling partner in a partnership.

Government authorities impact, an environmental impact assessment or habitats regulations

assessment may be required and that will also involve extensive con-
16 What are the relevant government agencies or departments with sultation with bodies such as the EA, NRW and Natural England.
authority over projects in the typical project sectors? What is the In order to achieve planning permission, a planning applica-
nature and extent of their authority? What is the history of state tion must be submitted detailing the development for which con-
ownership in these sectors? sent is required. Planning guidance has been streamlined through
Regulatory authority over projects can be divided into: the National Planning Policy Framework. Mitigation measures to
• general regulatory functions that govern a wide range of activi- offset the impact of a development may need to be secured through
ties and projects; and conditions to any consent, or through the undertaking of works or
• regulatory functions that are sector-specific. payment of monetary contributions secured through planning obli-
gations. A tariff based approach to monetary contributions, called
All projects on land are likely to involve development and therefore the Community Infrastructure Levy (CIL), is in the process of being
require planning permission from the local authority and often vari- introduced by local authorities across England and Wales. Payments
ous types of environmental authorisations and sector-specific con- under CIL will sit alongside traditional planning obligation pack-
sents. Major infrastructure projects (known as nationally significant ages such as ‘section 106 agreements’, with a view to securing com-
infrastructure projects (NSIPs)) that are covered by the Planning Act munity benefits or improved infrastructure, etc necessitated by the
2008 require a development consent order (DCO) from the Secretary development.
of State and this negates the need for local planning permission. After an authority has made a decision to grant a particular con-
For activities in coastal or tidal waters and offshore activities, sent (eg, a planning permission, DCO or environmental permit), the
various consents may be required from the Marine Management consent is ‘at risk’ of a legal challenge to its validity where a person
Organisation or the Welsh government in Wales. who objects to the consent (eg, an NGO or local residents) may
The Environment Agency (EA) is the main environmental regu- seek to bring a challenge against the regulatory body that granted it.
lator in England and Natural Resources Wales (NRW), a new body Generally, the time period for mounting a challenge is within three
that combines the former functions of the EA, the Countryside months after the grant of the consent although this is six weeks in the
Council for Wales and the Forestry Commission, is the main environ- case of a DCO and six weeks in the case of a planning permission.
mental regulator for Wales, but other bodies including local authori- There are also several sector-specific regulatory issues:
ties and the privatised sewerage undertakers also have a regulatory • energy – regulation for power generation, transmission and dis-
role. The EA and NRW are responsible for granting authorisations tribution is done through licensing through regulatory bodies
regulating a range of activities and impacts, although most of these that are independent from the government (eg, Ofgem for elec-
are now managed under a single ‘environmental permitting’ regime tricity and Ofwat for water and Ofcom for media and telecoms),
and many operators will have one such integrated permit per site for generators that are not of sufficient size to qualify as an NSIP
its regulated operations that covers emissions to air, water and land. will need consent from the Secretary of State under section 36
This environmental permitting regime is the main mechanism for of the Electricity Act and overhead lines require consent under
implementing a variety of EU directives on pollution control. Most section 37 (for NSIPs these consents would be deemed under the
types of industrial activity (and certain other activities, for example, DCO);
intensive livestock production) and activities involving waste such • offshore – consent for works is required from the Marine and
as treatment and disposal will require an environmental permit of Management Organisation (or the Welsh government) and
some type, which may be bespoke for complex operations or stand- appropriate land rights may be required from the Crown Estate;
ard form for more basic activities. Local authorities are responsible • water (hydropower) – the EA may require a section 158 agree-
for less polluting activities such as emissions to air only. Even if a ment, defining how the scheme should be operated. An environ-
business is not conducting an authorised activity that falls under mental statement may also be necessary and the plans may also
environmental permitting it will most likely require a consent from be subject to the Salmon and Freshwater Fisheries Act 1975;
its local sewerage undertaker to discharge trade effluent to sewer. • oil and gas – the government grants licences for areas of oil and
The EA, NRW and other regulators are also responsible for gas exploration; and
enforcing compliance with environmental legislation (see question • on-land extraction of minerals – planning permission from the
25). The Health and Safety Executive (HSE) and local authorities relevant LA is needed and compliance with specific requirements
regulate health and safety in the workplace – among other things, of waste and mineral policies.
the HSE incorporates the Office for Nuclear Regulation and the
Hazardous Installations Directorate. Broadly speaking, the HSE reg- Regulation of natural resources
ulates industry while local authorities are the regulators for shops
and offices. 17 Who has title to natural resources? What rights may private
Built developments in the UK are subject to a stringent land use parties acquire to these resources and what obligations does the
regulatory framework. Most developments will require the grant of holder have? May foreign parties acquire such rights?
planning consent, the decision maker for which is either the local Water
planning authority for a given area or, for NSIPs, the Secretary of Landowners, manufacturers and others can apply to the EA for
State. The DCO process for NSIPs is intended to streamline the plan- a licence to abstract groundwater or surface water provided they
ning process by making use of National Policy Statements that jus- have a right of access to the proposed abstraction point, although
tify the need for a project at a national level and that limits the scope a licence is not required for some low volume abstractions. The
for local consideration. Strict time limits exist for the examination privatised water companies, which are regulated through govern-
of an NSIP application to control the risk of planning delay that ment-issued licences (see question 16), provide most of the public
has plagued such infrastructure projects in the past but the front- drinking water supply and consequently own a large number of
loaded consultation and application process for such proposals reservoirs and boreholes. Private abstractions for industrial or agri-
(power plants, transport projects, waste proposals) remains complex cultural uses are not unusual and electricity generators in particular
and time-consuming compared to many countries. For all planning abstract large volumes. In granting water abstraction licences, the
applications, stringent consultation requirements must be followed, EA must exercise its powers in accordance with EU law (which can
including with certain statutory consultees such as the EA, NRW restrict licence-granting powers) and limit over-abstraction that is
and Natural England. In addition, depending upon location and detrimental to the environment. New licences are now time-limited.
Abstraction rights are tradable but there has been little activity in investor will have rights in that land. There are no special rules in
this area. The Water Act 2014 provides for the Secretary of State (in place to exclude or restrict foreign investors.
relation to England) and the Welsh ministers (in relation to Wales) to
be able to make regulations about water abstraction and impound-
ing licences and to integrate these licences into the environmental
permitting regime and it is anticipated that water abstraction will
become more tightly regulated. Oil and gas companies are subject to UK corporation tax in relation
to their profits including their profits arising from oil and gas extrac-
Minerals tion activities or rights in the UK and on the UKCS. Profits arising
Ownership rights of minerals found or extracted from the land will from oil and gas extraction activities are ring-fenced and subject to a
vest in the owner unless excepted and reserved from the land by a special rate of corporation tax (currently 30 per cent) that is higher
previous transfer of title or excepted under legislation. A mineral than the headline UK corporation tax rate (currently 21 per cent,
planning permission from the mineral planning authority is required reducing to 20 per cent from 1 April 2015). In addition, oil and gas
prior to development. extraction activities or rights in the UK and on the UKCS attract a
‘supplementary charge’ on profits (currently 32 per cent). Oil and
Excepted under legislation gas extraction activities on certain ‘old’ fields, generally those that
UK onshore received development consent prior to 16 March 1993, attract an
Coal additional petroleum revenue tax (PRT) charge on profits, although
Almost all coal ownership resides with the Coal Authority. this may be deductible in computing profits for corporation tax and
the ‘supplementary charge’ purposes. Therefore, the current mar-
Oil and gas ginal rates of UK tax are 81 per cent (for fields subject to PRT) or
The rights to oil and gas (including shale gas) within the land area otherwise 62 per cent. These taxes may be significantly mitigated by
of Great Britain belong to the Crown pursuant to the Petroleum generous reliefs, including the ring fence expenditure supplement,
Act 1998. To explore for and exploit oil and gas resources requires capital allowances, research and development tax credits and other
a licence from the Department of Energy and Climate Change. For reliefs. Ring-fenced activities are treated as a separate trade so only
onshore exploration, a petroleum exploration and development losses derived from oil and gas extraction activities or rights can be
licence is required, which grants various exclusive rights to the licen- set off against profits from these activities.
see. However, the rights granted by a PEDI do not include any rights UK aggregates levy will be charged on the entity that first sub-
of access so the licensee must negotiate surface access with the rel- jects taxable aggregate (broadly, rock, gravel or sand) to commercial
evant landowner and will also require the consent of any other own- exploitation, although exceptions may apply. The levy is applied as
ers under whose land the drilling occurs (although, the government a rate per tonne of taxable aggregate and is currently £2 per tonne.
published a consultation in May 2014 on changing the law to make Corporate owners of minerals who receive royalties for mineral
extraction of shale gas easier). Planning permission may be required, extraction or make chargeable gains on or after 1 April 2013 are
and a licensee wishing to enter or drill through coal seams for coal- charged UK corporation tax (currently at 21 per cent). Relief for
bed methane and coal mine gas must also seek the permission of the capital losses will not apply to mineral leases or agreements entered
Coal Authority. The government is currently consulting on amend- into on or after 1 April 2013. Terminal loss relief may apply to
ments to the laws of trespass to remove the need for consent to drill reduce the tax paid over the life of the royalty payment period.
beneath someone’s land.
Gold and silver resources?
The rights to gold and silver in most of the UK are owned by the
Customs procedures and duties may apply on certain exports of
Crown. A licence, known as a mines royal licence, for the explora-
hydrocarbons out of the UK.
tion and development of these metals must be obtained from the
Crown Estate Commissioners through the Crown Mineral Agent.
All mineral development and, in some cases, exploration requires
planning permission from a mineral planning authority. 20 What government approvals are required for typical project finance
UK offshore
Strict EU-wide procurement laws apply to public and utilities sec-
The UK continental shelf (UKCS) comprises those areas of the sea-
tor projects that fall within the scope of the rules and exceed
bed and beneath the seabed, beyond territorial waters, over which
specified financial values. The procurement rules are designed to
the UK exercises sovereign rights of exploration and exploitation of
ensure that contracts are opened up to EU-wide competition and
mineral resources.
are awarded fairly and transparently. The public authority award-
The Crown Estate owns about 55 per cent of the foreshore
ing the contract will usually be required to advertise the contract
(between mean high and mean low water) and approximately half
in the Official Journal of the European Union and follow a speci-
of the beds of estuaries and tidal rivers in the UK. It also owns
fied procedure before awarding the contract. The procurement rules
the seabed within territorial waters (12-mile limit), including the
relating to the award of public and utility contracts are contained in
rights to explore for and exploit minerals in the remainder of the
Directives 2004/18/EC, 2004/17/EC and 2009/81/EC, which have
UKCS, with the exception of oil, gas and coal. These rights are man-
been implemented in the UK by the Public Contracts Regulations
aged by the Crown Estate Commissioners and currently comprise
2006 (SI 2006/5) (as amended), Utilities Contracts Regulations
marine dredged sand and gravel, potash and salt. The Department
2006 (as amended) and the Defence and Security Public Contracts
for Business, Enterprise and Regulatory Reform grants petroleum
Regulations 2011.
licences to explore for and exploit oil and natural gas resources on
A tenderer who is harmed, or who may suffer harm, as a result
the UKCS, and the Coal Authority grants licences for coal explora-
of a breach of the procurement rules by a public authority has a right
tion and extraction.
to bring proceedings in the High Court. Each set of Regulations pro-
The key to understanding these rights in the UK is who owns
vides that if a claimant starts court proceedings before contract sig-
the land in question. If a foreign investor owns a piece of land, that
nature, the public authority is automatically prohibited from signing

the contract. The public authority can apply to the court to lift the lessening of competition (SLC) in any market in the UK for goods
‘automatic injunction’ but this will take time. The High Court can and services. If a reference is made, the CMA must then determine
make an order setting aside the public authority’s award decision whether a relevant merger situation has been or is likely to be cre-
(where the contract has not yet been entered into) and award dam- ated, whether it has or may be expected to result in an SLC and, if
ages to the claimant. Additionally, in certain specified cases (for so, what remedial action should be taken.
example, if a contract is signed following a procurement that was The Secretary of State can intervene in a merger in either the
not properly advertised in the Official Journal) the court may make defence or media industry, to require the relevant authority to take
a declaration of ineffectiveness, setting aside the contract itself, or into account ‘public interest’ considerations in its assessment.
may order the shortening of the contract term and also impose a
fine.
Where PFI credits are involved, the approval of Infrastructure
UK to the contracts is also required.
No fees or other charges specifically apply to project finance;
however, there are scales of charges that apply to planning appli- Within England and Wales there are no other documentation for-
cations and other types of approvals that may be required for the malities, per se, within project finance, but see above in relation to
development of any particular project. the registration of security interests. Agreements relating to land
Where mergers, acquisitions and certain joint ventures are not may also require registration.
subject to EU merger control rules, they may still trigger the merger
control thresholds in the UK. Clearance may be obtained from the 22 How are international arbitration contractual provisions and
Competition and Markets Authority (CMA) – either at Phase I or at awards recognised by local courts? Is the jurisdiction a member
Phase II, after more in-depth investigation. of the ICSID Convention or other prominent dispute resolution
A ‘relevant merger situation’ (ie, one that satisfies the jurisdic- conventions? Are any types of disputes not arbitrable? Are any
tional thresholds) will arise where (i) two enterprises ‘cease to be types of disputes subject to automatic domestic arbitration?
distinct’ and (ii) either of two alternative size thresholds are met.
The awards of all major arbitral institutions and rulebooks are freely
Taking each in turn:
enforceable, and the courts are strongly supportive of the enforce-
(i) enterprises cease to be distinct where one enterprise acquires in
ability and finality principles in arbitration. Almost any type of com-
another enterprise:
mercial dispute can be arbitrated if the parties agree. There is no
• legal control (a controlling interest – usually through acqui-
regime of automatic compulsory domestic arbitration in any main-
sition of more than 50 per cent of the shares carrying voting
stream commercial area, although in certain construction disputes,
rights);
a compulsory fast-track 28-day adjudication procedure can apply,
• de facto control (where an entity is clearly the controller of
but the result can, if wholly unsatisfactory, be freely litigated later
a target company, notwithstanding that it holds less than
in the courts. The courts are strongly supportive of mediation and
the majority of voting rights. This is likely to include situa-
alternative dispute resolution processes. The United Kingdom is a
tions where, in practice, the acquirer has control over more
party to the 1958 Convention on the Recognition and Enforcement
than half of the votes actually cast at a shareholder meeting.
of Foreign Arbitral Awards, known as the New York Convention. It
It might also involve situations where an investor’s indus-
is also a member of the ICSID Convention.
try expertise is likely to lead to its advice being followed in
nearly all cases);
• material influence (the ability to materially influence the tar- 23 Which jurisdiction’s law typically governs project agreements?
get’s policy – for example through directorships or minor- Which jurisdiction’s law typically governs financing agreements?
ity shareholdings, or both, which, for example, allow the Which matters are governed by domestic law?
acquiring enterprise to block special resolutions); or In most cases, the laws of England and Wales will govern project
• (having previously acquired de facto control or material agreements relating to projects carried out in the United Kingdom.
influence) a higher level of control; and Typically, financing agreements would also be governed by the laws
(ii) the size thresholds are that either: of England and Wales, as financing agreements will typically follow
• the UK turnover of the target exceeds £70 million; or the governing law of the project agreements.
• the merged enterprises: In the UK it is possible to have contracts governed other than
• both either supply or acquire goods or services of a par- by the laws of England and Wales, but the relevant contractual
ticular description; and provisions will be overridden by specific statutory provisions (for
• will, after the merger, supply or acquire 25 per cent or example relating to unfair contract terms) and areas where public
more of those goods or services in the UK as a whole or policy dictates that domestic laws should apply. The most common
in a substantial part of it. examples are: matters relating to the organisation of companies and
other incorporated bodies, the form of security interests that require
There is no obligation to notify a relevant merger situation to the registration (for example over interests in real estate) and matters
CMA for prior clearance, but the CMA has the power to investigate relating to insolvency procedures, both as to the types of enforce-
non-notified mergers. Parties that do not seek clearance run the risk ment action that may be taken and as to the distribution of assets
that, the CMA, after having referred the transaction for a Phase II and realisations of an insolvent entity. Employment law is another
investigation, could, ultimately, require the merger to be unwound. area that is heavily regulated by statute.
Merger fees (ranging between £40,000 and £160,000, depending on
the size of the transaction) are payable to the CMA where it reviews
a relevant merger situation. 24 Is a submission to a foreign jurisdiction and a waiver of immunity
The CMA will conduct an initial examination and may clear effective and enforceable?
the transaction at that stage (potentially subject to remedies, where Under English law, parties are free to choose which country’s (or
offered by the merging parties). However, the CMA is under a duty countries’) courts are to have jurisdiction to hear disputes arising
to refer a relevant merger situation to the CC for in-depth investiga- from the contract. Formalities are governed by article 23.1 of the
tion where it believes it is or may be the case that a relevant merger Brussels Regulation, which requires jurisdiction agreements to be
situation has resulted or may be expected to result in a substantial either:
• in writing or evidenced in writing; • legislation governing the storage of hazardous substances in

• in a form that accords with practices that the parties have estab- large quantities, and of oil. The regulator will be the EA, local
lished between themselves; or authority or HSE, or both, depending on the circumstances;
• in international trade or commerce, in a form that accords with • EU laws on the use of chemicals (REACH) and the classification
a usage of which the parties are or ought to have been aware of labelling and packaging (CLP) at the preparation stage; and
and that in such trade or commerce is widely known to, and • laws to protect certain vulnerable species and high quality habi-
regularly observed by, parties to contracts of the type involved tats, and to limit the spread of non-native species. The EA or
in the particular trade or commerce concerned. Natural England, or both, or NRW in Wales are the applicable
regulatory bodies.
In relation to state immunity, a properly drafted waiver of immunity
from suit and execution clause should be effective and enforceable All employers have an obligation to ensure the health, safety and
under English law. The submission by a state or state entity to the welfare of employees and non-employees (who are affected by their
jurisdiction of the English courts may be sufficient to waive immu- work activities). Those who occupy or manage buildings have obli-
nity from suit, but not immunity from enforcement, so a separate gations to investigate, monitor, control and manage asbestos. There
waiver clause is necessary. In relation to foreign states, it is important are also specific duties to a wide range of parties, involved in the
to note that a state (or the state entity) can only waive its procedural construction of premises, such as project coordinators, designers,
immunity to the extent allowed by its national law. Hence the ques- contractors, etc.
tion of enforceability of a waiver of immunity clause may require In addition, there are specific duties imposed on manufacturers
consideration of more than English law; it may also be necessary to and suppliers of machinery and work equipment.
look to the national law of the state (if not English law), and also of Many breaches of environmental and health and safety law give
the jurisdiction in which enforcement may be sought. rise to criminal liability, although civil sanctions can apply in some
cases. Criminal liability can also attach to directors, officers and sen-
Environmental, health and safety laws ior managers in certain situations where an offence may have been
committed with their consent, connivance or neglect.
regulatory bodies administer those laws? Project companies
In addition to the requirements for environmental authorisations
mentioned in questions 16 and 17 above, relevant laws include: 26 What are the principal business structures of project companies?
• legislation imposes clean-up liability on any of (i) causers or What are the principal sources of financing available to project
knowing permitters of land contamination; and (ii) in the companies?
absence of (i), the landowner or occupier of contaminated land. Commonly, the special purpose vehicle (SPV) is a limited liability
This is enforced primarily by local authorities (although the company unless it issues bonds, when it may be required to be a
EA/NRW regulates some sites) and it means that an ‘innocent’ public limited liability company. The project company will then sub-
owner or occupier can become responsible for dealing with contract the project works; in its simplest form this will be two con-
historic contamination if the original polluter or a subsequent tracts, the design and build contract and the facilities management
knowing permitter cannot be found. Liabilities can also attach contract. In normal circumstances, use of these entities limits project
under other legislation in respect of water pollution (for which sponsor liabilities to their investment in the project company and
the EA/NRW is the enforcing authority) and for environmental any other collateral support they expressly agree to provide.
damage (which includes damage to species, habitats, land and The principal sources of finance are:
water), for which there are various enforcing authorities includ- • equity – debt-to-equity ratios vary from sector to sector. Equity
ing the EA and NRW; will often be provided by a combination of financial and indus-
• various statutory obligations, which apply to those handling, trial sponsors;
producing or controlling waste, with more stringent require- • bank debt – this is the principal source of funding for projects.
ments for hazardous wastes (including clinical waste). These Multilaterals such as EIB also lend in the UK. Mezzanine finance
are mostly enforced by the EA/NRW although local authorities is not common but is seen in some sectors;
carry out some functions; • bond finance – Some industry players are looking to raise
• producer responsibility requirements that can affect manu- long-term debt funds designed for infrastructure investments.
facturers, distributors, importers and sellers depending on the There have been a few bond financings in the University
nature of the raw materials, substances or goods involved and Accommodation and social housing sectors; and
can impose obligations in relation to the funding of the take • leasing – predominantly used for equipment or IT projects. This
back or recycling of certain types of waste, such as packaging, can be used as part of a financing solution with bank or bond
electrical equipment and batteries. There are a wide range of finance, subject to the creditor groups agreeing priority of secu-
regulators, depending on the regulatory regime involved, includ- rity over leased assets and how to ensure continued availability
ing the EA, the HSE, the National Measurement Office and the of assets that are key to the project on a termination of the pro-
Vehicle Certification Agency; ject or enforcement of security.
• climate change legislation, including two EA/NRW adminis-
tered, mandatory carbon trading schemes (the EU Emissions Public-private partnership legislation
Trading System and the CRC Energy Efficiency Scheme ), and
Climate Change Agreements – the latter are administered by 27 Has PPP enabling legislation been enacted and, if so, at what
the Department of Energy and Climate Change although this is level of government and is the legislation industry-specific?
due to move to the EA and enable a discount to be obtained by PPP, and in particular PFI, has been a government policy initiative.
certain energy intensive users against a carbon levy imposed on General contracting entities, such as central government, local coun-
energy supplies, provided that energy efficiency targets are met; cils and NHS trusts, have the power to enter into PPP transactions
• statutory nuisances (typically, emissions of noise, dust or under the existing legislation. However, in 2010 the coalition gov-
odours), for which the relevant regulatory authority is the local ernment set up the Major Projects Review Group and the Treasury
authority; Approval Point as part of its Comprehensive Spending Review to

Update and trends
In its most recent budget, through the proposed Infrastructure Bill, developments. From 31 March 2014 until 31 March 2017 developers
the UK government introduced a number of new initiatives that could have the option to remain with the Renewables Obligations or to adopt
have a strong impact on the project finance world. For example, the the new approach. In the interim, this three-year phase-out period
UK government has been consulting on incentives to encourage leaves a degree of uncertainty in the market.
the further development of the extractive industries, particularly in A number of solar developers were able to raise funding by listing
relation to shale gas. Specifically, a proposal has been put forward, and the renewables sector, including waste and waste to energy
as part of the government’s consultation and proposed as part of the projects, have continued to make use of project finance.
Infrastructure Bill, which would remove a landowner’s right of objection The government is currently planning major investments in
in respect of horizontal drilling access-rights to subsoil 300 metres or infrastructure such as the High Speed 2 project, which has a price tag
more in depth. The Infrastructure Bill will also simplify the previously in excess of £50 billion. Some PPP projects continue to be closed,
over-lengthy process of obtaining a development consent order for such as the Mersey Gateway PPP and a batched schools programme,
Nationally Significant Infrastructure Projects. where the government has separately procured a funding aggregator
The UK solar market continues to be affected by the UK to fund the batches of projects with a view to a capital markets
government’s Electricity Market Reform, which involves phasing out the take-out. Ministries such as the Ministry of Defence are outsourcing
present method of decarbonisation incentive and subsidy, Renewables services but not relying on project finance structures. Thames Water
Obligations, and replacing it with Contracts for Differences (CfDs). is procuring a London super-sewer called Thames Tideway, which is
The Department for Energy and Climate Change intends that CfDs projected to cost in excess of £5 billion on a project finance basis.
will replace Renewables Obligations from 31 March 2017 for new
review major central government procurements. The government More generally, PPP is used to cover a range of differently
introduced some changes to the approval process effective from 1 funded contracts but generally the term is used where a public asset
April 2011 with respect to projects funded by central government is created, which is wholly or partially funded by the private sector.
or requiring Treasury approval at some point during the project life There are, of course, exceptions with entire public sector funding
span. provided for many Ministry of Defence projects. The process for this
The result of a government call for evidence in 2011, asking for is less formal but the Treasury, through various bodies, would still be
views on how PFI should be reformed to provide better value for required to approve terms.
money to the public sector resulted in an initiative known as PF2,
which remains in its early stages. PPP – transactions
PPP – limitations 29 What have been the most significant PPP transactions completed
28 What, if any, are the practical and legal limitations on PPP As an established PPP market, historically, many of the world’s larg-
transactions? est and most complex PPP transactions have been completed in
Under English law, PPP in its standard form is PFI and, as such, England and Wales.
has to be sponsored by a government body due to at least partial The UK’s coalition government came into power in 2010 on an
funding by the PFI credit. Therefore, public sector bodies need to agenda that was critical of PPP and while PF2 has not provided a
go through a formal programme in order to gain public funding. high volume of new projects to date, the waste, health and education
An example of this would be local authorities working within the sectors remain active for PPP.
Priority Schools Building Programme in order to gain funds for a
school building project.
Andrew Petry andrew.petry@simmons-simmons.com

Adam Cooper adam.cooper@simmons-simmons.com
Helen Forsey helen.forsey@simmons-simmons.com
CityPoint, One Ropemaker Street Tel: +44 20 7628 2020

London EC2Y 9SS Fax: +44 20 7628 2070
United Kingdom www.simmons-simmons.com
FRANCE Jeantet Associés AARPI
France
Jean-François Adelle
Jeantet Associés AARPI
Creating collateral security packages against the delegator, in the event of non-payment of the account
debtor.
1 What types of collateral are available?
Collateral generally used in secured financings are also available in Collateral on other assets of the project
project financings. As project financings are usually carried out on a Security interests on property (land, buildings, rights of way and
non-recourse basis, the quality of collateral on cash flows as well as easements) are mortgages and antichreses. Property may also be
the preservation of these cash flows through rights on the underly- transferred as collateral to a French trust. A mortgage does not give
ing project contracts is essential. Security interests on assets other the mortgagee possession of the property. Instead, it gives the mort-
than revenues and contracts aim primarily at ensuring the integrity gagee the right to have the property sold upon default of the mort-
of the project company in the event of failure of the project transfer. gagor, so as to be paid on the sale price. Antichresis gives the creditor
Financiers will generally carefully look at the ability of the project possession of the real property of his or her debtor, as well as the
to generate income, the quality of the project company’s contrac- right to receive the revenues of the property. These revenues can
tual documentation with landowners, EPC contractors, operations be offered against interest and the principal payable to the secured
and maintenance providers, and the collateral package available creditor. In the case of default, the antichresis creditor can have the
or transferable to them, which are all essential to make the project property sold. Because of this repossession requirement of the anti-
‘bankable’. Banks will generally require step-in rights in the assign- chresis, it is used much more rarely than mortgages. However, the
ment of main project contracts that create revenue streams, the contract can provide the pledgor with a right to use the property. A
assignment or pledge of certain project receivables, insurance poli- mortgage can be granted on a building under construction, or that
cies or termination indemnities, liens on essential property interests is merely planned to be constructed if the future owner already has
for the development of the project, and a pledge of the project com- an actual right to build on another person’s land. If the property
pany’s shares. Equity providers may also be asked to deliver a letter is leased to the project company under a long-term lease convey-
of intent with respect to their commitment to complete the project ing title on constructions to the lessee for the duration of the lease
and secure their commitment to release the share capital. Equity pro- (emphyteutic lease), the lessee can grant a mortgage, but the latter
viders are normally subordinate to debt providers. However, certain will be discharged in the event of termination of the lease.
cash sweeps of project resources may be transferable to sponsors Security over moveables (business, equipment, intellectual prop-
before final repayment to debt providers, provided that the project erty rights, shares of the project company) can be granted by way
company has met its outgoings. of pledges or property collateral through a French trust. There is
no blanket lien over all of a debtor’s assets, however the pledge of
Collateral on cash flows and bank accounts a going concern enables a creditor to obtain a lien on a number
French collateral on receivables include assignment of receivables, of assets of the business of the project company as they fluctuate
pledge and delegation. Receivables, including under certain condi- until enforcement: shop sign, commercial name, rights to the lease,
tions future receivables, can be pledged under the general civil code clientele and goodwill, commercial furniture and equipment used
rules. The pledge may also apply to the bank account into which in the operation of the business, and all intellectual property rights
cash is deposited; the pledged bank account allows the creditor to attached to the going concern. The pledge of the going concern does
attach the balance standing to the credit of the account at crystal- not result in a lien on inventory and accounts receivable, certain
lisation. Receivables can be assigned under the technique known as contractual rights and real estate. Further, the existence of a clientele
Dailly as security to the financiers granting a loan to the project is a condition of validity of the pledge; however, until exploitation
company; contingent or future receivables can be assigned provided licences have been granted a future clientele may suffice. Because the
that the debt can be sufficiently identified. It is generally considered pledge on a going concern does not allow attribution of the going
that the Dailly assignment or pledge may be used only in favour of concern to the pledgee, it is seldom used in project financing and
credit institutions from the European Economic Area (EEA). In pub- assets are charged individually.
lic-private partnership (PPP) financings, assignment of receivables
against the public person is limited to 80 per cent of the investments Collateral on contracts
costs engaged in connection with the PPP. Alternatively, receivables French law does not provide for the pledge or assignment as secu-
can be transferred as collateral to a French trust for the benefit of rity for contracts (with the exception of the pledge of procurement
all types of beneficiaries. Delegation is a simplified debt-settlement contract). The collateral is therefore taken on the project company’s
mechanism among three parties in which the delegator delegates its receivables stemming from the relevant contract. Banks will also
account debtor to pay its own creditor, the delegate, the sums owed require a substitution right in concession contracts in the event of
to it in satisfaction of both claims; it is in fact also used as security. a default by the contractors that receives prior approval from the
Delegation can be either with or without recourse from the bank beneficiary of the project subject to the assignee being technically
and financially qualified. This contractual right entitles the banks to

Jeantet Associés AARPI FRANCE
substitute themselves or a third party appointed by them to receive Pledge over intellectual property rights
all or part of the rights and obligations of the project company that Intellectual property rights can be pledged separately from the going
benefited from the financing. This mechanism will generally provide concern. Intellectual property rights are subject to registration with
a more efficient security than collateral on fixed assets or moveables the Intellectual Property Rights Office for a fixed fee.
at the building stage where revenues do not exist and the assets are Certain types of assets such as aircraft are subject to specific
difficult to liquidate. It is to be noted that contracts or contractual regimes of collateral that are not described here.
rights may be transferred as collateral to a French trust and be trans-
ferred to the beneficiary in the case of default. French trusts also French trusts as collateral
ensure effective control of contracts through the rights granted to French trust arrangements require execution of a contract that must
the fiduciary and hence facilitates the assignment of future rights. be registered and appoint a fiduciary. Registration involves a fixed
fee of €125 for moveables and a property publicity fee of 0.825
per cent of the value of the property for real property. It provides
beneficiaries with absolute priority in a French bankruptcy. It may
be enforced notwithstanding insolvency except when the settlor has
received the use of the fiduciary assets transferred to a French trust
as collateral.
Compliance with corporate benefit
The rules for the perfection and priority of security interests depend Guarantees and collateral must meet corporate benefit tests (direct
on the nature of the collateral. Rules for the prioritisation of compet- benefit is required for upstream and cross-stream security) and
ing security interests are based on the perfection date of formalities receive prior approval by the company’s board, under penalty of
required for disputes involving third parties. nullity.
Charges on real property Syndication – security agent or trustee

A contractual mortgage or an antichresis on real property located In the case of syndication, formalities for registration and assign-
in France must be incorporated into a notarial deed prepared by a ment of the security will depend on the nature of the security regime
French notary in order to be valid. Mortgages and antichreses must elected. Anglo-Saxon trusts are not enforceable in France. When
be registered with the mortgage registry of the place where the prop- the security agent acts as an agent the security is registered when
erty is located in order to be enforceable against third parties. The required in the name of each financier. However, formalities in the
registration date determines the rank of the beneficiary on the prop- case of transfer of the secured debt can be avoided either through
erty. Fees and costs are between 0.825 per cent and 5 per cent of the a parallel debt structure (now expressly recognised by the French
amount of the secured claim. The antichresis conveys to the secured Supreme Court in a decision dated 13 September 2011) or through
creditor a retention right that enables it to avoid any priming liens the ad hoc regime of article 2328-1 of the French Civil Code. Under
as long as it retains its charge. the regime of the French trust used as collateral, the security inter-
est is in the name of the fiduciary only. Unless combined with arti-
Pledge over a going concern cle 2328-1 of the French Civil Code, the transfer of rights to new
The pledge of the going concern is registered with the trade and beneficiaries requires the execution and publicity of an amendment
companies registry for a fixed symbolic fee. agreement.
Pledge over shares

The pledge of negotiable shares of joint-stock companies requires 3 How can a creditor assure itself as to the absence of liens with
their transfer to a financial instruments account that is the subject priority to the creditor’s lien?
matter of the pledge. This structure allows the pledge to be auto- For collateral that requires registration for perfection, a search can
matically increased by newly issued shares or revenues related to be carried out on each relevant registry, such as the Land Registry
the original shares. The pledge is perfected by a statement of pledge for immoveable property, or the Trademark and Patent Office for
signed by the pledgor, and gives rise to a certificate of pledge issued intellectual property rights. A lien search certificate, from the tribu-
by the holder of the financial instruments account (either the issuing nal of commerce in the jurisdiction within which the company is reg-
company or a credit institution in France). The statement and the istered, provides information on all prior charges and liens subject to
certificate of pledge are neither registered, nor published. The pledge registration at the Trade and Commerce Registry.
of non-negotiable shares (civil companies, partnerships, limited lia- For collateral that does not require entry into a public registry, in
bility commercial companies) must be registered with the trade and particular, shares of joint-stock companies, or receivables, the credi-
companies registry of the issuing company’s registered office. tor may only rely on representations and warranties of the debtor or
third parties such as the issuing company, a depositary or a custo-
Assignment or pledge over receivables dian regarding the absence of liens.
The Dailly assignment or pledge is perfected through execution of
a simple form that is sufficient to transfer title and can be notified
by simple letter, irrespective of the law applicable to the assigned or
pledged debt. It ensures that creditors have a valuable right to exclu-
sivity on existing and future receivables in the event of insolvency
of the project company; however, under recent case law, courts Subject to bankruptcy procedures, enforcement of collateral is car-
may allocate certain sums to the pledgor in the case of emergency. ried out by way of an auction sale, judicial attribution to the secured
Exclusivity is, however, limited to a pledge and postponed for a non- lender or private attribution, such being not available for enforce-
novatory delegation to the date of payment by the delegated debtor. ment of a pledge over a going concern, provided that, for assets that
are not quoted on a regulated market, an independent expert has
been appointed in order to determine a price. The project lender
can participate in the sale, except for going concerns. Auction sales
take place in euros, but a private sale can be in a foreign currency; have priority over other collateral except property securities (assign-
however, it must specify the equivalent in euros for tax purposes. ment of professional receivables, and fiduciary transfer as collateral).
In order to foreclose on and sell collateral, a creditor must obtain In accordance with Regulation (EC) No. 1346/2000 of 29 May
an enforceable decision stating that its claim is liquid and payable. 2000 on insolvency proceedings, in the event of a secondary pro-
ceeding in France, the proceeds from the realisation of French assets
are paid to the main proceeding only after all creditors with collat-
eral over assets situated in France have been discharged.
(eg, tax debts, employees’ claims) with respect to the collateral? 6 What are the restrictions, controls, fees, taxes or other charges
What entities are excluded from bankruptcy proceedings and on foreign currency exchange?
The general principle of exchange control regulation in France is
that of freedom of financial relationships between France and
foreign countries. However, in order to protect national interests,
French bankruptcy rules apply to all companies registered in France decrees may be enacted from time to time in order to submit cer-
except certain public law entities. Bankruptcy laws include preven- tain exchange transactions, capital movements and payments of
tion proceedings (‘mandat ad hoc’ and conciliation) and insolvency any nature between France and a foreign country to a declaration, a
proceedings (safeguard, including swift financial safeguard, reor- prior authorisation or control by the French administration.
ganisation and liquidation). Prevention proceedings do not affect Money transfers over a certain amount must be reported to the
secured parties’ rights as they are not binding on creditors that are Bank of France for statistical purposes, and certain direct foreign
not party to any accord. Safeguard aims to facilitate the reorgani- investments made in France must be declared to the French Ministry
sation of the enterprise in order to allow the continuation of the of the Economy. Further, capital movements with a few countries
economic activity, the preservation of employment and the settle- are forbidden or subject to prior authorisation. No charge applies to
ment of liabilities and may be commenced when the company is foreign currency movements
facing existing or foreseeable legal, economic or financial difficul-
ties and there has not been a cessation of payment for more than
45 days. Companies may be subject to safeguard even if they have 7 What are the restrictions, controls, fees and taxes on remittances
no employees and they exclusively own the financed assets. Swift of investment returns or payments of principal, interest or
financial safeguard introduced in French law by Law No. 2010- premiums on loans or bonds to parties in other jurisdictions?
1249 dated 22 October 2010 aims at allowing the negotiation of a Investment returns may take the form of distribution by a French
restructuring plan with financial creditors only and then obtaining company of net profits, interests on loans and advances granted by a
the approval of such a plan within one month. Such a proceeding foreign parent company. If the parent company is located in a coun-
is reserved for companies satisfying certain criteria (more than 150 try that does not have a tax treaty with France, the withholding tax
employees and more than €20 million of turnover) and also meeting rates are as follows: 30 per cent on dividends, branch profits and
the general conditions of the safeguard proceeding. royalties, or 24 per cent on interest payments. The same withholding
The safeguard and reorganisation procedures open an obser- tax rates apply to interest or dividends paid by a French debtor to a
vation period limited to six months (that may be extended) that person that does not have its tax domicile or its head office in France
allows for an assessment of the economic and labour situation aris- or where the interest is paid outside of France.
ing from the company’s operations and allows for proposals for the French tax rules on thin capitalisation may restrict the deduct-
continuation or transfer of the business. If none of these solutions ibility of the interest paid by a French company under advances in
seem feasible, the tribunal orders the company’s winding-up. During a current account granted by shareholders or in certain cases under
the observation period, all payments of claims (both secured and a bank facility. According to the French Tax Code, the deductibility
unsecured) and enforcement of securities are stayed; however, the of interest is limited if the amount of paid interest exceeds the three
bankruptcy judge may authorise the debtor or the receiver to pay following limits simultaneously. The first limit is the result of the
debts created prior to the bankruptcy date to allow a creditor who amount of interest multiplied by 1.5 times the shareholder’s equity
has a right of retention over a pledged asset to release such pledged of the borrowing entity and divided by the average amount made
asset. Further, the bankruptcy judge may allow a provisional total or available to the borrowing entity by related parties during the rel-
partial payment to the pledgee, provided, however, that the pledgee evant tax year. The second limit is of 25 per cent of the borrow-
provides a bank guarantee. The secured creditor may enforce its ing entity’s net income before tax, including such interests due to
security interest after the continuation plan or the transfer has been related parties, depreciation deduction and certain lease payments.
approved or after the reorganisation proceeding has been converted The third limit is the amount of interest received by the borrowing
into a winding-up proceeding. However, the stay of enforcement will entity on loans it has itself granted to related parties, or interest paid
affect only collateral over the assets of the project company, not the by the borrowing entity under bank loans granted to it and secured
shares of the project company itself, unless the project company is by related parties, except when the repayment of the bank facility
also subject to insolvency proceedings. The stay of enforcement of has only been secured by a collateral granted by an affiliate company
the project company’s collateral affects the transfer to a French trust over the shares of the borrowing entity.
as collateral only if the asset subject to such transfer is used by the Tax treaties may reduce withholding tax rates. Further, a spe-
insolvent project company. cific exemption from the withholding tax can be granted on interest
The bankruptcy judge may set the insolvency date up to 18 related to the proceeds of loans made outside of France. The French
months prior to the date of the bankruptcy. Any payments for tax authorities make the benefit of the exemption conditional upon
mature debts or any acts for consideration under certain conditions, the fact that the original lender or lenders are all domiciled out-
including the posting of securities, made during that 18-month side of France, at least in respect of all tranches made available to
period are voidable if the creditor to whom the payment was made a French borrower. However, interest paid to foreign branches of
knew that the creditor was insolvent at the time of the payment, and French banks may also benefit from the exemption. Interest paid
are subject to clawback. Preferred creditors, which mainly include by a French company to a legal entity domiciled or established in
the last three months’ unpaid wages and certain tax claims, may a country or territory with a privileged tax system will not be an

allowable deduction from French corporation tax unless the com- administrative formalities. For non-EU citizens, in principle a work
pany can prove that the transaction was real and entered into bona permit is required to carry out a professional activity in France.
fide and that the amount of interest is not exaggerated. Streamlined procedures apply to high-level management staff and
senior executives. Some residency permits allow residency in France
and also act as work permits. This is the case for expatriate sala-
ried employees, temporary workers, those with science expertise and
skill permits. Applications are filed with the local employment office
and reviewed by the French Immigration Authority and the relevant
There is no legal obligation on French project companies to repatri- foreign French consulate. Decisions are normally given within two
ate foreign earnings, nor is there any restriction over their use. months from application. France has entered bilateral agreements
with a number of countries, including the United States and Canada,
9 May project companies establish and maintain foreign currency which facilitate the requests for work authorisations and rights to
accounts in other jurisdictions and locally? exercise professional activities.
Employees and senior executives who are assigned by a foreign
Subject to limitations imposed by trade sanctions, the opening of
company to a company based in France are not required to pay tax
any foreign currency account in other jurisdictions must be reported
on their expatriation bonus for the first year of their arrival and the
to the French tax authorities.
following five years. They are taxed only on French income.
Within the EU member states there are no restrictions regarding the
importation of project equipment, with the exception of items that
might affect public safety, health, the protection of the environment,
public morality, public policy or public security, or the protection of
any bilateral investment treaties with key nation states or other
industrial and commercial property. With non-EU states, customs
international treaties that may afford relief from such restrictions?
duties (and VAT) on equipment imports may apply, and a customs
declaration is required (using a single administrative document).
authority?
France is a member of the World Trade Organization and
French policy on foreign direct investment is based on non- accords most-favoured-nation status to countries on a reciprocity
discrimination between foreign and local investors, with the excep- basis.
tion of certain sectors of the economy that are considered sensitive,
essentially activities likely to jeopardise public order, public safety or
national defence interests, such as trade in weapons, or equipment 14 What laws exist regarding the nationalisation or expropriation
used in warfare, or business under contract to supply research or of project companies and assets? Are any forms of investment
equipment to the Ministry of Defence. specially protected?
Foreign direct investments in sensitive sectors are subject to prior Expropriation on French territory is regulated by the Expropriation
approval from the Minister for the Economy. The following are now Code, and is restricted to circumstances where public interest can
considered as a foreign investment: the acquisition of the control of be demonstrated, under a procedure giving rise to an audit and
a French company; the acquisition of all or any part of an economic appeal. It is carried out on a non-discriminatory basis between
branch of a French company; or the crossing of the threshold of 33 French nationals and foreign nationals. Compensation is awarded
per cent of the share capital or voting rights of a French company. covering direct and certain damages. Nationalisation may be car-
The Decree No. 2012-691 dated 7 May 2012 removed from the ried out only by virtue of a statute voted by the French parliament.
scope of the foreign indirect investment regulation indirect acquisi- The French Constitutional Council has set rules for fair and prior
tion of an economic branch and indirect crossing of the threshold of indemnification.
33 per cent of the share capital or voting rights of a French company.
11 What restrictions, fees and taxes exist on insurance policies 15 What tax incentives or other incentives are provided preferentially
over project assets provided or guaranteed by foreign insurance to foreign investors or creditors? What taxes apply to foreign
companies? May such policies be payable to foreign secured investments, loans, mortgages or other security documents,
creditors? either for the purposes of effectiveness or registration?
There are no restrictions on policies being payable to secured foreign A broad and varied framework of support has been set up in France
auditors. Insurance from an insurer from the European Union or in response to the needs of investors. This support depends on the
EEA is required in respect of persons, property or responsibility situ- type of investment project (productive investment, job creation,
ated in French territory with the exception of maritime and aviation innovation, training, etc), the location of the investment project
transport insurance that can be contracted with an insurer from a (priority development zones or non-priority zones) and the type
non-EU or EEA state. If no proper insurance for a specific risk can of company (large corporation, SME). French authorities support
be provided by a local, EU or EEA insurer, the French Prudential investment projects that favour:
Control Authority can derogate from the above and allow the con- • productive investment in economically disadvantaged regions
tracting party a policy from a foreign insurance company. French and regions in the process of industrial redevelopment (except
insurance companies are required to adhere to reinsurance mecha- where this concerns the steel and synthetic fibre sectors), these
nisms. Cut-through clauses may be provided. regions being specifically indicated on a map approved by the
European Commission (National Regional Aid map);
12 What restrictions exist on bringing in foreign workers, technicians • business research and development (R&D) projects;
or executives to work on a project? • professional training programmes initiated by business;
• job creation for the employment of defined groups;
EU and EEA nationals can be employed and can establish them-
selves independently in France as of right, subject to certain
• investment and job creation by SMEs in all parts of the country; 25 years. Former mining concessions with unlimited duration shall
and expire on 31 December 2018.
• protection of the environment.
With the exception of support for productive investment, which is
specifically zoned, the French authorities can provide support to
companies all over France for research and development and inno- The holders of exploitation rights for liquid and gas hydrocarbons
vative projects, staff training programmes, as well as projects for the with the exception of offshore deposits must pay the state a roy-
protection of the environment. Public support may be granted by the alty calculated on the basis of the volume and age of production
national government or regional and local authorities. If assistance (old productions are those placed in service before 1 January 1980).
is received from several different sources, the total may be up to the Royalties on mines and quarries calculated on a yearly basis can
allowed limit. Public assistance providing effective support for busi- be reduced in accordance with investment. A distinct royalty is due
ness start-ups, job creation, investment and business development from the holders of permits of subsurface exploitation to the owners
may come in the form of subsidies or tax exemptions. Community of the surface.
law requires such assistance to be of the nature of an incentive, and
therefore it must be applied before the project gets under way. 19 What restrictions, fees or taxes exist on the export of natural
France’s officially recognised competitiveness clusters bring resources?
together business, scientific and technical institutions and public
There are no restrictions on exports to EEA member states, and no
bodies with interests in a particular sector in a given geographical
general restriction on the export of natural resources to countries
area. Businesses participating in a competitiveness cluster and con-
outside the EEA, other than the applicable customs regulations.
ducting R&D projects approved by the cluster may benefit from
support in the form of grants from public organisations supporting
R&D. Businesses may also benefit from tax exemptions amounting
to up to €200,000 per company over three years, provided they are 20 What government approvals are required for typical project finance
in a zoned R&D area. transactions? What fees and other charges apply?
In respect of mining research or exploitation, French law distin-
Government authorities
guishes between dangerous projects and non-dangerous projects.
16 What are the relevant government agencies or departments with Research or mining exploitation is subject to an authorisation if it
authority over projects in the typical project sectors? What is the materialises ‘serious dangers to general interests’ (environmental,
nature and extent of their authority? What is the history of state archaeological, safety, etc), otherwise a mere declaration will be suf-
ownership in these sectors? ficient. Petrochemical plants or storage facilities for toxic products,
liquefied gas or a power plant are subject to prior approval. The
See question 12.
competent administrative authority is either the prefectural author-
Under the influence of EU liberalisation and free competition
ity for mining and quarrying or the Atomic Energy and Alternative
programmes, France has allowed the private sector into utilities
Energies Commission (CEA) for deposits containing substances use-
activities. Although the state keeps golden shares in certain compa-
ful for atomic energy. Before granting the authorisation, when the
nies considered essential for France’s sovereignty, it has largely priva-
authorisation request is complete, the prefectural authority sends
tised companies that are in transport, water treatment and chemical
the request to the President of the Administrative Court within two
refining. However, France has granted public service concessions to
months, proposing the dates for the opening and closing of the pub-
certain private companies, which has facilitated the development of
lic inquiry, and simultaneously informs the applicant. The President
leaders in a number of sectors.
of the Administrative Court then appoints an investigating commis-
sioner within two weeks. At the same time, municipalities and the
concerned authorities must be consulted.
17 Who has title to natural resources? What rights may private In addition, local construction and site permits are required for
parties acquire to these resources and what obligations does the construction projects. The French Financial Markets Authority and
holder have? May foreign parties acquire such rights? the Bank of France are responsible for granting certain approvals to
carry out activities in the banking and financial sectors.
The state has legal title on natural resources that are either mined
In respect of photovoltaic installations, the Law No. 2010-788
or quarried, regardless of the ownership of the surface, which can
dated 12 July 2010 requires that exploitation of any photovoltaic
be held by a private person. Local or foreign entities may acquire
installation shall be approved by the Ministry for Energy. However,
research or concession permits granted by the state. Nevertheless,
in accordance with the Decree No. 2011-1893 dated 14 December
exploitation permits may be granted only to commercial companies
2011, exploitations of installations, the power of which is less than
incorporated in an EU member state.
or equal to 12MW, are deemed to be approved.
A permit for exploration of natural resources is granted for an
Construction of offshore wind installations is subject to approval
initial period of a maximum of five years, renewable twice at the
when the cost of such installations exceeds €1.9 million and also
request of the permit holder, for a duration of five years each, under
declaration to the prefect if such costs are comprised between
the same conditions as the previous permits (except that the surface
€160,000 and €1.9 million. The approval is granted after a public
area of research permits for liquid or gas hydrocarbons is reduced
inquiry and may be withdrawn or modified without any indemnity
by half for the first renewal, and to a quarter for the second renewal,
in the event of threat to public security and to the aquatic environ-
but not less than 175 square kilometres). Such permits are renewable
ment or if installations are abandoned or are not subject to regular
as of right for three years or the duration of the previous permit if
maintenance. Exploitation of offshore wind installations is subject
less, if the permit holder provides the same pro rata financial means
to the same regime as that applicable to photovoltaic installations,
according to the surface designated for exploration. While a research
except that the threshold of energy produced is equal to or under
permit is valid for only five years, its holder may obtain a concession
that where approval has to be obtained, which is set up at 30MW.
within the surface area included in the research permit.
Since 1994, initial mining concessions can no longer exceed 50
years, but are indefinitely renewable for a maximum duration of

21 Must any of the financing or project documents be registered or authorisations and permits delivered by the French state or local
filed with any government authority or otherwise comply with legal constituencies, and insolvency laws of entities having their head
formalities to be valid or enforceable? office or their main centre of interest in France. The financing docu-
Contracts are required to be in French when they are entered into by mentation may be governed by foreign law, subject to compliance
public or private entities commissioned to execute a public service with banking monopoly laws.
mission, under a law of 4 August 1994, unless such contracts are French law is frequently used in project financing, contractual
fully performed outside of French territory. However, financing con- and financing agreements having a French element, irrespective of
tracts do not generally fall under this prohibition because the object the place of the project or the nationality of contractors or financiers.
of the financing does not directly and specifically relate to the mis- As regards collateral, parties are free to choose a foreign law
sion. The law does not apply to documents that are received from, to govern the security interest whether in personam or in rem, pro-
and thus executed, outside of France involving foreign nationals, or vided there is a cross-border element in the transaction and that
that concern the international activities of a company. they elected a legal instrument that has an equivalent in French
Independently from the aforementioned statute, French is man- law (for instance, a floating charge would not be recognised).
datory for all contracts that are notarial (mortgages, antichreses and Notwithstanding the foregoing, French law will apply to formalities
all other guarantees if the parties opt for a notarised deed). Certain for the opposability vis-à-vis third parties, and the order of priority
security documents also require the use of the French language, rights in enforcement.
either by virtue of French statute (eg, pledge of financial securities
account, Dailly) or as a result of filing requirements (eg, pledge of 24 Is a submission to a foreign jurisdiction and a waiver of immunity
going concern). Finally, all documents submitted to a court of justice effective and enforceable?
that are drawn up in a language other than French require a sworn
translation in French. French merchant parties may submit themselves to the jurisdiction
Legal formalities will be required either as a matter of validity of foreign courts. The French state remains attached to preserving
or for enforceability purposes with regard to third parties. Mortgage immunity of jurisdiction and enforcement, but has agreed to limit its
deeds need to be notarised and attract publicity formalities and effects depending on the nature of activities exercised and the alloca-
requirements based on the value of the secured claim. Pledges over tion of the funds or assets affected by enforcement.
going concerns, non-negotiable shares, intellectual property rights
and French trusts used as collateral must be registered or filed with Environmental, health and safety laws
specific registries, for a fixed fee (see question 2).
The optional registration of project documents (accompanied by
a translation into French certified by a sworn translator) with the
local tax authorities in the jurisdiction in which one of the parties There are no restrictions on exports to EEA member states, and no
thereto has its registered office in France would confer a date certain general restriction on the export of natural resources to countries
upon such project documents preventing any challenge as to the date outside the EEA, other than the applicable customs regulations.
thereof in the absence of fraud.
France is a signatory to the 1961 Hague Convention abolishing Project companies
the requirement of legalisation for foreign documents and stating
that an official declaration such as registration or signature certi-
fication will be binding in France if the security is certified by an
companies?
apostille in the jurisdiction in which the security was executed. The
procedure is normally very simple and will normally cost only a Project companies are usually established as a special-purpose entity
modest fee, if anything at all. The security is subsequently not subject that engages in a single project, so as to insulate the assets and rev-
to any further certification or authentication in France. enues offered as security. They are generally organised as limited
liability companies but are sometimes set up as unlimited liability
companies or partnerships. Within the European Union, limited
22 How are international arbitration contractual provisions and liability companies may take the form of a European company, gov-
awards recognised by local courts? Is the jurisdiction a member erned by the law of the country where its head office is located.
of the ICSID Convention or other prominent dispute resolution French trusts have been also considered as a substitute struc-
conventions? Are any types of disputes not arbitrable? Are any ture for the special purpose vehicle, holding all project assets and
types of disputes subject to automatic domestic arbitration? liabilities and managing the project and holding assets and receiva-
Arbitral awards are recognised and declared enforceable through bles as security for various classes of creditors. The French trust may
a procedure of exequatur before the Tribunal de Grande Instance. directly contract bank facilities needed for the project financing, but
Grounds to refuse an exequatur are limited to due process control, as it does not have legal personality, it is not able to issue bonds in
and the enforcement of the award not being contrary to interna- the financial market; bonds could be issued by a finance company
tional public policy. France is a long-time member of the ICSID owned by the sponsors, which would then contribute the proceeds
Convention on the Settlement of Investment Disputes between States of the issue to the French trust.
and Nationals of Other States, and of the New York Convention. Financings available to project companies include grants and
Public policy excludes arbitrability of certain matters including subsidies, public loans, international sponsors’ equity or debt and
bankruptcy, labour and immigration law. private bank debt. Debt-to-equity ratios depend on the sectors.
Various French law debt instruments are available to issue subor-
dinated, high-yield or convertible bonds. France has active public
securities markets on which project financing debt can be traded.
The parties may freely choose the law applicable to the project, pro-
vided that the choice is not intended to avoid French public order
laws. French law will mandatorily govern property law aspects, tax
and customs duties, labour and safety law, environmental aspects,
Public-private partnership legislation through PPP grew steadily and have now become a ‘budget time
bomb’. The volume of PPP investments reached €5.6 billion in
27 Has PPP enabling legislation been enacted and, if so, at what 2011;
level of government and is the legislation industry-specific? • limitations on divesting public functions or duties to private par-
The general regime of PPP-enabling legislation was enacted by ticipants – the state’s management of a public service cannot be
the Ordinance of 17 June 2004, regarding contracts between the divested to private entities. Nevertheless, the state can divest to
state, public institutions, local authorities and private entities. It has a private entity the maintenance, upkeep, use or management of
completed and extended industry-specific PPP legislation, which works, equipment or immaterial things necessary for the public
covers Internal Affairs (Law of 29 August 2002), Justice (Law of service. In addition, the public person cannot delegate the use of
9 September 2002), Defence (Law of 27 January 2003) and Health a responsibility related to the state’s sovereignty (such as the use
(Ordinance of 4 September 2003). of police powers); and
The general PPP regime was recently overhauled with a view • limitations on the state’s contracting with private participants –
to increasing its attractiveness by the Law of 28 July 2008, the certain persons are ‘disqualified’ from entering into a PPP with
Law of 4 February 2009 (which provides that certain infrastruc- a public person, such as persons found guilty of certain tax and
ture projects situated in France and considered ‘essential’ by the penal offences, or subject to bankruptcy procedures.
Support Committee for Public-Private Partnership Contracts may
benefit from the state’s guarantee) and the Law of 17 February 2009 PPP – transactions
(which provides that certain PPP projects are eligible for loans from
the Deposits and Consignments Fund). The general PPP regime is 29 What have been the most significant PPP transactions completed
now codified in the Local Government Code of Practice, in article to date in your jurisdiction?
L1414-1 et seq. The most significant PPP transactions signed to date in France
include the following projects.
PPP – limitations
Transport project related to the high-speed line (LGV) Nîmes-
28 What, if any, are the practical and legal limitations on PPP Montpellier (80km)
transactions? The PPP contract for the future LGV Nimes-Montpellier line for
Projects are available for PPP financing if they meet one of the alter- circulating both freight trains and passenger was entered into in
native criteria of urgency, complexity or cost and benefit analysis. A January 2012 between Réseau Ferré de France and OC’VIA, a com-
public person can only enter into a PPP with private participants if: pany whose shareholders are Bouygues Construction and Colas,
• given the complexity of the project, the public person cannot SPIE Batignolles, Alstom, infrastructure Meridiam and FIDEPPP.
alone provide the technical means corresponding to its needs or The project is the first phase of the LGV to be realised between
carry out a financing plan; Nîmes and Perpignan. The transaction represents a total investment
• it is urgent to accomplish a particular project in the public of €2.06 billion, including €1.84 billion under the PPP. Financings
interest; during the construction phase are provided by no less than 11 com-
• an unforeseeable situation has arisen; or mercial banks (Bayern LB, BBVA, BTMU, DZ, KFW, HSBC, Mizuho,
• recourse to a PPP is more advantageous than other types of pub- Natixis, SMBC, Societe Générale and Unicredit) in an amount of
lic procurement contracts. nearly €1 billion. During the exploitation phase, the Deposits and
Consignments Fund and the European Investment Bank (EIB) will
The award of a PPP is made in accordance with one of the following carry out the long-term refinancing of the PPP secured by RFF.
procedures:
• the ‘tender procedure’, available if the project is urgent; The property project of the Ministry of Defence building complex
• the ‘competitive dialogue procedure’, corresponding to the exist- in Balard (in Paris’s 15th district)
ence of the ‘complexity’ criterion; and An agreement was signed on 31 May 2011 by a pool led by Bouygues
• the ‘negotiated procedure’, available if the project meets the ‘bal- Bâtiment Ile-de-France, Exprimm and Thales for a total amount of
ance’ criterion. €3.5 billion. The partnership contract with a duration of 30 years
covers the financing, design, construction, restructuring, renovation,
Other limitations restrict the availability of PPPs: operation and maintenance of buildings. The French ‘Pentagon’
• budget sustainability and limitations on the state’s incurring will group 9,300 individuals in a single location of 320,000 square
long-term fiscal obligations – by entering into a PPP the state metres, including, in addition to the Army operational centres, com-
must not increase the public deficit. Since 2004, when the PPP puter networks, centres of restoration, accommodation for 900 peo-
legal framework was created, the volumes of investments made ple, media centres and conferences, nurseries, a swimming pool and
Jean-François Adelle jfadelle@jeantet.fr
87 avenue Kléber Tel: +33 1 45 05 80 08

75116 Paris Fax: +33 1 47 04 20 41
France www.jeantet.fr

gyms. This is the largest construction site in Paris in the past 15 Prisons
years. Although the French Minister of Justice, Mrs Christiane Taubira,
declared she was opposed to this mode of financing, she endorsed 10
The property project of the Ministry of Justice courthouse in the PPPs for new prisons (Béziers, Le Havre, Le Mans-Croisettes, Lille-
Batignolles, Paris, 17th district Annoeullin, Lyon-Corbas, Nancy, Nantes, Poitiers-Vivonne, Roanne
Bouygues will carry out this contract in the north west of Paris, in and centre pénitentiaire Sud-francilien in Seine-et-Marne). The total
the Batignolles district and in the form of ‘public-private partner- amount of rent instalments for these projects amounted to €122.8
ship’ (PPP). The partnership contract covers the financing, design, million in 2013. The total cost of the programme will amount to €4
construction, service and maintenance for 27 years of the new Paris billion.
courthouse. The construction group will design and construct the Three other PPPs have been signed to replace prisons that would
building for a total amount of €575 million. Exprimm, a Bouygues otherwise fall into disrepair in Riom, Valence and Beauvais.
subsidiary, will carry out the exploitation and maintenance of the
building for €12.8 million per year, namely, €345 million over 27 The Arena of Dunkirk
years. The transaction will represent a total investment of about €1 This contract signed by Vinci for 332 months corresponding to the
billion. conception, financing, construction, exploitation and the mainte-
nance of the future sports venue. The total investment is €112.4 mil-
Campus project in Grenoble lion. The public body (the Dunkirk Urban Community) will have
In July 2013 a PPP was signed between the Université de Grenoble, to pay a yearly royalty instalment of €6 million for 27 years under
the French state, Metropole of Grenoble, the Rhône-Alpes region this contract.
and Alias on the first site and GCC group on the second. ‘Opération
campus de Grenoble’ is the largest investment made in university
infrastructure in the past 30 years. The investment amounts to
approximately €70 million. This project covers both renovation and
construction works in three locations on the campus.
GEORGIA Colibri Law Firm
Georgia
Revaz Javelidze and Nino Begalishvili
Colibri Law Firm
Creating collateral security packages In the first case, a lien is only secured (perfected) by transfer of
the collateral into the possession of a pledgee. As for the registered
1 What types of collateral are available? security interest, a written agreement between the parties should be
Since it gained independence, Georgia has moved quickly to intro- concluded and registered at the National Agency of Public Registry
duce the concept of collateral and, more generally, of security inter- under the Ministry of Justice of Georgia (Public Registry) except for
est in its legislation governing the performance of an obligation. the pledge of vehicles, which is registered with the Service Agency of
Under Georgian law, almost all types of property can be the subject the Ministry of Internal Affairs of Georgia. However, collateral may
of a security interest. Only the owners of the property or rights can be transferred in the ownership of a creditor only in the form of the
pledge such property or rights. A pledge in favour of a third party is registered security interest, and this must be directly stipulated in the
also permitted under Georgian law. Of the types that are available agreement.
and legally permitted in the context of Georgian law, real estate, As for mortgages of immoveable property, a mortgage is created
immoveable and moveable property, buildings, leaseholds, goods in by its registration in the Public Registry. The registration is carried
turnover and shares are among the most popular. out pursuant to an established procedure, namely, by the presenta-
Under Georgian law, moveables and intangible property that tion of the mortgage agreement by a party to such agreement. The
are transferable to another person may be used as security for a agreement should indicate the identities of the owner of the immove-
claim. Therefore, securities, claims and rights may also be pledged able property, the mortgagee and any third party debtor, as well as
as collateral provided always that the pledger is the owner of such the extent of the secured claim, the interest thereon and the period
securities and rights. The security interest in securities is granted pur- of time for performance, and other conditions upon the mutual con-
suant to the procedure prescribed for the acquisition of ownership sent of the parties.
of securities. The parties may also agree on the issue of the mortgage certifi-
Licences of activity and concessions are granted specifically to cate by the Public Registry to the creditor, which should be registered
the respective holder on an individual basis, considered inalienable with the Public Registry. Additionally, the agreement, by which the
and are, therefore, non-transferrable under Georgian law. parties agree on the issue of the mortgage certificate, is notarised.
The moveables that will be acquired in future and intangible Further, the same notary will notarise further legal actions related to
property may be also used as a security for a claim. In this case, the the mortgage agreement.
security interest is created from the moment the property is acquired The following documents should be submitted with the Public
and the priority of the claim is determined according to the registra- Registry for registration of the security:
tion of the security interest. A mortgage may likewise be used to • electronic application;
secure future or contingent claims if these claims can be determined • copy of the ID of the applicant;
at the time of creation of the mortgage. • duly certified mortgage or security interest agreement (the par-
The most important Georgian legislation applicable to different ties may confirm their signatures at the registry);
types of security interests include the Civil Code of Georgia dated 26 • proof of payment of the state registration fees; and
June 1997, as amended (Civil Code), the Law of Georgia on Licences • duly authorised power of attorney and the copy of the ID of the
and Permits, dated 24 June 2005, as amended (Law on Licences) and representative (in the case that the representative submits the
the Law of Georgia on Securities Market, dated 24 December 1998, application on behalf of the parties).
as amended (Securities Law).
The mortgage agreement concluded to secure the claims deriving
from the loan agreement must be notarised. However this does not
apply to mortgage agreements concluded by commercial banks,
micro financial organisations, non-banking depositary institutions,
namely, credit unions and qualified credit institutions.
With the exception of the notary fee and registration fee for the
registration of the immoveable property mortgage, no stamp, regis-
tration or similar tax or charge is payable in Georgia.
Perfection of the security interest in the context of Georgian law The secured creditor is entitled to priority over other creditors
mainly means its registration with the appropriate authorised gov- in the satisfaction of his or her claim at the expense of the collateral.
ernment agency. One and the same object may be pledged or mortgaged repeatedly.
Georgian law provides two types of the security interest: The order of priority is determined in accordance with the registra-
• pledge by transfer of the right of possession; and tion or creation date. As for the pledge applicable to the property
• pledge by registration of the security interest. acquired in future, when the pledger actually acquires such property
the security interest created for the benefit of the previous owner

Colibri Law Firm GEORGIA
of the property has a priority over the security interest created for In respect of mortgages, according to Georgian law, provided
the benefit of a new owner, notwithstanding the moment of their the debtor delays the performance of the obligation secured by the
creation. mortgage, the ownership rights to the mortgaged property may be
transferred to the creditor upon joint application of the mortgagor
and the creditor with the Public Registry. In the event the debtor
delays the performance of the obligation secured by the mortgage,
and the ownership rights to the mortgaged property are not trans-
In relation to pledges and mortgages, the creditor may obtain infor- ferred to the creditor, upon the agreement of the parties and pro-
mation issued by the Public Registry prior to entering into a pledge vided the notary public has clarified in writing legal consequences
or mortgage transaction, certifying the absence or existence of any of the issue of the enforcement sheet in the notary act, the notary
liens with respect to the given immoveable property. public issues the enforcement sheet. Compulsory enforcement based
In relation to the collateral created by transfer of the posses- on the enforcement sheet issued by the notary public is performed in
sion rights over the moveable property, the creditor cannot obtain accordance with the Law Enforcement Proceedings, dated 16 April
information on existing liens from state agencies and may only rely 1999.
on the representation of a pledge provider. Under Georgian law, the Further, the mortgagee is entitled to demand the realisation of
latter has responsibility to inform the creditor regarding any existing the mortgaged property if the mortgagor fails to perform the secured
liens. This is, however, not the proper protection for the creditor to obligation, unless otherwise envisaged by the mortgage agreement.
seek. In a worst case scenario, the creditor may claim damages for Realisation of the mortgaged property is commonly carried out
the breach of this obligation by the pledge provider in a court of law. through an auction sale provided there is a written agreement of
the mortgagor and the mortgagee. They should also jointly appoint
4 Outside the context of a bankruptcy proceeding, what steps a specialist to organise and hold the auction. Further, the mort-
should a project lender take to enforce its rights as a secured gagor and the mortgagee may agree on a different procedure for
party over the collateral? realisation of the property. Please note that, upon the agreement,
the realisation of or the ownership transfer to the property may be
Under Georgian law, pledges can be enforced should either the
performed by a notary public on the basis of the enforcement order.
pledge provider, or borrower (if the borrower and pledge provider
Should the mortgagor and the mortgagee not agree on procedures
are not the same person), fail to perform or inadequately perform
for realisation of the property, the court, on the basis of the mort-
the secured obligation.
gagor’s application, will decide to realise the property via a com-
The enforcement procedure for mortgages (over the immoveable
pulsory auction. However, the mortgagor or any person with the
property) is different from that of pledges (over the moveable or
consent of the mortgagor or third person, or both, whose rights may
intangible property).
be impaired as a result of the auction, are entitled to avoid the auc-
In the case of moveable or intangible property, the secured credi-
tion by satisfaction of the secured obligation prior to holding such
tor should be satisfied through either realisation of or the ownership
auction. In such a case, the court will determine the fact of possible
transfer of the collateral, unless otherwise envisaged by the pledge
impairment of the third person’s rights. However, the auction may
agreement. If the same property is pledged several times, any secured
be stopped if, prior to holding the auction, the mortgagor or a third
creditor has the right to request realisation of that property when the
person, entitled to satisfy the mortgagee, pays the respective amount
performance of the obligation is due.
and covers all other applicable expenses.
Please note that a demand of the secured creditor to transfer
A specialist holds the auction. The venue and time of the auction
ownership of the collateral is immediately satisfied. If realisation
are announced publicly. The initial price of the property is deter-
of the collateral depends upon the prior performance of some legal
mined with due consideration of the amount of procedural costs
action (namely, for the benefit of third parties), then the secured
and creditor’s claims. However, if the respective price is not offered
creditor may demand that the pledge provider perform such action.
during the first auction, the specialist appoints the second auction
If the debtor fails to do so within two weeks, then the secured credi-
within ten days. At the second auction, the initial price will be half
tor is entitled to perform the needed action on behalf of the pledge
of the price offered at the first auction or less upon the consent of
provider towards third parties. However, the secured creditor may
the mortgagee. If the mortgaged property is not sold upon the agree-
demand the ownership transfer to the pledged vehicles, for instance
ment of the mortgagor (owner of the property) and the mortgagee,
without court proceedings, upon submission of the security certifi-
the obligation (claim) may be satisfied through the ownership trans-
cate with the respective enforcement agency.
fer to the immoveable property to the mortgagee. Otherwise, the
The secured creditor is obligated to notify the pledge provider
specialist holds the third auction, which should be organised in such
and other creditors (if any) in writing two weeks prior to the pos-
a manner that the property is finally sold.
sible realisation of the property. However, the sale may be executed
Under Georgian law, the court, on the basis of the mortgagee’s
without written notification provided:
application, and within the framework of the compulsory auction,
• there is a real danger in the decrease of the market or stock price
may decide upon the compulsory administration of the property
of the property; and
(sequestration). In such a case, the court designates the sequestra-
• the property is perishable.
tor who, among others, may also be the mortgagee. Prior to ruling,
the court hears persons, registered with the Public Registry, whose
Nevertheless, the creditor loses the right to realise the property
rights may be impaired by the sequestration. The sequestration ends
should the pledge provider perform the secured obligation within
as soon as the mortgagee is satisfied or when it is evident that the
any period of time from the date of notification until the realisation
mortgagee cannot be satisfied through the sequestration.
of the property. Upon the agreement between the pledge provider
and creditors, the former may realise the object on his or her own.
Additionally, the said parties may agree on procedure for realisation
of the collateral with due consideration of interests of other credi-
tors, which is different from what is stated above.
5 How does a bankruptcy proceeding in respect of the project There are no applicable taxes, fees or charges for such transactions
company affect the ability of a project lender to enforce its rights unless carried in banks where respective bank charges will apply.
as a secured party over the collateral? Are there any preference It should be noted, however, that in the case of cross-border
periods, clawback rights or other preferential creditors’ rights foreign currency transfers, the purpose of such a transfer must be
(eg, tax debts, employees’ claims) with respect to the collateral? indicated in applicable transfer documents. Additionally, where the
What entities are excluded from bankruptcy proceedings and amount of foreign currency exceeds 30,000 lari or equivalent in
what legislation applies to them? What processes other than another currency, the local banks are required to request, and the
court proceedings are available to seize the assets of the project transferee must present, the copy of a contract or reasons for foreign
company in an enforcement? currency transfers. Such documents are kept by the bank.
Upon insolvency of the project company, the project lender is
regarded as a secured creditor and is a fourth-tier creditor in the list 7 What are the restrictions, controls, fees and taxes on remittances
of creditors under the Law of Georgia on Insolvency Procedures. of investment returns or payments of principal, interest or
The list of creditors upon insolvency may be summarised as premiums on loans or bonds to parties in other jurisdictions?
follows:
• first tier – procedural expenses; After paying all applicable taxes, foreign investors have a right
• second tier – indebtedness of the debtor arisen after the court to repatriate incomes (profits), dividends from the investment in
renders ruling on opening insolvency proceedings; Georgia without any restrictions. Foreign investors are entitled to
• third tier – all costs and expenses related to the appointment of export their property abroad.
the custodian and carrying out his or her obligations; From the tax perspective, foreign companies are subject to tax
• fourth tier – payments that are due to all secured creditors, on Georgian-source income only, subject to double taxation treaty
including those secured as per the Tax Code of Georgia (secured relief. This Georgian-source income is either taxed applying a reg-
either by a pledge or by a mortgage; either by goods or by ular taxation scheme (namely, the scheme applicable to Georgian
excised goods); companies, that is, 15 per cent of taxable income) if it is earned
• fifth tier – tax indebtedness; through the permanent establishment of a foreign company (PE) in
• sixth tier – all other acknowledged unsecured claims; and Georgia, or is subject to withholding tax if it is not earned through
• seventh tier – creditors’ claims presented after the deadline for a PE. The withholding tax rates vary. For instance, dividends and
filling the claims. interest paid to individuals and non-residents are taxed at a 5 per
cent tax rate, whereas interest paid to resident banks, interest paid
Each claim is met after claims of the previous tier are fully upheld, by financial institutions or interest paid on free-floating securities are
unless otherwise unanimously agreed by the creditors. In the case exempt from withholding tax.
of the distributable amount not being enough for meeting claims of Payments by a Georgian legal entity for telecommunication
one tier, these claims will be met proportionally to claims of each and transportation services, international freight forwarding, and
creditor of this tier. The bankruptcy manager (receiver) is entitled to transportation of passengers are subject to taxation at a 10 per cent
make payments for creditors’ claims either by lump sum payments tax rate. The 4 per cent tax rate applies to income received by a
or by instalments. In the case of receiving partial refusal on his or her non-resident subcontractor during the implementation of activities
claims, the creditor of any tier is authorised to gain priority in meet- specified in the Law of Georgia on Oil and Gas. Payments of other
ing claims compared to the same tier creditors only. However, this Georgia-source income of foreign companies not connected to their
requires the approval of all creditors within the same tier. Further, in permanent establishments in Georgia (including lease) are subject to
the case of receiving partial refusal on his or her claims, the creditor taxation at a 10 per cent tax rate.
has the right to request regrouping or reshuffling of creditors within
the same tier upon the consent of all creditors in the said tier. 8 Must project companies repatriate foreign earnings? If so, must
Claims of the secured creditors may be satisfied only at the they be converted to local currency and what further restrictions
expense of proceeds received via auction from the sale of all pledged exist over their use?
property during the bankruptcy proceedings. However, in the event
As already stated under question 6, foreign individuals and com-
the property under custody is not sold on the third auction, the cred-
panies, upon payment of all applicable taxes, have the right to con-
itors are entitled to share ownership of the property under custody
vert profits (income) received in Georgia into the preferred foreign
pro rata to their respective claims. Claims of the secured creditors
currency (subject to availability) at the official exchange rate at
are met as follows. Unless the mortgage (pledge) agreement provides
Georgian banking institutions, and repatriate an unlimited amount
otherwise: if, in the case of the partial sale of the property, the mort-
of money abroad, with due consideration of regulations affecting
gaged or pledged property is sold at a price more than the claim
foreign currency transfers.
of the secured creditor, the creditor will receive only the amount
claimed while the remaining amount will be deposited in the joint
claims account. However, if the proceeds of the sale are less than the 9 May project companies establish and maintain foreign currency
claim of the secured creditor, such creditor will receive the amount accounts in other jurisdictions and locally?
obtained through the auction, while the remaining debt will be pro- Investors are entitled to open current, savings and other accounts
ceeded as unsecured claims. in any currency with banking institutions located in the territory of
Claims of foreign creditors are treated the same as claims of Georgia.
local creditors. However, foreign creditors may be afforded addi- Under Georgian law, non-resident legal entities that are operating
tional time for their respective claims. in Georgia, either through their representative offices or otherwise,
may open and maintain hard currency and Georgian lari accounts.
Foreign exchange issues These accounts may be opened only with authorised banks, namely,
those Georgian commercial banks that are licensed by the National
Bank of Georgia. A non-resident may hold an unlimited number of
hard currency and Georgian lari accounts in its own name, either in
Georgia has relatively liberal legislation on this matter and, subject one or in several authorised banks. Interest may be accrued on funds
to availability, individuals or project companies may exchange (in kept in all such accounts.
the preferred currency) as much foreign currency as they require.

Non-residents are allowed to keep funds in Georgian lari • activity related to the production, processing, import, export,
accounts, provided that these funds are received from the sale of shipment, wholesale supply and fabrication of new types of psy-
foreign currency on the foreign exchange market of Georgia, the chotropic medicines under special control; and
sale of goods (services) imported to Georgia and other activities of • energy dispatching activity.
non-residents in Georgia.
Non-residents are authorised to use funds on their Georgian lari Specific limits apply to economically important strategic areas.
accounts for: Namely, investors are allowed to invest in Georgia in the following
• the purchase of foreign currency on the foreign exchange market fields, but without the right of management:
of Georgia; • activity related to regulation, security and control of movement
• import operations in Georgia; of sea-transportation in the territorial waters and seaport zones
• operations pertaining to privatisation of state property in of Georgia;
Georgia; • railway transportation activity;
• investment activities in Georgia; and • activity related to the regulation, security and flight control of
• other operations, which are not prohibited by the Georgian aircraft in the airspace of Georgia;
legislation. • manufacture and realisation of military technology including
producing and testing of new and modified weaponry in agree-
Non-residents are allowed to maintain funds in their hard currency ment with the National Security Council of the president of
accounts, provided that these funds are: Georgia, for the purpose of the enhancement of the defensive
• imported or transferred from abroad; capability of the country;
• purchased on the foreign exchange market of Georgia; • military industry; and
• received from abroad for export operations in Georgia; or • activity related to using nuclear energy for peaceful reasons.
• received from other sources, not prohibited by the Georgian
legislation. Obtaining of the ownership rights to the land and natural resources
is subject to various laws and regulations.
Non-residents may use funds in their hard currency accounts for International organisations and foreign legal entities and indi-
the purchase of Georgian lari on the foreign exchange market of viduals can engage in investment activity in Georgia by means of
Georgia, import operations in Georgia and operations not restricted establishment of legal entity, equity participation in companies,
by the Georgian legislation. banks, associations, and other enterprises established in Georgia.
The rights and guarantees of foreign and local investors are equally
Foreign investment issues protected by the laws of Georgia.
Georgia is a signatory to several dozen bilateral investment pro-
10 What restrictions, fees and taxes exist on foreign investment in or tection treaties, as well as double taxation treaties.
ownership of a project and related companies? Do the restrictions No registration of foreign investments is required under
also apply to foreign investors or creditors in the event of Georgian law.
international treaties that may afford relief from such restrictions? 11 What restrictions, fees and taxes exist on insurance policies
Would such activities require registration with any government over project assets provided or guaranteed by foreign insurance
authority? companies? May such policies be payable to foreign secured
creditors?
Both foreign and local companies can freely invest in privately (via
direct acquisition) and state-owned assets (via different forms of pri- Georgian legislation allows legal entities registered in Georgia with
vatisation) and are free to choose sectors for investments in Georgia. foreign capital as well as representative or branch of a foreign legal
However, Georgian law precludes investments in certain sectors; entity to insure their risks with Georgian-licensed insurance compa-
otherwise such investments require special permission or licence. nies. They enjoy the same rights and have the same obligations as
Investing is prohibited in the following fields: Georgian legal entities. It should be noted that foreign legal entities,
• production and distribution of biological, nuclear or chemical including insurance and reinsurance companies, may establish insur-
weapons; ance and reinsurance companies in Georgia. However, insurance
• construction of polygons for testing of the above listed weapons; and reinsurance companies registered and licensed in OECD mem-
• import of nuclear hazardous wastes for dumping in the territory ber countries are allowed to directly carry out insurance activities in
of Georgia; the territory of Georgia only through the branch or representative
• scientific research for the cloning of human beings; office registered under Georgian law. Georgian insurance companies
• production of drugs; are allowed to reinsure their risks in foreign reinsurance companies.
• cultivation of poppy, coca bush and hemp plant of somatic
effect; 12 What restrictions exist on bringing in foreign workers, technicians
• any activities prohibited by the international treaties of Georgia; or executives to work on a project?
and
Foreign nationals are entitled to work in Georgia and enjoy the
• import or realisation of falsified communal liquefied gas and
same rights as Georgian nationals. They can accept any employ-
petrol containing lead (more than 0.013 g per litre).
ment, unless expressly prohibited by Georgian law, namely, under
Georgian law, only Georgian citizens can occupy government or
Only the state of Georgia may invest in the following:
public positions or serve as judges. There are no quotas on the num-
• production of monetary units, symbols of state awards and post-
ber of foreign employees permitted to work in Georgia each year. In
age stamps;
addition, the Investment Law of Georgia prohibits the establishment
• activity related to marking of products from precious metals;
of any quotas for the number of Georgian citizens to be mandatorily
• activity related to the import, export, shipment, or wholesale
elected or appointed to the management body of an enterprise.
supply of narcotic substances for medical use, and production of
According to the new Law of Georgia on Legal Status of
new narcotics;
Foreigners 5 March 2014 (as amended) (the Law), foreign employees
arriving in Georgia for the purpose of employment are obliged to Fiscal treatment of foreign investment
have a valid Georgian entry visa. For this purpose the Law intro-
duces an immigration visa, D1 and D2 categories, which is for for- 15 What tax incentives or other incentives are provided preferentially
eign employees arriving in Georgia and persons willing to perform to foreign investors or creditors? What taxes apply to foreign
entrepreneurial activities in Georgia pursuant to the Law of Georgia investments, loans, mortgages or other security documents,
on Entrepreneurship, dated 28 October 1994. However, this require- either for the purposes of effectiveness or registration?
ment does not apply to foreign nationals who enjoy the right to There are no general tax incentives applicable to foreign investors or
enter Georgia without a visa and stay in Georgia for up to 90 days creditors. Specific tax incentives may be granted by the government
(eg, EU member countries, the United States, etc). A list of these under certain project on the basis of a resolution of the government,
countries is set forth under the normative act of the Government of and an investment agreement entered between the specific investor
Georgia. The Law also changed criteria for issuing residence permits and the government.
and specifies types of residence permits as follows: working, educa- Georgian law provides for the special status for investments that
tion, family as well as a ‘special residence permit’, which is available have a value of 8 million lari or more, or serve a special function and
for those foreign citizens, who might be victims of trafficking, and an are of strategic importance to the country’s economic development.
‘investment residence permit’, which is available to foreign citizens The same status can be granted to investments conducted in the high
and their family members, who invest least 300,000 Georgian lari mountain regions of Georgia if the total amount of the investment
in Georgia. exceeds 2 million lari, or which within a strategic point of view, may
Further, foreign nationals who have lived in Georgia based on a have positive influence on the region.
temporary residence permit for the previous six years shall be eligi- The status of ‘important investment’ is granted by a Government
ble for a permanent residence permit. Resolution, and the agreement is concluded between the investor
and the government of Georgia providing for terms and conditions
of the investment. In the case of the status of the important invest-
ment being granted then the investor has to deposit at least 2 per
There are standard customs and security rules that apply for any cent of the proposed investment or submit respective bank guaran-
equipment due for importation to Georgia. In certain cases, where tee to the government.
special-purpose equipment (arms, explosives, drugs, etc) is entering Additional guarantees and preferences are allowed to foreign
Georgia, prior entry clearance must be obtained from a relevant investors on a case-by-case basis. Provided investments are made
government agency. It is notable that, import of machinery, means into prioritised sectors substantiating stable economic growth, pri-
of transportation, spare parts and materials needed for the oil and ority projects facilitating development of production and export
gas industry according to the Law of Georgia on Oil and Gas are potential of the country or small-scale enterprises mean that inves-
exempt from import tax and value added tax. tors may agree on particular investment terms with the government
or Ministry of Economy and Sustainable Development (Ministry of
Economy).
The foreign investment regime of Georgia particularly wel-
comes foreign investors producing goods in Georgia for their further
export, or those replacing goods that would otherwise be imported.
The laws regarding expropriation of project companies and assets The government has set a free industrial zone (FIZ) regime and
include the Law of Georgia on Investment Activity Promotion and legal entities established in the FIZ hold the status of international
Guarantees, the Law of Georgia on Procedures of Forfeiture of enterprises, which are exempted from paying Georgian taxes, or
Property for Public Needs, and international bilateral and multilat- rather paying those taxes and dues that are agreed for the particular
eral treaties on mutual protection of foreign investments. FIZ, which commonly include:
Georgian law provides for the protection of investors and their • FIZ incorporated entities, which are exempt from corporate
assets through domestic regulations, as well as through a number profit and property taxes;
of bilateral investment treaties and international agreements with • no VAT applies to goods produced in another country and
partner countries and organisations. With few exceptions, foreign imported into the FIZ and transactions carried out among FIZ
investors are guaranteed fair and equal treatment under the law, incorporated entities;
regardless of their nationality, and have the same rights and guaran- • supply of goods or services among enterprises of the FIZ is VAT
tees as Georgian companies. According to Georgian law, assets of a exempt;
foreign investor will not be subject to expropriation, except when it • no customs duties apply to goods produced in other countries
is explicitly provided by the law, decision of the court or constitutes imported into the FIZ;
a matter of urgent necessity as envisaged in the respective law, but • only VAT will be applied to goods produced in the FIZ under the
with fair compensation, including the amount of damages born by free disposal customs regime, regardless of the quantity of such
investor from expropriation. In any event, investors have the right goods;
to challenge the decision regarding the expropriation in the local • the export of goods produced in the FIZ within Georgian terri-
courts of Georgia. tory is free from customs duties;
The state protects investment during the time of war and pro- • no foreign exchange controls, trade barriers of quotas apply;
vides equal treatment of foreign and domestic investors in compen- and
sating for damages. Most significantly, should new laws be adopted • no restrictions on capital repatriation apply.
worsening the investment conditions, it will have a retrospective
application to the existing investment for the period of 10 years, The FIZ may be set up on any territory exceeding 10 hectares, except
and the investor will conduct its activity in accordance with the law for the protected territories under Georgian law. The FIZ may be set
applicable at the time when the investment was carried out. up by initiative of the government upon request of a physical person
or legal entity (organiser). The FIZ creation requires that the organ-
iser presents strong financial guarantees and proposes FIZ operation
conditions, which eventually will be reflected in the resolution of the
government on the rules for the creation, arrangement and function-
ing of the FIZ. There are two functioning FIZs in Georgia, one in

Poti and the other in Kutaisi. There are discussions on creating a Regulation of natural resources
third one in the capital city’s Tbilisi airport.
Under Georgian law, the government may also set up free tour- 17 Who has title to natural resources? What rights may private
ism zones (FTZ). Usually, under FTZ arrangement, the government parties acquire to these resources and what obligations does the
offer the following to investors: holder have? May foreign parties acquire such rights?
• land; Title to all natural resources is retained by the state. Private parties
• hotel design projects; may acquire long-term leasehold rights over natural resources. The
• full engineering utility networks (water, electricity, gas); subsoil of Georgia and all natural resources in the subsoil are state
• corporate profit and property taxes’ exemption for 15 years; property. Therefore, the land ownership does not imply the right of
• water pipe supply for the new resort; ownership or exploitation of natural resources. The ownership and
• casino licence for a hotel capacity of over 80 rooms; and use of the produced natural resources is determined in accordance
• Georgian citizenship with the contract.
Georgian law regulates the land ownership and land privati-
FTZs already exist in coastal cities of Anaklia and Kobuleti. sation rules in different ways for state-owned and private agricul-
tural and non-agricultural land. In terms of privatisation, particular
Government authorities restrictions are applicable with respect to agricultural land, which
are provided under the Law on Ownership of Agricultural Land
16 What are the relevant government agencies or departments with (1996). The owner of agricultural land in Georgia may be a citizen
authority over projects in the typical project sectors? What is the of Georgia (individual), a legal person or household registered in
nature and extent of their authority? What is the history of state Georgia, a foreign citizen, and in very exceptional cases a foreign
ownership in these sectors? company. Georgian law provides for a requirement that a foreign
Overall coordination of strategic project sectors such as oil and company, which acquired the agricultural land, must alienate (ie, sell)
gas, mineral extraction and power generation is routinely carried such agricultural land to a citizen of Georgia, a Georgian household,
out by the government through the Ministry of Energy and Natural a Georgian company or a foreign individual within six months of
Resources of Georgia (Ministry of Energy). However, projects tar- acquiring the title. On 28 June 2013, a moratorium on the purchase
geting general economic development of the country and infrastruc- of agricultural land by foreign nationals was introduced until the
ture development are coordinated by the Ministry of Economy and end of 2014. During this period, the parliament of Georgia plans to
Ministry of Regional Development and Infrastructure under the adopt amendments to the legislation to establish new regulations for
supervision of the government. Investments of special importance the acquisition of agricultural land by foreign nationals. It should be
are granted specific tax concessions and privileges on the basis of noted that the above-mentioned moratorium does not apply to agri-
the resolutions of the government, which sets out important param- cultural land already acquired by foreign nationals before the adop-
eters and deliverables of the project, appoints government agencies tion of the moratorium. Under Georgian law (the Law of Georgia on
responsible for overseeing the project and extends specific privi- State Property) only citizens of Georgia and legal entities registered
leges to project partners (project companies or individual investors, in Georgia are allowed to privatise state-owned agricultural land.
including but not limited to financial institutions). As for state-owned non-agricultural land, both citizens of Georgia
Government agencies (ministries, committees, departments, and foreign nationals, as well as foreign and local legal entities or
agencies and associations) in Georgia are assigned the function of an association of persons in which the share of the state or the local
performing regular monitoring and facilitation of projects. They are self-government body is less than 25 per cent, are eligible to acquire
also the issuing authorities for licences and permits. ownership rights.
Monitoring compliance with environmental standards, issu-
ance of special water use and air emission permits, mandatory 18 What royalties and taxes are payable on the extraction of natural
environmental impact assessments, and enforcement of environ- resources, and are they revenue- or profit-based?
mental requirements fall within the competency of the Ministry of
Environmental Protection of Georgia. Generally, the subsoil usage tax is determined during negotiations
The Agency of Natural Resources under the Ministry of Energy between the investor and the government. The subsoil usage tax
is the licensing body for subsoil use rights. The State Agency for applies to:
Regulation of Oil and Gas Resources is the licensing body for the • works of geological and engineering-geological research of sub-
use of oil and gas. soil prospecting, preliminary and detailed prospecting of mineral
The Georgian Oil and Gas Corporation and the State Oil and deposits, as well as on the construction of underground facilities
Gas Company, are the main partners and coordinators for major oil for different purposes, and their exploitation and use; and
and gas projects on behalf of the State of Georgia. • mining and processing of minerals, exploitation of the waste of
The National Bank of Georgia performs the regulatory and mining enterprises and concentration of waste.
licensing function for the banking, insurance and financial sectors in
Georgia. It issues licences to commercial banks (including for foreign The Parliament of Georgia can, in implementing the programme on
currency operations), microcredit institutions, and exercises supervi- national importance, fully or partially release the user of the con-
sion over the financial sector. tents of the subsoil from payment of the subsoil tax.
The National Communications Commission of Georgia acts as According to the Georgian Tax Code, the royalty paid by the
a coordinating hub for projects and the licensing authority in the resident or permanent establishment of a non-resident to the resident
telecommunications sector. individual (except for the individual registered as VAT payer), will
In addition, the National Investment Agency (the NIA) under be taxed at the source of payment at a 20 per cent rate. Please note
the Ministry of Economy conducts the state promotion of foreign that a royalty is not considered as income received from a Georgian
investors. Foreign investors are entitled to request the issuance of source if the resident proves that it has a permanent establishment
any licence or permit, acquisition of any property and fulfilment of in a foreign country and the obligation to pay royalty has emerged
all related procedures via the NIA. They may also request any infor- in relation to that permanent establishment, notwithstanding that
mation with regard to licensing and acquisition of the property or expenses are not borne by this permanent establishment.
other issues related to investments in Georgia, if needed. A royalty paid to the state of Georgia under subsoil use con-
tracts is not taxed at the source of payment.
19 What restrictions, fees or taxes exist on the export of natural parties, any dispute arising out of or in connection with the invest-
resources? ment activity between the government and a foreign investor will
Export of natural resources is associated with the payment of the be resolved by the courts of Georgia. However, the most com-
following taxes: monly favoured tribunal is the International Centre of Settlement
• VAT at zero per cent; and of Investment Disputes, decisions of which are final and binding
• excise tax with varying rates depending on the type of natural on the parties, and are enforceable through the 1958 New York
resources. Convention on Recognition and Enforcement of Foreign Arbitral
Awards (New York Convention) which Georgia joined on 2 June
Tax rates and procedures of payment for the export of ferrous and 1994. Accordingly, a foreign arbitral award obtained in a state that
non-ferrous scrap metal and waste is determined by the resolution is party to the New York Convention is recognised and enforced by
of the government. the Supreme Court of Georgia upon filing a motion by the party
Other restrictions on the export of natural resources include concerned according to the provisions set out by the Law of Georgia
prior approvals of the state authority or prior registration of an on Arbitration, and the Law of Georgia on Enforcement Procedures.
export contract with the state registration authority.
transactions? What fees and other charges apply? Georgian law provides for the freedom of foreign investors to have
The scope of government approvals depends on various factors, their contractual obligations governed by the law of the country
including in which economic sector the project company will oper- they choose subject to agreement with their counterparty. The choice
ate and the size of the project, as well as whether an investment of law provisions are legal, valid and binding under Georgian law
agreement is in place between the country of the investor’s domicile and will be recognised by Georgian courts. However, the provisions
and Georgia. of foreign law will not have effect if they contravene the general
A typical project finance transaction would require the follow- legal principles of Georgia and imperative norms, notwithstanding
ing government approvals: the choice of applicable foreign law.
• the resolution of the government and president of Georgia
approving the project and the investment agreement or memo- 24 Is a submission to a foreign jurisdiction and a waiver of immunity
randum of understanding (if any) and the granting of certain tax effective and enforceable?
incentives and benefits; Pursuant to Georgian law, Georgia recognises foreign court deci-
• resolution of the government and president of Georgia approv- sions according to the conditions envisaged by the Law of Georgia
ing the feasibility study of the project; on Private International Law (PIL). Georgia will enforce only those
• obtaining permits and licences from the respective governmental foreign court decisions that are subject to enforcement. The Supreme
agency; and Court of Georgia carries out the recognition and enforcement of
• a resolution of the government on granting investments the sta- foreign court decisions.
tus of special importance (if any). In accordance with paragraph 4 of article 24 of the Georgian
Civil Code, the state and local authorities take part in relationships
21 Must any of the financing or project documents be registered or regulated by the civil legislation of the country on an equal basis
filed with any government authority or otherwise comply with legal with other participants, namely, individuals and legal entities. In this
formalities to be valid or enforceable? respect, the state authority is exercised by its agencies (ministries,
Under Georgian law, the parties to agreements are free to choose the state departments, etc), such that they do not constitute legal per-
language of such agreements, including financing and project docu- sons. The Georgian Civil Code is therefore clear that if a govern-
ments. All documents executed outside of Georgia, however, must ment enters into commercial activity, it loses special treatment or
be either apostiled, or notarised and legalised in the country of their sovereign immunity.
origin. The legalisation will involve the notarisation of the document
with a local notary public, the certification of this notarisation by
authorities of the country in which the document was issued and, 25 What laws or regulations apply to typical project sectors? What
further, the authentication of the above certification by a Georgian regulatory bodies administer those laws?
embassy or consulate in the country where the document has been
executed. The Resolution of the Government of Georgia on Industrial Safety
Documents executed in Georgia can be in English. However, it on Hazardous Manufacturing Objects, dated 10 March 2006 (as
is highly recommended that they are translated into the Georgian amended) and the Labour Code of Georgia, dated 17 December
language and that such a translation is notarised. All documents that 2010 (as amended), are the major pieces of legislation with regard
are submitted to the Georgia’s state authorities, must be either in to industrial safety. The Law of Georgia on Subsoil, dated 17 May
Georgian, or accompanied by a notarised Georgian translation (for 1996 (as amended) applies to subsoil exploration and exploita-
instance, for registration of a mortgage agreement with the Public tion matters. The Law of Georgia on Oil and Gas applies specifi-
Registry). cally to oil and gas operations in Georgia. The Law of Georgia on
State Control of Environment Protection, dated 23 June 2005 (as
amended) provides for the implementation of state control on envi-
22 How are international arbitration contractual provisions and ronmental protection.
awards recognised by local courts? Is the jurisdiction a member The state agencies of Georgia with responsible for forming,
of the ICSID Convention or other prominent dispute resolution developing, amending and overseeing natural resources exploration,
conventions? Are any types of disputes not arbitrable? Are any refining, processing projects include:
types of disputes subject to automatic domestic arbitration? • the Ministry of Environmental Protection;
According to the Law of Georgia on Promotion and Guarantee of • the inspection of environmental protection under the Ministry
Investment Related Activities, unless otherwise agreed between the of Environmental Protection;

• the Ministry of Labour, Health and Social Affairs of Georgia, investment activity in Georgia by means of establishment of a legal
which is the general regulatory body in relation of labour mat- entity, equity participation in companies, banks, associations, and
ters and health protection; other enterprises established in Georgia. The rights and guarantees
• the Agency of Natural Resources under the Ministry of Energy; of foreign and local investors are equally protected by the laws of
• the State Agency for Regulation of Oil and Gas Resources; and Georgia. Project companies are commonly set up in the form of a
• the Georgian Oil and Gas Corporation. limited liability company or a joint-stock company. The LLC is the
preferred form for investors. The project company is usually a bor-
In the case of telecommunications projects, the National rower under financing agreements. All operating licences, permits or
Communications’ Commission of Georgia is the independent regu- authorisations must be obtained by the project company. The princi-
latory body. pal sources of financing include direct investment and foreign loans.
The Georgian National Energy and Water Supply Regulatory Foreign loans are usually guaranteed by a subsidiary or parent com-
Commission (Commission) established on the basis of the Law of pany of the investor, who is the shareholder in the project company.
Georgia on Electricity and Natural Gas represents an independent
state agency with special legal capacity to regulate the water and Public-private partnership legislation
electricity sectors of Georgia.
The Commission has vast functions related to water and elec- 27 Has PPP enabling legislation been enacted and, if so, at what
tricity projects, including, but not limited to: level of government and is the legislation industry-specific?
• the issuing of principles and terms for licensees of electricity gen- There is no legislation on PPP in Georgia.
eration, transmission, dispatch and distribution as well as for PPP regulation is currently based on various laws of general
licensees of natural gas transportation and distribution; application, including and without limitation:
• devising and issuing principles and procedures for correspond- • the Law of Georgia on Promotion of Investment Activity and
ence, disputes, calculation of regulation fees, licensing, tariff Guarantees;
methodology, tariffs and normative losses; • the Law of Georgia on State Promotion of Investments; and
• setting and regulating consumer tariffs for electricity generation, • the Law of Georgia on the Procedures for Granting Concessions
transmission, dispatch, distribution, transition, import and sup- to Foreign Countries and Companies (Law on Concessions).
ply; setting the price for a new consumer accessing transmission
or distribution grid; organising and regulating natural gas trans- PPP – limitations
portation, distribution, and in certain cases, delivery of marginal
and consumer tariffs. Gas Station supply tariffs are not included; 28 What, if any, are the practical and legal limitations on PPP
• setting water supply tariffs; transactions?
• solving disputes between licensees, importers, exporters, suppli- Although the Law on Concessions and general investment laws
ers and consumers within its competence; exist, PPP transactions are not specifically regulated by Georgian
• monitoring terms for licensees and arranging lawbreaker sanc- law. Having said that, there are a number of legal acts providing
tions within the electricity and natural gas sector; for state procurement of goods and services from private entities,
• organising and coordinating certification process in the energy including organising and holding public tenders, making investment
field; agreements with the State of Georgia, etc.
• supporting the attraction of local and foreign invested funds to
rehabilitate and develop electricity and gas sectors; and PPP – transactions
• ensuring sustainable electricity generation, transmission, dis-
patch, distribution, import, export and supply as well as natural 29 What have been the most significant PPP transactions completed
gas import, transportation, distribution and, in certain cases, to date in your jurisdiction?
delivery and supply, etc. There were no PPP projects from a purely traditional PPP point of
view implemented in Georgia, although the government is willing
Project companies to engage private companies in such projects. However, we have
not seen much progress in recent years with the exception of FTZ
26 What are the principal business structures of project companies? projects.
companies?
International organisations, foreign legal entities and individu-
als and foreign states (in the case of concessions) can engage in
Revaz Javelidze revaz.j@colibrilaw.com

Nino Begalishvili nino.b@colibrilaw.com
44 K Abkhazi Street Tel: +995 322 43 89 75

Tbilisi 0105 Fax: +995 322 43 89 76
Georgia www.colibrilaw.com
GERMANY LLS Lungerich Lenz Schuhmacher
Germany
Claus H Lenz and Rouven F Bodenheimer
LLS Lungerich Lenz Schuhmacher
German law recognises different types of collaterals as security inter- lawful techniques to minimise them? May a corporate entity, in
est: land charges and mortgages, transfer of assets and assignment of the capacity of agent or trustee, hold collateral on behalf of the
rights, liens, as well as financial securities in the form of guarantees project lenders as the secured party?
and sureties. Land charge and mortgage
Both securities are perfected by registration with the Land Registry
Land charges and mortgages in consequence of an agreement between the owner of the land and
Both types are encumbrances on real estate. The distinction is that a the secured party, which has to be notarised by a German notary
land charge secures the payment of a certain amount of money out public. The agreement contains the stipulation of the encumbrance
of the land to the creditor in the event that the borrower does not of the land and, in the case of the mortgage, all essential circum-
service his or her debt. In contrast to a mortgage, a lend charge is stances of the underlying claim including interest and the like.
not accessory. Thus, it can be transferred or assigned independently Registration with the Land Registry is done upon application.
from the underlying claim. According to German law, the chronological order of land
The mortgage, however, is accessory to the underlying claim charges follows the filing date and determines the priority of charges
with regard to the existence, validity and the outstanding amount. on the same real estate. Accordingly, an earlier land charge or mort-
Subject to the agreement on the security, the creditor may gage takes preference over subsequent land charges or mortgages.
enforce its claim through a foreclosure of the land in the case of With regard to costs, both land charges and mortgages trigger
failure to pay by the debtor. notary fees as well as filing fees with the Land Registry. The fees are
subject to the value of the real estate with a sliding scale, for exam-
Transfer of assets and assignment of rights ple, each of them are at around 1 per cent at the value of €10 million.
A typical security related to tangible assets is executed by way of Whereas in corporate transactions (sale and transfer of shares
a security transfer of assets whereby the transferor in most cases of a limited liability company) a lawful technique to minimise the
remains in possession of the asset and only the title to the asset is notary fees is the use of a Swiss notary who is not bound to scale
transferred to the creditor. fees in Germany, the validity of a notarisation by a Swiss notary in
Similarly, rights may be assigned as security for claims. In such a relation to real estate transaction in Germany, including the creation
case, the assigned rights are not dependent on the underlying claim of land charges or mortgages is doubtful and, also with a view to the
and can be used (or abused) by the creditor. relatively low costs of a German notary, not advisable.
Liens Security transfer of assets

A lien might be established on moveable assets or rights by way of A security transfer of moveable assets is made by a simple agreement
a pledge, creating a security for the creditor for the performance for the transfer of ownership of the assets, often time-restricted to
of contractual obligations or, otherwise, out of the proceeds of the the period until the debt has been repaid. There are basically no for-
realisation of the asset. The validity of the pledge is subject to the mal requirements, but written form is usual. It is important to name
validity of the underlying claim. the individual assets for identification purposes. This is particularly
important if only the ownership of the assets is transferred while the
Guarantees and sureties assets remain in the possession of the debtor.
Both instruments are personal securities whereby both guarantor In the event of changing assets, for example, when the security
and surety provider promise to satisfy the creditor’s claim in the case is granted on all items in a warehouse, the agreement has to cover
of the debtor’s default. Whereas a guarantee is not accessory and procedures as to how to follow the variations to the asset list after
can, in principle, be enforced on its own, the surety is subject to the taking out assets and adding new assets (continuous inventory).
validity of the underlying claim. There are no registration requirements (and no respective regis-
tries) for the security transfer of moveable assets.
Security interests are created in chronological order, namely, an
earlier perfected security right takes priority over a later one.
Assignment of rights
In addition, an agreement on the assignment of rights does not have
to fulfil formal requirements, however, it is usually done in writing.

LLS Lungerich Lenz Schuhmacher GERMANY
In the context of project finance, usually the receivables from Security transfer
the finance project or otherwise receivables from an ongoing opera- Normally, the security agreement between creditor and debtor pro-
tion are assigned under ‘global assignment agreements’ whereby the vides for the realisation of the assets that regularly remain with the
debtor assigns all existing and all future claims to the creditor. debtor. The debtor is usually empowered by the creditor to sell the
Again, it is important that the claims are sufficiently identifiable, assets, whereas an assignment in advance should secure the proceeds
otherwise the security will not be held valid. from such a sale for the creditor. However, if the debtor collects such
Once rights are assigned, they cannot be further assigned to a proceeds for him or herself, the creditor might be limited to claiming
third party. such proceeds through ordinary litigation in court with subsequent
enforcement proceedings.
Pledge
A pledge on moveable assets requires the transfer of possession, a Assignment of rights
pledge of rights requires notification to a third party. A creditor is best protected when the assignment of rights is notified
There are no formal requirements for a pledge on moveable to the third party who is then prohibited from paying the debtor and
assets or a transfer of rights, however, the transfer of shares in a can relieve him or herself of the payment obligation only with direct
limited liability company needs to be done via a notarial deed. The payment to the creditor. The same basically applies to rights other
pledge of such rights requires the same form. than payment claims.
If the assignment has not been notified to the third party and
Guarantee and surety the third party is fulfilling its obligations by payments or otherwise
Guarantees and sureties are perfected by an agreement between the to the debtor (assignor), there are no means of direct enforcement.
guarantor or the surety provider and the secured party. In the case The creditor would have to go through litigation against the debtor,
of a surety between individuals being non-merchants, a surety has to obtain an enforceable judgment and enforce under the normal rules
be done by way of a written agreement. of German Civil Procedure.
Corporate entity as agent or trustee Pledge

German law allows a corporate entity to hold securities on behalf of In the case of a pledge, the creditor’s interests are realised through
the project lenders in a capacity as an agent or a trustee. Distinction a direct sale of the pledged asset or a public auction of the asset. If
has to be made whether the securities are non-accessory or acces- the sales price exceeds the secured interest, the balance belongs to
sory. In the former scenario, they can be created directly with the the debtor.
agent or trustee; in the latter, the security is granted to the project
lenders and the agent or trustee as the lender’s representative. Guarantee and surety
If the debtor is in default, the creditor can pursue its claims against
the guarantor or surety provider through ordinary court proceed-
ings followed by enforcement proceedings, if necessary.
In the case of potential liens on real estate, the respective Land
Registry can be inspected or excerpts therefrom requested. Due to 5 How does a bankruptcy proceeding in respect of the project
the priorities created by the chronological filing of encumbrances, in company affect the ability of a project lender to enforce its rights
this context, land charges or mortgages, it can be discovered whether as a secured party over the collateral? Are there any preference
and to which extent the real estate has already been charged with a periods, clawback rights or other preferential creditors’ rights
security in favour of a third party. (eg, tax debts, employees’ claims) with respect to the collateral?
With regard to liens on moveable assets, there is no registration What entities are excluded from bankruptcy proceedings and
scheme available. Accordingly, other liens taking priority cannot be what legislation applies to them? What processes other than
checked and the creditor would have to rely on representations and court proceedings are available to seize the assets of the project
warranties made by the debtor. company in an enforcement?
With regard to shares in a limited liability company, which might In the case of insolvency proceedings opened over the assets of the
be subject to a pledge or a security transfer, the creditor can rely project company, usually a preliminary receiver is appointed who
on the register of shareholders, which is kept with the Registry of has limited power and, in most cases, operates the company jointly
Companies. This, however, relates only to the ownership of the said with a company’s management until the ‘final’ receiver is installed. In
shares but does not rule out that those shares are already pledged to this initial period, individual claims cannot be enforced against the
a third party. assets of the insolvent company. The actual receiver then appointed
is empowered to seize the business assets and also to enforce claw-
back rights. Regarding potential clawback rights, it first has to be
established whether a specific transaction has led to a defeat of credi-
tors. A distinction is made between assets having been transferred
within three months preceding the application for the opening of
Subject to the types of collateral, different enforcement proceedings insolvency proceedings (or thereafter) with the knowledge of the
become applicable. debtor’s inability to pay his or her debts (without the necessity of an
intention to harm his or her creditors) and transfers in the 10-year
Land charge and mortgage period preceding the opening of insolvency proceedings in the case
The enforcement of land charges or mortgages is made through of fraudulent transactions. In both cases the relevant transactions
public auction or sequestration. Both processes are governed by the can be challenged by the insolvency receiver.
Compulsory Auction for Immoveable Property Act. In the event of Once the insolvency proceedings are opened, creditors are pro-
a foreclosure action, which must be ordered by a court, such action vided with the opportunity to file their claims with the receiver,
would be published in advance. whereby there is a distinction between ‘preferred claims’ and ‘ordi-
nary claims’. Pure payment claims would fall into the category of
ordinary claims whereas ownership claims, for example, arising
from a security transfer, would be treated as preferred claims. If the
creditor can establish a right of ownership, he or she can claim the by investors from outside the EU) if it has found that such invest-
respective assets to be handed over from the receiver. Similarly, rights ment could endanger public policy or public security of the Federal
assigned to a creditor as a security are treated as preferred claims. Republic of Germany. This means is only executed in exceptional
Claims by foreign creditors are treated equally to claims by local circumstances (and is supported by European regulations and deci-
creditors. sions by the European Court of Justice).
The proceedings can be triggered in different ways.
Foreign exchange issues The potential investor might wish to clarify the position and
request a legally binding certificate of non-objection prior to the
6 What are the restrictions, controls, fees, taxes or other charges envisaged acquisition. In such a case, the basic information on the
on foreign currency exchange? envisaged acquisition has to be provided to the Ministry. If the
There are no significant controls, taxes or other charges with respect Ministry does not initiate an investigation of the acquisition within
to foreign currency exchange per se, however, regulations regarding one month, it is deemed to be approved or a certificate of non-
money-laundering must be observed in currency exchange transac- objection is deemed to have been issued.
tions like in domestic financial transactions. Otherwise, the Ministry may itself initiate an investigation of the
With regard to fees, it is usual that banks charge certain transac- acquisition within three months of the signature of a purchase agree-
tion fees for currency exchanges. ment. The foreign investor would then be obliged to submit all nec-
essary information to the Ministry, upon which the Ministry has to
decide within two months whether the acquisition will be allowed,
prohibited or allowed only subject to certain conditions. Again, if
the Ministry does not take action within the two-month period, the
acquisition is deemed to have been permitted.
There are no specific restrictions, controls, fees or taxes on remit- Bilateral investment treaties would not have an influence on this
tances of investment returns (dividends and capital) or payments of question.
principal, interest or premiums on loans or bonds to parties in other There are no registration requirements with government
jurisdictions. In particular, there are no restrictions with regard to authorities.
the distribution of profits in a German project company to share-
holders in other jurisdictions, subject, of course, to domestic taxa-
tion rules in the event of using a German entity that is subject to 11 What restrictions, fees and taxes exist on insurance policies
German income or corporate tax. In such cases, the provisions of the over project assets provided or guaranteed by foreign insurance
respective double-tax treaty would have to be observed. companies? May such policies be payable to foreign secured
creditors?
Foreign insurers registered in the EU or EEA may carry out insur-
ance business in the same manner as domestic insurers; foreign
insurers outside the EU or the EEA would have to be admitted in
Germany by the Federal Financial Supervisory Authority (BaFin).
There are no legal provisions forcing German project companies Foreign insurers within the EU or EEA only have to go through a
to repatriate foreign earnings and, further, there are no restrictions notification procedure with the BaFin.
over their use. However, foreign earnings by a German entity are in There are no restrictions on policies of foreign insurers being
principle subject to German tax because the German tax relies on payable to foreign secured creditors.
the worldwide income principle. Due to the existence of double-tax
treaties with almost all countries in the world, the provisions of such
double-tax treaties are to be observed. 12 What restrictions exist on bringing in foreign workers, technicians
Foreign workers, technicians or executives from countries within the
EU are not restricted in living and working in Germany. This is due
to the right of free movement and labour for EU citizens within the
Foreign currency accounts can be established by German project EU.
companies in other jurisdictions as well as in Germany without any Non-EU citizens need a residence permit as well as a work per-
legal restrictions. mit in order to start working in Germany.
Individual rules apply to foreign nationals from certain coun-
Foreign investment issues tries who have only joined the EU recently (transition rules). There
are also some specific incentives for specific skilled labour (eg, in the
IT industry for Indian IT specialists), which are often subject to a
certain minimum remuneration.
any bilateral investment treaties with key nation states or other 13 What restrictions exist on the importation of project equipment?
international treaties that may afford relief from such restrictions? In general, there are no restrictions concerning the importation of
Would such activities require registration with any government project equipment, however, there might be the necessity for an
authority? import permit for certain goods in specific categories being imported
Although there are no general restrictions on foreign investment in from certain countries or goods listed in the import list of the Foreign
or ownership of a project and related companies in Germany, under Trade and Payment Act.
the German Foreign Trade and Payments Act and the Foreign Trade Customs duties might be payable for goods from outside the
and Payments Regulations introduced in 2009, the German Federal European Union
Ministry of Economics and Technology has been granted the right to
ultimately prohibit the acquisition, whether directly or indirectly, of
25 per cent or more of the voting rights in a German company (only

14 What laws exist regarding the nationalisation or expropriation The railway sector is regulated mainly by the Federal Railway
of project companies and assets? Are any forms of investment Act. The supervising authority is the Federal Railway Authority.
specially protected? For shipping, transports and ports the regulations of the Federal
Though ownership rights are generally protected under the German Water and Shipping Act are to be observed. Public transport is regu-
Constitution, expropriation is allowed in exceptional cases where it lated by the Federal Passenger Transportation Act and supervised by
is necessary for the public good. In addition, expropriation is always regional authorities.
subject to payment of a reasonable compensation.
There are several Acts relating to infrastructure and energy spe- Finance
cifically allowing expropriation, namely: For the operation of banking business, permission is required
• the Federal Building Code; according to the Federal Banking Act. The supervision of the bank-
• the Federal Highway Act; ing and finance sector is carried out by the BaFin.
• the Regional Highway Acts;
• the Air Traffic Act; Regulation of natural resources
• the Energy Act;
• the General Railway Act; and 17 Who has title to natural resources? What rights may private
• the Regional Water Acts. parties acquire to these resources and what obligations does the
Fiscal treatment of foreign investment Unless otherwise regulated, the owner of the land is also the owner
of the natural resources on or inside the land. The Federal Mining
15 What tax incentives or other incentives are provided preferentially Act, however, lists certain resources that do not belong to the land-
to foreign investors or creditors? What taxes apply to foreign owner but to the state. In such cases a party wishing to extract these
investments, loans, mortgages or other security documents, natural resources requires a licence from the state.
either for the purposes of effectiveness or registration? Regarding the commercial use of water, permission from the
Since foreign investors are treated like domestic investors, no specific authority in accordance with the Water Resources Act is required.
tax or other incentives are provided to foreign nationals. There are
also no specific taxes applicable to foreign investments, loans, mort- 18 What royalties and taxes are payable on the extraction of natural
gages or other security documents. resources, and are they revenue- or profit-based?
The website of the Federal Central Office for Taxes at www.
germantaxes.info is informative for any foreign investors. Royalties for the extraction of mineral resources are subject to
detailed rules in the German Federal Mining Act, setting them at a
Government authorities standard percentage of 10 per cent of the market value. This percent-
age can be modified by a specific ordinance if required in order to
16 What are the relevant government agencies or departments with achieve any of the following aims as set out in the Act:
authority over projects in the typical project sectors? What is the • preventing an overall economic imbalance;
nature and extent of their authority? What is the history of state • preventing the risk of a distortion of competition among the
ownership in these sectors? companies engaged in exploration and exploitation;
Regulatory authorities over projects can be federal or regional, sub- • assuring the adequate supply of the market in raw materials;
ject to the various sectors. • improving the exploitation of deposits; or
All projects on land are likely to require planning and building • protecting other interests of the national economy.
permission from local authorities and often various types of envi-
ronmental authorisations and sector-specific consents. Regarding In addition to this royalty, taxes for the mining industry are subject
individual sectors, the following applies. to the general provision of the tax and revenue law.
Oil and gas and minerals 19 What restrictions, fees or taxes exist on the export of natural
Approval is required from the regional mining authorities resources?
(Bergbehörden). In addition, environmental regulations must be In principle, there are no restrictions, fees or taxes existing on the
observed. export of natural resources.
Chemicals Legal issues of general application
The Federal Chemicals Act requires the registration of chemicals
with the Federal Environment Agency. 20 What government approvals are required for typical project finance
Water treatment
In general, no government approvals per se are required for project
In the sector of water, the Water Resources Act, the Wastewater Levy
finance transactions. As already stated above, foreign investors are
Act and the State Water Acts are to be observed.
treated like domestic investors, therefore, it is irrelevant whether the
project finance transactions are made by foreign parties or by local
Power generation and transmission and energy
companies owned or controlled by foreign parties.
In the energy sector, the Federal Energy and Gas Supply Act as
well as the Renewable Energy Act are to be observed. The sector
is supervised by the Federal Network Agency for Electricity, Gas, 21 Must any of the financing or project documents be registered or
Telecommunications, Postal Services and Railways. filed with any government authority or otherwise comply with legal
Transport In general, financing or project documents do not have to be reg-
For air traffic the Federal Air Traffic Act must be observed. The istered or filed with any government authority. However, any real
supervisory body is the Federal Air Traffic Agency. estate transactions must be notarised. Documents used for the evi-
dence of representation powers (powers of attorney or excerpts
from the commercial registry) need to be verified by notaries or pub-

lic authorities and apostilled. Update and trends
The overall economic situation in Germany is, against some other

22 How are international arbitration contractual provisions and countries, comparably good and the outlook is optimistic. The M&A
awards recognised by local courts? Is the jurisdiction a member market has greatly recovered. Nevertheless, Germany has usually
of the ICSID Convention or other prominent dispute resolution not been a major playing field in international project finance.
Though Germany favours freedom of foreign trade and payments
conventions? Are any types of disputes not arbitrable? Are any and the conditions for foreign investors are equal to German
types of disputes subject to automatic domestic arbitration? investors, inhibiting factors to foreign investors might be the
International arbitration is well-established in Germany and recog- complex juridical and federal framework, which might imply a more
difficult approach to project-financed works than in other countries.
nised by German courts. Arbitration is governed by the provisions in On the other hand, significant activities in the alternative
the 10th Book of the German Civil Procedure Code. Foreign arbitra- energy sector as well as in PPP projects where almost every
tion awards are recognised and enforced in Germany easily under federal state has had first experiences through pilot projects
the New York Convention. Germany is also a member of the ICSID and where there is a huge demand for infrastructure projects
(highways, bridges and tunnels) might trigger greater interest of
Convention. It should be noted that, at present, one arbitration
foreign investors in future projects.
under ICSID against the Federal Republic of Germany is pending The German finance sector is well prepared for project finance
following the decision of the German government to close down a with the KfW, commercial banks like Commerzbank and HBV,
nuclear power plant operated by a foreign investor. as well as some of the remaining publicly-owned saving banks
Matters of public interest and subject to public laws (eg, admin- controlled by the states (Landesbanken) being acquainted with the
financing of bigger projects.
istrative decisions) are not arbitrable.
23 Which jurisdiction’s law typically governs project agreements? Environmental, health and safety laws
Which matters are governed by domestic law? 25 What laws or regulations apply to typical project sectors? What
According to German international private law the governing law regulatory bodies administer those laws?
for project agreements can be freely chosen. German law contains a very dense system of health, safety and
For a project in Germany, in most cases German law will be environmental requirements, implemented and enforced through
agreed. Of course, as far as approvals, licences and the like are con- a system of administrative acts and a whole set of mechanisms
cerned, German law will be mandatorily applied. for compliance and monitoring. The regulations vary from sector
Financing agreements might be governed by foreign law, in to sector. Various laws, for example, the Federal Mining Act, the
particular, in the case of international financing, English law is Water Resources Act, the Waste Act and the Federal Pollution Act
often chosen. Irrespective of a foreign law governing the financing also govern the environmental aspects of projects. Following the EU
arrangements, agreements relating to securities regarding assets in Environmental Impact Assessment Directive 85/337/EEC, environ-
Germany will be subject to German law. mental impact assessment studies are often obligatory for projects.
Project companies
Under German law, a submission to a foreign jurisdiction is effective. What are the principal sources of financing available to project
Decisions by foreign ordinary courts are directly enforceable if from companies?
courts within the EU. The enforceability of court decisions outside The most often-used legal structure of project companies is the form
the EU is subject to bilateral or multilateral treaties; if these do not of a limited liability company (GmbH). A GmbH can easily be estab-
exist, the enforceability is subject to reciprocity. lished, however, the founding needs to be done via a notarial deed. It
A waiver of immunity would also be effective. is also usual to make use of already- existing shelf companies where
only the shares need to be transferred to the investor.
Claus H Lenz lenz@lls-law.de

Rouven F Bodenheimer bodenheimer@lls-law.de
Rheinauhafen Tel: +49 221 13 08 16 0

Agrippinawerft 22 Fax: +49 221 13 08 16 20
50678 Cologne www.lls-law.de
Germany

Further, legal forms that may be used include partnerships (in PPP – transactions
particular in the case of joint ventures, with the disadvantage of full
liability for the joint venture partners), limited partnerships or stock 29 What have been the most significant PPP transactions completed
cooperations. to date in your jurisdiction?
The principle sources of financing are facilities provided by com- Numerous PPP projects are in existence, in particular, in infrastruc-
mercial banks, sometimes in combination with development banks; ture projects (highways) and buildings (prisons, schools, hospitals,
in Germany, the Credit Institute for Reconstruction. universities, sports facilities).
The core area for PPPs is the traffic sector, where the expan-
Public-private partnership legislation sion, operation and maintenance of highways have been handed
to the private sector through different models. Under the earlier ‘A’
27 Has PPP enabling legislation been enacted and, if so, at what model, the operation period was fixed at 30 years and compensation
level of government and is the legislation industry-specific? was made subject to the amount of traffic, whereas in the newer
The federal government passed a PPP Acceleration Act in 2005, ‘V’ model, the expansion, operation and maintenance of the high-
which supports the privatisation of property of the state, enhances way is transferred for a period of between 20 and 30 years to the
the competition dialogue and transfers competences from the federal private entity and the compensation is paid independently from the
government to the states. actual traffic volume but agreed in advance for the availability of
Various laws support the transfer of formerly public tasks to the highway.
the private sector, for example, the Closed Substance Cycle Waste Details of the traffic PPPs including date sheets for individual
Management Act. projects can be obtained from the website of the Ministry for Traffic
and Digital Infrastructure at www.bmvi.de.
PPP – limitations

transactions?
Limitations of PPP projects result from the financial viability of such
projects. If the public authority does not have sufficient funds avail-
able and sees the need for the implementation of a specific project,
PPPs will be considered if a project is financially viable.
GREECE Norton Rose Fulbright
Greece
Dimitris Assimakis and Alexandros Pavlopoulos
Norton Rose Fulbright
Creating collateral security packages accounts), the pledge should be notified to the third party obligor.
Specifically, mortgages require a notarial deed, which must be regis-
1 What types of collateral are available? tered with the competent land registry.
Under Greek law and market practice the following types of col- The pledge over the shares of the borrower under both the
lateral are granted: Decree and Law 3301/2004 is established by a private agreement
• pledge over the shares of the borrower; and is served by a court bailiff to the company whose shares are
• pledge over receivables under the receivables, claims and con- pledged. The share certificates must be endorsed and delivered to
tractual rights, if any, of the borrower, as well as of claims under the pledgee. In the case of registered shares the pledge is also regis-
insurance policies; tered with the share registry book of the company whose shares are
• pledge over bank accounts of the borrower; pledged. Special formalities are required in the case of a pledge over
• non-possessory pledge over equipment and machinery; listed shares.
• direct agreements providing for step-in rights of the lender (in The pledge over bank accounts under both the Decree and Law
some instances); and 3301/2004 is established by means of a private agreement, which
• mortgage or pre-notation of mortgage over immovable assets must be served by a court bailiff to the bank in which the account
(land and buildings) owned by the borrower. is maintained.
A pledge over receivables and claims is established under the
Decree by means of a private agreement, which must be served by
a court bailiff to the debtors of the pledged receivables. Receivables
can also be pledged by means of Law 2844/2000 (on contracts on
movables and claims and other collateral agreements). The said
pledge is established in the same manner as described above, the
only difference being that a summary of the pledge agreement must
also be registered with the competent pledge registry.
Depending on the specifics of each project finance transaction, Plant and machinery are pledged by means of Law 2844/2000.
collateral may be established either under the general provi- A private agreement is required along with the registration of a sum-
sions of the Greek Civil Code (GCC) or under Legislative Decree mary of the agreement with the competent pledge registry.
17.07/13.08.1923 (the Decree), provided that the pledgee is a credit Other than the security agent (essentially the bondholder agent)
institution licensed by the Bank of Greece (or an EU credit insti- provided by Law 3156/2003 (on bond loans), there is no alterna-
tution) or under Law 3301/2004, which transposed EC Directive tive mechanism (including the parallel debt clause) to achieve the
2002/47/EC on financial collateral arrangements into Greek law in intended effect without any legal risk. Although parallel debt clauses
relation to a pledge over shares, provided that at least one of the have been used in Greek financing, Greek courts have not been
parties is a credit institution, an investment services firm, a finan- called to adjudicate on the validity of a parallel debt structure as yet.
cial institution or an insurance company, etc, and the other party(or
parties) is a legal entity and the security is established on finan-
cial instruments (shares and other titles equivalents to shares and 3 How can a creditor assure itself as to the absence of liens with
bonds that are listed on the capital markets) or cash including bank priority to the creditor’s lien?
account deposits. The advantages of establishing a pledge under Under Greek law, the first-to-file rule applies, meaning that the prior-
the Decree or the Financial Collateral Law 3301/2004 relate to the ity of liens is determined by the chronological order in which they
simplified establishment and enforcement procedures applicable are perfected. In relation to liens that are registered in public or pri-
thereto, as well as, in the case of Law 3301/2004, the possibility of vate registries, a creditor may assure itself by auditing such registries.
the secured creditor to appropriate the pledged shares and acquire This applies to mortgages over land or buildings, non-possessory
full ownership without a mandatory auction, should an event of pledges over equipment and machinery and pledges over receiva-
default occur, and, of course, the relevant ring-fencing provisions, bles or claims that are registered with public registries as well as
since such security agreements may not be declared null and void pledges over shares that are registered in the shareholder registry of
upon commencement of insolvency proceedings, subject to certain the company.
conditions enumerated thereunder.
Establishment of collateral under the general provisions of the
GCC requires a notarial deed or a document having a certain date
and in the case of a pledge over machinery and equipment, the
delivery of the asset to the pledgee or to a third party (custodian)
as agreed and in the case of a pledge over claims (including bank The enforcement of security may be implemented either through the
judicial enforcement procedure of the Greek Code of Civil Procedure

Norton Rose Fulbright GREECE
(GCCP), where security has been established under the general pro- hardening period) are automatically revoked or revocable at the
visions of the GCC, or through private foreclosure in accordance court’s discretion. There are certain acts that are, per se, revocable
with the Decree or Law 3301/2004. and these include the provision of in rem security for a prior debt.
Enforcement of pledges established under the general pro- Provision of security for a debt incurred concurrently is only revoca-
visions of the GCC commence by the service to the borrower of ble where it is prejudicial to the group of bankruptcy creditors and
an enforcement title (final court judgment adjudicating the claim, the pledgee knew that the pledgor had ceased payments.
notarial deeds, payment orders, enforceable foreign titles and court Further, under article 2 of Legislative Decree 4001/1959 (on
judgment) and a request for payment by a court bailiff. The GCPC provisions related to in rem collateral, bankruptcy and enforce-
includes specific provisions for the mandatory auction of assets, ment), where the in rem security is provided in favour of a Greek
as well as for the allocation of proceeds to creditors and specific bank or a Greek branch of a foreign bank, it will be valid even if
time frames for the completion of all actions of the enforcement it secures prior debt. In fact, a pledge in favour of a Greek bank or
proceedings. a Greek branch of a foreign bank should not be revocable even if
Enforcement of pledges established under specific laws takes taken during the hardening period, provided that the bank did not
place as follows. have actual knowledge of the pledgor’s cessation of payments.
Where the security falls within the ambit of Law 3301/2004,
Pledge over shares then such security cannot be revoked, even if it was taken during
If the pledge has been established under the Decree (with respect the hardening period, on the sole basis that the security arrange-
to non-listed shares), then enforcement commences with the service ment came into existence or the security was established on the com-
of an order for execution to the pledgor followed by an auction mencement day of any winding up proceedings or reorganisation
by a notary public. If the pledge has been established under Law measures, but prior to the order or decree ordering such commence-
3301/2004 (for listed shares), then the pledgee has two options ment or during the hardening period or any other period provided
as regards enforcement: auctioning the shares and satisfying the by applicable bankruptcy provisions.
secured claims with the auction proceeds; or acquiring the pledged As a general rule, the GBC prescribes that the enforcement
shares and setting-off their value against the value of the secured rights of unsecured creditors are suspended from the declaration
claims. of bankruptcy until the completion of the bankruptcy process. As
regards secured creditors, the GBC prescribes that the declaration
Pledge over bank accounts and receivables and contractual of bankruptcy does not result in the enforcement rights of secured
rights creditors being suspended, provided of course that enforcement is
If the pledge has been established either under the Decree or under sought against the secured asset. However, enforcement rights are
Law 3301/2004, then due to the assignment of such claims to the suspended in the case of assets that are deemed critical for the con-
pledgee, the pledgee, upon the occurrence of an event of default, tinuation of the debtor’s business with such suspension being opera-
has the right to collect such claims following the prior service of an tive until either the decision of the creditors’ meeting with respect to
order for execution to the pledgor. The pledgee has the right to col- the future of the bankruptcy process or the judicial ratification of
lect the pledged claims in their entirety and, following satisfaction a reorganisation plan (if a reorganisation plan has been agreed). In
of the secured claims, he or she must then return any excess amount any event, such suspension may not extend beyond 10 months from
to the pledgor. the declaration of bankruptcy. However, the only exception to the
above is envisaged in the case where the creditors decide to sell the
Pledge over equipment and machinery debtor’s enterprise as a whole, in which case the suspension is opera-
The first step of enforcement is the service of an order for executive until the completion of such process.
tion to the pledgor. Since the possession of the plant and machin- The Greek bankruptcy code is applicable to all types of compa-
ery remains with the pledgor, the plant and machinery must first nies, except for credit institutions and insurance companies, which
be seized. The pledgee may apply to the competent court to obtain are subject to special liquidation procedures in accordance with
permission for seizure of the pledged assets. Finally, the seized assets applicable law.
are sold through an auction conducted by a notary public and the As concerns preferential creditors’ rights see above. There is
pledgee is satisfied from the auction proceeds. no difference in the treatment of claims of foreign creditors to the
claims of local creditors.
Finally, enforcement of a mortgage governed by the Decree com-
mences with serving an order for execution upon the pledgor. Such Foreign exchange issues
an order for execution is registered with the Land Registry and once
such a registration is effected the asset is deemed to have been seized. 6 What are the restrictions, controls, fees, taxes or other charges
A notary public then performs a compulsory auction. The auction on foreign currency exchange?
proceeds are paid directly to the pledgor, who then deducts from the There are no foreign exchange control restrictions. However, all
auction proceeds an amount equivalent to its claim. monetary transfers outside Greece and payments made to foreign
residents must be effected through commercial banks in Greece
(mainly due to the obligation of the banks to ensure payment of
withholding taxes, if applicable, and adherence to anti-money laun-
dering requirements).
(eg, tax debts, employees’ claims) with respect to the collateral? 7 What are the restrictions, controls, fees and taxes on remittances
What entities are excluded from bankruptcy proceedings and of investment returns or payments of principal, interest or
what legislation applies to them? What processes other than premiums on loans or bonds to parties in other jurisdictions?
court proceedings are available to seize the assets of the project There are no controls or restrictions on remittances of investment
company in an enforcement? returns (profits, dividends, capital, interest).
In brief, the Greek Bankruptcy Code (GBC) prescribes as a general Interest payable on credit facilities is not subject to withholding
rule that any transactions entered into by the debtor between the tax. It is not clear under the provisions of the new Greek Income
cessation of payments and the declaration of bankruptcy (ie, the Tax Code (which came into force on 1 January 2014) whether such
exemption also applies to foreign lenders. A 15 per cent withholding (Directorate of Supervision of Private Insurance of the Bank of
tax is levied on interest from bond loans issued by Greek companies Greece). Insurers properly licensed in an EU member state may carry
(however, see question 15). The above tax treatment should not alter out insurance activities in Greece through a European passport pro-
due to the fact that interest has been paid in the form of proceeds cedure (notification by the home state insurance authority to the
from a guarantee claim or from enforcement of security. Greek insurance authority).
A withholding tax at the rate of 10 per cent is imposed on profits
distributed from 1 January 2014 and onwards by Greek resident
companies as dividends or interim dividends to their shareholders,
whether individual or legal entities, resident or non-resident. Such a
withholding tax exhausts the tax liability if the beneficiary is an indi- EU citizens must obtain a residence permit if they wish to work or
vidual maintaining tax residence in Greece or a legal entity, which take up residence in Greece (such a permit is not required for a stay
does not have tax residence or permanent establishment in Greece. of up to three months in Greece). Citizens from non-EU countries
The above withholding tax does not apply to dividends paid need to obtain both a residence permit and a D-Type (national) visa.
between associated companies falling within the scope of the EU The duration of such a D-Type visa is three months. Within such a
Parent-Subsidiary Directive (2011/96), as it has been transposed into period, the non-EU national must submit to the competent authority
Greek legislation. all required documentation for the issuance of the relevant residence
If the recipient of the dividend income is a resident of a state with permit. Finally, all foreign executives who take up board positions
which Greece has concluded an income tax treaty for the avoidance in Greek companies need to obtain a Greek tax registration number.
of double taxation, the withholding tax rate provided by the said
treaty, if more beneficial to the recipient, will apply. 13 What restrictions exist on the importation of project equipment?
An annual contribution at the rate of 0.6 per cent is imposed on
Imports from EU counties are exempt from all duties, while imports
the average outstanding monthly balance of each loan granted by a
from non-EU countries are regulated by both the Community
Greek or foreign bank to a Greek resident. Loans between banks,
Customs Code and the Greek Customs Code and may be subject
loans to the Greek state, loans funded by the EIB, as well as bond
to import duties, which are calculated on the customs value of the
loans, are exempt from such contribution.
imported goods. The rates of import duties, where applicable, vary,
depending on the classification of the imported goods. Restrictions
8 Must project companies repatriate foreign earnings? If so, must over imports are imposed in limited cases (related to quantitative
they be converted to local currency and what further restrictions quotas, tariff quotas, agricultural and commercial policy measures)
exist over their use? where an issuance of a licence by the Ministry of Finance is required.
There is no legal obligation on Greek project companies to repatri-
ate foreign earnings nor any restrictions over their use. 14 What laws exist regarding the nationalisation or expropriation
9 May project companies establish and maintain foreign currency specially protected?
accounts in other jurisdictions and locally? Article 17 of the Greek constitution guarantees property rights, but
Project companies may establish and maintain foreign currency also permits expropriation of property for the public good, pro-
accounts in other jurisdictions and locally. Such accounts must in vided that full compensation has been paid. Such compensation is
any case comply with Greek tax and anti-money laundering laws determined by the competent court (a standard procedure). Further,
and regulations. expropriation of property (assets) is also provided under specific
laws, always in accordance with article 17 of the Greek Constitution.
Foreign investment issues Nationalisation of a company may be effected in accordance
with article 106 of the Greek constitution, which provides that by
10 What restrictions, fees and taxes exist on foreign investment in or law the Greek state or other public entities may acquire or partici-
ownership of a project and related companies? Do the restrictions pate in companies that have a monopoly status or vital importance
also apply to foreign investors or creditors in the event of for the exploitation of the sources of national resources or have as
foreclosure on the project and related companies? Are there an object the provision of services to the public. The consideration
any bilateral investment treaties with key nation states or other for such an acquisition is determined by the court and must be full
international treaties that may afford relief from such restrictions? and corresponding to the value of the participation or company
Would such activities require registration with any government acquired.
authority?
There are no general restrictions, fees and taxes on foreign invest- Fiscal treatment of foreign investment
ment in or ownership of a project and related companies. However,
there exist laws that provide for approvals in relation to acquisitions
in specific sectors for public security or public policy reasons (eg,
telecommunications and air transport). Moreover, the acquisition by
non-EU individuals or legal entities of shares in companies own-
ing rights in rem on real property within Greek border areas also In cases where, under ITC provisions, interest payable to foreign
requires approval. lenders is subject to withholding tax, the lower rate among the fol-
lowing shall apply:
• 15 per cent, as provided by the ITC;
11 What restrictions, fees and taxes exist on insurance policies • the rate provided by the tax treaty (if any), signed by Greece,
over project assets provided or guaranteed by foreign insurance with the state of which the foreign lender is a tax resident; and
companies? May such policies be payable to foreign secured • the zero rate provided by the EU Interest and Royalties Directive,
creditors? if the relevant statutory conditions are met.
Non-EU insurers may only carry out insurance business in Greece
following appropriate licensing by the Greek insurance authority

Government authorities Telecommunications

The Ministry of Infrastructure, Transportation and Networks
16 What are the relevant government agencies or departments with has regulatory, supervisory and policy-making competencies
authority over projects in the typical project sectors? What is the in the Greek telecommunications sector whereas the National
nature and extent of their authority? What is the history of state Telecommunications and Post Commission is the independent
ownership in these sectors? administrative authority, which regulates, supervises and monitors
The government bodies with authorities over projects differ, as indi- the electronic communications and postal services market in Greece.
cated below, depending on the nature and the scale of the project.
Oil and gas
The Hellenic Hydrocarbons Resources Management SA (HHRM) 17 Who has title to natural resources? What rights may private
is typically responsible for the management of the Greek state’s parties acquire to these resources and what obligations does the
exclusive rights of prospecting, exploration and exploitation of holder have? May foreign parties acquire such rights?
hydrocarbons reserves in Greece. In this regard, its competencies Under Greek law, any ownership rights on the surface of the land
start from the preparation of the tenders for the granting of hydro- do not extend to the metallic minerals found either on the surface
carbons exploration and exploitation rights up to the execution of or below the surface. The rights of metallic minerals exploration
the relevant agreements. Nevertheless, at present, the Minister of and exploitation, however, may be granted to anyone, other than
Environment, Energy and Climate Change still maintains in practice non-EU nationals, for the purpose of exploration for exploitation
considerable competencies over the oil and gas sector in Greece until purposes only following approval, except for the prospecting, explo-
the HHRM becomes fully operational. ration and exploitation rights of the minerals that are vested solely
with the Greek state (eg, hydrocarbons, energy minerals, radioactive
Minerals minerals, geothermal capacity and others). The latter exclusive rights
The Minister of Environment, Energy and Climate Change has focal of the state are either self-exercised by the state itself (which is not
competence for all minerals prospecting, exploration and exploita- the established practice, especially in the current economic environ-
tion in Greece (including industrial minerals) whereas the competent ment) or leased to fully capable enterprises following public tender
Decentralised Administration may have subordinate competence to or, exceptionally for reasons of public interest, by direct award of the
the Minister’s competence for exploitation of minerals by quarrying relevant contract (but still sometimes ratified by law), except for the
in its jurisdiction, while it has exclusive competence for the leasing prospecting, exploration and exploitation of hydrocarbons and of
and administration of quarrying-minerals’ exploitation rights (other geothermal resources that are both specially regulated. Conversely,
than aggregates) in state-owned quarries in the same jurisdiction. quarried minerals belong to the owner of the land where they are
Aggregates exploitation and certain aspects of minerals exploration found, the owner being exclusively entitled to exploit them, subject
and exploitation are vested with regional and municipal authorities. to the restrictions of the laws applicable to quarries.
Energy
The energy market and all energy activities are supervised by the
Minister of Environment, Energy and Climate Change and the
national Regulatory Authority for Energy (RAE). They are, there- With regard to hydrocarbons exploitation, the concessionaire is sub-
fore, responsible for the regulation and monitoring of the operation ject to a special income tax at a rate of 20 per cent and to a regional
of all sectors of the energy market (eg, electricity, natural gas, oil tax at a rate of 5 per cent. In addition, it has to pay royalties either
products, renewables, etc). The Hellenic Competition Commission in cash or in kind. The calculation of the royalties is conducted every
(HCC) and RAE have concurrent powers to prevent or prosecute three months on the basis of such statements by reference to the
anti-competitive or manipulative practices in the energy sector as R-factor (cumulative revenues against cumulative costs) for each
well as for the enforcement of merger control rules at national level. quarter. As for minerals extraction, the mining royalties ranges from
However, the HCC remains the ultimate competent body in this 1.5 per cent to 12 per cent of the revenue of the concessionaire,
respect unless a concentration has a community dimension in which depending on the processing method of the mineral product.
case it will be appraised by the European Commission.
Ports resources?
The administration and operation of the seaports of Greece is vested
There are no restrictions on exports of natural resources to the mem-
with the relevant port authorities whereas the General Secretariat
ber states of the European Economic Area (EEA) and, subject to the
of Ports, Ports Policy and Maritime Investments of the Ministry of
applicable customs regulations, no restrictions of exports to non-
Shipping and Aegean has, at present, supervisory, policy-making and
EEA states.
regulatory competencies. These competencies are to be assumed by
the newly established Regulatory Authority for Ports (RAP). RAP
will also supervise the implementation and regulatory compliance of
all the ports concessions in Greece, including competition aspects in 20 What government approvals are required for typical project finance
cooperation with the HCC. transactions? What fees and other charges apply?
Railways
In principle, no consents are required. However, in some specific
The Ministry of Infrastructure, Transportation and Networks is instances, specific acquisitions of shares or collateral agreements
responsible for the development of railway freight and passenger may require regulatory or government consent (eg, the consent of
transport services in Greece. The Greek railway sector is monitored the Regulatory Authority for Energy in the case of the acquisition
by the Regulatory Authority for Railways (RAS) in order to ensure of shares or the enforcement of a pledge of shares in a company
fair and non-discriminatory access to the national railway infra- that holds an electricity production licence, governmental consent
structure and services. Railway safety certification and monitoring as to agreements involving the acquisition by non-EU individuals or
is performed by the Railway Safety Department of the aforesaid legal entities of rights in rem on real property within Greek border
Ministry. areas (or in companies owning such rights or real property, consent
required in the case of acquisition of shares in airline or mining com- decentralised administrations at a regional level are the main regula-
panies etc). tory bodies regarding environmental protection matters.
With regard to health and safety, the employer has to abide by
extensive regulations, which prescribe for the necessary measures for
the prevention of physical, chemical, biological and ergonomic haz-
ards at work. The main competence in health and safety matters lies
with the Ministry of Labour, Social Insurance and Welfare.
As a general rule there are no formality requirements for the validity
or enforceability of financing or project documents (apart from col- Project companies
lateral documents, for which the formality requirements are set out
in questions 2 and 4). 26 What are the principal business structures of project companies?
companies?
awards recognised by local courts? Is the jurisdiction a member By far the most widely used corporate vehicle for project companies
of the ICSID Convention or other prominent dispute resolution in Greece is the company limited by shares, mainly due to the fact
conventions? Are any types of disputes not arbitrable? Are any that it is the only form of company that may issue bond loans under
types of disputes subject to automatic domestic arbitration? Law 3156/2003, which provides for a favourable tax regime for the
issue of bonds as a means for the financing of projects. The principal
International arbitration clauses and arbitral awards will be rec-
source of financing available to Greek project companies are facili-
ognised by Greek courts under the provisions of the New York
ties granted by Greek and foreign credit institutions.
Convention for its contracting states and under the provisions of the
Greek Code on Civil Procedure for any other case, subject, in some
instances, to formality requirements (eg, specific approval by the
board of directors of a Greek company for its submission to inter- 27 Has PPP enabling legislation been enacted and, if so, at what
national arbitration under a contractual clause). Greece is a member level of government and is the legislation industry-specific?
of the New York Convention, which has been ratified by Legislative
Although the implementation of the first major PPPs in Greece
Decree 4220/1961.
started in the 1990s, it was only in 2005 that the Greek Parliament
adopted a specific law for the implementation of public private part-
23 Which jurisdiction’s law typically governs project agreements? nerships, namely, Law 3389/2005 (PPP Law). The framework estab-
Which jurisdiction’s law typically governs financing agreements? lished by the PPP Law aims to promote the wider implementation of
Which matters are governed by domestic law? PPP projects, taking into consideration the experience gained from
Parties are free to choose applicable law in their agreements pro- the major infrastructure concessions that were successfully imple-
vided that such a choice is not contrary to Greek public order and mented in Greece prior to the entry into force of the law, but also
mandatory provisions of law. In practice, where the contractor or the the important attempts over the last few years to implement pri-
lender are Greek companies or banks, the applicable law is almost vately funded projects, many of which, however, were not success-
always Greek law, whereas in international projects the financing ful due to the inadequate preparation of the contracting authority,
agreements are usually governed by English law and project agree- the incomplete business justification or the unrealistic estimation of
ments are governed by the law of the registered seat of the foreign their feasibility.
contractor or English law. Collateral agreements, where the asset is For the first time, the PPP Law introduces a stable legal frame-
located in Greece, are governed by Greek law. work that overcomes the above-mentioned obstacles. Specifically,
the law defines the public entities (ie, central administration and
local government organisations, and state-controlled or state-owned
24 Is a submission to a foreign jurisdiction and a waiver of immunity legal entities) that can enter into a partnership contract with a pri-
effective and enforceable? vate entity in areas falling within the scope of their competence. The
Submission to a foreign jurisdiction is legally binding and enforce- private sector undertakes a significant part of the risk, related to
able. Waiver of sovereign immunity is also legally binding and financing, construction of infrastructures and the provision of ser-
enforceable under Greek law, always subject to any overriding man- vices. Private entities’ investments are repaid either by their public
datory provision of Greek law establishing an immunity right in partner (acting as the contracting authority) or by the end-users.
favour of the party waiving its right to sovereign immunity. This means that these projects are funded in total or partly by funds
and resources from the private sector.
Environmental, health and safety laws Moreover, the PPP Law provides incentives for both public and
private entities to be engaged in PPP schemes, mainly through the
25 What laws or regulations apply to typical project sectors? What simplification of relevant procedures. It also defines the minimum
regulatory bodies administer those laws? content of a PPP contract, with a description of the rights and obli-
The main environmental laws in Greece are Law 1650/1986 on gations of both parties, regulating particular issues such as financ-
the Protection of the Environment; Presidential Decree 148/2009 ing, the participation of public entities in partnerships, the payment
on Environmental Liability with regard to the Prevention and mechanism, granting of permits, protection of the environment,
Remedying of Environmental Damage and Law 4014/2011 on treatment of archeological findings, expropriations and cases of pro-
the Environmental Licensing Process of Projects and Activities. jects undertaken by public utility companies. In addition, it addresses
Further, the above main laws are implemented by several other several other legal issues, such as the transfer of claims, validity of
environmental regulations governing in detail the environmental sureties in rem, taxation and resolution of disputes.
classification and licensing of projects. Spatial planning matters and Under the PPP Law, two new administrative bodies have been
restrictions are addressed by the applicable legislation at regional established, aiming at the support of public entities, in order to
level as well as at national level in relation to specific activities (eg, improve the effective preparation and management of PPP projects.
renewables, industry, tourism, etc). The Ministry of Environment, The Inter-Ministerial Committee for Public-Private Partnerships
Energy and Climate Change at a governmental level and the relevant (IM PPP Committee), which is a collective governmental body that
defines and specialises PPP policy, approves PPP projects that fall

the eligibility of each project under the scheme is evaluated against

Update and trends certain criteria set out under the law. PPP projects that have been
approved under the process provided by the PPP Law, usually small
Despite the continuing difficulties in the Greek economy, the and medium-scale projects up to €500 million, are procured and
decline in GDP slowed down during the fourth quarter of 2013,
awarded by central, regional or local public entities and are moni-
and it is forecast that in 2014 Greece may be back on the path
to growth. In fact, in April 2014, Greece issued its first bonds tored by the Ministry of Finance through the PPP Unit.
since its 2010 bailout, marking its re-entry into the capital Conversely, very large-scale infrastructure projects are usually
markets. At the same time, the recapitalisation of Greek banks procured as traditional type concessions and fall within the jurisdic-
was recently concluded with the most impressive results seen so tion of the Ministry of Infrastructure, Transport and Networks.
far. Big institutional investors and funds are lining up to invest in
the Greek financial market and bring back the liquidity so badly
needed for the development of infrastructure projects. Fortunately, PPP – limitations
there are signs that the clouds are lifting. An economic recovery
is slowly underway and market conditions for the financing of 28 What, if any, are the practical and legal limitations on PPP
projects are brightening again, while the huge Greek assets transactions?
privatisation programme is progressing. Most importantly,
investors are returning, aware that Greece has a great deal of The main practical limitation that has impeded the growth of the
potential in various sectors such as marinas and port facilities, Greek PPP sector has been, primarily, the lack of credit liquid-
railway infrastructure, logistics, renewables, leisure and real ity in the market. The unprecedented financial crisis, which lasted
estate development now ready to be tapped. This remarkable for almost five years, practically froze any PPP activity either for
improvement of the country’s credit profile backed by a mature
schemes under the PPP Law or through concession agreements. In
project finance market and a fairly stable regulatory framework
may reasonably give a boost to the Greek economy. real terms, despite the continuous activity of the PPP Unit for the
promotion of projects under the scheme set up by the PPP Law
but also of the Ministry of Infrastructure, Transport and Networks
for the promotion of projects through the traditional concessions
under the PPP Law, while, moreover, coordinating and monitor-
method, very few PPP projects have been implemented in the coun-
ing the implementation of PPP projects. The committee consists of
try within the last five years.
the Minister of Development and Competitiveness, the Minister
In terms of legal limitations and as far as PPP transactions under
of Finance and the Minister of Environment, Energy and Climate
the PPP Law are concerned, it should be noted that certain functions
Change as ordinary members and the Ministers who supervise each
or duties that fall under the direct and exclusive competency of the
of the public entities that are to participate in the PPP contract or
state in accordance with the provisions of the Greek Constitution,
associated contracts as extraordinary members.
such as national defence, police work, the award of justice and the
The Special Secretariat for Public-Private Partnerships (PPP
execution of judicially imposed penalties, cannot be divested to a
Unit) has been established within the Ministry of Finance. The PPP
private entity and, therefore, cannot be the object of a PPP contract.
Unit identifies projects that can be delivered via a PPP scheme, pro-
On the other hand, the main challenge for the large-scale infrastruc-
motes their implementation and provides support and assistance to ture concessions that do not fall under the ambit of the PPP Law
the IM PPP Committee and to the public entities in the context of all remains the necessity to go through the ratification process from the
necessary procedures for the awarding, contracting and implementa- Greek Parliament.
tion of a PPP project. Moreover, there are several budgetary concerns. In particular,
Parliament ratification of PPP contracts falling under the ambit according to the PPP Law, the total budget of a project that can
of the PPP Law is no longer needed as it is the case for the major be delivered via a PPP scheme cannot exceed the amount of €500
infrastructure concessions that have started being implemented since million (excluding VAT). However, following a unanimous decision
the 1990s. Finally, the procurement procedures for the award of the of the IM PPP Committee, it is possible for a project to fall under
PPP contracts are in line with the EU public procurement regula- the provisions of the law even if its budget is in excess of the above
tions, aiming at the customisation of relevant procedures and the threshold. Moreover, the principle applied by the state through the
improvement of the efficiency of public administration. IM PPP Committee and the PPP Unit is that the total cost of the
The framework introduced by the PPP Law applies across all future payments to be made to the private entities (partners) by the
sectors of the economy in which public entities operate, such as state under the PPPs should not exceed 10 per cent of the total Public
education, transport, health, ports infrastructure, defence, culture, Investment Programme on an annual basis.
government buildings and environment, provided, of course, that
Dimitris Assimakis dimitris.assimakis@nortonrosefulbright.com

Alexandros Pavlopoulos alexandros.pavlopoulos@nortonrosefulbright.com
Building K1 Tel: +30 210 9475 300

1 Palea Leoforos Posidonos and 3 Moraitini Street Fax: +30 210 9475 301
175 01 Delta Paleo Faliro www.nortonrosefulbright.com
Athens
Greece
PPP – transactions As a result of the country’s economic crisis, there was little pro-
gress on the PPP projects promoted under the scheme established
29 What have been the most significant PPP transactions completed by the PPP Law until today. Therefore, despite the first successful
to date in your jurisdiction? €26 million PPP contract for the design, construction and mainte-
The most significant PPP transactions in terms of size and complex- nance of seven new fire stations signed back in 2008, the next two
ity completed in Greece fall within the category of traditional con- PPP contracts (with a total value above €110 million) for the design,
cession agreements ratified by the Greek Parliament, such as: construction, financing and facility management of 24 school build-
• the €1.24 billion concession agreement for the design, construc- ings in the Attica region were only signed in April and May 2014.
tion, financing, maintenance and operation of the Attica Ring However, several tenders for new projects are at the final stage just
Road, a 65km closed toll motorway servicing the great metro- before the signing of the PPP contracts, with the most imminent
politan Athens area; being those related to the design, financing, construction, main-
• the €750 million Rion-Antirion bridge, the longest multi-span tenance and operation of waste management facilities in various
cable-stayed bridge in the world; regions around the country as part of a €2 billion programme, as
• the €2.22 billion concession agreement for the design, financ- well as the tenders for the design, installation, operations support,
ing, construction, completion, commissioning, maintenance, maintenance and technical management of automation systems in
operation, management and development of the new Athens the Athens area public transportation organisation. In addition to
International Airport, Eleftherios Venizelos; and those projects that are close to contracting, a significant number of
• the ongoing €9 billion motorways programme consisting of five other PPP projects have been tendered across a wide range of sec-
concession agreements for the design, financing, construction, tors including government buildings, telecoms, schools, hospitals,
completion, commissioning, maintenance, operation and man- defence and leisure.
agement of motorways in central and western Greece, as well
as in the Peloponnese. Overall, these five agreements foresee the
construction of 740km of new motorways, the upgrading to
motorway standards of 540km of existing roads and the opera-
tion of a total network of 1,335km of motorways.

Nagy és Trócsányi HUNGARY
Hungary
Zoltán Varga and Viktor Jéger
Nagy és Trócsányi
Creating collateral security packages fulfilled. The moveable serving as security remains in the possession
of the mortgagor.
The following types of collateral are available: Pledge on moveables
• real property mortgage; To create a pledge on moveables, it is necessary to conclude a writ-
• mortgage on moveables; ten pledge agreement and transfer the possession of, or control over,
• pledge on moveables; the pledged property to the secured creditor. The pledge agreement
• charge on rights and receivables; may be replaced by a security issued by the creditor, authorising
• floating charge; the holder of such a document to collect the pledged property in
• security deposit in the form of cash, securities or bank accounts; exchange for the sum shown in the security, within the time limit
and specified in the security. No registration is necessary and no duty or
• seceded lien (introduced by the new Civil Code effective from 15 other fees need to be paid.
March 2014).
Charge on rights and receivables
In order to establish a charge on a receivable, the obligor of the
receivable shall be notified in writing on the existence of the charge,
or a statement thereof shall be made out and delivered to the credi-
tor, whichever is chosen by the creditor. Charges on rights and
receivables shall be registered in the collateral register or the relevant
public register. The objects of such a charge may also include future
rights and receivables that will accrue to the obligor. The rights and
Real property mortgage receivables charged may be specified through an elaborate descrip-
A real property may be charged as a security only in the form of a tion. For the security to be enforceable, the obligor must be notified
mortgage. The mortgaged property remains in the possession of the in respect of the creation of the security.
mortgagor, who is entitled to use the property. The mortgage agree-
ment is valid only if concluded in writing and in the form required Floating charge
for registration in the Land Register. The mortgage goes into effect The new Civil Code extended the applicability of the floating
when it is registered. Registration duty is payable on each mortgage. charge: it is possible to create such a charge not only on the assets of
Priority is determined according to the date of registration; if more a legal entity but on any kind of subjects that may be circumscribed
than one request is submitted on the same day, the priority is deter- regardless of whether these are owned by legal or natural persons.
mined according to the date on which the mortgage agreement was However, a floating charge may not be established on real proper-
concluded. ties. Now, the form of a notarial deed is not necessary but the charge
must be registered in the collateral database.
Mortgage on moveables
Since the new Civil Code came into effect, a new internet-based, Security deposit in the form of money, securities or bank
publicly available ‘collateral register’ has been set up for mortgages accounts
and other collaterals created on such moveables in which ownership A security deposit, as financial collateral, may be provided under an
is not attested by a public register. In the case of moveables attested agreement to secure a claim in the form of money, a claim on a bank
by a public register, the mortgage shall be considered established account, a security or another asset as determined in a legal regula-
if registered in the relevant registry. A registration fee is payable tion. This kind of lien may be established by:
on each mortgage. The lien register maintained by the Hungarian • the handover of the money or the security;
Chamber of Public Notaries ceased to operate pro futuro, meaning • in the case of dematerialised securities and bank accounts, by the
that it currently displays only the previous registrations and no new way of a written agreement between the creditor, the debtor and
entry is possible. the payment service provider, under which the payment service
Priority is treated by law as detailed under real property mort- provider shall execute the orders of the debtor with the consent
gages (see above); however, there is a special rule; registration shall of the creditor, and shall execute the orders of the creditor with-
not be prevented even if the property to be registered does not exist, out the consent of the debtor; or by way of a lien agreement
or the mortgagor has no authority over the moveable at the time between the debtor and the payment service provider to the ben-
of registration. This means that the creation of the mortgage will efit of the payment service provider;
be effective retrospectively when the additional conditions will be
HUNGARY Nagy és Trócsányi
• in the case of other assets defined by law, by the transfer from is subject to the collateral takes place on the basis of a court order or
the possession of the debtor to the possession or control of the writ of execution. If the mortgage or pledge is registered under the
creditor; or provisions of law, the registration serves as authentic proof of the
• by removing it from the unrestricted control of the debtor. existence of the security. If no registration is necessary, the security
agreement may be concluded in the form of a notarial deed. The
Seceded lien notarial deed, as a public document, strengthens the beneficiary’s
The new Civil Code abolished the independent lien. Now, a lien may capacity to enforce the collateral because, in accordance with the
only be created in connection with a secured claim. However, by relevant law on judicial enforcement, the court can affix a writ of
introducing the legal institution of ‘seceded lien’, the new Civil Code execution on a notarial deed, and as a result of this, the claim based
has made possible that once a lien (mortgage) has been created, it on the security agreement will be subject to direct enforcement, that
may be separated from the original claim: the creditor may transfer is, no court procedure is necessary to declare the beneficiary’s claim.
it without its secured claim, by a written agreement as a security, to In contrast to judicial enforcement, the creditor may choose to:
its own creditor. • sell the property designated as collateral;
The concept of collateral agent became recognised in Hungary • acquire the ownership of such property; or
by the new Civil Code. The creditors are entitled to appoint a ‘lien • enforce the right or receivable designated as collateral.
holder agent’ in writing. The lien holder agent registered in the col-
lateral register or the relevant public register is subject to the rights The creditor has a right to choose between the judicial enforcement
and obligations of the creditor (the lien holder), and, in this regard, and another way of enforcement (as listed above), and is also enti-
the lien holder agent acts in his or her name and on the behalf of the tled to switch to a different way of enforcement (as listed above). A
lien holder. While the lien holder agent is registered, the lien holder lien on payment account balances may only be enforced by way of
may not exercise the rights arising from the lien, however, it bears judicial enforcement.
full liability for the actions of the agent. As a main rule, the right of the creditor to satisfaction shall open
when the secured claim is due and the debtor is in default. In the case
of seceded lien, the right to satisfaction opens when the right to sat-
isfaction opens in respect of the claim secured originally. When this
happens, the obligee of the seceded lien has an obligation to exercise
To ensure security for the creditor, the in rem collateral types speci- the right to satisfaction or transfer the lien back to the creditor.
fied in questions 1 and 2 are the most appropriate. Only these types In the case of a lien agreement with a consumer, the creditor:
of collateral ensure priority to the creditor. However, there are some • is only allowed to sell publicly the property designated as col-
other legal instruments provided for in the laws of Hungary that lateral, unless the parties agreed on an alternative sales method
may be applied to protect the claim of the creditor. The list of these after the effective date of the right to satisfaction; and
legal instruments was shortened by the new Civil Code as it sets • may not acquire ownership of the property designated as col-
forth the nullity of fiduciary collaterals: transfer of ownership, other lateral as a way of satisfaction, with the exception of security
right or claim, or establishment of right to purchase for the purpose deposits.
of securing a pecuniary claim (with the exception of the collaterals
provided for in the directive on financial collateral arrangements). Sale of the property
The relevant remaining legal instruments are described below. The creditor must send notice in writing to the persons with interest
(eg, debtor, beneficiaries of other liens secured by the same property
Stipulation of forfeiture of rights and persons holding a right registered in the public register of the
Under the Civil Code, the parties are entitled to agree in writing that property) with the prescribed content about the intent of selling the
the party responsible for any breach of contract will forfeit a right property designated as collateral. The prior notification must be sent
or a benefit to which he or she would otherwise be entitled on the at least 10 days before the sale, and in the case of a lien agreement
basis of the contract. with a consumer, at least 30 days before the sale. The creditor is
entitled to sell the property without prior notification if the property
Stipulation of prompt collection is perishable, if its value is likely to diminish considerably upon delay
It is common in contractual relationships to include a clause in the or it is an item or a right traded on the stock exchange.
agreement to the effect that in the event of a breach of contract, the
creditor will be entitled to collect its money directly from the bank Acquisition of ownership
account of the other party. Any agreement for transferring ownership of the property desig-
nated as collateral to the creditor at the time of opening of the right
Acknowledgement of debt to satisfaction is null and void. Following the effective date of the
The acknowledgement of a debt does not change the legal grounds right to satisfaction, the creditor may offer to the debtor the accept-
of such debt. However, the debtor bears the burden of proof thereon ance of ownership of the property in satisfaction of the secured
that there was no debt at the time of the statement of acknowledge- claim in whole or in part. In this case, the creditor is obliged to send
ment, the debt was in a lower amount or it was based on a claim notice about such an offer, by attaching a copy of the actual offer to
that may not be judicially enforced or on an invalid contract. The the persons with interest (eg, beneficiaries of other liens secured by
statement is generally made in the form of a document executed by a the same property or persons holding a right registered in the public
notary public or in a private document fulfilling the formal require- register of the property). If the debtor accepts in writing the offer of
ments of having full evidentiary effect. The former has the advantage the creditor within 20 days of the receipt thereof, and the notified
of being directly enforceable. persons with interest do not object in writing to the offer of the
creditor within 20 days of the receipt thereof, the creditor and the
4 Outside the context of a bankruptcy proceeding, what steps debtor enter into a sales contract. In the case of a security deposit,
should a project lender take to enforce its rights as a secured the creditor may acquire directly the right of the property, with a
party over the collateral? statement addressed to the debtor.
As a general rule, in the case of mortgages, pledges, charges and
security deposits (together, lien), satisfaction from the property that

Enforcement of the right or receivable designated as collateral 7 What are the restrictions, controls, fees and taxes on remittances
In the case of a charge on a receivable, the creditor may give perfor- of investment returns or payments of principal, interest or
mance instructions to the obligor of the receivable and is allowed, premiums on loans or bonds to parties in other jurisdictions?
after the receivable is due, to enforce the claim for the receivable in There are no restrictions, controls or taxes on remittances of invest-
place of the debtor against the obligor. This provision is applicable ment returns or loan payments to parties in other jurisdictions under
mutatis mutandis on a charge on a right. Hungarian law. In general, any remittances or loan payments pay-
able to foreign parties are subject to taxation in the foreign party’s
5 How does a bankruptcy proceeding in respect of the project country. The tax payable in such country – pursuant to the trea-
company affect the ability of a project lender to enforce its rights ties on double taxation – must be deducted from the tax levied in
as a secured party over the collateral? Are there any preference Hungary.
(eg, tax debts, employees’ claims) with respect to the collateral? 8 Must project companies repatriate foreign earnings? If so, must
What entities are excluded from bankruptcy proceedings and they be converted to local currency and what further restrictions
what legislation applies to them? What processes other than exist over their use?
There are no repatriation provisions under Hungarian law.
During a bankruptcy proceeding the debtor is allowed a stay of pay-
ment (moratorium) of 120 days from the time when the court order 9 May project companies establish and maintain foreign currency
opening the bankruptcy proceedings was published. Under the dura- accounts in other jurisdictions and locally?
tion of the moratorium no satisfaction may be provided in connec- Project companies may establish and maintain foreign currency
tion with any collateral existing on the debtor’s asset. accounts in Hungary as well as in other jurisdictions. However,
In a liquidation procedure the liquidator shall dispose exclusively they must establish at least one domestic bank account, either in
of the assets of the company, including its collaterals. In the order in Hungarian forints or in foreign currency as according to the applica-
which the company’s debts shall be satisfied, claims secured by lien ble rules on the registration of Hungarian companies it is mandatory
are favoured against any other claims (eg, tax debts or employees’ to hold a Hungarian bank account in order to be registered by the
claims). In the case of enforcing a floating charge, 50 per cent of the competent company court.
proceeds from the sale of the charged asset shall be used to satisfy
claims for which the asset was charged. Foreign investment issues
If the debtor has provided a security deposit to secure a claim
until the first date of the liquidation proceedings, the security deposit 10 What restrictions, fees and taxes exist on foreign investment in or
taker is entitled to enforce the security deposit within three months ownership of a project and related companies? Do the restrictions
following the publication of the opening of liquidation proceedings. also apply to foreign investors or creditors in the event of
The creditor may file a legal action to contest contracts con- foreclosure on the project and related companies? Are there
cluded by the debtor within five years preceding the date when the any bilateral investment treaties with key nation states or other
court received the petition for opening liquidation proceedings or international treaties that may afford relief from such restrictions?
thereafter, if intended to conceal the debtor’s assets or to defraud Would such activities require registration with any government
any one creditor or creditors. Similarly, within two years preceding authority?
the date when the court received the petition for opening liquidation Hungarian law provides that investments and business establish-
proceedings or thereafter, the creditor may file a statement of claim ments of foreign nationals in Hungary enjoy full protection and
against contracts concluded by the debtor if intended to transfer the security under the law. The fair and equal treatment of foreign inves-
debtor’s assets without any compensation or to undertake any com- tors in general is secured, and therefore, as a basic rule, there are no
mitment for the encumbrance of any part of the debtor’s assets. restrictions, or special fees or taxes in respect of foreign investments
The provisions of the Act on Bankruptcy Proceedings apply
in, or ownership of, project and related companies. This general rule
only to economic entities as defined therein. There are also special
also means that the activities of foreign investors need only be regis-
provisions applicable to credit institutions, financial service provid-
tered with the relevant authorities if this is prescribed by law for all
ers (including investment companies and insurance companies),
legal entities performing that activity. The general rule is also sup-
Hungarian branch offices and commercial representative offices of
ported by the legal instruments most closely related to foreign direct
foreign companies and civil society organisations.
investment.
The act clearly does not apply to entities in the public sphere. As
Nevertheless, for the purposes of protecting property, the acqui-
far as municipalities are concerned, the relevant law regarding the
sition of real estate is restricted under the law. Real estate, in general,
debt settlement of local municipalities applies.
may only be acquired, with the exception of inheritance, by foreign
Under Hungarian law, the claims of foreign creditors are treated
individuals and legal entities from non-EU states by the permission
in the same manner as the claims of local creditors.
of the competent authority. Stricter restrictions apply on the acquisi-
In Hungarian law there are no processes available to seize the
tion of agricultural lands and forests (lands). Non-EU individuals
assets of a business outside of court proceedings, it is only possi-
and foreign states (and government agencies) may not acquire the
ble before the court: in respect of every asset of the business entity,
ownership of lands, as well as legal entities with certain exceptions
namely, liquidation proceedings (universal enforcement) or in
(eg, in certain cases the state of Hungary and churches). As a main
respect of certain assets of a business entity in the value of the claim
rule, the ownership of lands may only be acquired by domestic indi-
(singular enforcement).
viduals as well as individuals from member states of the European
Union.
There are no bilateral or international treaties in effect that
6 What are the restrictions, controls, fees, taxes or other charges afford relief from the above restrictions.
There are no restrictions or controls, but the newly introduced trans-
actional tax is to be applied on foreign currency exchange at the rate
of 0.3 per cent (maximum 6,000 forints per transaction).
11 What restrictions, fees and taxes exist on insurance policies 14 What laws exist regarding the nationalisation or expropriation
over project assets provided or guaranteed by foreign insurance of project companies and assets? Are any forms of investment
companies? May such policies be payable to foreign secured specially protected?
creditors? Hungarian law does not provide any special regulations regarding
Any insurance activity in Hungary may be performed only by insur- nationalisation or expropriation of project companies and assets.
ance companies and only if they are in possession of permission Under the Fundamental Law of Hungary (Constitution), all enti-
from the relevant authority. An insurance company established in ties and assets are fully protected against nationalisation and expro-
a member state of the European Union may perform cross-border priation. At present, nationalisation is not even possible under the
services in Hungary or through its Hungarian branch if so author- laws of Hungary. Expropriation, on the other hand, is possible, but
ised in the member state in which it is established. Third-country it is only permitted in exceptional cases, when such action is in the
insurance companies may only provide services in Hungary through public interest, and only in such cases and in the manner determined
branch offices registered in Hungary; however, under international by the relevant act, under the terms of full, unconditional and imme-
agreements, they may perform certain insurance activities, such as diate compensation.
reinsurance services, without having to set up a branch office. In addition – as special and express legal protection in respect
Local insurance is required in Hungary, unless insurance is proof the interests of foreign nationals – the relevant law provides that
vided in the context of cross-border services, and any insurance loss or damage resulting from nationalisation, expropriation or
service procured in contempt of the above is unlawful. In addition, other similar legal measures affecting the ownership rights of foreign
policies over project assets provided by foreign insurance companies investors is subject to immediate compensation at fair market value.
may only be payable to foreign creditors lawfully if the insurance The amount of compensation to the entitled party must be paid in
services are provided in Hungary by the foreign company in the con- the currency in which the investment was made.
text of cross-border services or through branch offices. Beyond the above general legal implications, there are several
Based on the relevant act, reinsurance is effective, but is usually bilateral investment treaties (BITs) in effect between Hungary and
not required by foreign investors and creditors. other countries that contain provisions regarding the expropriation
of the assets of foreign nationals. Further, various sector-specific
legal instruments provide certain specific rules regarding expropria-
tion and protection against expropriation, such as rules regarding
land, railways, power lines and protected natural areas.
With a one-sided act, Hungary opened its labour market for all citi-
zens of all EU member states. In terms of employment this means Fiscal treatment of foreign investment
that no permits are required; the employer of an EU citizen has to
only notify the competent labour inspectorate in accordance with 15 What tax incentives or other incentives are provided preferentially
the law. to foreign investors or creditors? What taxes apply to foreign
Generally speaking, for those employees who are citizens of a investments, loans, mortgages or other security documents,
third country a work permit is required. Individual permits, automat- either for the purposes of effectiveness or registration?
ically issued permits and agrarian seasonal permits may be obtained. In general, incentives are available to all business associations regis-
It is always the potential employer’s duty to obtain the permit. It has tered in Hungary, regardless of the nationality of the quota or share-
to be done prior to entering into the employment agreement. There holders or the location of incorporation. There are several types of
is also the possibility of applying for a single permit instead of a resi- tax and other incentives applicable, such as corporate tax allow-
dence and a work permit, if the applicant has a residence permit for ances if the value of the investment is above a certain amount; in
the purpose of family reunification, gainful employment, a residence relation to research and development, and if the investment is real-
permit on humanitarian grounds or an EU Blue Card. ised in disadvantaged regions, and there are also certain types of
Key persons (who are not executives of an organisation, but state subventions. The relevant legal instruments of the European
based on their knowledge or experience are key employees) shall Union are also applicable.
apply for automatically issued permits. No specific types of tax apply with respect to foreign invest-
Executives of an organisation (for example, managing directors, ments and loans. In addition, for taxes and fees related to mortgages
board members, members of the supervisory board) are not subject and other security documents, see question 2.
to work permit requirements.
In general, as Hungary is a member of the European Union, goods, authority over projects in the typical project sectors? What is the
including project equipment, may be freely moved within the internal nature and extent of their authority? What is the history of state
market in accordance with the relevant provisions of EU legislation. ownership in these sectors?
Hungarian regulations related to exports and imports to and
The following government agencies and departments have authority
from third countries as well as customs have also been fully harmo-
over projects in the typical project sectors:
nised with EU norms. Accordingly, the importing of goods to the ter-
• the government of Hungary and the various sector ministries
ritory of Hungary from third countries is subject to supervision and
issue the specific legal instruments on the basis of the acts of
to certain payment obligations imposed by the customs authority.
Parliament and supervise the related government authorities and
Besides this, the importing of certain goods from third countries
departments in the relevant sectors;
is forbidden under law, or is subject to authorisation by the relevant
• the National Inspectorate for Environment, Nature and Water
authority, and in certain circumstances, the importing business entity
and its regional inspectorates issue permits as well as author-
must be registered by the above authority. The goods that are for-
ise the related activities, and give expert authority opinions and
bidden to be imported or that are subject to authorisation are speci-
impose fines and penalties;
fied in bilateral and multilateral treaties, as well as in certain legal
• the Hungarian Office for Mining and Geology and its district
instruments of the European Commission. The range of such goods
inspectorates issue authorisations for prospecting, exploration,
is broad, and includes certain kinds of weapons, certain kinds of raw
extraction and production of natural resources and geothermic
materials and agricultural goods, as well as certain industrial goods.
energy. They also supervise the mining activity of extractors;

• the National Transport Authority and its regional directorates A mining royalty is to be paid to the Hungarian state for any raw
are responsible for the administration issues (authorisation, minerals and geothermic energy extracted by an authorised mining
supervision and the imposition of penalties) related to road, air, enterprise or extractor of geothermic energy without distinction
water and railway transport; between domestic and foreign extractors.
• the National Media and Infocommunications Authority author- The amount of the royalty payable is based on the percentage
ises the provisions of electronic communication services, reg- of the value of the quantity of the material extracted, according to
isters service providers, protects competition on the relevant formulas set out in the Mining Act and to the detailed provisions
market and supervises the conduct of organisations and persons of other specific legal instruments. Since 2010, in the case of oil the
engaged in the provision of electronic communications services; price of Brent is also taken into account.
• the Hungarian Energy and Public Utility Regulatory Authority
issues the permits required by the relevant legal instruments,
approves by-laws, establishes and supervises the application of
resources?
prices in the energy sector, and supervises compliance with the
relevant statutory provisions; There are no restrictions, fees or taxes on the export of natural
• regional and local construction authorities issue construction resources.
permits and supervise the enforcement of the statutory provi-
sions related to construction activities; and Legal issues of general application
• municipalities and their clerks have (mostly authorisation and
supervision) competence in matters related to projects carried
out in their territory.
In general, project finance transactions, whether of non-resident
For state ownership of minerals and water, see question 17. or domestic entities, do not require any government approval.
Most of the relevant sectors are mostly in private hands, except However, if the project is directly related to public procurement, the
for the electricity sector and transport, which are only partially manner of financing the project may be subject to approval or may
privatised. be stipulated in advance.
Until the end of 2014 new commercial buildings larger than
Regulation of natural resources 300 square metres may not be constructed, and existing commercial
buildings may not be enlarged to exceed that size limit. The Minister
17 Who has title to natural resources? What rights may private in charge of Trade and Commerce may grant an exemption from the
parties acquire to these resources and what obligations does the prohibition following a consultation with the committee compris-
holder have? May foreign parties acquire such rights? ing the Minister in charge of Trade and Commerce, the Minister in
The ‘treasures of the earth’ (which include oil, gas and other miner- charge of Environmental Protection and the Minister in charge of
als) and mining rights; underground waters, the natural basins of Rural Development.
underground waters, rivers and natural lakes, and the beds thereof,
game, and useful aquatic life are under the exclusive ownership of 21 Must any of the financing or project documents be registered or
the state. filed with any government authority or otherwise comply with legal
The Fundamental Law of Hungary states that the properties of formalities to be valid or enforceable?
the state (and the local government) are national assets.
Pursuant to Act CXCVI of 2011 on National Assets, the objects
It depends on the given project whether financing or other project
owned exclusively by the state may not be commercially traded,
documents shall be filed with certain government authorities. For
encumbered, pledged, nor any divided estate be established on them,
example, in the case of building projects the building documenta-
except trusteeship over the asset or beneficial use for the benefit
tion is subject to mandatory authorisation on behalf of the building
of certain organisations set by a different act, cable right or servi-
authorities, but other government authorities may also be relevant
tude for the benefit of the local government. The ownership of the
depending on the nature of the project. In such cases legal formalities
exploited ‘treasures of the earth’ can be obtained pursuant to the
for the application and the content of the building documentation is
regulations of sectorial laws.
defined by the relevant legal regulations (see question 16).
One of the possible ways of operating exclusively state-owned
Further, if for the purpose of the project a Hungarian project
assets effectively is to offer them to concession (still within the frame-
company is to be established, the company must be registered with
work of the Act on National Assets). The state (or the local govern-
the Hungarian Company Court; the mandatory content and for-
ment) is obliged to call for a tender before entering into a concession
malities for the company documentation – including the mandatory
contract. Unless defence or national security requires a closed tender,
participation of an attorney-at-law – is also determined by the rel-
the tenders should be public. In the case of a state-owned business
evant laws (see question 26).
entity that carries out activities subject to concession being sold for
Many of the projects are realised in the scope of public procure-
a private owner, the procedure for calling for tender in respect of
ment. In such cases the governmental authority competent in respect
the concession shall be initiated when the selling procedure starts.
of public procurements has certain rights to control and approve
The rights and obligations of the private parties who have acquired
project documentation, including financing documents in order to
concession in connection with objects owned exclusively by the state
fulfil the legal requirements set forth in the act on public procure-
are governed by the given concession agreement. For carrying out an
ment (see question 28).
activity subject to concession – unless stated otherwise in sectorial
laws – within 90 days of the signature of the concession contract, a
Other legal formalities
Hungarian-seated business entity shall be established.
Other legal formalities depend on the nature of the project. The
involvement of a notary public, in general, is not prescribed by
18 What royalties and taxes are payable on the extraction of natural law. In the case of financing agreements, however, it is common to
resources, and are they revenue- or profit-based? conclude the financing agreement in the form of a notarial deed as
In accordance with the Mining Act, the extraction of minerals and enforcement is much easier with respect to those judicial procedures
geothermic energy is subject to a mining royalty payment obligation. that can be bypassed. The presence of notaries is also prescribed
in the case of certain acts of the parties during public procurement The Act on National Assets lays down that those who have
procedures. authority over a national asset located within the borders of
Hungary may only agree to the application of the laws of Hungary
in a civil law agreement. (Stipulations contrary to a legal regulation
are considered null and void.) In addition, the laws of another juris-
diction must be disregarded and domestic law is to apply if the law
chosen to apply conflicts in any way with public order in Hungary.
In procedures starting after 13 June 2012, only a Hungarian seated 24 Is a submission to a foreign jurisdiction and a waiver of immunity
court of arbitration can proceed pursuant to its own rules of pro- effective and enforceable?
ceedings if the legal dispute arises from a contractual relationship According to a general principle of Hungarian law, no special pro-
between exclusively Hungarian seated parties in connection with cedure is necessary for foreign legal decisions to be recognised. The
a property right, rental or lease contract, concerning an internally decisions of foreign courts and other foreign authorities are recog-
located real estate if the applicable law is Hungarian law. In this case nised in Hungary if:
the language of the procedure is also Hungarian. There is no place • the jurisdiction of the court or authority is deemed legitimate
for arbitration where the subject matter of the dispute is a national under the rules of jurisdiction of Hungarian law;
asset located within the borders of Hungary and falling under the • the decision is construed as definitive by the law of the state in
scope of Act CXCVI of 2011 on National Assets, nor is there in con- which it was made; or
nection with any right, claim or demand attached to such a national • there is a treaty or reciprocity agreement in effect between
asset. The decision of an arbitration tribunal has the same effect Hungary and the state in which the court or authority resides.
as that of a binding court decision. As Hungary is a party to the The Minister of Justice of Hungary issues a statement regarding
1958 New York Convention on the Recognition and Enforcement the above reciprocity, and such a statement is binding on the
of Foreign Arbitral Awards, an arbitral award made in accordance Hungarian courts and other authorities.
with the New York Convention outside Hungary has the same effect
as that of a binding court decision and may be enforced in accord- The relevant law also defines the circumstances under which the
ance with the provisions of judicial enforcement. decisions of foreign courts and authorities may not be recognised,
The court, however, must refuse to execute the arbitral award such as if a Hungarian court or other Hungarian authority has
– made by either a Hungarian or a foreign arbitral tribunal – if it exclusive jurisdiction over the matter to which the decision pertains.
considers that the subject matter of the dispute is not subject to arbi- If the conditions required for the Hungarian recognition of a
tration under Hungarian law or the award runs counter to the inter- foreign decision determining an obligation prevail, such decision is
ests of public order in Hungary. executed in accordance with the corresponding Hungarian laws.
Hungary is a party, in addition, to the New York Convention, The Hungarian state qualifies as a legal entity in business rela-
to the ICSID Convention and to the 1961 European Convention on tions, and is represented by the Minister looking after the State
International Commercial Arbitration. Property. In such relations the state is subject to the same rights and
Disputes may be settled by way of arbitration if at least one of obligations as other entities and natural persons: it is entitled to sue,
the parties is professionally engaged in business activities and the or it may be sued, and claims may be enforced against it.
legal dispute arises out of or in connection with this activity, the
parties may dispose freely of the subject matter of the proceedings, Environmental, health and safety laws
and arbitration was stipulated in an arbitration agreement. There
are also some types of disputes – mostly family law disputes – where 25 What laws or regulations apply to typical project sectors? What
arbitration is excluded. regulatory bodies administer those laws?
Under Hungarian law there are no types of disputes that are The most important legal instruments are the following:
subject to automatic domestic arbitration. • the Fundamental Law of Hungary (Constitution);
• Act LXXVIII of 1997 on the Formation and Protection of the
Built Environment;
• Act CXXII of 2013 on the Traffic of Agricultural and Forest
Lands;
• Act XCIII of 1993 on Labour Protection;
The law of the jurisdiction that is chosen by the parties when con- • Act XXV of 2000 on Chemical Safety;
cluding the agreement or at a later date applies to the agreement. • Act LIII of 1995 on General Rules of Environmental Protection;
In the absence of any such specified law, the law applicable to each • Act LIII of 1996 on Nature Protection;
agreement is determined according to the relevant legal instrument • Act LVII of 1995 on Water Management;
on international private law. For example, in the case of an agree- • Act CLXXXV of 2012 on Waste;
ment related to real property, the law of the place of location of the • Act XLII of 2000 on Water Transport;
real property applies to the contract, or in the case of an agreement • Act CLXXXIII of 2005 on Rail Transport;
for work or labour, the applicable law is the law governing the terri- • Act I of 1988 on Vehicular Transport;
tory in which the entrepreneurial activity is to be carried out as per • Act C of 2003 on Electronic Communications;
the agreement, or where the outcome specified in the contract is to • Act XLVIII of 1993 on Mining Activities;
be attained. • Act XL of 2008 on Natural Gas Supply;
Project agreements related to projects implemented in Hungary • Act CXCVI of 2011 on National Assets; and
are typically governed by Hungarian law. The majority of financ- • Government Decree 343/2010 (XII.28) on sustainable biofuel
ing agreements are governed by English law, although, if the invest- production.
ment is financed locally, the financing agreements are governed by
Hungarian law. It is common to use notarised documents when con- The most important regulatory bodies administering the above legal
cluding the above agreements. instruments are the following:
• the National Inspectorate for Environment, Nature and Water;

• the Hungarian Labour Inspectorate;

• the National Public Health and Medical Officer Service; Update and trends
• the Hungarian Office for Mining and Geology;
• the National Transport Authority; Since the new Civil Code entered into force only recently (15
March 2014), it is important to emphasise that judicial practice
• the National Media and Infocommunications Authority; and – the interpretation of the courts on the application of the law
• the Hungarian Energy and Public Utility Regulatory Authority. – is not available yet. While this is a transitional period, many
legal institutions have remained basically the same and many
Project companies amendments were founded on the established judicial practice,
so the legislator only recognised the actual application of the law.
26 What are the principal business structures of project companies? The reception and the practical significance of the new concepts
(eg, the newly introduced trust and the lien holder agent) are not
What are the principal sources of financing available to project yet clear.
companies? In connection with the new Civil Code, the transitional rules
Companies with limited liability, especially limited liability compa- have great significance. As a main rule, the new Civil Code is
applicable on legal relations established after 15 March 2014, but
nies and private limited companies, are the main business structures the transitional rules also provide for the opportunity of the parties
for project companies. These two structures are the most common to set their existing legal relationship under the new Civil Code with
in Hungary because they obviously limit the liability of their mem- their mutual consent.
bers or shareholders, they can be established relatively quickly (if the The Act on the Traffic of Agricultural and Forest Lands did not
only repeal the Act on Arable Lands and introduce stricter rules
company is founded through a standard contract form, the Court of
on the sale and use of lands, but also intervened in existing legal
Registration is obliged to register new companies within one work- relations. The new Act and its transitional rules set forth that
ing day after the tax number is established) and they are cheap to usufruct and right to use created by contracts in effect on 30
set up (registration duty of either 50,000 forints or 100,000 forints April 2014 shall terminate by the force of law on 1 May 2014 if
needs to be paid, depending on the method of foundation). However, the contract is not concluded by close relatives. Beneficiary land
loan contracts may not be prolonged and will terminate on 31
owing to the flexibility of its regulation, the limited liability com- December 2014. Lease usage agreements shall not terminate
pany is the most popular business structure. automatically, but in the case of certain amendments they must be
All forms of financing provided in other countries are available brought into conformity with the new law.
in Hungary, including the use of the investor’s own funds combined
with bank lending in the form of credit and loans secured on the
assets of the company. From the new Act on Public Procurement (Act CVIII of 2011)
In the past few years cross-border and syndicated lending have and from the new Act on Public Finance (Act CXCV of 2011) a ref-
emerged as the favoured form of financing in the case of larger erence to PPP projects were left out. At present, it is the Ministry of
investment projects, while mortgage-backed lending is predominant National Development’s responsibility to oversee, analyse and con-
in the financing of small and medium-sized projects. trol those contracts that were already entered into or to be entered
into and that concerns privatised assets, concession, PPP and other
state assets.
After the revision of the PPP concept, the government is addi-
tionally considering involving private funds in the Museum District
project planned to be carried out in Városliget (Budapest).
PPP has never been governed by a separate legal instrument in
Hungary. The majority of PPP projects used to be realised in the PPP – limitations
scope of public procurement. The most important law applicable to
PPPs used to be the Act CXXIX of 2003 on Public Procurement and 28 What, if any, are the practical and legal limitations on PPP
Act XXXVIII of 1992 on Public Finance. transactions?
From the end of 2010, the government systematically reviewed The estimated yearly operation cost of the PPP projects is around
the running PPP projects (approximately 100) and found that they 120 billion forints. From the end of 2010 these constructions were
were ‘expensive and risky’. Poor quality at implementation, the state systematically reviewed and found very disadvantageous for the
undertaking all the risks or ineffective operation were the most typi- government, which is the reason why the competent ministry is
cally identified problems that led to the government decision to end looking into abrogating the ineffective contracts (the vast majority
several inefficient PPP projects and save billions for the budget. of PPP projects).
Zoltán Varga varga.zoltan@nt.hu

Viktor Jéger jeger.viktor@nt.hu
Ugocsa 4/B Tel: +36 1 487 8700

1126 Budapest Fax: +36 1 487 8701
Hungary www.nt.hu
PPP – transactions • the Sport XXI Programme with a value of 1.8 billion forints in
2009 and 1.9 billion forints in 2010.
to date in your jurisdiction? At the beginning of August 2011 approximately 100 Hungarian PPP
The biggest transactions in recent years were: projects were running, and the government spent approximately
• the building of different parts of the M5 and M6 motorways 120 billion forints throughout 2011 to operate them. In the 2012
with a value of 55 billion forints in 2009 and 78.6 billion forints budget the same amount is allocated for operating PPP construc-
in 2010; tions. From the autumn of 2012, the government started to mass
• the construction of new prisons in Tiszalök and Szombathely abrogate the ineffective PPP contracts concerning swimming pools
commissioned by the National Commandership of Punishment and gyms mainly operating within educational institutions. In 2013,
Execution with a value of 4.7 billion forints in 2009 and 4.9 bil- 27 billion forints was appropriated for the compensation of private
lion forints in 2010; partners.
• the infrastructure of education with a value of 8.7 billion forints The number of PPPs is expected to keep decreasing in the
in 2009 and 9.2 billion forints in 2010; and upcoming period.

Amarchand & Mangaldas & Suresh A Shroff & Co INDIA
India
Jatin Aneja
Amarchand & Mangaldas & Suresh A Shroff & Co
Creating collateral security packages of the Companies Act 2013 and does not hinder contractual enforce-
ability of a charge.
1 What types of collateral are available? The stamp duties and charges in each case are specific to the
Under Indian Law, collateral available for project financing is individual states within India (as specified in the relevant statutes)
broadly covered under the two major headings of moveable and and are payable in the form of purchase of stamp papers and pay-
immovable property. Real estate (including land and buildings) is ment of registration charges (for necessary documents) with the rel-
both freehold and leasehold (subject to the terms of lease) and they evant revenue authorities. In addition to these, notary fees and other
are covered under immovable property, whereas moveable property fees as may be prescribed under various statutes are payable.
includes contractual rights under various contracts, current assets, As per Indian Law, security trustees or agents are allowed to
bank accounts, receivables, shares, equipment, plant and machin- hold collaterals on behalf of secured lenders. A trustee or agent holds
ery, intangibles, proceeds from investments or insurance policies and the collateral for the benefit of the beneficiary or principal, respec-
intellectual property rights. Apart from such property, guarantees tively. Therefore, in the event of a bankruptcy, such a collateral shall
from promoters (both individual and corporates) are also available be excluded from the individual estate of the agent or trustee. As
in certain cases. the trust structure is recognised in India, a parallel debt clause is not
It is further pertinent to note that under Indian law, while secu- required.
rity can be created over future moveables, security cannot be created
over future immovable property, and such security interest would
be required to be created, as and when the debtor acquires such
immovable assets.
A creditor has the following options:
• a search in the records of the Registrar of Companies – an online
2 How is a security interest in each type of collateral perfected search can be made in respect of all charges filed by a borrower
and how is its priority established? Are any fees, taxes or other under the provisions of the Companies Act, 2013;
charges payable to perfect a security interest and, if so, are there • a search in the revenue records – where the mortgage over
lawful techniques to minimise them? May a corporate entity, in immovable properties has been made through a registered mort-
the capacity of agent or trustee, hold collateral on behalf of the gage, a prior charge on the property may be ascertained from the
project lenders as the secured party? land revenue records; and
In respect of immovable properties discussed in question 1, security • a search in the Central Registry – where a mortgage is created
interest may be created by means of a mortgage. Such a mortgage through an equitable mortgage, an online search can be carried
of immovable property can be created by means of an indenture of out with the CERSAI.
mortgage (in the case of simple mortgage and English mortgage)
or an equitable mortgage. An indenture of mortgage is required However, these searches are not conclusive proof of absence of any
to be registered with the Sub-Registrar of Assurances (a revenue liens, as the registration requirements, except in the case of a reg-
authority), whereas an equitable mortgage created by deposit of title istered mortgage, do not hinder contractual enforceability of prior
deeds is, where created for the benefit of certain kinds of lenders, security documents.
required to be registered with the Central Registry of Security Asset
Reconstruction and Security Interest of India (CERSAI).
An equitable mortgage is permissible only in those states in India
where the relevant state governments have specifically notified such
a mode of creation of mortgage.
In respect of moveable property, the security can be created by Ordinarily, the enforcement actions available are stipulated by the
means of hypothecation, however, a charge on shares (physical or contract entered into between the parties.
dematerialised) is created through a pledge in favour of the lenders. However, in the event of the debtor contesting the enforcement
The security interest on moveables can also be coupled with immov- of the security (or the requirement thereof), the charge holder would
able property under an indenture of mortgage. be required to make use of the assistance of the courts or the Debt
Priority in each case is established through specific provisions Recovery Tribunal (a judicial body constituted for expeditious set-
to this effect within the relevant security document and a corporate tlement of claims of banks and financial institutions against bor-
entity is further obligated to register charges on its property with the rowers), and enforcement proceedings would be then required to be
Registrar of Companies under the provisions of the Companies Act, undertaken in the manner decreed by the relevant body.
2013. However, it is to be noted that registration with the Registrar Indian lenders, under the terms of the Securitisation and
of Companies is supplemental, only obligatory under the provisions Reconstruction of Financial Assets and Enforcement of Security
Interest Act 2002 (SARFAESI Act), are entitled to additional rights
INDIA Amarchand & Mangaldas & Suresh A Shroff & Co
with respect to enforcement proceedings, which are not available to 7 What are the restrictions, controls, fees and taxes on remittances
foreign lenders (unless such foreign lenders are specifically so permit- of investment returns or payments of principal, interest or
ted by the Indian government). Therefore, in the event that an Indian premiums on loans or bonds to parties in other jurisdictions?
borrower has both Indian and foreign lenders as secured creditors, Repatriation and realisation of loan and investment proceeds is
the foreign lenders may be at a disadvantage in the enforcement of largely permissible under the automatic route of investment or ECB,
the security created on the assets of the borrower. where these are made in a sector with full repatriation. For external
Further, we may also note that where the assets attract the pro- commercial borrowings, however, there are prescribed minimum
visions of section 67 of the Transfer of Property Act 1882, and are maturity periods and maximum permissible interest rates, depend-
deemed to constitute a railway, canal or other work in whose main- ing on the tenure of the borrowing. However, investment is regulated
tenance the public are interested, the mortgagees are not entitled to in certain sectors, such as the defence sector and construction devel-
institute a suit for foreclosure or sale of such property, without the opment sector, and restrictions of the nature of the lock-in of the
express consent of the Indian government. investment for prescribed time periods are specified.
Specific notice requirements are provided under Indian law for
enforcement of securities. Further, a creditor can itself also par-
ticipate as a buyer in the enforcement of securities. However, the 8 Must project companies repatriate foreign earnings? If so, must
same applies to the provisions of SARFAESI and the Code of Civil they be converted to local currency and what further restrictions
Procedure 1908. In the case of enforcement of securities against exist over their use?
external commercial borrowings (ECB) in foreign currency, any As per the extant regulations issued by the RBI, any foreign
immovable property can only be sold to a person resident in India exchange due or accrued to a project company incorporated in India
and sale proceeds can then be repatriated towards outstanding ECB. is required to be repatriated to India within a specific time period.
Such an amount is required to be converted to local currency and
shall be subject to relevant tax legislations.
as a secured party over the collateral? Are there any preference 9 May project companies establish and maintain foreign currency
periods, clawback rights or other preferential creditors’ rights accounts in other jurisdictions and locally?
(eg, tax debts, employees’ claims) with respect to the collateral? Project companies can maintain onshore foreign currency accounts
What entities are excluded from bankruptcy proceedings and for very limited purposes, including the holding of foreign exchange
what legislation applies to them? What processes other than earnings, but for all other purposes, specific approval of the RBI is
court proceedings are available to seize the assets of the project required.
company in an enforcement? The approval of the RBI is also required for the opening of
In the event of bankruptcy or appointment of the official liquidator, offshore accounts, and account holders are only entitled to hold
as a general rule, no suit or other legal proceedings can be instituted amounts within the prescribed limits of US$200,000 per financial
or continued, unless the court gives express permission to do so. year in such accounts and are required to remit all surplus amounts
However, a secured creditor is entitled to participate in the insol- to their accounts in India.
vency proceedings or to enforce its security interest without becom-
ing a party to such proceedings. Foreign investment issues
At the same time, bankruptcy or insolvency proceedings may
limit and restrict the extent of the security package available to cred- 10 What restrictions, fees and taxes exist on foreign investment in or
itors, inter alia, on account of laws relating to fraudulent preference. ownership of a project and related companies? Do the restrictions
The secured creditors are subordinated to claims of the Indian also apply to foreign investors or creditors in the event of
government in respect of statutory dues. Further, other amounts foreclosure on the project and related companies? Are there
identified by statute, including workmen’s dues, may have a priority any bilateral investment treaties with key nation states or other
or pari passu right with the claims of the secured creditors. international treaties that may afford relief from such restrictions?
There are no entities that are excluded from bankruptcy Would such activities require registration with any government
proceedings. authority?
The availability of alternative avenues of enforcement is depend- Foreign investment in project companies is subject to compliance
ent on the sector of operation of the project company and the iden- with the limits, sectoral caps and other conditions of the prevailing
tity of the borrower and the creditors. foreign investment policy of the Indian government for the relevant
These avenues include, inter alia, the SARFAESI Act, whereun- sector.
der identified banks and financial institutions can institute enforce- By and large, the infrastructure sector is under the automatic
ment proceedings as a statutory right without recourse to courts, route of investment, and foreign direct investment does not require
subject, however, to the threshold requirements being satisfied. any prior approval (subject to the sectoral caps). However, in sectors
of strategic importance, investment is prohibited or restricted and
Foreign exchange issues may require prior approval of the Indian government or the RBI,
for instance, foreign investment is prohibited in the atomic energy
6 What are the restrictions, controls, fees, taxes or other charges sector, while foreign investments in the defence sector are subject
on foreign currency exchange? to a limit of 49 per cent of the share capital of the investee com-
Indian currency is not fully convertible. Generally, current accounts pany, as well as restrictions on the transfer of the investment inter
are fully convertible while capital accounts are only partially conse non-residents.
vertible, and only certain types of capital account transactions are There are no bilateral investment treaties that would provide
permitted. protection from such restrictions.
Further, there is usually a requirement to either obtain prior con- As discussed above, foreign investment in project companies is
sent from the Reserve Bank of India (RBI) or to subsequently notify subject to limits and sectoral caps in accordance with the prevailing
the RBI of a transaction relating to foreign exchange. Additionally, foreign investment policy. Any investment in excess of such limits or
all foreign currency transactions can only be undertaken through sectoral caps would require specific approval from the Indian gov-
prescribed banking channels ernment or the RBI.

11 What restrictions, fees and taxes exist on insurance policies However, under the various Bilateral Investment Treaties (BITs),
over project assets provided or guaranteed by foreign insurance the Indian government is required to extend the benefits to foreign
companies? May such policies be payable to foreign secured investors (and investments) covered under the terms of such BITs in
creditors? relation to expropriation and nationalisation activities. These typi-
The permission of the Indian government is required before project cally require that:
assets in India or registered in India are insured by foreign insurance • the proposed expropriation activities be undertaken strictly
companies. in the public interest or for public purposes on a non-
discriminatory basis and in accordance with the applicable laws
of India;
12 What restrictions exist on bringing in foreign workers, technicians • the foreign investor should be provided compensation that is
or executives to work on a project? reflective of the value of its investment prior to commencement
As such, there are no general restrictions on the employment of for- of expropriation proceedings; and
eign nationals as workers, technicians, engineers or executives in a • the foreign investor should have the right to seek independent
project company. However, such foreign nationals would be required or judicial review in India and under Indian laws with respect to
to obtain an employment visa (e-visa) for the specific employment as the expropriation and the compensation afforded.
contemplated at the project company.
An e-visa is available for issue for employment purposes, pro- We may, however, note that India is not a contracting party to the
vided that the applicant is a highly skilled or qualified professional International Centre for Settlement of Investment Disputes and,
engaged in contract or full-time employment, drawing a salary in therefore, any disputes that arise with regard to a failure of the Indian
excess of US$25,000 per year (including salary and other allowances government to observe any terms of the applicable BITs would be
paid in cash and excluding all non-cash perquisites that do not fall required to be resolved through the dispute resolution mechanism
within the understanding of ‘salary’ under Indian income tax laws) under the relevant BITs themselves.
for employment that is not routine, clerical or secretarial.
If the foreign national is granted an e-visa, he or she would be Fiscal treatment of foreign investment
entitled to the benefit of all such labour welfare laws as are applica-
ble to Indian workers and may also be governed by the Indian tax 15 What tax incentives or other incentives are provided preferentially
laws for the purposes of taxation (if determined to be resident for to foreign investors or creditors? What taxes apply to foreign
the purposes of Indian law). investments, loans, mortgages or other security documents,
It is also pertinent to note that all foreign nationals visiting India either for the purposes of effectiveness or registration?
on a long-term visa for a period of more than 180 days are required The entitlement to tax incentives or other incentives would depend
register with the concerned Foreigners’ Regional Registration on the characterisation of the income earned, the residency of the
Officer or District Superintendent of Police within 14 days of their foreign investor and the constitution of the investor, for example,
first arrival. exemptions are available in respect of incomes of registered foreign
venture capital companies or funds, from venture capital undertak-
ings. There are, however, no specific tax exemptions available for a
foreign creditor.
Imports into India are governed by the applicable foreign trade India has entered into tax treaties with more than 80 countries,
policy. Imports are typically permissible except identified restricted and if the foreign investor is from a jurisdiction with which India has
items and goods from identified restricted countries of origin, signed a DTAA, it may avail of the benefits thereof.
both categories of which cannot be imported without the specific The applicable taxes and duties in relation to effectiveness and
approval of the Indian government. registration of the transactions documents have been discussed in
Further, all imports are subject to applicable customs and import question 2.
duties as may be prescribed by the Indian government from time to
time, including basic customs duty, additional duty of customs in Government authorities
lieu of excise, additional duty of customs in lieu of sales tax or VAT,
and applicable cesses. Additionally, goods of certain types or from 16 What are the relevant government agencies or departments with
identified countries of origin may also be subject to anti-dumping authority over projects in the typical project sectors? What is the
duty. nature and extent of their authority? What is the history of state
Where any imported goods are proposed to be re-exported, a ownership in these sectors?
refund of customs duty (that has been already paid) may be availa- There are separate regulatory authorities for each sector in India.
ble, subject to such re-export being within the prescribed time limits. These include:
• the power sector – the Ministry of Power and the Central and
14 What laws exist regarding the nationalisation or expropriation State Electricity Regulatory Commissions;
of project companies and assets? Are any forms of investment • the roads sector – inter alia, the Ministry of Surface Transport
specially protected? and the National Highways Authority of India;
The Indian Constitution empowers the government to acquire req- • the aviation sector – the Ministry of Civil Aviation and the
uisition property, inter alia, for public purposes. Such acquisition Airports Authority of India;
is undertaken pursuant to specific statutes that may be enacted • the oil and gas sector – the Ministry of Petroleum and Natural
by the Indian government from time to time, such as the Right Gas and the Petroleum and Natural Gas Regulatory Board;
to Fair Compensation and Transparency in Land Acquisition, • telecoms – the Department of Telecommunications and Telecom
Rehabilitation and Resettlement Act 2013, which permits the Indian Regulatory Authority of India;
government to acquire private lands for identified purposes. • water – the Ministry of Water Resources and individual depart-
Further, there subsists no class of property that is exempt from ments of states; and
such expropriation. • ports – the Ministry of Shipping.
As ministries and nodal agencies in the relevant sector, these authori- project. However, foreign investments, ECBs and remittances are
ties are empowered to formulate and implement regulatory policies governed by the Foreign Exchange Management Act1999 and the
for the respective sectors and allocate fiscal budget to be infused for regulations framed thereunder. Depending upon the nature of the
the development of each sector. transaction, an approval from the RBI or Indian government may
The regulatory authorities are part of the central government or be required for such transactions upon payment of fees as may be
state government in India. specified by the RBI.

17 Who has title to natural resources? What rights may private filed with any government authority or otherwise comply with legal
parties acquire to these resources and what obligations does the formalities to be valid or enforceable?
holder have? May foreign parties acquire such rights? As discussed in question 2, the security documents in relation to the
In India, land (surface rights) can be held by private parties, but all financing transaction would be required to be registered and requi-
natural resources (including oil and gas, minerals and water) there- site filings made to the Registrar of Companies for such documents
under vest with the Indian government and can only be extracted to be valid and enforceable. Further, all applicable statutory dues
with the specific consent and licence from the Indian government. and levies (including stamp duties) would be required to be paid in
This is also typically true of business operations in such sectors. Any respect of the financing and project documents.
plants that grow on the land are owned by the land owner. Additionally, the said documents would be required to comply
Private parties may acquire the right to extract such natural with the terms of any consents, licences or permissions obtained by
resources upon specific approval by the government in the form of the borrower, as well as provisions of other laws applicable to the
licences or concessions. borrower.
Further, as a general rule, ownership of land by foreign entities Where the financing is of the nature of an ECB, a loan registra-
is restricted and is possible only with specific approval having been tion number would also be required to be obtained by the borrower
obtained from the applicable governmental authorities. Additionally, from the RBI.
business operations by foreign entities in such sectors would be con-
tingent on the foreign direct investment policy of the Indian govern- 22 How are international arbitration contractual provisions and
ment for the sector. awards recognised by local courts? Is the jurisdiction a member
As a rule, foreign entities cannot directly acquire land in India. of the ICSID Convention or other prominent dispute resolution
Nor can such foreign entities directly undertake business operations conventions? Are any types of disputes not arbitrable? Are any
in India except in certain sectors such as oil and gas, where, subject types of disputes subject to automatic domestic arbitration?
to such foreign entities having been awarded or assigned production-
The (Indian) Arbitration and Conciliation Act 1996 (Arbitration
sharing contracts, they can directly acquire participating interest in
Act) recognises contractual provisions for the submission of disputes
oil and gas blocks.
to international arbitration, subject to the agreement to refer mat-
In all other cases, for the conduct of business operations in India,
ters to such international arbitration proceedings not being null and
the foreign entity would be required to either incorporate or invest
void, inoperative or incapable of being performed.
in a separate corporate entity in India in compliance with the pre-
Arbitral awards passed in international arbitration are also
vailing foreign direct investment policy of the Indian government or
recognised by Indian courts and the Arbitration Act provides the
establish a project or branch office in compliance with guidelines
statutory framework for enforcement of the awards given by coun-
prescribed by the RBI and the Indian government.
tries signatory to the Convention on Recognition and Enforcement
of Foreign Arbitral Awards 1958 (New York Convention) and
18 What royalties and taxes are payable on the extraction of natural Convention on the Execution of Foreign Arbitral Awards 1927
resources, and are they revenue- or profit-based? (Geneva Protocol).
The applicable royalties for the extraction of natural resources For the purposes of the execution of foreign awards passed by
would be prescribed under the licences granted by, or concession countries not signatory to these conventions, a fresh civil suit will
agreements entered into, with the government. Additionally, taxes have to be instituted in the Indian courts on the basis of such an
are payable on the revenue generated from production and sale of award.
various extracted resources, such as oil and gas. India is a party to the New York Convention and the Geneva
Royalty can be payable both as a share in the natural resource Protocol.
or revenue equal to such a share, whereas taxes are typically While the Arbitration Act does not afford any specific bar as
revenue-based. regards the arbitrability of disputes, as a general principle of law in
India, issues relating to criminal law, antitrust, taxation and insol-
vency are not arbitrable.
19 What restrictions, fees or taxes exist on the export of natural The Arbitration Act does not make provision for mandatory ref-
resources? erence arbitration for any type of dispute. However, special statutes
Exports of natural resources would be required to adhere to the governing certain sectors may mandatorily require reference to arbi-
applicable sectoral guidelines of the Indian government. Particularly, tration of certain disputes.
the export of certain resources may be specifically prohibited, includ-
ing, inter alia, petroleum resources.
20 What government approvals are required for typical project finance Project agreements are typically governed by Indian law.
transactions? What fees and other charges apply? To the extent that one party is not resident in India, and the
Domestic lending for project finance transactions does not specifi- contract has a discernible foreign nexus, it is possible to have for-
cally require any government approvals apart from any approval eign laws as the governing law for such agreements. Further, since
that may be required for the development and operation of the India is a common law jurisdiction, where parties agree to subject

Update and trends
The Indian government has an ambitious plan for creating a world- • permitting ECB from indirect equity holders and group
class infrastructure in India with a view to providing an impetus to the companies;
growth of the economy. The investment in infrastructure during the • permitting re-scheduling of ECB under an automatic route;
Twelfth Five-Year Plan (2013-17) is expected to be US$1 trillion. In • permitting new end-uses for ECB, such as refinancing of
order to address the burgeoning fiscal requirements of infrastructure bridge finance obtained by Indian infrastructure companies;
funding, combat the slowdown in the economy (and the infrastructure and
sector) and promote infrastructure development in the country, the • increasing the extent of permissible limits for ECB by certain
Indian government has introduced innovative ways of attracting project categories of borrowers, such as by non-banking finance
financing, some of which are discussed below: companies (NBFCs) categorised as infrastructure finance
• Infrastructure Debt Fund (IDF) – the setting up of IDFs was companies (IFCs).
announced by the Finance Minister in his budget speech for the
year 2011-12. The Debt Fund would raise low-cost, long-term Infrastructure investment trusts
resources for re-financing infrastructure projects, particularly The new central government has announced a partial tax pass-through
those that are past the construction stage and associated risks. regime for real estate investment trusts (REITs) and infrastructure
The government proposes to enhance the credit-worthiness of the investment trusts (InvITs). Although the specific legal regime in relation
bonds issued by the debt funds, by means of a guarantee, and the to the said trusts is yet to be formalised, it is expected to provide
funds so raised shall be channelled into infrastructure projects a massive boost to infrastructure growth and development in India.
that are backed by a ‘buy-out’ guarantee from the government. There are special provisions proposed to provide tax incentives to
In furtherance of this policy, the RBI issued the regulations for such InvITs and REITs in relation to their investments in infrastructure
IDFs to be set up as non-banking financial institutions (NBFCs) either directly or through an Indian special purpose vehicle. As per
in November 2011 and the Securities Exchange Board of India the capital market regulator in India, InvITs are expected to provide an
issued the regulations governing an IDF structured as a mutual additional framework for investments in roads, ports and highways,
fund in August 2011; considering that the country requires an investment of around 65
• external commercial borrowings – the policy of the Indian trillion rupees during 2012–2017. The regulator has also come up
government in relation to ECB has seen a significant liberalisation with draft guidelines for setting up of such InvITs.
in recent years and this, inter alia, includes:
themselves to foreign laws, parties typically choose to adopt other Health and safety compliance in India is governed by a set of
common law systems. labour legislations applicable to all industrial and commercial units
Financing agreements for loans denominated in Indian rupees and compliance is ensured by government authorities including the
are almost always governed by Indian laws, while facility agree- Labour Commissioner.
ments for ECBs are sometimes made subject to foreign laws, which
are very often laws of neutral jurisdictions, with English law being Project companies
the most common.
In the event that the proposed security structure relies on assets 26 What are the principal business structures of project companies?
that are located in India, from an enforcement perspective, the secu- What are the principal sources of financing available to project
rity documents are typically governed by Indian law. This is par- companies?
ticularly so in the case of banks and financial institutions that are The typical business structure of project companies is formation of
entitled to take recourse to the provisions of the SARFAESI Act. special purpose vehicle with an independent balance sheet.
The principal sources of debt funding available to project com-
panies includes loans from domestic commercial banks, the domes-
tic bond market and specialised infrastructure financing institutions,
whereas ECB from international commercial banks is the primary
Indian courts recognise party autonomy to submit disputes to for- source for overseas debt funding.
eign courts. If approached, however, Indian courts may exercise their The project companies also obtain equity funding from domes-
inherent jurisdiction, based on the cause of action having arisen tic and international developers, and from institutional investors.
within their territorial jurisdiction, or where such a choice of juris-
diction is oppressive, unfair or inequitable and does not bear any Public-private partnership legislation
real or substantial connection to the subject matter of the dispute in
reliance on the doctrine of forum non conveniens. 27 Has PPP enabling legislation been enacted and, if so, at what
Further, with respect to matters that are purely commercial, level of government and is the legislation industry-specific?
Indian courts have recognised the right of parties to waive any There is no PPP specific legislation in India. The Indian government
immunity that they may have. implements various policies through its ministries that encour-
age participation of private sector developers in large projects.
Environmental, health and safety laws The Indian government has set up the Public Private Partnership
Approval Committee, which has been empowered to approve PPP
projects in accordance with the policies of the Indian government.
Under Indian Law, typical projects such as oil and gas, water, power PPP – limitations
generation and transmission ports require environmental clear-
ance from the Ministry of Environment and Forests. Additionally, 28 What, if any, are the practical and legal limitations on PPP
depending upon the location of the project, forest clearance or clear- transactions?
ance for the coastal regulation zone are required to be obtained prior PPP in India is in a development stage and is focused, primarily,
to development of a project. on the infrastructure sector. Typically, in PPP projects, real estate is
Projects are also required to obtain consent for establishment owned by the public authority and, therefore, issues related to crea-
and, subsequently, must obtain consent for operations from indi- tion of security on such immovable assets occur as the lenders are
vidual state pollution control boards. not allowed to sell the project assets to realise their debt and usually
have a limited right of substitution. Further, one of the practical limi- Vadarevu and Nizampatnam Industrial Corridor in Andhra
tations to the PPP approach in India is the limited flexibility of nego- Pradesh, planned at an overall outlay of US$4.35 billion, is one of
tiation in a sector that sees volatile revenue projections. the first new port-based industrial corridors in India under develop-
The public authorities in India are bound by guidelines for pub- ment. Another port in Andhra Pradesh at Krishnapatnam has been
lic procurement, which do not encourage extended negotiations and developed at the cost of US$1 billion, with additional phases under
renegotiations (during the implementation stage). development.
The ambitious National Highways Development Programme of
PPP – transactions the National Highways Authority of India (the nodal agency for the
development of national highways in India) is expected to be com-
29 What have been the most significant PPP transactions completed pleted at a cost of US$9 billion, and will include some the longest
to date in your jurisdiction? highways in the world extending across the length and breadth of
The modernisation of airports in key cities in India have been the India.
largest PPP transactions to date including modernisation of the Delhi Also, the Delhi Airport Express Metro, at a cost of over US$1.1
International Airport at a cost of US$2.7 billion and the Mumbai billion, has been the largest investment in the urban transport sector.
Airport at a cost of around US$2.084 billion.
Jatin Aneja jatin.aneja@amarchand.com
216 Amarchand Towers, Okhla Industrial Estate Tel: +91 11 2692 0500
Phase-III Fax: +91 11 2692 4900
New Delhi 110020
India

Soemadipradja & Taher INDONESIA
Indonesia
Rahmat Soemadipradja, Robert Reid and Rachel Situmorang
Soemadipradja & Taher
Creating collateral security packages Pledge

The main regulations governing pledges are contained in the
1 What types of collateral are available? Indonesian Civil Code (ICC).
Under Indonesian law, land, moveable property, fixtures, receivables, A pledge is an interest granted by an owner over moveable prop-
securities (including shares), and certain after-acquired assets are erty (tangible and intangible) to a creditor as security for a debt.
among the objects that can be used as collateral for the recognised Moveable property that can be pledged includes bank accounts
types of security referred to below. There is no recognised security in the form of time deposits and certain financial instruments
instrument available to take security over operating rights or conces- (including shares and securities such as government bonds and Bank
sions, entire enterprises, contractual or leasehold rights. Indonesia certificates). A pledge is a possessory security in that the
For project finance transactions, the primary security interests moveable property secured by the pledge must be under the physical
that can be taken over applicable collateral are as follows. possession of the pledgee or a mutually agreed third party.
Mortgage
A mortgage is a security regulated under Law No. 4 of 1996 on
Rights to Mortgage Land and Fixtures on the Land. Mortgages
can be granted over certain types of rights over land, the most
common of which in project financing would include the ‘right to
own’, the ‘right to cultivate’, the ‘right to build’ and the ‘right to use’.
Mortgages may also encumber fixtures on land.
It is possible to have more than one debt secured by a single There are different requirements to be fulfilled to perfect each type
mortgage and multiple mortgages may be given by a debtor to of collateral. Parallel debt clauses are not recognised in Indonesia.
secure a single debt.
Mortgage
Fiduciary security The mortgagor and mortgagee must sign a mortgage deed in a pre-
A fiduciary security is a security interest regulated under Law No. 42 scribed form before an authorised land deed official. The deed of
of 1999 on Fiduciary Security. mortgage must then be registered with the relevant land office no
Moveable and certain immoveable assets (excluding land, air- later than seven days after the mortgage deed has been signed. The
craft and vessels above 20 cubic metres), both tangible and intan- priority right of the mortgagee (project creditor) comes into exist-
gible, can be secured under an instrument of fiduciary security. The ence on the date that the relevant land office has registered the mort-
types of assets that can be secured by a fiduciary security include: gage in the land register maintained by the land office.
• equipment, machinery, stock, inventory and other unencum- The mortgage deed must be made in the Indonesian language
bered goods that can be owned and transferred; and must satisfy several statutory requirements, including contain-
• receivables; ing details of the name, identity and place of domicile of the mort-
• buildings and fixtures on land, which are not able to be encum- gagor and mortgagee(s), specific reference to the debt secured by the
bered by mortgage rights and remain under the control of the object of the mortgage, the secured amount and a detailed descrip-
fiduciary grantor (which would include apartment units con- tion of the object of mortgage.
structed upon land based on a ‘right to use’); and Fees of the land deed official are negotiable, but in practice tend
• insurance proceeds. to be around 0.1 per cent of the total amount secured depending on
the location of the object of the mortgage and the amount secured.
Title to the collateral subject to an instrument of fiduciary security Registration fees range between 50,000 and 50 million rupiah on a
is transferred on a fiduciary basis to the secured party (fiduciary fixed sliding scale.
grantee or creditor), while the debtor or fiduciary grantor is allowed Upon registration of a mortgage, the relevant land office will
to remain in possession of the collateral. Title will be automatically issue a mortgage certificate to the mortgagee as evidence of its secu-
returned to the debtor by operation of law upon full repayment of rity rights over the object of the mortgage. The holder of a mortgage
the underlying debt. certificate will be granted priority to receive the proceeds following
Objects of a fiduciary security do not need to be in existence at the enforcement of the mortgage.
the time of execution of a fiduciary security; they can be acquired by If there is more than one project creditor as mortgagee, an agent
the fiduciary grantor at a later date. may be appointed by such mortgagees to act on their behalf, but in
practice each mortgagee should be named in the mortgage deed and
also named in the mortgage certificate.
INDONESIA Soemadipradja & Taher
Fiduciary security If the pledgor is in default, then the holder of the pledge will be
A fiduciary security instrument is required to be drawn up in a entitled to auction the pledged object and have a priority right to
notarial deed in the Indonesian language and contain certain infor- collect repayment of the debt from the proceeds of sale.
mation, including the identity of the fiduciary security grantor and
grantees, details of the underlying agreement that is being secured
by the fiduciary security, details of the fiduciary security object, the
secured amount and the value of the fiduciary security object (rel-
evant information). For collateral in the form of a mortgage, a creditor who intends to
The Ministry of Law and Human Rights (MoLHR) has an become a mortgagee may check with the land office having jurisdic-
online system for fiduciary security registration, whereby the fiduci- tion over the place where the land is located to ascertain whether
ary security grantee (or its proxy, the applicant) may register the there are any existing mortgages over the land. To be able to carry
fiduciary security electronically at the Legal Entity Administration out this process, the creditor would need to bring the original land
System website. To date, only Indonesian notaries are given access to certificate to the land office. As such, the cooperation of the mort-
register fiduciary securities on the website. gagor would normally be required.
In order to register a fiduciary security, the notary must enter The new online system for fiduciary security registration allows
the details of the fiduciary security onto the website. Upon entry of persons with access to the website (currently, only Indonesian nota-
the details onto the website, the applicant can then make payment ries) to check whether there are any already existing registered fidu-
for the registration at the designated tax payment bank, known as ciary securities, by inserting either the transaction number (which
‘Bank Persepsi’. was generated when the original registration was made), the name
The unwritten policy of the MoLHR is that payment for the reg- of the fiduciary security grantee, or the name of the fiduciary security
istration of a fiduciary security must be made within seven days of grantor.
registration. Failure of the applicant to make payment within this time As noted above, apart from pledges of shares, pledges are not
frame will require the applicant to re-register the fiduciary security. registrable. Accordingly, in relation to a proposed pledge of shares in
Once payment has been made for the registration, the applicant an unlisted company, a creditor should check the relevant company’s
can then print the registration certificate, which is electronically shareholders register to see if the shares have already been pledged
signed by the relevant fiduciary security registration officer. to a third party. For a pledge over listed shares, the creditor should
From the date of effectiveness of the fiduciary security, being request evidence of any pledge over such shares from the Indonesian
the date of the payment for the registration, the fiduciary security Central Securities Depository (KSEI) through the relevant pledgor.
grantee will have a priority right over unsecured creditors to receive
payment of its claims from proceeds of the sale of assets secured 4 Outside the context of a bankruptcy proceeding, what steps
under the fiduciary security following a default. should a project lender take to enforce its rights as a secured
If there is more than one project creditor as a fiduciary security party over the collateral?
grantee, an agent may be appointed by such grantees to act on their
behalf, but each grantee must be named in the fiduciary security deed Mortgage
and also named in the fiduciary registration certificate. The same The first mortgagee has the legal right to sell by way of public auc-
object cannot be secured under more than one fiduciary security. The tion the mortgaged property upon the occurrence of an event of
relationship between the fiduciary security grantees themselves and default under the principal agreement, and to use the proceeds to
the agent would normally be governed by a private security agency repay all outstanding amounts that are due and payable.
agreement. In theory at least, the holder of a first mortgage has an imme-
Fees charged by a notary to draw up a fiduciary security deed diately executable right and may enforce its security (by selling the
are based on scheduled rates of between 50,000 and 7.5 million mortgaged property through public auction) without having to
rupiah, depending on the value of the assets secured, and the regis- obtain a court order (fiat executie). However, in practice, some auc-
tration fee is between 25,000 and 6.4 million rupiah, depending on tion houses may require an order from the relevant district court
the secured value. to enforce the mortgage. There is no prohibition on any project
creditor attending a public auction and bidding for the mortgaged
Pledge property. Such a right to bid is, however, limited by the fact that, as
The law does not require any specific form for a pledge of collateral, a general rule, foreign entities are not permitted to purchase real
although the terms of the pledge are usually set out in a notarial property in Indonesia.
deed. As stated above, the pledgor must part with physical posses- In the case of execution of a mortgage, the law on mortgages
sion of the moveable property, which must move from the pledgor to allows a mortgagor and a mortgagee to agree to a private sale of
the pledgee or an agreed third party. Unlike a mortgage or fiduciary the mortgaged property, subject to certain conditions, including: the
security, there is no specific registration procedure for pledges (with mortgagor and mortgagee must agree after the occurrence of the
the exception of pledges over shares, as further elaborated below). default to carry out the private sale that will result in the highest
A pledge can also be taken over intangible moveable property price being obtained for the benefit of both parties; the intention
(eg, time deposits, receivables, shares and other securities). Such a to carry out a private sale must be communicated to the relevant
pledge is established by delivery of a notice to the person or entity parties and published in certain newspapers; and there must be no
against whom the pledge is to be enforced. For example, in the case objection to the sale by any relevant party (eg, an objection by a
of shares, a notice of pledge must be given to the company that second or later mortgagee).
issued the shares to instruct the company to register the pledge in the The procedure to obtain a court order for foreclosure on the
shareholders’ register. In the case of receivables, a notice of pledge secured mortgaged property and for the auction to be conducted
would need to be sent to each receivables debtor, and in the case of a could take approximately three to six months to complete, as long as
pledge over a time deposit, the practice is for the pledgor and pledgee the foreclosure has not been challenged in the court by an opposing
to send a notice of pledge to the relevant bank requesting that the claim filed by the debtor. Such opposition claims could tie the pro-
bank deposit be effectively blocked. ceedings up for a number of years until a final and binding judgment
Evidence of ownership of pledged intangible property, such as has been obtained.
share certificates, certificates of time deposit and certificates of own- A creditor or mortgagee is entitled to the proceeds of the sale
ership of securities, must be delivered to the pledgee. of the secured property and to apply the proceeds against the debt

owing to the creditor or mortgagee. After applying the amount of Again, auction fees and statutory taxes are payable in respect of
the proceeds against the debt, any surplus must be returned to the a successful auction of moveable property that has been pledged of
debtor or mortgagor (owner of the collateral), subject to the rights approximately 12.7 per cent of the value of the immoveable prop-
of any second or later mortgagee. If the proceeds are less than the erty, split in different proportions between the buyer and the seller.
amount of the debt, then the debtor continues to be obligated to pay Although there are no relevant regulations, as a general rule
the balance to the creditor, whose status will automatically change auction sales of foreclosed property would not be conducted in for-
into that of unsecured creditor, unless the creditor holds other eign currency, although the parties to a private sale agreement could
collateral. agree on foreign currency.
Auction fees and statutory taxes are payable in respect of a suc-
cessful auction of immoveable property of approximately 16.4 per
cent of the value of the immoveable property, split in different pro- 5 How does a bankruptcy proceeding in respect of the project
portions between the buyer and the seller. company affect the ability of a project lender to enforce its rights
Fiduciary security periods, clawback rights or other preferential creditors’ rights
As with mortgages, the law on fiduciary security provides that the (eg, tax debts, employees’ claims) with respect to the collateral?
holder of a fiduciary security has an immediately executable title to What entities are excluded from bankruptcy proceedings and
the secured assets (executorial title). Therefore, upon default by the what legislation applies to them? What processes other than
debtor, the fiduciary holder or creditor is (in theory at least) entitled court proceedings are available to seize the assets of the project
to carry out foreclosure. In practice, the foreclosure process will usu- company in an enforcement?
ally require the mortgagee to commence proceedings in the relevant Bankruptcy in Indonesia is under the jurisdiction of the Commercial
district court to obtain a court order (fiat executie) to enforce its Court. If the Commercial Court accepts a bankruptcy petition in
rights over the secured assets. respect of a debtor project company, the settlement of such a com-
As with foreclosure of mortgages, the procedure to obtain a pany’s unsecured debts will be undertaken by a receiver under the
court order for foreclosure of property subject to a fiduciary security supervision of a supervisory judge. Except for assets that have been
and for the auction to be conducted could take approximately three encumbered as collateral to secured creditors, all assets owned by
to six months to complete, subject to an opposition claim filed in the the debtor project company are available to the receiver to satisfy
court by the debtor, which could tie up proceedings for a number the claims of unsecured creditors.
of years. There is no prohibition on any project creditor attending a The rights of secured creditors are protected in the case of bank-
public auction and bidding for the property secured under a fiduci- ruptcy of the project company. In principle, before a bankruptcy
ary security, subject to the restrictions on foreign parties owning real declaration is granted, a secured creditor can execute its rights over
property in Indonesia. its security as if there were no bankruptcy proceedings. However,
A creditor or holder of a fiduciary security is entitled to the pro- any foreclosure by secured creditors must be deferred for up to 90
ceeds of the sale of the secured property and to apply the proceeds days from the date of a bankruptcy declaration by the Commercial
against the debt owing to the creditor or holder of the fiduciary Court, which must be issued within 60 days of submission of the
security. After applying the amount of the proceeds against the debt, bankruptcy petition (unless an application for suspension of pay-
any surplus must be returned to the debtor or granter of the fiduci- ments is filed, as detailed further below).
ary security (owner of the collateral). If the proceeds are less than At the end of the 90-day period, secured creditors can exercise
the amount of the debt, then the debtor continues to be obligated their rights to enforce their security within two months of the occur-
to pay the balance to the creditor, whose status will automatically rence of insolvency, which is deemed to occur if no composition
change into that of unsecured creditor, unless the creditor holds plan is offered to the creditors, the composition plan is rejected (by
other collateral. the vote of the unsecured creditors) or such a composition plan is
Auction fees and statutory taxes are payable in respect of a suc- not ratified by the Commercial Court, regardless of the approval of
cessful auction of moveable property subject to a fiduciary security unsecured creditors.
of approximately 12.7 per cent of the value of the immoveable prop- Indonesian law provides for the debtor to work out a court-
erty, split in different proportions between the buyer and the seller. supervised composition plan or settlement between the creditors in
the period between the court granting a ‘provisional suspension of
Pledge
payments’ for a maximum of 45 days and subsequently a ‘perma-
A pledgee (security holder) is not permitted to appropriate the
nent suspension of payments’, which is a maximum of 270 days
pledged property to itself upon an event of default of the pledgor,
from the date on which the provisional suspension of payments is
and any provision in a pledge agreement to the contrary is invalid.
granted by the court. If creditors have filed a bankruptcy petition,
The ICC provides that unless the parties otherwise agree, the
the debtor can file for a suspension of payments at the first bank-
pledged property may either be sold in public ‘in accordance with
ruptcy hearing. If the secured and unsecured creditors vote in favour
local custom’ or in a manner determined by the court.
of a composition plan in accordance with the relevant statutory
If pledged property is to be sold in public, it has generally been
percentages, it will be binding on all the creditors, if ratified by the
interpreted to mean a sale by public auction through a registered
Commercial Court.
auction house. The proceeds, less the costs of enforcement and the
If the requisite vote of the secured and unsecured creditors for
sale, can be used to repay the outstanding debt owed to the security
a composition plan is not obtained within the relevant statutory
holder. Generally, the security holder would be entitled to participate
period, or such period is not extended, then the debtor project com-
in the auction process.
pany will be declared bankrupt and will be in a state of insolvency.
Although the ICC does not require the security holder to obtain
Secured creditors must exercise their rights of foreclosure within two
a court order (fiat executie) before it enforces a pledge over the
pledged property, in practice most auction houses would require a months after the debtor project company is deemed to be insolvent.
court order before they would be prepared to proceed with the auc- Essentially, Indonesian law does not discriminate between for-
tion process (as is the case with foreclosure of mortgaged property eign creditors’ claims against a bankrupt project company and the
and property subject to a fiduciary security). (Please see the response claims of domestic creditors. However, in some sectors only the
on the timing to obtain a court order and complete the auction pro- relevant regulatory authority has the capacity to file a bankruptcy
cess in the above sections on mortgage and fiduciary security, which petition against a project company. These sectors include: banks,
are also applicable to pledges.) where the authorised regulator is Bank Indonesia (BI); insurance
companies, pension funds and certain state-owned enterprises, electronic payments). However, comprehensive implementing regu-
where the Minister of Finance has the statutory authority to file a lations to the Currency Law have not yet been promulgated.
bankruptcy petition; and in the case of a securities house, where
the Financial Services Authority (formerly, the Capital Markets and
Financial Institutions Supervisory Board) has the statutory authority
to commence bankruptcy proceedings.
Indonesian legislation provides for preference periods and claw-
back rights. The general rule is that past transactions involving the There are no restrictions on the remittance of foreign currency over-
bankrupt project company’s assets can be overturned if it can be seas. However, if a remittance of an amount above US$10,000, or
proven that at the time of the transaction, the company and the rel- its equivalent in other foreign currency, is carried out through a
evant third party were aware (or should have been aware) that losses bank, a report must be made by the bank based on the information
to the company’s creditors would result from the consummation of received from the customer. The customer is required to provide the
such a transaction. Legal acts conducted by the project company bank with the information on the remitter and the beneficiary of the
within one year before the declaration of bankruptcy and that were funds, the financial relationship between the remitter and the benefi-
not actually required to be undertaken by the project company, caus- ciary and the purpose of the remittance.
ing losses to the creditors, are deemed to be preferential transactions Withholding tax of 20 per cent is applicable to payments of div-
and can be overturned. idends and interest payments (including premiums, discounts and
Indonesian law provides for conservatory attachment orders guarantee fees) to offshore parties, subject to the benefit that any
in respect of property, which can be applied for as part of a claim foreign investor or creditor may have under a relevant tax treaty.
against a bankrupt project company.
The payment of priority claims in a bankruptcy is regulated 8 Must project companies repatriate foreign earnings? If so, must
under the ICC and the relevant tax laws, whereby the payment they be converted to local currency and what further restrictions
of court and auction costs and payment of taxes rank above pay- exist over their use?
ments to secured creditors in the case of the successful foreclosure
There are no requirements for project companies to repatriate their
of secured property.
earnings derived from their business activities in Indonesia. Based
on the Indonesian Investment Law (as defined below), investors in
Indonesia may repatriate in foreign currency their capital, earnings,
6 What are the restrictions, controls, fees, taxes or other charges bank interest, dividends, loan repayment funds, divestment rev-
on foreign currency exchange? enues and revenues from sales of assets (among other categories of
income).
Based on the prevailing BI regulations, a purchase of foreign cur-
rency against rupiah from a bank in excess of US$100,000 or its
equivalent in other foreign currency per month per customer can 9 May project companies establish and maintain foreign currency
only be made based on an underlying transaction agreement. accounts in other jurisdictions and locally?
The transfer of rupiah overseas by Indonesian banks is Generally, project companies are allowed to open and maintain for-
prohibited. eign currency accounts both locally and with offshore banks.
The Indonesian Currency Law, passed in 2011, requires the use However, there is a requirement (originally from BP Migas, and
of rupiah in the following transactions in Indonesia: now by its successor, SKK Migas) for all oil and gas contractors to
• all transactions for the purposes of payment; use domestic banks for their banking transactional needs.
• settlement of other monetary obligations; and Although there are no restrictions or limitations on the repatria-
• other monetary transactions. tion or use of project companies’ earnings derived from their busi-
ness activities in Indonesia (please see the response to question 8),
However, certain transactions are exempt from the requirement to regulations passed in 2012 impose a requirement to use accounts in
use rupiah, including: Indonesian banks, including Indonesian branches of offshore banks
• certain transactions in relation to the implementation of the (foreign exchange banks), to receive any export proceeds and certain
state budget; types of offshore loans (including non-revolving loans). The exemp-
• receipt or extension of offshore grants; tions to this rule are export proceeds received by the government
• international commercial transactions; through BI and export proceeds received in cash in Indonesia (to the
• foreign currency deposits in banks; and extent such proceeds are evidenced with a written explanation and
• international financing transactions (offshore loans). relevant supporting documents).
Anyone (payer or recipient) found violating the Currency Law may Foreign investment issues
receive a jail term of up to one year and a fine of up to 200 million
rupiah. 10 What restrictions, fees and taxes exist on foreign investment in or
On 27 June 2012, BI issued a very limited implementing regula- ownership of a project and related companies? Do the restrictions
tion to the Currency Law, which regulates BI’s authority to manage also apply to foreign investors or creditors in the event of
rupiah (banknotes and coins) in terms of planning, printing, issu- foreclosure on the project and related companies? Are there
ance, distribution, withdrawal and destruction. any bilateral investment treaties with key nation states or other
Following the issuance of the above implementing regulation, international treaties that may afford relief from such restrictions?
the Ministry of Finance and BI issued a joint press release on their Would such activities require registration with any government
coordination regarding implementation of the Currency Law. The authority?
joint press release confirmed that rupiah is a valid payment instru- Foreign investment in Indonesia in project companies is governed
ment within the Indonesian territory and that rupiah must be used under Law No. 25 of 2007 on Capital Investment (the Investment
for all physical cash transactions within the Indonesian territory. Law) and can only be made through the establishment of, or invest-
This announcement, to some extent, clarifies some of the confu- ment in, a limited liability (PT) company, which must first obtain
sion surrounding the Currency Law, that is, whether the Currency an in-principle permit from the Investment Coordinating Board
Law also applies to non-cash transactions (bank cheques and

(BKPM). For certain lines of business (eg, mining, oil and gas, plan- Indonesian-licensed insurance companies, unless it can be estab-
tations, education, etc) the recommendation of the relevant super- lished that:
vising government institution must be obtained before BKPM will • no Indonesian insurance companies have enough capacity to
grant an in-principle permit. bear insurance risks of the objects concerned;
Under a BKPM regulation issued in early 2013, the minimum • no Indonesian insurance companies are prepared to cover the
amount of investment capital that must be made in a foreign invest- objects concerned; or
ment company is 10 billion rupiah (or its equivalent in US dollars), • the owners of the insurance objects are not Indonesian citizens
with a minimum of 2.5 billion rupiah (or its equivalent in US dol- or Indonesian legal entities.
lars) issued share capital. Moreover, each shareholder must have a
minimum investment of 10 million rupiah (or its equivalent in US If any of the above exceptions applies, insurance coverage can be
dollars). granted by foreign insurance companies.
Foreign investors who wish to invest in Indonesia must comply Reinsurance support from foreign reinsurance companies can be
with a regulation (Negative List) that lists specific lines of business provided to local general insurance companies if the local insurance
in Indonesia that are closed to foreign investment or open to foreign company has already acquired local automatic reinsurance support
investment subject to conditions (one common condition is that a at a certain amount or percentage (as regulated by the Director
local party must hold a minimum percentage interest in the foreign General of financial institutions) and the foreign reinsurance com-
investment company). In theory, any lines of business that are not pany has a rating of at least BBB.
on the Negative List are open to 100 per cent foreign ownership. In Foreign secured creditors are permitted to be named as loss pay-
reality, however, foreign investment in lines of business that are not ees under insurance contracts.
on the Negative List are often subject to specific laws, regulations
and policies imposed by ministries or agencies in relation to specific
activities or industries.
The restrictions under the Investment Law and the Negative
List relating to foreign investment in Indonesian companies are also Foreign workers may be employed after having obtained a work
applicable to potential foreign investors or foreign creditors who bid permit from the Minister of Manpower and Transmigration. A com-
for shares in a project company at an auction in the case of fore- pany wishing to employ foreign workers must obtain approval for
closure. There are no bilateral investment treaties or international an Expatriate Utilisation Plan from the Director General of man-
treaties that may afford relief from the above foreign investment and power development and placement (through the Director of control
ownership restrictions. over employment of expatriates), which must set out the numbers,
The Indonesian government issued a revised Negative List effec- positions and other details of all of its proposed foreign workers.
tive from 24 April (New Negative List), which does not apply to As a general rule, a foreign worker may only be employed in
a foreign investment limited liability company that has already Indonesia by one company and for a fixed period of time, which
obtained its relevant BKPM approval, unless the New Negative List can be subsequently extended. The term of engagement of a for-
is more favourable (Grandfathering). eign worker may not exceed the term stated in the foreign worker’s
Grandfathering protection will be preserved if a foreign inves- work permit. Certain sectors have separate manpower regulations
tor sells its current interest to another foreign investor, provided that impose additional restrictions on positions, maximum term
there is no change in the overall foreign ownership percentage in the and other requirements for foreign workers, including in the mining
relevant foreign investment limited liability company. Similarly, if a sector.
foreign investor entitled to Grandfathering sells part of its current The company employing a foreign worker is required to pay
interest to a domestic investor (eg, in compliance with other laws, a ‘skill development fund’ of approximately US$100 each month
regulations or policies), the foreign investor will be entitled to retain for every expatriate, which in practice is made in advance covering
its interest above the maximum foreign ownership permitted under a certain period. The relevant regulations also require an employer
the new Negative List, but will not subsequently be able to revert who employs a foreign worker to appoint a suitably qualified
back to its higher interest prior to such a sale. Indonesian worker to be a ‘trainee’ of the foreign worker, so that
Under the New Negative List, the government increased the the foreign worker may train and transfer knowledge to such an
maximum foreign ownership allowed in Public Private Partnerships Indonesian worker during the course of employment. However the
(PPP) for power plants producing 10+ MW (100 per cent from 95 ‘trainee’ requirement is not applicable to foreign directors and com-
per cent), electricity transmission and distribution (100 per cent missioners. Other restrictions on foreign workers include:
from 95 per cent), and seaport projects (95 per cent from 49 per • prohibition on holding any position that deals with personnel or
cent) during the PPP concession period. In addition, the government human resources;
increased the maximum foreign ownership allowed in pharmaceuti- • minimum requirement of five years’ higher education or relevant
cal companies (now 85 per cent) and venture capital financing (now experience for his or her position in Indonesia;
85 per cent). • ability to speak Indonesian; and
In contrast, the maximum foreign ownership permitted has been • registration with the Social Security Organising Manpower
reduced for offshore oil and gas drilling (now 75 per cent), offshore Agency (applicable to foreign workers who have been working
oil and gas pipeline construction (now 49 per cent) and all distribu- for at least six consecutive months in Indonesia).
torships (now 33 per cent), while onshore oil and gas drilling, pipe-
line construction and upstream production, as well as postal and 13 What restrictions exist on the importation of project equipment?
online retail shopping, are now all closed to foreign investment.
Equipment imported for a project is subject to the relevant impor-
tation regulations and import duties, as applicable. Subject to the
11 What restrictions, fees and taxes exist on insurance policies fulfilment of certain conditions, foreign investment project compa-
over project assets provided or guaranteed by foreign insurance nies established under the Investment Law may receive dispensation
companies? May such policies be payable to foreign secured from the obligation to pay import taxes on the importation of pro-
creditors? ject equipment that is not available in the domestic market.
According to the relevant insurance laws and regulations, objects Project equipment that has been subject to import duty relief
of insurance located within Indonesia may only be insured by may only be transferred to third parties following the satisfaction
of the requirements set out in the relevant regulations (which can Government authorities
include obtaining approval from the relevant government authority
and evidence of payment of the relevant taxes on the project equip- 16 What are the relevant government agencies or departments with
ment). Under the government procurement rules and rules applica- authority over projects in the typical project sectors? What is the
ble to certain sectors, project equipment may be required to comply nature and extent of their authority? What is the history of state
with local content requirements and preference may be required to ownership in these sectors?
be given to local suppliers. The relevant government agencies or departments with authority
over projects are, among others:
• Ministry of Energy and Mineral Resources for projects in energy,
mining, geothermal energy and electricity;
• SKK Migas for projects in oil and gas upstream activities (for-
merly, BP Migas);
The Investment Law stipulates that the Indonesian government • BPH Migas for projects in downstream oil and gas activities;
will only nationalise or take over investors’ rights of ownership in • Ministry of Telecommunications and Information Technology
accordance with law. However, if the Indonesian government does for projects in the telecommunications sector;
nationalise or take over an investor’s rights of ownership, it will • Ministry of Public Works and Ministry of Transportation, as
compensate the relevant investor based on the market price as deter- appropriate, for projects in the infrastructure sector;
mined by an internationally used method. • Ministry for the Environment for any projects that require envi-
ronmental licences;
Fiscal treatment of foreign investment • National Development Planning Agency (Bappenas) as the coor-
dinator and facilitator for general development planning activi-
15 What tax incentives or other incentives are provided preferentially ties; and
to foreign investors or creditors? What taxes apply to foreign • relevant regional governments.
either for the purposes of effectiveness or registration? In general, the nature of these government agencies’ authority is
The Investment Law provides that the Indonesian government may mainly as regulator and supervisor of activities carried out in the
grant certain facilities to foreign investors who make an investment relevant sector, including project activities. Accordingly, project com-
in Indonesia in the form of a limited liability company. Such facili- panies are required to comply with the guidelines and regulations
ties may be granted through the BKPM licensing process only for issued from time to time by these relevant government agencies.
investments that meet various criteria, which can include that the State ownership in the above sectors is based on the Indonesian
investment will engage a significant number of Indonesian workers Constitution. On this basis, the state’s position to control various
or the investment company has the ability to transfer technology or strategic project finance activities is executed through these govern-
to carry out infrastructure construction. ment agencies regulating and overseeing the management of such
The facilities available to foreign investors established under the projects, as well as establishing companies that can have direct com-
Investment Law regime include: mercial interests in such projects, including PT PLN (Persero) for
• income tax relief, for a certain period; electricity.
• exemption from, or reduction of, import duty on the import of
capital goods, machinery or production equipment that cannot Regulation of natural resources
be domestically produced;
• exemption from, or reduction of, import duty on raw materials 17 Who has title to natural resources? What rights may private
or components for production, for a certain period; parties acquire to these resources and what obligations does the
• exemption from, or suspension of, value added tax on the holder have? May foreign parties acquire such rights?
import of capital goods, machinery or production equipment The legal framework surrounding title to natural resources is built
that cannot be domestically produced, for a certain period; upon the principle in article 33 paragraph 3 of the 1945 Indonesian
• accelerated depreciation or amortisation; and Constitution, which states that ‘the land, water and natural riches
• dispensation of land and buildings tax, in certain sectors, areas, contained therein are controlled by the government and shall be
regions or zones. used for the greatest benefit of the people’. Accordingly, the state has
the title to natural resources contained within Indonesia.
The Investment Law also provides for additional facilities such as This principle is implemented by specific statutory laws, includ-
corporate income tax relief for pioneer businesses and customs duty ing the Mining, Oil and Gas and Forestry Laws. Under these laws
relief or exemptions for ongoing investment involving the replace- and their implementing regulations, the government may provide
ment of machines or other capital goods. The above fiscal facilities opportunities for private parties (both domestic and foreign) to
will be granted based on a national industry policy adopted by the acquire rights to access natural resources by way of obtaining a
government from time to time. licence or entering into a production sharing contract (PSC) with the
No specific taxes apply for the purpose of effectiveness of for- government. With the relevant licence or PSC, private parties (both
eign investment, loans, mortgages or other security documents. domestic and foreign) may carry out exploration and exploitation
However, stamp duty and various registration fees may be applica- activities and gain benefits from the natural resources. These rights
ble (see question 2). are subject to various regulatory obligations, which may include
dead rent, domestic market obligations, concession fees, royalties,
national and regional taxes and regional levies as required by the
prevailing regulations.
Upon satisfaction of all relevant regulatory obligations by the
licence holder or PSC party, title to extract natural resources can be
passed to the licence holder or PSC party.
Although the rights of indigenous people are acknowledged in
the Indonesian Constitution, to date no specific national law has
been issued to protect indigenous and tribal people’s rights (despite

activists’ efforts to have indigenous people’s rights recognised and Domestic market obligations (DMO)
protected by national law). However, the Indonesian Agrarian In the mining sector, export of minerals and coal is subject to regula-
Law and the Land Acquisition Law (as defined in the ‘Update and tions governing DMO issued by the Minister of Energy and Mineral
trends’ section) recognise that if the Indonesian government wishes Resources, which require specific mining companies to sell a certain
to acquire land over which customary title exists for the purpose of minimum percentage of their mineral and coal production to domes-
the public interest, then the customary title holders must be com- tic users. To date, the Minister of Energy and Mineral Resources has
pensated in the form of the establishment of new public facilities only required that certain coal mining companies comply with the
or other forms of compensation that would be beneficial to such an DMO requirement through various implementing regulations.
indigenous population. Administrative penalties for mining companies that fail to com-
ply with the DMO may result in the reduction of up to 50 per cent
of annual mineral and coal production for those mining companies.
Administrative penalties may also be imposed on domestic purchas-
ers of minerals or coal that fail to purchase their allocated DMO
The main mining licences available under Law No. 4 of 2009 on quantity of minerals or coal, resulting in a reduction of up to 50
Mineral and Coal Mining (Mining Law) are: per cent of the total annual mineral and coal allocations for such
• mining business licences, which are the most common mining domestic purchasers.
licences to be granted to investors (known as IUPs); and
• special mining business licences, which are licences to be granted Restrictions on export of raw minerals or ore
over state reserve areas (being areas that have been declared Mining companies are also subject to restrictions on the export of
reserved due to national strategic interest) (known as IUPKs). unprocessed or unrefined mining products. Under the Mining Law,
a production–operation IUP or IUPK mining company is obliged to
Both IUP and IUPK licences are issued in two stages; the exploration add value to its mining products either by processing and refining
stage and the production–operation stage. the products itself or engaging a company that holds a specific pro-
The Mining Law requires IUP and IUPK holders to pay state duction–operation IUP licence for processing and refining to carry
and regional revenues. State revenue consists of tax and non-tax rev- out such activities on its behalf.
enues. Payable non-tax revenues include: The processing and refining requirement is further implemented
• dead rent; in Minister of Energy and Mineral Resources Regulation No. 1 of
• exploration royalties; 2014 (MEMR Regulation 1 of 2014), which sets out the minimum
• production royalties; and levels of processing (increasing mineral or rock quality to produce
• compensation for data and information. products) and refining (increasing metallic mineral quality through
an extraction process and further processing to increase purity) for
The rates of exploration royalties and production royalties vary specific metallic minerals (Processing Levels).
based on the scale of the mining project, production level and com- The Processing Levels that apply to various metallic minerals
modity price. An additional royalty of 10 per cent of net profits under MEMR Regulation 1 of 2014 are as follows:
applies to production–operation IUPK companies commencing at • copper: 15 per cent;
the time of production. The central government is entitled to 4 per • iron ore: 62 per cent;
cent of the royalty and 6 per cent will be shared between the relevant • ilmenite: 58 per cent;
regional governments. • lead: 57 per cent;
IUP and IUPK holders will be subject to corporate income tax • manganese: 49 per cent; and
at the prevailing rate. Delivery of goods and services in Indonesia is • zinc: 52 per cent.
also subject to value added tax of 10 per cent, except for those goods
and services that are exempted under the prevailing regulations. The export ban immediately applies to these metallic minerals if they
Mining entities are also required to withhold tax on offshore are not refined.
payments of dividends, interest, royalties and on most types of It should be noted that, from 10 January 2017, the metallic min-
services. erals subject to the Processing Levels as referred to above may only
The concept of payment of royalties does not apply to the be exported if refined in accordance with the required higher levels
upstream oil and gas sector. For the oil and gas sector, the govern- stipulated under MEMR Reg 1 of 2014.
ment receives tax revenue and non-tax revenue, the latter being
calculated on the basis of net profit sharing of the oil and gas pro- Export duty
duction in accordance with the PSC entered into between the gov- In 2013, the Minister of Finance introduced a progressive increase
ernment and the relevant oil and gas company. in export duty on the export of metallic minerals that meet pro-
The types of non-tax revenue that the government receives from cessing levels from 2013 to 2016. Under this regulation the export
the upstream oil and gas sector are as follows: duty rate will immediately increase for copper concentrate to 25 per
• the share of production; cent in 2014 and 30 per cent in 2015 and all other metallic miner-
• state levies in the form of dead rent and exploration and exploi- als to 30 per cent in 2015. Ultimately, the tax rate will hit 60 per
tation fees; and cent for all metallic minerals in the second half of 2016, prior to the
• bonuses (including data and production bonuses). export ban on unprocessed or unrefined mining products being fully
implemented.
This is a departure from the 2012 regulations, which imposed
resources?
a 20 per cent export duty on mining companies exporting certain
unprocessed minerals and ores.
Restrictions, fees and taxes on the export of natural resources are
determined by the nature of the specific commodities and the rel- Benchmark pricing
evant implementing regulations. Export tax, administration and The Mining Law provides that a benchmark selling price will be
services fees are generally payable, but each sector has different limi- established for long-term coal sales contracts. Minister of Energy
tations and restrictions regarding export requirements. and Mineral Resources Regulation No. 17 of 2010 on Mineral and
Coal Benchmarking (MEMR Regulation No. 17 of 2010) provides
the relevant provisions on benchmarking obligations and practices, payable. If submitted to a court, a notarial deed offers prima facie
key provisions of which include: evidence of certain elements of the agreement between the parties,
• mineral and coal producers are obliged to sell minerals and coal including the identities, authority and signature of the signing parties
based on a regulated benchmark price, whether for domestic or and compliance with Indonesian law.
export sales. The benchmark pricing obligation applies to all Notarial deeds are required for various project finance transac-
minerals and coal sales to third parties, spot sales and sales by tions, including fiduciary security instruments, powers of attorney
way of long-term contracts; and involving land transactions between buyer and seller or mortgagor
• administrative penalties will be imposed on mining companies and mortgagee, and instruments of acknowledgment of indebted-
that fail to comply with the provisions of MEMR Regulation ness, which are formal declarations of an amount owed that are
No. 17 of 2010. recognised by the Indonesian courts. For instruments used in the sale
or mortgage of land, a prescribed government form of agreement
To date, benchmark prices have only been provided for certain must be used and executed before an Indonesian land deed official.
grades of coal. Ministerial regulations for domestic benchmark pric- Before an instrument can be enforced in a court in Indonesia, it
ing of metallic minerals have not yet been issued. must be stamped with a nominal duty stamp (currently 6,000 rupiah
per instrument) and, if the instrument (or any other document to
Legal issues of general application be submitted to an Indonesian court) is in a language other than
Indonesian, such an instrument or document must be translated by
20 What government approvals are required for typical project finance a sworn translator.
transactions? What fees and other charges apply? Law No. 24 of 2009 on the Flag, Language, State Symbol and
Project financing in Indonesia is typically carried out by offshore National Anthem (Law No. 24) requires, among other matters, that
loans being obtained by a limited liability project company estab- any agreement involving a state institution, Indonesian government
lished in Indonesia. If foreign investors have an equity interest in the institution, private entity or citizen must be made in the Indonesian
project company, the project company must generally be a foreign language. However, Law No. 24 also contemplates that agreements
investment company, which must be registered with and licensed by can be made in bilingual form (that is, Indonesian and a foreign
BKPM. In addition, the articles of association of a foreign invest- language). Until specific implementing regulations to Law No. 24
ment project company must be approved by the MoLHR. have been issued to the contrary, the present view of many practi-
Approvals, recommendations, licences or consents from the rele- tioners is that it is advisable to enter into bilingual versions of project
vant technical ministries and government institutions (both national documents.
and regional) may be required in accordance with the regulations
that apply to each project sector. In the case of certain state-owned
companies, the approval of the Offshore Commercial Loan Team
(PKLN Team) may also be required in respect of offshore loans to
such companies.
Administrative fees to obtain the above approvals, recommen-
dations, licences or consents may be applicable, subject to the rel-
evant laws and regulations. Agreements to arbitrate are recognised under the ICC and Law
No. 30 of 1999 on Arbitration and Alternative Dispute Resolution
(Arbitration Law). This applies to both domestic and international
21 Must any of the financing or project documents be registered or arbitration agreements. However, only disputes of a commercial
filed with any government authority or otherwise comply with legal nature and that concern rights that, according to law, are ‘fully con-
formalities to be valid or enforceable? trolled by the parties to the dispute’ can be arbitrated.
Reporting and filing requirements will be applicable to project The Arbitration Law also provides that where the parties have
finance transactions since they are likely to involve the project com- agreed to arbitrate, the district courts (as courts of first instance) do
pany becoming indebted to offshore finance providers. According not have jurisdiction to hear the dispute.
to the relevant BI regulations issued in January 2010, before an off- Indonesia is a signatory to the New York Convention on
shore loan with a term of over one year can be entered into by a the Recognition and Enforcement of Foreign Arbitral Awards.
project company, the project company must first submit an offshore Accordingly, foreign arbitral awards granted in signatory countries
loan plan to BI that sets out certain details of the offshore loan, are enforceable in Indonesia upon application to the Central Jakarta
including a risk-management analysis. According to a BI regulation District Court for an exequatur (enforcement order) and provided
issued in December 2010, a project company with an offshore loan that such awards are not contrary to the public order of Indonesia.
must submit reports to BI, including a basic data report and regular If a party to a foreign award is the Indonesian government then
offshore loan data realisation reports. an application for exequatur must be made to the Supreme Court.
In addition to the above reporting and filing requirements, as Domestic arbitral awards must be registered with the relevant
part of its efforts to monitor foreign exchange activities in 2011 district court within 30 days of the award’s issuance. No such time
BI issued regulations requiring offshore loan debtors to submit a limit applies to foreign awards.
monthly report to BI on their offshore loan withdrawals. There are instances where the prevailing laws require disputes to
A debtor who fails to submit an offshore loan withdrawal report be settled by way of arbitration. However, usually domestic arbitra-
or is late in submitting the report will be subject to administrative tion would not be a requirement.
sanctions, which BI started to impose from 2 July 2012. Indonesia ratified the ICSID Convention in 1968.
Offshore loans must also be reported to the PKLN Team and
the Fiscal Analysis Agency of the Ministry of Finance and regular
reporting to these institutions must be maintained. The approval
of the PKLN Team may also be required, particularly for any off-
shore loan arrangements that involve state-owned companies as
borrowers. Generally, the parties’ choice of law (including foreign law) in an
Certain documents must be prepared in notarial deed form, agreement will be recognised by the Indonesian courts as a valid
exclusively by Indonesian notaries and for which fees will be choice of law provided that there is sufficient connection between

the chosen law and the subject matter of, or parties to, the agree- The relevant government agencies for specific sectors may have
ment. However, foreign law cannot be chosen if it is contrary to their own legislation relating to the protection and management
mandatory provisions of Indonesian law, such as agreements regard- of the environment. However, such legislation usually addresses
ing security over Indonesian assets, which must be governed by issues that are technical and specific to the respective sectors.
Indonesian law. Significantly, such legislation must not contravene the provisions of
As a general proposition, project agreements typically tend to the Environmental Law.
be governed by domestic law, whereas financing agreements tend Apart from Law No. 1 of 1970 on Work Safety, which sets out
to be governed by the laws of England and Wales, New York or the general provisions on occupational health and safety, each dif-
Singapore. ferent business sector has its own regulations on health and safety.
In certain industries, such as mining and oil and gas, the industry Such regulations may set out the procedures for certain work to be
regulators will insist that the chosen law for the relevant contracts carried out or may regulate the necessary certifications that must be
is Indonesian law. obtained before carrying out certain work.
Project companies
effective and enforceable? 26 What are the principal business structures of project companies?
Contractual provisions involving submission by the parties to a What are the principal sources of financing available to project
foreign jurisdiction are generally effective and enforceable under companies?
Indonesian law, as long as the foreign court accepts such a juris- The principal business structure of a project company is the limited
diction. The utility of such contractual provisions may, however, be liability company structure. However, the PPP legislation stipulates
limited because foreign judgments are not directly enforceable in the that PPP transactions can be carried out by the following entities:
Indonesian courts. If a party wishes to enforce a foreign judgment • limited liability companies (including limited liability companies
against assets located in Indonesia, new proceedings would need to in which foreign investors have an equity interest);
be initiated in the Indonesian courts. The claimant would be able to • state-owned enterprises;
submit the foreign judgment as evidence in such proceedings and the • regional government-owned enterprises; and
court has discretion to determine whatever weight it attaches to the • cooperatives.
foreign judgment.
The waiver of sovereign immunity under Indonesian law is In the oil and gas sector and for public works, Indonesian law recog-
not clearly regulated. However, civil and administrative claims nises that business can be conducted by way of an unincorporated
may be brought against the Indonesian government (both central joint venture, which may be entered into between a foreign entity
and regional) and its institutions. Sovereign immunity applies only and an Indonesian government representative.
to preclude the enforcement of certain remedies against assets and For the purpose of financing projects, project companies usually
property of the government, such as the enforcement of attachment obtain the necessary funds from bank loans as well as capital injec-
and seizure orders over such assets and property. tion by issuance of equity stakes, either by private or public place-
ment. Project companies may also seek financing from infrastructure
Environmental, health and safety laws financing companies, which are established solely for the purpose of
providing financing and other services to project companies to sup-
port infrastructure projects.
Also available as a source of financing is PT Indonesia
Environmental control and management issues are regulated Infrastructure Finance (PTIIF), which was officially launched on 9
through the relevant laws and regulations issued by the Ministry August 2009 as part of the government’s commitment to acceler-
for the Environment and the relevant regional governments. As an ate infrastructure development. PTIIF is funded by the Indonesian
umbrella, Law No. 32 of 2009 on Environmental Protection and government (through PT Sarana Multi Infrastruktur (Persero)), the
Management (the Environmental Law) applies to all businesses Asian Development Bank, the International Finance Corporation
in Indonesia. The Ministry for the Environment and the relevant and the government of Germany. The government also launched PT
regional governments are responsible for issuing implementing regu- Penjamin Infrastruktur Indonesia (PTPII) to provide guarantees in
lations to the Environmental Law. order to improve the creditworthiness of infrastructure projects.
Under the Environmental Law, an environmental impact analy-
sis (AMDAL) study must be undertaken in relation to an entity’s Public-private partnership legislation
proposed activities that may have a significant impact on the envi-
ronment before they are carried out. The objectives of an AMDAL 27 Has PPP enabling legislation been enacted and, if so, at what
study are to analyse any impact of the planned activities, any efforts level of government and is the legislation industry-specific?
to manage that environmental impact, as well as to monitor environ- PPPs are governed by Presidential Regulation No. 67 of 2005
mental management. on Cooperation between Government and Business Entities in
If the proposed activities for an entity do not require the com- Infrastructure Provision, as amended by Presidential Regulations
pany to obtain an AMDAL (as determined under the relevant provi- No. 13 of 2010, No. 56 of 2011 and No. 66 of 2013. Accordingly,
sions of the Environmental Law), then the entity must prepare an this legislation has been enacted at the national level.
Environmental Management Effort (UKL) and an Environmental Infrastructure projects that can be carried out under the PPP
Monitoring Effort (UPL). scheme include transport, roads (including toll roads and toll
Following the issuance of an AMDAL (or a UKL and UPL), the bridges), irrigation systems, drinking water infrastructure, liquid
Environmental Law requires that the relevant entity conducting the waste management, telecommunications and informatics, power
activities must also obtain an ‘environmental permit’. The AMDAL and oil and gas infrastructure. The actual implementation of infra-
or UKL/UPL and the environmental permit then serve as prerequi- structure projects will be subject to the laws and regulations that
sites to the issuance of relevant business licences required for the apply to the relevant sector.
operations of the relevant entity. The environmental permit may be
granted by the Minister for the Environment, Governor, Regent or
Mayor, as applicable.
Update and trends
Infrastructure Land acquisition

Indonesia continues to offer significant opportunities for infrastructure One of the major challenges facing infrastructure projects is the
development. According to the PPP Book issued by the Ministry of acquisition of project land.
National Development Planning/National Development Planning The Central Java 2-GW Power Project remains stalled due to
Agency (Bappenas) in November 2013, 27 PPP projects (including such obstacles, with only approximately 87 per cent of the required
power plant, water supply, transportation, toll road and waste projects) land already acquired. Law No. 2 of 2012 on Land Acquisition for
with a total cost of US$47.3 billion will be made available to investors. Development of the Public Interest (the Land Acquisition Law) is
The PPP Book identified 21 ‘tendered’ projects, 14 ‘prospective’ intended to streamline and impose strict time limits on the land
projects and 13 ‘potential’ projects. Positively, the latest PPP Book acquisition procedure. Unfortunately, it may be of limited assistance to
reflects a focus on identifying a realistic pipeline, rather than merely existing projects such as the Central Java 2-GW Power Project, since
an impressive number of projects. the Land Acquisition Law is not retrospective and only applies to new
One of the ‘tendered’ projects is the Central Java 2-GW Power projects. If, however, land in an ongoing acquisition process has not
Project, while one of the ‘prospective’ projects is the Karama been acquired by the end of 2014, the new land acquisition processes
Hydroelectric Power Plant. The government has also announced a new might be used in relation to that land going forward.
geothermal power project. The US$1.6 billion Sarulla project, with a New infrastructure projects will have the benefit of the Land
projected capacity of 330MW, will be the largest geothermal power Acquisition Law and the main implementing regulation, Presidential
project in the world. Indonesia is estimated to hold approximately 40 Regulation No. 71 of 2012 on Procedures for Land Acquisition for
per cent of global geothermal reserves and the government aims to the Public Interest. Media reports indicate that the government has
produce 6,500MW of geothermal energy by 2025. announced revisions to the land acquisition regulations, including
In late May 2014, the President revised the state budget, with the further streamlining the process to acquire land of up to five hectares
biggest cut of approximately US$805 million to the Ministry of Public in order to advance infrastructure projects.
Works, which is likely to adversely affect a number of infrastructure
projects.
PPP – limitations In the past, currency mismatches between the predominantly

local currency revenue stream and financing in foreign currency
28 What, if any, are the practical and legal limitations on PPP have limited the financial viability of a number of PPP projects.
transactions? Further limitations may exist under the laws and regulations
A PPP transaction can only be carried out by either an agreement that apply to the relevant sector.
or concession. If the PPP transaction is carried out by way of an
agreement, a number of provisions are required to be included in PPP – transactions
the agreement, such as the scope and duration of the project, perfor-
mance guarantees (if any), relevant tariffs and the mechanisms for 29 What have been the most significant PPP transactions completed
tariff adjustments, standards for performance, and regulation of the to date in your jurisdiction?
transfer of shares prior to commencement of commercial operations. Even though one of the government’s main areas of focus is on devel-
Within 12 months of the signing of the agreement, the project com- oping infrastructure through PPP transactions, to date no PPP trans-
pany must obtain the required financing to complete the project. If action has been completed in Indonesia. In 2011, however, a project
the 12-month deadline expires, the relevant government contracting company owned by a consortium consisting of J-Power, Adaro and
agency may extend the deadline for another 12 months (provided Itochu signed Indonesia’s first PPP project to build, own, operate and
the failure to obtain finance was not due to the project company’s transfer a 2000MW coal-fired power plant in Central Java, which
negligence). Failure to obtain financing after the second 12-month included a guarantee given to the relevant project company by PTPII
period will result in the government contracting agency being able (the Central Java 2-GW Power Project).
to execute the available warranties.
Rahmat Soemadipradja rahmat_s@soemath.com

Robert Reid robert_reid@soemath.com
Rachel Situmorang rachel_situmorang@soemath.com
Wisma GKBI, Level 9 Tel: +62 21 574 0088

JL Jend Sudirman No. 28 Fax: +62 21 574 0068
Jakarta 10210 www.soemath.com
Indonesia

Baker & McKenzie (Gaikokuho Joint Enterprise) JAPAN
Japan
Naoaki Eguchi, Gavin Raftery and Yasuhisa Takatori
Baker & McKenzie (Gaikokuho Joint Enterprise)
Japanese law does not provide a general, overall form of security lawful techniques to minimise them? May a corporate entity, in
analogous to the security granted under an English-style floating the capacity of agent or trustee, hold collateral on behalf of the
charge or US-style blanket lien pursuant to which the grantor can project lenders as the secured party?
grant a security interest over all, or substantially all, of its assets The priority of persons with security interests in the same asset is
except for certain special types. Security in Japan in principle must determined by the order in which the person’s interests were per-
be granted on an asset-by-asset basis. fected. The method for perfection of security interests differ in rela-
Japanese law has, however, created several special forms of sin- tion to the type of security and the type of asset provided as security.
gle security, which can be created over multiple assets. The first of Security assignments or pledges over receivables and pledges
these is a form of mortgage known as a foundation mortgage, which over bank accounts and insurance proceeds are perfected by:
may be established over certain types of groups of facilities such as • providing a date-certified notice to the underlying obligor;
factories, or sight seeing facilities (eg, a power plant and its collateral • obtaining a date-certified consent from the underlying obligor;
assets can constitute a factory foundation). A factory foundation or
mortgage groups together certain moveable and immoveable assets, • registering the assignment or pledge at the relevant legal affairs
and can cover land (including right of land-use), buildings, machin- bureau.
ery, tools, patents and other assets connected with the facility; how-
ever, it does not include inventory. The second type of security is It should be noted that non-assignment clauses are usually included
one that covers all assets of an issuer of a bond under the Secured in the relevant contract, which invalidate the creation of the security
Bond Trust Act. In addition, it is possible under Japanese law to over the contractual rights in such a contract. Thus, among the per-
create single security interest over certain groups of moveable assets fection options listed above, a date certified consent is usually used
located within certain specific storage areas (typically, inventories in in order to obtain such a waiver from the underlying obligor.
warehouses), and multiple present and future receivables. Security assignments over moveable assets are perfected either
The security package for project finance transactions in Japan by delivery of the assets to the secured party or by registration of the
generally includes all assets owned by the project company and all security assignment at the relevant legal affairs bureau. The registra-
shares issued by the project company. The basic security package tion requires a nominal fee.
commonly includes: The method of perfection for share pledges depends on the types
• security assignments of moveable assets; of the shares being pledged. If physical share certificates are issued,
• security assignments or pledges of present and future receivables the share pledge is perfected by the pledgee’s continuous posses-
and other contractual rights (eg, rights under an EPC agreement, sion of such certificates. If physical share certificates are not issued,
O&M agreement, power purchase agreement, concession agree- the pledge is perfected by registration on the shareholders’ register
ment, or fuel supply agreement); maintained by the issuer. A different regime exists for dematerialised
• pledges of bank accounts, shares in the project company and shares of listed companies, although dematerialised shares are not
insurance proceeds; generally seen in project finance transactions because the borrowers
• mortgages of real property or foundation mortgages over cer- are usually special purpose companies that are not normally listed.
tain types of facilities; and Mortgages of real estate (including foundation mortgages) must
• mortgages of concession right to maintain and operate public be perfected by registration at the relevant legal affairs bureau. The
facilities to be granted pursuant to the PFI law (Concession registration tax for fixed mortgages is 0.4 per cent of the amount
Right). secured by the mortgage. Mortgages are therefore sometimes only
registered on a provisional basis as provisional registration involves
In addition, a transfer agreement of the borrower’s contractual only nominal costs and secures the priority of the mortgage. Payment
status under the project contracts is also commonly used, which is of the full registration fee is required prior to enforcement and provi-
similar to novation under UK law. Technically, however, this is not sional registration may therefore shift additional risk to the secured
a combination of cancellation of the existing contracts and execu- party. A Mortgage of Concession Right is perfected by registration
tion of new contracts, but rather, simply a transfer of the borrower’s at the special register established pursuant to the PFI law.
contractual status as it is. Under the new Trust Law, which came into force in 2007, secu-
rity packages can be made in favour of a security trustee. In return,
the secured creditors will receive a beneficial interest in the relevant
secured claims. The entrusted collateral is excluded from the estate
of the security trustee in the event of its insolvency. Nonetheless, due
JAPAN Baker & McKenzie (Gaikokuho Joint Enterprise)
to a lack of judicial precedent involving security trustees and the Almost all legal entities are subject to the above proceedings, how-
high costs involved with putting a security trustee in place, security ever, special liquidation and corporate reorganisation proceedings
trust structures are uncommon in the market. Parallel debt has not only apply to stock companies.
been established in Japan despite strong arguments supporting its Secured creditors may generally enforce their security outside of
theoretical possibility. bankruptcy, civil rehabilitation and special liquidation proceedings;
however, the courts usually restrict the enforcement of security in
corporate reorganisation proceedings and may, in very limited cir-
cumstances, restrict or bar the enforcement of security in other court
proceedings. To minimise this risk, a Japanese LLC (Godo Kaisha
To the extent a security interest must be registered, a register search (GK)) may be used as the SPV in project finance transactions as a
at the relevant legal affairs bureau should reveal the existence of GK is not subject to corporate reorganisation. In this regard, how-
such security interests. However, as many forms of security are not ever, it should be noted that if a corporate reorganisation is com-
registered, complete third-party confirmation of the absence or menced in connection with a sponsor, exercise of a share pledge may
existence of such liens is not possible. be subject to this restriction under the corporate rehabilitation law
Creditors in Japan therefore rely heavily on the representations because the shares constitute part of the assets of the sponsor.
and warranties of the debtor or security provider, as well as on using Transactions may be declared void (and amounts in relation
a newly-established SPC as the project company and including a thereto clawed back) by an insolvency administrator if the transac-
negative pledge clause in the relevant finance documents. tion is deemed to be a preference transaction. The preference period
under Japanese law begins, in principle, from the first date on which
4 Outside the context of a bankruptcy proceeding, what steps the creditor had knowledge of the debtor’s actual or impending
should a project lender take to enforce its rights as a secured insolvency. Regardless of whether the creditor has such knowledge,
party over the collateral? fraudulent conveyances (eg, where the consideration received by the
Security interests may be enforced outside bankruptcy proceedings insolvent entity is clearly inappropriate) are also subject to manda-
either in accordance with the Civil Execution Act or, if the parties tory preference periods of six months prior to the date on which
have agreed on an alternative method of enforcement, in accordance the debtor became unable to pay its debts as they became due or
with that alternative method. The Civil Execution Act requires a insolvency proceedings were commenced.
public auction of the mortgaged or pledged assets that may be time- The claims of foreign creditors are treated the same as the claims
consuming and may not generate an appropriate return. In addition, of local creditors.
the lender cannot control who acquires the asset if a public auction
is commenced. Public auctions are therefore not a popular method Foreign exchange issues
for enforcement of security interests.
As such, security agreements in project finance transactions in
Japan generally provide that the secured party may sell the collateral
assets by private means (either via private sales or private auctions). In principle, there are no taxes or significant restrictions imposed
In a private sale or private auction, the secured parties may them- on foreign currency exchange in Japan, other than an after-the-fact
selves purchase the collateral assets. The counterparties’ consent report to be filed with the relevant minister. An entity or individual
is necessary to effectuate such a transfer of the contractual status may be exempt from this filing requirement if the sum of the remit-
under the project contracts. tance is relatively small.
Public-private partnerships also generally provide step-in rights
for the lenders under direct agreements between the relevant public 7 What are the restrictions, controls, fees and taxes on remittances
entities and the lenders. Lenders usually seek pre-agreed criteria for of investment returns or payments of principal, interest or
the potential transferee of the shares of a project company or the premiums on loans or bonds to parties in other jurisdictions?
Concession Rights to be provided in the direct agreement, because
a transfer of such shares and Concession Rights will be subject to There are no general controls on remittances, investment returns,
the consent of the relevant public authority under the PFI law or the loan or bond payments to parties in other jurisdictions. However,
relevant guideline. when a payment is remitted or wired to or from another country, a
Public auctions under the Civil Execution Act are denominated report of the content thereof must be filed with the relevant minister
in Japanese yen, and private sales can be made in foreign currencies. if the remittance exceeds ¥30 million.
Withholding taxes may apply on cross-border payments such as
dividends, distributions and loan interest. The domestic tax rate on
5 How does a bankruptcy proceeding in respect of the project such payments is 20.42 per cent, but may be reduced or exempted
company affect the ability of a project lender to enforce its rights depending on the applicable tax treaty. The Japanese transfer pric-
as a secured party over the collateral? Are there any preference ing rules and thin capitalisation tax rules or earnings stripping rules
periods, clawback rights or other preferential creditors’ rights may also apply.
what legislation applies to them? What processes other than 8 Must project companies repatriate foreign earnings? If so, must
court proceedings are available to seize the assets of the project they be converted to local currency and what further restrictions
company in an enforcement? exist over their use?
There are several types of insolvency proceedings in Japan, such as: Project companies are not required to repatriate foreign earnings.
• terminal proceedings – bankruptcy proceedings and special
liquidation; 9 May project companies establish and maintain foreign currency
• rehabilitation proceedings – civil rehabilitation and corporate accounts in other jurisdictions and locally?
reorganisation; and
• voluntary insolvency proceedings – business restructuring ADR Japan does not prohibit offshore accounts, but a report must be filed
(which is an out-of-court restructuring procedure to which all with the relevant minister in relation to each offshore account hold-
parties must agree). ing more than ¥100 million (or its equivalent). There are typically

no restrictions on the establishment of onshore foreign currency Technicians are required to have graduated from or completed
accounts. a college or university level programme or otherwise acquired the
equivalent education (eg, majoring in a subject relevant to the skills
Foreign investment issues or knowledge, or both, necessary for performing the job concerned)
or have at least 10 years’ experience relevant to the job to be per-
10 What restrictions, fees and taxes exist on foreign investment in or formed (including the period of time spent studying the relevant
ownership of a project and related companies? Do the restrictions skills or knowledge, or both, in college or university, upper second-
also apply to foreign investors or creditors in the event of ary school, or a specialised course of study at an advanced voca-
foreclosure on the project and related companies? Are there tional school), and must be paid a salary at least equivalent to that
any bilateral investment treaties with key nation states or other of a Japanese national performing equivalent or comparable work.
international treaties that may afford relief from such restrictions? Requirements in relation to foreign workers vary considerably
Would such activities require registration with any government depending on their job description.
authority?
If a foreign investor has acquired shares or equity in a Japanese
corporation that exceeds certain thresholds, they must report such
holdings to the relevant minister. If the Japanese corporation is Importation of project equipment is subject to general import and
engaged in certain restricted industries or industry sectors, a foreign export restrictions under Japanese law, and as such, certain items
investor intending to make a direct investment in such a corpora- may be subject to import restrictions pursuant to the Foreign
tion must provide advanced notice pursuant to the relevant cabinet Exchange and Foreign Trade Control Law. There are otherwise no
order to the relevant minister setting out the details of the proposed overall restrictions or limitations on the importation of typical pro-
investment. Depending on the industry sector (eg, telecommunica- ject equipment, provided that import duties may apply to the impor-
tions, airlines or broadcasting), certain maximum foreign ownership tation of certain equipment from specified countries.
restrictions may also apply.
No specific taxes or fees apply to foreign ownership of project 14 What laws exist regarding the nationalisation or expropriation
companies, but transfer pricing rules and thin capitalisation tax rules of project companies and assets? Are any forms of investment
or earnings stripping rules may apply to related-party transactions. specially protected?
Japan has entered into bilateral investment treaties with several
The Japanese Constitution provides that private property can-
countries (principally in Asia); however, these bilateral investment
not be nationalised or expropriated without just compensation.
treaties typically do not provide exemptions to current foreign own-
Accordingly, the Compulsory Purchase of Land Act (Act No. 219
ership restrictions.
of 1951) provides that a person who has ownership of or rights in
land that is nationalised or expropriated is entitled to compensation.
11 What restrictions, fees and taxes exist on insurance policies Such compensation may include compensation for business losses
over project assets provided or guaranteed by foreign insurance and other damages in addition to the value of the property nation-
companies? May such policies be payable to foreign secured alised or expropriated.
creditors? There are, however, no rights of ownership or any other prop-
Although a licence and a local presence are required for any com- erty rights that would preclude the nationalisation or expropriation
pany (including any foreign insurance company) to carry out insur- of project companies or assets, and no forms of investment are spe-
ance business activities in Japan, there are no other restrictions or cially protected from nationalisation or expropriation.
fees on insurance policies over project assets provided by foreign The public guidance on Concession Right suggests that compen-
insurance companies. However, payments above a certain thresh- sation for cancellation of a Concession Right for public purposes
old amount by a foreign insurance company to a Japanese com- would be determined based on the Compulsory Purchase of Land
pany need to be reported to the Finance Minister under the Foreign Act, which may not be sufficient to cover the private sector’s dam-
Exchange and Foreign Trade Control Law. age. In this regard, however, PFI law and the guidance do not restrict
Proceeds from insurance policies over project assets located in the formula of such compensation if differently agreed between the
Japan may be categorised as Japanese-source income even if the public and private sectors.
relevant recipient is located offshore and has no permanent estab-
lishment in Japan, and therefore may be subject to tax in Japan. Fiscal treatment of foreign investment
Exemptions may apply depending on the applicable tax treaty.
Insurance policies over project assets provided by foreign insur-
ance companies may be payable to foreign secured creditors.
12 What restrictions exist on bringing in foreign workers, technicians There are no Japanese tax incentives provided specifically to foreign
or executives to work on a project? investors or creditors. Foreign investors should generally be treated
Foreign workers, technicians, or executives will require an appro- in a similar manner to domestic investors for Japanese tax pur-
priate visa in order to work in Japan. The visa requirements vary poses. Stamp duty is payable on loan agreements and certain other
depending on a number of factors, including the type of work to be documents executed in Japan and registration taxes apply to mort-
carried out by the relevant foreign employee. gages; however, there is no separate registration tax or stamp duty
Executives are required to have at least three years’ experience regime applicable only to foreign investors in connection with the
in the operation or management of a business, or both (including effectiveness or registration of investments, loans or other security
any period of graduate studies majoring in business operations or documents.
management, or both) and must be paid a salary at least equivalent
to that of a Japanese national performing equivalent or comparable
work.
Government authorities vary depending on the region, purpose of extraction and category
of river or body of water. Municipal regulations may also apply.
16 What are the relevant government agencies or departments with Although foreign entities can obtain this licence, a condition to
authority over projects in the typical project sectors? What is the granting the licence is that the extraction of water would contribute
nature and extent of their authority? What is the history of state towards the advancement of the Japanese economy or the lives of
ownership in these sectors? Japanese citizens.
A wide variety of governmental agencies and departments have There are very few indigenous peoples in Japan and the extrac-
authority over typical project finance transactions. Such agencies tion of natural recourses is generally not affected by their rights.
typically govern and monitor environmental, health and safety
issues. The authority granted to such agencies varies; however,
they generally enjoy fairly broad discretion in their monitoring and
enforcement activities.
National government agencies and local governments may be The Japanese government does not charge royalties on the extrac-
contracting parties in connection with projects carried out within tion of natural resources; however, certain licensing fees and taxes
their prefectures or municipalities under the PFI law. will apply. Domestic and foreign entities extracting resources in
The Ministry of the Environment (MOE) has authority over Japan are generally subject to prefectural and municipal mining
matters in relation to various environmental laws and standards. taxes in addition to the generally applicable taxes (such as corporate
The Ministry of Economy, Trade and Industry (METI) regulates income tax and consumption tax, if applicable). The rates for these
safety standards for businesses involved in power generation pursu- taxes may vary depending on the location and the resource. Taxes
ant to the Electricity Business Act. METI also oversees renewable include a mining allotment tax (a prefectural tax) levied on mining
energy projects (including licensing and determination of the FIT right holders (the standard annual rate is ¥200 to ¥400 per hectare
price), together with the Agency for Natural Resources and Energy of mining allotment area) and a mining product tax (a municipal
(ANRE). tax) levied on mining operators, which is generally equivalent to 1
The Ministry of Land, Infrastructure, Transportation and per cent of the revenues generated by the relevant mineral resource.
Tourism (MLIT) is the principal supervisory authority in relation to If a domestic or foreign party extracts natural resources from
construction projects, and sets the minimum standards for construc- land belonging to a third party, the domestic or foreign party would
tion designs pursuant to the Building Standards Act. MLIT also has also need to enter into a lease agreement with such third party for
regulatory power with respect to the granting of Concession Rights the purposes of the extraction. It is common for certain fees akin
relating to the transport sector. to royalties to be paid under such an agreement. If the extraction
Prefectural and municipal governments also monitor the legality of resources from land belonging to a third party falls under the
of building structures in accordance with the Building Standards Act Quarrying Rights Act, the payment of compensation in relation
and environmental investigation and, in many cases, land develop- thereto is required by law. Such compensation is generally calculated
ment licensing. based on the revenues generated by the sale of the relevant resources,
Water facilities are owned by local government entities. Roads, but the amount payable can usually be determined by the parties
ports and airports are also owned by national or regional gov- and may incorporate ratchet mechanisms depending on the value or
ernments or various government-related entities. Otherwise, the volume of minerals extracted.
Japanese government has not, over the past 20 years, maintained
significant levels of ownership in typical project finance industry 19 What restrictions, fees or taxes exist on the export of natural
sectors. resources?
Regulation of natural resources There are no general restrictions on fees related to the export of
natural resources. However, permission to export is required in rela-
17 Who has title to natural resources? What rights may private tion to any natural resources that may be used for military purposes
parties acquire to these resources and what obligations does the or any mineral fuels or minerals listed in the Foreign Exchange and
holder have? May foreign parties acquire such rights? Foreign Trade Control Law, the Export Trade Control Ordinance or
The general position in Japan is that the state has title to natural the Customs Tariff Act.
resources, and as such, the extraction of natural resources is reg- No tax (including Japanese consumption tax) is imposed on the
ulated by various acts depending on the resource in question (for export of natural resources.
example, the Mining Act or the Quarrying Rights Act). Any private
party who wishes to extract natural resources must first obtain
approval or apply for registration, or both, as required under the 20 What government approvals are required for typical project finance
relevant act. transactions? What fees and other charges apply?
A licence under the Mining Act must be obtained prior to the
extraction of minerals and other geological materials (including oil There are no general government approvals or any related fees or
and gas). Licences are only granted to Japanese persons (whether charges that would be required across all typical project finance
natural or legal). The application process usually takes several years transactions. However, depending on the type of project being con-
and environmental impact assessments would also need to be made. templated, certain licences may be required to carry out the project
Any quarrying activity would require registration under the in question (eg, METI’s authorisation under the Renewable Energy
Quarrying Rights Act. Foreign entities can be registered; however, Act, permits under the Electricity Business Act or Construction
as the registration requirements may be subject to municipal regu- Industry Act). In addition, with respect to certain types of invest-
lations, the relevant municipal government should be consulted in ments, loans, operations and remittances by foreign parties, report-
advance. ing to the Finance Minister or the relevant competent authorities,
A separate licence is required prior to the extraction of under- or both, may be required under the Foreign Exchange and Foreign
ground or above-ground water. Restrictions on water extraction Trade Control Law.

21 Must any of the financing or project documents be registered or consent has been given, the commercial assets of a foreign govern-
filed with any government authority or otherwise comply with legal ment that are located in Japan may be subject to civil enforcement
formalities to be valid or enforceable? procedures.
Financing or project documents do not need to be registered or filed There are limited court precedents in relation to waiver of immu-
with any government authority or otherwise comply with legal for- nity clauses, but the Supreme Court has previously held that waiver
malities to be valid or enforceable. However, the payment of stamp of immunity clauses were effective in relation to acts of foreign gov-
duty may be required depending on the nature of financing or pro- ernments other than any sovereign acts or functions of government.
ject documents unless they are executed outside Japan.
22 How are international arbitration contractual provisions and 25 What laws or regulations apply to typical project sectors? What
awards recognised by local courts? Is the jurisdiction a member regulatory bodies administer those laws?
A wide variety of laws govern environmental, health and safety
issues. Occupational health and safety is generally administered by
the Ministry of Health, Labour and Welfare pursuant to the Labour
Under the Arbitration Act (Act No. 138 of 2003), arbitral awards, Standards Act and the Industrial Safety and Health Act. Other key
including arbitral awards where the seat of arbitration is not in laws applicable to typical project sectors include the following:
Japan, are deemed to be final and binding by the courts. In order • the Soil Contamination Prevention Law creates an obligation
to enforce an arbitral award, an individual must prepare a copy of on the occupant and manager of a property to conduct inves-
the award along with a Japanese translation and present these to the tigations for contamination and implement remedial measures
courts. There are no types of commercial disputes common to pro- if necessary and the Waste Management and Public Cleansing
ject finance transactions that cannot, by agreement, be made subject Act aims to improve public health through controlling disposal
to arbitration. of industrial waste (these environmental laws are administered
Japan is a member of both the ICSID Convention and the New primarily by the MOE);
York Convention. • the Electricity Business Act, administered mainly by the METI,
regulates safety standards for electricity, including power gen-
eration; and
• the Building Standards Act sets the minimum standards of con-
struction, design and use, etc, for most facilities and is relevant to
all sectors in terms of construction safety (MILT is the principal
Project agreements and financing agreements are typically governed supervisory authority in this area).
by the laws of Japan. Project agreements may also be subject to cer-
tain prefectural or municipal ordinances. Project companies
Japanese law does not have exclusive jurisdiction over any mat-
ter other than security over assets located in Japan or receivables 26 What are the principal business structures of project companies?
governed by Japanese law, and parties are otherwise free to agree on What are the principal sources of financing available to project
the governing law of any agreement. That being said, any enforce- companies?
ment in Japan will be required to conform to Japanese civil pro- Project finance transactions are typically structured with a single
cedures and any decisions of a foreign court that violate Japanese special purpose vehicle acting as the project company in order to
doctrines of public policy or good morals will not be enforceable in provide bankruptcy remoteness from the sponsors and a single
Japan. In addition, matters of insolvency, consumer protection and point of liability for the creditors. In practice, joint-stock compa-
employment will be subject to mandatory provisions of Japanese nies (Kabushiki Kaisha (KK))are the most common choice of vehicle
law. used due partly to the relative ease in establishing security over its
shares. A GK vehicle is another common choice given the relaxed
24 Is a submission to a foreign jurisdiction and a waiver of immunity management rules and exemption from corporate rehabilitation as
effective and enforceable? mentioned above in question 5. It should be noted that a ‘TK-GK
Japanese companies and government entities may validly submit structure’, which has been frequently used for real estate finance, has
to the courts of a foreign jurisdiction. While sovereign immunity in become more popular, in particular for solar power projects under
relation to certain matters may not be waived under the Japanese the Renewable Energy Law. Tokumei Kumiai (TK) is a silent partner-
Constitution, a waiver of immunity by a Japanese government entity ship where TK investors provide the GK (the project company) with
in relation to commercial transactions should generally be effective anonymous funds, and generally, only have passive rights to receive
under Japanese law. distributions from the GK. Under the TK-GK structure, foreign TK
Pursuant to the Act on the Civil Jurisdiction of Japan with investors can enjoy tax merits including exemption from Japanese
Respect to a Foreign State, etc (Law No. 24 of 2009), which came corporate tax and withholding tax on distributions, depending on
into force on 1 April 2010, a foreign government shall be subject the relevant tax treaty and the substance of the TK-GK structure.
to the jurisdiction of the Japanese courts provided that such a for- The funding structure comprises equity and, most often, sub-
eign government has expressly submitted thereto. Even without the ordinated loans provided by sponsors, as well as senior and, some-
express submission to jurisdiction on the part of a foreign govern- times, mezzanine finance provided by various financial institutions.
ment, it is possible to commence civil proceedings against foreign The Development Bank of Japan, sponsored by the Japanese gov-
governments in the context of certain commercial transactions (eg, a ernment, is also a key player in terms of both equity investment
sale and purchase under civil or commercial law, commercial loans, and the provision of senior or mezzanine finance, or both. Thin-
etc), labour contracts, physical injuries or property damages. capitalisation rules and earnings stripping rules and the requirement
Where a foreign government expressly consents or where it has of a money lending licence need to be carefully addressed if foreign
provided collateral as part of a project finance transaction, a tempo- sponsors extend subordinated loans to the GK project company.
rary injunction or civil enforcement procedure may be carried out The public-private joint infrafund established under the PFI law
against the assets of such a foreign government. Even if no explicit in 2013 is expected to be a significant funds provider to conces-
sion type or non-government payment type projects (ie, projects
involving market risks) as mentioned in question 27. The metro- • introduced a specialised department to encourage projects using
politan government of Tokyo has also established a framework for private funds.
public-private joint infrafunds in 2012 to encourage private invest-
ment in power projects. The public-private joint infrafund backed by the national govern-
The issuance of bonds to raise funding, however, is not often ment was established pursuant to the amended PFI law in 2013 for
seen in Japanese project finance transactions due to large initial the purpose of stimulating private investment in projects entailing
costs and relatively strict legal restrictions on the structure of bonds market risks (ie, concession type or non-government payment type
secured by project assets. projects) for certain periods (the fund is scheduled to be closed in
15 years). The national government has injected ¥10 billion to the
Public-private partnership legislation fund in fiscal year 2013, and the national government’s injection
will reach ¥30 billion in fiscal year 2014. In addition, the national
27 Has PPP enabling legislation been enacted and, if so, at what government secured ¥300 billion in fiscal year 2013 to provide gov-
level of government and is the legislation industry-specific? ernment guarantees to the private sector by extending loans to the
The Japanese PFI Law was enacted by the national government in fund, and the same amount will increase to ¥400 billion for fiscal
1999, with the goal of contributing to the sound development of year 2014. The fund can provide both equity and debt to qualified
the national economy by enabling the effective and efficient building projects.
of infrastructure and other public facilities through the use of pri-
vate sector capital, management skills and technical competencies, PPP – limitations
thereby ensuring a supply of relatively inexpensive and high-quality
services to the Japanese people. Public-private finance in Japan has 28 What, if any, are the practical and legal limitations on PPP
generally followed the PFI structure to date. transactions?
The PFI Law is a general law covering a wide range of public The limitations are the same as with other civil law countries – there
facilities including roads, railways, airports, parks and sewage facili- are a few existing laws and regulations in connection with manage-
ties, government facilities, medical facilities and information tech- ment of public facilities in Japan that are not necessarily consistent
nology and communication facilities. There are no industry-specific with the PFI scheme. Japanese PFI law is not intended to wholly
PFI or PPP laws in Japan. supersede such existing laws and regulations.
The PFI Law was amended in August 2005, due to certain issues The interplay between the public facility management laws (the
that began arising in the course of PFI projects under the law. The laws governing the management of public facilities belonging to the
scope of the amendments included: national, prefectural and municipal governments as well as those
• expanding the scope of transactions subject to the PFI Law to of the Japanese Self Defence Forces) and the PFI Law suggests that,
include operation-intensive projects; while the ultimate authority and responsibility for the operation of
• specifying that one of the purposes of the PFI Law was to ensure critical infrastructure facilities must remain with the relevant public
the efficient operation of the government and use of government agency charged with the administration of such infrastructure (eg,
land; the Ministry of Transport in relation to roads), the day-to-day oper-
• allowing third parties to sell or assign projects developed ation of such facilities can be outsourced to third-party providers
through PFI transactions to mitigate the risk of critical services such as the project company in a PFI structure. The amendment to
or project developments being interrupted; the PFI law in 2011 expanded the scope of the sector available to the
• increasing the importance of providing quality services (rather PFI scheme, as mentioned in question 27, and created a concession
than merely price) to evaluate the operators of facilities for out- system where the private sector can collect service fees or tolls from
sourcing; and the end users. However, in respect of toll roads, the necessary amend-
• revising the bidding process and documentation to lower document to the Act on Special Measures concerning Road Construction
mentation and bid costs and thereby incentivise the use of PFI and Improvement, the act that governs toll rolls in Japan, which will
transactions. implement the concession system for toll roads, has not yet been
enacted, except for a few special cases. In addition, rules on the pub-
The PFI Law was further amended in 2011 and 2013. The amend- lic procurement and the budget under the Fiscal Law for national
ment in 2011 introduced a concession system. Under this new sys- government or the Local Autonomy Act for regional governments,
tem, private operators will be granted concession rights to manage approvals and scope of business under the various sector specific
public facilities in Japan (as opposed to merely operating them regulations or operational policies of the relevant authorities need
under the direction of the government) and are now able to set fees to be considered.
within a certain range and collect fees directly from users as their
own income. This right can be mortgaged and amortised over the PPP – transactions
contract period, adding to the ease in which such operators will be
able to obtain financial accommodation from lenders. Further, pri- 29 What have been the most significant PPP transactions completed
vate operators benefit from exemptions to municipal taxes on real to date in your jurisdiction?
estate through ownership of such rights. As previously mentioned, 15 years have passed since the PFI Law
In addition to the introduction of the concession system, the was enacted.
amendment in 2011 also: According to the PFI Promotion Department of the Office of the
• increased the range of facilities in relation to which PFI projects Cabinet, there have been 428 project policies announced up to the
may be carried out (including rental housing and transportation end of September 2013. This includes 69 national government PFI
such as ships, aircraft and satellites); projects (these include the Haneda International Airport passenger
• introduced a system whereby private businesses are encouraged terminal, cargo terminal and apron PFI, and the PFI project for the
to develop and submit their own proposals (non-solicitation construction of new buildings for the House of Representatives and
projects); the House of Council) and 362 local government and government-
• introduced a system for the secondment of government officials related organisation PFIs (some projects are run by both national
to the private sector in order to share public sector know-how; government and local government or government-related organisa-
and tions and as such, the total number of project policies above does not

PFIs). Sector-wise, PFI projects include museums, libraries, aquari-

Update and trends ums, government office buildings, university buildings, schools,
water treatment facilities, school lunch preparation facilities, prisons
In 2013, the PFI Promotion Department of the Office of the Cabinet and hospitals. Most of these, however, are BTO-type projects focus-
set a target amount of PFI/PPP projects of ¥10,000 to ¥12,000
billion during the 10 year period between 2013 to 2022, which is a
ing on construction of the public facilities where private investments
significant leap considering the same amount during the previous will be recouped by service payments paid by the relevant govern-
14 years from 1999 to 2013 was ¥4,120 billion. This target is ment or governmental entities. The Haneda International Airport
set on the assumption that concession or non-government service project is a notable example of a non-government payment type
payment type PFI/PPP projects will be well established in the BOT project in Japan.
coming years and, as a result, the implementation plan for the
Sendai Airport concession project was published in April 2014. In The PPP model, other than the projects under the PFI law, is not
addition, the public procurement procedure for the concession of yet prevalent in Japan. The Nakano Sun Plaza reconstruction project
Kansai International Airport is already on the move. Reportedly, the in 2004 became the first project finance transaction in Japan to fol-
concession price of Kansai International Airport could reach up to low the PPP model.
over ¥1,000 billion.
Under the new PFI law, which introduced the relevant conces-
sion system, PFI schemes are expected to be used for several new
areas such as transportation and water projects as mentioned in
correspond to the sum of the figures for national government PFI question 27. A couple of concession projects for national airports
projects and local government or government-related organisation are also underway.
Naoaki Eguchi naoaki.eguchi@bakermckenzie.com

Gavin Raftery gavin.raftery@bakermckenzie.com
Yasuhisa Takatori yasuhisa.takatori@bakermckenzie.com
Ark Hills Sengokuyama Mori Tower 28th Floor Tel: +81 3 6271 9400
1-9-10 Roppongi, Minato-ku Fax: +81 3 5549 7724
Tokyo 106-0032 www.bakermckenzie.co.jp
Japan www.bakermckenzie.com/japan
JORDAN Ali Sharif Zu’bi Advocates & Legal Consultants CPSC
Jordan
Khaled Asfour, Leena Nusseir and Dima Khuffash
Ali Sharif Zu’bi Advocates & Legal Consultants CPSC
Creating collateral security packages A date certain is obtained automatically upon the filing of mortgage
deed with the relevant registry department and therefore no notari-
1 What types of collateral are available? sation is needed.
Typically, a project finance transaction involves taking security in the
following types of collateral: Shares and securities
• moveable assets: namely furniture, equipment and machinery. It Shares and securities are pledged through filing a pledge deed with
should be noted that registrable moveable assets are not usually the relevant issuer and registry. If the company is not public, then
considered as ‘moveable’ per se; filing must be done with the controller of companies at the Ministry
• real estate, including land and buildings as long as they are of Industry and Trade. If the company is public, then filing must be
owned by the borrower, as security cannot be granted over real done with the Securities Depository Centre. The pledge deed would
estate that is leased from a third party; need to be notarised to get a date certain.
• registrable moveable assets, such as vehicles, ships and aircraft;
• shares and securities; Assignment of contracts
• assignment of contracts, including leases, construction contracts, Assignment of contracts are effected through the execution of an
offtake agreements, insurances, reinsurances, etc; and assignment agreement, which lists the documents to be assigned.
• bank accounts, both onshore and offshore. A notice of assignment is issued to each counterparty, who in turn
needs to consent to the assignment. Both the notice of assignment
and consent need to get date certains through notarisation.
Bank accounts
Bank accounts can be secured in one of two ways: for a fixed deposit
through a pledge agreement that is executed in front of a notary and
notified to the relevant bank, or through an assignment agreement
(see question 5), which effectively means that the bank account con-
Moveable assets verts to the name of the lender.
Moveable assets are mortgaged mainly through a possessive mort- In all these types of collateral, priority would be to the first
gage agreement, which involves, in principle, the handover of the notarised if no filing is required or to the first filed if filing is required.
assets to a third-party trustee called the Adel. The Adel is allowed to Stamp duties are payable on all agreements either at the rate
hand back the assets on an Iarah (loan) basis to the borrower for use. of 0.6 per cent of the value of the agreement or 0.3 per cent of the
The handover is documented through a separate agreement, which value of the agreement depending on the nature of the agreement
is typically called the Adel Appointment Agreement. Both the pos- and whether a governmental entity is a party to the agreement.
sessive mortgage agreement and the Adel Appointment Agreement
would need to get a date certain through notarisation (and if exe-
cuted outside Jordan, through legalisation through the Jordanian 3 How can a creditor assure itself as to the absence of liens with
embassy). A recent ‘floating charge’ law has been enacted that allows priority to the creditor’s lien?
the placement of a floating charge over all moveable assets including Yes, as long as there is a registry for the relevant asset. If there is no
bank accounts. Such a floating charge would have a lower priority registry, as in the case of possessive mortgages of moveable assets
than a possessive mortgage even if it precedes it. A financing state- or assignments of contracts, then there is no way to check whether
ment would need to be filed with the relevant pledgor’s file at the there are other liens that have priority.
controller of companies department at the Ministry of Industry and
Trade.
Real estate
Real estate is mortgaged through the execution of a mortgage deed at
the relevant land registry department. A ‘fill-in-the-blanks’ standard Self-help remedies are not available in Jordan. A secured creditor
form adopted by the land registry is used and cannot be amended. would need to go through the courts to enforce its rights. This can
be done in two ways:
Registrable moveable assets • through a summary proceeding at the relevant court’s execu-
Registrable moveable assets are mortgaged at the relevant registry tion department, where the security instrument is submitted for
department. In certain cases, there is a standard form (eg, vehicles), enforcement. The owner of the collateral can object within a few
in others the parties are free to adopt their own form (eg, aircraft). days on one of two bases: it can deny the existence of the debt
or deny the genuineness of its signature. If the owner objects in

Ali Sharif Zu’bi Advocates & Legal Consultants CPSC JORDAN
either of these ways, the creditor would have to file a full law- Given that there are two main pieces of legislation dealing with
suit. If the court eventually determines that the objection of the insolvency and liquidation, it should be noted that transactions
owner of the collateral is improper, fines would be imposed on entered into (i) three months prior to the formal commencement of
it, which are payable to the government; or liquidation proceedings against a project company (namely, in the
• a full lawsuit to claim the amounts due and force the sale of the case of voluntary liquidation, at the time of the extraordinary gen-
collateral. eral assembly of the party taking the decision to liquidate or, in the
case of obligatory proceedings, upon the issuance of a court order
declaring the liquidation) shall be considered void only with respect
to the amounts that exceed the amounts paid to the project company
pursuant to these transactions when concluded or thereafter in addi-
tion to the legal interests thereon, unless the project company has
proved its ability to settle all its debts after the closing of the liquida-
tion process; or (ii) after the date on which the project company has
become unable to settle its debts as determined by the court or 20
days prior thereto shall be considered void.
Governmental entities established by special laws are excluded
from regular bankruptcy and liquidation proceedings, and are dis-
Following the commencement of bankruptcy proceedings, lenders solved pursuant to the provisions of the special laws under which
may not enforce their rights over collateral; settlement of secured they were established.
debts shall be made through the receiver. The receiver pursues the Other than the appointment of a receiver to seize the assets of
following priority order when satisfying the debts of the project the project company in an enforcement, there is no other way to
company: seize the assets of the project company. In fact, Jordanian law also
• payment of a one month’s salary to every employee or his or her provides for a stay order by virtue of which all cases filed or pro-
heirs in accordance with the provisions of the Labour Law No. cedures taken against the project company are suspended and new
8 of 1996; proceedings or judicial procedures are not be pursued if filed against
• liquidation expenses including the receiver’s fees; the project company.
• sums due to employees of the insolvent company; There is no differential treatment of claims of foreign creditors
• sums due to the public treasury and municipalities such as taxes from the claims of local creditors.
and fees;
• rent due to the owner of any immoveable property leased to the Foreign exchange issues
insolvent company;
• amounts secured by virtue of mortgage and pledge deeds over 6 What are the restrictions, controls, fees, taxes or other charges
moveables or immoveables as per their priority based on the on foreign currency exchange?
date of perfecting the mortgage or pledge; and Although the laws of Jordan allow the Central Bank of Jordan to
• amounts due to the creditors in accordance with their respective regulate and place restrictions on foreign currency, there are cur-
rights of priority as set out in the Civil Code unless granted more rently no restrictions on the transfer of local or foreign currency in
senior priority by virtue of special laws. It is worth noting that a Jordan. The Central Bank of Jordan, however, sets the exchange rate
special privilege right is usually applicable to a specific asset of of the Jordanian dinar against major currencies.
the debtor’s property while general privilege rights are applica-
ble to all the debtor’s property.
Based on the above, a secured party will be able to claim its secured of investment returns or payments of principal, interest or
debt through a receiver if the collateral created and perfected under premiums on loans or bonds to parties in other jurisdictions?
Jordanian law was of a higher rank than ordinary unsecured obliga- There are no restrictions on the transfer of local or foreign currency
tions of other creditors, but such a secured debt shall also be settled in Jordan. Accordingly, investors or lenders are free to transfer their
after settlement of the special privilege rights, which have a higher investment returns or payments of principal, interest or premiums
priority as delineated above. on loans or bonds to parties in other jurisdictions, subject to the
As for clawback rights, and since such rights differ depending on usual bank charges. Moreover, the Investment Law 2003 guaran-
the type of procedures followed, it is important to highlight that the tees the ability of foreign investors to repatriate their investments in
project company may be dissolved in the event of the occurrence of Jordan and profits thereon as long as such investments were made
any of the following circumstances: and transferred legally through the banking system.
• compulsory liquidation pursuant to the Companies Law;
• insolvency procedures under the Commercial Code; and
• voluntary liquidation pursuant to the Companies Law.
The concepts of liquidation and insolvency differ. Under the insol-
vency procedures the court and the receiver of the estate will attempt There are no such restrictions.
to reach simple composition with the creditors and continue the
operations of the company or otherwise dissolve the project com- 9 May project companies establish and maintain foreign currency
pany. In the case of liquidation, the objective is the dissolution of the accounts in other jurisdictions and locally?
company and there are no procedures for composition with credi-
Yes.
tors prior to liquidation.
Foreign investment issues With respect to taxes on foreign investment in projects in

Jordan, there is no distribution tax on dividends in Jordan. However,
10 What restrictions, fees and taxes exist on foreign investment in or any payments of interest by project companies to its non-Jordanian
ownership of a project and related companies? Do the restrictions lenders would be subject to a withholding tax at the rate of 7 per
also apply to foreign investors or creditors in the event of cent if such payments are made out of the custom territory in Jordan
foreclosure on the project and related companies? Are there and at the rate of 10 per cent if such payments are made out of the
any bilateral investment treaties with key nation states or other Aqaba Special Economic Zone. Additionally, any payments that are
international treaties that may afford relief from such restrictions? not exempt from income tax and that are made by residents to non-
Would such activities require registration with any government residents are also subject to the withholding tax delineated above.
authority? Interest payments made by a project company to its non-Jorda-
The following restrictions apply to foreign investment in Jordan: nian financiers would also be subject to a sales tax at the rate of 16
• non-Jordanian ownership in certain sectors is restricted to 50 per cent. This sales tax would be payable by the importer of goods
per cent (eg, trading) and in other sectors to 49 per cent (eg, wet or services.
lease of aircraft); A project company that is established in Jordan would be sub-
• foreign investment is totally restricted and is not allowed in the ject to income tax at the applicable rate where in most sectors such
following sectors: a rate is 14 per cent.
• transport of passengers and goods on roads;
• quarries for natural sand, dimension stones, aggregates and
construction stones used for construction purposes;
• security and investigation services;
• sports clubs, including the organisation of sports events ser-
creditors?
vices but excluding health and fitness clubs services; and
• clearance services; Insurance over assets and liability in Jordan must be obtained through
• the minimum shareholding of any non-Jordanian in any project insurance companies licensed to operate in Jordan. Reinsurance
is 50,000 Jordanian dinars except in the case of investment in a with foreign reinsurance companies is allowed. Insurance policies
public shareholding company; and may be payable to foreign secured creditors.
• every foreign shareholder must submit proof of transfer of the
total foreign shareholding in convertible currency into a bank 12 What restrictions exist on bringing in foreign workers, technicians
account opened in Jordan prior to the Controller of Companies or executives to work on a project?
providing a final approval for registration of the company and
issuance of a registration certificate, or to effecting the transfer A foreign worker must hold a valid work and residency permit in
of shares to a non-Jordanian shareholder, as the case may be. order to work in Jordan. The Labour Law requires employers to
employ locals unless it can be substantiated that local expertise is
The above restrictions apply to foreign investors in the case of fore- not available or sufficient.
closure on a project.
There is a bilateral treaty between the United States and Jordan 13 What restrictions exist on the importation of project equipment?
(Treaty Concerning the Encouragement and Reciprocal Protection
There are no particular restrictions except the usual restriction on
of Investment 1997 (the Treaty)). The Treaty lifts the restriction on
hazardous, pharmaceutical and other sensitive materials and equip-
US investments in Jordan with the exception of certain sectors as
ment and as long as the equipment meets any published applica-
stipulated in Annexe 1 to the Treaty, including, but not limited to,
ble standards. Import duties and sales taxes apply at different rates
investments by non-Jordanians below US$50,000.
depending on the type of materials and, where an investment treaty
The Euro-Mediterranean Agreement establishing an associa-
applies, on the source of such equipment.
tion between the European Communities and their member states
of the one part and the Hashemite Kingdom of Jordan of the other
part also affords relief from the restrictions on foreign investment 14 What laws exist regarding the nationalisation or expropriation
by member states. of project companies and assets? Are any forms of investment
The above would apply when a project company needs to be specially protected?
established with the Companies Control Department since under- Nationalisation and expropriation cannot occur unless there is fair
taking any commercial activity in Jordan requires registration of an compensation. The expropriation of immoveable assets is governed
entity pursuant to the Companies Law. The fees associated with reg- by the Expropriation Law No. 12 of 1987.
istration of the project company would not be affected, given that
there is non-Jordanian participation therein. Such fees would depend Fiscal treatment of foreign investment
on the type of company to be established. In addition to such fees a
stamp duty ranging from 0.3 per cent to 0.6 per cent is payable on 15 What tax incentives or other incentives are provided preferentially
the articles and memorandum of association of the project company. to foreign investors or creditors? What taxes apply to foreign
There are certain restrictions on the ownership of immoveable investments, loans, mortgages or other security documents,
property by non-Jordanians where certain approvals have to be either for the purposes of effectiveness or registration?
sought depending on the area of the land and the objective behind The Investment Law 2003 grants certain import duty and sales tax
such ownership. There are similar restrictions with respect to taking exemptions on imports for qualified project, usually for a period of
on lease lands that exceed 10 dunums (1 dunum = 1,000 square three years from the date of approval with respect to the equipment
metres) and for a period of over three years where certain approvals needed for the construction of the project.
have to be additionally procured. Projects established in the free zones and special economic zones
may also benefit from income tax exemptions or lower rates.

Government authorities However, pursuant to article 117 of the Jordanian Constitution,

any privilege or concession granted with respect to investment in
16 What are the relevant government agencies or departments with minerals or public facilities must be ratified by law and therefore
authority over projects in the typical project sectors? What is the approved by Parliament and a mining right approved by the Council
nature and extent of their authority? What is the history of state of Ministers as indicated above, shall not suffice in this case.
ownership in these sectors? With respect to water, a drilling licence can be granted by the
Oil and gas and mineral extraction Ministry of Energy and Mineral Water Authority of Jordan in addition to what is known as an
Resources (MEMR) extraction licence. Drilling licences are valid for one year and may be
Ministry of Industry and Trade renewed once for a further year. An extraction licence does not have
(Standards and Measure Department) a validity term but annual renewal fees are applicable. The Water
Chemical refining Ministry of Industry and Trade Authority of Jordan may specify the amount that can be extracted
(Standards and Measures per annum.
Department)
Water treatment Ministry of Water and Irrigation
Water Authority of Jordan
Jordan Valley Authority
Power generation and transmission Ministry of Energy and Mineral
Royalty fees are specified in Jordanian dinars per ton in the Mining
Resources; and Quarries Fees Regulation No. 86 of 2002 and are calculated
Electricity and Minerals Regulatory depending on the quantity of mineral mined. Such a royalty varies
Commission (EMRC) depending on the type of mineral mined. It is usually the case that
Transportation Ministry of Transport the royalty is calculated on all minerals mined on an annual basis.
Public Transport Commission
A mining licence is for a period not exceeding 30 years. The
licence itself will not be reissued but an annual licence fee will be
Greater Amman Municipality
applicable. There is an annual mining licence fee amounting to 500
Ports Aqaba Special Economic Zone
Jordanian dinars per square kilometre or any part thereof. Other
Authority
specified fees apply to quarries and mining manufactured and non-
Telecommunications Ministry of Telecommunications
manufactured raw materials depending on the type of raw material
Telecommunications Regulatory mined.
Authority
With respect to the exploration licence fee, the amount is 200
Jordanian dinars per square kilometre or any part thereof for the
first year and 300 Jordanian dinars is payable upon renewal of the
17 Who has title to natural resources? What rights may private licence.
parties acquire to these resources and what obligations does the The fees for the issuance of a water-drilling licence amount to
holder have? May foreign parties acquire such rights? 1,750 Jordanian dinars, representing the following:
• a licence fee of 1,000 Jordanian dinars;
All natural resources existing within the borders of the Hashemite
• supervision fees on drilling of the well: 500 Jordanian dinars;
Kingdom of Jordan, whether found on the surface, underground or
• description of rock samples: 100 Jordanian dinars;
in territorial waters, rivers and internal seas, are state owned and
• fees for the water extraction licence: 100 Jordanian dinars; and
may not be exploited, transported or traded in without the approval
• site inspection and fixing of the location of the well: 50 Jordanian
of the chairman of MEMR/EMRC pursuant to the Organisation of
dinars.
Natural Resources Affairs Law No. 12 of 1968 and after procuring
a mining right in the relevant area.
The annual fees for renewing the water extraction licence amount to
There are other rights that MEMR/EMRC may grant prior to
50 Jordanian dinars.
reaching the mining stage and these include the following:
A separate fee of 250 Jordanian dinars is payable for supervising
• prospecting rights: ‘prospecting’ means any investigation, aer-
the pumping test. Once water is extracted, the licensee has to pay
ial survey, or ground survey in any area determined with the
a fee amounting to 250 Jordanian fils per cubic metre of extracted
approval of the chairman of MEMR/EMRC with a view to
water.
ascertaining the existence of minerals or rocky materials therein.
If drilling is not completed within one year and an application
Prospecting also includes consultation as well as economic, tech-
for renewal of the drilling licence is submitted prior to the expiry of
nical and geological surveys;
the one year term, a renewal licence fee of 500 Jordanian dinars is
• exploration rights: ‘exploration’ means any work relating to
payable by the licensee. However, if the renewal application is sub-
investigation and exploration of minerals and rock materials
mitted after the expiry date of the original licence, the renewal fees
for the purposes of ascertaining their existence and determin-
will amount to 1,000 Jordanian dinars.
ing their quantities and qualities including drilling, excavation,
There is no distinction between royalties on extraction payable
assaying and necessary detailed examination; and
by foreign and local investors.
• discovery rights: ‘discovery’ means the announcement of the
existence of a mineral or minerals in exploitable quantities, to be
submitted to the chairman of MEMR/EMRC by the discoverer, 19 What restrictions, fees or taxes exist on the export of natural
at a site located on the set technical maps after obtaining permits resources?
from the concerned authority for exploring or prospecting for The Mining and Quarries Fees Regulation specifies the fees appli-
minerals. cable for exporting manufactured and non-manufactured mined
raw material and there are other fees for local consumed applicable
Foreign nationals may not be granted exploration permits, prospect- mined raw materials. The said fees vary depending on the type of
ing licences or mining rights except according to special agreements mineral mined and is payable on every ton mined or part thereof.
concluded by MEMR/EMRC based on the approval of the Council The competent authorities may not allow export of min-
of Ministers in accordance with the laws and regulations in force. eral resources that are specified under the Mining and Quarries
Fees Regulation without a certificate issued by MEMR/EMRC
evidencing that the applicable fees have been paid on the quantity (vi) if the judgment was given on a cause of action that would not
to be exported. be entertained by Jordanian courts because either it is contradic-
tory to public order or to public morality; or
Legal issues of general application (vii) the laws of the jurisdiction of the court (or tribunal) that passed
the judgment (or award) do not recognise and enforce judg-
20 What government approvals are required for typical project finance ments (or awards) of Jordanian courts (or tribunals).
No specific approvals are necessary. If the project involves an agree- By agreeing in the transaction documents to the jurisdiction of the
ment with the government then such an agreement would need to English and New York courts, it is our opinion that the circum-
be approved by the Council of Ministers and, if such an agreement stances set out in (i) and (ii) will not apply.
involves a concession over a public asset, then also by Parliament. Jordan is a member of the ICSID Convention and the Convention
If the project seeks certain tax exemptions, then approval of the on the Recognition and Enforcement of Foreign Arbitral Awards
Council of Ministers or the Jordan Investment Board, or both, as the (the New York Convention).
case may be, will be required.
No specific fees apply.
21 Must any of the financing or project documents be registered or Which matters are governed by domestic law?
Whenever the government is party to a project agreement, Jordanian
law is the most prevalent. Otherwise, New York or English law have
A document need not be notarised or be in a specific language in also been used.
order to be valid and enforceable in Jordan. However, security docu- Financing agreements are usually effected in Jordanian, New
ments would need to be notarised in order to get a date certain that York or English law, which is governed depending on the national-
would establish priority. If notarised outside Jordan, the document ity of the lenders. Security documents involving security over assets
would then need to be legalised by the Jordanian embassy in the located in Jordan would have to be governed by Jordanian law.
country where the notarisation occurs and then further legalised by Certain provisions of Jordanian law are also considered a matter of
the Jordanian Ministry of Foreign Affairs and Ministry of Justice public policy and therefore apply notwithstanding any agreement
in Jordan. If the document is to be notarised in Jordan or filed with (eg, in relation to tort liability and liability of contractors).
a Jordanian government department, then it must be in Arabic or
accompanied by a notarised Arabic translation.
See the answer to question 2 for information on the security 24 Is a submission to a foreign jurisdiction and a waiver of immunity
documents that are required to be filed or registered. effective and enforceable?
With respect to the project documents, land lease agreements Yes. However, a waiver by the government or any of its instruments
should be filed with the relevant municipality or the land registra- of immunity from execution against assets located in Jordan would
tion department, or both. Construction contracts should be regis- be invalid.
tered with the Jordanian Construction Contractors Association by
each contractor. If the contractors are non-Jordanian, the Council Environmental, health and safety laws
of Ministers’ approval of the appointment of the contractors should
also be obtained prior to the implementation of the construction 25 What laws or regulations apply to typical project sectors? What
and failure to obtain such approval could render the construction regulatory bodies administer those laws?
contract void. The applicable environmental law in Jordan is the Environment
Protection Law No. 52 of 2006, which came into force on 16 October
2006 and it replaced the Provisional Environment Protection Law
2003. This law repealed its predecessor, the Environmental Law
of the ICSID Convention or other prominent dispute resolution No. 12 of 1995. The Ministry of Environment is the authority that
conventions? Are any types of disputes not arbitrable? Are any administers the Environment Protection Law and the regulations
types of disputes subject to automatic domestic arbitration? and instructions issued thereunder.
One regulation and nine instructions were issued pursuant to
Any judgment obtained in the courts of a foreign jurisdiction the Environment Protection Law No. 52 of 2006:
in respect of the transaction documents, as well as any arbitral
• the Regulation of Environmental Supervision and Inspection
award, will be enforceable in the courts of Jordan without retrial
No. 65 of 2009;
or re-examination of the merits of the case except in the following
• Instructions on the Control of the Use, Import and Re-export of
circumstances:
the Materials Distressing the Ozone Layer and the Systems and
(i) if the court that gave the said judgment had no jurisdiction;
Equipment of 2013;
(ii) if the judgment-debtor had not carried his or her business within
• Instructions on the Selection of Sites for Developmental Activities
the jurisdiction of the court that gave the judgment or if he or
of 2012;
she was not residing within its jurisdiction and did not voluntar-
• Instructions on Environmental Auditing of 2010;
ily appear before the court and did not submit to its jurisdiction;
• Instructions on the Categorisation of Different Facilities
(iii) if the judgment-debtor was not served with a notice to attend
According to its Dangerousness to the Environment of 2010;
by the court that gave the judgment and did not appear before
• Instructions on the Organisation of the Storage, Transport and
the court although he or she was residing or carrying his or her
Treatment of Organic Fertiliser and Trading with Same of 2009;
business within its jurisdiction;
• Instructions on Biological Safety of Living Organisms of 2009;
(iv) if the judgment has been obtained by fraud (as determined by
• Instructions on Granting Prior Approval of Licensing or
the Jordanian court);
Renewal of Licence for Environmental Organisations of 2008;
(v) if the judgment-debtor established to the satisfaction of the
and
court that the judgment has not yet become final;
• Instructions on Sandblasting of 2007.

Seven regulations were issued pursuant to the Provisional Project companies

Environment Protection Law 2003, all of which are still in force
under the Environment Protection Law No. 52 2006 and these are: 26 What are the principal business structures of project companies?
• the Regulation of Management and Transport of and dealing What are the principal sources of financing available to project
with Dangerous and Hazardous materials No. 24 of 2005; companies?
• the Regulation of Management of Solid Waste No. 27 of 2005; Project companies tend to be one of three types: limited liability
• the Regulation of Protection of the Environment from Pollution company, private shareholding company and public shareholding
in Emergency Circumstances No. 26 of 2005; company. For major projects, a private shareholding company is the
• the Regulation of Protection of the Soil No. 25 of 2005; most prevalent.
• the Regulation of Protection of the Air No. 28 of 2005; The following is a summary of each.
• the Regulation of Assessment of Environmental Impact No. 37
of 2005; and Limited liability company
• the Regulation of Nature Reserves and National Parks No. 29 A limited liability company (LLC) is the most basic Jordanian com-
of 2005. pany structure. It is mainly governed by a set of rules set out in the
Companies Law that are usually reflected in standard form appli-
Three relevant instructions were also issued pursuant to the provi- cation form and recommended articles of association and memo-
sional law 2003: randum of association. The standard form articles of association
• Instructions on the Management of and Dealing with Dangerous and memorandum of association cannot be amended in any major
Waste 2003; way. An LLC cannot list or trade its shares publicly. Only one class
• Instructions on the Management of and Dealing with Consumed of shares is possible. The minimum capital of 1 Jordanian dinar is
Oils 2003; and required in Jordan and at least 50 per cent of it must be paid at reg-
• Instructions on the Limitation of and Safeguarding from Noise istration with the remaining 50 per cent within two years of registra-
2003. tion. The LLC may be managed either by a single managing director
or by a board of directors consisting of two to seven members.
There are other laws that incorporate provisions regulating cer-
tain environmental aspects as well, such as the Standards and Private shareholding company
Specifications Law No. 22 of 2000, the Water Authority Law, and A private shareholding company (PSC) can be structured in any
the Criminal Code and the regulations and instructions issued pur- manner that the investor wishes. It can have different classes of
suant thereto. shares that differ in their nominal value, voting rights and otherwise.
With respect to health and safety, chapter 9 of the Labour Law The minimum subscribed share capital is 50,000 Jordanian dinars.
No. 8 of 1996 deals with safety and occupational health and the A PSC, pursuant to its memorandum of association, may issue vari-
Ministry of Labour is the authority that administers occupational ous types and classes of shares. It is managed by a board of directors.
health and safety matters. The Ministry of Health could also be
involved in health related issues. Public shareholding company
The following regulations, instructions and resolutions dealing A public shareholding company (PLC) should list its shares on the
with occupational health were issued pursuant to the Labour Law: Amman Stock Exchange. However, a public shareholding company
• the Regulation for the Protection and Safety with respect to may not submit an application for listing all of its subscribed shares
Industrial Machines No. 43 of 1998; on the second market except after the passage of, at least, one year
• the Regulation for the Formation of the Occupational Safety from the date of obtaining the right to commence its business. The
and Health Supervising Committees No. 7 of 1998; founders cannot dispose of their shares until two years have passed
• the Preventive and Curative Health Care Regulation No. 42 of following registration. The minimum authorised capital is 500,000
1998; Jordanian dinar shares of 1 Jordanian dinar each. The subscribed
• the Instructions on the Periodical Medical Test for Employees at capital must be at least 100,000 Jordanian dinars or 20 per cent of
Establishments 1999; the authorised capital and must be fully paid upon registration. The
• the Instructions on the Preliminary Medical Test for Employees remaining authorised capital must be fully subscribed within three
at Establishments 1999; years of registration. Registration is complicated and requires the
• the Instructions for the Protection of Employees from the preparation of an approved prospectus.
Hazards of the Work Environment 1998; Financing is usually made through equity or loans from banks.
• the Resolution Relating to the Methods and Tools of Medical Taping the capital markets is almost non-existent for project finance.
Assistance for Work in the Establishments 1997 issued pursuant
to article 87 of the Labour Law; Public-private partnership legislation
• the Resolution on the Adoption of A Medical Reference 2002
issued pursuant to article 2 of the Labour Law; 27 Has PPP enabling legislation been enacted and, if so, at what
• the Resolution issued by the Minister of Labour specifying the level of government and is the legislation industry-specific?
Times in which Putting Women to Work is Prohibited 2010 Jordan does not have a single piece of legislation dealing specifi-
issued by the Minister of Labour pursuant to article 69 of the cally with concessions or incorporating the legal framework for PPP.
Labour Law; and However, Regulation No. 80 of 2008 for Implementing Privatisation
• the Resolution Pertaining to Dangerous Works or Works that Transactions (PR) issued in pursuance of the Privatisation Law No.
are Detrimental to Juveniles 2011 issued by the Minister of (25) 2000 (PL) (PL and PR shall collectively be referred to here as the
Labour pursuant to article 74 of the Labour Law. Law) and although they do not deal specifically and exclusively with
PPP, they allow all types of PPP in most sectors other than mining.
However, and in addition to the Law, some sectors have sector- • PPP and the Law in its entirety are not for the benefit of Jordan.
specific laws, which allow the relevant authority in such sectors to Jordan through PPP or the privatisation regime is selling vital
by-pass PL and PR when implementing PPP in its sector. For exam- assets that should remain under the direct control of the state;
ple, the Water Authority Law No. 18 of 1988, the Law of Electricity and
and Minerals Regulatory Commission No. 64 of 2002 and the • the government should be directly in control of certain sectors
Telecommunications Law No. 13 of 1995 deal with PPP with respect including education and health.
to the water, electricity and telecommunication sectors, respectively.
As for mining, there is no single legislation or group of legislations In light of the above, there is significant pressure on the government
that deals with concessions or PPP relating to the same other than from the public that the educational and health sectors of Jordan
the general principle for concessions stipulated under article 117 of should be under the direct control of the state. Therefore, even
the Jordanian Constitution. though the laws do not specifically restrict ownership of such sec-
Additionally, and as indicated above the Law for the Regulation tors by the private sector, the government is not awarding any PPP
of Natural Resource Affairs No. 12 of 1968 grants MEMR/EMRC or other forms of privatisation in such sectors.
the power to grant the private sector with mining licences. The
Mining Regulation No. 131 of 1966 sets out the general framework PPP – transactions
for granting such licences that allows MEMR/EMRC to grant the
licence without the need to go through the procedure set out in the 29 What have been the most significant PPP transactions completed
Law. Therefore, it is not clear how the Law interrelates with sector- to date in your jurisdiction?
specific laws creating issues on whether or not the Law applies. The most significant PPP transactions completed to date are:
• the Samra Waste Water Treatment Plant – the first major PPP
PPP – limitations transaction, which won an award for project finance transaction
of the year in the Middle East;
28 What, if any, are the practical and legal limitations on PPP • the renovation and expansion of Queen Alia Airport in Amman;
transactions? • the Disi water conveyance project; and
There are currently social and political obstacles to implementing • various independent power producer (IPP) projects.
PPP. Some social and political pressures claim the following:
• the agreements made pursuant to PL and PR alone are unconsti-
tutional as such agreements were not ratified by a separate law
pursuant to article 117 of the Constitution;
Khaled Asfour khaled.asfour@zubilaw.com

Leena Nusseir leena.nusseir@zubilaw.com
Dima Khuffash dima.alkhuffash@zubilaw.com
14 Ibn Al-Faredh St Tel: +962 79 841 5555

Shmeisani Fax: +962 6 463 4277
Amman www.zubilaw.com
Jordan

DFDL LAOS
Laos
Walter Heiser, David Doran and Duangkamol Ingkapattanakul
DFDL
Creating collateral security packages For such existing security documents, the five-year validity period
commenced on 20 June 2012.
1 What types of collateral are available? Perfection grants the secured party a first priority security inter-
In Laos, the types of collateral available for secured transactions, est over the collateral set out in the security agreement with priority
including those used in a project finance setting, are set out in the over all unsecured claims, unregistered security interests and sub-
Secured Transactions Law and the Secured Transactions Decree. sequent registered security interests. Multiple liens may be granted
These provide for three forms of security pursuant to contract: secu- over the same assets with the exception of liens provided via a pledge
rity over moveable assets; security over immoveable assets; and secu- of ‘documents’. Subject to any subordination agreement, seniority
rity by another person or legal entity (namely, a guarantee). of liens is determined by the date of registration as evidenced by
The following types of moveable assets are available as collat- the date stamp of the registry on the document. Security interests
eral: material and tangible items; documents certifying a right of granted by law (eg, tax claims, wage claims and ‘lien rights’ (akin
ownership such as share certificates and bonds; goods in a ware- to a ‘mechanic’s lien’)) have priority over security interests pursuant
house; intangible assets such as shares in a company; intellectual to contract.
property; bank savings accounts; contractual rights; receivables; It is standard practice in large infrastructure financings in Laos
benefits under an approval; permission to conduct business opera- for an onshore agent or trustee to hold collateral as the secured party
tions; and future assets or gains. Land and buildings are the types on behalf of the project lenders.
of immoveable assets that are available as collateral. Security by
a third-party guarantor is also provided for under the Secured
Transactions Law.
The Contract and Tort Law also contains provisions affecting
contracts generally, including secured transactions. The leasing of Security interests over immoveable assets (namely, land) are often
equipment and other assets is also contemplated by the Contract indicated on the back of the land title certificate for such assets, pro-
and Tort Law with specific requirements set out in the Decree on vided that security interests have been properly registered with the
Financial Leasing. MoNRE. A review of the land title certificate relating to the asset
in question should provide some assurance to a creditor as to the
absence of competing liens.
2 How is a security interest in each type of collateral perfected Security interests over all other types of assets must be registered
and how is its priority established? Are any fees, taxes or other with the SAMD. A creditor can attempt to determine the absence of
charges payable to perfect a security interest and, if so, are there liens with priority to that creditor’s lien by consulting the records
lawful techniques to minimise them? May a corporate entity, in at the SAMD. However, in practice, the SAMD has limited capacity
the capacity of agent or trustee, hold collateral on behalf of the to ensure accurate records. The SAMD security registry is not well
project lenders as the secured party? maintained or centralised, and it is not indexed in a readily acces-
A security interest over any type of collateral is perfected when it sible manner, such as by the debtor’s name. An electronic registration
is registered at the State Assets Management Department (SAMD) system is contemplated but is not yet fully implemented.
of the Ministry of Finance, or, in the case of immoveable assets, at Multiple liens over the same asset are permitted with the excep-
the appropriate office or department of the Ministry of Natural tion of liens provided via a pledge of ‘documents’. Subject to any
Resources and Environment (MoNRE),provided that the following subordination agreement, seniority of liens is determined by the
conditions are met: the debtor and creditor have entered into a secu- date of registration as evidenced by the date stamp of the registry
rity agreement in which the characteristics and value of the secured on the document. In addition, security interests granted by law (eg,
assets is precisely defined; in the case of immoveable assets, the tax claims, wage claims and ‘lien rights’) have priority over security
security agreement is signed in the presence of three witnesses and interests pursuant to contract.
notarised at the Notary Office. The stipulated fees for the notari-
sation and registration of a security agreement must be paid and
the required stamp duties must be affixed. The notarisation process
requires a full Laotian language translation. The registration process
requires either a Laotian language summary or full translation.
Pursuant to the Secured Transactions Decree, security documents The Secured Transaction Decree requires that advance written
involving moveable assets are valid for five years only and must be enforcement notice be provided. In the case of immoveable assets,
re-registered every four years and nine months. This re-registration enforcement notices of 75 cumulative days must be provided to the
requirement applies also to existing registered security documents. debtor, other creditors with security in the same asset, the govern-
ment and the owner of the immoveable asset (if not the debtor) such
as a lessor. In the case of moveable assets, a 10-day enforcement
LAOS DFDL
notice must be provided to the debtor, other creditors with security Bank of the Lao PDR (BOL). The FX Decree further provides that
in the same asset and via mass media notice. As per the Secured foreign exchange can be used for specified purposes only, including
Transactions Law, in the case of guarantees, the creditor must make payment for import-export related services, repayment of foreign
prior demand to the debtor before enforcing the guarantee. source loans under a BOL-approved loan agreement, and repa-
Self-help remedies are not prohibited, provided that no law is triation or transfer of profits, dividends, capital interest, or salaries
violated in the exercise of the self-help remedy. Foreclosure by public by foreign investors to a third country, provided that such use is
auction, sale by the creditor or purchase by the creditor (upon pay- compliant with regulations issued by the BOL. Special fees or taxes
ing the debtor any excess in value over the outstanding principal are not imposed on foreign exchange transactions. In practice, for
and interest) are remedies authorised by the Secured Transactions relatively small cash transfers that fall within one of the permitted
Law but are not stated to be the exclusive remedies. No judicial sale categories, the ‘approval’ is handled by the local commercial banks.
is required. While Laotian law technically requires the use of the
Laotian kip in transactions (as discussed in question 6), in practice
many transactions are denominated or valued in foreign currency.
Dividends may be paid to foreign investors provided that tax and
wage obligations have been paid and the registered capital (stated
share capital) of the foreign shareholders has been fully paid in.
Pursuant to the Enterprise Law, dividends are payable only out of
‘net profit’ and no dividends may be distributed if accumulated
losses exist. In addition, the Enterprise Law requires an annual
reserve of 10 per cent of net profit until such reserve equals 50 per
cent of the registered capital. While this is an ‘accounting reserve’
rather than a ‘cash reserve’, the requirement will limit cash divi-
The Law on Bankruptcy applies to all insolvent enterprises located or dends to 90 per cent of annual net profit until the reserve has been
conducting business in Laos. General bankruptcy rules apply to both filled. De-capitalisation and liquidating dividends are restricted as
state and private companies. There are no extra-judicial processes any reduction in the registered capital requires a special resolution
authorised for the seizure of business assets. Upon commencement of shareholders, government approval and notice to all creditors as
of bankruptcy proceedings, no assets of the company (including well as repayment of any objecting creditor in full. However, pre-
secured assets) may be sold or transferred without approval of the ferred shares may be redeemed provided that the company has net
court and the Asset Supervision Committee. profits.
Secured creditors enjoy no special voting or other rights over The FX Decree permits the use of foreign currency for the
unsecured creditors during the bankruptcy proceedings and a reha- repayment of BOL-approved foreign-source loans. However, capital
bilitation plan may be approved by the vote of creditors representing to be repatriated may not exceed the capital brought into Laos as
at least two-thirds of the total debt and proposed to the court over evidenced by a capital importation certificate issued by the BOL.
the objections of the secured creditors. If no rehabilitation plan is Expatriate employees are also free to remit funds provided that taxes
approved by the court, the bankrupt company will be liquidated and debts are not in arrears. Payments of dividends, interest on loans
under the supervision of a liquidation committee appointed by the and bonds and profit from the sale of shares are subject to a with-
court. holding tax of 10 per cent. In practice, for relatively small cash trans-
The Liquidation Committee has the authority to clawback pre- fers that fall within one of the permitted categories, the ‘approval’ is
filing transfers resulting from ‘illegal contracts’ including, the dis- handled by the local commercial banks.
counted sale of assets, security granted for antecedent debts and the
transfer of assets to relatives, friends and insiders. There is no cut-off
date limiting such clawback rights. 8 Must project companies repatriate foreign earnings? If so, must
The shareholders of a company may also elect to dissolve and they be converted to local currency and what further restrictions
liquidate the company outside of bankruptcy proceedings under exist over their use?
procedures set out in the Enterprise Law. In this case, the liquidator Lao project companies may use offshore bank accounts only upon
would be appointed by either the shareholders or the court. prior BOL approval. Without BOL approval of use of an offshore
In liquidation under either the Law on Bankruptcy or the bank account to hold foreign revenues, such revenues would need to
Enterprise Law, secured debts (in order of seniority) take priority be repatriated. If foreign revenues are repatriated, there is no require-
over unsecured debts and distributions to preferred and common ment to convert such revenues into kip. The establishment of foreign
shareholders. However, tax claims, wage claims and ‘lien rights’ currency accounts in domestic commercial banks is permitted. The
claims of contractors and suppliers (akin to a mechanic’s lien) take use of foreign currency to pay foreign suppliers and lenders (with
precedence over the claims of secured creditors. respect to BOL-approved foreign source loans) and to pay dividends
No special rights, remedies or priorities are available to the to foreign shareholders is permitted without special BOL approval.
claims of foreign investors or creditors under Laotian insolvency Per the FX Decree and Guideline, domestic transactions must be
procedures. conducted in kip; however, in practice, the BOL allows domestic
transfers of foreign exchange through the Laotian banking system
Foreign exchange issues provided that the conversion of kip into foreign currency was not
required for the transaction.
Foreign exchange transactions are governed by the Decree regard- 9 May project companies establish and maintain foreign currency
ing the Management of Exchange Control and Precious Metal (FX accounts in other jurisdictions and locally?
Decree). The FX Decree prohibits individuals and legal entities oper- Project companies may open a foreign currency account in Laos.
ating in Laos from directly paying or receiving foreign exchange for Offshore bank accounts are permitted, provided that BOL approval
the goods and services rendered to them or by them, or from settling is obtained.
debts in foreign exchange within Laos, without approval from the

DFDL LAOS
Foreign investment issues 12 What restrictions exist on bringing in foreign workers, technicians
The Labour Law places restrictions on the number of foreign
employees that companies can employ. The general rule is that for-
eign employees who engage in unskilled labour may not exceed
10 per cent of the total workforce, while employees engaged in
skilled labour may not exceed 20 per cent of the total workforce.
Temporary exemption from these restrictions may be granted by the
Ministry of Labour and Social Welfare. Foreign investors and for-
authority?
eign employees of project companies established in Laos are entitled
There are several restrictions that apply to foreign investment in to multiple-entry business visas.
or ownership of a project and related companies. The Investment
Promotion Law requires enterprises carrying out a project that
requires a concession to maintain registered capital (stated share 13 What restrictions exist on the importation of project equipment?
capital) equal to not less than 30 per cent of total capital (registered Foreign investment enterprises wishing to import raw materi-
capital plus long-term debt and retained earnings where ‘long-term als, equipment, machinery, and vehicles must include a projec-
debt’ is debt not payable within the present 12-month reporting tion of their importation requirements in their application for the
period). This restriction sets a maximum debt-to-equity ratio of Concession Registration Certificate (CRC) (concessionary activities)
70:30 for companies that engage in a concession activity. All types or Enterprise Registration Certificate (ERC) (general business activi-
of companies must maintain assets equal to or exceeding the reg- ties). Once the relevant CRC or ERC has been approved, foreign
istered capital. The Investment Promotion Law requires that the invested enterprises have to adopt an annual importation plan for
minimum registered capital of the foreign investors total not less approval by either the IPD (concessionary activities) or the MOIC
than 1 billion kip. (general business activities). Duties and import restrictions are
The Land Law prohibits foreign ownership of land (whether in imposed on certain products, and import permits are required in
the form of ‘land use rights’ or usufruct) in Laos. Foreign nation- some cases.
als and foreign-invested companies are limited to leasing land (from
the state or private Laotian parties) or receiving concessions of land
from the state. The maximum lease term from a private Laotian
party may not exceed 30 years; the maximum lease term from the
government may not exceed 50 years (in each case subject to pos-
sible later extension upon government approval). Concession peri- The Constitution of Laos protects the legal capital and property
ods are limited to 50 years, but can be extended on a case-by-case of investors from expropriation and nationalisation by the state.
basis by the government. In the case of a lease or concession of land However, a number of Laotian laws authorise expropriation, nation-
exceeding 10,000 hectares, National Assembly approval is required. alisation or seizure of private assets in specified cases. For example,
The Investment Promotion Law authorises foreign nationals that the Investment Promotion Law protects the assets and investments
make equity investments of not less than US$500,000 in Laos to of foreign investors against seizure, confiscation or nationalisation,
hold ‘land use rights’ for residential or unspecified commercial pur- subject to the exception of necessity for a public purpose, in which
poses; however, these provisions have not yet been implemented. case compensation is to be provided. The Contract Law provides
All security interests in immoveable assets relating to a lease that breach of a contract may result in confiscation by the govern-
of land or a concession of land from the state must be registered ment of the contracting party’s assets. The Land Law provides that
with MoNRE. In the event of foreclosure, a transfer of ownership in land-use rights may be requisitioned by the state for public purposes,
immoveable assets relating to a lease of land or a concession of land upon payment of appropriate compensation. The Property Law
from the state must also be registered with MoNRE. allows expropriation for state purposes upon payment of unspeci-
Government equity participation is required in the mining sec- fied compensation and provides for seizure of assets from defaulting
tor (at the option of the government) and is required in practice, debtors. The Electricity Law authorises the state to nationalise prop-
although not by law, in most electric power and telecommunications erty of an owner or operator of an electricity enterprise for viola-
projects. The government equity percentage will be the subject of tions of the law.
negotiation.
Laos has entered into a number of investment treaties or agree- Fiscal treatment of foreign investment
ments with various countries (Thailand, for example) but these trea-
ties do not afford relief from the particular restrictions described
above. An overview of taxes applicable to foreign investors operat-
ing in Laos is set out in question 15.
Foreign-invested companies may be eligible for tax incentives. Such
11 What restrictions, fees and taxes exist on insurance policies incentives include limited profit tax holidays, exemptions from
over project assets provided or guaranteed by foreign insurance import duties and taxes on equipment and vehicles used in produc-
companies? May such policies be payable to foreign secured tion, exemptions from import duties on raw materials that do not
creditors? exist domestically, exemptions on semi-finished products imported
Companies seeking insurance coverage for individuals residing for processing or assembly for the purpose of export and exemp-
in, assets located in or risks occurring in Laos must contract with tions from export duties on export products. Enterprises engaging in
Laos-licensed insurance companies. The Insurance Law has allows certain promoted activities or investment projects located in certain
Laotian insurance entities to utilise foreign reinsurance for all or part geographic areas may be eligible for incentives under the Investment
of the insured risk. Promotion Law. The relevant government authorities will review the
investment activity and must grant approval before an enterprise
can receive any incentives.
LAOS DFDL
Additional tax incentives may be granted by the government in project company to engage in direct power sales to industry. In the
the concession agreement for the infrastructure project, but these mining sector, the government periodically issues lists of minerals
will require ratification by the National Assembly or National that are protected and restricted from export without approval of
Assembly Standing Committee. the Ministry of Industry and Commerce. All lumber exports require
Double taxation agreements have been entered into with Brunei, government approval. The export of unprocessed raw minerals has
China, North Korea, South Korea, Kuwait, Malaysia, Myanmar, now been prohibited by decree.
Luxembourg, Russia, Singapore, Thailand and Vietnam. Enterprises established under the Investment Promotion Law
may be entitled to tax incentives as discussed in question 15, and
Government authorities may be entitled to an exemption from export duties.
16 What are the relevant government agencies or departments with Legal issues of general application
nature and extent of their authority? What is the history of state 20 What government approvals are required for typical project finance
ownership in these sectors? transactions? What fees and other charges apply?
The government agencies with authority over projects include the The government approvals required for a project finance transaction
Government Office (Office of the Prime Minister), the Ministry will vary depending on the sector concerned. Generally, project com-
of Planning and Investment, Ministry of Energy and Mines, the panies must obtain approval for the following activities:
Ministry of Agriculture and Forestry, the Ministry of Industry • use of international financial reporting standards;
and Commerce, the Ministry of Public Works and Transport, the • use of offshore bank accounts, foreign-source loans and foreign
Ministry of Finance, the BOL and the Ministry of Natural Resources exchange activities;
and Environment. • water source development activities;
The Ministry of Finance is the designated representative of the • construction works;
government in projects with full or partial state ownership, how- • forestry activities; import, possession and use of wood process-
ever, there are several state companies that commonly hold shares ing and wood exploitation machinery;
on behalf of the government in project companies: Electricité du • displacement of aquatic animals and wildlife;
Laos (power generation and transmission); Lao Holding State • use of land for industrial purposes;
Enterprise (power generation and transmission); Enterprise of • factory establishment; and
Telecommunications Lao (telecommunications); and Lao-Asia • mining, exploration and survey activities.
Telecom (telecommunications). The government represented by the
Ministry of Finance may also hold shares directly in project compa- If the relevant statute does not provide the relevant ministry with
nies in certain sectors, such as in the mining sector. exemption authority, any exemption from the statutory provision
must be obtained via a resolution of the National Assembly or
Regulation of natural resources National Assembly Standing Committee. Exemptions from require-
ments of decrees may be issued by the Prime Minister.
17 Who has title to natural resources? What rights may private With the limited exception of a form of non-incorporated joint
parties acquire to these resources and what obligations does the venture (a business cooperation by contract) allowed under the
holder have? May foreign parties acquire such rights? Investment Promotion Law, a Laotian project company must be estab-
The Constitution of Laos provides that all land is under the own- lished for any project in Laos. The following approvals are required:
ership of the national community (namely, the state). Natural • for ‘concessionary activity’ companies: approval of the enterprise
resources on or under such land are also state property. Physical name and a Concession Registration Certificate (CRC) from the
sources of electrical energy, and mineral resources (whether surface, Investment Promotion Department, Ministry of Planning and
underground or underwater), natural forests and forest land are Investment (IPD);
likewise state property. The rights and obligations of foreign inves- • for general activity companies: approval of the enterprise name
tors of such natural resources must be set out in an agreement with and issuance of an Enterprise Registration Certificate (ERC)
the government – generally termed a concession agreement, exploi- from the Ministry of Industry and Commerce (MOIC);
tation agreement, licence agreement or project development agree- • approval of the company’s articles of association by the MOIC
ment depending upon the sector. in the case of general activity companies or by the IPD in the
case of concessionary activity companies;
• a tax identification number (TIN) from the tax department of
the Ministry of Finance;
• an approved company seal from the Ministry of Public Security;
The specific royalties and taxes payable in connection with the • a business operating licence from the relevant ministry;
extraction of natural resources are not specified in Laotian law, but • an approved company information posting from the Ministry of
are generally provided for in the concession agreement negotiated Information, Culture and Tourism; and
with the government. Such royalties and taxes are typically revenue- • upon funding of the registered capital from the foreign share-
based rather than profit-based. Taxes payable in connection with the holders and any foreign-source loans, a Capital Importation
extraction of natural resources are the standard taxes set out in the Certificate (CIC) from the BOL.
Tax Law and the VAT Law, subject to tax holidays and incentives
granted in the Investment Promotion Law or in the relevant con- Other downstream licences and approvals will also be required.
cession agreement as approved by the National Assembly Standing Administrative fees are imposed by government departments for the
Committee. issuance of licences and approvals.
19 What restrictions, fees or taxes exist on the export of natural 21 Must any of the financing or project documents be registered or
resources? filed with any government authority or otherwise comply with legal
The export of natural resources is subject to controls, which vary formalities to be valid or enforceable?
by sector. For example, electric power must be transmitted through All contracts must be registered with the SAMD (or in the case of land-
the national electricity transmission grid, limiting the ability of a related contracts including land leases and pledges of immoveable

DFDL LAOS
assets, with MoNRE) to be enforceable in Laos. Security agreements • be translated into the Lao language (and this translation certified
relating to immoveable assets must be signed in the presence of three by a Laotian court);
witnesses. Leases (including equipment leases) and security agree- • be from a country that is a signatory to treaties to which the Lao
ments related to immoveable assets must be notarised at the Notary PDR is also a signatory or party (the law does not specify which
Office where the asset is located. Notarisation of other contracts treaties);
(including guarantees) is recommended to facilitate enforcement by • not contradict Lao PDR Laws, civil procedure rules, or rules and
the Laotian courts as a ‘true and correct’ document but is not man- regulations regarding security and social order; and
datory. The notarisation process requires a full Laotian language • not adversely affect the sovereignty of the Lao PDR.
translation. The registration process requires either a Laotian lan-
guage summary or full translation. The Laotian court may decide not to recognise the foreign court
judgment in the following cases:
• such judgment is subject to continuing proceedings or appeals
and is not a final decision;
• the losing party in the foreign judgment did not participate in
the proceedings and the judgment was made in default;
• the matter considered by the foreign court was properly under
the jurisdiction of the Laotian courts;
Laotian law does not prohibit the choice of foreign arbitration as • such judgment conflicts with the Constitution or Lao PDR Law;
a dispute resolution mechanism and the government has generally or
accepted the use of the UNCITRAL Arbitration Rules in its con- • other non-specified issues relating to the foreign judgment
tracts with foreign-invested parties, with Singapore regarded as an brought to the attention of the Laotian court.
acceptable ‘neutral’ venue. In order to be enforceable in Laos, inter-
national arbitral awards must be certified by the People’s Court. Given the foregoing constraints, it is likely that a judgment from
The conditions for certification are as follows: the relevant parties a foreign court could be enforced in the Lao PDR only following
must hold nationalities of countries who are state parties to the complete retrial, or retrial of the major issues, absent a treaty to the
Convention on Recognition and Enforcement of Foreign Arbitral contrary.
Awards (New York, 1958); the arbitral award must not conflict with A waiver of sovereign immunity by the government should be
the constitution, laws and regulations of Laos on issues relating to effective and enforceable provided that the contract in question is
national security, social order and the environment; and the party commercial in nature.
against whom the award is enforced must operate a business, hold
shares, have savings or hold assets in Laos. Environmental, health and safety laws
The Economic Dispute Resolution Law confirms that parties
to a contract involving international trade or foreign investment 25 What laws or regulations apply to typical project sectors? What
may resort to international arbitration as the dispute resolution regulatory bodies administer those laws?
mechanism. The Environmental Protection Law establishes the framework for
the preservation and sustainable management of environmen-
23 Which jurisdiction’s law typically governs project agreements? tal resources in Laos. The Regulation on Environmental Impact
Which jurisdiction’s law typically governs financing agreements? Assessment and its corresponding guidelines detail mandatory
Which matters are governed by domestic law? requirements regarding the Environmental Impact Assessment (EIA)
to be conducted, and the environmental management plans to be
Certain project documents, such as concession agreements, land adopted, by project companies. The EIA must comply with crite-
lease agreements and domestic power purchase agreements and ria specified by the relevant sector. Environmental laws and regula-
the articles of association of the project company are required to tions are administered by the Ministry of Natural Resources and
be governed by Laotian law. Security documents (including pledges Environment.
of immoveable and moveable assets and guarantees) that are to be The Labour Law sets out health and safety obligations applica-
enforced in the Laotian courts must also be governed by Laotian ble to all project companies. The Labour Law is administered by the
law. All other documents, including shareholders’ or joint venture Labour Management Authority within the Ministry of Labour and
agreements, financing documents, offshore security agreements and Social Welfare.
other project documents, such as power purchase agreements for
export, engineering procurement construction contracts, opera- Project companies
tion and maintenance agreements and consulting agreements, are
often governed by foreign law. The laws of England are the most 26 What are the principal business structures of project companies?
commonly chosen governing foreign law. Thai offtakers of electric What are the principal sources of financing available to project
power generally insist on the use of Thai law. companies?
Under Laotian law, a licensed Laotian single-purpose company must
24 Is a submission to a foreign jurisdiction and a waiver of immunity be established to engage in the development, construction, financ-
effective and enforceable? ing and operation of a project. Project companies are most com-
The Laotian courts and administrative bodies with enforcement monly organised as limited companies, with foreign, local, and state
capacity are not required by law or any treaty to honour, enforce companies being shareholders. The shareholders are liable for their
or implement a foreign court judgment order. Laos is not a party subscribed registered capital (stated capital) but not for the general
to the Convention on the Recognition and Enforcement of Foreign liabilities of the limited company. Debt capital is available to project
Judgments in Civil and Commercial Matters (The Hague, 1971). companies operating in Laos in the form of non-recourse project
The Law on Civil Procedure provides for the recognition of foreign loans, conventional bank loans, non-bank loans from private capital
court judgments subject to certain conditions. In order to be recog- sources and sovereign wealth funds as well as loans from interna-
nised by the Laotian courts, a foreign judgment must: tional financial institutions.
LAOS DFDL
• Enterprise of Telecommunications Lao (telecommunications);

Update and trends and
• Lao-Asia Telecom (telecommunications).
The Ministry of Energy and Mines has indicated that new electric
power projects may no longer be permitted to engage in direct The Ministry of Finance may also hold shares directly in project
exports of electric power but will be required to sell to the
companies in certain sectors, such as in the mining sector.
domestic utility, Electricité du Laos, which will handle all electric
power exports. Such a policy, if implemented, may make project
financing of Lao electric power projects considerably more PPP – limitations
challenging as lenders have favoured projects that export electric
power directly to the financially strong Thai utility, the Electricity 28 What, if any, are the practical and legal limitations on PPP
Generating Authority of Thailand. transactions?
Parties seeking new concessions for electricity and mining
projects are now being offered less generous tax holidays and
While the Secured Transactions Law permits state companies (initial
special rates by the government than were previously provided. 100 per cent direct government ownership with sell-down to 49.9
This may adversely affect the viability of the more marginal per cent permitted) and mixed companies (formed with 50 per cent
projects. direct government ownership) to use their assets as collateral for a
The Bank of Lao PDR has now stepped up enforcement of foreign loan, approval from the government is required for the term
the capital control regulations, thereby restricting the ability of or length of the security interest over land owned by the relevant
Lao companies to hold equity contributions, revenues and loan
proceeds in offshore bank accounts and make domestic payments
state enterprise. Such approval is delegated to the Minister of Finance
in foreign currency. While certain exemptions have been granted in as per the Law on State Assets. In addition, where an asset to be
large infrastructure projects, the tighter capital controls will require assigned or pledged is directly held by the government or a company
lender work-arounds in project financing. having any percentage of direct government ownership, the Decree
on the Management of the Enterprise Invested by the State requires
the approval of the Minister of Finance (or National Assembly
Public-private partnership legislation approval in the case of assets of high value or large extent). The
ability of the government to pledge its directly held assets (including
27 Has PPP enabling legislation been enacted and, if so, at what shares in project companies with partial government ownership or
level of government and is the legislation industry-specific? accounts payable by such project companies (eg, taxes and royalties)
There is no general PPP legislation in Laos. The Electricity Law pro- may also be limited by existing government commitments in connec-
vides for various forms of public-private partnership. Government tion with outstanding government or project debt.
equity participation is required to be offered to the government in the
mining sector (as per the Mineral Law) and is generally demanded PPP – transactions
by the government in the concession agreement negotiation process
in the electricity and telecommunications sectors. The government
equity percentage will be the subject of negotiation. Although the
Law on Telecommunications states that the government encour- The most significant transactions are:
ages local and foreign investors to compete and to cooperate in • Xe-Pian Xe-Namnoy Hydropower (US$1.02 billion);
investment in the construction, development, and expansion of the • Nam Lik 1 Hydropower (US$86.8 million);
telecommunications network and services in accordance with the • Nam Ou Hydropower (US$770 million);
systems prescribed by the government; to date, the government has • Nam Ngiep 2 Hydropower (US$242 million);
been protective of those telecommunications companies holding • Theun-Hinboun Hydropower (US$660 million);
existing licences. • Hongsa Lignite-Fired Power Project (US$2.9 billion);
The Ministry of Finance is the designated representative of the • Xayaburi Hydropower (US$3 billion);
government in such public-private ownership projects but there are • Houay Ho Hydropower (US$275 million)
several state enterprises that commonly hold shares on behalf of the • Nam Theun 2 Hydropower (US$1.2 billion);
Ministry of Finance in project companies in Laos: • Nam Ngum 5 Hydropower (US$140 million);
• Electricité du Laos (power generation and transmission); • Nam Theun 1 Hydropower (US$750 million);
• Lao Holding State Enterprise (power generation and trans- • Nam Ngum 2 Hydropower (US$750 million);
• Nam Lik 1-2 Hydropower (US$150 million); and
mission);
• Laotian telecommunications joint ventures (Vimpelcom and
Lao Telecom).
Walter Heiser walter.heiser@dfdl.com

Duangkamol Ingkapattanakul duangkamol@dfdl.com
Phai Nam Road, House No. 004 Tel: +856 21 242 068
Xieng Yeun Village Fax: +856 21 218 422
Vientiane www.dfdl.com
Laos

Vandenbulke LUXEMBOURG
Luxembourg
Denis Van den Bulke and Laurence Jacques
Vandenbulke
Security interests available under Luxembourg law can be divided lawful techniques to minimise them? May a corporate entity, in
into two main categories: the capacity of agent or trustee, hold collateral on behalf of the
• securities over immoveable assets, which include: project lenders as the secured party?
• mortgage over land, building and vessels: the creation of Perfection requirements and priority depend on the type of asset
this type of security is made by public deed, passed before subject to the security. Priority generally follows the principle prior
a Luxembourg notary (ie, an independent public officer tempore, potior jure (ie, who is prior in time, is preferred in right)
appointed by the Grand-Duchy). The mortgage does not entailing that a security interest will have priority over another one
give possession of the property but creates a right in rem if perfected on a prior date.
and in the case of default of the mortgagor, it entitles its Security interests over immoveable assets or mortgages must be
beneficiary to be paid out of the proceeds of the sale of the granted by notarial deed and registered with the Land Registration
property; and and Estates Department and the mortgage registry office of the judi-
• securities over moveable assets, which include: cial district where the real estate is located.
• securities over financial instruments (pledge over shares, Security interests over intangible business assets must be incor-
receivables, claims, bank accounts, debt instruments, assign- porated in a notarial deed passed before a Luxembourg notary or
ment of title by way of security), which are governed by the made by private contract and must also be registered with the local
Law of 5 August 2005 on Financial Collateral (the Financial mortgage registration office. This type of security interest is infre-
Collateral Law) implementing Directive 2002/47/EC of the quent because of its relatively high cost, low ranking and limited
European Parliament and of the Council of 6 June 2002 on number of beneficiaries. Other constraints inhibit the use of this
financial collateral arrangements; security: the beneficiary must be a credit institution and the credit
• pledge over goods or tangible assets that are not financial institution must be approved as a pledgee by the Luxembourg gov-
instruments; ernment sitting in council, thereby increasing the duration of the
• pledge over business assets, which is a general security over a process.
Luxembourg company’s intangible assets (eg, clientele, busi- For other types of assets, perfection will generally occur by
ness model, trademarks, patents, lease rights, etc and up to means of a notification to a third party (eg, pledge over claims), reg-
50 per cent of the inventory of the company); istration in private records (eg, pledge over shares) or delivery of
• preservation of title on tangible assets; and certain assets (eg, pledge over goods).
• retention right under a sale contract or warehouse contract. The transfer of titles for security purpose is effective between
the parties and becomes enforceable against third parties as from
Luxembourg law also provides for specific guarantees such as per- the entry into agreement by the parties. The perfection of the pledge
sonal, independent or joint guarantees or even partial assignment of over shares is achieved by either the physical delivery of bearer
salary in favour of a creditor. In addition, personal security interests shares to the pledgee or to an agreeable third-party trustee, or in the
such as the first demand guarantee and the suretyship are also fre- case of registered shares, by a legend mentioning the existence of the
quently used in banking transactions. pledge in the register of the issuer.
Luxembourg law does not offer the possibility to create fixed Mortgages must be notarised. Registration and renewal of regis-
and floating charges, which crystallise at the discretion of the tration of mortgages are subject to a duty right of 0.05 per cent. The
chargor. It is, however, frequent in international transactions that a transcription right is usually 1 per cent.
Luxembourg company grants a fixed or floating charge governed by The Financial Collateral Law provides that pledges over finan-
foreign law (for further information about enforceability, see ques- cial instruments and over bank accounts can be held on behalf of the
tion 4). lenders by a security agent. Others securities must be granted to the
It is possible to grant a security on all future moveable assets of creditor of the secured claim directly.
the debtor (not on future immoveable assets), but a ‘blanket-lien’
does not exist under Luxembourg law.
More generally, there is a strict principle under Luxembourg law 3 How can a creditor assure itself as to the absence of liens with
that no new type of security can be contractually created unless it priority to the creditor’s lien?
has been specifically set out by law. With respect to securities that require public registration for perfec-
tion, an adequate search in the concerned register will inform about
existing securities over the assets (eg, a public research regarding
mortgages can be made at the public mortgage registry office).
LUXEMBOURG Vandenbulke
The financial statements, registered with the trade and compa- 5 How does a bankruptcy proceeding in respect of the project
nies registry, of a Luxembourg company may provide general infor- company affect the ability of a project lender to enforce its rights
mation as to security interests that have been granted over its assets. as a secured party over the collateral? Are there any preference
Charges over registered shares will be recorded in the shareholder periods, clawback rights or other preferential creditors’ rights
registers, which are not available to the public. Information regard- (eg, tax debts, employees’ claims) with respect to the collateral?
ing bankruptcy judgments may be found on the Luxembourg Bar What entities are excluded from bankruptcy proceedings and
website and on the Luxembourg Trade and Companies Registry. what legislation applies to them? What processes other than
As a matter of principle, rights granted by a Luxembourg company
during the ‘hardening period’ (ie, the period starting as from the day
on which a Luxembourg company has become insolvent (this date
Luxembourg is recognised by the IFC/World Bank as the best place is usually set by the Luxembourg courts up to six months prior to
in the world to enforce contracts. (The enforcing contracts topic the insolvency judgment)) or in the 10 days preceding this ‘harden-
assesses the efficiency of the judicial system by following the evo- ing period’ may be declared invalid if they constitute the preferential
lution of a commercial sale dispute over the quality of goods and satisfaction of one creditor’s right over another.
tracking the time, cost and number of procedures involved from The following transactions can be declared null and void pur-
the moment the plaintiff files the lawsuit until payment is received. suant to proceedings instituted at the initiative of the bankruptcy
The most recent round of data collection was completed in June receiver if they were undertaken during this period:
2012.) The judicial system is quite efficient with low cost and lim- • a disposal of assets without consideration or for a value that is
ited procedural complexity involved in resolving a lawsuit. Further, not at arm’s length;
the Financial Collateral Law has considerably eased the enforcement • any payment (whether in cash, assignment, sale or set-off) for a
process of collateral over securities and financial instruments and debt not due for payment;
brought additional protection for their beneficiaries. • payment of debts due for payment by any means other than in
An enforcement of a land charge and mortgage is usually per- cash or bill of exchange; and
fected through a public auction of the charged property. Before • mortgages or pledges granted to secure pre-existing debt (except
enforcing the mortgage, the creditor must summon the debtor to for pledges granted over financial instruments that are not
pay and evidence the failure of the debtor to discharge the mortgage affected by the insolvency of the debtor and may be enforced
debt. This process is made first by a summons to pay, then by way of notwithstanding the filing of the petition for bankruptcy or
attachment before the courts, which, after hearings, assess the merits other collective proceeding, whether occurring in Luxembourg
of the case and authorise (or not) the mortgagee to proceed to the or abroad).
sale of the property by public auction. The notarial deed granting a
first rank mortgage right can, however, stipulate that the enforce- In addition, any payment for accrued debt or any transactions
ment of the security can be made without recourse to courts, 30 days against money made after the company has become insolvent and
after the date of the summons. The auction is conducted under the prior to the bankruptcy judgment may be cancelled if the beneficiary
control of a public notary and the adjudication price corresponds to of the payment or the contracting party had knowledge of the insol-
the highest bid. The proceeds from the public auction are paid to the vency of such company.
mortgagee after payment of the auction and notarial fees and other Mortgages and other rights of priority validly acquired during
preferred creditors by law. the hardening period and the 10 days preceding such period can
Pledges over financial instruments and bank account pledges can be declared void if they were not registered within 15 days of their
be enforced without prior court approval. Pledged financial instru- execution with the relevant Luxembourg authorities.
ments can be appropriated by the pledgee if it is expressly set out in Eventually, any instruments or payments made fraudulently and
the pledge agreement and if this agreement sets out the valuation without regard to the creditors’ rights are void without prejudice to
method. Other methods of enforcement include the assignment of the date they were made.
the pledged assets by private sale in a commercially reasonable man- As mentioned above, securities granted pursuant to the Financial
ner, sale over a stock exchange or public auction. The beneficiary Collateral Law remain unaffected by an insolvency situation; as a
of the security may also obtain a judgment allowing him or her to consequence the ‘hardening period’ principle does not apply to secu-
retain the pledged assets as payment up to the amount of his or her rity interests granted pursuant to that law.
claim, in accordance with an expert valuation or proceed with net- By law, specific creditors may have rights superseding the rights
ting (compensation) in accordance with the relevant provisions of to payment of secured creditors. These rights include:
the Financial Collateral Law. Finally, listed financial instruments can • those relating to the fees and costs of the bankruptcy receiver
be sold on the stock exchange or regulated market where they are appointed by court, as well as any legal costs;
listed, or appropriated at their market value. • the rights of employees to payment of their compensation;
The beneficiary of a pledge over receivables can collect the • the Luxembourg tax authorities claims; and
receivables if the pledge has been notified to the debtors. • those of the Luxembourg social security institutions.
Claims of foreign creditors are treated equally to those of local credi-

tors but benefit generally from extended delay to raise their claims
before the bankruptcy receiver.

Foreign exchange issues (BLEU), which has signed bilateral investment agreements with
almost 100 countries in order to promote and protect investments.
6 What are the restrictions, controls, fees, taxes or other charges These agreements guarantee to foreign investors fair and equita-
on foreign currency exchange? ble treatment, refrain parties from any expropriatory or restrictive
There are no restrictions, controls, fees, specific taxes or other measure in respect of property, ensure freedom of transfers, and
charges, except that banks may impose fees on currency exchanges grant to them the protection of the clause of the most favoured
or transactions and that currency exchange transactions remain sub- nation. These agreements also include a comprehensive set of meas-
ject to rules for the prevention of money laundering. ures and protection in terms of capital in- and out-flows and dispute
resolution, in particular allowing the recourse to the International
Centre for the Settlement of Investment Disputes (CIRDI) estab-
lished by the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States, opened for signature
at Washington on 18 March 1965.
There is no restriction nor control on distribution of a Luxembourg EU merger control applies in the acquisition, overtake or merger
company to its parent company. According to the type and nature of of business and may put limitations on joint ventures having an EU
the remittance, some withholding tax may, however, apply. dimension. In addition, the Alternative Investment Fund Managers
Dividends paid to a non-resident company are subject to a 15 Directive 2011/61/EU implemented in Luxembourg on 10 July 2013
per cent withholding tax unless the rate is reduced or an exemption may impose other constraints on joint ventures qualifying for the
is provided under an existing tax treaty. No tax is withheld on divi- AIFMD purposes.
dends paid to a qualifying company under the EU Parent-Subsidiary
Directive.
No withholding applies on interest or royalties payments. 11 What restrictions, fees and taxes exist on insurance policies
However, Luxembourg tax practices in respect of thin capitalisation over project assets provided or guaranteed by foreign insurance
rules may limit the deductibility of interest and impose a withhold- companies? May such policies be payable to foreign secured
ing tax on any interest payments breaching such capitalisation rules. creditors?
The general rule requires that the ratio of equity/parent debt must Insurance policies over Luxembourg assets can be freely provided
not exceed 15/85, at market interest rate. The portion of excessive by foreign insurance companies subject to the Luxembourg national
interest shall be disqualified as dividend, not deductible, and subject prudential rules of the sector and the EU laws. An insurance com-
to the regular 15 per cent withholding tax rate on dividends. Equity pany approved in another EU country may conduct business in
includes share capital but also subordinated debt allowing, in prac- Luxembourg under the freedom to provide services, and cover risks
tice, reduction of the impact of the thin capital ratio. Various finan- or make commitments for which it has obtained approval in its
cial techniques using the hybridisation of debt/equity or conversion home country, provided, however, that the competent authority of
features (preferred equity certificates, convertible or not) also allow its home country has supplied the legally required documents and
for attenuation of the exposure to withholding tax. information to the Luxembourg Insurance Supervision Authority.
Luxembourg does not levy branch remittance tax. Agencies and branches of undertakings having their registered
office in a third country may obtain authorisation to provide insur-
ance services from the Insurance Supervision Authority. Such an
authorisation is not requested where the policyholder subscribes
the contract on his or her own initiative (ie, if he or she solicited
its conclusion without having been contacted beforehand by either
There is no legal compulsory obligation on Luxembourg companies the insurance company or any other party mandated by it). A third-
to repatriate foreign earnings nor is there any restriction over their country insurance company that is a signatory to the General
use. Agreement on Trade in Services (GATS) will be exempted from
obtaining the authorisation for those operations performed in the
9 May project companies establish and maintain foreign currency Grand-Duchy of Luxembourg for certain categories of risks (sea
accounts in other jurisdictions and locally? trade, aviation, space vehicles, and insurance of goods during inter-
national transit).
Luxembourg companies can establish and maintain foreign cur-
The Grand Ducal Regulation of 29 June 1995 provides that
rency accounts in Luxembourg and in other jurisdictions. It is pos-
insurance companies having their registered office in an EEA coun-
sible and common practice to establish a Luxembourg account in a
try, but which is not a member of the EU, are subject to the same
foreign currency or a multi-currencies account.
obligations and benefit from the same rights as insurance compa-
nies having their registered office in an EU member state, other than
Luxembourg.
10 What restrictions, fees and taxes exist on foreign investment in or Taxes and fees are those that apply from time to time in
ownership of a project and related companies? Do the restrictions Luxembourg. This results from the CEA Codification of European
also apply to foreign investors or creditors in the event of Insurance Directives, which states that, irrespective of the law gov-
foreclosure on the project and related companies? Are there erning the contract, insurance contracts are subject to indirect taxes
any bilateral investment treaties with key nation states or other and para-fiscal charges on insurance premiums in the state in which
international treaties that may afford relief from such restrictions? the risk is situated (see articles 9NL and 50L).
authority? 12 What restrictions exist on bringing in foreign workers, technicians
Luxembourg is a wide open economy and the host of a large num- or executives to work on a project?
ber of foreign investors. There is no discrimination between foreign All nationals of EU member states or from countries treated simi-
and local investors: foreign companies are treated in the same way larly are entitled to free circulation within the EU, and accordingly
as Luxembourg-owned businesses. Luxembourg is also a member in Luxembourg, with the right to work and live anywhere in the EU.
of the Benelux Union and the Belgo-Luxembourg Economic Union The formalities to be complied with will depend on whether or not
the stay exceeds three months. For a stay of less than three months, Fiscal treatment of foreign investment
EU nationals do not have to comply with any formalities. They sim-
ply have to hold a valid national identity card or passport. For a stay 15 What tax incentives or other incentives are provided preferentially
of more than three months, EU nationals must hold a valid national to foreign investors or creditors? What taxes apply to foreign
identity card or passport and: investments, loans, mortgages or other security documents,
• make a declaration of arrival within eight days of arrival in either for the purposes of effectiveness or registration?
Luxembourg, at the offices of the authorities of the commune Luxembourg does not provide particular tax incentives or a pref-
where they intend to take up residence; and erential regime to foreign investors or creditors but rather offers a
• fill in a registration certificate for EU nationals at the latest three global tax system with the following tax features:
months after their arrival. • a wide range of investment vehicles providing tax neutrality
depending on the needs and constraints of investors such as
Any non-EU national who wishes to set up residence in Luxembourg Soparfis, securitisation companies, special investment funds
in order to carry out a salaried activity must: (SIFs) and lastly special limited partnership, which was intro-
• before entering into the country, submit an application for a duced by the Law of 12 July 2013 implementing the AIF
temporary residence certificate to the Immigration Directorate Directive;
of the Ministry of Foreign Affairs, be in possession of a valid • an effective and pragmatic participation exemption regime
passport and request a visa type D after having obtained the (admission of preferential subscription rights and call options);
temporary residence certificate; and • the absence of withholding tax on interest payments (unless the
• after entering into the country, make a declaration of arrival in EU Savings Directive applies) and royalties, and also on liquida-
their new commune of residence, undergo a medical check and tion proceeds;
submit an application for a residence permit for third-country • an attractive IP tax regime (80 per cent exemption on qualifying
national salaried workers. income and gains);
• generous thin capitalisation rules;
• no controlled foreign company (CFC) rules;
• an extensive international double tax treaty network; and
Any business importing goods into Luxembourg must declare its • a timely tax clearance system to confirm tax treatment of
imports to the customs authorities, as well as the value of the goods, transactions.
where applicable. Within the European Union, no import duty is
due. However, special rules exist for VAT and excise duties. When There are no registration, stamp or other taxes or duties of any kind
ordering goods from a supplier established outside the European payable in Luxembourg in connection with the signature and perfor-
Union (EU), import duties, VAT and excise duties may apply. mance of loan, mortgages or other security documents. However, if
The legal basis for the collection of customs duties results largely such documents were to be exhibited before a Luxembourg court or
from the European customs legislation. Since 1921, Belgium and a Luxembourg public authority, registration thereof may be ordered,
Luxembourg manage certain excise duties in their bilateral Belgo- in which case, subject to certain exceptions, an ad valorem registra-
Luxembourg Economic Union. Luxembourg is also a member of tion duty on the amount of the underlying obligations would be
the World Trade Organization, which ensures individual countries’ payable and a translation of the document in French or German
commitments to lower customs tariffs and other trade barriers. may need to be produced.
No regulation exists in respect of nationalisation of project compa- nature and extent of their authority? What is the history of state
nies and assets. Nationalisation of industrial or economic interests, ownership in these sectors?
when it took place (eg, with Dexia-Bil), was made in a punctual and Various industries have been privatised or liberalised under the influ-
opportune manner with a view to safeguarding the economic activity ence of the European Union’s liberalisation and free market policy,
and avoiding any dramatic consequences for the local employment. which has allowed the private sector to become involved in public
The Luxembourg state has no vocation to operate corporations of utilities.
the industrial or commercial sector and has no intent to do so. The Ministry of Sustainable Development and Infrastructure or
Expropriation of land may be implemented on a case-by-case its specialised departments governs most of the typical project sec-
basis but only pursuant to a consultative process with the concerned tors. In terms of transport, the Ministry of Sustainable Development
population and for the public good. Should considerations of pub- and Infrastructure ensures that resources are correctly utilised and
lic or national interest or security necessitate an expropriation, this controlled, and provides regulation in relation to the various kinds
measure is taken exceptionally. In any event, the measures are taken of transport.
in accordance with legal procedures, must be neither discriminatory The Administration of Water Management governs the treat-
nor contrary to a specific commitment and be accompanied by pro- ment and use of water. Various Grand-Ducal and EU regulations
visions for the payment of an adequate compensation at fair market apply.
value. The Administration of the Forest and Nature is the government
body responsible for the protection of nature, natural resources, bio-
diversity and landscapes. It is part of the Department of Environment
of the Ministry of Sustainable Development and Infrastructure.
The Luxembourg Regulatory Institute is responsible for the
regulation of the following economic sectors:
• communications networks and electronic services
(telecommunications);
• transmission and distribution of electrical energy;
• transport and distribution of natural gas;

• transport; and Legal issues of general application

• postal services.
Regulation of natural resources transactions? What fees and other charges apply?
Under Luxembourg law, no government approvals are required for
17 Who has title to natural resources? What rights may private project finance transactions. However, a business permit may be
parties acquire to these resources and what obligations does the required if the activity in Luxembourg goes beyond merely financ-
holder have? May foreign parties acquire such rights? ing the project and entails carrying out commercial activities on
In Luxembourg, the conservation of nature and natural resources Luxembourg territory. In that case, an authorisation must be sought
is governed by national legislation and international law. The from the Ministry of Small and Medium-Sized Businesses (Ministry
Luxembourg Law of 19 January 2004 distinguishes between proof the Middle Classes, Tourism and Housing, Department of Middle
tected areas of European interest including special areas of conser- Classes).
vation and special protection areas, and protected areas of national This permit is issued upon request and on proof of knowledge
interest including natural reserves and protected landscapes and proof business management, professional qualification and professional
tected areas of communal importance. integrity. The authorisation is personal and granted in consideration
The ownership of the surface and the soil may be held by a pri- of the manager’s qualifications. Any change of manager requires a
vate person or by the state, but the legal title on natural resources is new business permit to be obtained.
always held by the state. Entities that discover the existence of natu- Other approvals or authorisations may be required depending
ral resources may acquire a concession permit granted by the state. on the sector, the activity, the situation and the size of the project. For
The owner may oppose the use of his or her land or the contem- instance, a building permit is required for all construction, transfor-
plated mode of operation, but the occupation can only be refused for mation or demolition works of buildings. The delivery procedure of
major public interest considerations. If the occupation of the land building permits may vary as it is determined by the building regula-
lasts for more than three years, the owner is entitled to require the tions, which are specific to each commune. The building regulations,
acquisition of the land by the operator. together with the general development plan (PAG) and, where appli-
Geothermal drilling permits define the development and operat- cable, the special development plan (PAP), are aimed at achieving a
ing conditions that are deemed necessary to protect the environment sustainable development of the territory.
and ensure the safety of workers, the public and the environment in Investors should carefully review which authorisations must be
general. Geothermal drilling permit applications should be submit- obtained according to the targeted investment of their project.
ted to the Environment Agency. Refer to question 22 for further details on the exploitation of
Open-pit mining can take place without permission, but always natural resources.
under the supervision of the administration and in compliance with
laws and regulations. Underground mining requires a permit, even 21 Must any of the financing or project documents be registered or
for the owner of the land (Law of 12 June 1874, as amended by the filed with any government authority or otherwise comply with legal
Law of 26 July 1975). formalities to be valid or enforceable?
There are no substantial formalities regarding finance or project
18 What royalties and taxes are payable on the extraction of natural agreements in Luxembourg. English is commonly used as the lan-
resources, and are they revenue- or profit-based? guage for drafting contracts. The principle is the freedom of con-
A special tax applies to mining. tract subject to restrictions imposed by public policy or mandatory
Fees calculated on the basis of the volume of production and laws. No standard form is required for construction contracts. Some
charges calculated on the size of the surface are paid by the permit requirements such as written forms or other formalisms may be
holder to the owner of the land. On a yearly basis, compensation for required to allow evidence of proof, enforcement process or bind-
loss of use and other harmful effects must be paid to the owner and ing effect on the parties. Contracts regarding collateralisation of
other beneficiaries of the surface. securities must satisfy certain requirements to be fully enforceable in
Luxembourg (in this respect, see question 2).
Incorporation of a Luxembourg company or modification of
19 What restrictions, fees or taxes exist on the export of natural its articles of incorporation requires a public deed passed before a
resources? Luxembourg notary. The same principle applies to transfer of real
There is no restriction on the export of natural resources. There are estate, which is subject to a notarial deed. Duty taxes are levied on
no custom duties on the export of goods inside or outside the EU. such transfer according to rate schedules fixed by governmental
Exports are exempt from VAT. regulation.
However, if a company wants to export outside the EU, it No stamp duty applies on transfer of shares. However, any
must declare its exports electronically via the Customs and Excise transfer of shares for a private limited liability company must be
Agency’s Douane import-export system. disclosed to the Trade and Companies Registry.
Luxembourg is member of the World Customs Organization Some contracts or other operations that need notarisation in
(WCO), which has adopted a harmonised commodity coding sys- Luxembourg (such as transfer of real estate, mortgage or pledge
tem. The harmonised system assigns a six-figure code, known as the over business assets, incorporation of corporation, amendment to
HS code, to each category of good. This code helps to identify the articles of incorporation) must be passed in one of the three official
applicable fiscal and non-fiscal measures for each export. languages of Luxembourg (French, German or Luxembourgish).
Grand-Ducal regulations determine the goods whose export is However, a copy in English can be provided. In some instances, the
subject to special rights. Special measures based on EU rules apply English version may prevail.
for assets whose use may be military. Contracts with public entities are subject to public bid restric-
tions, imposed by EU law and national laws. These rules impose
a public tender process, governed by the public procurement rules
(Law of 25 June 2009 on public procurement and its executive
grand-ducal regulations).
22 How are international arbitration contractual provisions and the result of such application would be manifestly incompatible with
awards recognised by local courts? Is the jurisdiction a member fundamental notions of public policy of the Luxembourg forum or
of the ICSID Convention or other prominent dispute resolution they are required to take into account overriding mandatory provi-
conventions? Are any types of disputes not arbitrable? Are any sions of a law.
types of disputes subject to automatic domestic arbitration? Effect should nevertheless be given to those mandatory rules of
Luxembourg is a member of the ICSID Convention. Under the national, supranational and international law that, according to the
New York Convention of 10 June 1958 on the Recognition and relevant rules of private international law, are applicable irrespective
Enforcement of Foreign Arbitral Awards, Luxembourg is committed of the law governing the contract.
to recognise arbitration agreements and cannot refuse enforcement Rules of choice of law for countries of the EU are determined
of arbitral awards made as a result of arbitration agreements for the by Regulation (EC) No. 593/2008 of the European Parliament and
reasons listed exhaustively in article V of the Convention. of the Council of 17 June 2008 on the law applicable to contrac-
In certain circumstances exhaustively listed in article 1251 of the tual obligations (Rome I). Where there has been no choice of law,
Luxembourg Code of Civil Procedure (NCCP), and subject to the the applicable law will be determined in accordance with the rule
provisions of article V of the New York Convention, the President of specified for the particular type of contract. Where the contract can-
the District Court may refuse the enforcement of the foreign award not be categorised as being one of the specified types or where its
on the territory of the Grand-Duchy of Luxembourg. The enforce- elements fall within more than one of the specified types, it should
ment order or its refusal by the President of the District Court may be governed by the law of the country where the party, required to
be appealed against before the court of appeal. effect the characteristic performance of the contract, has his or her
Luxembourg has also implemented the European Convention habitual residence. In the case of a contract consisting of a bundle of
on International Commercial Arbitration of 21 April 1961. rights and obligations capable of being categorised as falling within
For arbitral awards made in a country with which Luxembourg more than one of the specified types of contract, the characteristic
does not have an agreement, arbitral awards are recognised in performance of the contract will be determined having regard to its
Luxembourg through a procedure of exequatur before the President centre of gravity.
of the District Court. The judge may refuse the exequatur if: In the absence of choice, where the applicable law cannot be
• the sentence can still be disputed before arbitrators and if the determined either on the basis of the fact that the contract can be
arbitrators have not ordered provisional execution notwith- categorised as one of the specified types or as being the law of the
standing appeal; country of habitual residence of the party required to effect the
• if the award or its enforcement is contrary to public order; or characteristic performance of the contract, the contract should be
• the dispute is not capable of settlement by arbitration if it is governed by the law of the country with which it is most closely
established that there are other grounds for revocation under connected. In order to determine that country, account will be taken,
article 1244 NCPP. inter alia, of whether the contract in question has a very close rela-
tionship with another contract or contracts.
The Chamber of Commerce of the Grand-Duchy of Luxembourg
has its own Arbitration Centre with its own arbitration rules. Under 24 Is a submission to a foreign jurisdiction and a waiver of immunity
Luxembourg Law, arbitration is not possible on cases concerning effective and enforceable?
the status and capacity of persons, marital relations, divorce and The submission of agreements and any potential disputes to the
legal separation or incompetent representation. It is also noteworthy jurisdiction of foreign courts is generally effective and enforceable.
that Luxembourg jurisdictions cannot pronounce the annulment of
the foreign award. Enforceability of judgment
When the judgment has been rendered in a non-EU member state and
23 Which jurisdiction’s law typically governs project agreements? if no international treaty applies, such a judgment will be recognised
Which jurisdiction’s law typically governs financing agreements? and enforced in Luxembourg after a review by the Luxembourg
Which matters are governed by domestic law? First Instance Court that the conditions set out in article 678 of the
Luxembourg Code of Civil Procedure (NCPP) are fulfilled (ie, the
Most of the projects in Luxembourg are made by inbound foreign
usual conditions relating to public policy constraints, the observance
professional and institutional financing and banking investors.
by the court of the rights of defence, etc).
Agreements tend therefore to be governed by the law that is most
When the judgment has been rendered in an EU member state,
familiar to the financing party, which is generally their domestic law
including Denmark (since 1 July 2007), Council Regulation (EC)
(eg, their law of incorporation, UK, US or French law). However, to
No. 44/2001 of 22 December 2000, as subsequently amended, on
the extent they relate to Luxembourg securities, most of the contrac-
jurisdiction and the recognition and enforcement of judgments in
tual agreements relating to the ‘security packages’ are governed by
civil and commercial matters (Regulation (EC) No. 44/2001) will
Luxembourg law. apply. Similar provisions are provided by the Convention on juris-
Luxembourg law is very liberal and expressly recognises the diction and the recognition and enforcement of judgments in civil
principle of freedom of contract, including the choice of law and and commercial matters signed in Lugano on 30 October 2007
election of forum. Freedom of contract is, however, limited by man- between the EU member states and three EFTA countries: Iceland,
datory rules and rules of public policy. Norway and Switzerland. A judgment handed down by a court of
The principle jura novit curia does not apply to foreign law. The competent jurisdiction of such EU member state must be recognised
judge does not raise automatically the conflict of laws rule, which is and may be enforced in Luxembourg without a review of the merits
not mandatory in contractual matters, but will apply the rule when of the case, in accordance with the conditions set out in Regulation
parties have not opted for a governing law. The parties invoking the (EC) No. 44/2001.
foreign law must prove the content of the foreign law, which, for the Nevertheless, Luxembourg courts will check, within the strict
Luxembourg courts, is a matter of fact. limits imposed by the Regulation (EC) No. 44/2001, the regularity
of the judgments with respect to:
Choice of law • the international and national competence of the foreign
The Luxembourg court will uphold the choice of law made by the jurisdiction;
parties. However, Luxembourg courts may exclude application of a • the application of the competent law; and
provision of the law chosen by the parties if and to the extent that • the applied procedure.

In addition, Luxembourg courts will recognise the enforceability of Environmental, health and safety laws
the judgments upon the condition that:
• the judgment is enforceable in the foreign jurisdiction; 25 What laws or regulations apply to typical project sectors? What
• the judgment is not contrary to public policy in Luxembourg; regulatory bodies administer those laws?
• the defaulting defendant was served with the summons correctly A compilation of the legislation applicable in the field of the environ-
and in good time for the defendant to arrange for his or her ment is available in the Environmental Code. It provides a full range
defence; of legislation on land development, air, waste, noise, water, energy,
• the judgment is compatible with any judgments rendered in a conservation, hazardous substances, etc.
dispute between the same parties in Luxembourg; The Ministry of Sustainable Development and Infrastructure,
• the judgment does not conflict with a prior judgment rendered the Administration of Environment and the Administration of the
in a third country between the same parties for the same object Forest and Nature are the main bodies regulating those matters. The
and cause, to the extent such a judgment rendered in a third Inspectorate of Labour and Mines (ITM) is part of the Ministry of
country is enforceable in Luxembourg; and Labour and Employment and is responsible for enforcing legislation
• the party applying for enforcement produces: relating to working conditions and occupational safety and health.
• a copy of the judgment, meeting the conditions necessary for Luxembourg legislation imposes on employers the obligation to
authenticity; take all the necessary steps to safeguard the safety and physical and
• in the event of a judgment by default, the original or a psychological health of their workers, including preventing risk, pro-
certified true copy of the document establishing that the viding information, offering training and setting up an organisation
summons have been served on the defaulting party is duly for carrying out action focused on employee health. They must also
produced; prepare a list of high-risk positions within the company.
• all documents for the purpose of establishing that, in accord- Depending on the size of the workplace, they can make use of
ance with its originating law, the judgment is enforceable internal or external experts to provide a health and safety service,
and has been served; and but ultimate responsibility remains with the employer. Part of the
• a sworn-translation of the judgment in French or German responsibility is to inform and consult with employees and their
made by a sworn-translator qualified in Luxembourg. representatives.
In addition, the Grand Ducal Decree of 27 June 2008 sets out
It should also be further noted that Regulation (EC) No. 805/2004 minimal health and safety requirements on temporary or mobile
of 21 April 2004 creating a European Enforcement Order for uncon- construction sites.
tested claims provides for the abolition of exequatur for judgments The provisions relating to chemicals and dangerous products
on uncontested claims. are described in the REACH (Regulation (EC) No. 1907/2006
A judgment that has been certified as a European enforcement of the European Parliament and of the Council of 18 December
order in another EU member state, except Denmark, will be recog- 2006 concerning the Registration, Evaluation, Authorisation and
nised and enforced in Luxembourg without the need for a declara- Restriction of Chemicals (REACH)) and the CLP (Regulation (EC)
tion of enforceability and without any possibility of opposing its No. 1272/2008 of the European Parliament and of the Council of
recognition. 16 December 2008 on classification, labelling and packaging of
International jurisprudence seems to agree that immunity can- substances and mixtures (CLP)) regulations. The regulations are
not be recognised to a foreign state (or an entity acting on its behalf) designed to ensure a high level of protection of human health and
when it has contracted as a private person under the rules of private environment, including the promotion of alternative methods for
law, and did not state the nature of public authority, nor acted in the assessment of dangerous substances, as well as the free circulation
interest of public service. of substances on the EU market while enhancing competitiveness
The Luxembourg Law of 1 September 1988 on the responsibil- and innovation.
ity of the state and public entities, specifically provides for their civil At a national level, skills, control devices, as well as measures
liability. Principles of contractual and tort liability remain applicable and criminal or administrative penalties are governed by the Law
to governmental agencies failing to pay their contractors, and the of 16 December 2011 on registration, evaluation and authorisation
judiciary courts have competence to rule on such claims. As a matter of chemical substances and classification, labelling and packaging
of principle, public entities may not withdraw from their contractual of chemicals.
obligations, including payment obligations.
Case law traditionally maintains immunity from execution Project companies
for public legal entities, such as the state and the municipalities.
Immunity is only granted when the act giving rise to the dispute is 26 What are the principal business structures of project companies?
an act of public authority or has been done in the interest of public What are the principal sources of financing available to project
service. A waiver of immunity in a private transaction may therefore companies?
be enforceable under certain conditions. Luxembourg courts have Project companies are mostly established as a special purpose vehi-
not yet faced any case of a Luxembourg public entity refusing to cle (SPV) for a single project. Depending on the peculiarities of the
execute a judgment by claiming immunity. However, it seems likely project and constraints in terms of governance, tax and equity fund-
that goods that do not affect the continuity of public service or the ing, they are usually organised as private limited liability companies,
performance of the public entity’s mission could be attached but partnerships or unlimited liability companies. Some projects can
under stringent conditions. In addition, with the law on financial also take the form of investment companies structured as investment
collateral allowing to enforce the pledge, without resorting to courts funds with fixed or variable capital.
for suing the pledgor, the immunity is unlikely to affect the perfec- The use of a European company (société européenne – SE), a
tion and realisation of the pledge. company governed by EU law, may also offer a corporate alternative
to Luxembourg SPVs. The SE has its own legal framework and acts
as a single economic operator throughout the entire European Union.
The status of a European company allows for mergers and restruc-
turings of European groups and thus avoids the legal and practical
obstacles under the laws of the different EU countries. A European
company therefore does not need to set up a complex network of
subsidiaries governed by the different national legislations, but can PPP – transactions
carry out its activities on EU territory through branches.
With Luxembourg being a world-leading financial centre, 29 What have been the most significant PPP transactions completed
sources of financing are mainly provided by leading foreign finan- to date in your jurisdiction?
cial institutions and private investors but also by investment funds In Luxembourg, both the Ministry of the Economy and Foreign
offering structured solutions for public projects established within Trade and the Ministry of Higher Education and Research are
a public-private partnership. The sources of financing available to committed to supporting and stimulating public-private partner-
project companies include bank debt convertible bonds, equity and ships (PPPs) through targeted state aids and support schemes.
mezzanine loans. Luxinnovation – the National Agency for Innovation and Research
– is responsible for promoting these funding measures towards the
Public-private partnership legislation private sector and providing support to enterprises wishing to par-
ticipate in PPPs. The National Research Fund (FNR) is responsible
27 Has PPP enabling legislation been enacted and, if so, at what for promoting these funding measures towards the public sector.
level of government and is the legislation industry-specific? Various projects have been supported by the Ministry of the
There is no such legislation under Luxembourg law. However, Economy and Foreign Trade.
Luxembourg endeavours to develop collaboration between public In May 2010, Goodyear’s R&D arm began its work on a three-
research organisations and businesses. A range of support mecha- year project with the University of Luxembourg to conduct fun-
nisms has been designed to stimulate and sustain such collabora- damental research into how the various components of tyres react
tions in order to identify potential partners in Luxembourg, obtain under ABS braking conditions.
financial support for collaborative projects, participate in platforms Circuit Foil is one of Luxembourg’s most high-tech manufac-
dedicated to common interests and develop synergies at European turing companies, producing top-grade, ultra-fine copper sheets for
level. circuit boards. Employing just 300 people, it relies on PPPs, with the
The Ministry of the Economy and Foreign Trade provides finan- Gabriel Lippmann Public Research Centre, to sustain its research
cial aids and accreditations. efforts to keep it ahead of increasingly tough competition.
Luxembourg hosts the European PPP Expertise Centre (EPEC), Others significant PPP projects concern green transports, HIV
a body annexed to the European Investment Bank (EIB) whose mis- research and technology research in general. Recently, municipalities
sion is to strengthen the ability of the public sector to engage in also resorted to PPP projects with the view to financing local sports
PPP transactions by helping public authorities to share experience, infrastructure (stadiums, swimming pools, cultural centres, etc) in
expertise, analysis and good practice. Luxembourg.
PPP – limitations On 17 December 2013, the European Commission launched
eight contractual PPPs of strategic importance for European indus-
28 What, if any, are the practical and legal limitations on PPP try. The partnerships will leverage more than €6 billion of invest-
transactions? ments to be allocated through calls for proposals under Horizon
There exists no specific limitation on PPP transactions. These con- 2020, the new EU programme for research and innovation. Each
tracts are covered by the public procurement rules set out in the Law euro of public funding is expected to trigger additional investments
of 25 June 2009 on public procurement and its executive Grand- of between three and 10 euros to develop new technologies, products
Ducal regulations. Any PPP project must take into consideration and services that will give European industry a leading position on
constraints imposed by that law. world markets. These PPPs are likely to benefit to the Luxembourg
industry in a number of ways.
Denis Van den Bulke dv@vdblaw.com

Laurence Jacques lj@vdblaw.com
35 avenue Monterey Tel: +352 26 38 33 50

2163 Luxembourg Fax: +352 26 38 33 49
Luxembourg www.vdblaw.com

López Velarde, Heftye y Soria SC MEXICO
Mexico
Rogelio López-Velarde and Amanda Valdez
Creating collateral security packages the loan shall be used, under the supervision of the lender, to finance
the acquisition of raw materials, salary payments and direct indis-
1 What types of collateral are available? pensable business operation costs. Both refaccionario and avio loans
Security packages for international non-recourse financing associ- are intended to finance production enterprises; therefore, they are
ated with the development of projects in Mexico normally inte- not suitable for all types of project. Avio loan lenders have a statu-
grate a series of security interests over the project assets under both tory non-possessory security interest over the goods purchased by
Mexican and foreign law (normally New York law). Mexican law the debtor, as well as the fruits, products and devices obtained with
allows the creation of security interests over almost all kinds of the use of the loan proceeds. Refaccionario loan lenders have a statu-
assets and rights held by project companies, including in rem secu- tory non-possessory purchase money security interest over the busi-
rity interests over real estate properties, contractual rights, licences, ness’ real and moveable property, including machinery, instruments,
concessions and permits, moveable property and intellectual prop- and the revenues and products obtained therefrom.
erty rights. There are exceptions to this general rule. For instance, Finally, Mexican banks are allowed to obtain:
contractual rights stemming from contracts governed by Mexico’s • special mortgages, known as ‘industrial mortgages’, covering
government procurement laws (ie, contracts with government the real estate property of a certain business being financed by
entities and agencies, other than Pemex and Comisión Federal de them, as well as its concessions or licences, all personal prop-
Electricidad) are limited on the type of security interests that may be erty utilised by the enterprise in its operations, and the cash and
granted, as only account receivables may be assigned; thus, foreclo- accounts receivable generated; and
sure over other contractual rights (such as typical step-in rights) is • banking pledges, which are pledges over ‘durable consumer
generally disallowed. goods’ (ie, goods that are not consumed as a result of their ordi-
Pledges are normally created over the contractual rights, account nary use) that do not require the delivery of the goods, but only
receivables, moveable property and shares of the project companies. the delivery of the purchase invoice with an annotation evidenc-
Mortgages are established over real estate properties, including land, ing the pledge.
buildings and fixtures. Pledges and mortgages grant in rem rights
in favour of the pledgee or mortgagee, as well as priority rights in Since the purpose of this chapter is to provide international lenders
bankruptcy proceedings. All pledges and mortgages are subject to and professionals with a general overview of the project finance envi-
registration for public notice purposes, which is one of the key ele- ronment in Mexico, we make no further reference to aspects related
ments determining the priority among security interests affecting a to avio and refaccionario loans, since the international financing
specific asset. community does not normally resort to Mexican law-governed loan
Security packages that include the creation of security trusts agreements, or to industrial mortgages and banking pledges, as these
are also common. Under a security trust, a settler transfers title to are available only for Mexican banks.
a series of assets and rights to a trustee (normally a Mexican bank,
as only certain entities may act as trustees under Mexican law),
who holds title to the relevant assets and rights (ie, the trust estate)
insofar as there are outstanding obligations under the financing
arrangements. The settler retains a beneficial interest to use and ben-
efit from the estate of the trust in the ordinary course of business
for as long as no defaults occur; if a default occurs, the trustee is
authorised to foreclose on the trust estate through tailor-made fore-
closure procedures established in the trust indenture, including out- Mortgages and security trusts encompassing real estate property are
of-court foreclosure (subject to certain due process requirements). perfected upon execution of the relevant deed of mortgage or deed
Similar foreclosure benefits are afforded to ‘non-possessory pledges’ of trust, validated by a notary public, and its registration at the pub-
(ie, pledges in which the pledgor retains the use and possession of lic registry of property of the location of the property. The priority of
the pledged assets). security interests over real estate property is determined by the time
Mexican law also provides specific security interests for certain of filing of the security instrument for registration with the public
types of assets, such as aircraft and vessels, and lenders providing registry of property.
financing under the avio or refaccionario loans contemplated in the Regular commercial pledges are perfected by the delivery of the
General Law of Negotiable Instruments and Credit Transactions. pledged assets to the secured creditor or a third-party depositary, or
The purpose of a refaccionario loan (which is similar to a purchase their registration at the Sole Security Interests Registry (a special sec-
money security interest) is to finance the startup costs of an agricul- tion of the Public Registry of Commerce for the registration of secu-
tural or industrial business. The purpose of avio loans is to finance rity interests over non-real estate property, including tangible and
the continued operation of the business; therefore, the proceeds of non-tangible assets and rights), if the debtor retains possession of the
MEXICO López Velarde, Heftye y Soria SC
pledged assets. However, since non-possessory pledges were intro- In the case of non-possessory pledges and security trusts, sum-
duced, it is no longer common to see regular commercial pledges mary judicial foreclosure proceedings are available, with the alterna-
being used in large project financing structures (except for pledges tive option of having the relevant assets sold through a non-judicial
over shares or membership interests, which require registration in proceeding if the parties are in agreement about the amount due
the corporate books of the issuing company). Instead, lenders resort and the payable status of the defaulted obligations. In addition, in
to non-possessory pledges, where the pledge is perfected upon regis- the case of security trusts, the parties are entitled to establish ad hoc
tration with the Sole Security Interests Registry. foreclosure procedures in the relevant trust indenture under which
Security trusts over contractual rights require notice to all coun- no judicial intervention is required. Judicial foreclosure procedures
terparties about the transfer of rights to the trust. Security trusts allow the secured lenders to receive the pledged assets upon determi-
involving personal property generally need to be in writing and reg- nation of their value or choose to have such assets sold in a public
istered with the Sole Security Interests Registry to be fully enforce- auction procedure.
able and obtain priority with respect to other security interests. The sale of assets being foreclosed may be denominated in a
The creation of security interests over concessions, licences and foreign currency in the case of non-judicial foreclosure procedures.
similar rights, as well as certain regulated assets (eg, gas pipelines,
power plants), normally requires prior approval of the governmental
agency that granted such concession or licence (or at least notice).
Additionally, special registrations may be required for security inter-
ests over specific assets such as aircraft, vessels or mining properties.
Registration fees and notarial fees are the main costs associated
with the effectiveness and perfection of security documents, and
they vary from state to state. Notarial fees are subject to maximum
levels established by the state governments; however, notaries are
normally allowed to grant discounts, which are normally obtained
for large transactions. Likewise, some local laws permit discounts
on the applicable registration fees when the transaction is related to Under Mexico’s bankruptcy statute, the Commercial Insolvency
a project that proves to be beneficial for the relevant state (eg, infra- Law (the CIL), the issuance of the insolvency resolution entails the
structure, creation of jobs, direct investment in the state). acknowledgement and effectiveness of a general retroactive claw-
A corporate entity may hold collateral on behalf of the project back period of 270 calendar days (or 540 days for transactions with
lenders as the secured party in the capacity of collateral agent, pro- affiliates, the company’s directors or senior officers, or their rela-
vided its appointment as agent is made in writing and specifically tives) from the issuance of such insolvency resolution; the conciliator
includes the authorisation of the lenders to the agent to hold, in its appointed in the procedure or any creditor acknowledged by the
own name, but for the benefit of the project lenders, the collateral district judge may request the district court to set a longer claw-back
granted in Mexico. The parallel debt clause concept is not contem- period in justified circumstances, which shall not exceed three years.
plated under Mexican law. Certain transfers of assets and other acts unjustifiably and adversely
affecting the project company’s financial position that occurred dur-
ing this period may be considered fraudulent and in prejudice of
3 How can a creditor assure itself as to the absence of liens with creditors and their rights.
priority to the creditor’s lien? The creditors in a bankruptcy proceeding have a priority posi-
By conducting a search at the public registry of property correspond- tion in the credits payment waterfall when they hold in rem secu-
ing to the property’s location, the creditor can obtain a certificate rity interests over assets that may be foreclosed for collection of the
indicating the registered owner of the property and any registered relevant debt. When multiple secured creditors exist, the registra-
liens over such property. tion date of the relevant security interests at the applicable registry
Additionally, creditors should obtain copies of the registration shall determine the priority of payment among secured creditors.
files of the debtor at the Public Registry of Commerce (which acts as If security interests are not registered, the relevant creditors will be
the registrar of companies), the Sole Security Interests Registry and considered as unsecured creditors and will be paid once the secured
other applicable registries that may contain entries related to pledges creditors are paid, to the extent the remaining assets permit the pay-
and other security interests over the debtor’s assets. Only a very few ment of the amounts owed to the unsecured creditors. Creditors
pledges are exempt from registration. that have expressly agreed to be treated as subordinated creditors,
With respect to liens over the shares or membership interests and parties of the debtor not holding a secured debt are considered
of a company, creditors should review the company’s shareholders’ subordinated debtors, with a priority below common unsecured
or members’ registry books and, in the case of shares, review the creditors.
actual share certificates to confirm the absence of any endorsements Once the existing creditors are recognised, the company’s assets
or annotations related to previous liens. are liquidated in order to pay debts owed to these recognised credi-
tors at a bankruptcy stage. At the bankruptcy stage, a trustee shall
be appointed by the district court to undertake the liquidation stage.
The CIL establishes that, except for Mexican insurance and
bonding companies, all commercial entities may be subject to insol-
vency and bankruptcy proceedings. As to governmental entities,
Foreclosure procedures vary depending on the type of collateral. only those commercial companies in which the government partici-
Foreclosure of mortgages requires judicial intervention pursuant to pates may be subject to insolvency proceedings. No governmental
summary proceedings that ultimately result in a public auction of agencies, public instrumentalities or state productive enterprises
the mortgaged properties, in which the project lenders may partici- (eg, Pemex and the Federal Electricity Commission (CFE)) may be
pate by requesting that the properties are transferred to them in pay- subject to bankruptcy proceedings, and none of their assets may be
ment of the guaranteed debt at the price (or a certain percentage of seized or intervened in under the CIL.
the price, depending on the applicable local laws) applicable at the Mexican law does not allow the seizure of assets outside court
relevant stage of the auction. proceedings. Any such acts or actions to seize assets of an individual

or company shall be undertaken and approved by the courts under Foreign investment issues
applicable procedural rules.
While a procedure under the CIL is continuing, no seizure of 10 What restrictions, fees and taxes exist on foreign investment in or
assets is allowed, except as a preventive measure resolved by the ownership of a project and related companies? Do the restrictions
court to guarantee payment of credits in limited cases. also apply to foreign investors or creditors in the event of
Foreign creditors are treated in the same manner as local credi- foreclosure on the project and related companies? Are there
tors. The law also allows the acknowledgment in Mexico of proce- any bilateral investment treaties with key nation states or other
dures undertaken abroad, and requests for assistance by a foreign international treaties that may afford relief from such restrictions?
authority with respect to a procedure being undertaken in Mexico. Would such activities require registration with any government
The CIL procedures are applicable in such a case, unless otherwise authority?
provided by international treaties or where there is no international Although 100 per cent foreign ownership is permitted in most sec-
reciprocity. tors, Mexican law does provide a series of restrictions on foreign
investments in projects and related companies involved in certain
Foreign exchange issues specific activities. For this purpose, economic activities may be clas-
sified as follows:
6 What are the restrictions, controls, fees, taxes or other charges • activities reserved to the state (eg, transmission and distribu-
on foreign currency exchange? tion of electricity as a public service, nuclear energy, radioactive
Under the multiple bilateral investment protection treaties and free minerals);
trade agreements (FTAs) to which Mexico is a party (eg, NAFTA, • activities reserved for Mexican companies with no foreign
the EU–Mexico Treaty), the government has accepted substantial investment (eg, land transportation, except for courier services
restrictions on its ability to impose exchange control measures and services related to the oil and gas industry);
or any restrictions on transfers for the repatriation of funds. As a • activities with foreign investment limited to a certain percentage
result, Mexican law does not contemplate any restrictions, con- (domestic air transportation, insurance);
trols, governmental fees or taxes on foreign currency exchange or • activities requiring approval by the National Commission on
transfers of funds to parties abroad. As an exception, entities mar- Foreign Investment (the CNIE) for participation over 49 per
keting hydrocarbons produced in Mexico under exploration and cent (eg, ports, private education);
production contracts entered into with the Mexican Hydrocarbons • activities with no restriction to foreign investment; and
Commission may be subject to restrictions on the use and sale of the • acquisitions above a certain monetary threshold requiring
foreign currencies obtained as a result of their marketing activities. approval.
It is questionable whether these restrictions are applicable only to
those marketing hydrocarbons owned by the Mexican state or if Until 11 June 2013, telecommunications services (except mobile
it is also applicable to those marketing the production owned by services) were restricted to 49 per cent foreign investment, while
private contractors, moreover, foreign investors of the countries broadcasting services were fully reserved for nationals. These for-
with whom Mexican has entered the treaties mentioned above (and eign restrictions have changed as a result of a recent constitutional
their Mexican subsidiaries) would be protected under such treaties amendment related to the telecommunications sector. Consequently,
against excessive foreign exchange controls. there are no longer any foreign investment restrictions for telecom-
munication services, while foreign investment of up to 49 per cent
is allowed in radio and television broadcasting services, provided
7 What are the restrictions, controls, fees and taxes on remittances that the country of the relevant foreign investor (or its parent com-
of investment returns or payments of principal, interest or pany) allows at least the same foreign investment percentage as the
premiums on loans or bonds to parties in other jurisdictions? amount that will be invested in Mexico. Moreover, as part of the
See question 6. Note, however, that remittances of investment energy reform enacted in 2014, all of the foreign investment restric-
returns and interests related to loans granted by foreign residents tions relating to the oil and gas industry were lifted and, thus, foreign
may be subject to income tax withholdings at rates ranging from investment participation is now fully permitted in gasoline retail
zero per cent to 30 per cent, depending on the nature of the remit- sales, LP gas distribution, shipping services for the oil and gas indus-
tance and the underlying transaction, the characteristics of the inves- try and the development and operation of oil and gas exploration
tor or lender, and the applicability of a double taxation treaty. and production fields under contracts entered into with the National
Hydrocarbons Commission.
Where foreign investment is subject to restrictions, foreign inves-
tors may, nevertheless, participate in reserved activities through ‘neu-
tral investment’, with limited corporate rights, with prior approval
of the CNIE.
Earnings need not be converted to local currency; there are no spe- Foreign nationals are not allowed to directly own real estate for
cific restrictions over their use or repatriation. residential purposes within 50km of the coastline and 100km from
the country’s borders; however, they may hold beneficiary rights
9 May project companies establish and maintain foreign currency through a trust, which, nevertheless, provides full control of their
accounts in other jurisdictions and locally? investment.
All of these restrictions are equally applicable to foreign inves-
Project companies are allowed to establish and maintain foreign
tors or creditors in the event of foreclosure in the project and
currency accounts both in other jurisdictions and locally. It is typi-
related companies. Mexico is a party to numerous bilateral invest-
cal for project finance schemes that dollar-denominated accounts be
ment treaties (BITs), many of which contemplate security interests
set up onshore and offshore to receive the revenues of the project,
as investments subject to protection; however, their application in
and pay lenders and other parties based on the financing documents’
the context of a foreclosure on a project or related companies has
‘waterfall’.
not been tested, and therefore it is difficult to anticipate the way
the courts will enforce the protection afforded under such treaties
and the foreign investment restrictions normally applicable, as this
situation is not specifically regulated either under the BITs to which
Mexico is a party or under Mexico’s statutory law. No special fees or • refraining from nationalising, expropriating or subjecting to
taxes are applicable to foreign investments, except for nominal fees measures tantamount to nationalisation or expropriation the
for the mandatory registration of foreign-owned companies with the investments of protected investors, except for expropriations
National Registry of Foreign Investment. made in the public interest, on non-discriminatory bases, under
due process of law, and upon fair, market-value compensation
paid in hard currency; and
• allowing free repatriation of funds.
In addition, under the US-Mexico Agreement for the Promotion of
creditors?
Investment, US businesses may benefit in Mexico from the invest-
As a general rule, Mexican law prohibits risks in Mexico being ment protection, insurance and financing programmes and services
insured by foreign insurers. Thus, policies contracted with foreign offered by the Overseas Private Investment Corporation. Mexico
insurers not authorised to operate in Mexico are not enforceable has not joined the ICSID, but it recently became a member of the
in Mexico. Reinsurance activities are permitted and are not subject Multilateral Investment Guarantee Agency, and has signed more
to these restrictions (it is not uncommon to see foreign investors or than 26 BITs with its main trading partners.
creditors requiring satisfactory reinsurance); however, cut-through
clauses are not enforceable under Mexican law. Other exceptions Fiscal treatment of foreign investment
may apply under FTAs to which Mexico is a party.
Insurance policies issued by Mexican insurers may be payable to 15 What tax incentives or other incentives are provided preferentially
foreign secured creditors. to foreign investors or creditors? What taxes apply to foreign
or executives to work on a project? Although there are no tax incentives specifically designed to attract
foreign investment, foreign investors do benefit from reduced tax
Except for directors and general managers, Mexican labour law
rates and tax credits recognised under multiple double taxation trea-
requires that at least 90 per cent of a company’s employees be
ties signed by Mexico. Foreign investors can also take advantage
Mexican nationals. Technicians or professionals shall always be
of sector-specific tax incentives in which foreign-owned enterprises
Mexican, except when there are no Mexican individuals available
have taken the lead, including tax benefits for research and develop-
to take positions of a certain speciality; in such case, employers may
ment projects, and special tax incentives for export-oriented assem-
hire foreign nationals in a proportion not exceeding 10 per cent,
bly plants and renewable energy projects. Foreign creditors may also
with a joint obligation by the foreign employees and the employer to
benefit from reduced tax rates under double taxation treaties.
train Mexican employees in the relevant speciality. All medical doc-
Registration fees and notarial fees are the main costs associated
tors shall be Mexican nationals. Foreign expertise needs may, never-
with the effectiveness and perfection of security documents, and are
theless, be dealt through company-to-company technical assistance
equally applicable regardless of whether the parties to the transac-
agreements, through which foreign employees may be temporarily
tions are foreign or Mexican.
seconded to a project in Mexico without establishing employment
relationships with the Mexican enterprise.
All foreign personnel in Mexico are required to obtain appropri-
ate immigration visas. 16 What are the relevant government agencies or departments with
13 What restrictions exist on the importation of project equipment? nature and extent of their authority? What is the history of state
Because of numerous FTAs to which Mexico is a party, the impor-
tation of equipment is rather open, except for regular customs The government agencies and instrumentalities in typical project
procedures and recordings. There are, however, limitations on the sectors continue to play a major role in Mexico in some sectors
overall volume of importations of specific merchandise and equip- (eg, energy) because of the prevalent role of the state-owned enter-
ment, and licences may be required for highly specialised equipment. prises, and in other infrastructure sectors typically subject to govern-
Countervailing duties and import taxes may also be applicable. ment concessions. Additionally, federal environmental and antitrust
authorities are also involved: the Federal Competition Commission
(CFC) (recently re-characterised as a constitutionally independent
14 What laws exist regarding the nationalisation or expropriation agency) and the Ministry of Environment and Natural Resources
of project companies and assets? Are any forms of investment (SEMARNAT). CFC is required to provide clearance for participa-
specially protected? tion in certain sectors (eg, telecom, ports, oil and gas exploration
Expropriation is permitted only for public use purposes, upon and production and gas pipelines) and to oversee market behaviour
payment of indemnification at market value. In addition, under and economic conditions. SEMARNAT authorises infrastructure
Mexico’s multiple BITs (including chapter XI of NAFTA and the projects with regard to any environmental impact and risk factors;
treaties with Japan and most EU countries), Mexico has various lenders typically scrutinise the SEMARNAT approvals to assess the
commitments concerning expropriation and even creeping expro- environmental performance characteristics of a project from the
priation, including: standpoint of international lending community standards, includ-
• fair and non-discriminatory treatment to nationals of other ing the Equator Principles. The National Agency for Industrial
treaty countries (protected investors); Safety and Environmental Protection for the Hydrocarbons Sector
• refraining from impairing, by arbitrary or discriminatory meas- (ANSIPA) is a newly created federal agency in charge of regulating,
ures, the management, maintenance, use, enjoyment or disposal authorising and supervising all industrial safety and environmental
of the protected investors’ investments; matters for the entire oil and gas industry, including the upstream,
• most favoured nation and national treatment; midstream and downstream sectors.
In the energy sector, the state-owned enterprises – Pemex on
the oil and gas side and CFE on the power side – have long played
a major role in infrastructure development in Mexico, since most

activities in the oil and gas sector, from upstream, midstream and was granted (eg, the Mining Law and the National Waters Law).
downstream, and in the transmission and distribution of power, are No concessions are allowed for the exploration and exploitation
undertaken by the government. Therefore, a considerable portion of of domestic hydrocarbons and radioactive minerals, or for electric
project finance deals referred to contracts in which CFE or Pemex transmission or distribution as a utility service. Nevertheless, pro-
(or its subsidiaries in the exploration and production, gas, refining vided the state’s ownership of hydrocarbons while in situ (in the
and petrochemical subsectors) were the an anchor tenant or facilities reservoir) is acknowledged, the entities awarded exploration and
owner. This is expected to change in the coming years, as a historic production contracts are allowed to report in their books their rights
energy reform passed in 2013, whereby the vertically integrated to the resulting revenues or to a percentage of the production once
monopolies of CFE and Pemex over the Mexican energy sector have it is already realised.
been repealed, widely opened the sector to private participation and
even required the reduction of Pemex’s and CFE’s market share in
certain segments of the industry.
On the regulatory side, projects developed by private investors
in the natural gas and power sectors (including gas transportation Royalties payable for the extraction of minerals are determined on
pipelines, LNG terminals and power generation facilities) are regu- the basis of the property surface that forms the subject of the conces-
lated by the Energy Regulatory Commission. Nuclear power (pre- sion multiplied by a factor depending on the year of effectiveness of
dicted to be the subject of sustained growth in Mexico in future the concession, with no participation based on volumes of produc-
years) is regulated by the National Commission on Nuclear Safety tion or net revenues of the concession holder; however, a bill has
and Safeguards. The Ministry of Energy has a limited role in project been submitted to Congress to establish the payment of royalties
finance structures as a regulator in the area of LPG terminals and based on a certain percentage of the income attributable to mining
pipelines, but it is expected to play a more active role, as part of the exploitation activities. Fees are payable on equal terms by domestic
new scope of authority it has gained, to regulate, along with CNH and foreign parties, and there are no restrictions for foreign invest-
and the Ministry of Finance and Public Credit, oil and gas explora- ment in mining activities. Regular income taxes apply.
tion and production activities under the new legal framework. In the case of hydrocarbons, entities that are parties to explora-
With respect to the communications infrastructure sector, tion and production contracts with CNH are required to pay royal-
including toll roads, ports and suburban trains, the Ministry of ties based on a percentage of the gross value of the hydrocarbons
Communications and Transportation regulates the provision of ser- produced, which percentage increases whenever the price of hydro-
vices, including the setting of rates and standards for services, and carbons increases. In addition, E&P contractors may be required,
issues the relevant concessions to the project sponsors. The Federal depending on the type of contract entered (ie, licence agreement
Telecommunications Institute, om the other hand, regulates the tel- or profit sharing agreement), to pay a signing bonus, a fee for the
ecommunications sector. exploration phase (based on the size of the area that was awarded),
In many instances, project finance structures in these sectors also and a consideration based on a certain rate applied to either the
interact with FONADIN, a government infrastructure development operational profit (ie, the value of the production minus the royal-
trust, which provides funding with limited recovery and obtains cer- ties paid, minus permitted costs, expenses and deductions related to
tain limited rights to participate in proceeds after project lenders the investments required for the performance of the contract) or the
have been fully paid. contract gross value of the hydrocarbons produced.
Wastewater treatment plants and other water infrastructure For the extraction of water, concessionaires are required to pay
facilities are usually developed by state authorities, and are thus governmental fees based on the volumes extracted.
subject to the jurisdiction of state authorities. Most projects are
awarded through public tenders subject to state government pro- 19 What restrictions, fees or taxes exist on the export of natural
curement statutes (including their respective PPP laws). resources?
Mineral extraction is regulated by the General Bureau of Mines
The government may establish regulatory and restrictive measures
of the Ministry of Economy, which issues exploration and exploi-
on undertaking export of merchandise (including natural resources)
tation concessions, collects fees payable by mining companies and
in accordance with the Foreign Trade Law and numerous FTAs rati-
oversees compliance with development and exploitation plans.
fied by Mexico. Such measures would apply, in addition to the appli-
cable provisions set forth in international treaties to which Mexico is
a party, mainly in the event that it is necessary to ensure the supply
17 Who has title to natural resources? What rights may private of products for basic consumption by the population, the supply of
parties acquire to these resources and what obligations does the raw materials to national producers and, in addition, to regulate or
holder have? May foreign parties acquire such rights? control Mexico’s non-renewable natural resources.
The taxes applicable in Mexico for export activities are mainly
Under the Constitution, the Mexican nation has title to real property
general exports tax and customs fees. These taxes, however, are sub-
rights over the land, waters and all subsoil products (including but
ject to the applicability of any international treaty (including FTAs
not limited to minerals) within Mexican territory. Nevertheless, the
and double taxation treaties) to which Mexico is a party.
Constitution and the Mexican nation also grant and acknowledge
the right to private property by Mexican or foreign individuals or
companies subject to certain limitations as to the type, location and,
in some cases (eg, agrarian property), the size of the relevant land. 20 What government approvals are required for typical project finance
Rights of private parties over natural resources such as water or transactions? What fees and other charges apply?
minerals (other than radioactive minerals and domestic hydrocar-
No specific fees, approvals or licences are required for typical project
bons) are granted by the state through concessions and permits for
finance transactions; however, foreign lenders may require certain
their use or exploitation; no property rights are granted. Moreover,
registrations and tax certifications to qualify for reduced income tax
no rights over subsoil products or hydrocarbons are granted to pri-
rates.
vate parties. Holders of concessions and permits for use or exploita-
tion of natural resources are limited to the rights provided in the
concession title or permit, as well as specific limitations set forth
in the applicable statutes under which the concession or permit
21 Must any of the financing or project documents be registered or full faith and credit, and is binding and enforceable in Mexican
filed with any government authority or otherwise comply with legal courts to the extent it does not contradict Mexico’s public policy or
formalities to be valid or enforceable? was selected to wilfully defraud Mexico’s public policy (fraus legis).
As a general rule, the financing documents (other than security While Mexican law generally allows the parties to choose the
documents) and other project documents (except for those related applicable law, project agreements are usually subject to Mexican
to real estate rights) do not need to be registered or filed with any law because, for infrastructure development, contracts usually
government authority or otherwise comply with legal formalities address a number of regulatory and local issues, and interface with
to be valid or enforceable; however, in the case of financing docu- permits and concessions, and substantial performance of the con-
ments, it is sometimes advisable to have them registered along with tracts plays a major role in Mexico. The international lending com-
the security documents, attaching official Spanish translations. This munity is usually comfortable with the choice of Mexican law for
registration is intended to facilitate their enforcement, as it provides project agreements. Project agreements that stem from a federal
certainty about the terms of the financing documents and the terms government procurement process are governed by domestic federal
of the official translation that is to be used in the event that the docu- laws.
ments are to be enforced in a judicial procedure before Mexican On the other hand, pursuant to Mexico’s conflict-of-laws rule
courts. Mortgages and certain trusts must be notarised in order to (lex rei sitae), real estate property rights cannot be subject to a choice
be valid and enforceable. See also question 2. of law other than the law of the realty’s location. Therefore, real
estate property and rights (including security interests) in Mexico
shall always be governed by Mexican federal or local laws.
22 How are international arbitration contractual provisions and Regarding the documents comprising the financing package,
awards recognised by local courts? Is the jurisdiction a member the loan documents, including certain offshore collateral, are usu-
of the ICSID Convention or other prominent dispute resolution ally subject to New York law (and occasionally to other laws of
conventions? Are any types of disputes not arbitrable? Are any choice of the lenders), while security documents (mortgages, share
types of disputes subject to automatic domestic arbitration? pledges and security trusts related to property in Mexico) are subject
Although not yet a party to the ICSID Convention, Mexico fully to Mexican law.
recognises arbitration awards and arbitration agreements through
its internal laws and other international treaties to which Mexico is
a party. Arbitration in Mexico is mainly governed by the Commerce
Code (which substantially adopted UNCITRAL’s Model Arbitration
Law) and the New York Convention, in addition to a number of Submission to a foreign jurisdiction is effective and enforceable
other international arbitration treaties such as the Montevideo and under Mexican law if its enforcement is reciprocal (ie, its enforce-
the Panama Inter-American Conventions. International treaties are ment is not left to the discretion of one of the parties), the jurisdic-
deemed, under the Constitution, as ‘the Supreme Law of the Land’. tion and venue contractually selected is where performance of the
Courts have a duty to decline jurisdiction and to order that the contract occurs or the court selected has personal jurisdiction over
parties in controversy submit to arbitration, if the controversy is one of the parties or the relevant contract, or the subject matter of
permitted to be resolved through arbitration and there is a written the contract is not subject to the exclusive jurisdiction of Mexican
arbitration agreement. courts (eg, real estate matters, natural resources), and the parties
Almost all commercial matters may be subject to arbitration; have unequivocally waived their corresponding jurisdiction. Federal
thus, most project agreements involved in a financing package can rules of civil procedure, and those of most Mexican states, contain
be subject to arbitration. Controversies arising under industrial an entire chapter governing recognition and enforcement of foreign
property law, antitrust, labour and criminal laws, tax and adminis- money judgments.
trative laws and bankruptcy law are generally not arbitrable. With Unlike other jurisdictions, no sovereign immunity is recognised
respect to government procurement contracts, the government pro- under Mexican law; there is, however, certain immunity against
curement laws contemplate certain restrictions for cases in which a attachments, attachments in aid of execution, garnishments or fore-
controversy can be subject to arbitration, the rules of which have not closures of certain assets that are government property or used in
yet been issued; however, the government procurement laws already services under the exclusive control of the government.
contemplate that the administrative rescission of a government pro-
curement contract (ie, rescission by the relevant government agency Environmental, health and safety laws
or instrumentality based on a default by the contractor or supplier,
pursuant to the rescission procedure contemplated in such laws) 25 What laws or regulations apply to typical project sectors? What
may not be subject to arbitration. The same rule is contemplated by regulatory bodies administer those laws?
the Hydrocarbons Law with respect to the administrative rescission Mexico’s environmental, health and safety (EHS) legal framework
of exploration and production contracts. Pemex and CFE contracts comprises federal, local and municipal laws, regulations and norms
are exceptional where their own organisational statutes authorise that are applicable to the different sectors, including:
submission of commercial disputes to international arbitration and • the General Law of Ecological Equilibrium and Environment
even foreign law when required. Protection, the General Law for Prevention and Integral
Management of Wastes, the General Law of Wildlife, the
National Water Law, the General Law of Sustainable Forest
Development and their respective implementing regulations;
• the Federal Labour Law;
• the General Health Law;
Irrespective of Mexican conflict-of-laws rules, project agreements • the Social Security Law; and
and financing agreements may be governed by the law indicated in • official Mexican norms applicable in EHS matters.
the corresponding choice of law clauses (either Mexican or foreign).
Unlike other jurisdictions, there is no need to have a substantial rela- Recent legal developments include the enactment of the General
tionship between the law contractually chosen and the parties or Law on Climate Change in 2012, which created the Climate Change
subject matter of the relevant contract. Likewise, Mexican law fol- Fund to raise and channel public, private, national and international
lows the principle of iura novit curia; therefore, foreign law is given funds into the development of projects related to energy efficiency,

Update and trends
Throughout 2013 and 2014, Mexico has undergone landmark The midstream oil and gas industry has also been opened up to
structural reforms aimed at transforming the country into an economic private participation with no foreign investment restrictions, including
powerhouse, fully engaged with international issues and providing a wide range of activities previously reserved to the state, such as
better investment conditions to address structural bottlenecks to refining, processing, pipelines, storage, terminals and retail sales of
growth and achieving better living conditions for its citizens. These oil, gas, refined products and petrochemicals.
reforms include important changes to the legal framework for the For the electricity sector, the reform excluded the generation and
labour market, education, telecommunication and competition policy, marketing of electric power from the public utility services reserved
financial sector regulation, energy, and fiscal policy. to the Mexican state, and, as a result, only nuclear energy, power
In particular, the reform for the energy sector has attracted the transmission services, power distribution services and the operation
attention of international investors, reflected in the recent credit and dispatch of the National Electric System (Servicio Eléctrico
rating upgrades for Mexico. The Mexican Congress made a historical Nacional (SEN)), remain reserved to the Mexican state.
decision by breaking the government’s vertically-integrated monopoly The new legal framework contemplates, among other matters, the
over oil, gas and electricity established for decades in favour of creation and commencement of operations of the new governmental
the two state-owned companies, Pemex and CFE, and has opened agencies and entities that will participate in the Mexican electricity
the door for private competition in most of the value chains of the sector, including:
Mexican energy industry. • entities resulting from the transformation of CFE (which has also
The energy reform and its implementing legislation allows private become a state productive enterprise), and its reorganisation in
players to participate in all activities of the oil and gas industry the form of a parent company and a set of subsidiaries that will
previously reserved to Pemex, including the execution of all sorts of assume, separately, CFE’s distribution, transmission, generation
risk contracts, production-sharing agreements and exploration and and marketing activities (scheduled to be completed over a term
production contracts to be entered into with CNH (E&P contracts), of two years); and
while state productive enterprises are able to participate in exploration • the spin-off of the National Center for Energy Control from CFE,
and production activities through either E&P contracts or allocations. to become a public instrument in charge of dispatching the SEN
The fiscal regime for E&P Contracts is regulated by the Hydrocarbons as an independent system operator in order to guarantee open
Revenues Law, based on royalties and other considerations payable access.
by the E&P contractors to the state, as determined on a case-by-case
basis by the Ministry of Finance and Public Credit. This new legal In addition, the new legislation is aimed at creating a wholesale
framework includes, in addition to the rules concerning the design, market, where producers and marketers are allowed to sell power,
award, management and termination of E&P contracts, other general among others, and suppliers and qualified offtakers may purchase
provisions regulating the upstream sector, including the use and power and also allowing power suppliers (who are essentially power
possession of seismic information, the creation of a new agency for marketers that hold a permit to provide power supply services) to sell
industrial safety and environmental protection for the hydrocarbons power to qualified offtakers without the need of resorting to the self-
sector, exploration and drilling authorisations to be granted by the supply scheme.
CNH, land use and occupation for E&P projects, social impact and The opening of the Mexican energy sector is raising
development. In parallel, Pemex has been transformed from a public unprecedented investment opportunities and, thus, a large need for
instrumentality into a state-productive enterprise, expected to operate financing flows, bringing to the table a whole new set of commercial,
as a state-owned, commercially-oriented company, with the primary transactional and regulatory for both sponsors and lenders.
mandate of creating value.
renewable energies and sustainable transportation systems, and alternatives, the most typically used vehicles for project companies
other projects to reduce greenhouse gas emissions. The Federal Law are stock companies and limited liability companies. The latter form
on Environmental Liability was issued in 2013 and establishes envi- has been more widely used in the past few years, as it provides a
ronmental restoration or compensation obligations, or both, as well number of benefits from the corporate governance perspective, in
as the imposition of economic penalties, to parties that cause envi- addition to other benefits from the tax perspective (particularly for
ronmental damages. US developers), since limited liability companies qualify as flow-
The regulatory bodies administering Mexico’s EHS legal frame- through vehicles under US ‘check the box’ rules. However, legal
work are: amendments introduced in 2014 now provide further flexibility to
• at the federal level, SEMARNAT, the Ministry of Labour and structure stock corporations and accommodate special requirements
Social Welfare, the Ministry of Health, and the General Bureau from either sponsors or lenders, such as limitations or requirements
of Norms; and related to the transfer of shares and shares with different economic
• at the local and municipal level, the respective local or municipal or voting rights, among other matters.
environment protection agencies. Project companies may be structured under a Mexican sub-hold-
ing company that in turn may also have other operating subsidiar-
Finally, in 2014, ANSIPA was created as a federal agency specialising ies, including a personnel services company that provides specialised
in the regulation, authorisation and supervision of industrial safety staffing services to the project.
and environmental matters concerning the oil and gas industry. In recent years, as a result of the macroeconomic stability of
the Mexican economy, infrastructure developers (both domestic and
Project companies foreign) have had full access to domestic and international financing
sources. Sources of financing include US, European and Japanese
26 What are the principal business structures of project companies? commercial banks, as well as Mexican commercial and development
What are the principal sources of financing available to project banks (including Nafin, Bancomext and Banobras). Multilateral
companies? banks such as the IFC and IDB are also active.
Business structures of project companies greatly depend on the type Along with traditional limited-recourse project finance deals,
of activity or project to be developed. However, due to regulatory structured finance deals using schemes that are less burdensome
concerns and because of corporate, tax and other considerations, to developers are being implemented, in addition to a wide range
usually developers resort to Mexican companies, which may have of securities being put in place both by local and municipal gov-
considerable management flexibility and provide the necessary cor- ernments and private investors, including project bonds; participa-
porate shield to make a project non-recourse (generally, there is no tion certificates issued by real estate trusts (the Mexican version
piercing the corporate veil under Mexican law). While there are other of REITs); and development capital certificates (known as CKDs)
issued by trusts formed to finance one or more projects, or otherwise services. Until 2014, PPPs were not permitted for any of the activities
structured as private equity funds to hold participations in the com- related to the oil and gas industry that used to be reserved to the
panies developing projects. Mexican state through Pemex. As part of the energy reform of 2013
and 2014, this restriction has been eliminated and a no limitations
Public-private partnership legislation policy to undertake PPPs related to the oil and gas industry is now
applicable.
level of government and is the legislation industry-specific? PPP – transactions
PPP enabling legislation has been enacted in Mexico both at the
federal and state level, although a few states are still behind in this 29 What have been the most significant PPP transactions completed
regard. PPPs have been developed both under industry-specific pro- to date in your jurisdiction?
grammes or regimes (eg, toll roads) or under the general framework A wide range of PPPs have been successfully implemented in Mexico
created, at the federal level, by the rules for the implementation of under variety of schemes, even prior to the enactment of the PPPs
Projects for the Provision of Services (issued in 2003 and based on Law. PPP projects in Mexico have primarily focused on toll roads,
the UK PFI model), and at the state level, by the local PPP enabling suburban trains, wastewater treatment, health care and educational
rules or legislation, which are not industry-specific. centres. PPP projects for toll roads have been implemented through
In 2012, the federal Public-Private Associations Law (the PPPs industry-specific programmes and regimes, where the federal govern-
Law) was enacted to regulate long-term PPPs for the provision of ment (and in some instances, local governments) provide recoverable
public services with private infrastructure. The PPPs Law enables and non-recoverable resources to the project, while the concession-
federal, local and municipal governments (using federal funds), as aire assumes the obligation to finance the remainder through risk
well as any agency or instrumentality of the federal public adminis- capital and third-party financings. Similar schemes have been used
tration, to participate within this contractual scheme, but excludes for water treatment facilities through long-term service contracts (as
activities reserved to the state (eg, the upstream oil and gas industry, opposed to concessions) where a portion of the required resources is
electric power utility services). also contributed by the federal, state or municipal governments. Bids
for these PPPs have involved considerable competition, and develop-
PPP – limitations ers have been able to finance their projects through a wide variety
of combinations, including financing provided by local and foreign
28 What, if any, are the practical and legal limitations on PPP banks, as well as multilateral agencies, and secured bonds.
transactions? In the case of health care, prisons and educational centres, PPPs
As a general rule, PPP projects are awarded through public bidding have been developed under the federal rules for the implementa-
processes, and are subject to stringent budgetary authorisations tion of Projects for the Provision of Services or the local PPP ena-
based on cost-benefit analysis intended to evidence that a PPP pro- bling rules or legislation. In these projects, private investors enter
ject is the most efficient solution to develop the relevant project. In into long-term services contracts to design, finance, construct and
the case of projects for the provision of public services that cannot operate the required facilities, and provide administrative services,
be subject to concessions, the contracting entity shall remain respon- as required to enable the relevant public entity to provide public
sible for the provision of the relevant public service, while private services. In these cases, government funds are also made available to
parties are responsible only for the design, construction and opera- the project up to a certain level of the required investment.
tion of the required facilities, and the provision of administrative
Rogelio López-Velarde rlopezv@lvhs.com.mx

Amanda Valdez avaldez@lvhs.com.mx
Guillermo González Camarena No. 1600, Floor 6-B Tel: +52 55 3685 3333
Col Santa Fe, Centro de Ciudad Fax: +52 55 3685 3399
Mexico City 01210 www.lvhs.com.mx
Mexico

Hamzi Law Firm MOROCCO
Morocco
Zineb Idrissia Hamzi
Hamzi Law Firm
Creating collateral security packages contained in the pledge as well as their location. The pledge of tools
and equipment must be concluded within 30 days of delivery at the
1 What types of collateral are available? final location, where the equipment shall be installed.
The available forms of collateral under Moroccan law are a mort- The pledge deed must be registered within 20 days of its consti-
gage on immoveable property, provided by the Dahir (2 June 1915) tution. It may be registered in a special registry at the local court’s
relating to registered immoveable property, and the the follow- clerk office or, if the purchaser carries out industrial or commercial
ing forms of collateral provided for under the Moroccan Code of activity, the pledge deed must be registered in the trade register, in
Obligations and Contracts and the Commercial Code: the pledge which the purchaser is also registered.
over going concerns, the pledge of agricultural products, the pledge The registration of the pledge of tools and equipment grants a
of debts, the pledge of shares, the pledge of tools and equipment, the five-year protection of the debt and two years of interest. It can be
pledge of bank accounts, the assignment of accounts receivable, the renewed for five years.
bank guarantee and the delegation of insurance contracts.
Pledge of shares
The pledge of shares is provided for by article 537 et seq of the
Moroccan Commercial Code and is subject to article 337 et seq
relating to the pledge (dispossession). The pledge of shares does not
require any registration or publication other than the registration in
the company’s share regsitry.
The pledge of shares shall be enforced by judicial public auction
sale.
Pledge over going concerns
The formalities for a pledge over going concerns are prescribed by Assignment of accounts receivable
article 106 et seq of the Moroccan Commercial Code. The pledge Article 529 et seq of the Moroccan Commercial Code provides that
over going concerns should include the elements referred to in article a debt may be assigned to a bank in order to guarantee the payment
80, namely, the customers, the goodwill, the trade name, leaseholds, of a credit or for the advance of the amount of the debt.
commercial furniture, machinery and equipment, invention patents, The assignment is perfected by the delivery to the financial insti-
licences, trademarks for goods and services and industrial designs, tution of a slip, which contains the name and the address of the
including the related industrial property rights. It may be noted that financial institution and the list of the assigned debts. The assign-
the pledgor is not dispossessed of these assets. ment will take effect between the parties and bind third parties at
The pledge over going concerns is perfected by the filing of a the date written on the slip.
pledge deed, which must be registered with the tax authority and in It may also be noted that the assignor is jointly liable for the
the local trade register within 15 days of its constitution in order to assigned debt.
bind third parties. The ranking among pledge creditors is determined
by the date of their registration. The registration of the pledge over Pledge of agricultural products
going concerns, including intellectual property in its assets, must also The pledge of agricultural products is provided by the Dahir of 27
be completed with the Moroccan Industrial Property Office. August 1918 regulating the pledge of agricultural products and con-
According to article 133 of the Moroccan Tax Code, the deed cerns the harvest, herd and all of the equipment. This pledge does
for a pledge over going concerns is submitted at a 1.5 per cent tax not deprive the borrower – the appointed ‘keeper’ –of the pledged
rate and its registration requires a fee of 0.5 per cent of the secured assets.
amount.The registration grants a five-year protection and must The pledge of agricultural products is granted by private deed or
therefore be renewed prior to the expiry of this period. in due legal form. The deed must include a list of the pledged assets,
In the case of the debtor’s default, any registered creditors can their estimated value, their location and the harvest dimension.
require a judicial public auction sale, in accordance with articles 122 According to articles 133 and 135 of the Moroccan Tax Code,
and 123 of the Moroccan Commercial Code. the pledge deed is subject to a 1.50 per cent tax rate and to a fixed
rate of 200 Moroccan dirhams.
Pledge of tools and equipment
The payment of the acquisition price of tools and equipment may Bank guarantee
be guaranteed to the seller or the lender by the pledge of tools and The bank guarantee is governed by article 662 et seq of the
equipment granted in due legal form or by private deed, according to Commercial Code and article 1117 et seq of the Code of Obligations
article 355 et seq of the Moroccan Commercial Code. It may also be and Contracts relating to the guarantee.
noted that the pledge must include a precise description of all assets
MOROCCO Hamzi Law Firm
Nevertheless, most banks see guarantees as a possible way to Once the legal liquidation is granted, claims arising after the
control, or at least to ensure a strong presence in, companies’ man- regular opening judgment recovery are paid in priority to all claims
agement. The granting of a bank guarantee is thus very beneficial whether or not they are secured. Privileged claims, namely tax debts,
for both parties. For the company, the bond is cheaper than a credit social contributions and employee’s claims, pledges or mortgages,
and the financial institution can ensure a significant presence in the are privileged above those of unsecured creditors.
company. Article 560 of the Moroccan Commercial Code provides that
bankruptcy proceedings apply to every merchant and corporate
Delegation of insurance contracts company that is not in a position to pay its debts when they fall due.
Under the Moroccan Insurance Code, any insurance policy may However, public entities are not subject to bankruptcy proceedings,
be delegated in order to assign the insurance compensation to the the project documentation may determine the applicable rules.
benefit of the creditors. Further to that, article 48 of the Moroccan There is no distinction made in the law between foreign and
Insurance Code provides that the insurance compensation is local creditors.
assigned to the privileged or mortgaged creditors without any spe-
cific delegation. Foreign exchange issues

3 How can a creditor assure itself as to the absence of liens with on foreign currency exchange?
The Exchange Office Circular No. 1589 of 15 September 1992
Articles 141, 142 and 368 of the Moroccan Commercial Code pro- introduced the convertibility system for foreign investments. Foreign
vide that the state of registration, called Modèle J, must be delivered investments involve foreign nationals investing in Morocco, as well
to everyone who so requests, with references to prior acts of deletion as Moroccan citizens investing abroad. This system allows the free
from the register and subrogation. A state of registration proving convertibility of foreign investments, namely, carrying out invest-
that a registered lien existed on the asset can also be delivered on ment transactions in Morocco, the transfer of the income produced
demand. Public research can be undertaken using the land title or at by theses investments, as well as the proceeds resulting from a liqui-
the Moroccan Industrial Property Office. dation or a sale.
As regards collateral not subject to registration, its debtor must Most transactions do not require the prior approval of the
testify in writing of the absence of encumbrance against the subject Exchange Office. However, investment transactions realised by
property. transfer of currencies to the Bank Al Maghrib or with a foreign
account convertible in dirhams are subject to statistical reporting
4 Outside the context of a bankruptcy proceeding, what steps to the Exchange Office, in accordance with the first Annex of this
should a project lender take to enforce its rights as a secured Circular. The transfer of foreign investment income as well as the
party over the collateral? liquidation or sale proceeds must also be reported to the Exchange
Office, in accordance with Annexes II and III.
Collateral is enforced through a judicial public auction sale, denomi-
The exchange operations that require the prior approval of
nated in dirhams, namely, real estate mortgages, pledge over going
the Exchange Office are provided by the Instruction on Currency
concerns, tools and equipment or shares. The other forms of collat-
Exchange Operations, namely, transfer of franchise royalties and the
eral are enforced through judicial proceedings (article 459 et seq of
opening of an offshore bank account by a Moroccan citizen.
the Moroccan Procedure Code).
Any registered creditor can request a public auction, and over-
bid one-tenth of the final price, excluding the equipment, and give 7 What are the restrictions, controls, fees and taxes on remittances
bail (personal guarantee) for the payment of the price. of investment returns or payments of principal, interest or
5 How does a bankruptcy proceeding in respect of the project A new Instruction on Currency Exchange Operations dated 31
company affect the ability of a project lender to enforce its rights December 2013 was published by the Exchange Office. It pro-
as a secured party over the collateral? Are there any preference vides in its articles 725 and 726 that remittances include dividends,
periods, clawback rights or other preferential creditors’ rights attendance fees, foreign companies’ profits realised in Morocco,
(eg, tax debts, employees’ claims) with respect to the collateral? rental income and interest on loans or bonds granted by foreign
What entities are excluded from bankruptcy proceedings and nationals to Moroccan companies. Authorised intermediaries may
what legislation applies to them? What processes other than freely transfer such income in any amount and at any time after the
court proceedings are available to seize the assets of the project deduction of taxes in Morocco to:
company in an enforcement? • foreign natural or legal non-resident persons, whatever the
mode of financing their investments; and
Bankruptcy proceedings are provided for by the fifth book of the
• foreign nationals resident and Moroccans residing abroad when
Moroccan Commercial Code. In accordance with article 568, when
these investments are made by a contribution in currency.
a company enters into bankruptcy proceedings, the enforcement of
security granted to its creditors is put on hold. If the company is
With the provisions of article 19 IV.D of the Moroccan Tax Code
facing a difficult but not irremediable economic and financial situa-
2014, withholding tax is 15 per cent of the amount of dividends,
tion, judicial settlement is granted, otherwise, the legal liquidation is
income from equity shares and assimilated income. It can, however,
declared by the court, in accordance with articles 560 to 570 of the
be decreased within the context of the general system of regulations
Moroccan Commercial Code. Business activities can, however, be
between Morocco and in accordance with foreign countries on
pursued, notwithstanding the legal liquidation, with court approval,
which the foreign investment procedures are based, namely double
to the benefit of the creditors, in accordance with article 620.
taxation agreements.
According to article 680, the preliminary period extends from
the date of cessation of payments to the judgment opening the bank-
ruptcy proceedings, increased from a previous period for some con-
tracts. Clawback rights are considered within 18 months prior to the
date of the opening of bankruptcy proceedings.

8 Must project companies repatriate foreign earnings? If so, must professionals or the existence of a bilateral agreement allowing
they be converted to local currency and what further restrictions nationals of each state to practise in the territory of another state.
exist over their use? However, certain professional services such as notaries, adouls, bail-
According to articles 729 and 730 of the new Instruction on iffs and accountants are strictly prohibited to foreign nationals.
Currency Exchange Operations, dated 31 December 2013, foreign
earnings must be repatriated and released on the exchange market 11 What restrictions, fees and taxes exist on insurance policies
within 30 days of its collection. In this regard, the investor must over project assets provided or guaranteed by foreign insurance
submit an annual report to the Exchange Office within 120 days of companies? May such policies be payable to foreign secured
the relevant financial year’s closure. Regulations from foreign coun- creditors?
tries are made either by repatriation of currencies quoted by Bank Al
Maghrib, or by the debit of a foreign currency account or a foreign In practice, if a company is a subsidiary of a foreign parent and such
account in convertible dirhams. foreign parent has a policy that covers the local subsidiary, local
insurance must be taken out in addition to the foreign policy. The
taxation of insurance contract is provided by Annex II of the Stamp
9 May project companies establish and maintain foreign currency Code. The contracts concluded with insurance companies are sub-
accounts in other jurisdictions and locally? ject to insurance tax. The amount of tax is determined on the basis
Moroccan companies who export services can be authorised by the of the premiums. However, the insurance tax does not apply to risk
Exchange Office to open and maintain abroad a foreign currency located abroad.
account, in accordance with article 412 of the new Instruction on
Currency Exchange Operations, dated 31 December 2013. This 12 What restrictions exist on bringing in foreign workers, technicians
account must, however, be closed at the completion of business. or executives to work on a project?
Article 14 of this new Instruction provides that a foreign currency
account can be freely opened locally by foreign companies. According to articles 516 to 519 of the Moroccan Labour Code,
employers wishing to hire a foreign employee must obtain a per-
Foreign investment issues mit from the Ministry of Employment and Vocational Training. Any
modification of the contract is also subject to approval. The authori-
10 What restrictions, fees and taxes exist on foreign investment in or sation may be withdrawn at any time by the government author-
ownership of a project and related companies? Do the restrictions ity responsible for work. The employment contract for foreign
also apply to foreign investors or creditors in the event of nationals must be consistent with the model set by the Ministry of
foreclosure on the project and related companies? Are there Employment. The contract must provide that in the case of refusal to
any bilateral investment treaties with key nation states or other grant the authorisation, the employer agrees to defray the expenses
international treaties that may afford relief from such restrictions? of the employee’s return to his or her country or abroad. When
Would such activities require registration with any government appropriate, the provisions of the international multilateral or bilat-
authority? eral conventions that Morocco has concluded with foreign countries
The procedures governing foreign investment are based on the relating to the employment of Moroccan workers abroad or foreign
general system of regulations between Morocco and foreign coun- nationals in Morocco are also applied.
tries. Morocco has concluded 61 bilateral investment treaties, 25
of which are with applicant countries to the OECD declaration on 13 What restrictions exist on the importation of project equipment?
international investment and multinational enterprises and 33 are Project equipment is liable to an import duty of 2.5 per cent ad
double taxation agreements. Morocco also ratified the conventions valorem up to 10 per cent ad valorem, according to article 3 of the
establishing the International Centre for Settlement of Investment Framework Law No. 18-95 forming investment charter. However,
Disputes, the Multilateral Investment Guarantee Agency and the Decree No. 1308-94 (19 April 1994) of the Minister of Foreign
Inter-Arab Investment Guarantee Organisation. Trade, foreign investment and crafts establishing the list of goods
The following areas are, however, restricted to foreign invest- subject to measures of quantitative restrictions on imports and
ment on a socio-economic basis: export provides a list of goods subject to an import licence.
• foreign investors cannot own agricultural land, but may be
granted long-term leases for the development of farm activities.
Guide activities are restricted to Moroccan tourist guides; 14 What laws exist regarding the nationalisation or expropriation
• the sector of professional services is liberalised and open to for- of project companies and assets? Are any forms of investment
eign investors; and specially protected?
• the liberalisation of the services sector is a gradual opening The first and second articles of Law No. 7-81 relating to expropria-
under the General Agreement on Trade in Services (GATS). In tion for public utility and temporary occupation provide that expro-
Morocco, the opening of the service sector operates on three priation can only be declared in the public interest and through
levels: authority of the law. Article 4 provides that buildings of a religious
• in terms of Morocco’s commitments to the WTO; nature, cemeteries, buildings from the state public domain and mili-
• in terms of bilateral agreements concluded with certain tary buildings and fortifications are protected from expropriation.
countries and certain related activities; and As regards nationalisation, it is a very unlikely procedure that would
• in terms of free trade agreements. have to be approved through Parliament’s vote.
Limitations often affect commercial presence and the creation of a Fiscal treatment of foreign investment
Moroccan law company.
In the audio-visual sector a Moroccan national must serve 15 What tax incentives or other incentives are provided preferentially
among the members of the board. to foreign investors or creditors? What taxes apply to foreign
With regard to professional services – lawyers, doctors, engi- investments, loans, mortgages or other security documents,
neers’ surveyors, surveyors, architects, etc – priority is granted either for the purposes of effectiveness or registration?
to Moroccan nationals. Market access for foreign nationals is The measures relating to investment promotion are contained in the
conditional on residence, qualifications, domicile with national Bill of Investments. This bill applies to all sectors except agriculture.
Registration duty permit is valid for three years and should be renewed once for up to
There is an exemption for acts related to land acquisition for the four years, whereas the hydrocarbon exploration permit lasts for 25
realisation of an investment project. According to article 133 (I F. years and may be extended by an additional 10 years.
2) of the General Tax Code 2014, a rate of 4 per cent for the act of
acquiring land in order to carry out operations of subdivision and
building and a rate of 1 per cent for corporate contributions during
constitution or capital increases shall apply.
Extraction of natural resources is taxed locally.
Custom duties Section 68 of Dahir No. 1-97-84 of 2 April 1997 on the
Import duty is 2.5 per cent or 10 per cent, depending on the type of Organisation of the Region has established a tax on products
material and equipment, or exemption from import tax levy. extracted from mines in favour of the rural or urban municipality
and a tax on mining products, in favour of the regions. This tax
Value added tax is annual and based on net quantities of minerals extracted by the
There is an exemption or refund for goods, materials and tools mine operators and dealers regardless of the legal nature of that
acquired locally or imported. operation.
The tax rate on mining is fixed, per net ton extracted, by an
Franchise (licence) tax
order made every three years on the proposal of the Minister of the
Interior and the Minister for Mines. This rate reflects the value of
Franchise tax has been abolished for the first five years of opera-
each mineral substance or group of minerals.
tion for any person or entity carrying on an occupation, trade or
Mine operators must report annually to the administration of
business.
the region the quantities of minerals extracted and remit the appro-
Other measures were adopted with a convertibility regime for
priate fee.
foreign investments funded in currencies that allows the free trans-
fer of foreign capital invested and capital gains. Also, Morocco has
concluded 61 bilateral investment treaties, 25 of which have been 19 What restrictions, fees or taxes exist on the export of natural
concluded with applicant countries to the OECD Declaration on resources?
International Investment and Multinational Enterprises, as well as There are no fees or taxes on the export of natural resources.
33 double taxation agreements.
16 What are the relevant government agencies or departments with transactions? What fees and other charges apply?
Government approvals are not required for typical project finance
nature and extent of their authority? What is the history of state transactions. Nevertheless, public services projects may require
ownership in these sectors? the approval or the intervention of the related authority. Indeed,
The relevant government agencies or departments with authority Law No. 21-90 Relating to Exploration and Exploitation of
over projects in the typical project sectors are as follows: Hydrocarbon Deposits, as amended and completed by Law No.
• oil, gas and minerals: the Ministry of Energy, Mining, Water and 27-99 of 15 February 2000, and the 1951 Mining Regulation both
the Environment and the National Office of Hydrocarbons and provide that the granting of a exploration permit is subordinated to
Mines, which grants exploration and exploitation permits; the conclusion of a petroleum agreement with the Moroccan state. It
• chemical refining: the Ministry of Energy, Mining, Water and the will be stipulated in the agreement that the state will own a stake in
Environment; the exploration permit and exploitation concession at the rate speci-
• water treatment: the National Office for Drinking Water fied in the agreement that may not exceed 25 per cent of the permit
(ONEP) (see below); and the concession. Also, a project likely to affect the environment
• power generation and transmission: the National Office for requires the prior approval of the Ministry of Energy, Mines, Water
Electricity (ONE), ensuring national electricity and promot- and the Environment, in accordance with article 19 of Law No.
ing renewable energies, such as solar energy and windfarms (it 11-03 Relating to Protection and Improvement of the Environment.
should be noted that ONEP and ONE merged as the National
Office for Electricity and Drinking Water (ONEE) on 24 April 21 Must any of the financing or project documents be registered or
2012); filed with any government authority or otherwise comply with legal
• rail: the Ministry of Transportation and Equipment and the formalities to be valid or enforceable?
National Office for the Railway;
Companies must fulfil a declaration to the Exchange Office in order
• roads: the Ministry of Transportation and Equipment;
to conclude project financing contracts. The authentication of this
• ports: the Ministry of Transportation and Equipment and the
declaration (article 425 of the Moroccan Code of Obligations and
National Agency for Ports; and
Contracts) is not necessary, except for real estate mortgages and
• telecommunications: the National Agency for
pledge deeds, as previously stated. However, since Morocco has not
Telecommunications Regulation.
joined the 1961 Hague Apostille Convention, any document authen-
ticated abroad must be certified in due legal form locally or at a
Moroccan consulate.
parties acquire to these resources and what obligations does the 22 How are international arbitration contractual provisions and
holder have? May foreign parties acquire such rights? awards recognised by local courts? Is the jurisdiction a member
Article 19 of Law No. 11-03 Relating to Protection and Improvement of the ICSID Convention or other prominent dispute resolution
of the Environment provides that the utilising of natural resources conventions? Are any types of disputes not arbitrable? Are any
must be authorised by the Ministry of Energy, Mines, Water and the types of disputes subject to automatic domestic arbitration?
Environment by a concession permit, especially if these projects are According to the Law No. 08-05, dated 30 November 2007, abrogat-
liable to entail damage to the environment. A mining exploration ing and replacing chapter VIII of title V of the Civil Procedure Code,

international arbitral awards are recognised in Morocco through an which allows the intervention of shareholders and equity investors.
exequatur on the express condition that they do not conflict with Financial institutions are a significant source of financing as well.
national and international public policy. They are declared enforced
by the President of the Commercial Court or by the President of the Public-private partnership legislation
Commercial Court of the seat of arbitration located abroad.
The existence of an arbitration award is established by the pro- 27 Has PPP enabling legislation been enacted and, if so, at what
duction of the authentic arbitration agreement or copies of these level of government and is the legislation industry-specific?
documents satisfying the conditions required for their authenticity. Act No. 54-05 Relating to the Delegated Management of Public
If these documents are not written in Arabic, they must be translated Services was enacted by the national government in 2006, even
by a certified translator. The order refusing recognition or enforce- though there was a strong practice of managed services when no
ment can be appealed. law existed. This act is not industry-specific and applies to delegated
Morocco is a member of ICSID. management agreements for services and public infrastructure pro-
In the event of one the following disputes, the parties cannot viding mortgage on reversion properties and the choice of law for
conclude any agreement to refer the matter to arbitration: arbitration. However this act is not convenient in the case of power
• on gifts and bequests of food, clothing and housing; purchase projects.
• on matters concerning the condition and capacity of persons; This law will be completed by the forthcoming Law No. 86-12
and relating to the public-private partnership, the draft of which was
• on matters of public policy including: adopted by the Governing Council on 27 December 2012. Its object
• disputes concerning acts or property subject to the regime of is to define a unified and incentive general framework to the devel-
public law; opment of public-private partnerships in Morocco for the state, its
• disputes involving the application of the Tax Law; public institutions and for the public companies, and is applicable to
• litigation involving laws governing the taxation of prices, different sectors of public activities.
during forced, foreign exchange and foreign trade; and The PPP contract should include mandatory clauses, including
• disputes over the nullity and dissolution of companies. the duration, performance objectives, risk-sharing, transfer, subcon-
tracting, control obligations of the private partner, security, staff and
at the end of the contract.
Concerning the settlement of disputes that may arise from PPP
contracts, a conciliation procedure is contemplated, prior to any
arbitration or legal action.
The issue of governing law is particularly significant in the case of an
international contract. PPP – limitations
Article 13 of the Dahir of August 1913, relating to the civil sta-
tus of foreign nationals in Morocco, distinguishes two situations: 28 What, if any, are the practical and legal limitations on PPP
• if the parties have indicated the applicable law in the contract, transactions?
(even a foreign law) it will be binding on the parties and even to The concepts of public service and solidarity must be reviewed con-
third parties; and cerning the urban poor. So far, neither the government, often lax
• if the parties have not chosen the law applicable to their con- and inefficient, nor private operators, focused on profitability, have
tract, the Moroccan jurisdiction may well define the law to be given any satisfactory solutions regarding access to this sector of
applied, by reference to the law of the jurisdiction where the the population, in particular with regard to water and sanitation.
contract was concluded, the law of the place of contract per- Delegation of markets and deregulation projects have become much
formance, the language of the contract, the nationality of the less numerous than before. Often the remaining bids are offered on
parties to the contract or their domicile. less profitable terms than in the past.
Various firms have shown interest in developing activities in
24 Is a submission to a foreign jurisdiction and a waiver of immunity Maghreb, including Morocco, but with caution imposed by the eco-
effective and enforceable? nomic and institutional context. In fact, these companies have yet
to really experience a public service activity subject to a constraint
According to Moroccan law, submission to a foreign jurisdiction
limiting public funding but also a potential pattern of competition
and waiver of immunity are effective and enforceable.
with the artisan sector or with any other companies.
According to the draft of Law No. 86-12 relating to public-
private partnership contracts, the award of those contracts will be
25 What laws or regulations apply to typical project sectors? What subject to the principles of freedom of access, equal treatment of
regulatory bodies administer those laws? candidates and objectivity in the procedures. It shall be preceded
by an advertisement to allow the presentation of several competing
Specific laws apply to every project sector, such as Law No. 11-03
offers.
Relating to the Protection and Improvement of the Environment,
Also, the aforementioned draft of Law No. 86-12 requires the
Law No. 13-09 Relating to Renewable Energies, and Law No. 21-90
completion of an evaluation prior to entering a public-private part-
Relating to Exploration and Exploitation of Hydrocarbon Deposits,
nership contract. This evaluation should reveal precisely the reasons
etc, regulated by the Ministry of Energy, Mines, Water and the
of economic, financial, legal and administrative nature that led the
Environment.
public entity to initiate the procedure for the award of a contract.
The aim is to outsource a task or a project for reasons of economy,
Project companies
efficiency and appropriate skills.
26 What are the principal business structures of project companies? The award of a public-private partnership contract, which
What are the principal sources of financing available to project would have a time frame from five to 30 years, will be carried out
companies? either by the competitive dialogue or by tender, or exceptionally by
the negotiated procedure. The maximum duration may be extended
The special purpose vehicle, constituted as a public limited company,
to 50 years depending on project needs. However, there is no limita-
is the most frequently used project company business structure,
tion on specified public-private partnership transactions.
Update and trends
The financial centre Casablanca Finance City (CFC) continues to Its first project, Wessal Casablanca-Port, requires a US$740
develop. It is governed by Law No. 44-10 related to Casablanca million investment. The shipyard will be transferred while a new
Finance City Status as modified by Law No. 68-12. fishing port will be built and the cruise terminal will be expanded.
The CFC Status is a designation giving access to a unique Eight agreements relating to the Wessal Casablanca-Port project
package of advantages. These advantages include tax incentives, were signed on 1 April 2014 during a ceremony headed by Morocco’s
facilities at the level of exchange control and other benefits for King Mohammed VI. One was the framework agreement between
business facilitation. At present, there are 50 companies with the CFC the Moroccan state and Wessal Capital. The investment vehicle also
status. signed funding agreements with national and international financial
Further, Morocco represents an increasingly important projects institutions.
market. Additionally, the Tangier-Casablanca high-speed rail line is under
Indeed, Morocco has launched a US$740 million project that construction in Morocco. The 350km line will link Morocco’s largest
will reconfigure the port of Casablanca. The programme is funded by city, Casablanca, with Tangier. This will be the first high-speed rail line
Wessal Capital, an investment vehicle that brings together funds from in Africa when completed in 2015. It will be operated by the Moroccan
the United Arab Emirates (Aabar Investments PJS), Kuwait (Al Ajial railway operator ONCF. The new line will cut the journey time between
Investment Fund Holding), Qatar (Qatar Holding LLC), Morocco (Fonds Casablanca and Tangier from nearly five hours and 45 minutes to
Marocain de Développement Touristique, FMDT) and Saudi Arabia just over two hours. It will reduce the traffic and thus reduce pressure
(Public Investment Fund). Wessal’s total equity amounts to US$3.4 on the existing lines along the route, which are predicted to witness
billion. high growth in container traffic volumes. It is expected to carry up
to 10 million passengers per year. The project is estimated to cost
approximately US$4 billion.
PPP – transactions The purpose of the management agreement is to operate a pub-

lic transport service and urban bus transportation, including services
29 What have been the most significant PPP transactions completed for schools and universities, provided on a subscription basis.
to date in your jurisdiction? Recent and current PPP transactions in clean energy include
Lyonnaise des eaux de Casablanca the Ouarzazate Solar Complex, launched by the Moroccan Agency
In Morocco, the first delegation of public service post-independence for Solar Energy (MASEN) and the 150MW wind power complex
occurred in 1997 with the multi-dealership service (electricity, water development project in Taza launched by the National Office of
and sanitation) by the Lyonnaise des Eaux de Casablanca (LYDEC). Electricity (ONE).
The capital of LYDEC amounted to 800 million Moroccan A notable PPP transaction that has been completed was the oper-
dirhams, bringing together the following shareholders: Suez ating project for the Casablanca Tramway, for which the company
Environment, Elyo, Endesar Europa, EDF International and Agbar Casa Tram SA, constituted of the RATP, the CDG and the holding
(Aguas de Barcelona). Transinvest, was created. The contract was signed on 13 July 2012
The Convention of the Delegated Management of Electricity and the duration of operation is five years.
Distribution Service, the Service of Drinking Water and the Sewerage Moreover, the Moroccan state now offers PPP relating to the
Service was signed on 28 April 1997. The scope of the contract is exploitation of its agricultural lands. Thus, it makes available to
delegated to the territory of metropolitan Casablanca including the investors properties of large enough size to allow optimal develop-
city of Mohammedia. The licensed activity officially started on 1 ment, with a rental duration sufficiently long for the amortisation of
August 1997 for a period of 30 years. The management contract is capital invested.
the largest in Africa; it concerns about 4 million inhabitants. The private partners will, then, be encouraged to carry out agri-
The group M’dina BUS consists of three partners: RATP, cultural or agro-industrial projects, as sources of agricultural devel-
FinanceCom and Transinvest. opment, able to attract the maximum returns on investment and
The licensing authority is targeting all municipalities in the creating the maximum employment.
region of greater Casablanca, although the main area is the urban
district of Casablanca.
Zineb Idrissia Hamzi zhamzi@hlf.ma
Résidence Granada Tel: +212 522 39 39 06 / 31

96A Boulevard Al Massira Al Khadra Fax: +212 522 39 39 13 / 16
Casablanca www.hlf.ma
Morocco

Fernanda Lopes & Associados MOZAMBIQUE
Mozambique
Fernanda Lopes
Creating collateral security packages In order to establish priority, as a general principle, registrable
assets have to be registered as security at the relevant department
1 What types of collateral are available? registry. The Real Estate Department Registry is the relevant reg-
Under the Mozambican legal system, almost any of the normal istry in the case of buildings, shares and quotas of companies, and
types of collateral are available, with exceptions related to certain vehicles.
assets. Apart from the exceptions mentioned below, collateral can The collateral over shares and ‘quotas’ may depend on previous
be granted in principle over assets belonging to the entity rendering authorisation from a general meeting of the company or the share-
the security, either as immoveable or moveable property, shares and holders, or both, depending on the company’s articles of associa-
‘quotas’ of commercial companies, bank accounts, receivables and tion. Certain companies undertaking specific activities may require
other credits, assignment of contractual rights, etc. previous authorisation from or subsequent communication to the
Supervising and Regulatory Authority (for example, banking and
Exceptions insurance companies).
Land is the property of the state, and the Mozambican legal system Collateral over buildings erected on rural land requires authori-
prohibits transactions and securities over land, consequently: sation from the entity that granted the land use and benefit rights,
• land is not available as collateral; and as these rights are not automatically transferred in the case of rural
• the right to use and benefit from the land are not available as land.
collateral. Besides notarial and registration fees, stamp duty is also charged.
The fees are calculated based on a variable percentage of the value
The state can, however, grant use and benefit rights from land to of the transaction.
private entities, either individuals – locals or foreign nationals resi-
dent for more than five years in Mozambique – or companies incor-
porated in Mozambique – irrespective of the proportion of share
capital held by foreign nationals. However, the granted right to use
land cannot be assigned as collateral. In relation to registrable assets, the relevant certificate will comprise
Buildings erected on land under a use and benefit right and duly the registered liens, for any liens will also have to be registered. The
registered at the Real Estate Department Registry may be available priority is established by the first date of registration.
as collateral. In relation to assets not subject to registration, a creditor does
not have any direct and simple way of directly assuring itself of
the absence of liens, and assurance can be obtained only by way
2 How is a security interest in each type of collateral perfected of contractual clauses and contractual consequences. In certain cir-
and how is its priority established? Are any fees, taxes or other cumstances, creditors can submit an application for certification of
charges payable to perfect a security interest and, if so, are there a specific situation to public entities (pending court proceedings, for
lawful techniques to minimise them? May a corporate entity, in example).
The Mozambican legal system does not require, as a general princi-
ple, any special formalities or written documents for the perfection
of securities. The securities that require specific formalities for per-
fection are the retention of incomes, which shall be made by a public The majority of enforcements of security rights require a judicial
deed or a will in the case of immovable properties, and by a private proceeding, which consists in a sale that has to be executed judicially
written document in the case of moveable properties; and mortgag- or extra-judicially.
ing of real estate, which requires the execution of the relevant deed The judicial sale is made by a proposal in a sealed letter or by
by a state notary and subsequent registration at the Real Estate an auction.
Department Registry. Nevertheless, it is strongly advisable that the The extra-judicial sale can be made:
grant of any other kind of security is evidenced in a written, dated • in stock markets;
and signed document, in order to avoid uncertainty of perfection or • to certain entities, if contractually entitled;
priority or both. • by private negotiation, if the grantor of collateral subject to
If in writing, a security may be perfected either by a private court proceedings and the creditors agree to it, or if the value
document with a signature executed in front of a state notary, or of the collateral cannot pay the charges of judicial sale, or in the
certification of a signature by a state notary, or by a notarial deed case of urgency; or
executed in front of a state notary. • by auction.
MOZAMBIQUE Fernanda Lopes & Associados
If the lender creditor has started the executive proceedings, an appli- • opening and operation of bank accounts in local currency by
cation for assets to be awarded to the applicant can be made; there- non-residents;
fore, it is, in principle, possible to sell directly to the lender creditor. • opening and operation of bank accounts in foreign currency by
In the types of sale mentioned above, it is possible, in principle, for residents;
the lender creditor to participate in the sale. • granting of credit in foreign currency, including transactions on
The price of the sale can be stated in foreign currency, but it has titles;
to be paid in local currency. • acquisition of foreign credit titles;
• operations in foreign currency that may result in a transaction of
capital between a resident and a non-resident; and
• operations in local currency that may result in a transaction of
capital with a non-resident.
The foreign exchange operations classified as current transactions
and accounts concern all payments or reception of foreign cur-
rency that are not related to transfer of capital, namely, payments
due in connection with foreign trade, remittance of funds for family
expenses and other current obligations not defined specifically.
The capital operations subject to previous authorisation from
What is classified as insolvency in Mozambique, takes place when the Central Bank are the following:
the entrepreneur is unable to fulfil his or her obligations with his or • foreign investment;
her creditors. • real estate investment;
The Public Prosecutor is cited regarding the entrance of a judi- • opening and operation of bank accounts abroad;
cial reorganisation or an insolvency request for intervening on the • credits related to goods transactions and rendering of services;
case, accordingly with its competence. • loans and financial credits;
The filing of a judicial reorganisation or an insolvency request • security; and
prohibits the pursuit of any subsequent claim concerning a judicial • transfers related to insurance contracts, operations on titles and
reorganisation or insolvency regarding the same debtor. other instruments related to capital markets, physical import
The administrator of the insolvency is in charge of verifying and export of foreign or local currency and personal loans.
the credits and the creditors shall have a certain period of time to
present their claims or objections in relation to the referred cred-
its. If that period expires, the referred claims will be considered as 7 What are the restrictions, controls, fees and taxes on remittances
untimely and extemporaneous. of investment returns or payments of principal, interest or
If there are no claims or objections, the creditors will be listed premiums on loans or bonds to parties in other jurisdictions?
and published by a public notice in the Official Gazette (Boletim da It is mandatory that the resident entities remit foreign currency
República). assets to the country regarding the export revenues from goods, ser-
A creditors’ committee can be constituted by deliberation of the vices and investment in a foreign country.
creditors’ meeting, which has, in general, the duty to supervise the The remittance of revenues shall be made by bank transfer and
activities, to ensure the proper conduct of the process and compli- reflected in national currency in the beneficiary’s bank account.
ance with the law. A foreign direct investment is subject to registration at the
If the debtor wishes to overcome the inability to fulfil his or her Central Bank within a certain period of time, after the authorisation
due obligations, he or she shall request judicial reorganisation, under of the competent entity or after the effective input of the investment
the terms established in the law. value.
Once the insolvency is declared, the creditor’s rights and guar- Contracting of a loan and payment of the relevant interest is
antees shall be reconstituted in the conditions originally contracted. subject to previous authorisation from and registration at the
Once the debtor is considered insolvent, he or she is inhibited Central Bank.
of engaging any economic or business activity from the moment the Provided the foreign investment has been approved and all the
insolvency was declared until the sentence has become res judicata exchange regulation registration formalities have been complied
(claim preclusion). with, the remittance of funds is authorised by the Central Bank, fol-
After the insolvency process is in process, the following proceed- lowing payment of the tax due, which is 20 per cent withholding tax
ings are concerned with the disposal of assets and payment to credi- on loan interest.
tors, which are, nevertheless, in the creditors’ order of preference
6 What are the restrictions, controls, fees, taxes or other charges exist over their use?
on foreign currency exchange? According to the Foreign Exchange Law Regulation in force, resi-
Exchange regulation in Mozambique covers all acts, businesses’ dents must repatriate foreign earnings and, in principle, foreign cur-
transactions and operations that involve payments abroad or remit- rency will be converted and credited in local currency.
tance of funds from abroad between a resident and a non-resident.
All foreign exchange operations are subject to registration and 9 May project companies establish and maintain foreign currency
authorisation from the Central Bank of Mozambique (Central accounts in other jurisdictions and locally?
Bank), however, foreign exchange operations dealing with current
According to the Mozambican Foreign Exchange Law Regulation
transactions and accounts do not require authorisation.
in force, the opening and operation of a foreign currency bank
The foreign exchange operations that require authorisation
account by residents and a national currency bank account by non-
from the Central Bank are:
residents, constitute an exchange operation and, therefore, is subject
• acquisition, exportation and sale of gold, silver and other pre-
cious metals;

to previous authorisation from the Central Bank. Terms and condi- If the hiring is outside the quota scheme, a previous authorisa-
tions determined by the Central Bank must be observed. tion from the Ministry of Labour is required.
The final type of hiring foreign workers is for short-term
Foreign investment issues employment, which is defined as any work that does not exceed 30
days, whether consecutive or not. This type of employment does
10 What restrictions, fees and taxes exist on foreign investment in or not require an employment authorisation, which means that work
ownership of a project and related companies? Do the restrictions undertaken by foreign workers in Mozambique for periods shorter
also apply to foreign investors or creditors in the event of than 30 days is unrestricted.
foreclosure on the project and related companies? Are there If it is absolutely necessary, with due justification, the short-term
any bilateral investment treaties with key nation states or other employment period can be extended, as long as it does not exceed
international treaties that may afford relief from such restrictions? 90 days a year.
Would such activities require registration with any government The Ministry of Labour charges a fee, both in the case of mere
authority? communication and in the case of previous authorisation, of three
The investment authorities, the Investment Promotion Centre (CPI) and 10 minimum wages respectively (the present minimum wage is
and the Office of the Accelerated Economic Development Zones 4,228 meticais, and is updated yearly).
(GAZEDA) are in charge of the promotion of economic potential
in Mozambique, according with the policies and strategies of the
government, as well as them having the responsibility to provide
institutional assistance to the investors during the implementation There are no restrictions, as a general principle, on the importation
and operation of the authorised projects. of equipment, and it is subject to completion of a customs form
For the purpose of an external direct investment performed with before import and payment of customs duties and taxes.
equity of its investors, the minimum amount is 2.5 million meticais. Custom duties, at variable rates, as well as value added tax are
In relation to tax guarantees and incentives, the state guaran- charged and collected, unless tax benefits obtained with the approval
tees legal protection to the ownership of assets and rights, including of the foreign investment are granted, in which case a list of equip-
industrial property rights. ment has to be produced by CPI and presented to customs.
It’s worth mentioning that the Investment Law does not apply to
investments relating to the prospecting, research and production of 14 What laws exist regarding the nationalisation or expropriation
oil, gas and mining industry of mineral resources and, additionally, of project companies and assets? Are any forms of investment
does not apply to public investments financed by the State General specially protected?
Budget and exclusive social investments.
As a result of the particular history of the country (ex-Portuguese
colony, became independent in 1975, and an exodus of popula-
11 What restrictions, fees and taxes exist on insurance policies tion followed) nationalisation laws both for companies and for real
over project assets provided or guaranteed by foreign insurance estate were enforced in 1976 and are still enforced today.
companies? May such policies be payable to foreign secured However, investments approved by CPI under the Investment
creditors? Law in force can be protected through payment of just and equitable
According to the exchange regulations, insurance services provided indemnities to the foreign investors in the event of nationalisation
by foreign companies fall into capital operations, therefore, subject or expropriation, which would be grounded in weighty reasons of
to previous authorisation from the Central Bank. national interest or public health and order.
Pursuant to the legal regime for insurance, the contracting of a
non-resident foreign insurance company covering risks that occur in Fiscal treatment of foreign investment
Mozambican territory is prohibited. Notwithstanding this prohibi-
tion, at the concerned party’s request, under specific circumstances,
the supervisory authority may grant permission for the above-
mentioned effect.
Thereupon, insurance contracts by foreign insurance companies
with residents need consent from the competent Mozambican entity In general, corporate income tax is 32 per cent and individual
and due evidence must be presented to this effect. income tax is on a scale between 10 and 32 per cent.
However, a whole range of variable tax benefits can apply
to investment projects carried out under the Investment Law, for
12 What restrictions exist on bringing in foreign workers, technicians example:
or executives to work on a project? • exemption of payment of custom duties and VAT on equipment
Labour law restricts the hiring of foreign nationals to work in classified as class K;
Mozambique. • variable tax credit from corporate and individual income tax;
In the quota scheme, the quotas for hiring foreign workers are 5 • accelerated depreciation and reintegration can be deductible for
per cent if the company has a maximum of 10 employees, 8 per cent purposes of determination of corporate or individual taxable
if the company has more than 10 and less than 100 employees and income;
10 per cent if the company has over 100 employees. • variable deductions from corporate and individual taxable
It should be noted that, even if the total number of Mozambican income related to investment in specialised equipment and pro-
employees in the company is fewer than 10, small companies are fessional training;
allowed to employ one foreign citizen. • variable expenditure can be considered as fiscal costs; and
In the referred case and in the case where the hiring of foreign • incentives, through variable reductions in the rate of corporate
citizens is for investment projects approved by the government, the income tax, related to specific sectors of activity.
employer who intends to hire foreign citizens must communicate to
the Minister of Labour within a period of 15 days after the admis-
sion of the worker or their entry into the country, respectively.
MOZAMBIQUE Fernanda Lopes & Associados
Government authorities investments require registration or previous authorisation at the

Central Bank, depending on how the transaction is classified (cur-
16 What are the relevant government agencies or departments with rency exchange operations or capital operations, as mentioned in
authority over projects in the typical project sectors? What is the question 6).
nature and extent of their authority? What is the history of state Loans granted by foreign parties or from outside Mozambique
ownership in these sectors? require an authorisation from the Central Bank, before the funds are
The Minister of Finance has the competency to coordinate the remitted to Mozambique.
investment process. The Central Bank does not charge fees.
CPI is the central authority for foreign investment projects. It
analyses submissions for approval, as well as assisting the investor
with the central or regional authorities.
Depending on the total amount of investment, CPI will submit
the investment project either to central authorities (ministers) or to
regional authorities (provincial governors, presidents of municipal If the foreign investor decides to apply to CPI, documents written
councils or other leaders of the state institutions). in English will be accepted and analysed by CPI with no further
formalities.
Regulation of natural resources If subsequently a notarial act is to be executed, documents issued
abroad require legalisation at the closest Mozambique embassy or
17 Who has title to natural resources? What rights may private consulate in order to be accepted in Mozambique. Translation into
parties acquire to these resources and what obligations does the Portuguese, the Mozambican official language, is also necessary.
Natural resources, such as oil and gas, minerals and other resources, 22 How are international arbitration contractual provisions and
belong to the state, which can grant, through concession agreements, awards recognised by local courts? Is the jurisdiction a member
the right of exploitation to private entities, either local or foreign. of the ICSID Convention or other prominent dispute resolution
Each natural resource agreement has a legal framework defin- conventions? Are any types of disputes not arbitrable? Are any
ing the obligations and rights of the state and the parties, as well as types of disputes subject to automatic domestic arbitration?
the rights of the population occupying the area where the right of The arbitration law in force allows the parties to choose the law
exploitation has been granted. governing the investments. Disputes arising in foreign investments
There is no restriction in law concerning the nationality of the between the state and the investor are subject, unless otherwise
parties. Since 2011, a Public Private Partnership Law imposes 5 to agreed, to one of the following international arbitration provisions
20 per cent on stockholding in the private venture by the state or as per express agreement of the parties:
other public entity appointed by the state or nationals, besides social • the Rules of International Convention for Settlement of
responsibility towards the local communities, to be negotiated with Investment Disputes between States and Nationals of other
the foreign investor. States (ICSID, 15 March 1965 and ICSID Additional Facility, 27
September 1978); and
18 What royalties and taxes are payable on the extraction of natural • the Rules of the International Chamber of Commerce (Paris).
The arbitration award will be dealt as enforceable in Mozambique if
Whenever a right of exploration and exploitation of a natural
the arbitration is executed in Mozambican territory.
resource is granted by the state, in addition to the corporate or indi-
vidual income tax applicable, the state is entitled to charge tax over:
• the land surface allocated, such tax being calculated over the 23 Which jurisdiction’s law typically governs project agreements?
total surface area granted multiplied by an amount determined Which jurisdiction’s law typically governs financing agreements?
by law; and Which matters are governed by domestic law?
• production tax, ranging from 10 to 12 per cent for diamonds The arbitration law in force allows the parties to choose the law
and 3 to 8 per cent for other mineral products, although a gen- governing the project agreements. In general, the law of the financ-
eral exemption for holders of mining certificates and mining ing party is the chosen law.
passes is granted. The exclusion to arbitration concerns mandatory domestic law
(for instance, the law governing rental and leases is excluded from
The rates determined by the tax laws do not distinguish between arbitration as well as labour law).
nationals and foreign nationals.
19 What restrictions, fees or taxes exist on the export of natural 24 Is a submission to a foreign jurisdiction and a waiver of immunity
resources? effective and enforceable?
Legally, and so far, there is no restriction on the export of natural According to the Civil Procedure Code in force, it is possible for
resources. Regulation on commercialisation of mineral resources has the parties to agree to submission to foreign jurisdiction, subject to
to be complied with. conditions, as follows:
• the parties have a serious interest in submitting to foreign juris-
Legal issues of general application diction (eg, the jurisdiction chosen is related to one of the par-
ties); and
• the submission to foreign jurisdiction is not related to matters
that are subject to mandatory local jurisdiction (eg, labour dis-
According to the exchange regulations in force, transfer and putes, real estate rights issues, bankruptcy and shareholders’
remittances of funds by foreign parties related to the execution of resolutions of companies incorporated in Mozambique).

Environmental, health and safety laws Public-private partnership legislation
25 What laws or regulations apply to typical project sectors? What 27 Has PPP enabling legislation been enacted and, if so, at what
regulatory bodies administer those laws? level of government and is the legislation industry-specific?
Certain activities, such as oil, gas, mineral extraction, refining, etc, A specific PPP legislation has been enacted.
are subject to compliance with the environmental laws in force According to the said legislation, the state may take part in PPPs.
and to presentation of an environmental impact assessment to the This is the case with concession, mining and mega projects. For
Ministry of Environmental Issues. those sectors of activity related to publicly owned assets, the govern-
ment enters into partnership with private entities; for instance, the
Project companies construction of toll roads and the management of ports.
PPP – limitations
What are the principal sources of financing available to project 28 What, if any, are the practical and legal limitations on PPP
companies? transactions?
According to the Commercial Code in force, two main types of com- In light of the specific regulations, whenever the state enters into a
mercial companies exist – Lda and SA types. PPP with a private entity, the terms and conditions of the said PPP
Both types of companies do not have a minimum share capital are set by negotiation, within the legal frame defined, and included
requirement, and both types of companies have shareholders (from in the contract document.
one to 30 for Lda companies, or more than three shareholders with The Tax Benefits Code is applicable to PPPs.
no maximum limit for SA companies) and both type of companies
are managed by the administration (from one individual to a board PPP – transactions
of directors).
The sources of company financing can in general be distin- 29 What have been the most significant PPP transactions completed
guished between: to date in your jurisdiction?
• internal sources, depending on shareholders (loans and addi- The most significant PPP transactions that have occurred in the past
tional capital input); and year relate to the concession of a significant port and exploration of
• external sources, depending on local banks or exterior entities. natural gas.
Fernanda Lopes fernanda.lopes@fernandalopes.com
Rua Frente de Libertação de Moçambique, 224 Tel: +258 21 49 69 74

Maputo Fax: +258 21 49 69 75
Mozambique www.fernandalopes.com
MYANMAR DFDL
Myanmar
Jaime Casanova, James Finch and Bernard Cobarrubias
DFDL
Creating collateral security packages are perfected by furnishing the secured party with control over
such collateral. Creation of a security interest in favour of a for-
1 What types of collateral are available? eign lender requires approval from relevant government ministries
In general, the types of collateral available for secured transactions and the Central Bank of Myanmar (CBM). There are a number of
are real estate, buildings, leasehold interests, concessions, as well as relevant laws dealing with priority of debts that need to be taken
moveable property including receivables, shares, securities, bank into account in connection with protection of secured assets from
accounts and proceeds from investments. However, mortgages of the general creditors of the borrower. Under these laws, certain pay-
immoveable property are not available in connection with secured ments have preference over payments to be made to creditors.
transactions if the lender is a foreign national, foreign company or For instance, the stamp duty for a mortgage deed is 3 per cent
foreign bank. of the amount secured by mortgage deed, when possession of the
Land owned by government departments or organisations that property or any part of the property covered by such deed is given
is leased to investors may be mortgaged only with the approval of by the mortgagor or agreed to be given, and 1.5 per cent of the
the government. amount secured by mortgage deed when possession is not given or
In addition, Myanmar has enacted special economic zone (SEZ) agreed to be given.
laws that indicate that property in the SEZs will be treated differ- Stamp duties charged by articles 23 (Conveyance), 33 (Deed)
ently to property outside the SEZs with respect to mortgages, but the and 40 (Mortgage-deeds) shall, in the case of instruments affecting
rules have not yet been established. immoveable property be increased by an additional stamp duty of 2
Under the new Foreign Investment Law of 2012 (NFIL), a per cent for a consideration equal to the market value of the prop-
foreign investor may sublease or mortgage its leasehold interest in erty so situated wherever in Myanmar, except if located in Nay Pyi
immoveable property to another person with the prior approval Taw, Yangon and Mandalay.
of the Myanmar Investment Commission (MIC). Such sublease or Registration fees apply for mortgage deeds. These are calculated
mortgage must be done within the term of the business and, upon according to the value of the right, title or interest affected, but at
the type of land where it is done, certain other requirements must be present these are not onerous.
met (eg, if the land is cultivable land, fallow land or wasteland, the There are no reported cases or rulings in Myanmar that could
approval of the Union government will be required, too). be used as guidance dealing with the specific issue as to whether a
corporate entity, in the capacity of an agent or trustee, may hold
collateral on behalf of the project lenders as the secured party. In
practice, one precedent has shown that a foreign corporate entity
had been appointed as security agent on behalf of a foreign lender.
A mortgagor who holds the mortgagee’s rights as his or her trus-
tee or legal representative, and who may sue for a sale of the prop-
erty is not authorised to initiate a suit for foreclosure.
The property of the insolvent divisible among his or her credi-
Mortgages and charges must be registered with the registrar of the tors will not comprise property held by the insolvent on trust for
Directorate of Investment Company Administration (DICA) within any other person, and thus, the collateral would be excluded from
21 days of creation. Accordingly, mortgages and charges created its estate held by the insolvent on trust.
on immoveable or moveable property of a company will be void
against the liquidator and other creditors of the company unless the
prescribed particulars of the mortgage or charge are so registered. 3 How can a creditor assure itself as to the absence of liens with
The Registrar of DICA is responsible for giving a certificate of the priority to the creditor’s lien?
registration of any mortgage or charge, stating the amount thereby Assuming existing mortgages or charges have been duly registered
secured, and the certificate is conclusive evidence that the require- with the relevant government departments, searches may, in theory,
ments as to registration of mortgage or charge have been complied be performed by a creditor at the relevant government departments.
with. Either a mortgagor or mortgagee may register the mortgage or If a lien is in a particular type of immoveable or moveable property,
charge with the DICA. collateral is perfected only by control and not by way of a pub-
In addition, mortgages on immoveable property, including lease- lic filing, and the only possible way for a creditor to determine the
holds, also need to be registered under the Registration Act of 1908, absence of liens is via obtaining representations and warranties by
which gives a list of documents that must be registered within four the debtor or other relevant party to the agreement establishing such
months with the Office of the Registration of Deeds. control. Under the NFIL, foreign investors are allowed to mortgage
Security interests in moveable property such as bank accounts the leasehold on the land during the permit period with the approval
and shares are made and created by way of a pledge or charge and of the MIC. Other requirements may have to be met.

DFDL MYANMAR
4 Outside the context of a bankruptcy proceeding, what steps Regarding preferential creditors’ rights, certain payments have
should a project lender take to enforce its rights as a secured preference over payments to be made to the creditors, for example
party over the collateral? taxes, cesses, rates due to the government or to any local authori-
Specific requirements under each relevant mortgage vary in connec- ties, debts owed to the CBM and state-owned financial institutions,
tion with initiating a suit for foreclosure or a suit for sale or sale wages and salaries due to clerks and servants for services rendered
without the intervention of the court. There are also a number of to the company and wages of labourers or workmen.
rulings dealing with various issues based on different types of mort- The law provides for the winding up of a company by a court if
gages. In general, a lender would need a court order for enforce- the company is unable to pay its debts.
ment of its security, and cannot enforce its security freely. However, The mortgagee has power to sell the mortgaged property in
a mortgagee may exercise its right of sale without the intervention default of payment of the mortgage money, without the intervention
of the court where: of the court, subject to the conditions that the mortgage is an English
• the mortgage is an ‘English mortgage’ and neither the mortgagor mortgage; the power of sale without court intervention is explicitly
nor the mortgagee is a Hindu, Muslim or Buddhist or a member conferred on the mortgagee by the deed of mortgage; and a written
of any other race, sect, tribe or class specified in the Gazette; notice demanding payment has been served on the mortgagor and
• a power of sale without the intervention of the court is expressly default has been made by the mortgagor in payment of the principal
conferred on the mortgagee by the mortgage deed and the mort- money after such notice or interest remains unpaid for three months.
gagee is the government; Therefore, in connection with an English mortgage, a receiver may
• a power of sale without the intervention of the court is expressly be appointed by a mortgagee.
conferred on the mortgagee by the mortgage deed and the mort- There is some inconsistency in the various insolvency laws with
gaged property was, on the date of the execution of the mort- regard to priority of payment of debts in a winding-up proceeding,
gage deed, situated in certain towns; and but in general the order of priority, in descending order, is:
• debts due to the government, wages and other accrued benefits
• no such power shall be exercised unless and until written notice
owed to employees, taxes, debts due to state banks and the CBM
requiring payment of the principal money has been served on
(all ranking equally in priority over other debts);
the mortgagor, and default has been made in payment of the
• debts due under a registered mortgage of immoveable property;
principal money or part thereof, for three months after such ser-
• debts due under a registered fixed and floating charge;
vice, or some interest under the mortgage amounting at least to
• debts due to unsecured creditors (trade); and
500 kyats is in arrears and unpaid for three months after becom-
• the remainder (if any) goes to contributories (shareholders).
ing due.
Foreign companies will be allowed to mortgage leases on land and
buildings during the investment period and with the approval of the 6 What are the restrictions, controls, fees, taxes or other charges
MIC. on foreign currency exchange?
In addition to the above, the law also recognises pledges of move-
Foreign currency exchange matters are mainly governed by the
able property in which it is stated that if the pledgor is in default in
Foreign Exchange Management Law of 2012 (FEML).
payment of the debt or performance at the stipulated time of the
The FEML is intended, among other things, to liberalise transfer
promise in respect of which the goods were pledged, the pledgee
payments relating to ‘current account transactions’, which include:
may bring a suit against the pledgor upon the debt or promise, retain
• remittances for trading, services fees and settlement of short-
the goods pledged as collateral security, or sell the goods pledged term bank loans;
on giving the pledgor reasonable notice of the sale. Therefore, in • remittances for payment of interest on loans and net income
this situation, the pledgee may either sue for the debt retaining the from investments;
pledge as collateral security or may sell the goods pledged having • instalment loan payments or depreciation on direct investments;
given reasonable notice. and
Apart from the foregoing, a lender would need a court order • inbound or outbound remittance for family living costs.
and decree to enforce its security in connection with the sale of the
mortgaged property. Under the FEML, current account transactions shall not be restricted
According to one Myanmar ruling, generally, the mortgagee directly or indirectly to settlement or remittance out of the country.
exercising power of sale to purchase the property for himself or her- Therefore, any local or foreign company can in principle enter into a
self at an auction sale, and therefore, the mortgagees (project lend- loan agreement with an offshore bank and service that loan without
ers) may not participate as buyers in the sale. Moreover, according to ‘direct or indirect’ restrictions.
another Myanmar ruling, if the purchaser at the auction is a foreign Payments must be arranged through any bank with a foreign-
national, he or she will not be entitled to a legal capacity to bid at the exchange authorised licence, which is issued by the CBM.
sale of immoveable property. On the other hand, the FEML also regulates remittances and
payments relating to ‘capital account transactions’, defined as ‘capi-
5 How does a bankruptcy proceeding in respect of the project tal account remittances other than current account remittances’.
company affect the ability of a project lender to enforce its rights These would include:
as a secured party over the collateral? Are there any preference • payment of dividends; and
periods, clawback rights or other preferential creditors’ rights • return of equity capital.
Regarding these last transactions, the CBM may:
• inquire whether the investment capital was actually brought
into Myanmar as foreign investment in accordance with the law;
and
• reject any request for permission to remit such payments if the
Any transfer, delivery of goods, payment, execution or other act investor cannot produce the required evidence of the original
relating to property that would be deemed a fraudulent preference investment funds being brought in accordance with the law.
is invalid. Also, any transfer or assignment by a company of all its Therefore, they are at risk of rejection by the CBM.
property to trustees for the benefit of all its creditors shall be void.
MYANMAR DFDL
It should be noted that MIC approval is required for remittances be carried out through a joint venture with the government, or indi-
with respect to a company formed under the FIL. vidually by any person or economic organisation, subject to unspeci-
fied conditions.
The minimum foreign capital requirement eligible under the
NFIL is based on the type of investment and is discretionary with
the MIC. Depending on the economic activities to be carried out, as
outlined above, approvals of the government and the MIC as well as
As discussed above, because of the transition between exchange relevant government ministries are necessary. Regarding creditors, in
laws, remittances of investment returns (dividends and capital) or the event of foreclosure on the project or related companies, creation
payments of principal, interest or premiums on loans or bonds to of security interests in favour of a foreign lender requires approval
parties in other jurisdictions may be made with the prior approval of from the government, the MIC, relevant government ministries and
the MIC or the CBM or the Ministry of Finance and revenue (MFR), the CBM or the MFR.
or both. If there is state participation in a joint venture or state funds Special requirements apply in the SEZs. For example, investors
are used to repay principal or interest in connection with loan agree- must obtain prior approval of the Dawei Special Economic Zone
ments, the approval of the government or Trade and Investment Management Committee to terminate or liquidate registered busi-
Supervision Committee (TISC) is also required. nesses, companies or organisations, or to transfer or sell the shares
Under the present Myanmar tax regime, dividends received of a registered business, company or organisation, or to transfer or
from a company are exempted from withholding tax. A 15 per cent sell any machinery or motor vehicles.
withholding tax on interest payments made to overseas lenders must
be deducted by the borrower in Myanmar. This withholding tax is
a final tax for a non-resident under Notification No. 41/2010, as 11 What restrictions, fees and taxes exist on insurance policies
amended, issued by the Ministry of Finance and Revenue. The with- over project assets provided or guaranteed by foreign insurance
holding tax on interest payments may be reduced under an applica- companies? May such policies be payable to foreign secured
ble tax treaty to which Myanmar is a signatory. creditors?
It is a requirement that all insurance coverage be with Myanma
Insurance under the MFR. If the foreign company wants to maintain
insurance with a foreign insurance company abroad, it may do so
only with the permission of Myanma Insurance.
Pursuant to the SEZ laws, foreign insurance companies and joint
Myanmar project companies are not required to repatriate foreign venture insurance companies will have the right to operate in the
earnings. However, foreign companies in Myanmar can repatri- SEZ. The rules relating to this issue have not yet been adopted.
ate their profits and dividends through any bank with a foreign Further, all economic organisations formed under an MIC per-
exchange-authorised dealer licence issued by the CBM. Payment of mit shall procure insurance with any authorised local insurance
dividend, interest and repayment of capital on loans by a foreign- enterprise in respect of the followings types of insurance:
invested enterprise with a permit granted by the MIC (MIC permit) • machinery insurance;
must be approved by the MIC before the bank is allowed to execute • fire insurance;
the outward remittance. Investors have the right to maintain foreign • marine insurance;
bank accounts without restriction and to freely receive abroad, remit • physical injury insurance;
abroad and use without restriction foreign currency received from • natural disaster insurance; and
export and local sales of its shares. • life insurance.
9 May project companies establish and maintain foreign currency Other insurance policies may be required in accordance for specific
accounts in other jurisdictions and locally? projects and under the applicable laws.
Project companies may establish and maintain foreign currency
accounts in other jurisdictions and accounts locally, although it may 12 What restrictions exist on bringing in foreign workers, technicians
require prior approval from the MIC or the CBM or the MFR. or executives to work on a project?
Under the SEZ laws, businesses that are operated in foreign cur- The employment of foreign experts and technicians by a company
rency may open foreign accounts and operate accounts in accordance carrying out business investment must obtain the approval of the
with rules not yet adopted. Also, foreign investors may, pursuant to MIC.
rules not yet adopted, be allowed to make payments and exchange Under the NFIL, 25 per cent of investors’ appointments must
and transmit foreign currency within the SEZ. be skilled citizen workers, technicians and staff within the first two
years of the investment, rising to at least 50 per cent within the sec-
Foreign investment issues ond two years and at least 75 per cent within the third two years, all
counted from the year that the business commenced its operations.
Special rules exist in the SEZs. In an enterprise where foreign
workers are needed, they must be replaced in accordance with
the following schedule: 25 per cent of these must be replaced by
Myanmar citizens within five years of commencement of the opera-
tion, 50 per cent within 10 years and 75 per cent within 15 years.
In addition, work permits, stay permits and visas are applicable
with respect to foreign employees.
authority?
Myanmar law specifies 12 economic activities that are allowed to
be carried out only by the government. However, if it is in the inter- 13 What restrictions exist on the importation of project equipment?
est of the state, the government may, on a case-by-case basis, by Requirements to be fulfilled prior to the importation of project
notification, specifically permit such restricted economic activities to equipment include compulsory registrations and export or import

DFDL MYANMAR
licences, which are controlled and administered by the Directorate Income tax applies to resident companies at a rate of 25 per cent
of Trade under the Ministry of Commerce. Relevant duties apply. on profit, while 35 per cent applies to non-resident foreign nation-
als on Myanmar-source income. An enterprise registered under the
NFIL shall enjoy an automatic tax holiday period of five years. In
general, a final withholding tax, which applies to payments to non-
residents for the purchase of goods within Myanmar and services
(3.5 per cent), royalties (20 per cent) and interest (15 per cent).
A number of Myanmar laws are relevant to nationalisation. Most Payments to residents are subject to creditable withholding tax of
importantly, the NFIL expressly guarantees that an economic enter- 2 per cent for the purchase of goods and services and 15 per cent
prise operating under the MIC permit shall not be nationalised dur- for royalties. There are no withholding taxes for payment of divi-
ing the term of the contract or during any extended term. Therefore, dends paid to both residents and non-residents, and interests if paid
for example, a mining project operated by a foreign mining com- to residents.
pany formed under the investment law and with a permit from the Resident individuals are subject to progressive tax rates of zero
MIC is guaranteed not to be nationalised during the term of the to 25 per cent on their worldwide income, while non-residents are
contract or during any extended term. subject to 35 per cent personal income tax on their Myanmar-source
income. The employer is primarily liable to withhold tax on employ-
Fiscal treatment of foreign investment ment income.
Myanmar tax law imposes a 40 per cent tax on the sale of shares
15 What tax incentives or other incentives are provided preferentially in a Myanmar company by a non-resident in the non-oil and gas sec-
to foreign investors or creditors? What taxes apply to foreign tor. With respect to the oil and gas sector, the capital gains tax ranges
investments, loans, mortgages or other security documents, from 40 per cent to 50 per cent based on the gains.
either for the purposes of effectiveness or registration? Commercial Tax is generally applied to local production and
Incentives available to foreign investors under the NFIL include: trading of goods and services, as well as importation of goods. In
• exemption from income tax for up to five consecutive years general, CT is set at 5 per cent, with the exception of ‘special’ goods
from the date of commencement of commercial operation; such as cigarettes, alcohol, natural gas, teak and gems.
• exemption or relief from income tax on profits where these prof- Myanmar has double taxation avoidance agreements (DTAs)
its are maintained in a reserve fund and are subsequently rein- with Bangladesh, India, Indonesia, Republic of Korea, Lao PDR,
vested within one year after the reserve fund is made; Malaysia, Singapore, Thailand, the United Kingdom and Vietnam,
• the right to accelerate depreciation with respect to machinery, but only the treaties with India, Lao PDR Malaysia, Singapore,
equipment, building or other capital assets used in the business, South Korea, Thailand, the United Kingdom and Vietnam have been
at the rate fixed by the MIC, to the extent of the original value ratified so far. Domestic withholding tax rates may be reduced or
for the purpose of income tax assessment; exempt upon application of the relevant DTAs.
• relief from income tax of up to 50 per cent on the profits accrued
on the export, if the goods produced by any enterprise are Government authorities
exported;
• the right to pay income tax payable to the state on behalf of
the foreign mining company’s employees and the right to deduct
such payments from the assessable income;
• the right to pay income tax on the income of the foreign employ-
ees at the rates applicable to citizens residing within the country; There are various government ministries, departments and state-
• where there are expenses incurred in Myanmar with respect to owned economic organisations under the relevant ministries having
research and development relating to the business of the foreign jurisdiction with respect to specific project sectors. Depending on
mining company, a foreign mining company is granted the right project sectors, the requirements to obtain approvals from relevant
to deduct such expenses incurred from the assessable income; ministries vary in addition to obtaining prior permits or approvals
• the right to carry forward and set off losses for up to three con- from the government or the MIC, as may be necessary.
secutive years from the year the loss is sustained; For example, the relevant government agencies or departments
• exemption or relief from customs duty or other internal taxes are the:
on machinery equipment, instruments, machinery components, • Ministry of Energy and its subordinate agencies, such as the
Myanma Oil and Gas Enterprise in the oil and gas sector;
spare parts and materials used in the business and those that
• Ministry of Mines and its subordinate agencies and departments,
are imported and required to be used during the construction
namely, No. 1 Mining Enterprise, No. 2 Mining Enterprise and
period; and
No. 3 Mining Enterprise, the Department of Geological Survey
• exemption from customs duty or other internal taxes on the
and Mineral Exploration, and the Department of Mines, in the
import of such raw materials and additional import of machin-
mineral sector;
ery, equipment and spare parts that are actually required for the
• Ministry of Electric Power No. 1 and its subordinate agencies,
operation of the business for the first three years of commercial
including the Hydroelectric Power Implementation Department
production following completion of the construction.
in connection with hydropower and coal-fired thermal power
plants;
In addition to the above, foreign investors operating businesses in
• Ministry of Electric Power No. 2 and its subordinate agencies
the Dawei SEZ may apply to obtain certain specific incentives under
in connection with gas-fired thermal power, power transmission
the SEZ laws, including for example temporary income tax exemp-
and distribution; and
tion or reduction on export sale proceeds, exemption from commer-
• Ministry of Communications, Post and Telegraphs and its subor-
cial tax and customs duty on materials and equipment imported for dinate agencies, such as Myanmar Post and Telecommunications
export processing. for the telecommunications industry.
There is no other significant incentive or tax provided preferen-
tially to foreign creditors. The two major taxes applicable to foreign As regards doing business and investment in the Dawei SEZ, approv-
investments are income tax and commercial tax. Security documen- als are also required as may later be determined from organisations
tation is also subject to stamp duty and registration fees. such as the Central Body, Management Committee.
MYANMAR DFDL
holder have? May foreign parties acquire such rights? Depending on the types of project finance transactions related to
In principle, title to natural resources in the ground is vested in the investments, loans, operations, transactions and remittances by for-
state. eign parties or local companies, approval of one or several of the
However, depending on the sector, project activities may be car- following – the government, the MIC, relevant government minis-
ried out and the rights thereto, including title to underground water tries, or the CBM or the MFR – is required and may vary in form.
as well as things growing on or living on land, may be enjoyed as Under Myanmar law, the taking or enforcement of security of shares
permitted by law. For example, rights to mineral resources may be or assets of companies in the oil and gas, mining, electricity or tel-
acquired by foreign or local investors in the form of mining leases ecommunications industries is subject to the prior approval of the
from the government. In this connection, the mineral produc- foregoing authorities.
tion permit holder will have to strictly comply with the terms and And, depending on the type of transaction, prior approval from
legal provisions regarding the mining lease. As to mining leases for the MIC may be required as well.
large-scale mineral production, permits are granted for a maximum
period of 25 years. Further extension for a period not exceeding
five years at a time may also be granted by the Ministry of Mines 21 Must any of the financing or project documents be registered or
with approval of the government. Various conditions will apply to filed with any government authority or otherwise comply with legal
the mining lease including the fact that the mining permit shall not formalities to be valid or enforceable?
be transferred by the permit holder without the permission of the If the principal money secured is 1 million kyats or more, a mortgage
Ministry of Mines or Department of Mines, and that the prescribed other than a mortgage by deposit of title deeds can be effected only
dead rent and royalty must be paid to the government. A permit by a registered instrument signed by the mortgagor and attested by
holder also has the exclusive right, in accordance with the conditions at least two witnesses. If the principal money secured is less than
of the permit, to the minerals in the mining area. 1 million kyats, a mortgage may be effected either by a registered
In relation to oil and gas there has been a notification related to instrument signed and attested as mentioned above, or (except in the
the State-Owned Enterprise Law that grants an exemption: regard- case of a simple mortgage) by delivery of the property.
ing new bidding for deep-water blocks, foreign investors can have Also, every mortgage or charge created on immoveable or move-
100 per cent ownership of the project. able property by a company must be registered with the registrar
There are particular requirements on leased land on which natu- of the CRO, and also, mortgages on immoveable property must be
ral resources or antiques are discovered. registered with the Office of the Registration of Deeds.
Generally, contracts including mortgage deeds may be made in
18 What royalties and taxes are payable on the extraction of natural English. As for translation and notarisation, translation of the instru-
resources, and are they revenue- or profit-based? ments into the Myanmar language and notarisation or legalisation
Royalty rates vary from sector to sector, as the following figures may be required when asked by the relevant government depart-
show: ments at the time of filing the documents.
• gold, silver, platinum and other precious metallic minerals: 4 to
5 per cent; 22 How are international arbitration contractual provisions and
• iron, zinc, copper, lead, tin, tungsten, nickel, antimony, manga- awards recognised by local courts? Is the jurisdiction a member
nese and other metallic minerals: 3 to 4 per cent; and of the ICSID Convention or other prominent dispute resolution
• industrial mineral or stone: 1 to 2 per cent. conventions? Are any types of disputes not arbitrable? Are any
Yet, the Ministry may exempt any royalty payable by the holder of
a permit, in whole or in part, for such period as may be determined On 15 July 2013, Myanmar became the 149th contracting state to
and also defer payment of royalty due. the New York Convention on the Recognition and Enforcement of
Specifically in relation to production-sharing contracts, the roy- Foreign Arbitral Awards (the New York Convention). This is a sig-
alty tax amounts to 12.5 per cent of the available petroleum. nificant economic and legal reform with regard to foreign invest-
ment in Myanmar.
Myanmar deposited its formal instrument of accession to
19 What restrictions, fees or taxes exist on the export of natural the New York Convention on 16 April 2013, and 90 days later,
resources? Myanmar formally acceded to the New York Convention. In accord-
The export of certain natural resources requires approval of the ance with the New York Convention, Myanmar courts are obliged
relevant government ministries, for example, the export of miner- to give effect to foreign arbitration clauses and to enforce arbitral
als requires the approval of the Ministry of Mines and Ministry of awards made in other member states of the New York Convention.
Commerce, and an export or import licence must be obtained from Foreign investors will be able to choose a neutral offshore forum of
the Ministry of Commerce. the resolution for their disputes, insofar as the parties have agreed
Investors establishing a business involving export transactions to arbitration.
are required to first register as an exporter and obtain a certificate It is, however, still necessary to adopt domestic legislation in
of exporter registration from the Directorate of Trade under the order to implement the New York Convention in Myanmar. The
Ministry of Commerce. After receiving the certificate, the registered draft implementing legislation is in circulation and is expected to be
exporter or importer must then apply for an export licence sepa- passed by parliament soon.
rately for every export. Yet, unless there is an MIC permit in place, In addition, there are still certain hurdles to be crossed. First,
under government policy foreign companies that are intended for it is uncertain whether Myanmar has made any reservations with
import or export activities are not allowed at present. regard to its accession to the New York Convention (such as with
The types of goods that may be exported are listed in relevant regard to reciprocity, which may potentially limit the number of
laws Generally, there is no commercial tax on exports except for reciprocal countries for the enforcement of the arbitral awards).
crude oil (5 per cent), natural gas (8 per cent), teak (50 per cent), Further, some observers have said that there is a general lack of local
jades and rubies (30 per cent) and jewellery (10 per cent).

DFDL MYANMAR
judiciary capacity and experience in order to ensure that the New on the project sector, there are various requirements under Myanmar
York Convention and the implementing legislation are applied in law. For example, special project companies wishing to engage in
accordance with international practice. oil and gas sector investment must comply with the directive of the
At the same time, Myanmar is a signatory to the Geneva MIC relating to environmental protection as well as environmen-
Convention. Myanmar enacted the Arbitration (Protocol and tal-protection related laws and rules; companies conducting min-
Convention) Act of 1937, which deals with foreign arbitral awards ing activities must meet the requirements in the Myanmar Mines
and the Arbitration Act of 1944, which deals with domestic arbitra- Law and the Myanmar Mines Rules relating to working condi-
tion and arbitral awards made under arbitration agreements gov- tions, safety, health, environmental protection and other aspects; the
erned by Myanmar law. requirements for the protection and preservation of cultural heritage
The Arbitration (Protocol and Convention) Act of 1937 sets out, must be observed under the Protection and Preservation of Cultural
inter alia, provisions to be followed in enforcing foreign awards and Heritage Law of 1998; approval from the Ministry of Forestry for
establishes conditions for enforcement of foreign awards made on commencing any project activities involving forest conservation will
disputes relating to matters considered commercial under Myanmar also be necessary under the Forest Law of 1992 and its Rules; and
law. the provisions of labour-specific laws, including the Factories Act
The law does not specifically provide that any particular class of 1951, relating to health and safety matters are required to be
or type of disputes will be subject to automatic domestic arbitra- complied with. Also, project companies wishing to receive incentives
tion except that, as mentioned above, to enforce a foreign award under the NFIL will have to comply with the requirements of the
the matter must be able to be lawfully referred to arbitration under NFIL.
Myanmar law. The Environmental Conservation Law (ECPL) was enacted
on 30 March 2012. Under the ECPL, the Union Government is
required to form an environmental preservation committee with the
Union Minister for the Union Ministry assigned by the Union gov-
ernment as the chairman and with suitable members to conserve the
environment of the Republic of the Union of Myanmar. The law
As a general rule, the Myanmar authorities require in virtually all requires the Ministry of Environmental Conservation and Forestry
contracts that the law of Myanmar is chosen as the governing law. to form a committee to create and carry out specific policies. The
There may, however, be exceptions to this. In joint ventures between ECPL requires the Ministry to accomplish certain objectives, such as
the government and foreign parties in large energy and minerals establishing a system for monitoring pollution from industry, agri-
deals, foreign law is allowed to be used (eg, in production-sharing culture, and mining, and to monitor construction projects. However,
contracts), and also, such exceptions may be seen in loan agreements the ECPL does not provide detailed, specific requirements. In short,
between the government and foreign entities. Yet, it is likely that it mainly gives the Ministry the power to make policies. At present,
even a state-owned economic organisation would insist that a for- rules on environmental impact assessments are being drafted and
eign investor or company use the Myanmar law. it is anticipated that rules on social impact assessment will follow
soon too.
24 Is a submission to a foreign jurisdiction and a waiver of immunity Finally, although the ECPL is binding for the government and
effective and enforceable? the government projects, the ministry may be required to get permis-
sion from the government to enforce the ECPL on other ministries.
The parties to a contract are not prohibited from submitting to the
jurisdiction of foreign courts. However, an agreement absolutely
Project companies
restricting a party from enforcing its rights under a contract by the
usual proceedings in ordinary tribunals would be rendered void. A 26 What are the principal business structures of project companies?
contract provision expressly excluding the courts from jurisdiction What are the principal sources of financing available to project
would, therefore, run the risk of rendering the contract void. companies?
There is a lack of precedent in Myanmar concerning how
The business structures of project companies available under the
Myanmar courts deal with agreements containing the choice of a
NFIL are:
foreign law forum. However, a Myanmar court has accepted, in at
• through a company with 100 per cent foreign capital;
least two cases, one of the principles of English private international
• through a joint venture company formed by a foreign national
law (ie, the intention of the parties must first be determined before
and a citizen, or the relevant government department and organ-
deciding what law is applicable to their case). It may therefore be
isation; or
concluded theoretically that the governing law applicable to an
• a public-private partnership, which would include BOT con-
agreement may be chosen by the parties.
tracts and others.
A judgment of a foreign court is recognised in Myanmar except
for specific cases (specified by law) where a foreign judgment is not
A foreign entity may also establish a branch office in Myanmar that
conclusive (including notably where the judgment is deemed to sus-
is capable of engaging in revenue-generating activities that are per-
tain a claim founded on a breach of any Myanmar law). Sovereign
mitted as objects of the parent company. Branch offices are generally
immunity can be expressly waived by state-owned economic enter-
registered for foreign firms engaged in the services sector without an
prises and government authorities and waiver of immunity clauses
MIC permit, since the NFIL does not overtly include branch estab-
are effective and enforceable.
lishment in the list above.
Non-revenue-generating activities in the insurance or banking
sectors would be carried out via a representative office. Most com-
25 What laws or regulations apply to typical project sectors? What monly, the main financing source for project companies is foreign
regulatory bodies administer those laws? currency from foreign lenders, while domestic loans in local cur-
rency may be sought from government-owned banks and private
There are numerous laws, rules, regulations, orders and directives
banks as permitted by Myanmar laws.
that cover various project sectors to be complied with. Depending
MYANMAR DFDL
Public-private partnership legislation PPP – transactions
27 Has PPP enabling legislation been enacted and, if so, at what 29 What have been the most significant PPP transactions completed
level of government and is the legislation industry-specific? to date in your jurisdiction?
No. The formation of a joint venture between a state entity and a for-
eign participant, and the notifications conferring powers to certain
PPP – limitations economic organisations to carry out economic activities under the
SEE Law issued by the government are commonly published in the
28 What, if any, are the practical and legal limitations on PPP Gazette. However, there has been no notice published in the Gazette
transactions? regarding the existence of a partnership in connection with state
Not applicable. projects.
Jaime Casanova jaime.casanova@dfdl.com

James Finch james.finch@dfdl.com
Bernard Cobarrubias bernard.cobarrubias@dfdl.com
No. 134/A, Than Lwin Road Tel: +95 1 526 180

Golden Valley Ward (1) Fax: +95 1 548 835
Bahan Township myanmar@dfdl.com
Yangon www.dfdl.com
Myanmar

Simmons & Simmons LLP NETHERLANDS
Netherlands
Rutger de Witt Wijnen, Luc Cohen and Viviana Luján Gallegos
Creating collateral security packages A non-possessory right of pledge is created by way of a notarial
deed of pledge executed by a Dutch civil law notary or by way of a
1 What types of collateral are available? privately executed agreement between the pledgor and the pledgee
Dutch law has a closed system of security interests and recognises that is subsequently registered with the Dutch tax authority. Such
three basic forms of security interests: mortgages, pledges and the registration is non-public and is for date stamping purposes only.
financial security agreement. Given the relevance of the first two A possessory pledge requires the pledgee to take possession
for project finance, the financial security agreement is not discussed of the pledged asset. This type of pledge is not common in project
hereunder. finance transactions.
Mortgages Shares
A mortgage is a form of security that can be granted over immove- For the purpose of creation of a right of pledge over the shares in
able property (ie, land, buildings and ground leases), registered ships the capital of a Dutch company (either a public company or a pri-
and aircraft. Pursuant to a mortgage, the mortgagor (ie, the owner vate company with limited liability), a distinction should be made
of the assets) creates a security interest in favour of a mortgagee to between registered shares and bearer shares.
secure its payment obligations or the payment obligations of a third A right of pledge over registered shares is created by the execu-
party against such a mortgagee. The mortgagee can sell the secured tion of a notarial deed of pledge before a Dutch civil law notary and
assets if the mortgagor or such a third party defaults in the perfor- the acknowledgment thereof by the company of which the shares
mance of the secured obligations under the mortgage and use the are being pledged. The deed of pledge can provide that the voting
proceeds in satisfaction of such obligations. rights are to be transferred to the pledgee upon the occurrence of
an event of default under the agreement that contains the secured
Pledges liabilities or under the deed of pledge. The right of pledge must be
A right of pledge is the most common form of security in the registered in the shareholders’ register of the company.
Netherlands. A right of pledge can be created over, inter alia, move- A right of pledge over bearer shares is created in the same man-
able assets (other than registered ships and aircraft), shares, receiv- ner as a right of pledge over moveable assets. This principle applies
ables (including bank accounts and insurance receivables) and IP to bearer shares held or deposited in the Netherlands, regardless of
rights. The creation requirements of a right pledge are different from whether the shares relate to Dutch companies or foreign companies.
those for a right of mortgage, but its characteristics in terms of what Whether the right of pledge needs to be registered in the sharehold-
they secure and when can they be enforced are generally the same. ers’ register or the register of members of the company depends on
whether this is required under the laws of incorporation of the rel-
evant company.
A right of pledge over shares that are transferable by means
of book entries in accordance with the Act on the Securities Giro
System is created by means of a book entry in the name of the
pledgee by the custodian bank responsible for the books.
Receivables
Mortgage With respect to the perfection of a pledge on receivables a distinction
A mortgage is created pursuant to a notarial deed executed before a should be made between a disclosed pledge of receivables and the
civil law notary, which must subsequently be registered in the public undisclosed pledge of receivables.
registers of the Dutch land registry. The maximum amount of obli- A disclosed pledge of receivables is created by way of a privately
gations secured by the mortgage must be stated in the deed. For that executed agreement or a notarised deed entered into by the pledgor
reason, a mark-up (usually 40 per cent) over the principal amount is and the pledgee and the notice thereof to the debtors of the pledged
included in the secured obligations to cover interest and costs. receivables.
An undisclosed pledge of receivables can either be created by a
Pledge notarial deed of pledge executed before a civil law notary or by a
The required formalities for the creation of a right of pledge differ privately executed agreement entered into by the pledgor and the
according to the type of asset that is pledged. pledgee, which is subsequently registered with the Dutch tax author-
ity (for date stamping purposes only).
Moveable assets An undisclosed pledge cannot be created on future receivables
A right of pledge over moveable assets can either be possessory of the pledgor. However, it is possible to create a right of pledge
pledge or non-possessory. over future receivables that directly derive from a legal relationship
NETHERLANDS Simmons & Simmons LLP
existing at the time of the execution of the pledge (such as a lease notice of default before enforcing the security. This requirement can
agreement). As a result hereof, the agreement pursuant to which an be excluded by a provision in the relevant security document.
undisclosed right of pledge is created usually contains an obligation
on the pledgor to pledge future receivables (which are not derived Enforcement of pledges and mortgages (other than a pledge of
from existing legal relationships) on a regular basis through the exe- receivables)
cution and registration of a short form of the supplemental pledge, Generally security rights are enforced by means of a public sale of
which is attached to the relevant deed of pledge. the secured assets in the manner as prescribed by the Dutch Code
of Civil Procedure and the Dutch Civil Code. In respect of certain
Pledge on bank accounts assets, the creditor and the debtor may agree on a different method
A pledge over monies held in bank accounts is created as a pledge of sale, or they may ask the court to allow a different method of sale.
over receivables due by the relevant bank as debtor to the pledgor in
its capacity of holder of the bank account. This pledge is generally Public sale
created by way of a disclosed pledge of receivables, as notice of the In principle, a mortgagee or pledgee should enforce its security inter-
pledge is given to the bank where the account is maintained. Usually est by way of a public sale. To proceed with such a public sale the
the pledgee will authorise the pledgor in the deed of pledge to con- mortgagee or pledgee does not need to obtain a court order or court
tinue to give payment instructions and dispose of the monies in the permission. A public sale of immoveable property, registered ships or
bank account until the occurrence of an event of default in relation aircraft must take place before a civil law notary. There are no statu-
to the secured liabilities. As a result thereof the monies on the bank tory requirements that apply to a public sale of the asset secured by
account will then be frozen. a right of pledge, other than that the sale should be conducted in
accordance with local customs.
Intellectual property rights Pledged assets that are traded on a market or on an exchange
A right of pledge over intellectual property rights (IPRs) is created may be publicly sold on the market through a broker or on an
by either the execution of a notarial deed before a Dutch civil law exchange through a qualified intermediary, in accordance with the
notary or a privately executed agreement entered into by the pledgor rules and customs that generally apply to an ordinary sale on that
and the pledgee, which is subsequently registered with the Dutch tax market or exchange.
authority (for date stamping purposes only).
IPRs are generally registered with the Dutch Bureau for Industrial Private sale
Property or the Benelux Trademark Register or the Benelux Office Unless stipulated otherwise, an enforcement may also occur through
for Designs and Models (the Registration Agencies). Registration of a private sale agreed between the mortgagor or pledgor and the mort-
the pledge at the relevant Registration Agency is not required to cre- gagee or pledgee. Both the mortgagor or pledgor and the mortgagee
ate the right of pledge. Notwithstanding the previous, the creation or pledgee need to cooperate with a private sale. An agreement on a
of a valid pledge over an IPR cannot be invoked against third parties private sale between the mortgagor or pledgor and the mortgagee or
who have relied in good faith on the information registered with the pledgee requires the consent of all lower-ranking secured parties (if
relevant Registration Agency. Therefore registration of the pledge any) and can only be entered into after the occurrence of a default. A
with the relevant Registration Agency is common practice. voluntary private sale is the fastest method of enforcement.
Security agent Court-ordered private sale

When there is more than one lender in a finance deal the concept Should a mortgagor or pledgor and a mortgagee or pledgee have
of parallel debt is used in Dutch law security documents to allow trouble reaching an agreement on a private sale, a court authorised
a security agent to hold as a secured party the security on behalf of private sale is generally preferable. Unless otherwise agreed upon, a
all lenders. pledgee may request the interim provisions judge (voorzieningenre-
chter) of the competent Dutch court to authorise a private sale of the
secured assets for an amount and on the terms and conditions to be
determined by that court. A court will generally prefer the highest
bid regardless of its payment terms.
A search in the Dutch land registry (which is publicly accessible) Legal proceedings for a court authorised sale are initiated by
shows all validly created mortgages. submitting a petition to the court, containing a draft purchase agree-
There is no public register to verify the existence of a right of ment with a prospective purchaser, a list of other bids received (if
pledge on moveable assets or receivables. However, pledges created any), a list of interested parties and an independent valuation of the
on IP rights are often registered in one of the Registration Agencies collateral.
(see question 2), which are publicly accessible. In addition, a com-
pany is required to record the creation of a right of pledge on regis- Pledge on receivables (including a pledge on bank accounts)
tered shares in its shareholders’ register. A (prospective) creditor may The enforcement of a pledge of receivables may also occur through
request to examine this shareholders’ register prior to entering into a public auction, voluntary private sale or a court-ordered private
a financing agreement. sale as mentioned above. In the case of a public auction the pledgee
has the right to bid during the auction and take recourse against the
4 Outside the context of a bankruptcy proceeding, what steps proceeds. A bid by the pledgee and a bid made by a third party are
should a project lender take to enforce its rights as a secured treated equally in this respect.
party over the collateral? However, a pledge of receivables is usually enforced through
a notice to the debtors of the receivables and to the pledgor itself.
A pledge or a mortgage can be enforced if the payment obligations
Upon receipt of such a notice, the debtors may only pay any amount
that are secured by the right of pledge or mortgage are not fulfilled.
due to the pledgee, whereas the pledgee may take recourse against
A default under other obligations does not as such entitle the secured
the monies received by it in accordance with the rules regarding the
creditor to enforce the pledge or mortgage, unless and until it results
application of proceeds as laid down in the Dutch Civil Code.
in the acceleration of the debt and the borrower is in default of its
A pledge on a bank account, which is a pledge of receivables,
payment obligations. In principle, the creditor must first issue a
is typically enforced by the notification to the account bank of a
default in payment of the secured liabilities, which will revoke the

authorisation usually granted to the pledgor to continue using the lease instalments or, if the debtor’s business is continued, the opera-
bank account and the monies therein. tional loss of the business in that period.
The DBA will in principle apply to all legal entities under private
law. However, pursuant to the Dutch Act on Financial Supervision
special insolvency proceedings apply to credit institutions, such as
banks and insurance companies. The DBA also contains separate
sections on the settlement of insolvencies of such credit institutions.
As a bankruptcy proceeding is considered to be an attachment
on all assets of the debtor, it is in principle not possible to seize
the debtor’s assets once it has been declared bankrupt. Outside of
insolvency proceedings, creditors can quite easily obtain leave from
a Dutch court to levy a pre-judgment attachment on the debtors’
assets. Foreign creditors will in principle have the same rights as
The Dutch Bankruptcy Act (DBA) distinguishes between two differ- local creditors in a Dutch bankruptcy proceeding.
ent proceedings for companies: temporary suspension of payment
and bankruptcy. Both are insolvency proceedings within the mean- Foreign exchange issues
ing of the European Insolvency Regulation. The objective of the tem-
porary suspension of payment proceeding is to allow the debtor to 6 What are the restrictions, controls, fees, taxes or other charges
reorganise its business or restructure its debt to avoid bankruptcy. on foreign currency exchange?
A bankruptcy proceeding is aimed at liquidating the assets of the Subject to any applicable sanction regulations, there are no controls
bankrupt company for the purpose of distributing the proceeds or taxes on foreign currency exchange itself. A Dutch resident entity
among its creditors. It is considered to be a general attachment on all is normally subject to Dutch corporate income tax in respect of any
assets of the bankrupt entity and hence freezes all assets and liabili- currency exchange gains, whereas any currency exchange losses are
ties at the date of the bankruptcy. A suspension of payment may be tax-deductible. Banks impose fees in respect of currency exchanges.
converted into a bankruptcy when it is evident that the suspension
will not be successful.
A holder of a right of pledge or mortgage is entitled to enforce 7 What are the restrictions, controls, fees and taxes on remittances
its right over the secured collateral notwithstanding a suspension of investment returns or payments of principal, interest or
of payment or a bankruptcy proceeding. A moratorium may be premiums on loans or bonds to parties in other jurisdictions?
allowed whereby a secured creditor will temporarily be prevented Subject to any applicable sanction regulations, there are no controls
from enforcing its security right, with the exception of a holder of a on remittances or investment returns or loan payments to parties in
right of undisclosed pledge on receivables who remains entitled to other jurisdictions. Investment returns may be made in the form of a
give notice of its right of pledge to and receive payments from the dividend distribution or interest payments under a loan.
debtors of the receivables. The pledgee or mortgagee is not required Dividend distributions made by a Dutch resident entity are nor-
to seek court intervention in order to confirm the indebtedness mally subject to Dutch withholding tax at a rate of 15 per cent.
before foreclosing over the secured assets. However, an exemption from, or a refund or reduction (in whole or
The bankruptcy receiver (curator) may, for the benefit of the in part) of, Dutch dividend withholding tax may apply pursuant to
estate, void voluntary juridical acts of the debtor if the debtor was or the EU Parent-Subsidiary Directive or the Dutch double tax treaty
ought to have been aware that its actions would result in prejudice network. If no exemption from, or refund or reduction of, Dutch
to the creditors. The counterparty of the debtor must also have such dividend withholding tax would be available under the EU Parent-
knowledge, unless the juridical act was without consideration. If the Subsidiary Directive or the Dutch double tax treaty network, there
juridical act took place within one year prior to bankruptcy, it will are other planning techniques available to reduce Dutch dividend
– in a number of specified situations – be assumed that the debtor withholding tax (including, without limitation, the use of a Dutch
and its counterparty had the required knowledge subject to proof of cooperative).
the contrary. The bankruptcy receiver may also void non-voluntary Interest payments under a loan are normally not subject to
juridical acts if certain specific requirements have been met. Dutch withholding tax. In general, interest payments made by a
In general, all claims rank equally but rights secured by a mort- Dutch entity under a loan are tax-deductible. If interest payments
gage or pledge take priority in the proceeds of the secured assets. In are made under an inter-company loan, the terms and conditions
addition, certain claims may take priority over the claims of secured agreed upon in the inter-company loan should reflect the same terms
creditors: and conditions as commercial dealings (at arm’s-length principle).
• tax claims, including VAT and wage tax, which take priority in Deduction of interest payments may be limited on the basis of inter-
the proceeds of certain moveable property on the debtor’s prem- est deduction limitation rules, for example, where an inter-company
ises, to the extent that those claims cannot be paid out of the loan is provided to a Dutch company to fund a profit distribution, to
proceeds of unsecured assets; fund an equity contribution or to acquire an interest in a company;
• costs of enforcing judgments or deeds of indebtedness; and and debt funding has been provided to a Dutch entity, insofar that
• costs of the debtor’s bankruptcy, only if the secured creditor this debt funding is deemed to be connected with the funding of cer-
fails to sell the secured assets separately from the bankruptcy tain qualifying shareholdings. However, counter-evidence rules and
proceedings. thresholds may permit tax deduction of interest payments after all.
Ordinary creditors will only receive payment out of the bankrupt

estate once all preferred creditors have been paid.
If the secured assets would not be sold separate from the bank-
ruptcy proceedings, the costs of the bankruptcy will be charged pro-
portionally against all proceeds, including the security proceeds. The There is no requirement on Dutch companies to repatriate foreign
bankruptcy costs include the fees and disbursements charged by the earnings and no requirement to convert foreign earnings to domestic
bankruptcy receiver and the wages and social security premiums, currency if they do repatriate foreign earnings.
9 May project companies establish and maintain foreign currency Insurance premium tax may apply in relation to insurance con-
accounts in other jurisdictions and locally? tracts where the risk is located in the Netherlands. Certain exemp-
Subject to any applicable sanction regulations and local law restrictions may apply, for example, in respect of marine insurance, aircraft
tions in other jurisdictions, Dutch companies may have accounts in insurance, export credit insurance and reinsurance.
any currency both at home and overseas. All accounts need to com-
ply with Dutch tax and anti-money laundering rules. 12 What restrictions exist on bringing in foreign workers, technicians
In principle all employers who wish to employ foreign employees
10 What restrictions, fees and taxes exist on foreign investment in or within the Netherlands, regardless of the length of the employment
ownership of a project and related companies? Do the restrictions and the nationality of the employee (except for most EU or EEA
also apply to foreign investors or creditors in the event of nationals, Swiss nationals and certain individuals to whom special
foreclosure on the project and related companies? Are there regulations apply) must obtain a work permit for the employee prior
any bilateral investment treaties with key nation states or other to the commencement of his or her employment. Employees may
international treaties that may afford relief from such restrictions? be brought in as a labour migrant, a highly skilled migrant or as a
Would such activities require registration with any government scientific researcher. For each category certain conditions and salary
authority? requirements apply. A labour migrant will for instance have to earn
Foreign companies are treated in the same way as Dutch-owned the Dutch statutory minimum wage, which is indexed on an annual
businesses. There are no restrictions and fees with regard to invest- basis.
ment in or ownership of a project SPV. No specific taxes will be pay- A work permit will generally be issued only if there is no equally
able by a foreign party on investments made into the Netherlands. In suitable Dutch or EU or EEA national for the job and the permit is
specific situations, a foreign party may be subject to Dutch corporate limited in time (up to a maximum of three years).
income tax in respect of income (including capital gains) derived Under certain conditions no work permit is required in respect
from investments made into the Netherlands. However, normally no of foreign nationals working temporarily in the Netherlands in the
such taxes should be payable by a foreign party on the basis of an context of cross-border service provision, employed by an employer
exemption under Dutch domestic tax law or an applicable double established outside of the Netherlands in another European Union
tax treaty. member state, another EEA state, or Switzerland.
The Netherlands has entered into more than 100 bilateral Most foreign nationals from outside the EU and EEA who wish
investment treaties and is party to the Energy Charter Treaty. These to work in the Netherlands for more than three months must apply
treaties guarantee the fair and equitable treatment of the investors’ for a temporary residence permit in person at the Dutch embassy or
investments, they often specify ‘most favoured nation’ clauses to pre- consulate in their country of origin. Alternatively, the employer can
vent discrimination, offer protection against damages or for depri- apply to the Immigrations Service in the Netherlands for a tempo-
vation of property and they guarantee the free transfer of income. rary residence permit. A temporary residence permit is valid for six
In- and outbound investors may invoke rights under these treaties, months.
including procedural rights to alternative forms of dispute resolution A special regulation applies to highly skilled migrants. Under
(typically arbitration). The Netherlands treaties, typically, include this regulation a work permit is no longer necessary if the foreign
liberal definitions of ‘investors’ and ‘investments’ that qualify for employee will earn a gross annual salary of at least approximately
protection – often enabling indirect investors to have standing as €52,462 (different salaries apply for different age categories). In
well. Consequently, Netherlands treaties are often relied upon in addition, the employer has to sign a statement by which it assumes
international investment arbitration. a number of responsibilities. If, however, the employee needs a resi-
When acquiring ownership of a project-related company is not dence permit, then this will still need to be obtained. The Immigration
subject to EU merger control rules, mergers, acquisitions and cer- Service will in principle decide on the request to issue a (temporary)
tain joint ventures (collectively referred to as ‘concentrations’) may residence permit within two weeks.
require competition clearance in the Netherlands. When such a clear- Foreign employees temporarily seconded to the Netherlands
ance is required, the Dutch Authority for Consumers and Markets may obtain a special expatriate tax regime, the so-called 30 per cent
(ACM) has to be notified of the intended acquisition. After notifica- ruling, provided that certain conditions are met. This ruling has
tion, the ACM will examine the effect of the concentration on the the effect of materially reducing the rate of income tax paid by the
Dutch market. If there is no undermining competition, the ACM will employee.
in principle grant competition clearance for the concentration. Besides the migration rules, employers have to follow other
The notification duty is also applicable in the event of fore- Dutch regulations. These include the Working Conditions Act set-
closure on the project and related companies. If there is an acute ting out rules with respect to working environment safety and the
threat that one of the involved companies will go bankrupt or will Working Hours Act regulating maximum working hours. Failure to
be granted a moratorium, the ACM can take an urgent decision to meet all mentioned rules may result in (administrative) fines and civil
speed up the concentration process. liability.

over project assets provided or guaranteed by foreign insurance There are no specific restrictions regarding the importation of pro-
companies? May such policies be payable to foreign secured ject equipment, with the exception of certain products that might
creditors? affect, among others, public safety, health, the environment or public
Foreign insurers that have a valid licence and are registered in an EU security. Customs duties (and VAT) apply to importation from non-
or EEA member state may conduct their insurance business in the EU states and a customs declaration is required.
Netherlands without further permission of any Dutch authorities.
This is known as the European passport or single-licence principle.
Before the insurer can actually operate in the Netherlands, it has to
go through a notification procedure with the Dutch Central Bank.

14 What laws exist regarding the nationalisation or expropriation Ownership of minerals located at a depth of 100 metres or more
of project companies and assets? Are any forms of investment under the surface is regulated in and by the Mining Act 2003, which
specially protected? applies to minerals located under the mainland, to minerals located
If the Dutch (local) government is in need of soil or buildings not under the continental shelf of the North Sea and to those located
owned by the government and the need is in the public interest, under inland waters and seas. Title to minerals is vested in the Dutch
the government first needs to explore the amicable route in order state (article 3(1) Mining Act 2003). The production of minerals
to acquire the said real estate. If the negotiations fail, the (local) is not allowed unless a licence for that purpose has been granted
government may expropriate the assets through a legal procedure. (article 6 Mining Act 2003). By their extraction from the soil, title
Expropriation may only be used as a last resort, and the govern- passes to the licensee (article 3(2) Mining Act 2003). Production of
ment is obliged to pay damages. The court will weigh terms such as minerals is not restricted to Dutch persons or entities or to persons
the public need to expropriate, the efforts to buy the assets and the or entities of any particular nationality.
offered damages payment.
As from 20 January 2012, the Dutch Minister of Finance is enti- Water
tled to expropriate the assets of a project company seated in the Subsoil water is a res nullius as long as it has not been abstracted.
Netherlands or to expropriate the securities issued by that project Abstraction and distribution of drinking water (including water
company. The Minister is only allowed to expropriate if the stability intended to be converted into drinking water) is not allowed unless
of the financial system is in serious and immediate danger. Since its a licence for that purpose has been granted (article 4 Drinking Water
entry into force, this power to expropriate has only been used once. Act 2009). Only public entities and publicly owned entities qualify
The Dutch Minister of Finance expropriated certain types of securi- as licensees (article 15 Drinking Water Act 2009). Each licensee is
ties issued by SNS Bank. granted an exclusive territory for production and supply (article 5(2)
No forms of investment are specially protected from nationali- Drinking Water Act 2009). Unlike the abstraction and distribution
sation or expropriation. See question 10 in relation to the bilateral of water for industrial purposes, the abstraction and distribution of
investment treaties entered into by the Netherlands. drinking water is not a commercial activity and the Competition
Act (1999) does not apply. Licensees for the abstraction of drinking
Fiscal treatment of foreign investment water are not allowed to distribute industrial water outside their
exclusive territory except for the supply to licensees in other ter-
15 What tax incentives or other incentives are provided preferentially ritories (article 5(2) Drinking Water Act 2009). For the abstraction
to foreign investors or creditors? What taxes apply to foreign of water other than drinking water, a licence by the relevant dis-
investments, loans, mortgages or other security documents, trict water board, the relevant provincial executive (for volumes in
either for the purposes of effectiveness or registration? excess of 150,000 cubic metres per annum) or by the government
There are no Dutch tax incentives provided specifically to foreign (offshore) will be required (article 6(4)–6(8) Water Act 2009).
investors or creditors. However, the Netherlands does offer a highly
competitive fiscal climate, which includes (without limitation) for What grows or lives on the land
both domestic and foreign investors or creditors: tax incentives for Title to plants growing on the land is vested in the landowner (article
R&D, environmentally friendly investments and sustainable energy 5:20(1)(c) Dutch Civil Code).
projects, an extensive double tax treaty network, and the possibility
to obtain a tax ruling to confirm the Dutch tax position in advance 18 What royalties and taxes are payable on the extraction of natural
with the Dutch tax authority. resources, and are they revenue- or profit-based?
No Dutch stamp duty, registration tax or other similar tax or
duty will be payable for the effectiveness or registration of foreign As a general rule, production licences will be granted subject to the
investments, loans, mortgages or other security documents. execution of a cooperation agreement between the licensee and a
Where Dutch real estate (or certain rights thereto) is acquired, company designated by the government, whereby the latter shall
either directly or indirectly, Dutch real estate transfer tax at a rate be given a 40 per cent participation in the production activities in
of 2 per cent (residential properties) or 6 per cent (non-residential consideration of a 40 per cent participation in the costs of explora-
properties) may be payable by the acquirer of Dutch real estate (or tion (articles 89 to 97 Mining Act 2003). In virtually all cases that
certain rights thereto). company is the 100 per cent state-owned company EBN BV. Profits
made by the licensee’s production activities are subject to a corpo-
rate income tax and a profit share collected by the tax collector (arti-
cles 65 to 70 Mining Act 2003) at a combined rate of up to 50 per
16 What are the relevant government agencies or departments with cent. In addition, there is also a surface duty in an amount between
authority over projects in the typical project sectors? What is the €245 and €734 per square kilometre of the area to which the licence
nature and extent of their authority? What is the history of state applies (articles 56 to 59 Mining Act 2003). Finally a levy is payable
ownership in these sectors? on the value of sales of oil and gas. The percentage thereof is fixed
at rates between zero per cent and 17.5 per cent in accordance with
There is no coordinating act on projects or exhaustive sector legisla-
the volumes produced for onshore production and at zero per cent
tion. Relevant stipulations for any project can mainly be found in
for offshore production (articles 60 to 64 Mining Act 2003). To the
the Environmental Management Act and the Spatial Planning Act
extent production activities are performed on the territory of a prov-
(see question 25).
ince (ie, in all cases other than offshore production) a levy is payable
to the provincial executive in an amount of €5.50 per square metre
(article 75 to 80 Mining Act 2003).
17 Who has title to natural resources? What rights may private Rights related to the exploration or exploitation in the
parties acquire to these resources and what obligations does the Netherlands (including the Dutch continental shelf) of natural
holder have? May foreign parties acquire such rights? resources, including the generation of energy from water, float and
wind, or rights vested on such assets, are normally qualified as a
Minerals
Dutch permanent establishment. Accordingly, a foreign investor will
In the Netherlands minerals capable of being produced in a commer-
generally be subject to corporate income tax in the Netherlands in
cially viable way would include coal, various salts, and hydrocarbons.
respect of income it derives from its rights related to the exploration
or exploitation of Dutch natural resources, and a profit share (at the typically administered by national arbitration institutes that bor-
combined rate set out above). row some of their rules from domestic litigation. The courts are
strongly supportive of arbitration. The Netherlands is a party to the
1958 Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, known as the New York Convention, and is also a
resources?
member of the ICSID Convention. The Dutch arbitration act will be
There are normally no restrictions on exports to EEA member amended (effective 1 January 2015). Subsequent thereto, procedures
states, and there are normally no restrictions on the export of natu- for enforcement and setting aside will be streamlined and the sup-
ral resources to countries outside the EEA, other than the applicable portive attitude of the courts is set to maintain in place.
customs regulations and duties, and, in respect of certain countries,
sanction regulations. The Dutch government may be entitled to a
certain profit share in respect of the income in connection with the 23 Which jurisdiction’s law typically governs project agreements?
exploration and exploitation of minerals in the Netherlands (includ- Which jurisdiction’s law typically governs financing agreements?
ing the Dutch continental shelf). Which matters are governed by domestic law?
The parties may freely choose the law applicable to an agreement
Legal issues of general application with an international character, provided that such a choice is not
intended to circumvent public order and is not in conflict with man-
20 What government approvals are required for typical project finance datory law. A choice of law will usually be accepted by a Dutch
transactions? What fees and other charges apply? court. Dutch law will mandatorily govern property law aspects, tax
Usually under Dutch law, government approvals are not required for and customs duties, labour and safety law, environmental aspects,
project finance transactions. However, for project implementation authorisations and permits delivered by the Dutch (local) govern-
different types of approvals exist (eg, building permits, permission ment, and insolvency laws of entities having their head office or their
under applicable environmental legislation, the Dutch Water Act, the main centre of interest in the Netherlands.
Dutch Land Development Act, etc). As the requirements for each Depending on the jurisdiction of incorporation of the lender,
permission vary and some types of permission are linked by opera- or lenders in the case of a syndicate, financing agreements would
tion of law, careful overall review of the permitting requirements typically be governed by either Dutch law or the laws of England
is required. A foreign investor will not be treated more strictly in and Wales. However, the security documentation regarding assets
obtaining a required permission. located in the Netherlands (eg, real estate, equipment and shares in
Dutch companies) must be governed by Dutch law.
filed with any government authority or otherwise comply with legal 24 Is a submission to a foreign jurisdiction and a waiver of immunity
formalities to be valid or enforceable? effective and enforceable?
In the Netherlands there are no documentation formalities with Yes, submission to a foreign jurisdiction is in principle enforceable
regard to the financing or project documents. For verification rea- (the former subject to limitations following from European regula-
sons, written agreements are highly recommended even if a written tions, notably Council Regulation 44/2001).
form is not required by law. It is uncertain if and to what extent a waiver of immunity from
If the SPV is a private limited liability company or a public com- prosecution is effective. If the waiving entity enjoys such immunity,
pany, the constitution documents should be in the form of a notarial typically only sovereign states acting in their capacity as states, a
deed to be executed by a civil law notary. waiver would probably also be subject to such immunity.
Any transfer of real estate must be done through a notarial deed
to be executed by a civil law notary. The deed of transfer must be Environmental, health and safety laws
registered with the Dutch Land Registry Office and a transfer levy
will apply. 25 What laws or regulations apply to typical project sectors? What
The payment obligations under the financing or project docu- regulatory bodies administer those laws?
ments could be secured by means of a mortgage or a right of pledge. Most projects qualify as installations under the Environmental
See question 2 for perfection requirements. Management Act. For installations with some substance, the main
requirement for building and operating installations is obtaining
an environmental permit based on the Environmental Permitting
(General Provisions) Act.
The Municipality is, in principle, the competent authority.
However, for projects above a certain threshold the Provincial
Executive is the competent authority. Some projects will be covered
by the Crisis and Recovery Act. The Crisis and Recovery Act, apart
The awards of all major arbitral institutions and rulebooks are from a coordinating role for the Provincial Executive, has its own
enforceable, and the Netherlands courts are strongly supportive of set of rules to speed up the process. For example, the Administrative
the enforceability and finality principles in arbitration. Permission High Court is required to decide within six months after an appeal
to enforce (exequatur) is typically swiftly granted on the basis of a is filed (instead of the general 12 months). In order to speed up and
prima facie review of formalities conducted on the basis of the sub- streamline the process for large projects (eg, wind parks with pro-
mission of a simple request to the competent court. Almost any type duction power from 100MW and upwards) some projects may be
of commercial dispute can be arbitrated if the parties agree (subject declared of ‘national interest’ and will, as a result, be coordinated by
to matters pertaining to the formal validity of corporate decision- the national authorities.
making – which is a matter concerning third-party rights as well (ie, An operating permit for the installation is not required when an
has erga omnes effects)). installation falls within a category for which general rules apply, as
There is no regime of specific domestic arbitration in the sense a result of which the obligation to obtain a permit is lifted. This is
that the applicable legal regime differs from international arbitra- the case for 90 per cent of operative installations such as offices and
tion. That being said, construction and product arbitrations are standardised factories.

Apart from the Environmental Permitting (General Provisions)

Act and Environmental Management Act, sector regulations may Update and trends
provide amendments to the general provisions. Further, the Spatial
Planning Act, the Housing Act, the Nature Conservation Act, the • Revised government-wide model DBFMO agreements for
infrastructure and accommodation PPP projects were
Flora and Fauna Act, the Water Act and several (lower) regulations published at the end of 2013. These model agreements are
contain requirements to build and operate projects. periodically revised and updated following amendments that
EU directives are (or will be) implemented in the Dutch result from existing or completed tenders. Two of the main
Environmental Management Act and sector regulations. topics that have been revised are refinancing and financial
close, and financing by institutional investors.
• May 2014 saw the financial close of Project Gemini. This is
Project companies the largest project financing to date for offshore wind farms,
having raised €2.8 billion in debt and equity.
26 What are the principal business structures of project companies? • In recent years there has been an increase in activity in Dutch
What are the principal sources of financing available to project PPPs, in particular, in relation to transport projects, with
companies? projects relating to inland waterways and locks making an
entry in the PPPs’ pipeline.
A special purpose vehicle (SPV) will typically be a Dutch BV, which • Notable PPP projects that are being prepared for tender
is a private company with limited liability. The project company will include a revision of the Enclosure Dam, the widening of
then enter into back-to-back subcontracts in relation to the project canals and building of new locks, and several projects relating
to infrastructural improvements to existing motor ways and the
works. These would at least be a design-and-build contract and a
creation of new motor ways. Further, several accommodation
maintenance-and-operation contract. projects are also being tendered or prepared for tender.
The most common sources of finance are: equity (often pro-
vided by a combination of financial and industrial sponsors); bank
debt (including from multilaterals, such as EIB) and bond finance
advantages in the operational phase, but in the preliminary stage
(increasingly from institutional investors).
there are additional costs, particularly to draw up contracts and
make additional investments in the quality of the building. The ben-
efits are therefore not equitably distributed between the municipality
27 Has PPP enabling legislation been enacted and, if so, at what and the school board.
level of government and is the legislation industry-specific? Another practical limitation is that PPP in the health-care sec-
tor calls for stable predictable flow of funds, but there are no stable
There is no general regulatory framework for PPP contracts under
predictable cash flows by the dynamics of care. Also, builders in the
Dutch law. Legislation relevant to facilitating PPP in the Netherlands
case of PPP, prefer to build standard hospitals rather than specialist
mainly relates to procurement laws enacted by the national gov-
hospitals, which prove difficult to implement in PPP.
ernment (Public Procurement Act 2012) as the implementation of
Lack of funding is also a practical limitation. In particular, fund-
European Directives No. 2004/18/EC and 2004/17/EC. Whether
ing for long-term projects in infrastructure remains difficult for
the Public Procurement Act applies is determined on a case-by-
sponsors. Banks are no longer able to provide (long-term) capital
case basis. It depends for example on the financial parameters in a
because of stringent regulatory requirements under Basel III, for
project and on the structure of the project (contractual or through
example. Alternative forms of financing can be attractive if they
incorporation of an SPV). Large DBFMO contracts (design, build,
result in more value for money than bank financing. The issuance of
finance, maintain, operate) in for instance infrastructure, real estate
bonds and joint venture agreements between institutional investors
and accommodation projects are usually subject to the public pro-
and developers include such alternative forms of financing.
curement rules for works, services and supplies set forth in the Public
Legal limitations on PPP transactions would also result from the
Procurement Act. Further, PPP contracts are governed by Dutch con-
applicability of the Public Procurement Act and rather scarce limita-
tract law, which primarily consists of directory law.
tions under Dutch contract law.
The larger PPP contracts referred to above, which are being ten-
dered by the central government are generally in a preset (DBFMO)
format that was developed by the Ministry of Waterways and Public
Works and adapted by the Dutch Government Building Department 29 What have been the most significant PPP transactions completed
for use in real estate and accommodation-related PPP schemes. to date in your jurisdiction?
Infrastructure
PPP – limitations
Within infrastructure the following are the most significant PPP
28 What, if any, are the practical and legal limitations on PPP transactions completed to date:
transactions? • Second Coetunnel (€500 million). With the construction of the
Second Coetunnel and the new Westrandweg, the Directorate-
There are some limitations on PPP transactions, such as the require-
General of Public Works and Water Management aims at
ment to have separate funds for construction and maintenance in the
improving the accessibility of the Metropolitan Area and the
education sector. The construction costs are paid by the municipal
Westpoort harbour area in Amsterdam;
fund prior to the time the relevant school board receives a construc-
• Schiphol-Amsterdam-Almere (€4.1 billion). The Directorate-
tion budget that is based on standard costs per pupil per square
General of Public Works and Water Management has com-
metre. Schools themselves are responsible for the replacement of
missioned the widening of the highway between Schiphol,
the inventory and operating costs, for which a limited budget is set
Amsterdam and Almere. This 63-kilometre road widening repre-
by the Ministry of Education on the basis of the said principle. In
sents a major capacity expansion of the national road network;
school PPPs, the advantages become manifest especially during the
• HSL-Zuid (€1.3 billion). The high-speed rail line (HSL) runs
operational phase. Smart solutions in the design and functionality
from Amsterdam and Rotterdam to the Belgian border, with
of the building and use of maintenance materials provide particular
connections to Schiphol, The Hague and Breda;
• A15 Maasvlakte-Vaanplein (€1.2 billion). Enhancing the capac- Other

ity of the route Maasvlakte-Vaanplein is necessary because of Other significant PPP transactions completed to date are:
the expected growth due to increasing activity in the harbour • Afvalwater Haagse Regio (€450 million). Delfluent has designed,
(Maasvlakte) and new construction of homes and businesses in constructed and now operates a new wastewater installation in
the surrounding area; and Harnaschpolder commissioned by the Delfland Water Board;
• Holland Rijnland (Rijnlandroute en Rijn-Gouwelijn) (€1 bil- and
lion). The Rhine Route is the new provincial road connecting • Kromhout Kazerne (€450 million). The project, Kromhout
the coast (Katwijk) and the highway A4 at Leiden. Barracks, involves the construction of housing for over 3,000
defence employees at the existing site of the Kromhout Barracks
in Utrecht.
Rutger de Witt Wijnen rutger.dewittwijnen@simmons-simmons.com

Luc Cohen luc.cohen@simmons-simmons.com
Viviana Luján Gallegos viviana.lujan@simmons-simmons.com
Claude Debussylaan 247 Tel: +31 20 722 2500

1082 MC Amsterdam Fax: +31 20 722 2599
Netherlands www.simmons-simmons.com

G Elias & Co NIGERIA
Nigeria
Fred Onuobia, Oluwatoyin Nathaniel and Okechukwu Okoro
G Elias & Co
Creating collateral security packages registered within 90 days of creation will have priority according to
their actual dates of creation.
1 What types of collateral are available? There are two noteworthy exceptional rules: a floating charge
All property (including bank balances, future property and intangi- will rank after a fixed charge created prior to the crystallisation of
ble property (eg, licence rights) can be used as collateral. the floating charge; and a purchase money security interest will have
priority over other charges on the same asset.
Ways of minimising perfection tax include structuring the secu-
rity as security over an asset that attracts less tax (eg, having a secu-
rity over a company that holds land rather than over the land itself)
or perfecting the security for only a part of the sum advanced. This
second option has become popular.
A corporate trustee (but not a mere agent) may hold collateral
on behalf of the project lenders as the secured party. In the event of
Nigeria is a common law country with many of the usual features the bankruptcy of the trustee, the collateral will not form part of the
that one would expect to see in such a country. The type of collateral assets of the trustee.
asset and the type of borrower (eg, a company, government or indi-
vidual) determines the appropriate perfection regime for the security.
When a mortgage is created over immoveable property, the secu- 3 How can a creditor assure itself as to the absence of liens with
rity document must be perfected at the government land registry priority to the creditor’s lien?
where the property is situated if the security interest is to bind future A legal ‘due diligence’ inquiry can be conducted on the borrower.
bona fide purchasers of the land. Perfection of security over land is a Depending on the type of borrower and the collateral, a search may
threefold process: stamping; obtaining the consent of the governor; have to be conducted at both the lands registry, CAC and other rel-
and registration at the government land registry. evant registries.
Companies must register most charges created over their assets It is also advisable to procure that the borrower makes a repre-
at the Corporate Affairs Commission, Abuja (CAC) within 90 days sentation and warrants in the financing documentation to the effect
of the creation of such charge. Registrable charges attract ad valo- that there are no existing liens.
rem stamp duty and registration charges. Where such a charge is However, a lender cannot completely eliminate the risk that
registrable but unregistered, it will not be effective against the com- there may be prior security interests, because there are security inter-
pany’s other creditors in the event of the company’s insolvency. ests that are not required by law to be registered (eg, charges over
(Where a charge is created over land belonging to a company, in shares, pledges of goods (see question 2)), and prior registered inter-
addition to perfection at the relevant lands registry, the charge must ests may not be disclosed in the course of a search owing to admin-
also be registered at the CAC.) istrative lapses at the relevant registry.
Not all security interests are registrable. For example, charges
and mortgages over receivables (including book debts), goods and
land are registrable, pledges of goods created by the delivery of pos-
session and charges or mortgages over shares are not registrable in
law.
There are some other asset-specific registration regimes. For Project lenders’ main enforcement methods outside bankruptcy pro-
instance, a mortgage over a ship must be registered with the Registrar ceedings are: to exercise their ‘step-in’ rights under a direct agree-
of Ships and a mortgage over trademarks must be registered with the ment; sale; to take possession; to appoint a receiver; and foreclosure.
trademarks registry. There are bills of sale register for mortgages of Self-help as such is not allowed.
goods in some states. To enforce a mortgage, a lender must have served a notice
Priority is determined by factors such as the asset type, the type requiring payment of the sum due. In practice, the document cre-
of interest created (eg, whether legal or equitable), the time of crea- ating the mortgage contains provisions stating the period of time
tion of the interest and time of registration of interest. that must lapse before the power of sale would become exercisable.
Priority depends primarily on the time of creation, with older Where the security documents contain a power of sale, the lender
security interests ranking ahead of more recent ones. Where regis- can exercise the power of sale without recourse to court. A court
tration is required, priority depends primarily on the time of regis- order is required where there is no power of sale in the registered
tration: the first security interest to be registered will have priority, security documents.
except that competing security interests created by companies and A sale may be by private treaty, by auction or by tender. Project
lenders may participate as buyers in a sale as long as the sale is
NIGERIA G Elias & Co
conducted at arm’s length and in good faith. A sale by secured credi- 9 May project companies establish and maintain foreign currency
tors may be made in foreign currency. accounts in other jurisdictions and locally?
Project companies may open and operate foreign currency accounts
with both Nigerian banks and foreign banks.
A lender’s security interests in the collateral will survive the bor- Would such activities require registration with any government
rower’s bankruptcy where those interests are fully perfected against authority?
the borrower’s creditors, especially by registration at the CAC in the Foreign nationals may fully own, invest and participate in Nigerian
case of a company borrower. companies except enterprises producing arms and ammunition;
The claims of foreign creditors rank pari passu with the claims narcotics and psychotropic substances; and military and paramili-
of local creditors. In bankruptcy proceedings, preferential creditors’ tary, police, customs, immigration and prison service uniforms and
rights for tax debts, employees’ wages or claims and deductions accoutrements.
under the Nigeria Social Insurance Trust Fund have priority over the A foreign company cannot do business in Nigeria directly. It
claims of floating charge holders in so far as assets of the company must incorporate a local company in Nigeria (except where it gets
available for payment of general creditors are insufficient to meet special exemption from registration as an invitee to Nigeria by the
them. federal government to execute any specified individual or loan pro-
If a transaction is concluded by a company and a winding-up ject, or as an engineering expert engaged on an individual specialist
order is made in respect of such company within three months from project).
the conclusion of the transaction, the transaction if challenged by The company must then be registered with the Nigeria
the insolvent company’s liquidator may be regarded as invalid and Investment Promotion Commission (NIPC) before it starts opera-
reversed. tions. Where applicable, sector-specific licences (eg, petroleum, tel-
ecommunications) should be applied for. NIPC prevailing practice
is to decline to register businesses in which foreign nationals do not
invest at least US$300,000.
A foreign-owned vessel cannot engage in business in Nigeria’s
inland waters without the prior consent of the Minister for Transport.
Apart from money laundering restrictions (no more than US$5,000 If foreign nationals are to be working in the country, the com-
in cash) and disclosure requirements, both Nigerians and foreign pany must comply with immigration requirements under applica-
nationals are free to bring foreign currency into Nigeria. Both for- ble law. If the company will import capital, it will need a CCI. If a
eign nationals and Nigerians can buy or sell foreign currency only transfer of technology is involved, the company has to obtain the
from or to companies licensed by the Central Bank of Nigeria (CBN) approval of the National Office for Technology Acquisition and
to deal in foreign currency. Restrictions on taking foreign currency Promotion (NOTAP) for remittances of fees payable under the con-
out of Nigeria are dealt with under question 7. tract. The income taxes, capital gains taxes and VAT chargeable on
Nigerian-controlled companies are also chargeable on foreign-con-
7 What are the restrictions, controls, fees and taxes on remittances trolled companies. (See also question 15.)
of investment returns or payments of principal, interest or Nigeria has bilateral investment treaties with Algeria, Bulgaria,
premiums on loans or bonds to parties in other jurisdictions? China, Egypt, Finland, France, Germany, Jamaica, Korea, Democratic
People’s Republic of Korea, Italy, Montenegro, the Netherlands,
Investors are free to bring foreign currency into Nigeria subject to
Romania, Serbia, South Africa, Spain, Sweden, Switzerland, Taiwan,
applicable money-laundering regulations. As to controls, remittances
Turkey, Uganda and the United Kingdom. Nigeria also has dou-
can be made only if one has either a CBN special authorisation to
ble tax agreements with the United Kingdom, the Netherlands,
remit money or a routine Certificate of Capital Importation (CCI)
Canada, Belgium, Romania, France, Pakistan, South Africa and the
issued by a Nigerian bank when the capital in question first came
Philippines. Nigeria is also a signatory to the Convention on the
into Nigeria. There are no fees or taxes payable on remitting money
Settlement of Investment Disputes between States and Nationals of
from Nigeria other than usual commercial bank service charges.
Other States (ICSID Convention). The guarantees against expropria-
(Taxes on earning the returns, as distinct from remitting them, are
tion that are set out in these treaties do not appear to add signifi-
another matter, see question 15.)
cantly to those granted in the 1999 Nigerian Constitution.
None of the foregoing changes in the event of foreclosure on a
8 Must project companies repatriate foreign earnings? If so, must project or related companies.
A project company exporting goods must open and maintain a for- over project assets provided or guaranteed by foreign insurance
eign currency domiciliary account with a Nigerian bank. Export companies? May such policies be payable to foreign secured
proceeds must be paid into such an account within 90 days from creditors?
the date of shipment of the goods. Thereafter, the proceeds may be
Some classes of insurance and reinsurance are reserved for Nigerian
freely repatriated. There is no requirement that the foreign currency
insurers: fire, motor, liability, life, oil and energy, marine hull and
in such accounts must be converted to local currency.
aviation.

However, it is possible to get an exemption from the regulator, Government authorities

the National Insurance Commission (NAICOM), if it is satisfied that
the risk cannot be placed with a Nigerian insurer by reason of its 16 What are the relevant government agencies or departments with
exceptional nature or any other exceptional circumstance. Project authority over projects in the typical project sectors? What is the
lenders either use this exemption or cut-through clauses or get the nature and extent of their authority? What is the history of state
foreign project sponsor to insure the lenders against Nigerian risks. ownership in these sectors?
The proceeds of policies may be paid to foreign secured creditors as The leading federal government agencies with authority over pro-
repayments of the loan would be payable. jects in the typical project sectors are as follows:
• oil and gas: Ministry of Petroleum Resources, Department
of Petroleum Resources and the Nigeria Sao-Tome Joint
Development Authority Zone;
• power generation and transmission: the Ministry of Energy and
Every foreign employee from outside the West African economic the Nigerian Electricity Regulatory Commission;
community will need a visa. Companies that employ expatriates • maritime: Ministry of Transport, Nigeria Maritime
need an expatriate quota. In either case, evidence that a Nigerian Administration and Safety Agency, Nigerian Ports Authority,
cannot readily be found to do the work in question will need to be Nigerian Inland Waterways Authority;
shown. • rail: Ministry of Transport, Nigeria Railway Corporation;
The new oil and gas local content legislation requires compa- • road: Ministry of Works and the Federal Road Management
nies operating in the oil and gas industry to give first consideration Agency;
to Nigerians for employment in any project to be executed by a • telecommunications: Ministry of Information and Comm-
company in the oil and gas industry. In addition, oil and gas com- unications and the Nigerian Communications Commission; and
panies must apply to the local content regulator prior to applying • airports: Ministry of Aviation, Nigerian Civil Aviation Authority.
for an expatriate quota. Further, no more than 5 per cent of the
management positions of an oil and gas company may be held by The agencies have rule-making, decision-making and enforcement
expatriates. powers in the relevant sectors and industries. They have the power
to issue and revoke licences and licences cannot be assigned without
their consent. Their supervising ministers make policy and do not
do regulatory work on a day-to-day basis. However, the Ministry of
Import duty may be payable at rates that vary from goods to goods. Water Resources is itself the water regulator.
If the equipment is imported to form part of the equity in the The Federal Infrastructure Regulatory Commission has the
Nigerian business, a CCI will be needed for it if future proceeds on it power to take custody of concession agreements in all sectors and
are to be repatriated. If the equipment needs registration in Nigeria, ensure compliance with the provisions of the Act that establishes it.
it will have to be so registered (eg, marine vessels). Until quite recently, the ownership in these sectors was entirely
held by the state. In recent times, many of government-owned enter-
14 What laws exist regarding the nationalisation or expropriation prises have become privatised and commercialised with concessions
of project companies and assets? Are any forms of investment being granted to the private sector particularly in the transport sec-
specially protected? tor. Water is still almost entirely owned by the state.
There are some state-level agencies. For example, the Lagos
All forms of investment are protected against expropriation (except
State Office of Public Private Partnerships is the best-developed state
on payment of adequate compensation) by each of the NIPC Act, the
project regulatory agency in the country, but it has no power outside
1999 Constitution and the ICSID treaty.
Lagos state.
Land in the Federal Capital Territory belongs to the federation. Since
The fiscal incentives for foreign investors include grants of relief
1978 all other land belongs to the state in which the land is located
against double taxation, a waiver of income tax on loan interest
(other than lands held by the federal government prior to 1978).
for loans, with a moratorium of at least two years, and the rule
Both the federation and the states can and do grant rights of occu-
that withholding tax is the final tax on investment income for non-
pancy (essentially long leases) over the land that they own.
resident foreigners. Companies with at least 25 per cent imported
Vegetation growing on land and buildings on land are in law
equity capital are exempt from the minimum tax requirement.
part of the land and are therefore owned as the land in question is
Bonds issued by corporate bodies are exempt from the tax imposed
owned. There is no absolute property in wild animals and ownership
under the Companies Income Tax Act for a period of 10 years
arises where a person lawfully takes, tames or reclaims them. Tamed
from 9 December 2011. Generally, the taxes and other levies that
animals are owned by private individuals just as other inanimate
apply to local investors and companies also apply to foreign inves-
tangible moveables (for example, cars are owned).
tors: income taxes (corporate and personal), capital gains tax, value
Minerals, mineral oil, and natural gas in, under or upon any
added tax and stamp duties.
land in Nigeria and water in its natural state belong to the federal
government. The federal government can and does grant concession
rights to win and take away minerals and grants rights to use or take
away water.
The obligations of the holder (eg, to make payments to the fed-
eral government, not to waste or damage assets) will turn on the
terms of the concessions.
Foreign parties may not acquire rights in land except with the 21 Must any of the financing or project documents be registered or
consent of the governor of the state where the land is located. In prac- filed with any government authority or otherwise comply with legal
tice, the federal government does not give foreigners rights to miner- formalities to be valid or enforceable?
als. In practice, such consent is given to companies incorporated in Non-resident investors are required to register their investments
Nigeria but controlled by foreigners, such companies routinely take with the NIPC for statistical purposes. Any technology transfer con-
rights in land and minerals. In practice, the federal government will tracts (for example, intellectual property licences, technical support
not grant an interest of 50 per cent or more in petroleum acreage to contracts) must be registered with NOTAP.
any company controlled by a foreigner. All project and finance documents must be stamped. Those doc-
uments that need to be filed with or approved, or both, by regulators
under sector-specific statutes (for example, a document assigning an
interest in petroleum acreage; a mortgage of a telecommunications
licence) will need to get approved as the sector-specific provisions
All companies in Nigeria (whether owned by foreign nationals or warrant. In addition, documents that create security over assets will
not) engaged in extracting natural resources (apart from oil and need to be registered as is indicated in question 2.
gas) are liable to be taxed on their profits accruing in, derived from,
brought into or received in Nigeria at the rate of 30 per cent per
annum. Companies engaged in upstream petroleum operations are 22 How are international arbitration contractual provisions and
taxed at a rate of either 85 per cent (joint ventures with the Nigerian awards recognised by local courts? Is the jurisdiction a member
National Petroleum Corporation (NNPC) and non-production of the ICSID Convention or other prominent dispute resolution
sharing contracts over five years), 65.77 per cent (non-production conventions? Are any types of disputes not arbitrable? Are any
sharing contract less than five years), 50 per cent (production shar- types of disputes subject to automatic domestic arbitration?
ing contracts with the NNPC). Royalties are payable by holders of Nigerian courts generally recognise international arbitration con-
oil prospecting licences or oil mining leases as soon as production tractual provisions and awards. There are grounds for refusal of
begins at the following rates: recognition or enforcement, including public policy, and where the
subject-matter is not arbitrable under Nigerian law.
Joint venture operations Nigeria is a party to the 1958 Convention on the Recognition
Area Rate (per cent) and Enforcement of Foreign Arbitral Awards (the New York
Onshore 20 Convention) and the ICSID Convention. Criminal matters are not
Up to 100m water depth 18.5
arbitrable.
Up to 200m water depth 16.5
201m to 500m water depth 12 23 Which jurisdiction’s law typically governs project agreements?
501m to 1,000m water depth 8
Beyond 1,000m water depth 8
The applicable law that governs project agreements and financing
Inland basins 10
agreements is subject to the contractual agreement of the parties.
Tax, immigration and bankruptcy matters are ultimately controlled
Production sharing contracts by domestic legislation irrespective of the contractual agreement
Area Rate (per cent) between the parties.
201m to 500m water depth 12
501m to 800m water depth 8 24 Is a submission to a foreign jurisdiction and a waiver of immunity
801m to 1,000m water depth 4 effective and enforceable?
Beyond 1,000m water depth 0 Although there is a strong presumption in Nigerian law in favour of
Inland basins 10 recognising and enforcing choice of foreign law and foreign jurisdic-
tion clauses, Nigerian courts reserve the discretion to depart from
foreign law and stay proceedings on public policy-type grounds.
Waivers of immunity are effective and enforceable.
resources?
Permits to export natural resources must be obtained from the rel- Environmental, health and safety laws
evant ministry or agency. Additionally, a company must register
any product being exported with the Nigerian Export Promotion 25 What laws or regulations apply to typical project sectors? What
Council. regulatory bodies administer those laws?
Nigerian environmental laws and regulations apply to all sectors of
Legal issues of general application the economy including typical projects sectors. The laws and regula-
tions regarding these matters are as follows:
• Environmental Impact Assessment Act, 1992;
• National Environmental Standards and Regulation Enforcement
Since 1995, both foreign nationals and Nigerians have been free to Agency (Establishment) Act, 2007;
bring in capital in cash or in kind and to repatriate it into foreign • National Environmental (Wetlands, Riverbanks and Lake
currency (to be purchased from CBN-regulated markets), capital Shores Protection) Regulations, 2009;
and income proceeds on such capital as long as a Nigerian bank • National Environmental (Sanitation and Wastes Control)
issues a CCI when the capital first entered Nigeria. Usual commer- Regulations, 2009;
cial bank service charges apply to issuances of CCIs. CCIs cost less • National Environmental (Permitting and Licensing Systems)
than US$5. The NOTAP application fee is fixed from time to time Regulations, 2009;
by NOTAP. The current fee payable is dependent on the value of the • National Environmental Protection (Effluent Limitation)
contract to be registered. The minimum is US$667. Regulations, 1991;

• National Environmental Protection (Pollution Abatement in maintenance, rehabilitation and financing of public infrastructure or
Industries and Facilities Generating Waste) Regulations, 1991; assets as well as punitive measures for persons who fail or refuse to
• National Environmental Protection (Management of Solid and pay for use of concession infrastructure. The Lagos State Waterways
Hazardous Waste) Regulations, 1991; Authority Law, 2007 empowers the state to grant concessions.
• Harmful Waste (Special Criminal Provisions etc) Act, 1988; Concessions have been granted under these statutes. These statutes
• National Environmental Health Practice Regulations, 2007; are very much industry-specific.
• Environmental Guidelines and Standards for the Petroleum The Infrastructure Concession Regulatory Commission
Industry in Nigeria, 2002; and (Establishment etc) Act, 2005 (ICRCA) empowers federal govern-
• Guidelines for the Establishment of Hydrocarbon Processing ment ministries, agencies or corporations that are involved in the
Plants (Petroleum Refinery and Petrochemicals) in Nigeria. financing, construction, operation or maintenance of infrastructure
to enter into contracts or grant concessions. The commission itself
The National Environmental Standards and Regulation Enforcement has no power to make or enforce regulations in any sector. The leg-
Agency administers and enforces environmental laws in Nigeria. It islation on the commission is not industry-specific.
took over this function in 2007 when the Federal Environmental The Public Enterprises (Privatisation and Commercialisation)
Protection Agency Act was repealed. It enforces compliance with Act, 1998 provides for the privatisation and commercialisation of
laws, guidelines, policies and standards on environmental matters. certain public enterprises. The enterprises privatised and commer-
There are several state statutes on environmental matters. In the cialised pursuant to the statute include the Nigerian Ports Authority
event of a conflict between state statutes and federal statutes on the and some non-upstream aspects of the Nigerian National Petroleum
subject, the latter will prevail. Corporation’s business. None of these statutes was made specifically
There are some sector-specific environmental regulations by for PPP purposes, and their adequacy for the purpose is not agreed
agencies charged with the oversight of major sectors of the econ- on by all.
omy – for example, by the Department of Petroleum Resources The federal government has issued a National Policy on Public-
of the oil industry; by NIMASA of the shipping industry. The Private Partnership aimed at ensuring that private investment is used
Nigerian Minerals and Mining Act, 2007 also empowers the Mines as much as possible, to address the nation’s infrastructure deficit and
Environmental Compliance Department to oversee compliance with improve public services in a sustainable way.
environmental laws by mining sector companies. The policy applies to all infrastructure projects contracted by the
federal government, and any state or local government projects that
Project companies are part-funded or guaranteed by the federal government.
The policy streamlines the roles and responsibilities of ministries,
26 What are the principal business structures of project companies? departments and agencies (MDAs) in PPPs to avoid duplication,
What are the principal sources of financing available to project minimise bureaucracy and promote responsibility and accountabil-
companies? ity. The key MDAs are the Infrastructure Concession Regulatory
Project businesses are almost invariably companies, at any rate Commission, National Planning Commission, Federal Ministry
where foreign lenders or investors are concerned. By law, gener- of Finance, Debt Management Office, Office of the Accountant
ally speaking, a foreign national cannot do business or own land in General of the Federation, Bureau of Public Procurement and the
Nigeria, except by fulfilling certain requirements or obtaining neces- Bureau of Public Enterprises.
sary approvals, or both, and consents. Public offerings of securities Legislation in other states is as yet in its infancy. There are several
issued by project companies to finance projects are uncommon. relevant federal statutes, but each of them still needs much work.
Public-private partnership legislation PPP – limitations
27 Has PPP enabling legislation been enacted and, if so, at what 28 What, if any, are the practical and legal limitations on PPP
level of government and is the legislation industry-specific? transactions?
PPP legislation is often discussed but is poorly developed in Nigeria. Under the ICRCA, the project proponent (company) is required to
The best developed PPP laws are the transport laws in Lagos state. possess the financial capacity, relevant expertise and experience in
The Lagos State Public Private Partnership Law, 2011 establishes undertaking such infrastructure, development or maintenance.
an Office of Public Private Partnerships that, among other things, The approval of the Federal Executive Council is required prior
has the power to grant concessions to private investors interested in to giving any guarantee, letter of comfort or undertaking by a gov-
PPPs for the design, construction, operation, management, control, ernment ministry, agency or corporation in a concession agreement.
Fred Onuobia fred.onuobia@gelias.com

Oluwatoyin Nathaniel oluwatoyin.nathaniel@gelias.com
Okechukwu Okoro okechukwu.okoro@gelias.com
NCR Building, 6 Broad Street Tel: +234 1 280 6970 1

Lagos Fax: +234 1 280 6972
Nigeria www.gelias.com
The statute does not limit the duration of any concession indemnity or undertaking that would be given in the ordinary course
granted. The relevant federal government ministry, agency or cor- of business, provisions for any financial guarantee from the state,
poration has the power to supervise the project in respect of which any ministry, department or agency are prohibited.
concession has been granted by it under the Act.
There is a lack of regulatory framework for PPPs at the state PPP – transactions
level with the exception of Lagos state. The regulatory framework
for transport-sector PPPs in Lagos is being reviewed with a view to 29 What have been the most significant PPP transactions completed
extending it to cover other projects. to date in your jurisdiction?
The Prudential Guidelines for Deposit Money Banks in Nigeria The most significant PPP transactions completed to date in Nigeria
published by the Central Bank of Nigeria now limit the duration are as follows:
of project financing loans to 10 years (excluding any grace period). • the Lekki toll road concession (the pioneering toll road
The Nigerian Ports Authority cannot give a concession for a concession);
period exceeding 25 years without the consent of the President. • the Murtala Muhammed Airport 2 concession (the pioneering
The Lagos State Public Private Partnership Law requires the airport terminal concession); and
company entering into a PPP agreement to be a registered Nigerian • the Nigerian Ports Authority concessions (pioneering port
company. While PPP agreements may require the state to provide concessions).

Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants) OMAN
Oman
Graham Mouat and Ravinder Singh
Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants)
Creating collateral security packages Pledges

The OCL contains provisions relating to pledges created over a
1 What types of collateral are available? moveable asset as security for a debt that has arisen from a ‘commer-
Security interests under Omani law are categorised as: cial activity’ conducted by the debtor. Possession of the pledged asset
• real security: security interests in and rights enforceable against must have been transferred to the pledgee (or to a person appointed
property (real rights). These security interests are created by stat- for this purpose by the contracting parties) and such asset must
ute (royal decree), and are enforceable in priority to the claims remain in the possession of the pledgee (or a third-party custodian)
of unsecured creditors both before and upon the debtor’s bank- until such time as the debt has been discharged. Under the OCL and
ruptcy; and pursuant to an agreement between the parties, a pledge may be reg-
• personal security arising out of contractual arrangements istered over nominal instruments including negotiable instruments
between parties that give rise to contractual claims (personal such as stocks, shares of joint-stock companies and other securities.
rights). In these cases, the creditor will rank as an unsecured The Civil Transaction Law issued by Royal Decree No.
creditor in the event of the debtor’s bankruptcy. 29/2013 (CTL) also contains specific provisions relating to crea-
tion of a pledge. The provisions of the CTL relating to the creation,
Omani law provides for three forms of real security: effects and extinguishment of pledges apply to a pledge of a non-
• commercial mortgages; commercial nature and also to any matter related to pledges upon
• pledges; and which the OCL is silent.
• legal mortgages. In project financing, security over shares is taken by way of a
pledge. Oman has three types of companies that issue shares: limited
Personal security interests in project financing are typically: liability companies (LLCs), closed joint-stock companies (SAOC)
• guarantees; and public joint-stock companies (SAOG). As it is not possible to
• assignments; and pledge shares of an LLC, sponsors generally incorporate project
• direct agreements. companies as SAOCs.
Commercial mortgage Legal mortgages

All existing and identifiable tangible assets of a project company Legal mortgages may be created over land or interests in land.
may be made subject to a commercial mortgage. The tangible assets Under the Oman land law, ownership of land is restricted to Omani
must be identified and described in the commercial mortgage. For nationals, Omani corporate bodies fully owned by Omani nationals
this reason, both a fluctuating pool of assets and after-acquired assets or Gulf Cooperation Council states citizens and Omani joint stock
are not capable of being charged by way of commercial mortgage. companies in which Omanis own not less than 30 per cent of the
The former case is dealt with by the project company undertaking share capital. The Usufruct Law issued by Royal Decree No. 5/81, as
to grant a supplemental commercial mortgage upon acquiring fur- amended, introduced rights for Omani and foreign companies and
ther assets. It is, however, common practice to include after-acquired individuals to enjoy rights of usufruct over land for projects that
property within the description of mortgaged property. assist the economic and social development of Oman. A usufruct is
The Oman Commercial Law issued by Royal Decree No. 55/90 generally granted to a project company by the Omani government
(OCL) expressly provides that certain intangible assets such as the over land to be developed for a project. Usufruct rights confer real
company’s trade name, right of lease, the right to contact clients and rights on the beneficiary to use and exploit the land, are registered
goodwill may be mortgaged by way of commercial mortgage. against the title deeds of the land and may be charged by way of
It is common practice to mortgage all the project company’s legal mortgage.
intangible assets such as rights under insurance policies, trade name,
goodwill, consents, licences, approvals relating to the project, rights Guarantees
under project documents and rights under shareholder loans. It may The OCL contains provisions relating to guarantees in respect of a
not be possible to mortgage certain intangible assets due to their debtor who is engaged in commercial activities.
nature. Contractual rights that are not enforceable at the time of
creation of a commercial mortgage, for example because enforce- Assignments
ment is contingent upon a party performing certain obligations, are Omani law does not contain any statutory provisions relating to
considered future assets of the project company and, as such, are not assignment of receivables or rights under a contract. Assignment
capable of being charged under the commercial mortgage. of rights and receivables are therefore created and governed by the
terms of the contract.
OMAN Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants)
The CTL contains certain provisions regarding the assignment concluded within 30 days of the date of the contract. A fee of 30
of debts from one debtor to another. Article 775 provides that for Omani rials is payable for the registration of the commercial mort-
a transfer of a debt to be effective, the creditor has to agree to the gage and an additional 100 Omani rials for attestation of the docu-
transfer of such a debt. Article 793 provides that a guarantor of the ment. A registered commercial mortgage is valid for a period of five
debt assigned has to agree to the assignment of debt. Article 785 years from the date of its registration. A lender who wishes to lend
permits an assignee to raise any defence relating to the debt that the for a longer term will be required to renew the mortgage for further
assignor could have raised. periods of five years. As a matter of practice, the MOCI will allow a
lender to renew the mortgage upon a written request and payment
Direct agreements of the renewal fee of 30 Omani rials.
Direct agreements are often entered into for financing of infrastruc- Where a security interest is registered in favour of more than
ture projects implemented in Oman. The direct agreements give cer- one lender, the rights of the secured creditors will be governed by
tainty to the lenders that the counterparty or public sector entity will the terms and conditions of the security documents. If the security
not terminate a project agreement on the occurrence of an enforce- documents provide for a pari passu charge among the creditors, then
ment action. With the introduction of the CTL, there is now greater such charge should be enforceable as per the terms of the security
certainty in terms the enforceability of the contractual provision and documents. Under article 7 of Ministerial Decision 5/91, priority is
the award of a remedy of specific performance. Hence, if parties governed by the date of entry of a commercial charge on the charges
have agreed to a particular course of action pursuant to a direct register of the company’s commercial register at the MOCI.
agreement, then provided that such a course of action is not contrary Assignment of contractual rights is effected by notification to the
to public order, the lenders would be able to obtain an enforcement debtor, subject to the terms and conditions set out in an assignment
of such rights. deed or agreement. The assignor must notify the debtor. The lender,
as an assignee, must obtain an acknowledgement of the assignment
from the debtor. Assignment of contractual obligations, however,
may only be effected with the consent of the creditor.
Assignment of rights by way of security do not provide a credi-
tor with security capable of being enforced in preference to other
creditors. A contractual assignee will rank as an unsecured creditor
in the event of the assignor’s bankruptcy.
To comply with the registration formalities required for perfec-
The OCL provides that a written confirmation of a pledge of certi- tion of a pledge or commercial mortgage, all documentation evi-
fied equity or debt securities should be recorded in the books of dencing the agreement or intention to create a security interest must
the party that issues such securities. In practice many parties will be in Arabic. The document is not required to be expressly governed
not maintain a register. Pledges over securities traded or listed on by the law of Oman provided that if such security interest is sought
the Muscat Securities Market are required to be registered with the to be enforced in Oman, it should not be contrary to Omani law.
Muscat Clearing & Depository Company SAOC (MCDC) in the Although there is no specific legislation on trusts, the concept of
MCDC’s prescribed form although execution of the pledge does not lenders holding collateral through a security agent is recognised in
need to take place at the MCDC. Oman. Typically an Omani licensed bank will be selected as security
Priority is established by registration in time with the relevant agent to hold assets located in Oman. This facilitates the creation
regulatory authority. Charges entered on the same date have the and enforcement of security interests and avoids the risk that an
same priority, provided they are accepted for registration at the same unlicensed foreign bank acting as a security agent might be consid-
time. In cases where charges are registered on the same day in favour ered as conducting unauthorised business in Oman. It is unlikely
of different unrelated creditors, priority will be given according to that the courts in Oman would consider collateral held by a security
the timing of each registration. Priority would be given to a chargee agent to be part of that security agent’s own estate in the event of the
of a registered charge and not a chargee in possession of the asset bankruptcy of the security agent.
who has not registered a charge.
Legal mortgages are executed and registered at the Land
Registrar’s office in the Ministry of Housing (MOH) in Muscat or 3 How can a creditor assure itself as to the absence of liens with
branch of MOH in the locality where the property is situated. Both priority to the creditor’s lien?
signatories for the mortgagor and mortgagee are required to attend Commercial mortgages
at the execution of a legal mortgage. The MOH provides a two-page A computer printout may be obtained from the MOCI in respect of
prescribed form of mortgage deed in Arabic but will accept addi- a company’s corporate details including details of the registration
tional agreed terms as an annex to the mortgage deed. Article 1034 of commercial mortgages. Subsequent commercial mortgages may
of the CTL provides that if more than one mortgagee applies for only be registered if existing registered mortgagees provide a letter
registration of a mortgage against a debtor in respect of one prop- of no objection for the registration of any subsequent commercial
erty, then such mortgages shall be registered under the same serial mortgage.
number and such creditors will have equal ranking. A charge over
immoveable property is enforced and executed by judicial sale at Legal mortgages
public auction following enforcement proceedings. A copy of the title deeds of the land may be obtained from the
A registration fee of 0.5 per cent of the secured amount is pay- MOH, which will record the registration of any legal mortgages.
able to the MOH by the borrower upon registration. In large pro-
ject finance transactions, the registration fee is capped at 100,000 Pledges
Omani rials. There is no registry in respect of pledges. However, evidence of the
The execution of a commercial mortgage must be notarised existence of a pledge over shares traded or listed on the Muscat
and signatories on behalf of both the mortgagor and mortgagee are Securities Market may be obtained from the MCDC.
usually required to attend the Ministry of Commerce and Industry
(MOCI). A commercial mortgage contract is registered upon
acceptance by the MOCI through its endorsements and notations
placed on the company’s computer printout. Registration must be

4 Outside the context of a bankruptcy proceeding, what steps Assignments and guarantees
should a project lender take to enforce its rights as a secured Enforcement proceedings with respect to assignments and guaran-
party over the collateral? tees may be filed against the assignees, assignors or third-party debt-
Enforcement of commercial mortgages, pledges and legal mortgages ors to whom a notice of assignment has been given.
in Oman is by application to the primary commercial court for an
order of sale of the assets by way of public auction. The practice of 5 How does a bankruptcy proceeding in respect of the project
Omani courts in order to enforce a commercial mortgage, pledge company affect the ability of a project lender to enforce its rights
or legal mortgage is to require a judgment in favour of the secu- as a secured party over the collateral? Are there any preference
rity holder. A straightforward debt recovery action typically takes periods, clawback rights or other preferential creditors’ rights
six months to obtain judgment. Parties have the right to appeal a (eg, tax debts, employees’ claims) with respect to the collateral?
primary court judgment to the appeal court and thereafter to the What entities are excluded from bankruptcy proceedings and
Supreme Court. what legislation applies to them? What processes other than
Once final judgment is obtained the creditor applies to the court court proceedings are available to seize the assets of the project
for enforcement. The enforcement of the most basic security will company in an enforcement?
usually take up to three or four months. Where circumstances are
Upon and from the date of adjudication of bankruptcy, the bankrupt
more complex, the process may take significantly longer. During
debtor relinquishes all rights and powers to the receiver or trustee-in-
that time the mortgagor would continue to hold and control all
bankruptcy appointed by the commercial court for the management
charged assets and could continue to run its business unless the court
of the bankrupt entity’s assets. A bankrupt entity may not dispose of
appoints a third-party administrator or custodian to hold or to man-
any assets, nor make or receive any payment unless any such sale or
age the chargor’s assets so as to ensure that they are not depleted or
receipt of payment is for a bona fide commercial purpose.
their value is not eroded.
Once declared bankrupt, no proceedings may be brought against
Enforcement is generally carried out by way of public auction
or conducted by the debtor other than in the following instances:
of the charged assets. With the exception of land, there are no rules
• actions relating to assets and transactions to which the bank-
on setting a reserve price that must be reached at public auction.
rupt’s impediments do not extend. Any such actions would also
Secured creditors therefore have very little control over the level of
include actions that have been commenced by secured credi-
the proceeds realised from the enforcement of their security.
tors who are in possession of a commercial or legal mortgage
In the case of land, the court may seek the assistance of an expert
or pledge. Such proceedings may, however, be unnecessary if
to decide a ‘basic price’. If this price is not reached, the property is
the trustee-in-bankruptcy accepts the outstanding liability as
re-auctioned and the minimum price is reduced by 10 per cent it is
being due and payable and consents to the sale or transfer of the
sold. Creditors have the right to object to the enforcement proceed-
secured assets;
ings at any time, for example, if the sale price is too low. However,
• actions permissible by law relating to the business of the bank-
the legislation does not specify the effect of raising an objection and
ruptcy; and
it would not necessarily halt the enforcement proceedings. Any party
• penal actions.
is allowed to bid for assets sold under public auction and the only
way secured creditors would be able to prevent the acquisition of
As a general rule, the declaration of bankruptcy entails the stay of
the assets for an unacceptably low price would be to bid themselves.
proceedings brought by secured and unsecured creditors. Unsecured
and secured creditors may not individually undertake enforcement
Land
proceedings against the assets of the bankrupt, nor may they final-
Legal mortgages are enforced through proceedings before the court.
ise proceedings that began before the declaration of bankruptcy.
The mortgagee must prove the due and outstanding debt and request
Any person may recover from the bankruptcy such specific items
enforcement of the security. Rights of the mortgagee on enforcement
to which it can prove its right of ownership. The receiver may not
are limited to a public sale of the mortgaged land or property or of
hand over any such claimed items without the prior permission of
the usufruct rights. The mortgagee is not allowed to take possession
the judge in-charge of bankruptcy. If a secured creditor had already
of the land other than in accordance with the Oman Banking Law
initiated legal proceedings for recovery of its loan from a company
Royal Decree 114/2000 (OBL), and only for the specific duration
seeking to sell the secured assets, then upon such company being
provided for by OBL (12 months from the date on which it takes
adjudicated bankrupt, the proceedings initiated by the secured credi-
possession) subject to further extensions granted by the Central
tor may be stayed. Under such circumstances, the secured creditor
Bank of Oman. The mortgagee in possession would be required to
having a first charge over a particular asset would be given prefer-
dispose of the property once the 12-month period and any extension
ence for the repayment of its secured debt from the sale proceeds
granted has expired.
received from a sale of the assets over which such secured creditor
With respect to land where the mortgagor’s land rights arise
has a charge.
under an usufruct agreement, the mortgagee has the right to require
Article 590 of the OCL provides the ‘suspect period’ to be the
a transfer or a sale of the usufruct rights subject only to the terms
period commencing from the date on which the bankrupt ceased
and duration of the usufruct agreement.
making payments. In the first instance, the Commercial Court will
set a date from which it deems the bankrupt to have ceased making
Tangible and intangible, moveable assets covered by the
payments. Article 591 of the OCL further provides that the date for
commercial mortgages
cessation of payments may not go back more than two years from
Upon a default and following a notice of demand an application
the date on which the adjudication of bankruptcy has occurred. The
can be made by the mortgagee for the sale of all or part of the assets
suspect period cannot, in any circumstances, precede the bankruptcy
covered by a commercial mortgage executed and registered by the
order by more than two years.
project company. The sale of the assets secured by a commercial
Pursuant to article 609 of the OCL creditors of a bankrupt
mortgage will be by way of public auction and it will not be pos-
would be permitted to seek clawback of any payments made by
sible for the mortgagee to take direct possession of the secured assets
the bankrupt entity during the suspect period preceding the date of
unless agreed to by the mortgagor. Any agreement that attempts to
adjudication of bankruptcy.
avoid this mechanism is likely to be void.
Any transaction undertaken by a bankrupt, other than the
following, during the suspect period may be invalidated by the
Commercial Court as against the insolvent entity’s creditors if any and accordingly, their dues will rank in in priority to payments due
such transaction is considered to be harmful to the interest of the to other creditors.
creditors and the creditor knew at the time of the transaction that
the bankrupt ceased payment to its creditors. Effect on contracts
The following transactions may be set aside if carried out by the Article 633 of the OCL provides that a contract to which the bank-
bankrupt after the date that the bankrupt ceased making payments rupt entity is a party will not automatically terminate on a declara-
to creditors, namely: tion of bankruptcy unless the contract itself was based on personal
• all contributions, except for customary small gifts; consideration. Article 633 of the OCL gives the receiver in bank-
• the settlement of debts before the expiry of their term, notwith- ruptcy the right to affirm or reject contracts that are binding on the
standing, however, such a settlement may have been made; bankrupt entity and its counterparty. The law does not stipulate a
• the settlement of current debts other than by means agreed upon time frame within which the receiver must advise the counterparty
(settlements made via commercial instruments or bank transfers of its decision to affirm or reject the contract. If the receiver fails to
shall be deemed to be the same as settlements made in cash); and perform the contract the counterparty is entitled to apply to court
• the creation of any security interest. for its cancellation.
Any application for the nullification of a transaction that falls foul Foreign exchange issues
of article 609 of the OCL may be made by the receiver or trustee in
bankruptcy within a period of 12 months from the date of adjudica- 6 What are the restrictions, controls, fees, taxes or other charges
tion of bankruptcy of the bankrupt. The bankrupt entity’s creditors on foreign currency exchange?
may bring an action for recovery of damages suffered by them on There are no foreign exchange controls. As far as we are aware, the
account of harmful transactions. Central Bank of Oman has never made any attempt to impose such
controls, although it has the power to do so under the OBL.
Rights of creditors
Upon the adjudication of bankruptcy, as a matter of law, a group
of creditors composed of all unsecured creditors will be deemed to
have come into existence on the basis of their established claims hav-
ing arisen prior to the date of adjudication of the entity’s bankruptcy.
Secured creditors with mortgages shall not form a part of the group Article 52 of Royal Decree 28/2009 (effective from 1 January 2010)
of creditors, until such time as they participate in the bankruptcy for (the Tax Law) provides for payment of withholding tax on the
the recovery of any amounts that have remained unpaid from the following:
sale of the secured assets. • royalties;
• remuneration for conducting research and development;
Secured debts • remuneration for using or the right to use computer programs;
Upon obtaining the approval of the judge in-charge (the adjudicator) and
of the bankrupt entity, the receiver may discharge the debt secured • charges against management.
by a mortgage over moveable assets and redeem the charge over the
assets for the benefit of the group of creditors. Withholding tax is payable at the rate of 10 per cent. The Tax
The receiver may allow a mortgagee a grace period within Department to date has not held interest on principal amounts or
which to commence legal proceedings against the bankrupt entity repayment of principal amounts to overseas lenders as being subject
for enforcement against the mortgaged assets. If the mortgagee fails to withholding tax.
to take such action within the given time period, the receiver may,
after obtaining the approval of the adjudicator, proceed to sell the 8 Must project companies repatriate foreign earnings? If so, must
mortgaged assets directly and apply the sale proceeds towards the they be converted to local currency and what further restrictions
discharge of the secured creditors’ claims (ie, principal and accrued exist over their use?
interest). Any excess amount received from the sale of the secured
There are no restrictions on the repatriation of foreign earnings and
asset will be retained by the receiver for the benefit of the group of
the Omani rial is freely convertible.
creditors.
If the sale proceeds received from the sale of the mortgaged asset
are less than the secured debt, the mortgagee may participate in the 9 May project companies establish and maintain foreign currency
bankruptcy for the remaining balance of its claim as an ordinary accounts in other jurisdictions and locally?
unsecured creditor, provided that its debt has been verified by the Yes.
trustee in accordance with the Code.
Ranking of government debts
The government has a general priority under Royal Decree 32/94 10 What restrictions, fees and taxes exist on foreign investment in or
for sums owed to it, whether by way of taxation or otherwise. The ownership of a project and related companies? Do the restrictions
Decree provides that monies owed to specified Omani government also apply to foreign investors or creditors in the event of
bodies have priority over all monies, secured or otherwise, owed foreclosure on the project and related companies? Are there
by that debtor to any person and sets out specific mechanisms for any bilateral investment treaties with key nation states or other
precautionary attachment and execution of the debtor’s assets. The international treaties that may afford relief from such restrictions?
Ministry of Finance has authority to approve waivers and variations Would such activities require registration with any government
to the government’s priority rights under Royal Decree 32/94. authority?
In accordance with the Foreign Capital Investment Law Royal
Other preference creditors Decree 102/94 (FCIL), non-Omani nationals wishing to engage in
The Oman Labour Law protects the rights of employees to receive trade or business in the Sultanate, or to acquire an interest in the
unpaid salary and other benefits upon the bankruptcy of a business capital of an Omani company, must obtain a licence to do so from

the MOCI (in practice, foreign investors will be granted a licence as There have been some very recent developments announced by
a matter of right, without filing any specific application for the grant the Ministry of Manpower (MOM) in respect of the issuing of visas.
of a licence in the case of an acquisition of an interest of up to 70 per Pursuant to article 11 of the Expatriates Residence Law, an expatri-
cent in the capital of an Omani company. GCC nationals or compa- ate worker will not be allowed to re-enter Oman on a new employ-
nies 100 per cent owned by GCC nationals are permitted to estab- ment visa until a period of two years has elapsed since such a worker
lish a business in Oman for most activities. Depending on the nature leaving Oman. This provision of law was not implemented earlier by
of the project to be developed or implemented, approval for 100 per ROP but will be implemented from 1 July 2014.
cent foreign ownership may be granted by the Council of Ministers Expatriate employees are not permitted to bring their spouses or
pursuant to an application filed with the minister of the MOCI, or children to Oman during the first six months of employment.
through other sector-specific royal decrees such as the Sector Law
issued by Royal Decree 78/2004. The Council of Ministers may per-
mit, upon the recommendation of the minister of MOCI, 100 per
cent foreign participation in a project if such project ‘contributes Most imported goods attract a customs duty of 5 per cent levied on
to the national economy’ and provided that the share capital for the cost, insurance and freight (CIF) value of the goods imported.
such company is not less than 500,000 Omani rials. Foreign com- The importation of equipment is subject to restrictions under the
panies may do business in Oman by establishing a branch, or by Israeli Boycott List.
participating in the formation of a limited liability company or a
joint-stock company. The minimum capital requirement for foreign 14 What laws exist regarding the nationalisation or expropriation
participation in an LLC is 150,000 Omani rials and 500,000 Omani of project companies and assets? Are any forms of investment
rials and 2 million Omani rials for SAOCs and SAOGs respectively. specially protected?
Depending on the vehicle chosen, registration is required with the
The Basic Statute of Oman issued by Royal Decree 101/96 (the
MOCI, the MCDC, the Chamber of Commerce and Industry, the
Basic Law) sets out the economic principles of the state. The Basic
Muscat Securities Market and the Capital Markets Authority. Fees
Law safeguards private ownership and specifies that no person may
vary according to the entity.
be prevented from disposing of his or her property, provided such
The acquisition of oil-related interests by any party, foreign or
disposition is in accordance with the law. It allows the government
local, can only be acquired by means of a royal decree granted by
to expropriate land or other assets in the public interest only in
the Sultan of Oman.
cases and in the manner stipulated by law and in return for fair
A free trade agreement between Oman and the United States came
compensation.
into force on 1 January 2009, pursuant to which US-incorporated
Confiscation of property is forbidden. Specific confiscation as a
entities are permitted to set up companies with 100 per cent equity.
penalty is not permitted except by judicial order and in cases speci-
fied by the law.
over project assets provided or guaranteed by foreign insurance Fiscal treatment of foreign investment
creditors? 15 What tax incentives or other incentives are provided preferentially
Omani insurance law requires that all insurance must be placed with
Omani companies and businesses registered in Oman must place
their insurance requirements with insurance companies licensed to
conduct insurance business in Oman. Foreign insurance companies Article 8 of the FCIL, the Tax Law and the Law for the
operating in Oman are permitted to engage in insurance-related Encouragement of Industry provide for tax and customs duties
activities in certain circumstances and they are required to obtain exemptions in accordance with the procedures set out in Ministerial
the participation of one or more national insurance companies for Decision 45/2005 with regard to companies engaged in certain
every policy they issue in Oman. Invariably, national insurance com- activities such as industrial, mining, exporting, tourism and public
panies when participating in a particular insurance policy for large utility services. The performance of management contracts and con-
projects will generally reinsure the risk assumed by them overseas. struction contracts in tourism and public utility projects and project
Regulations that required that the risk had first to be offered by companies do not qualify for tax holidays. Tax holidays are granted
an Omani-licensed insurer to other Omani insurance companies in for five years from the beginning of production or business opera-
Oman have been amended and Omani-licensed insurers can now tions. The Council of Financial Affairs and Energy Resources may
reinsure overseas directly. Lenders have entered into assignment of grant an extension of the tax holiday for up to five years, subject to
insurance proceeds under the insurance policies with local insurers satisfying certain conditions.
and the reinsurance policies directly with the reinsurers.
12 What restrictions exist on bringing in foreign workers, technicians 16 What are the relevant government agencies or departments with
or executives to work on a project? authority over projects in the typical project sectors? What is the
All foreign employees must hold residence visas and labour clear- nature and extent of their authority? What is the history of state
ances, sponsored by their employers. A major ‘Omanisation’ drive is ownership in these sectors?
under way by the government of Oman to require the private sector Aside from the ministries referred to in the preceding paragraphs,
to employ suitably qualified Omanis in preference to foreign nation- the Directorate General of Petroleum and Mineral Resources admin-
als wherever possible. Statutory requirements dictate that a percent- isters the oil and gas sector under the authority of the Ministry of
age of the workforce of all companies shall be Omani nationals. Oil and Gas.
The percentage varies according to the sector in which a company The Ministry of Transport and Communication regulates the
operates and these are regularly revised by MOM. The requirement transportation sector, the Telecommunications Regulatory Authority
for strict and immediate compliance with the relevant Omanisation (TRA) regulates the telecommunications sector and the AERO regu-
levels for the sector may be temporarily deferred in the case of gov- lates the power and water sectors. The powers vested in each of these
ernment privatisation projects. authorities with regard to the services regulated by them are set out
in the laws establishing these bodies and the subsidiary regulations for Electricity Regulation Oman (AERO) would need to be obtained
issued pursuant thereto. for projects in the electricity and water sectors. It would be unusual
for a government body to require an approval without there being
Regulation of natural resources an express statutory requirement relating to that government body
or the activity contemplated. Other than in the case of registration of
17 Who has title to natural resources? What rights may private security interests, the obtaining of approvals, permits, authorisations
parties acquire to these resources and what obligations does the and other registrations would attract a standard administrative fee.
Article 11 of the Basic Law provides that all natural resources and
revenues are the property of the state, which will preserve and uti-
lise them in the best manner possible, taking into consideration the
requirements of the state’s security and the interests of national econ-
omy. No concession or investment in any of the public resources of Only security interests capable of registration need to be filed with
the country may be granted except by virtue of a specific law (ie, a government authorities. Powers of attorney in support of security
royal decree) and for a limited period. interests require notarisation by a notary public at the Ministry of
All land is owned by the state unless it is owned by private indi- Justice. All documents filed with any government authority must be
viduals pursuant to the Land Law. While the Basic Law provides for in the Arabic language.
the grant of concession or investment rights regarding expropria-
tion of mineral resources, specific royal decrees, for example Royal 22 How are international arbitration contractual provisions and
Decree 8/2011 (the Oil and Gas Law) regulate oil exploration and awards recognised by local courts? Is the jurisdiction a member
production. of the ICSID Convention or other prominent dispute resolution
18 What royalties and taxes are payable on the extraction of natural types of disputes subject to automatic domestic arbitration?
resources, and are they revenue- or profit-based? International arbitration contractual provisions and awards are rec-
In relation to the oil and gas sector, most of the exploration and ognised by the Omani courts and by the Oman Arbitration Law
production activities are carried out pursuant to exploration and issued by Royal Decree No. 32/84 (the Oman Arbitration Law).
production sharing agreements (EPSAs) and the share of revenue If a contract contains provisions for the resolution of disputes by
payable to the government is based on the terms of the EPSA. EPSAs arbitration in Oman or elsewhere, the Omani courts will not accept
provide that the revenue from the oil production is to be shared jurisdiction over the dispute unless both parties agree formally
between the government and the concessionaire in an agreed ratio, to waive the arbitration clause. Oman is a signatory to the New
for example 20:80 or 30:70 as the case may be, after meeting the York Convention on the enforcement of foreign arbitral awards in
costs involved. The concessionaire provides all funds required for accordance with which any arbitration awards made by a member
and bears all costs and expenses in connection with the explora- country are directly enforceable by the Omani courts.
tion of oil or gas, as the case may be. A formula may also be agreed
between the government and the concessionaire for computation 23 Which jurisdiction’s law typically governs project agreements?
of the amount of income tax to be paid by the concessionaire and Which jurisdiction’s law typically governs financing agreements?
included in the EPSA. Royalties payable to the government in respect Which matters are governed by domestic law?
of mining activities are specified in the related concession licence.
English law is most often selected for both project and financing
Under the double tax treaty with the United Kingdom, no with-
agreements in large projects.
holding tax is imposed on royalties paid to companies resident in the
Omani law does not impose any restriction in relation to the
UK, subject to the satisfaction of certain conditions.
choice of governing law clauses in contracts.

resources?
Tax is imposed by the Director of Taxation Affairs pursuant to the
A foreign jurisdiction clause should be upheld in Oman provided it
Tax Law. Oil companies are taxed at a rate of 55 per cent on their
is not deemed contrary to public policy. However, the presence of a
taxable income insofar as it relates to an income earned from the
foreign jurisdiction clause in a contract does not necessarily exclude
sale of oil.
the jurisdiction of the Omani courts. In such a case it would still be
Article 112 of the Tax Law provides that the annual tax rate
open for a party to institute proceedings before an Omani court, and
applicable to all companies incorporated in Oman including the
provided such party satisfies the court that it has jurisdiction over
branches of foreign entities and permanent enterprises is 12 per cent
the subject matter of the claim, it is likely that the court will assume
on taxable income in excess of 30,000 Omani rials. There are no
jurisdiction. In other words, the Omani courts would not consider
specific tax thresholds in relation to companies engaged in extrac-
their jurisdiction over a matter barred as a consequence of a foreign
tion and export of mining activities.
jurisdiction clause.
Special rules apply to cross-border sales or deliveries of crude
Royal Decree 13/1997 provides that Oman’s commercial courts
oil or crude oil products. In practice, all of these deliveries are in
have jurisdiction to entertain suits filed against government agencies.
the nature of export transactions. Such transactions are closely con-
Therefore, in our opinion, the government should not be entitled to
trolled by the shareholders of the relevant operating companies.
plead sovereign immunity and the courts would recognise a waiver
of sovereign immunity.

This would depend on the nature of the transaction and would vary
accordingly but, by way of example, approvals from the Authority

Environmental, health and safety laws Project companies
25 What laws or regulations apply to typical project sectors? What 26 What are the principal business structures of project companies?
regulatory bodies administer those laws? What are the principal sources of financing available to project
Health, safety and environmental issues are addressed by a set of companies?
complex regulations issued by multiple authorities. Companies oper- A project company may be incorporated as an LLC, SAOG or
ating in the oil and gas sector and power project companies impose SAOC.
health, safety and environmental requirements on their contrac- As mentioned in question 10, for foreign participation in an
tors to ensure contractual conformity with the labour laws, social Omani company to be lawful, a foreign investor would be permitted
insurance laws and environmental laws. In addition, the municipali- to invest in a corporate entity up to 70 per cent without a specific
ties have long taken a leading role in issuing and enforcing health, licence. Should a foreign investor wish to retain 100 per cent of the
safety and environmental regulations. The Oman Labour Law and equity, such foreign investment would need to obtain the approval
Ministerial Decision No. 19/82 set out the regulations for occupa- of the Council of Ministers or otherwise be permitted by a project
tional safety and health protection of employees in the private sector. or sector-specific law issued by royal decree. While it is possible for
The Ministry of Manpower (MOM) may appoint inspectors to up to 100 per cent foreign participation in an Omani company to be
oversee the implementation of safety standards by employers. The licensed, this is unusual and only in special circumstances. In practice,
inspectors may recommend a range of penalties in the case of non- the level most licensed is 70 per cent foreign participation, subject
compliance of an employer including the issue of a warning, imposi- to a higher level of scrutiny by the authorities and at their discre-
tion of a fine or closure of the employer’s business. tion. The nature of the proposed company’s activity has a bearing on
The framework law on environmental protection and the pre- whether, and how much, foreign participation is licensed in excess
vention of pollution in Oman is set out in Royal Decree 114/2001 of 70 per cent. The authorities have certain priority areas, such as
(the Environmental Law). It regulates a wide range of physical, industries using local products and raw materials, export industries
chemical and biological pollutants, and many of its provisions and projects for tourist villages and tourism. Following Oman’s join-
are directed specifically at potentially polluting workplaces, both ing the World Trade Organization, the authorities agreed to permit
onshore and offshore. 70 per cent foreign participation, although the law has not yet been
The Ministry of Environment and Climate Affairs (MECA) is amended in this respect.
the principal authority for environmental protection and pollution Pursuant to the free trade agreement between Oman and the
control in Oman and is responsible for implementing the national United States, a wholly-owned US entity should also be able to regis-
plan for the conservation of the environment and prevention of pol- ter a branch in Oman to conduct business except in certain reserved
lution. One of MECA’s most important functions is the adminis- sectors.
tration of the environmental permit system by the Directorate of The principal sources of financing available to project compa-
Environmental Planning and Permits for all new projects under- nies are direct lending from export credit agencies and local bank
taken in Oman. Under the Environmental Law and the Law for the funding.
Encouragement of Industry in Oman, project sponsors must apply to
MECA for an environmental permit before setting up any operation Public-private partnership legislation
that may be the direct or indirect source of environmental pollution.
The provisions of the Environmental Law are supplemented 27 Has PPP enabling legislation been enacted and, if so, at what
by other statutory requirements specifying discharge and emission level of government and is the legislation industry-specific?
standards or requiring permits to be obtained prior to the com- Royal Decree 77/2004 (the Privatisation Law) was issued with the
mencement of operations. These permits are subsidiary to the main twin objectives of encouraging foreign investment in Oman and
environmental permit required under the Environmental Law. increasing employment opportunities for Omani nationals in the
private sector. The Privatisation Law applies to any project that is
tendered for privatisation by the government under the Tender Law
(Royal Decree 36/2008) primarily in major public infrastructure
projects in the power and desalination, wastewater, electricity and
telecommunications sectors.
Graham Mouat graham.mouat@amjoman.com

Ravinder Singh ravinder.singh@amjoman.com
Muscat International Centre Tel: +968 2481 4466

Bait Al Falaj Street, Central Business District Fax: +968 2481 2256
Muscat 112 mj-co@omantel.net.om
Oman www.amjoman.com
PPP – limitations PPP – transactions
28 What, if any, are the practical and legal limitations on PPP 29 What have been the most significant PPP transactions completed
transactions? to date in your jurisdiction?
Limitations on private sector participation in projects are commonly Significant privatisation projects in the last five years have taken
set out in the terms of the tender for any particular project. The gov- place in the telecommunications, electricity, power and desalination
ernment will not generally be restricted from entering into contracts and wastewater sectors.
with private sector companies where a project has been approved
by the Ministry of the National Economy for tender to the private
sector.

Anzola Robles & Associates PANAMA
Panama
Erika Villarreal Zorita
Anzola Robles & Associates
Creating collateral security packages the applicable fees are US$42 for the first US$20,000 of the value
of the pledged assets and US$30 for every US$10,000, or fraction
1 What types of collateral are available? thereof, of the total value of the pledged assets. Collateral in chat-
Pursuant to Panamanian law, all types of property and property tels worth less than US$4,000 must follow the requirements and
rights, including tenancy, may be subjected to a security interest. formalities of the pledge, discussed below, and must comply with the
Chattels, real estate, vessels, titles, receivables, rights, shares, quo- same formalities as that of the main agreement. Collateral over chat-
tas, bank accounts, negotiable instruments, usufruct, proceeds, tels have a statute of limitations of four years. After the four-year
antichresis and contractual obligations can be used as collateral. period, the collateral over the chattel must be renewed.
Additionally, the entire assets of a project company or sponsor may
be secured through a general pledge of assets. Certain licences and Collateral over securities and titles
concessions granted by the government may be assigned or pledged A pledge of securities and titles requires the endorsement and deliv-
depending on the type of licence, permit, or concession; as long as ery of the title to the project lender, to an agent appointed by the
the licensing authority consents to the assignment or pledge. The debtor and the project lender, or to a trustee appointed to hold title
assignment of licences and concessions requires the assignee to meet on behalf of the project lender. With respect to shares or quotas
the same criteria as the assignor. However, some concessions and issued by a company, in addition to the delivery of the share certifi-
licences, such as water use concessions, may not be assigned under cate the pledge must be recorded in the register of members.
any circumstances.
Assignment of receivables
The assignment of receivables must take the form of an assignment
agreement, and must be perfected by notifying the debtors of the
assignment of such receivables.
A lender will rank senior in right of payment to the extent of
the collateral and up to the value of such collateral. In cases with
more than one creditor, the oldest pledge will have priority over the
remaining pledges and will exclude the remaining pledges in the case
Requirements and formalities necessary to perfect a security inter- of execution.
est depend on the type of collateral. Pursuant to Panamanian law In addition to the registration fees listed above and payable to
a pledge is perfected once the secured property or title is delivered the Public Registry for the registration of a pledge over certain assets,
to the lender, to an agent appointed by the debtor and the project there are no other charges or taxes imposed on, or by virtue of, the
lender, or to a trustee appointed to hold the assets on behalf of the execution or delivery of the collateral in Panama. However, a stamp
project lender. The date of the pledge shall be evidenced in a public tax at the rate of US$0.10 for each US$100 of the face value of the
deed or notarised document. Similarly, a pledge must meet the same corresponding obligations may be levied in the event that a loan or
formalities met by the main loan agreement. security agreement is submitted before any court or administrative
A description of the requirements and formalities applicable to authority in Panama.
various forms of collateral follows below. A corporate entity or trust may hold collateral on behalf of the
project lenders as the secured party. Trustee companies must be
Collateral over real estate and vessels licensed by the Panamanian Bank Superintendency. Corporate enti-
Collateral over real estate and vessels must take the form of a ties may also hold collateral and in such capacity become respon-
notarised public deed signed by the parties involved. The mortgage sible, as any trustee, for the proper conservation of the pledged
is perfected once the public deed is registered at the Public Registry. assets. Trustees are required to maintain their own assets separate
Applicable Public Registry fees are US$3 for each US$1,000 worth from assets transferred to them in trust. In the event a trustee is
of the value of the real estate; and US$2.50 for every US$1,000 of declared bankrupt, all assets assigned in trust will be excluded from
the value of the mortgage over the vessel. the bankruptcy.
A parallel debt clause that requires the debtor to make equal and
Collateral over chattels concurrent payments to the lender and to a security trustee, creating
Collateral on chattels not transferred into the possession of the a direct claim of the security trustee against the debtor, would be
creditor with a value of more than US$4,000 must take the form recognised under Panamanian law.
of a notarised public deed signed by the parties involved. The public
deed must then be registered at the Public Registry. Applicable Public
Registry fees are US$1 for each US$1,000 for assets with a value
lower than US$20,000. For assets with a value above US$20,000,
PANAMA Anzola Robles & Associates
3 How can a creditor assure itself as to the absence of liens with Panama has enacted legislation providing for special administrative
priority to the creditor’s lien? intervention, reorganisation and liquidation proceedings for the fol-
In the case of real estate, chattels or any property title that is filed lowing business sectors.
with the Public Registry or any other registry office, the absence of
prior liens may be confirmed through a search or through a cer- Banks and trustees
tificate issued by the Public Registry or the correspondent registry Liquidations of these entities are governed by sector-specific legisla-
office. tion, and are overseen by the Superintendent of Banks.
Shares or quotas may be checked by reviewing the register of
members, or by requesting the secretary of the company to certify Insurance, reinsurance, and captive companies
that the shares are not under any type of lien. Liquidations of these entities are governed respectively and sepa-
Other types of assets should be checked by including proper rep- rately by insurance, reinsurance and captive insurance legisla-
resentations in the agreements to be subscribed. tion, and are supervised by the Superintendent of Insurance and
Reinsurance.
4 Outside the context of a bankruptcy proceeding, what steps Savings and loans and coops
should a project lender take to enforce its rights as a secured Liquidations of these entities are governed by sector-specific legisla-
party over the collateral? tion and are overseen by the Panama Coop Institute.
Depending on the type of assets and guarantees, secured lenders
may enforce their rights within or without the court system. Judicial Brokers, investment companies, investment management
enforcement to claim real estate mortgaged collateral requires the companies and stock exchanges
lender to file a foreclosure action, usually in civil court. The same Bankruptcy proceedings for these entities are governed by special
course of action is applicable in the case that the lender holds a gen- legislation, and overseen by the Superintendence of the Securities
eral pledge of assets, which will normally encompass personal and Market.
real estate property. Non-judicial enforcement is available also in
certain circumstances. Collateral secured through a pledge or mort- All requests to seize the assets of a company must be filed before
gage of chattel may be foreclosed without the need to access the a civil court with competent jurisdiction. Government assets and
court system. However, so the lender may privately foreclose, the property are not subject to attachment or seizure.
security agreement must establish the method of fairly appraising the Foreign and local creditors, in general, have the same rights in
value of the assets in US dollars. If the agreement does not include a a bankruptcy proceeding. However, if decided by the bankruptcy
valuation method, the parties to the agreement must appoint three judge, foreign creditors may be granted an additional term to file
experts who will have to agree on the value of the pledged assets. and verify their credits.
The lenders are not restricted from taking part in foreclosure sales
and acquiring the pledged assets. Foreign exchange issues

5 How does a bankruptcy proceeding in respect of the project on foreign currency exchange?
There are no restrictions, controls, fees, or taxes in connection to
foreign currency exchange. However, the value paid in foreign cur-
rency must be equal to the fair appraisal value of the asset discussed
in the preceding section. The US dollar has been the currency of legal
tender in Panama since 1904.
company in an enforcement? 7 What are the restrictions, controls, fees and taxes on remittances
The ability of a project lender to enforce its rights as a secured party of investment returns or payments of principal, interest or
is not affected in a bankruptcy proceeding because Panamanian premiums on loans or bonds to parties in other jurisdictions?
bankruptcy law recognises and upholds the priority a secured lender Restrictions and controls
has over the collateral. In the event a project company becomes insol- There are no restrictions or controls on remittances of investment
vent and is driven to bankruptcy by its creditors, secured lenders will returns or loan payments to parties in other jurisdictions. However,
still collect with priority over any bankruptcy creditor from collat- certain taxes may apply. The Panamanian tax system is based on
eral mortgaged or pledged to the lender by the project company. a territoriality principle. Consequently, income tax is levied on net
If the secured assets are not enough to repay the obligation income derived from operations taking place within the territorial
those assets were meant to secure, the unsecured portion of the boundaries of the Republic of Panama. Income received from for-
claim will be ranked with all other unsecured bankruptcy creditors. eign sources is not subject to taxes in Panama.
Bankruptcy provisions rank unsecured creditors at the end of the
collection line, after tax liabilities; legal expenses of the bankruptcy; Fees and taxes
and employees claims. However, a bankruptcy judge has the author- The Panamanian tax code provides that interests, commissions,
ity to review any debtor transactions and transfers taking place up to other charges over foreign loans, and any other type of financing
four years prior to the declaration of bankruptcy. Should the bank- arrangement are subject to withholding at the corporate income tax
ruptcy judge consider that the debtor was in a state of bankruptcy rate of 25 per cent over 50 per cent of the total payment of interest,
during any portion of the preceding four years, the bankruptcy judge commissions or other charges, namely, 12.5 per cent of the total
may void any transactions or transfers of property occurring within payment to the foreign creditor. The 12.5 per cent rate must be with-
those four years. held by the local borrowing entity, regardless of the type of financing
Governmental institutions are excluded from bankruptcy regu- arrangement in place with the foreign creditor. Hence, the foreign
lation and proceedings. creditor is not liable for any further income or any other tax pay-
As a general rule, individuals and companies are subject to the ment or tax return with respect to said interest payments.
bankruptcy provisions contained in the Commercial Code. However,

Financing arrangements with Panama-based creditors are not • Singapore: 4 per cent when the shareholder owns a minimum of
subject to withholding. Payments to local creditors are considered 10 per cent of the capital of the company paying dividends or 5
and must be treated as local source income by local creditors, and per cent of the regular applicable dividend withholding tax rate
are subject to the full income tax rate of 25 per cent. Local credi- in the remaining ownership scenarios;
tors must report all interest and commission income for the calendar • South Korea: 5 per cent when the shareholder owns a minimum
year, with their income tax return that is due before 31 March of the of 25 per cent of the capital of the company paying dividends or
following year. 15 per cent of the regular applicable dividend withholding tax
Remittances on investment returns are taxed with a 10 per rate in the remaining ownership scenarios; and
cent dividend withholding. Said withholding is applicable to any • Portugal: 10 per cent when the shareholder owns a minimum of
shareholders of Panamanian companies that have obtained a busi- 10 per cent of the capital of the company paying dividends or 15
ness licence or operation permit in Panama, and that have issued per cent of the regular applicable dividend withholding tax rate
registered shares. The dividend withholding tax rate for foreign or in the remaining ownership scenarios.
exempt income is 5 per cent. If there are no distributions or if dis-
tributions are less than 40 per cent of net earnings on a fiscal year, Withholding tax on payment of interest over foreign loans is as
retained earnings will be subject to a complementary tax of 10 per follows:
cent over the difference between the amount distributed and the • Mexico: 5 per cent if payment is made to a bank, and 10 per cent
total net earnings. If the applicable dividend tax rate is 5 per cent, in all other cases;
any distribution lower than 20 per cent of net earnings will trigger • Barbados: 5 per cent if payment is made to a bank, and 7.5 per
the 10 per cent complementary tax. cent in all other cases;
Panamanian companies are exempted from paying dividend • Qatar: 6 per cent;
taxes, over any income deriving from a dividend payment, provided • Spain, Ireland, Luxembourg, France, Netherlands, Singapore,
that the company declaring such dividends has already withheld and South Korea: 5 per cent; and
paid the applicable dividend withholding. • Portugal: 10 per cent.
From 2009 and through 2013, Panama has subscribed to and
ratified double tax treaties with Mexico, Barbados, Spain, South
Korea, Qatar, Luxembourg, Portugal, Singapore, the Netherlands,
Italy, France, the Czech Republic, Ireland, United Arab Emirates and
Israel; has negotiated double tax treaties with Bahrain, Belgium and
United Kingdom. The double tax treaties currently in effect are the Project companies are not forced to repatriate foreign earnings and
treaties signed with Mexico, Barbados, Spain, Qatar, Luxembourg, there are no restrictions on the use of foreign earnings.
France, the Netherlands, Singapore, South Korea, Portugal and
Ireland. Dividend tax withholding and withholding tax related to 9 May project companies establish and maintain foreign currency
interest, commissions and other charges over foreign loans in those accounts in other jurisdictions and locally?
double tax treaties are as follows.
Project companies may indeed maintain foreign currency accounts
in other jurisdictions. The law does not impose restrictions on for-
Dividend tax
eign currency bank accounts; rather, it depends on the policies of
Dividend tax is as follows:
each individual bank. Certain local banks allow their clients to
• Mexico and Barbados: 5 per cent when the shareholder owns
maintain local bank accounts in euros.
a minimum of 25 per cent of the capital of the company pay-
ing dividends or 7.5 per cent of the regular applicable dividend
withholding tax rate in the remaining ownership scenarios;
• Spain: 5 per cent when the shareholder owns a minimum of 40 10 What restrictions, fees and taxes exist on foreign investment in or
per cent of the capital of the Panamanian or Spanish company ownership of a project and related companies? Do the restrictions
(the company); and 10 per cent in the remaining ownership sce- also apply to foreign investors or creditors in the event of
narios. However, a special rule in said treaty establishes that a foreclosure on the project and related companies? Are there
zero per cent dividend tax will apply when the shareholder is a any bilateral investment treaties with key nation states or other
corporation that owns 80 per cent of the capital of the company international treaties that may afford relief from such restrictions?
and the shares of said corporation are offered in a public stock Would such activities require registration with any government
exchange; 50 per cent of the corporation’s shareholders are resi- authority?
dents of Spain and Panama; less than 25 per cent of the corpora-
There are no special restrictions, fees, or taxes on foreign investment
tion’s shareholders are residents of a country other than Panama
in, or ownership of, a project company or its related companies.
or Spain; or more than 25 per cent of the corporation’s share-
The Panamanian Constitution provides for the equal treatment of
holders are residents of countries, other than Panama or Spain,
foreign and local investors. However, the Constitution also creates
and said counties have subscribed double tax treaties with the
two exceptions. Pursuant to these exceptions foreign investors may
company’s country of incorporation;
not own property located within 10km of the country’s borders; in
• Ireland: 5 per cent;
islands considered strategic areas that are reserved for governmen-
• Qatar: 6 per cent;
tal programmes; or in islands that are not declared areas of spe-
• Luxembourg and France: 5 per cent when the shareholder owns
cial development and regulated by special laws; or participate in
a minimum of 10 per cent of the capital of the company paying
retail business activities. There are no bilateral investment treaties
dividends or 15 per cent of the regular applicable dividend with-
in force exempting the application of those restrictions on a particu-
holding tax rate in the remaining ownership scenarios;
lar nationality. Hence, no special registration requirements apply to
• Netherlands: Up to 15 per cent. However, no dividend tax will
foreign investors.
apply when the shareholder is a corporation that owns at least
15 per cent of the capital of the company and the shares of said
corporation are offered in a public stock exchange;
11 What restrictions, fees and taxes exist on insurance policies expropriated property to pursue payment of their credits. Panama’s
over project assets provided or guaranteed by foreign insurance Civil Procedure Code also provides for swift expropriation in the
companies? May such policies be payable to foreign secured case of war and serious public or social unrest, as well as for the
creditors? development of projects of urgent public and social interest. In such
Under Panamanian law all local risks must be insured by insur- cases, court proceedings to appraise the assets and fix proper com-
ance companies licensed by the Insurance and Reinsurance pensation must be completed in a shorter period. There are no forms
Superintendency of Panama. However, insurance companies licensed of investment protected from expropriation. However, Panamanian
elsewhere may issue policies to cover local or Panamanian risks, pro- law does require the government to provide fair compensation.
vided that licensed Panamanian insurance companies do not provide
coverage for such risks, and that such policy or coverage is previ- Fiscal treatment of foreign investment
ously authorised by the Insurance and Reinsurance Superintendency
of Panama. Cut-through clauses are not effective under Panamanian 15 What tax incentives or other incentives are provided preferentially
law. Panamanian law does not have limitations for local insurance to foreign investors or creditors? What taxes apply to foreign
policies to be payable to a foreign secured creditor. investments, loans, mortgages or other security documents,
Under Panamanian law, taxes apply equally to foreign or local inves-
tors. As outlined in question 7, Panama’s tax system is based on a ter-
ritoriality principle. Consequently, income tax in Panama is assessed
Foreign workers must obtain an immigration visa from the National over any income produced in Panama by any person or corporation,
Immigration Department and a work permit that is issued by the regardless of their citizenship, residence or domicile; in connection
Ministry of Labour. Labour law allows the foreign workforce and with any activity or operation executed within Panamanian terri-
payroll of a local or foreign company doing business in Panama to tory, irrespective of foreign contacts.
consist of up to 10 per cent of the local or Panamanian workforce Instead of assigning incentives on a foreign or local investment
and payroll. In the case of trusted and skilled workers or technicians, dichotomy, the benefit or incentive criteria are developed taking into
the foreign worker allowance is increased to 15 per cent of the local account investment areas, and in some cases the amount of invest-
or Panamanian workforce and payroll. ment as well. Among the areas where Panama has in place special
However, Panama has enacted legislation that affords unlim- investment or tax benefits are tourism, agriculture, agroforestry,
ited temporary visas and work permits to the foreign workforce mining, hydrocarbon storage and distribution free zones, telecom-
and payroll of companies licensed or established pursuant to special munications, residential and commercial construction projects, port
legislation designed to promote foreign investment in Panama. The and railway development, and energy generation, whereby investors
Multinational Corporate Seat Law (MCS Law) allows companies are guaranteed tax and legal stability from the time they register
that are licensed under the statute to obtain immigrant visas and with the Ministry of Commerce for up to 10 years. In addition, there
work permits free of thresholds or quotas. The MCS Law also cre- are special tax treatments for energy generation, reforestation, con-
ates a simplified process to obtain such visas and permits. Likewise, struction, tourist development and others.
the Panama-Pacific Special Economic Area Law creates a simplified Considering the general principles mentioned above, there are
process for obtaining visas and work permits. Project companies no special taxes applicable to foreign investors. However, the follow-
located in special economic and trading areas, such as the Colón ing are the taxes applicable to loan or security agreements.
Free Trade Zone or Export Processing Zones can also hire foreign
workers under special immigration and labour regulations. Withholding tax
Interest, commission, and other charges over foreign loans or any
other type of financing arrangement are subject to withholding at
the corporate income tax rate of 25 per cent of 50 per cent of the
There are no restrictions to import project equipment. However, total payment of interest, commissions or other charges, namely,
Panama’s tax legislation imposes import duties and a kind of value- 12.5 per cent of the total payment to the foreign creditor. Financing
added tax, domestically known as ITBMS, on equipment imports. arrangements with locally based creditors are not subject to any
Tariffs for imports into Panama are fixed by cabinet decrees issued withholding. Payments to local creditors are considered and must be
by the executive branch. Panama is a member of the World Trade treated as local source income by local creditors, and are subject to
Organization, so tariffs must comply with WTO standards. In the the full income tax rate. Please see question 7 for further details on
case of equipment imports, ITBMS is assessed at the rate of 7 per the tax treatment of interest, commission loan payments, and remit-
cent of the CIF value of the equipment, plus customs duties and tances on investment returns.
charges at the applicable rates for the particular equipment imports.
If the CIF value cannot be determined, the tax code provides for an Stamp tax
import assessment of FOB value plus 15 per cent. Stamp tax is paid at the rate of US$0.10 for each US$100 of the face
value of the corresponding obligations, and may be levied if a loan
14 What laws exist regarding the nationalisation or expropriation or security agreement has been submitted to any court or adminis-
of project companies and assets? Are any forms of investment trative authority in Panama.
According to the Panamanian Constitution the government can
expropriate private property for public or social interest purposes, 16 What are the relevant government agencies or departments with
in exchange for proper compensation. authority over projects in the typical project sectors? What is the
The Code of Civil Procedure requires the executive branch of nature and extent of their authority? What is the history of state
government to commence a civil court proceeding immediately after ownership in these sectors?
issuing the resolution to expropriate private property. Said proceed-
ing is designed to fix proper compensation through a valuation of Project sectors are primarily regulated and supervised by central
the expropriated property by three experts appointed by each party government authorities. Municipal authorities have specific regula-
and the court, and to enable creditors holding security interests in the tory and supervisory roles as well, usually connected to property use.
Projects in the areas of energy, oil, gas, minerals, natural resources

in general, ports, telecommunications and transport require special Regulation of natural resources
licences, concessions or permits to operate. Further, extant envi-
ronmental legislation requires the environmental authority, or the 17 Who has title to natural resources? What rights may private
Executive Branch in certain cases, to review and authorise virtually parties acquire to these resources and what obligations does the
all types of new project activity or development. holder have? May foreign parties acquire such rights?
The main authorities involved in typical project sectors are: According to Panama’s Constitution, all natural resources are the
• National Authority of Public Services: responsible for regulating property of the government. Territorial seawaters, rivers, beaches,
and supervising: public lands, underground resources, underground waters, oilfields,
• generation, transmission and distribution of energy; and quarries, are owned by the government. The Constitution
• transmission and distribution of natural gas; grants ownership over the land and natural resources located in
• telecommunications; Indian reservations that are created by law, to the respective Indian
• radio and television; and communities.
• water works, distribution, and services; Nevertheless, the government may grant licences and concessions
• National Environmental Authority (ANAM): responsible for to local or foreign private parties to use or exploit natural resources.
approving all types of environmental impact studies; authorising Special regulations apply to concessions over underground min-
the use of river waters; supervising compliance of environmental eral resources, forests, water and soil. Generally, before the licence
regulations; and regulating and supervising the use of all natural or concession may be awarded, Panamanian law will require the
resources; preparation of an environmental impact study. This study must be
• Maritime Authority of Panama (AMP): responsible for manag- completed and approved by the National Environmental Authority
ing and regulating the use of marine resources and coastal areas (ANAM).
along with ANAM. AMP also authorises, supervises and regu- Permits and concessions to use and exploit certain natural
lates port operations, development and related activities; resources are granted in connection with a specific location and are
• Transit and Transportation Authority (ATT): responsible for generally for a provisional term. Water concessions, however, may
planning, directing, supervising the operation and control of be permanent. The concessionaire is generally authorised to exploit
land transport. ATT has the authority to issue concessions and and use the natural resource within the terms of the concession, pro-
permits to operate public transport; vided it complies with the applicable environmental regulations and
• Civil Aeronautic Authority: responsible for the overall supervi- pays the applicable concession fee.
sion of airports and air transport; Concessions for the use of natural resources located in Indian
• Secretary of Energy: overall authority over hydrocarbons; and reservations must have, in addition to the governmental authorisa-
responsible for granting all permits and licences in connection tions, the approval of the Indian authorities of the area.
to the operation of fuel storage and distribution free trade zones
and all activities related to the storage, commercialisation and
processing of hydrocarbons; and
• Mining Resources Department, Ministry of Commerce and
Industry: responsible for authorising, supervising and control- Concession fees and royalties are fixed based on the volume or
ling the use of mining resources in conjunction with ANAM. amounts of resources that are extracted. Concessions for the exploi-
tation and transport of minerals are subject to a fee calculated per
From 1968 to the second half of the 1990s, state companies had full hectare and a royalty that ranges from 4 to 6 per cent depending
control and ownership of all assets involved in generation, transmis- on the type of mineral. Fees over water concessions are based on
sion and distribution of energy, port development and operations, the amount of water to be used, taking into account the manner in
telecommunication systems and services, and gaming. The state also that the water will be used (ie, industrial use, energy generation, etc).
owned and operated the only railway, crossing the isthmus and con- Concession fees for log or lumber extraction are set taking into
necting Panama City with the northern port city of Colón. From consideration the amount and types of trees involved.
1995 to 1998, Panama enacted legislation to sell state-owned assets, In addition to specific concession fees and charges, concession-
allow private ownership and private control of extant assets, and aires are responsible for income tax and all other taxes applicable
grant concessions in these business sectors; regulate each market sec- pursuant to tax regulations. Fees, royalties and taxes apply equally
tor; and allow further private investment and competition in each of to local or foreign investors.
these sectors. However, asset privatisation was partial in the areas
of electricity generation and distribution, and telecommunications. 19 What restrictions, fees or taxes exist on the export of natural
In these areas the state decided to retain partial and non-control- resources?
ling ownership of companies organised to hold former state-owned
In general, there are no restrictions, fees or taxes on the export of
assets.
natural resources. However, Panama prohibits the exportation of
Collection and distribution of clean water and transmission of
logs, lumber or timber, unless the wood is processed and trans-
energy are fully controlled by the state. The recently created Waste
formed into a semi-finished or finished product. Submerged logs
Management Authority (WMA) is in charge of collecting and man-
must also comply with specific transformation proceedings. In addi-
aging waste nationwide. However, the WMA currently only controls
tion, transport of logs, lumber or timber is subject to authorisation
the collecting and managing of waste in the municipality of Panama
by the National Environmental Authority and to the payment of
City; the WMA’s remit will later extend to waste collection in all
applicable fees.
municipalities. The WMA may grant concessions to private compa-
Certain maritime species, such as shrimp, are also subject to fish-
nies in connection with collection and management of waste.
ing season restrictions and special permits for their exploitation and
Recently, the government has been keen to encourage the devel-
exportation.
opment of new ports, port operations, airport and mass transport
infrastructure, road, highway and public hospital refurbishing and
construction, and power generation projects.
Legal issues of general application 23 Which jurisdiction’s law typically governs project agreements?
20 What government approvals are required for typical project finance Which matters are governed by domestic law?
Under Panamanian law, parties are free to select the law of their
Under Panamanian law, project finance transactions generally do choice in all commercial transactions.
not need governmental approvals, except in the case of a transaction Foreign financial agreements involving Panamanian projects are
involving a governmental concession or regulated activity. Therefore, frequently governed by the laws of New York State or other juris-
no fees or charges related to such approvals apply. dictions commonly used and favoured for international financial
transactions. Whenever assets that are mortgaged, pledged or held
21 Must any of the financing or project documents be registered or as security are located in Panama, Panamanian law should govern.
formalities to be valid or enforceable? 24 Is a submission to a foreign jurisdiction and a waiver of immunity
Financing documents do not need to be registered with any govern- effective and enforceable?
ment authority, except for mortgages on certain assets and certain Submission to a foreign jurisdiction and a waiver of immunity are
filings or governmental authorisations to perfect some types of col- indeed generally effective and enforceable under Panamanian law. A
lateral (see also question 2). Panamanian court would recognise a judgment issued in a foreign
However, in the event that project documents should be sub- jurisdiction, without reconsideration of the merits, provided that:
mitted to any administrative authority or Panamanian court, the • such foreign court grants reciprocity to the enforcement of judg-
project documents must be translated into Spanish by a licensed ments of Panamanian courts;
Panamanian translator, and if the documents have been executed • the party against whom the judgment was rendered, or its agent,
outside Panama, the signatures on the documents should be authen- was personally served in such action;
ticated by a diplomatic or consular officer of the government of • the judgment arises out of a personal action against the
Panama in the jurisdiction of execution or pursuant to the 1961 defendant;
Hague Convention on the legalisation of documents (apostille). • the foreign judgment is properly authenticated by a Panamanian
consul or pursuant to the 1961 Hague Convention Abolishing
22 How are international arbitration contractual provisions and the Requirement of Legalisation for Foreign Public Documents;
awards recognised by local courts? Is the jurisdiction a member • the obligation in respect of which the judgment was rendered is
of the ICSID Convention or other prominent dispute resolution lawful in Panama and does not contradict the public policy of
conventions? Are any types of disputes not arbitrable? Are any Panama; and
types of disputes subject to automatic domestic arbitration? • a copy of the final judgment is translated into Spanish by a
licensed translator.
Panamanian courts recognise contractual provisions binding par-
ties to international arbitration and enforce international arbitra-
tion awards. However, international arbitration awards must meet
certain requirements to be enforceable in Panama. An international 25 What laws or regulations apply to typical project sectors? What
arbitration award will not be enforceable if: regulatory bodies administer those laws?
• the parties did not have legal capacity when the agreement sub-
The following are the main regulations and institutions regulating
ject to international arbitration was made;
typical project sectors:
• the agreement subject to international arbitration is void under
• fuel and hydrocarbons: Cabinet Decree No. 36 of 2003, as
Panamanian law;
amended, sets the national policy for hydrocarbons; and Law
• the losing party, or its agent, were not properly served in con-
No. 8 of 1987, as amended, and Law No. 39 of 2007 regulate
nection with the appointment of the arbitrator or the arbitration
all activities related to hydrocarbons. The National Secretary of
proceedings, or were unable, for any reason, to participate in the
Energy is responsible for overseeing compliance and the enforce-
arbitration proceedings;
ment of these laws;
• the award includes the resolution of an issue or dispute not cov-
• minerals: Mineral Resources Code, as amended. The National
ered by the agreement submitted to international arbitration. A
Department of Mineral Resources of the Ministry of Commerce
Panamanian court will only enforce award resolutions related to
and Industry is responsible for its enforcement and overseeing
matters covered by the agreement made by the parties;
compliance;
• rules for the appointment of arbitrators and arbitration proce-
• water: Law Decree No. 35 of 1966, as amended. The National
dures agreed by the parties were not followed;
Environmental Authority and the National Authority of Public
• the award has been suspended or annulled by the corresponding
Services are responsible for its enforcement and overseeing
state authority in the jurisdiction issuing the award;
compliance;
• the recognition of the award is against Panamanian public pol-
• power generation: Law No. 26 of 1996, Law No. 6 of 1997
icy; or
and Law No. 43 of 2011, as amended, created the regulatory
• the dispute submitted to arbitration deals with matters that can-
and institutional framework for the electricity market and for
not be resolved through arbitration pursuant to Panamanian
the generation, transmission and distribution of electricity. The
law, such as consumer, criminal, or domestic law disputes.
National Authority of Public Services and the National Secretary
of Energy are responsible for ensuring compliance and enforce-
Panama is a member of the ICSID Convention and the New York
ment; and directing the national electricity policy, respectively;
Convention of 1958.
• ports: Law No. 56 of 2008, the General Law of Ports, as
There are no disputes under Panamanian law that would be sub-
amended. Oversight and compliance are the responsibility of the
ject to automatic domestic arbitration.
Maritime Authority of Panama. Port concessions are also gov-
erned by their respective enabling laws and agreements;

• telecommunications: Law No. 26 of 1996 and Law No. 31 of

1996, as amended, are the main statutes regulating telecom- Update and trends
munications. The National Authority of Public Services has the
authority to regulate and oversee compliance within the entire In 2013 Panama reached a gross national product (GDP) growth
of 8.4 per cent. In 2014, the economy has continued on a positive
sector; and note.
• environmental: Law No. 41 of 1998, as amended, created Panama’s economy has been positively affected by major
ANAM and sets environmental policies, principles and guide- infrastructure development and projects focused on the following
lines for the entire country. ANAM is responsible for ensur- priority areas: logistics, including port development, tourism,
ing compliance and enforcement of environmental rules and construction for educational purposes, public health and air
transport facilities; road expansion and construction; agriculture;
requirements for all project sectors. and financial services. The most important infrastructure project
by far is the expansion of the Panama Canal, a US$5.5 billion
Project companies infrastructure development that started in 2009 and is scheduled
for completion in 2016.
26 What are the principal business structures of project companies? A new government was installed on 1 July 2014 and they have
announced that they will continue with certain key government
projects such as:
companies? • construction of lines 2 and 3 of the metro system;
The principal business structures that project companies use are • construction of a new sewage and water treatment system; and
• expansion of the main international airport.
corporations (sociedades anónimas). However, other corporate
structures such as limited liability companies are also popular, par-
ticularly with foreign investors residing in countries that provide
preferential tax treatment to such corporate structures. arrangement prevailed with respect to the three hydroelectric gen-
The principal sources of financing for project companies are eration companies. In the case of the three distribution companies,
commercial loans or syndicated loans from local or international as well as the thermoelectric generation company, the central gov-
banks. Multilateral financial institutions are also a common source ernment awarded a 51 per cent equity ownership in each company
of financing. Although less frequently, the local and international to the respective private investors. A notable exception was the PPP
capital markets are also used. in the ports of Balboa and Cristobal, where the central government
retained a 10 per cent equity ownership. All of these PPPs continue
Public-private partnership legislation in effect and remain operational.
27 Has PPP enabling legislation been enacted and, if so, at what Concession-based PPPs
level of government and is the legislation industry-specific? In 1988, Panamanian legislation adopted a concession framework
The Constitution allows the government to promote the creation of that enables the government to grant private companies the right
PPPs to solve social, security and public interest needs. In the case to develop projects for public use such as highway and toll road
of public utility PPPs, the Constitution also requires that the major- infrastructure and any other type of project chosen by the Executive
ity of the capital be Panamanian, except where legislation expressly Branch. In addition, the government may grant concessions to pri-
provides otherwise. vate investors to use and develop government-owned land, islands
Panama does not currently have a comprehensive PPP legisla- and coasts in tourism projects, for up to 100 years.
tion. In August 2011, the government submitted a PPP bill to the leg- Recently, the Executive Branch filed for consideration and
islature for consideration and approval. However, the bill proposed approval of the National Assembly a regulation that seeks to create
by the government confronted significant opposition from various a new PPP system to implement and operate, on a long-term basis,
sectors, and was subsequently withdrawn. public infrastructure or public services in general. Said regulation
The absence of comprehensive PPP legislation has not hindered has not yet been approved.
the development of PPPs. For more than a decade, the central gov-
ernment has developed PPPs by taking advantage of legislation gov- PPP – limitations
erning direct equity investments or concession arrangements.
Equity-based PPPs transactions?
In 1995 and 1996, as a consequence of an effort to develop competi- PPPs are connected to concessions that limit the scope of the opera-
tion and private sector investment in the telecommunications section to a specific term, geographic area or purpose. The concession
tor, Panama enacted legislation to create a telecommunications PPP framework currently in effect and discussed in the preceding section
between the central government and a private investor. is available only for highway infrastructure, port and tourism devel-
In 1997 Panama adopted additional legislation to privatise opment projects.
and develop competition in the electricity sector. Another PPP was
formed between the central government and private investors that PPP – transactions
were selected to invest in four generation (three hydroelectric and
one thermoelectric) and three distribution companies. 29 What have been the most significant PPP transactions completed
The aforementioned 1997 legislation also privatised the ports to date in your jurisdiction?
of Balboa and Cristobal, located in the cities of Panama and Colón, The most relevant PPPs involving equity ownership are:
respectively. The central government selected its private investment • the main telecommunications company, Cable & Wireless of
partner. Panama, with a concession and infrastructure to operate basic,
Private investment partners in each sector were all selected international and mobile telephony and services;
through separate competitive biddings. The state separated and con- • the four main generation hydroelectric facilities: Fortuna,
tributed the respective sector assets to each of the new companies. In Bayano, Los Valles and Esti;
the case of the telecommunications PPP, the state and private inves- • the Bahia Las Minas thermoelectric generation project;
tors each retained a 49 per cent equity ownership, with the private • Edemet, Edechi and Elektra, the three companies providing elec-
investor retaining operational control of the company. The employ- tricity distribution services in Panama;
ees retained 2 per cent of the equity ownership. The same equity
• the Balboa and Cristobal port operations under a PPP called • the concession of the Panama Canal Railway Company to build,
Panama Ports Company; and operate, manage and refurbish the railway connecting the capi-
• Petroterminal de Panamá SA, a crude oil handling and storage tal and port city of Panama in the south, and the port city of
facility, with a 131km pipeline running from the Pacific Ocean Colón in the north;
to the Atlantic Ocean. • the construction of two toll highways, called the North Corridor
and South Corridor, that serve as beltways to the city of Panama.
The most relevant PPPs under a government concession arrange- The Panamanian government recently purchased the South
ment are: Corridor and is in the process of purchasing the North Corridor
• the concession to Manzanillo International Terminal to operate from the companies that built and operated them; and
a port facility in Coco Solo, Colón; • the Panama–Colón toll highway, inaugurated in May 2009.
• the concession to Colón Container Terminal (Evergreen) to
operate a port facility in Coco Solo, Colón;
Erika Villarreal Zorita evillarreal@anzolaw.net
Credicorp Bank Plaza, 26th floor Tel: +507 263 0003

Nicanor de Obarrio Avenue, 50th Street Fax: +507 263 0006
Panama City www.anzolaw.net
Panama

Arbe Abogados Corporativos Financieros PERU
Peru
César Arbe and Jessica Valdivia
Arbe Abogados Corporativos Financieros
Creating collateral security packages 3 How can a creditor assure itself as to the absence of liens with
For the case of assets registered at the Public Registry (ie, real estate),
Within the Peruvian jurisdiction collateral is divided into collater- the creditor shall verify the corresponding electronic entry to con-
als relating to real estate (ie, mortgages, real estate trusts, leasehold firm the existence of prior liens (either registered or in the process of
estates, etc) and collaterals relating to moveable property (ie, pledge being registered).
on vehicles, inventory, balance of bank accounts, bill of ladings,
shares or capital interests of companies and associations, insurance
policies, future moveable assets, etc). 4 Outside the context of a bankruptcy proceeding, what steps
If the security interest is a mortgage, the lender shall require a judi-
cial process to enforce its rights and to foreclose the mortgage. If
the security interest is collateral relating to a moveable asset (or real
estate trust), the parties may agree on the process of foreclosure,
provided that (i) the sale of the asset is not lower than two-thirds of
the agreed value of the asset or the asset’s market value upon its sale;
Collateral such as real estate, vehicles, concessions, contractual and (ii) if the asset is subject to prior liens, the appointed representa-
rights and receivables is perfected with their registration at the tive for the sale shall deposit the total price paid for the asset at an
Public Registry. While in the case of moveable property registration account appointed by the commercial judge.
is not necessary for the collateral to be effective, registration is advis- If the parties have not agreed on specific steps for the foreclosure
able to grant the creditor a priority before third parties. The pledge of the collateral, then, in addition to above-mentioned (i) and (ii), the
of shares not traded in the stock market has to be registered in the following steps will be followed:
shares ledger of the issuing company, it has to be communicated • in the collateral contract, a third party shall be appointed
to the issuing company and it also has to be recorded in the corre- as attorney-at-law for the sale of the asset. The lender is not
sponding shares certificate to be perfected. For the case of the pledge allowed to be appointed as attorney-at-law;
of shares traded in the stock market, it is considered perfected upon • after the breach of the contract, the secured party shall send a
its registration in the corresponding clearing house. notarial letter to the debtor and the attorney-at-law. After three
According to law, a public deed issued by a notary is required for business days upon receipt of the letter, the secured party will be
registration of real estate. In other less formal cases, a private agree- allowed to sell the asset;
ment with legalised signatures before a notary will be sufficient for • the sale cannot be suspended unless the debtor pays the whole
registration. Notwithstanding, it is advisable to subscribe a public pending obligation; and
deed in any deal involving a collateral to have a certain date of the • if after 60 days as from the receipt of the notarial letter the asset
transaction and to preserve the formality. is not sold, then the secured party may request the judicial fore-
The registration process at the Public Registry requires the pay- closure of the asset (the parties may agree a different term).
ment of notary fees and registration fees. In all cases, the aggregate
amount of both charges will depend on the value and amount of the Peruvian law does not forbid the lenders to participate as buyers in
collateral. There are no further applicable taxes or stamps to perfect the sale or judicial sale of the collateral.
a security interest. The sale may be conducted in foreign currency (usually US
The priority of the collateral is determined by its registration. dollars).
The creditor who first registers his or her security interest has the
first priority before creditors that process the registration after him
or her.
It is possible to have an agent or trustee holding collateral on
behalf of the project lenders as a secured party, provided that pow-
ers of attorney are granted. The bankruptcy of the agent or trustee
will not affect the collateral since the collateral is granted in favour
of the project lenders.
Finally, the parallel debt clause concept is not applicable in
Peruvian law.
PERU Arbe Abogados Corporativos Financieros
5 How does a bankruptcy proceeding in respect of the project applied to payment of the debt. However, in the context of a bank-
company affect the ability of a project lender to enforce its rights ruptcy proceeding, secured creditors are prohibited from foreclosing
as a secured party over the collateral? Are there any preference collateral once the case has commenced (automatic stay). This rule
periods, clawback rights or other preferential creditors’ rights applies to either a domestic or a foreign creditor.
What entities are excluded from bankruptcy proceedings and Foreign exchange issues
court proceedings are available to seize the assets of the project 6 What are the restrictions, controls, fees, taxes or other charges
company in an enforcement? on foreign currency exchange?
According to Peru’s General Bankruptcy Law, once the bankruptcy There are no restrictions, controls, fees, taxes or other charges on
authority declares the debtor’s bankruptcy it has to publish this foreign currency exchange.
information in the official gazette, requesting creditors that have
credits predating the publication (pre-publication claims) to file their
proofs of claim in order to be allowed to participate in the pro-
cess. Once publication has taken place (bar date), an automatic stay
is imposed. The automatic stay suspends enforcement of any pre-
publication claim, including secured pre-publication claims, against There are no restrictions or controls on remittances of investment
the debtor’s estate until a plan of reorganisation or plan of liqui- returns. The fees charged will depend on the corresponding bank’s
dation is approved. The General Bankruptcy Law prevents secured fees. Payment of dividends (4.1 per cent) and payment of interests on
creditors from filing petitions of bankruptcy against the debtor, bonds and loans are subject to regular withholding tax (special rates
unless they have previously enforced their rights through a foreclo- will apply in the case of interest depending on the particularities of
sure process and the enforcement has been unsuccessful. The only the loan). In addition, all amounts credited through the Peruvian
lenders that are protected from the effects of the bankruptcy proce- financial system are subject to the financial transaction tax (0.005
dure are those who have security interests of collateral that are held per cent).
by a trustee.
Under the General Bankruptcy Law, once the bankruptcy 8 Must project companies repatriate foreign earnings? If so, must
authority declares the debtor’s bankruptcy, all actions by manage- they be converted to local currency and what further restrictions
ment during the prior year (preference period), and from that date exist over their use?
on and until the date the creditors ratify or replace management
Project companies are not obligated to repatriate foreign earnings.
(avoidance period), are put under scrutiny. Such actions may be
declared void as a result of certain tests. If a court declares an act or
contract void, such court will order the return of the disposed asset 9 May project companies establish and maintain foreign currency
to the insolvent debtor or the termination of the lien, as the case may accounts in other jurisdictions and locally?
be. These general rules apply either to reorganisation or liquidation According to Peruvian law, it is possible for the project company to
proceedings. establish or maintain foreign currency accounts locally or in another
Secured creditors do not have a superior priority status within jurisdiction. However, there might be a restriction in the country
the bankruptcy procedure and they are considered third priority where the company opens the account. Information regarding the
claims. The General Bankruptcy Law provides an insolvency prior- shareholders is usually required.
ity scheme, recently amended, in the case of liquidation and in the
case of payment with proceeds resulting of a transfer of assets within Foreign investment issues
reorganisation:
• first priority: employee claims and social security claims with 10 What restrictions, fees and taxes exist on foreign investment in or
interim measures; ownership of a project and related companies? Do the restrictions
• second priority: alimony claims; also apply to foreign investors or creditors in the event of
• third priority: secured claims (up to the amount of the collateral); foreclosure on the project and related companies? Are there
• fourth priority: tax claims, social security claims; and any bilateral investment treaties with key nation states or other
• fifth priority: general unsecured claims. international treaties that may afford relief from such restrictions?
In the case of liquidation, if cash and proceeds obtained from unen- authority?
cumbered assets are not sufficient to pay employee claims, the liq- Foreign investments are allowed without restrictions in most eco-
uidation entity is allowed to sell encumbered assets in order to pay nomic activities. There are no restrictions for foreign investors to
those claims, despite secured creditors’ collateral. In the case of reor- acquire securities issued by local companies. However, the Peruvian
ganisation, the debtor has to provide special treatment to employee Constitution does not allow foreign investors to acquire, either
claims under a reorganisation plan. directly or indirectly, mines, lands, woods, water, fuels or energy
In Peru, the entities excluded from bankruptcy procedures as resources, within 50 kilometres from the country’s borders, with the
debtors are: governmental entities, public companies, financial insti- exception of cases of public necessity expressly declared by Supreme
tutions (such as banks, microfinance companies, trustee companies, Decree approved by the Cabinet of Ministers.
etc), insurance companies, private pension funds and trusts other Registration of foreign investments at the Private Investment
than community property and inheritance estates. Promotion Agency (Proinversion) is not mandatory but suggested.
The claims of foreign creditors are given the same treatment as Depending on the amount involved, such investment may give inves-
those filed by local creditors. There are no different requirements or tors the right to apply for legal stability agreements subscribed with
extra fees or taxes based on the domicile of the creditor. the Peruvian government. Such agreements give investors the right
With respect to processes other than court proceedings, from the to stabilise income tax and labour regimes, as well as other rights.
perspective of the secured creditor, foreclosure of the collateral may,
generally, take place only by selling such collateral to third parties
and obtaining payment from the proceeds of the sale (and return-
ing any excess to the debtor). Only cash collateral may be directly

11 What restrictions, fees and taxes exist on insurance policies had contractually assumed the obligation of bearing the withhold-
over project assets provided or guaranteed by foreign insurance ing tax.
companies? May such policies be payable to foreign secured The sale of moveable goods made within Peru; the services ren-
creditors? dered within Peru; the services rendered abroad but economically
There are no restrictions, fees or taxes on insurance policies over used within Peru by a domiciled user; the importation of goods;
project assets provided or guaranteed by foreign insurance compa- constructions agreements; and the first sale of real estate made by
nies. All investors are allowed to acquire insurance policies in Peru construction firms are all subject to value added tax (VAT) at an 18
or abroad. per cent rate. However, VAT does not apply on fees, interests and
other income from development credits granted directly or through
financial intermediaries, by international organisations or foreign
12 What restrictions exist on bringing in foreign workers, technicians government institutions.
or executives to work on a project? Regarding tax incentives, foreign (and local) investors may
According to Peruvian law, a company may not hire foreign employ- subscribe stability agreements under a general regimen or a specific
ees exceeding 20 per cent of the total number of employees of such regime (eg, mining and oil).
company. In addition, the remuneration of all of the foreign employ- Under the general regimen, the Peruvian government guarantees
ees shall not exceed 30 per cent of the total payroll of the company. the following for a period of 10 years:
Nonetheless, if the foreign employee is an executive hired for a new • stability of the income tax regime in force at the time of the sub-
business or if he or she is a specialist professional or technician, scription of the agreement (with respect to dividends and profit
the company may request the exemption of the above-mentioned distribution);
restrictions. Contracts with foreign employees shall be approved by • stability of Peruvian government monetary policies, accord-
Ministry of Labour and Employment and processed by the Peruvian ing to which there is a complete absence of exchange controls,
Immigration Authority. foreign currency can be freely acquired or sold at the exchange
rate the market offers and funds can be remitted abroad without
requiring previous authorisation; and
• the right of non-discrimination between foreign and local
There are no general restrictions on importation and exportation investors.
of goods; however, there is a limited list of things that cannot be
imported or exported for security and public health reasons, such Under the mining regime, local mining companies may enter into
as certain chemicals, seeds, animals and used goods, among others. stability agreements of guarantees and investment promotion meas-
In other cases, the importation of certain substances will require the ures for 10 or 15 years, which guarantee stability of the overall tax
authorisation of the competent entity. regime, stability of the overall administrative regime, free disposi-
tion of funds (foreign currency) arising from export operations, no
14 What laws exist regarding the nationalisation or expropriation exchange rate discrimination, free trade of products and stability
of project companies and assets? Are any forms of investment of special regimes for tax refunds, temporary importation, etc. Oil
specially protected? companies may enter into stability agreements for the term of that
contract, which guarantee stability of the overall tax regime, free
The Peruvian Constitution protects private investments and guar-
dispositions of funds (foreign currency) arising from export opera-
antees the inviolability of the property rights. Expropriation is only
tions, free convertibility of its funds and free trade of products.
possible based on a law passed and approved by Congress and rati-
There are no taxes applicable for the effectiveness of foreign
fied by the President, based only on reasons of public necessity or
investments, loans, mortgages or other security documents. For the
public security. In such case an advance payment in favour of the
purposes of registration, charges and fees of the Public Registry may
property owner will be recognised in cash as fair compensation for
apply depending on the value of the assets or transaction subject to
any damage.
registration.
This constitutional rule protects all form of investment.
Moreover, expropriation processes are often used by the Peruvian
government to make viable infrastructure projects that usually
involve foreign investment. 16 What are the relevant government agencies or departments with
Fiscal treatment of foreign investment nature and extent of their authority? What is the history of state
to foreign investors or creditors? What taxes apply to foreign Projects granted by the national government are directed and con-
investments, loans, mortgages or other security documents, ducted by Proinversion. In the case of regional and local authorities,
either for the purposes of effectiveness or registration? projects are granted through their respective agencies of invest-
ment promotion in sectors such as mining, energy, transport and
Income paid to non-domiciled companies and individuals is subject
telecommunications related to their respective jurisdictions. Local
to withholding tax at the following rates:
authorities are competent to grant licences for the construction and
• 4.1 per cent for payment of dividends or any other kind of profit
operation of plants, offices and other facilities in their jurisdiction, as
distribution;
well as any other ancillary permits.
• 4.99 per cent for interests paid to non-related party loans, pro-
At a central level and in relation to authorisations, concessions,
vided that certain requirements are fulfilled;
permits and licences in oil, gas, mineral extraction, chemical refin-
• 15 per cent for technical assistance services used in Peru;
ing, power generation, transmission and distribution, the fundamen-
• 30 per cent for interests paid to related-party loans;
tal entities are the Ministry of Energy and Mines, the Supervising
• 30 per cent for royalties; and
Agency of Investments in Energy and Mining (OSINERGMIN), the
• 30 per cent for other income.
Organisation of Environmental Evaluation and Oversight (OEFA),
the National Water Authority (ANA), the National Service of
Withholding tax paid to non-domiciled creditors can be deducted by
Protected Natural Areas (SERNANP), the Geological Mining and
domiciled taxpayers, provided that the domiciled taxpayer as debtor
Metallurgical Institute (INGEMMET) and the Ministry of Culture.
The Ministry of Transportation and Communications grants 19 What restrictions, fees or taxes exist on the export of natural
authorisations, concessions, permits and licences in transportation, resources?
road, railway, port and airport infrastructure and telecommunica- There are no taxes on the export of natural resources, although there
tions. This Ministry works in close coordination with the National are certain resources that must obtain an authorisation from the per-
Port Authority (APN) in charge of granting licences, authorisa- tinent authority of the sector (ie, raw oil, bituminous minerals, natu-
tions and permits for the building and operation of ports, as well as ral liquated gas, etc).
supervising such activities; the Supervising Agency of Investments
in Infrastructure of Public Transportation (OSITRAN) that super- Legal issues of general application
vises the activities of private parties when executing their obligations
regarding concessions, permits and licences related to transporta- 20 What government approvals are required for typical project finance
tion (public transportation, railways), and infrastructure (highways, transactions? What fees and other charges apply?
ports, etc); and the Supervising Agency of Private Investments in Project finance transactions involving agreements executed or
Telecommunications (OSIPTEL) in charge of supervising the opera- granted by the Peruvian government (ie, concession agreements,
tions of private parties related to telecommunications activities. public infrastructure agreements, etc) require intervention of the
corresponding governmental entity (ie, Ministry of Energy and
Regulation of natural resources Mines). Certain regulated areas such as energy, mines and hydro-
carbons require licences, authorisations or permits to be developed,
however the execution of the project finance transaction itself does
not require the approval of any public entity (ie, loans, transactions
or remittances by foreign or local companies owned or controlled by
Natural resources (oil, gas, water and minerals) are the property of foreign parties). No fees or charges are applicable.
the Peruvian government, hence the ownership of land (or superfi-
cial land) does not generate ownership of natural resources located
on such land. The exploitation of these resources can be granted to 21 Must any of the financing or project documents be registered or
private investors via concession, authorisation or permits. filed with any government authority or otherwise comply with legal
According to the Peruvian Constitution, foreign investors are formalities to be valid or enforceable?
prohibited to acquire (under any title) property or possession or Collateral documents, such as mortgage agreements, pledge agree-
rights of land, natural resources and energy projects located within ments or any other liens over assets located in Peru shall be reg-
50 kilometres of Peru’s borders, except in the case of public necessity istered in the Public Registry to be binding for third parties. For
approved by the government. registration purposes, it is necessary to elaborate a public deed with
the participation of a notary. The financing documents and related
documents such as the loan agreements, EPC contracts, operation
and maintenance contracts, input supply contracts, insurance and
direct agreements, among others, do not have to be registered before
Mining activities are subject to the mining royalty, special min- any entity or be authorised by any entity to be valid and enforceable.
ing tax and the special mining contribution. Regarding the mining For registration purposes, all documents coming from countries
royalty, the obligation to pay arises at the end of each quarter of that are party to the Hague Convention shall be duly apostilled to
the year, and its basis of calculation is the operating profit of each be officially recognised by Peruvian authorities, otherwise the docu-
quarter (January to March, April to June, July to September and ments shall be legalised before a Peruvian consulate. Where any doc-
October to December). The operating profit of the mining compa- ument has been drafted in a language other than Spanish, an official
nies is obtained by deducting from the income generated from sales translation will be required to be accepted by the Public Registry
of metallic and non-metallic mining resources of each quarter, the
cost of sales and operating expenses incurred to generate the men-
tioned income. Progressive rates of 1 per cent up to 12 per cent are 22 How are international arbitration contractual provisions and
applicable upon the operating profit. The amount payable will be awards recognised by local courts? Is the jurisdiction a member
the higher amount obtained from comparing the amount obtained of the ICSID Convention or other prominent dispute resolution
by applying the effective rate to the operating profit versus 1 per cent conventions? Are any types of disputes not arbitrable? Are any
of the revenue generated by the sales of the corresponding quarter. types of disputes subject to automatic domestic arbitration?
The amount paid as royalty is considered a deductible expense for According to the Peruvian Legislative Decree that regulates arbitra-
income tax purposes. tion, all matters of free disposition according to law, and matters
With respect to the special mining tax, the obligation to pay the authorised by international treaties may be subject to arbitration
tax becomes effective at the end of each quarter of the year, and its provisions.
calculation basis is the operating profit of each quarter (January to International arbitration, contractual provisions and awards are
March, April to June, July to September and October to December). valid and binding and are recognised and enforced by the Republic
The operating profit is obtained after deducting from the income of Peru according to the following instruments:
generated from the sales of mining resources of each quarter, the cost • the New York Convention on the Recognition and Enforcement
of sales and operating expenses incurred to generate said income. of Foreign Arbitral Awards approved on 10 June 1958;
The applicable tax rate on the operating profit is based on progres- • the ICSID Convention approved in Panama on 30 January
sive rates of 2 per cent up to 8.4 per cent. The amount paid for this 1975; and
tax is considered as a deductible expense for income tax purposes. • any other treaty on recognition and enforcement of awards to
Finally, the special mining contribution applies to mining com- which the Republic of Peru is a signatory.
panies with tax stability agreements in force that have stabilised the
obligation of paying the contribution when the agreement was sub- The party that applies for the recognition of an international award
scribed. The contribution is paid as consideration for the exploita- shall file the original or copy of the award and process his or her
tion of non-renewable natural resources. request in a non-contentious procedure without intervention of the
district attorney. Once the application is admitted, the competent
superior court will notify the other party giving it a 20-day term to

express its position. After the 20-day term expires a hearing is sched-
uled within the following 20 days. The competent superior court Update and trends
shall resolve the recognition of the award within the following 20
days after the hearing. If part of the whole award is not recognised In general, in recent years, Peru is experiencing great development
in the real estate sector, both in regard to large public
by the superior court such resolution may be appealed before the infrastructure projects, as well as private projects.
Supreme Court. In addition, something that is worth emphasising is that it is
Once the award is recognised, the competent court orders the increasingly common in Peru that infrastructure projects originate
execution of the award giving to the executed party five days to fulfil from private initiative. In contrast to PPP, which are intended for
its obligation. The executed party may oppose the court’s order only public infrastructure, public services and technological innovation
only, under Peruvian law, private initiatives are made for projects,
if it accredits the fulfilment of the required obligation. The court is assets, business, services, public infrastructure, public services
not allowed to admit judicial instruments that may slow down the and technological innovation.
enforcement of the award. As an example, two projects approved by Proinversion that
have been accepted for processing without using PPP are:
• the comprehensive renovation and Purchase of the Civic and
23 Which jurisdiction’s law typically governs project agreements? Trade Centre of Lima. The project was developed through
Which jurisdiction’s law typically governs financing agreements? an usufruct contract for 30 years, and it comprises the
construction of a shopping centre and the lease of offices;
Which matters are governed by domestic law? and
Peruvian law typically governs project agreements and collateral • the Tinkuy Plaza project, which involves the transference of the
agreements regarding real estate or moveable guarantees. New York property, occupied by the Lima Correctional Centre in favour of
a private company in exchange for equipment and building a
and England and Wales are the jurisdictions whose law typically new prison. In this case, the proposed type of contract is the
governs financing agreements. exchange of state-owned property with other property that is
given by the proponent.

Law, a statute that defines three different kinds of sociedad anónima:
Under Peruvian law, private investors are allowed to submit their ordinary (SA), closely held (sociedad anónima cerrada (SAC)) and
agreements to foreign jurisdiction and it will be upheld as a valid publicly held (sociedad anónima abierta (SAA)). The closely held
choice of law by the courts of Peru unless the courts consider that company has a limit of 20 shareholders and may be incorporated
the application of foreign law is either incompatible with interna- without a board of directors. The publicly held company is consid-
tional public policy or incompatible with good morals. ered for companies with a large number of shareholders and a listing
on the stock exchange.
Environmental, health and safety laws Regular sources of financing for project companies are the
domestic securities market (that include qualified and professional
investors), credit facilities, syndicated loans (domestic and interna-
tional) and financial lease agreements.
Infrastructure and public services are regulated by the Laws of
Concessions for the Private Sector of Public Works, Infrastructure Public-private partnership legislation
and Public Services. Project of national jurisdiction are adminis-
trated by Proinversion; however, projects related to assets property 27 Has PPP enabling legislation been enacted and, if so, at what
of the regions and local governments or public services adminis- level of government and is the legislation industry-specific?
trated under their jurisdiction are directly managed by the regions’ Legislative Decree 1012 and its Regulations (Supreme Decree No.
and local governments’ offices in charge of promoting private 146-2008-EF), whose object was extended by Law 30167, regulate
investments. PPP at all government levels (national, regional and local). PPP leg-
The electricity sector is managed by the Ministry of Energy and islation applies for the implementation and operation of public ser-
Mines and supervised by OSINERGMIN. vices and public infrastructure in all sectors since the statutes have
Telecommunications are subject to the Telecommunications been designed to be applicable in all project activities. PPP legislation
Law. The sector is managed by the Ministry of Transport and also applies for research and technological innovation projects.
Communications and is supervised by OSIPTEL. According to Peruvian law, PPP can be classified as follows:
Minerals are regulated by the Mining General Law. The sector • self-sustaining, which satisfies the following conditions:
is managed by the Ministry of Energy and Mines and supervised by • minimum demand or no financial guarantee by the state;
OSINERGMIN. and
Oil and gas are subject to the Oil and Gas Law, and the • non-financial guarantees that have no or minimal demand
Regulation of Rules of Refinery and Processing of Oil and Gas. The on the likely use of public resources; and
sector is managed by the Ministry of Energy and Mines and super- • co-financed: one that requires co-financing or providing or
vised by OSINERGMIN. retaining financial guarantees or financial guarantees that have a
Water is regulated by the Law of Water Resources, which is significant probability of demanding the use of public resources.
administered by the National Water Authority (ANA).
The Environmental Ministry and OEFA supervise environmen- PPP – limitations
tal matters related to all activities mentioned above.
Project companies transactions?
The government is not allowed to assume more than 7 per cent of
gross domestic product in PPP commitments.
companies?
The principal business structure of project companies is the sociedad
anónima (regular corporation) regulated by the General Companies
PPP – transactions • Line 2 of Lima’s metro. The project will demand an investment
of more than US$5,600 million and it will be the most emblem-
29 What have been the most significant PPP transactions completed atic project of the present government. Its purpose is to connect
to date in your jurisdiction? the east area of Lima with the Callao port;
The most significant PPP transactions completed to date in our juris- • the fourth generation (4G) Long Term Evolution (LTE) network,
diction are as follows: with an estimated investment of US$1,018 million. The network
• the Interoceanica Sur Highway – sections two, three and four. was granted in concession in two blocks for 20 years;
The project consists in the construction of a highway that • the Southern Energy Node, with an estimated investment of
connects Madre de Dios, Cusco, Apurimac, Ayacucho, Puno, US$700 million; the project comprises the construction of
Arequipa, Moquegua and Ica. The aim of the project is to con- two thermal plants of 500MW each and is guaranteed to meet
nect the coast of Brazil with the coast of Peru. It has been esti- domestic energy demand; and
mated that the project will contribute 1.5 per cent to the annual • the National Fibre Optic Dorsal Network, with an estimated
GDP and will generate 6,000 jobs; investment of US$276 million during the 20 years of the con-
• the Regional Airports Project, with an estimated investment of cession. The project includes the Universal South Coverage,
US$220 million during the 25 years of the concession, where Universal North Coverage, and Universal Centre Coverage
US$120 million was part of the first commitment. This project Projects, which at the same time have two components: a
generates US$5 million in savings for the government. The aim transport component and a telecommunication signals access
of the project is to bring quality, security and the best service for component.
the airport users;
• the Jorge Chavez Airport Project, with an estimated investment
of US$1,240 million during the 30 years of the concession. This
is one of the most important projects in Peru;
César Arbe cesar.arbe@arbe.com.pe

Jessica Valdivia jessica.valdivia@arbe.com.pe
Calle Amador Merino Reyna No. 307, 11th Floor Tel: +511 716 1300
San Isidro Fax: +511 716 1301
Lima 27 www.arbe.com.pe
Peru

Emery Mukendi Wafwana & Associates REPUBLIC OF CONGO
Republic of Congo
Emery Mukendi Wafwana, Sancy Lenoble Matschinga, Antoine Luntadila, Nady Mayifuila,
Jonathan van Kempen and Kekeli J Kodjo
Creating collateral security packages all or part of them may be pledged, either separately or together. A
pledge over a motor vehicle can be given and must also be recorded
1 What types of collateral are available? on the motor vehicle’s registration document.
Three types of security interests are available to investors in the Further, raw materials, agricultural or industrial exploitation,
Republic of Congo (Congo): personal security interests, security merchandise inventories can be pledged. The creation of non-pos-
interests over moveable assets and mortgages. Further, specific secu- sessory pledge over inventories can give rise to a surety bond, issued
rity interests governed by particular laws are available. Security by the court’s clerk or by a competent authority. In that case, the
interests can be created, registered, and enforced by a security inter- pledge agreement must include the name of the insurer covering the
ests agent. pledged inventories against robbery, fire, and total or partial deterio-
ration risks and the designation of the institution where the surety
Personal security interests bond is registered.
Personal security interests consist of suretyship and independent
guarantee and counter-guarantee. Pledges over intangible assets
Pledges over intangible assets are commonly used to finance pro-
Security interests over moveable assets jects. Any existing or future intangible asset can be pledged as collat-
Security interests over moveable assets consist of right of retention, eral for any existing or future debt, provided that they be determined
retention or assignment of title, pledges over tangible assets and or determinable. Intangible assets that can be pledged include debts,
pledges over intangible assets. bank accounts, shares and financial instruments, business assets,
and intellectual property rights. These pledges can be contractual
Right of retention or court-ordered.
The right of retention is a creditor’s right to withhold a debtor’s A written document is required to evidence a pledge over debts
property until full payment of its debt. The right of retention can that includes the designation of the secured debts and the pledged
be exercised only if the debt is uncontested, due and payable; the debts. In the case of future debt, the document must enable the indi-
retention of the debtor’s property is related to the debt; and the vidualisation of the debt or contain elements allowing it to be identi-
retained property has not been seized before being withheld by the fied, such as the place of the payment, the amount of the debt, its
creditor. Title to a moveable asset can be retained as collateral for an evaluation and its maturity date. When the pledge is over a future
obligation. This is achieved by way of a title retention clause. This debt, the secured creditor acquires a right over the debt as soon as
clause suspends the conveyance of the title until full payment has the debt arises. The pledge can cover part of the debt, unless the
been made. debt is indivisible. The pledge can also extend to accessories of the
pledged debt, unless the parties agree otherwise.
Retention or assignment of title A debtor’s or third party’s bank account can be pledged in favour
Similarly, ownership of an existing or future asset can be used as of a creditor. The same rules governing pledges over debts apply.
collateral for the payment of an existing or future debt. Debt assign- However, the pledged bank account only consists of the balance
ment can also be used as collateral for loans given by foreign or available on the account the day the security interest is enforced,
domestic financial institutions. The debtor cannot raise against the including pending operations.
assignee the debt’s non-transferability in the event the debt origi- Shares and financial instruments of commercial companies,
nates from a contract and from the debtor’s professional activities. cooperative companies, economic interests groups and all other
The debt assignment has to be in writing that includes all the infor- legal entities’ transferable shares, subject to registration with the
mation required by law. In the case of future debt assignment, the competent commercial registry (RCCM), can be pledged. A pledge
writing must enable the individualisation of the debt or contain ele- over shares must be evidenced by a written document that includes
ments allowing it to be identified, such as the place of the payment, information required by law.
the amount of the debt, its evaluation and its maturity date. Financial instruments initially deposited on the pledged account,
as well as any subsequent or additional deposits, can be pledged.
Pledges over tangible assets Such pledge is created by a declaration of pledge dated and signed
A pledge is created by contract by which the debtor gives a creditor by the holder of the account in which the financial instruments are
the right to be paid preferentially on an existing or future tangible deposited. This declaration must contain all information required
asset. The pledge agreement must be in writing and include informa- by law.
tion required by law. Intellectual property rights, including industrial, artistic, and lit-
A pledge can be given as collateral for existing or future debts, erary property rights, as well as invention, utility models, brands,
provided that they be determined or determinable. Professional industrial sketches and designs, commercial names and vegetal find-
equipment can also be pledged. If the equipment is part of a business, ings can be subject to a contractual or court-ordered pledge over
REPUBLIC OF CONGO Emery Mukendi Wafwana & Associates
intellectual property. An intellectual property right pledge is a con- maturity date. The registration of pledges is done at the request of
tract by which the pledger gives, as collateral, all or part of its exist- the creditor, the pledger or the security interests agent.
ing or future intellectual property rights. This agreement evidencing Contrary to pledges, mortgages must be registered otherwise
the pledge must include information required by law. they are deemed void. The registration application must be filed
Business assets consisting of goodwill, lessee’s leasehold rights, with the custodian of real estate titles of the district in which the
inventories, equipment, furniture, logos and commercial names, property is located. Conventional mortgages must be established in
patents, trademarks, drawings, designs and any other intellectual an authentic form.
property rights necessary for the exploitation of the business can Priority ranking of security interests is set by articles 225 and 226
be pledged. of the OHADA Uniform Act on security interests. When there is only
one creditor, the proceeds from the sale of the collateral (principal,
Mortgages interests and fees) are paid to that creditor. The balance is returned
A mortgage is the transfer of an identified or identifiable real prop- to the debtor. In the event there are several creditors, they can agree
erty owned by the pledger to secure existing or future debts provided on a price allocation and send their agreement to the clerk’s office or
that they are determined or determinable. It can be statutory, con- to the judicial officer who holds the funds necessary to perform the
tractual or court-ordered. A contractual mortgage is one of the most repartition. If creditors cannot agree, one of the creditors shall file
commonly used security interests in project finance. a petition with the president of the competent jurisdiction to decide
In principle, only registered real property and immovable rights on the distribution.
may be mortgaged unless there is a particular national law that For pledges, the proceeds from the sale will be distributed in
allows a mortgage to be provisionally registered pending registra- the following priority ranking: reimbursement of legal costs pertain-
tion of the real property and immovable rights, in which case a final ing to the enforcement of the pledges; reimbursement incurred in
registration of the mortgage must be made following the final regis- safeguarding the pledged assets; creditors of privileged salaries; ben-
tration of the rights to which it relates. eficiaries of a pledge, in chronological order of registration with the
RCCM; creditors who are beneficiaries of special preferential rights;
Specific security interests creditors who are beneficiaries of a general preferential right; and
There are specific security interests organised by particular laws. finally, unsecured creditors.
Vessels can be subject to a conventional mortgage. Further, air- For mortgages, the proceeds from the sale will be distributed
craft can be mortgaged, partially or totally, by a convention con- in the following priority ranking: reimbursement of legal costs per-
cluded by the parties. The mortgage contract can attach one or more taining to the enforcement of the mortgage; creditors of preferen-
aircraft belonging to the same owner, provided that the contract spe- tial salaries; mortgage-holders, in chronological order of the dates
cifically individualises the aircraft. of registration of their respective mortgages; beneficiaries of general
In the mining and hydrocarbon sectors, the applicable laws preferential rights; and, finally, unsecured creditors.
forbid the mortgage of mining titles. However, mining titles can be
transferred, transmitted, or leased subject to prior agreement by the
Minister of Mines. Similarly, hydrocarbon exploitation permits that
are immovable property cannot be mortgaged.
Creditors can check the RCCM to obtain information on existing
Security interests agent registered liens.
The creation, registration, management and enforcement of the
aforementioned security interests can be done by a domestic or for- 4 Outside the context of a bankruptcy proceeding, what steps
eign financial or credit institution acting in its own capacity as secu- should a project lender take to enforce its rights as a secured
rity interests agent on behalf of the creditors of the secured debts. party over the collateral?
The security interests agent is appointed by a written document that
Prior to enforcing security interests, creditors must usually obtain an
includes the following information:
enforceable order from the competent jurisdictions. Afterwards, the
• information related to the secured debts or, in the case of future
collateral can be enforced either by proceeding to a public sale, or by
debts, the elements allowing their individualisation;
being awarded up to the amount of the secured obligations.
• the identity of the creditors of the secured debts at the date of the
However, where the collateral is cash or an asset whose value is
appointment of the security interests agent;
subject to an official quotation, the parties can contractually agree
• the identity and registered office of the security interests agent;
that the creditor will become the owner of the pledged asset in the
• the duration of its mission and the scope of its management and
event of default.
disposition authority; and
In addition, when the debtor is a professional debtor, namely, a
• the conditions under which the security interests agent reports
debtor whose debt arises from its professional activity or is in direct
back on its mission to the secured creditors.
connection with one of its professional activities, the parties can
provide for a contractual attribution clause stating that all tangible
2 How is a security interest in each type of collateral perfected pledged assets can be awarded to the creditor in the case of default.
and how is its priority established? Are any fees, taxes or other However, the pledged assets must be valued by an expert appointed
charges payable to perfect a security interest and, if so, are there by the parties or the court, if no expert has been appointed.
Pledges must be registered with the RCCM by filing a form. The
form must detail the nature and designation of the collateral, the
duration of the security interest registration, the identity of the credi-
tor and of the debtor. When the collateral is a debt, the description
of the debt submitted to the RCCM should be detailed, including,
the place of payment, the amount of the debt, its evaluation, and its

5 How does a bankruptcy proceeding in respect of the project fee varying according to the market but not exceeding 0.50 per cent,
company affect the ability of a project lender to enforce its rights excluding taxes. These transactions also include bank cheques and
as a secured party over the collateral? Are there any preference other international payment instruments, except traveller’s cheques.
periods, clawback rights or other preferential creditors’ rights Export related transactions must be declared to the competent
(eg, tax debts, employees’ claims) with respect to the collateral? administrative authorities and all transactions of over 5 million CFA
What entities are excluded from bankruptcy proceedings and francs must be done through a CEMAC-approved bank.
company in an enforcement? 8 Must project companies repatriate foreign earnings? If so, must
There are three types of bankruptcy proceedings: preventive settle- exist over their use?
ment, reorganisation and liquidation.
The goal of the preventive settlement proceeding is to prevent Investors and foreign employees operating in Congo are guaran-
the company defaulting and stopping its activities. The preven- teed free repatriation of profits made on exploitation, savings on
tive proceeding operates as a stay applicable to all provisional and their salaries and the return on the total or partial liquidation of
enforceable measures against the debtor. Such a stay is applicable investments.
to all creditors including the project lender, unsecured creditors In the mining sector, for instance, as long as their mining agree-
and holders of a general or special privilege and of a security inter- ments are valid, the holders of mining rights can freely bank in
est over a moveable asset. Legal or contractual interests, as well as Congo funds acquired or borrowed abroad, including sale proceeds
default interests, and surcharges continue to run but are not payable from their shares of production; freely transfer abroad the dividends
at this time. Throughout the proceeding, the debtor may not pay and the proceeds of the capital invested as well as the proceeds of
all or part of the debts that arose prior to the decision and cannot the liquidation of their assets; and freely pay in foreign currency
take any action other than the normal operation of its activities. The foreign suppliers of goods and services needed to conduct mining
preventive settlement can impose grace periods up to two years, and operations.
debt forgiveness, even if creditors were opposed to it, unless these
jeopardise the creditors’ companies. 9 May project companies establish and maintain foreign currency
When a company is in default, it will either be subject to a reor- accounts in other jurisdictions and locally?
ganisation proceeding or to a liquidation proceeding. The compe-
Legal entities incorporated in the CEMAC region are allowed to
tent court that decides on reorganisation or liquidation, appoints
open accounts in foreign currencies, after approval by the Bank of
a supervising judge to oversee the ensuing proceedings and one or
Central African States.
many trustees who are in charge of representing the creditors’ inter-
ests. The decision ordering a reorganisation proceeding creates an
obligation for the debtor to be assisted by a trustee in all its actions
concerning the administration of its assets. The debtor can continue 10 What restrictions, fees and taxes exist on foreign investment in or
to perform its activities in the normal course of business, provided ownership of a project and related companies? Do the restrictions
that it reports on all such activities to the trustees. also apply to foreign investors or creditors in the event of
However, the decision ordering liquidation entails the debtor’s foreclosure on the project and related companies? Are there
removal from its business administration. Such a decision also oper- any bilateral investment treaties with key nation states or other
ates as a stay to all provisional and enforceable measures against international treaties that may afford relief from such restrictions?
the debtor. Further, both reorganisation and liquidation operate as a Would such activities require registration with any government
stay to the accrual of interest, legal and contractual interests, as well authority?
as delay of penalties, except for loan agreements having a term equal
The Congolese Constitution recognises the right to property for all
or superior to one year.
individuals and legal entities, regardless of their nationality.
Creditors must be diligent in registering their security interests,
In addition, the Investment Charter provides that any individual
since the opening of bankruptcy proceedings prevents further reg-
or legal entity, regardless of their nationality, is free to engage in agri-
istration of security interests. Further, all creditors must submit a
cultural, mining, industrial, forest, artisanal, commercial or service
proof of claim with the trustee to prevent their claim being barred.
activity in Congo.
The filing suspends the operation of the statute of limitation.
Congo has notably concluded bilateral investment promo-
tion and protection treaties with Angola, China, Germany, Italy,
Mauritius, Portugal, South Africa, South Korea, Spain, Switzerland,
6 What are the restrictions, controls, fees, taxes or other charges Tunisia, the United Kingdom and the United States.
Congo is member of the economic and monetary community of cen- 11 What restrictions, fees and taxes exist on insurance policies
tral African states (CEMAC). Within CEMAC, the foreign exchange over project assets provided or guaranteed by foreign insurance
regulation states that the purchase and selling rates of currencies companies? May such policies be payable to foreign secured
other than the euro be set based on the fixed exchange rate of the creditors?
CFA franc against the euro. The rates of these currencies against the Congo is part of the Inter-African Conference on Insurance Markets
euro are based on the foreign exchange markets. (CIMA). In principle, the CIMA Code prohibits the purchase of
In Congo, foreign exchange operations are carried out by insurance against direct risk to a person, property or liability located
approved intermediaries, which are banks or exchange offices. in the territory of a member state from a foreign non-approved
insurance company.
7 What are the restrictions, controls, fees and taxes on remittances However, derogations can be obtained from the Minister of
of investment returns or payments of principal, interest or Finance, who is in charge of insurance. Such exceptions can be
premiums on loans or bonds to parties in other jurisdictions? explained by the fact that local insurance institutions do not always
have the means to ensure significant risks, for instance, in the oil and
Within CEMAC, the transfer fee may not exceed 0.25 per cent,
mining sectors.
excluding taxes. However, transfers of capital abroad are subject to a
In addition, reinsurance operations are permitted in Congo. • advantages from the new most favourable conditions during the
However, any transfer of reinsurance abroad of more than 75 per validity of the mining titles.
cent of a risk concerning a person, an asset or a liability located in
Congo will require, in principle, an authorisation from the Minister Government authorities
of Finance. Co-insurance in Congo is also allowed.
12 What restrictions exist on bringing in foreign workers, technicians nature and extent of their authority? What is the history of state
or executives to work on a project? ownership in these sectors?
The right to work is recognised for foreign nationals, subject to The Ministry of Hydrocarbons has jurisdiction in the upstream
compliance with the law and the completion of some administrative (exploration and extraction) and downstream (refining and distribu-
formalities. There is no particular restriction to the employment of tion) oil sectors. The Ministry of Mines and Geology is competent in
foreign nationals. Foreign workers sent to Congo need to have a con- the mining sector and is responsible for seeking the necessary fund-
tract signed by the Congolese Minister of Labour and must obtain ing for mining investments and elaborating the mining regulations.
a visa. CEMAC citizens are exempted from the visa requirement. The Minister of Mines and Geology grants the mining titles, or, if
the President of the Republic is competent, the Minister suggests the
13 What restrictions exist on the importation of project equipment? granting of the titles. The Ministry of Energy and Water is in charge
of water treatment and energy production. Transportation, ports
There are no restrictions on project equipment imports. From the
civil aviation and merchant marine are overseen by the Ministry of
date of its approval under the ‘G’ regime (the regime applicable to
Transportation. The Ministry of Forest Economy and Sustainable
investments superior or equal to 100 million CFA francs) up to its
Development is responsible, among other matters, for initiating and
first three fiscal years, a company can benefit from customs fee sus-
carrying out projects related to forestry, controlling the enforcement
pension under the form of temporary admission or franchise entry
of regulations and initiating the planning of forest units.
for research activities of natural resources and from a 50 per cent
The Ministry of Posts and Telecommunications is mainly respon-
abatement on various registration fees on business creation, capital
sible for issuing, transferring, amending, renewing, shortening, sus-
increases, mergers of companies and transfers of shares. Moreover,
pending or revoking licences, on the proposal from the Regulatory
in the electricity sector for example, the Electricity Code provides
Agency of Post and Electronic Communications (ARPCE), for pro-
that import of facilities and equipment for generation, transmission
moting investments, establishing industries and enforcing laws and
and distribution for the public service of electricity is free of charge.
regulations in the sector. The ARPCE is the supervisory authority
that monitors and controls postal and electronic communications.
14 What laws exist regarding the nationalisation or expropriation The Ministry for the Presidency of the Republic is in charge
of project companies and assets? Are any forms of investment of the national territory planning and the DGGT. The Ministry’s
specially protected? main missions are contributing to defining land attribution policies,
Article 17 of the Constitution states that nobody shall be deprived developing public procurement programmes, preparing and manag-
of their property except for public purposes, and provided that a fair ing public contracts and signing major contracts. The DGGT is the
and prior compensation is offered. These two principles of public administrative and technical body responsible, among other matters,
purpose and payment of a fair and prior compensation are included for the procurement and the execution of public works contracts
in most bilateral treaties signed by the country. In practice, however, with a value higher than or equal to 1 billion CFA francs.
there is no evidence of a recorded expropriation or nationalisation After independence in 1960, the Congolese economy was domi-
since the adoption of privatisation policies in the 1990s. nated by the public sector. During the 1990s, the state adopted a
new economic policy characterised by a withdrawal from the public
Fiscal treatment of foreign investment sector and an opening up to private and foreign investments.
15 What tax incentives or other incentives are provided preferentially Regulation of natural resources
investments, loans, mortgages or other security documents, 17 Who has title to natural resources? What rights may private
either for the purposes of effectiveness or registration? parties acquire to these resources and what obligations does the
The Investment Charter provides various tax incentives:
• 50 per cent reductions or exemptions for new companies or The ownership of natural resources is vested in the Congolese state.
during the first three years following the completion of an However, the state may grant to foreign investors the right to exploit
investment; its natural resources, subject to obtaining the necessary administra-
• stability of local and state taxation; tive authorisations. These authorisations enable them to explore,
• tax relief for companies making investments in social sectors; search and exploit the resources. There are five main mining titles in
• reduction of registration fees for business creation or capital Congo: the prospecting authorisation, the research permit, the arti-
increases; sanal exploitation authorisation, the industrial exploitation authori-
• special benefits for companies investing in remote and backward sation and the exploitation permit.
areas; and The Mining and Hydrocarbons Codes provide that foreign com-
• other customs benefits. panies must meet some conditions to be granted titles. Among other
obligations, foreign companies holding titles must be diligent in the
Further, there are tax cuts for agricultural companies. Companies in execution of their operations and must pay royalties. The mining
the mining and hydrocarbon sectors also benefit from tax benefits exploitation gives the state the right to a 10 per cent free participa-
such as: tion in the share capital of private companies. Oil exploitation leads
• exemption from fees and taxes on imports and internal taxes on to the conclusion of a production sharing agreement between the
equipment required for mining operations; foreign company and the state. The profit on oil is set after deduc-
• a system of temporary admission for some materials; and tion of the cost of the oil used to repay the costs incurred by the
company. This cost of oil can reach 70 per cent of the annual oil
production.

In the agriculture sector, the law lays down the general prin- and deforestation taxes and tax on forestry accessory products. In
ciples applicable to public lands. This law defines an agricultural the water and electricity sectors, the activity of the private company
framework benefiting investors, including the general principle of in charge of the public service is subject to legal and tax regimes
guarantee and security of the operator’s tenure and rights. applicable in the Republic of Congo. For works performed by con-
In the forestry sector, the Forestry Code provides that exploita- cession holders, which will revert free of charge to state property
tion for commercial purposes of all products in the state’s forests is at the end of the contract, companies are allowed to set up finan-
carried out by the state itself or by the holders of exploitation titles. cial depreciation charges and to recover the VAT on the works
Exploitation titles (industrial transformation agreements, planning performed.
and transformation agreements, logging authorisation or special In conclusion, foreign companies that have met the approval
permits) can only be granted to Congolese companies. In addition, conditions set by decree can benefit from tax and customs advan-
the Code provides that forestry companies with foreign capital are tages provided in the Investment Charter such as exemption or
required to open their capital to the Congolese people. reduction of 50 per cent of the corporate income tax, stability of
In the water sector, the Water Code states that this sector is a local and state taxation throughout the investment or suspension of
public service provided by the state or entities to which the state del- tariffs that can be replaced by temporary admission or free entry for
egates all or part of the management. In the latter case, the Congolese research activities of natural resources.
subsidiaries of foreign companies must participate in a tendering
process. Public water supply operation is limited to Congolese com-
panies. However, works and services activities in the water sector are
resources?
open to foreign companies. Public service delegation contracts take
three major legal forms: concession, leasing, and public ownership In the mining sector, the Mining Code provides that any person
with private management. holding an exploitation permit can export any quantity of minerals
In the electricity sector, the Electricity Code provides that this covered by its mining title.
sector is a public service that may be granted by the state or public Mining products are controlled in quantity and quality by an
communities to private Congolese companies. Foreign companies approved body before any export. This control is subject to a pay-
must establish local subsidiaries in order to tender for public service ment by the companies. However, this payment is compensated by a
delegation contracts. In addition, the Electricity Code provides flex- levy on the 10 per cent state stake in the mining concession.
ibility regarding invitations to tender in the sub-sector of rural elec- In the forestry sector, the legislation requires a payment of export
trification. It provides that the generation, particularly from power tax for the export of raw or processed forestry products. The rate is
stations with poor capacity, the transmission, the distribution and fixed for each category of product between zero per cent and 10 per
the sale of electricity in rural areas may be undertaken through sim- cent of the free on truck (FOT) value.
ple authorisation from the Minister of Energy, without any prior
organisation of invitations to tender. Legal issues of general application
Finally, any exploration or exploitation project of natural
resources on lands traditionally occupied or used by indigenous peo-
ple is subject to a prior socio-economic and environmental impact
study. These people cannot be displaced from lands they own or The authorisation of governmental authorities or payment of fees is
traditionally use, except for public purposes. necessary depending on the nature of the project. The operation of
some activities in Congo is subject to governmental authorisation.
Mining activities, for example, are subject to the granting of mining
18 What royalties and taxes are payable on the extraction of natural titles and to the payment of fees ranging from 1 million CFA francs
resources, and are they revenue- or profit-based? to 4 million CFA francs. For other activities, such as forest exploita-
The extraction of natural resources is subject to the payment of roy- tion, investors must have recourse to a tendering process organised
alties and other taxes by the companies holding mining or hydro- by governmental authorities. For large infrastructure projects in the
carbon titles. transportation, energy, drinkable water, cadastral planning, con-
In the mining sector, exploration and research activities give rise struction and diverse equipment sectors, investors answer to calls for
to the payment of fixed fees and surface royalties. Mining and quar- tenders or calls for proposals made, among others, from the general
rying exploitation activities lead to the payment of taxes based on delegation to major works (DGGT).
the Tax Code and also to the payment of fixed fees, surface royalties,
mining royalties with a fixed rate and construction materials taxes.
Mining royalties’ rate varies between 1 per cent and 5 per cent
depending on the minerals. Mining royalties are calculated on the
export sale value of the mineral. The tax rate on corporate profits
is 20 per cent for quarries and 30 per cent for mining exploitations. Congo does not require any particular formality concerning pro-
In the oil sector, prospecting, exploration, exploitation and ject contracts, except notably those pertaining to corporate law, real
transportation of hydrocarbon activities are subject to corporate property law and security interests law.
income tax and proportional mining royalties. Obtaining a research
permit or an exploitation permit is also subject to a bonus payment 22 How are international arbitration contractual provisions and
to the state. awards recognised by local courts? Is the jurisdiction a member
Corporate income tax is calculated on the profit for the year of the ICSID Convention or other prominent dispute resolution
at the rate of 35 per cent for all exploitation permits under a single conventions? Are any types of disputes not arbitrable? Are any
research permit and for a period not exceeding five years. The rate of types of disputes subject to automatic domestic arbitration?
proportional mining royalties is set at 15 per cent for liquid hydro-
Arbitral awards are recognised and enforced in Congo after an
carbons. However, in the case of natural gas discovery, proportional
enforcement decision has been made by the Congolese courts. Congo
mining royalties would be fixed after consultation between the state
is, nonetheless, a member of the ICSID applicable to investment
and the companies.
disputes between the Congo and nationals from other contracting
In the forestry sector, the private operator holder of an exploita-
countries. Each bilateral treaty for the promotion and protection of
tion title is subject to various taxes: export, import, surface, felling
Update and trends
In Congo, nearly two-thirds of the GDP and 80 per cent of exports willingness to develop the agricultural sector and to reduce its
come from the oil sector. Today, the country’s economy is the result dependency on imports for food products. Recently, Congo entered
of oil exploitation. However, the prominence of the oil industry into land contracts for agricultural exploitation with foreign companies.
makes the country vulnerable to the fluctuation of oil prices. The The Malaysian company Atama Plantation recently invested US$744
Congolese government has, thus, decided to implement a strategy of million for the production of palm oil and another Malaysian company,
diversification of its economy, which is part of the strategic document Lexus Agir, has just signed with Congo an authorisation to start
for growth, employment and poverty alleviation (DSCERP) 2012–2016. rubber and palm oil exploitation on a state-owned 25,000 hectares
Within the framework of this diversification, Congo has decided concession.
to exploit its mining potential. Several mining deposits have been Moreover, Congo launched a significant infrastructure
identified that contain iron, potash, gold, diamond, magnesium, poly development programme under the supervision of the DGGT. This
metals, phosphate, peat and bituminous sandstone. At present, administrative and technical body has significant competencies and is
Congo is reviewing its Mining Code with the support of the World in charge of signing and executing major contracts.
Bank. According to the latter, the mining sector will be the prime Congo has put in place an agency for the promotion of
private provider of employment for the country in 2017. Investments, which was approved by decree on 17 April 2013. This
In 2013, Congo was declared compliant to the Extractive Industry agency will have offices abroad in major cities and will be in charge of
Transparency Initiative (EITI). EITI is defined as a global norm of welcoming, informing, assisting and accompanying potential investors
transparency for payments in the exploitation of the natural resources in the implementation of their projects in Congo. According to the
sector. International Monetary Fund, the country is forecast to expand 6 per
In addition, Congo has 10 million hectares of arable lands, only cent per year until 2019.
2 to 6 per cent of which are exploited. This reinforces the country’s
investments to which Congo is a party, provides its own system of to classified facilities and specifies the related taxes and royalties: a
dispute resolution. single tax at the opening of a classified facility, annual royalties and
Congo has not ratified the New York Convention. However, as annual surface royalties.
a member of OHADA, any arbitration made regarding a dispute of In addition, specific codes determine the environmental, health
another member state shall be subject to the OHADA Uniform Act and safety rules. Thus, in the oil sector, the Hydrocarbons Code
on arbitration. The award will be recognised and enforced in Congo defines the rules for police, security, and environmental protection.
in accordance with the rules set in the aforementioned Uniform Act. The Minister of Hydrocarbons has the power to take all measures to
safeguard or improve the health or safety conditions in the prospec-
tion, research, development, exploitation and transportation of oil
activities. The state can withdraw any hydrocarbon title for serious
breaches of police, security or health requirements.
In the mining sector, the Mining Code defines the rules of indus-
Financing agreements are not typically subject to the law of Congo, trial safety, health, environmental protection and administrative
but to the law of the jurisdictions of major financial centres such supervision. Regarding research or exploitation of a mine or quarry,
as London or New York. The choice of a foreign law in financing the Code provides that the following obligations must be respected:
agreements will normally be enforced by a Congolese judge subject safety and health of the workforce and the population, environmen-
to their compliance with mandatory rules or public order. Matters tal protection, conservation of mines and facilities, housing safety
relating to real estate law, incorporation of companies and collat- and soundness, conservation of communication ways, protection of
eral, tax and customs law and labour law are necessarily subject to water sources and restoration of sites.
Congolese law.
Project companies
The Congolese state may validly waive its immunities from jurisdic- companies?
tion and execution in accordance with the rules established by the
The most commonly used SPV legal structures are the SA, a joint-
Constitution and the relevant legislation. It should be noted that arti-
stock company, and the SARL, a limited liability company. In these
cle 30 of the OHADA Uniform Act organising simplified recovery
types of companies, the liabilities of the project developers are lim-
procedures and enforcement measures, as well as the related juris-
ited to their contribution in the SPV and collaterals given as security
prudence of the common court of justice and arbitration (CCJA),
interests.
offers immunity from enforcement to state-owned companies of its
The Revised Uniform Act on Commercial Companies and
member states.
Economic Interest Groups of 30 January 2014 introduces a new
Therefore, if the state or its companies have not expressly
form of company modelled on the French contractual limited liabil-
waived their immunity from enforcement, creditors will be unable
ity company, the SAS. It provides more flexibility to its sharehold-
to enforce a judgment or arbitral award on the state’s property or
ers allowing them to tailor the SAS’s articles of association to their
its companies.
precise needs. With regard to governance, the sole requirement is the
appointment of a chairman. The SAS requires no minimum share
capital, and is authorised to issue various forms of securities.
25 What laws or regulations apply to typical project sectors? What There is no stock market in Congo. The main sources of financ-
regulatory bodies administer those laws? ing for projects vary depending on the type of the project and the
cycle of project. They are equity from investors (developers, infra-
Congo has adopted a law establishing a national health develop-
structure funds and institutional investors), bank debts and debts
ment plan and a law on the protection of the environment. The lat-
from multilateral agencies. Public offering on foreign exchange mar-
ter act contains provisions for the protection of human settlements,
kets are also a source of financing.
fauna and flora, air, water and soil. It defines the rules applicable

Public-private partnership legislation The contract was signed for a period of 25 years. It provides
for the concession holder to benefit from the Investment Charter
27 Has PPP enabling legislation been enacted and, if so, at what by signing an establishment agreement with the state. In the case
level of government and is the legislation industry-specific? of conflict between the establishment agreement and the concession
There is no specific law on PPPs. However, the major contracts contract, the concession holder will benefit from the most favour-
signed by the state are under the jurisdiction of the DGGT. able tax and customs regime. The concession holder also benefits
from some customs and tax exemptions.
PPP – limitations In addition, the concession holder can freely choose the sub-
contractor in charge of the design, implementation and monitoring
28 What, if any, are the practical and legal limitations on PPP of works and studies. This choice is not subject to any prior approval
transactions? of the state. AERCO may also issue authorisations to occupy public
There are no limitations to the conclusion of PPPs. There are no property to third party providers to perform their business activities.
specific limitations on the state to contract with private companies. Concerning the shareholding’s stability, the SEGAP/EGIS con-
sortium, majority shareholder in AERCO, may transfer its shares,
PPP – transactions after sending a notification to the state, provided that it maintains at
least 51 per cent of the share capital.
29 What have been the most significant PPP transactions completed Finally, any disputes related to the concession contract are sub-
to date in your jurisdiction? ject to a mandatory preliminary conciliation and, if necessary, to
Congo does not have significant experience in PPPs. However, one arbitration by the CCJA. The concession contract provides that the
of the major PPPs in the country is the concession contract signed arbitral award is final and binding on the parties. It states that the
between the Congolese government and AERCO (from the SEGAP/ Congolese state waives any immunity from jurisdiction and enforce-
EGIS consortium) to design, finance, construct, operate, maintain ment and will not hinder the jurisdiction of the arbitral tribunal or
and develop the airports of Brazzaville, Pointe-Noire and Ollombo. the enforcement of the award on its territory.
Emery Mukendi Wafwana ewafwana@cabemery.org

Sancy Lenoble Matschinga smatschinga@cabemery.org
Antoine Luntadila aluntadila@cabemery.org
Nady Mayifuila mayifuila@cabemery.org
Jonathan van Kempen vankempen@cabemery.org
Kekeli J Kodjo kkodjo@cabemery.org
Immeuble Tour Nabemba, Tel: +242 05 355 08 88 / 243 99 99 15247 /

7th Floor – Local 7.19 – 7.20 +243 15 12 4738
Centre-ville, BP 633 Fax: +1-212-954-5431
Brazzaville www.cabemery.org
Republic of Congo
ROMANIA PeliFilip
Romania
Alina Stancu Bîrsan and Oana Bădărău
PeliFilip
Creating collateral security packages is gained starting with the moment of registration with the Electronic
Archive (even if, at that stage, the asset has not yet been acquired by
1 What types of collateral are available? the pledgor). A fully perfected security interest is opposable to the
The collateral package for a Romanian project is relatively similar to other creditors of the pledgor and to the persons that subsequently
global project finance practice and includes security on the assets and acquire rights over the secured asset. A perfected security interest is
rights of the project company as well as its shares. Specific pledges always preferred (it ranks higher) to a security interest that has not
on accounts are possible and typically used as a means of securing been perfected.
the project revenue flow. Contractual rights, which are often some of The registration with the Electronic Archive takes approximately
the most important assets of a project company, can also be pledged one day to complete, is valid for five years and may be renewed.
specifically, or, alternatively, contracts can be assigned for the pur- The registration of the moveable security is subject to a fixed fee of
poses of security. The asset security package will typically include a approximately E30, irrespective of the secured amount.
pledge on the universality of moveable assets, which has the effect of In addition to the Electronic Archive, security over intellec-
a pledge on the entire business of the company with the exception of tual property rights should also be registered with the Romanian
real estate properties (which are subject to separate mortgage agree- Trademark and Patent Office and security over shares must be regis-
ments). The security package will also typically cover future rights tered with the shareholders’ register of the respective company.
and assets as a straightforward pledge: from 1 October 2011, under Exceptionally, for certain moveable assets perfection formali-
the provisions of the new Romanian Civil Code and related legisla- ties are different, requiring the transfer or endorsement of the title
tion issued for its application (together, the New Civil Code), this instrument, in the case of moveable security created over certain
also includes future constructions whereas, previously, mortgages types of assets such as monies, treasury certificates or registration
over future assets were not allowed. Corporate guarantees are also in special registries, in the case of security created over ships and
available as a means to supplement the security arrangements. aircraft or over securities.
There are, however, limits as to what can be included in the For real estate assets security is taken through mortgage agree-
security package and especially as to what assets can be enforced ments entered into under authentic form and perfection requires
against. Thus, typically concession agreements cannot be assigned registration with the Land Book. In the case of a mortgage over a
and therefore they cannot be enforced against. Similarly, a large universality of immoveable assets, the mortgage must be registered
number of licences and authorisations cannot be assigned other than with the Land Book Office of each immoveable asset part of the uni-
with the consent of the granting authority. In some cases, the change versality. Registration usually takes a few business days to complete.
in control over the project company is also subject to approval by a Prior to the entry into force of the New Civil Code, the pur-
regulatory authority. Public assets (owned by the Romanian state or pose of the registration of the mortgage with the Land Book was to
various public authorities) cannot be transferred or charged in any ensure opposability towards third parties. Following the entry into
way. These restrictions may be relevant depending on the sector and, force of the New Civil Code, the purpose of the Land Book registra-
therefore, the security package will vary significantly depending on tion changes so that the registration is needed for validity purposes.
the nature of the project. This change applies, however, only to the extent the cadastral reg-
istration works have been finalised for the relevant administrative
unit (eg, city or village). Until completion of cadastral works, the
2 How is a security interest in each type of collateral perfected Land Book registration continues to be performed for opposabil-
and how is its priority established? Are any fees, taxes or other ity purposes only. Completion of cadastral registration works at the
charges payable to perfect a security interest and, if so, are there level of administrative units is rare and needs to be checked on a
lawful techniques to minimise them? May a corporate entity, in case-by-case basis by creditors; consequently, the registration may
the capacity of agent or trustee, hold collateral on behalf of the have opposability or a validity effect depending on completion of
project lenders as the secured party? such works at the location of the mortgaged asset at the time the
Security interests over moveable assets and assignments of receiva- mortgage agreement is entered into.
bles are created through simple written agreements and usually The execution and registration of mortgages is subject to both
perfected through registration with the Electronic Archive for notary and registration fees, which depend on the value of the
Moveable Security (the Electronic Archive), with the exception of secured amount and, for larger transactions, can be approximated
security interests over future assets or securing future obligations to cumulatively reach 0.2 per cent of the secured amount.
with respect to which perfection occurs (subject always to registra- Priority is typically given by the time of registration (with the
tion) only when the pledgor has acquired the respective asset or Electronic Archive, the Land Book or other applicable registries),
respectively, the future obligation is born and thus, becomes actual. subject to perfection formalities also being fulfilled at the time when
This additional perfection requirement for future assets or future priority is being assessed (eg, for pledges over future rights and
obligations does not affect the ranking of the security interest, which moveable assets, perfection occurs at the time these are created or
acquired).

PeliFilip ROMANIA
Security agent structures are commonly used, with the market asset at the auction in all instances or through direct purchase
moving from parallel debt structures towards ‘straight’ security only in the case of assets usually traded on regulated markets;
agent models due to a change in legislation under the New Civil the creditor may pay the price by using its receivable;
Code, which regulates such structures for the first time. • taking possession of the asset for management purposes, until
The new legal provisions in Romania allow simultaneous regis- the secured receivable is satisfied. This enforcement route is only
tration, with the same rank, of a moveable security interest in favour available in relation to mortgaged assets belonging to an under-
of several beneficiaries. The beneficiaries may also appoint a security taking. The assets can be taken into management either by the
agent, who is entitled to exercise all rights of the secured creditors creditor itself or by a person appointed by the creditor or by the
who have appointed it and to ensure by itself the perfection of the court; and
security interest and the continued validity and amendment of the • taking ownership of the secured asset on account of its receiv-
registration of the security interest. able, provided that, after the default under the loan agreement,
In an alternative to this concept, the security interest can be cre- the pledgor agrees with this enforcement method and the other
ated directly in favour of a party designated by the secured creditors interested parties (eg, guarantors, joint debtors, other secured
and such a party will be entitled to exercise the rights of the secured creditors) do not object to it.
creditors and will be bound by their obligations. In this version, the
security agent is more than a regular agent, it is actually the holder If direct creditor enforcement routes are not available (eg, for real
of the security interest. estate assets and intangible moveable assets) or not preferred by the
The new provisions offer significant advantages over the paral- creditor, the enforcement can be performed based on a different pro-
lel debt structure that was previously used to deal with the issue cedure led by an enforcement officer, under the supervision of the
of multiple secured creditors sharing one security interest. However, courts of law. The initiation of this type of enforcement must be
this structure is expressly regulated only with respect to security approved by the courts of law in an emergency procedure at the
interests over moveable assets (and not in relation to mortgages over enforcement officer’s request. The enforcement officer must first for-
immoveable assets). For immoveable assets, security can be regis- mally ask the debtor to pay the due amounts within a certain period
tered for all creditors directly or in the name of the security agent, from the date of the notice before being entitled to initiate the public
via parallel debt structure. sale. In the case of real estate assets, after receiving the enforcement
Security trustees are generally not used as the implementation of officer’s notice, the debtor has the right to ask the court to grant an
trust-like structures under the New Civil Code is highly formalistic extension of the term for payment for the entire due amount that
and cumbersome. would be paid within a six-month period, from revenues generated
by the mortgaged asset or other revenues available to the debtor. If
the debtor has not paid the debt within 15 days from the formal
notice, in the case of immoveable property, respectively, one day fol-
lowing the formal notice in the case of moveable property, and has
For collaterals that require registration for perfection, a search of the not obtained court approval for phased repayment, the enforcement
relevant registries or the Land Book, as the case may be, should be procedure will continue.
conducted. Where, exceptionally, charges are not perfected by regis- After the value of the mortgaged property is determined either
tration, they are perfected by the transfer or endorsement of a title by the enforcement officer or by an independent expert, the enforce-
and this is also easy to discern for a creditor seeking to take security ment officer must organise a public auction sale. The auction can
on the same asset. be repeated if, upon the first attempt, a minimum price (determined
by reference to the independent valuation) is not offered by any of
4 Outside the context of a bankruptcy proceeding, what steps the bidders. At the second auction for moveable assets, respectively
should a project lender take to enforce its rights as a secured at the third auction for immoveable assets, the relevant assets may
party over the collateral? be sold to the highest bidder without the obligation to observe a
minimum price. The creditor may also bid, but it cannot acquire the
Under Romanian law, the foreclosure procedures differ depending
asset for a price less than 75 per cent of the independent valuation.
on the type of secured asset being enforced against and the proce-
The independent valuation and the bids are generally made in euros,
dure chosen by the creditor.
but, where the enforced pledgor and the buyer are both Romanian
Foreclosure can be done either by the project lender (for tangible
residents, the actual payment of the price must be made in local
moveable assets and provided the debtor is not resisting enforce-
currency.
ment) or by enforcement officers. The ability to enforce depends
upon the existence of an enforceable title and of a determined, liquid
and outstanding receivable held by the project lender against the 5 How does a bankruptcy proceeding in respect of the project
pledgor as resulting from the title. Duly concluded mortgage agree- company affect the ability of a project lender to enforce its rights
ments for both immoveable and moveable assets are enforceable as a secured party over the collateral? Are there any preference
titles subject to certain conditions set out by law. periods, clawback rights or other preferential creditors’ rights
For tangible moveable assets, in order to initiate one of the (eg, tax debts, employees’ claims) with respect to the collateral?
enforcement routes detailed below, the creditor can take possession What entities are excluded from bankruptcy proceedings and
of the secured asset, provided that the appropriate self-help clause what legislation applies to them? What processes other than
has been inserted in the security agreement. The creditor may obtain court proceedings are available to seize the assets of the project
the support of enforcement officers if the debtor resists the enforce- company in an enforcement?
ment. Once the moveable asset is in its possession, the secured credi- Generally, legal entities relevant to project finance transactions
tor may choose one of the following enforcement routes, each of would be subject to insolvency proceedings. Exemptions include
which is subject to specific notification and registration formalities: non-profit entities (such as associations and foundations) or enti-
• sale of the secured asset, which must be approved by the courts ties governed by public law (at least in part), although local public
of law and carried out in a commercially reasonable manner entities can be subject to insolvency proceedings. There are no dif-
with regard to the method, time, place and other terms and conferences as to the treatment of creditors on grounds of nationality.
ditions of the sale. The sale can be made by public auction or Insolvency is designed as a collective procedure, involving the
direct negotiation. The secured creditor is entitled to acquire the participation of all known creditors and the supervision of the
ROMANIA PeliFilip
courts of law. As a rule, once insolvency proceedings are initiated, In exceptional circumstances seriously affecting the currency
individual enforcement proceedings are suspended and proparal- market, the National Bank of Romania may take safeguard measures
lel routes for the enforcement of receivables against the debtor are with respect to certain foreign capital operations such as short-term
prohibited. By way of exception, a secured creditor may obtain the loans or credits, current account or deposit operations and physical
court’s approval to enforce its mortgage or pledge outside the insol- import or export of financial assets. The safeguard measures could
vency collective proceedings, in certain conditions provided by law, consist in additional notification obligations or stricter monitoring,
for example, if the protection of the secured receivable is weakened but also in establishing thresholds or other limits on certain types of
by, inter alia, a devaluation of the secured asset or the risk of a major transactions. As a rule, the measures can be applied for a period of
depreciation or by the lack of insurance against loss or damages of maximum six months and must be replaced, amended or ceased at
the assett. the request of the European Commission.
At the request of certain interested parties, the courts of law can
decide the annulment of ‘fraudulent transactions’ concluded by the
debtor in the three years preceding the opening of the insolvency
proceedings. The insolvency legislation provides a list of specific
operations presumed to be concluded by the debtor in defrauding
its creditors, such as transactions where the consideration received There are no restrictions or controls on remittances of investment
by the debtor is considerably less than the value of what it has trans- returns or loan payments to parties in other jurisdictions. Payments
ferred, the creation of security in favour of an unsecured creditor in of interests (including on bonds), dividends and royalties from
the 120 days prior to the opening of the procedure or transactions Romania to non-residents may be subject to withholding tax to
with affiliates, which are ‘damaging’ to the creditors. the extent a favourable double taxation treaty does not grant an
Insolvency proceedings consist of two different procedures or exemption and other exceptions are not applicable. The general
phases, which can be successively or separately pursued: judicial withholding tax rate is, at present, 16 per cent. However, from
reorganisation and bankruptcy. Judicial reorganisation implies the June 2013 there is a 50 per cent withholding tax applicable to non-
implementation of a financial or corporate reorganisation plan, residents in Romania, for incomes resulting from ‘artificial transac-
or both, voted by the creditors and approved by the court of law. tions’ (ie, those that do not have real economic purpose, being con-
The receivables and security interests of the project lender may be cluded solely for avoiding taxation or obtaining tax advantages that
reduced or even completely erased on the basis of a duly approved would not have been granted otherwise) paid in a state that is not a
reorganisation plan. Unless they agree otherwise, after judicial reor- party to an exchange information agreement with Romania.
ganisation, secured creditors cannot obtain less than they would The vast majority of project finance is conducted through the
have obtained in the case of liquidation of the debtor’s assets under use of fiscally advantageous structures that eliminate or reduce with-
bankruptcy proceedings. holding tax by recourse to special purpose vehicles established in
Bankruptcy proceedings, pursued directly or as a result of the relevant jurisdictions.
reorganisation’s failure, consist in the liquidation of all the debtor’s
assets in order to cover its liabilities, which is followed by the debt- 8 Must project companies repatriate foreign earnings? If so, must
or’s deregistration from the Trade Registry. Secured project lenders they be converted to local currency and what further restrictions
will have priority over other creditors (eg, unsecured creditors, debt- exist over their use?
or’s employees and tax authorities) at the distribution of proceeds
Romanian companies may (but need not) repatriate foreign earn-
resulted from the enforcement of the assets securing their receivable.
ings. In principle, no restrictions apply to the use of such earnings,
If the amount obtained following enforcement against the charged
collections, transfers and any other such operation resulting from
asset does not cover the receivable, the project lender becomes an
sale of goods or performance of services, irrespective of their legal
unsecured creditor for the balance of the receivable and will be
regime, except that, as a rule, payments between residents must be
ranked lower in the distribution order than other creditors (eg, debt-
made in Romanian currency, with certain exceptions strictly pro-
or’s employees, tax authorities and financial banking institutions).
vided by law.
In October 2013, a new insolvency code was approved by the
Romanian government, which was supposed to replace the exist-
ing insolvency legislation. Only a few days after its entry into force, 9 May project companies establish and maintain foreign currency
it was declared unconstitutional by the Romanian Constitutional accounts in other jurisdictions and locally?
Court and is, therefore, no longer applicable. In 2014 the Romanian Subject to political sanctions and anti-terrorism and money-launder-
Parliament adopted a new draft insolvency law, that passed the con- ing restrictions, project companies are allowed to open and maintain
stitutionality control and was consequently enacted by the President foreign currency accounts in Romania and in other jurisdictions.
on 24 June 2014. The Law will enter into force three days after its
publication in the Official Gazette. The position of secured credi- Foreign investment issues
tors within insolvency proceedings remains substantially unchanged
under the proposed new insolvency law. However, there are some 10 What restrictions, fees and taxes exist on foreign investment in or
amendments that directly affect the rights of creditors, such as the ownership of a project and related companies? Do the restrictions
fact that secured creditors will benefit from priority at the distri- also apply to foreign investors or creditors in the event of
bution of proceeds resulted from the liquidation of the mortgaged foreclosure on the project and related companies? Are there
assets not only within bankruptcy proceedings, but also within judi- any bilateral investment treaties with key nation states or other
cial reorganisation. In addition, banks are no longer preferred to international treaties that may afford relief from such restrictions?
certain other unsecured creditors, such as bond holders. Would such activities require registration with any government
authority?
Foreign exchange issues Romanian and foreign investors are treated equally as a matter
of law and their investments and properties are protected by the
Romanian Constitution and applicable international conventions.
Certain restrictions apply as regards ownership of land by non-
Generally, there are no exchange controls or restrictions or taxes residents. However, non-residents who are citizens of an EU member
imposed on foreign currency exchange.

PeliFilip ROMANIA
state and non-resident legal entities incorporated in accordance with The EU/EEA/Swiss citizens and their family members having
the legislation of an EU member state have been able to acquire, or not EU, EEA or Swiss Confederation citizenship and who have
from 1 January 2012, ownership over land for a secondary resi- a continued and legal residence in Romania for at least five years,
dence or headquarters and, from 1 January 2014, ownership over gain the right of permanent residence. This right can be gained after
agricultural or forestry land. Non-EU citizens and legal entities may shorter periods of time in certain specific cases set out by law (eg,
only acquire ownership rights over land to the extent mutually rec- three years of residency for EU/EEA/Swiss citizens who carry out
ognised under the international treaties to which Romania and their dependent or independent activities in another EU, EEA and Swiss
respective states of residence are parties. There are no treaties at this Confederation state and who return daily or at least once a week to
date that would grant such mutual rights. Romania).
The restriction is typically bypassed in practice by the use of If an employment agreement is about to be signed between a
Romanian project companies, as these can freely own land, regard- foreign citizen and a Romanian company, the foreign citizen who is
less of the nationality of their shareholders. going to work in Romania must obtain, in advance, both a work per-
Further, the restriction is particular to land; buildings may be mit from the Romanian Immigration Office and a long-stay visa for
owned by both Romanian and foreign entities. Mortgage enforce- work from the diplomatic missions or consulate offices. In the case
ment by foreign creditors is only limited by their inability to act as of secondment, foreign citizens need to obtain both a long-stay visa
buyers of land being sold, but they can freely enjoy the proceeds of for secondment from the diplomatic missions or consulate offices
the enforcement. and a secondment work permit from the Romanian Immigration
Office prior to starting to work in Romania. The maximum second-
11 What restrictions, fees and taxes exist on insurance policies ment period is of one year within a five-year period.
over project assets provided or guaranteed by foreign insurance Foreign citizens can also benefit from exemptions from the
companies? May such policies be payable to foreign secured requirement to obtain a work authorisation to the extent they fall
creditors? under one of the following categories:
• foreign citizens having a permanent residence in Romania;
There are no specific restrictions or taxes on insurance policies
• foreign citizens who benefit from exemptions under bilateral
provided or guaranteed by foreign insurance companies. However,
agreements and conventions concluded between Romania and
the provision of insurance and reinsurance services is a regulated
other states;
activity in Romania. Insurance may be provided by authorised local
• foreign citizens who were granted a form of protection in
insurers, by EEA insurers having a branch in Romania or notified to
Romania;
the Insurance Supervisory Commission (ISC) as providing services
• foreign citizens who perform temporary teaching, scientific or
on a cross-border basis, or by insurers from non-EEA states based
other temporary specific activities in specialised institutions per-
on the authorisation of their branches with the ISC. Cut-through
manently or temporarily accredited in Romania, based on bilat-
clauses are not regulated as such under Romanian law, but if, prop-
eral agreements or as holder of a right of residence to conduct
erly drafted, their effects can be replicated in Romania as well.
scientific research and high staff qualified based on the order of
There is no restriction on making the policies payable to foreign
the Minister of Education and research and foreign citizens who
secured creditors and this is typically done through the assignment
perform arts in cultural institutions in Romania, based on the
of the benefit of insurance policies.
order of the Minister of Culture;
• foreign citizens who are to perform temporary activities in
12 What restrictions exist on bringing in foreign workers, technicians Romania requested by ministries or other central or local admin-
or executives to work on a project? istration bodies or independent administrative authorities;
The immigration compliancy processes for Romania are complex • foreign citizens who are the heads of branches, representative
and depend, first, on the citizenship of the applicant and, second, on offices or subsidiaries of foreign companies in Romania;
the purpose of the stay in Romania (eg, business, work, study, com- • foreign citizens who are family members of Romanian citizens;
mercial activities, etc). • foreign citizens legally employed by an EU or EEA member state
As Romania joined the European Union in January 2007, the or by a Swiss Confederation-based company and seconded to
immigration regulations are more favourable for EU, EEA and Romania, provided the individuals have valid work or residency
Swiss Confederation citizens (EU/EEA/Swiss citizens) than they are permits in that specific EU or EEA member state or in the Swiss
for people coming from outside the aforementioned areas (foreign Confederation, etc;
citizens). • asylum requestors, after expiry of a one-year period from the
EU/EEA/Swiss citizens are not required to obtain a work author- date of submitting the asylum application during the procedure
isation or permit to work in Romania and they and their family of determination of a protection manner on Romanian territory;
members, regardless of nationality, may reside in Romania for a and
period of three (consecutive) months without any formality being • tolerated foreign citizens, during the period their stay is tolerated
required. Similarly, EU/EEA/Swiss citizens who enter Romania seek- on the Romanian territory.
ing a job may reside in Romania for a period of up to six months,
without any formality being required. To the extent foreign employees would, through their work in
EU/EEA/Swiss citizens and their family members may reside Romania, come into contact with classified information, they will
in Romania for longer than three months (consecutive) provided need to be formally cleared for access to this type of information.
they fall into one of the specific categories provided by law (eg, they
carry out dependent or independent activities or they have suffi-
cient means of living for themselves and their family members, as
well as health insurance). In these cases, the EU/EEA/Swiss citizens The Integrated Tariff of the European Union (TARIC) is a database
must register with the Romanian Office for Immigration prior to the comprising various matters regarding import and export of goods
expiry of the three months. The Romanian Office for Immigration to and from the EU, including all limits and restrictions relating to
will issue a registration certificate for EU/EEA/Swiss citizens or a EU customs operations, such as: goods prohibited for import and
residency card for their family members, if applicable, both having export, quantitative limits and various ways of controlling import
a renewable expiry period of five years, except for when they have and export of certain categories of goods.
requested a shorter residence term.
ROMANIA PeliFilip
As each member state is allowed to further add to the list of • electricity, heating and gas: the National Energy Regulatory
limits and restrictions on import and export for national purposes, Authority (ANRE) is the main regulatory authority; it grants
Romania has created TARIC-RO, which contains limitations and licences and permits and sets regulated tariffs. In the heating
restriction for import or export of goods to or from Romania. sector, the National Communal Services Authority shares these
Import prohibitions in the EU are regulated for equipment such powers with ANRE. Moreover, electrical or gas distribution con-
as: cession agreements are entered into by the Ministry of Economy
• freezing equipment; (the Department of Energy), while heating concessions are
• traffic signalling equipment; entered into by local authorities. The National Commission for
• containers with an anti-radiation lead covering; Controlling Nuclear Activities is the nuclear regulator and issues
• electric vehicles specially designed for the transport of highly licences and supervises nuclear activity;
radioactive materials; • water treatment: the Ministry of Environment and Climate
• electric and diesel/electric locomotives; and Change – Water Department is responsible for the national
• machinery for liquefying air or other gases, etc. strategies and policies and administers and exploits the National
System of Water Management with the assistance of the
Further, any imported equipment will need to be compliant with National Administration of Romanian Waters, which is com-
European harmonised or Romanian quality and security stand- petent to issue permits for the administration of water resources
ards. Equipment used in certain industries may be subject to addi- and to endorse other activities performed on or near water;
tional requirements (such as the obligation to notify the National • transport and ports: the Ministry of Transport is competent to
Regulatory Authority for Communications and Information establish the development strategy for transport and infrastruc-
Technology on the import of certain types of radio equipment). ture, approves the fees due for the issuing of authorisations and
Custom tariffs are still applicable on imports from non-EU licences and acts as regulator in these fields assisted by:
states, depending on the type of equipment and trade conventions or • the Department of Infrastructure Projects, Foreign
treaties to which Romania is a party. Intra-EU trade is only subject Investments, Public-Private Partnership and Exports
to certain reporting formalities. Support, which deals with promoting and implementing of
infrastructure projects of national interest, as well as foreign
investments and public-private partnership;
• the National Company of Romanian Highways and Roads,
which administers and manages the highways and national
roads and is responsible with the construction on new pub-
Private property is guaranteed under the Romanian Constitution lic roads;
and expropriation is permitted exclusively on grounds of public util- • the Romanian Rail Authority, which manages technical and
ity subject to the prior payment of a fair compensation amount. safety standards, and licences and certifies rail personnel and
Expropriation may only be carried out on a non-discriminatory products;
basis and in accordance with the specific legal procedure, which • the Romanian Naval Authority, which is responsible for
allows the opportunity of judicial control. Special procedures, surveillance of the navigation in Romanian waters, certifies
quicker and less complex (but still in line with the constitutional maritime and inland water ships, offshore drilling units fly-
principles) are provided by Romanian law in view of development ing the Romanian flag and naval equipment and registers
of certain types of public utility projects (eg, mining, national roads ships under the Romanian flag;
or motorways). • the National Company Maritime Ports Administration SA
Constanta, which is the port authority for the Black Sea
Fiscal treatment of foreign investment ports; it develops the transport infrastructure and imposes
security, safety and environmental port conditions;
• the National Company Administration of the Navigable
Canals, which is responsible for the maintenance, devel-
opment and modernisation of the naval transport infra-
structure, and issues permits and authorisations for naval
Romania promotes the principle of equality of treatment between transport;
domestic and foreign investors. Other than as provided in various • the River Administration of the Lower Danube, which
treaties and conventions on double taxation or mutual promotion is responsible for ensuring navigation conditions on the
and protection of investments, which need to be analysed on a case Danube by means of dredging works, surveys, coast and
by case basis, there are no specific incentives for foreign investors, floating signalisation, internal and international tugging etc;
nor are there specific taxes applicable to foreign investments, loans, and
mortgages or other security documents. • the Romanian Civil Aeronautical Authority, which is the
regulatory authority for air traffic management and ensures
Government authorities licensing of aeronautical personnel; and
• telecommunications: the National Authority for Management
and Regulatory of Communications is the main regulatory body
and issues licences and permits.
All these sectors have a history of state ownership, but a large part
The main government authorities competent to regulate specific proof the relevant state interests have been disposed of via privatisation.
jects within different sectors are: Moreover, virtually all new developments are made with private par-
• oil, chemical refining and mineral resources: the National Agency ticipation (either in full or in part) and state majority participation is
for Mineral Resources, which administers natural resources, the exception rather than the norm.
grants and issues exploration and exploitation licences and per-
mits and approves fees and royalties;

PeliFilip ROMANIA
holder have? May foreign parties acquire such rights? Depending on, inter alia, the nature, location, size and sector of the
Under the Romanian Constitution, underground resources of any project, various approvals or permits may be required for any given
nature (including oil, gas and other mineral resources), the airspace, project. Most large-scale projects will require amendments to zoning
waters with hydropower potential, and those that can be used for and land-use regimes, a building permit and environmental approval
the public interest, beaches, territorial waters, natural resources of for construction works, as well as an environmental authorisation
the economic zone and the continental shelf, as well as other goods, for the operation phase. In addition, a large number of sector-spe-
which by law or by their nature are of public use or interest are pub- cific or permits will be required, as most projects do not have a fully
lic property. They belong to the state, counties, cities or communes, integrated permitting process, which means each type of permit has
but are sometimes administered by other state bodies. to be dealt with separately.
Public property can be leased or granted into concession, on The permits and authorisations are issued by bodies at various
the basis of public competitive processes. Generally, a concession or local or central levels or, exceptionally, directly by the government.
licence to exploit natural resources will allow the holder to extract Typically, the fees and charges applicable for the issuance and main-
and sell such resources, subject to compliance with legal obliga- tenance of permits and authorisations are relatively minor when
tions and the payment of a royalty or licence fee. Mining operations compared to total project costs, although there are exceptions, such
require a Romanian subsidiary and oil and gas exploitation require as telecommunications or nuclear licences, when the cost of licences
either a branch or a subsidiary to be established in Romania. can be material. The value of the fee payable for the issuance of the
Other assets can be freely owned by any person, regardless of building permit usually depends on the value of the construction.
nationality, subject to those set out in question 14. Lending (on a professional basis) is a regulated activity that
can be carried out only by banks or non-banking financial institu-
tions authorised (or passported) in Romania in accordance with the
requirements of the applicable legislation. As professional lending is
not clearly defined by legislation and the National Bank of Romania
Royalties are revenue-based and do not vary according to the is the only entity entitled to decide whether a certain activity may
nationality of the licence holder. be qualified as such, foreign lenders that are not authorised or pass-
For oil and natural gas, the following royalties are applicable: ported in Romania should refrain from granting loans in Romania
• between 3.5 per cent and 13.5 per cent of the value of the gross (except occasionally).
extracted production;
• 10 per cent of the value of the gross income obtained from oil
transport and transit operations; and 21 Must any of the financing or project documents be registered or
• 3 per cent of the value of the gross income obtained from under- filed with any government authority or otherwise comply with legal
ground storage of natural gas. formalities to be valid or enforceable?
The agreements regarding rights in rem over immoveable property
For mining, the following amounts are due: (such as the land sale-purchase agreements, mortgage agreements
• a fixed annual fee per square kilometre of approximately €70 etc) must be concluded in authentic form to be valid, namely they
for prospecting, €290 for exploration (which doubles after two must be signed by the parties in front of a notary public. Further, to
years and becomes five times higher after four years) and €7,230 be enforceable against third parties, security interests are subject to
for exploitation; and the perfection steps outlined in the answer to question 2. As men-
• a mining royalty, which varies depending on the type of resource tioned under question 2, after completion of cadastral works for
being mined; it is 5 per cent for most resources, but in some cases each administrative unit, the effects of Land Book registration will
it is between €0.50 and €3.75 per mining production unit. change and registration will be a condition for the validity of the
relevant rights in rem.
Starting in February 2013, a tax of 0.5 per cent has been set for Leases over real estate property should be registered with the
incomes resulting from the exploitation of natural resources, other Land Book for enforceability against third parties, both under the
than natural gas (including mining and crude oil exploitation). present legal regime and under the new rules, which will become
In 2013, a new tax was introduced in relation to ‘exceptional applicable after completion of the cadastral works for the relevant
revenues’ of companies carrying out both gas extraction and trading administrative unit.
activities. The tax is 60 per cent, which is applied to certain surplus For the same reason of enforceability against third parties, the
revenues, and aims at reducing the benefits of the relevant entities main provisions of any shareholder agreement should be reflected
derived solely from the deregulation of the natural gas prices due to in the constitutive act of the project company and filed with the
the natural gas market liberalisation. Commercial Registry. In principle, there are no language restrictions,
but agreements that need to be authenticated or filed in original with
state bodies are entered into additionally in Romanian.
Loan agreements granted by non-residents for a period exceed-
resources?
ing one year must be notified to the National Bank of Romania. The
One of the main rights of the beneficiaries of concession agreements notification is made solely for statistical purposes and does not affect
regarding mineral resources is to dispose of the agreed quantity of the validity or enforceability of the loan agreement.
natural resources, including through export. Although permitted at Financing or project documents can constitute enforcement titles
present, the export of certain resources, such as natural gas is still (enabling usage of the procedures described in question 4) if they
limited, due to insufficient technical capacity of existing networks meet certain conditions, for example, authentication of documents
and regulatory restrictions such as the ones regarding the obligation by a notary public, attesting determined, liquid and outstanding
of Romanian gas producers to sell part of their production on the receivables and loan agreements having the execution date certified
Romanian market in order to cover the consumption on the regu- by a lawyer or a public officer.
lated market.
ROMANIA PeliFilip
22 How are international arbitration contractual provisions and 24 Is a submission to a foreign jurisdiction and a waiver of immunity
awards recognised by local courts? Is the jurisdiction a member effective and enforceable?
of the ICSID Convention or other prominent dispute resolution A Romanian private entity may subject itself to the jurisdiction of
conventions? Are any types of disputes not arbitrable? Are any foreign courts for commercial matters. The submission to the juris-
types of disputes subject to automatic domestic arbitration? diction of foreign courts is valid and enforceable under Romanian
Romania has ratified various international conventions on arbi- law and would be recognised by a Romanian court according to and
tration such as the New York Convention on the Recognition and subject to the provisions of applicable internal and EU legislation. If
Enforcement of Foreign Arbitral Awards from 1958, the Geneva referred with a dispute submitted by the parties to a foreign juris-
European Convention on International Commercial Arbitration diction, Romanian courts will decline jurisdiction, unless they have
from 1961 and the ICSID Convention on the Settlement of exclusive jurisdiction on those matters (eg, in disputes regarding the
Investment Disputes between States and Nationals of Other States personal status of natural persons or certain patrimonial disputes
from 1965. such as those regarding immoveable assets located in Romania).
Romanian courts recognise international arbitration clauses and Sovereign immunity only applies to the Romanian state and
therefore decline jurisdiction if, under Romanian law, the dispute its bodies. However, sovereign immunity is not applicable in rela-
may be settled in arbitration. All disputes regarding patrimonial tion to disputes regarding commercial agreements concluded by the
rights are eligible for arbitration, except for those regarding matters Romanian authorities with private parties, unless accepted by them.
that may not be subject to settlement (ie, rights that the parties can-
not dispose of) under Romanian law and for those that are subject Environmental, health and safety laws
to the exclusive jurisdiction of ordinary courts under lex fori of the
arbitration. Romanian law excludes from arbitration, inter alia, cor- 25 What laws or regulations apply to typical project sectors? What
porate disputes and insolvency claims. regulatory bodies administer those laws?
Romanian courts will recognise a foreign arbitral award, pro- Romanian legislation has closely implemented the EU directives in
vided that the following conditions are met: the field of environment. The main relevant enactments are:
• the dispute can be subject to arbitration in Romania; • Government Emergency Ordinance No. 195/2005 regarding
• the award does not infringe the Romanian public policy on pri- environmental protection;
vate international law; • Government Emergency Ordinance No. 68/2007 regarding
• the parties to arbitration were in full capacity of entering into environmental liability and the prevention and remedy of envi-
the arbitral agreement; ronmental damages;
• the arbitration agreement is valid; • Law No. 278/2013 regarding industrial emissions;
• the party against which the award is invoked was made aware • Government Emergency Ordinance No. 57/2007 regarding the
of the arbitral procedure and had the possibility to prepare a regime of natural protected areas, the conservation of natural
proper defence; habitats and wild flora and fauna;
• the constitution of the arbitral tribunal and the arbitral pro- • Law No. 107/1996 regarding water;
ceedings were performed with the observance of the arbitration • Ministry of Waters and Environmental Protection Order No.
agreement or, in the absence of contractual provisions, of the 135/2010 for the approval of the methodology of application
applicable law; of the environmental impact assessment for public and private
• the award is limited to matters and terms included in the arbitra- projects;
tion agreement; and • Ministry of Waters and Environmental Protection Order No.
• the award is mandatory for the parties and it was not annulled 863/2002 for the approval of the methodology guides applicable
or suspended. to the stages of environmental impact assessment procedure;
• Government Decision No. 1076/2004 establishing the proce-
Under Romanian law, no disputes are subject to mandatory arbitra- dure of environmental assessment over plans and programmes;
tion, except in very limited areas (eg, disputes between lawyers in • Order No. 19/2010 regarding the approval of the methodologi-
relation to their practice). cal guide for the adequate evaluation of the potential effects of
plans and programmes over the natural protected areas of com-
munity interest; and
• Government Decision No. 445/2009 regarding the environmen-
tal impact assessment for certain public and private projects.
The typical law of the project agreements depends on the type of The main bodies in charge of the issuance of the environmental reg-
agreement (eg, concession agreements are governed by Romanian ulatory acts and control of environmental laws and regulations are
law) and especially on whether or not certain bodies of the Romanian the Ministry of Environment and Climate Change, the national and
state are parties – in which case Romanian law will almost always territorial environmental protection agencies and the Environmental
be selected. Financing agreements are typically entered into under Guard.
the law chosen by the lender, with English law being the almost- Health and safety legislation is also harmonised with EU direc-
universal choice. Security documents referring to assets located in tives. The general legal framework regarding health and safety in
Romania are entered under Romanian law. Romania is set out under the Romanian Labour Code, Law No.
Regardless of the choice of law, many issues will remain in prin- 319/2006 on work safety and health at work and their methodologi-
ciple governed by Romanian law. These include tax, enforcement, cal norms. In addition to the general health and safety norms there
labour, bankruptcy, all matters that are governed by administrative are also specific minimum safety and health requirements approved
or regulatory provisions, corporate law applicable to the project for certain activities such as the ones that concern working with cer-
company (if Romanian) and other matters mandatory under EU or tain equipment, working in environments in which the employees
Romanian law. are exposed to risks like vibration, electromagnetic fields or biologi-
cal compounds and activities specific to certain industries, such as
drilling or extraction.

PeliFilip ROMANIA
There are several authorities with competencies in health and

safety matters depending on the type of project, for example, the Update and trends
Territorial Labour Inspectorate, the National House of Pensions
and Other Social Rights, the Emergency Situations Inspectorate, the In the public sector in the coming period, attention is expected
to be placed on the financing of governmental projects in certain
Health District Authority, etc.
sectors, such as infrastructure and energy.
In the private sector, due to an increase in the number of
Project companies non-performing loan portfolios and insolvency proceedings opened
in various industries, it is expected that the debt restructuring
26 What are the principal business structures of project companies? trend will continue. Nevertheless, Romania went through a period
What are the principal sources of financing available to project of economic growth recently, being regarded as one of the most
attractive markets for foreign investors in central and eastern
companies?
Europe. In the medium and long term, this may be expected to
The project companies are usually set up as limited liability compa- lead to a more active project financing market.
nies or joint-stock companies, depending on the type of project, the Public intervention continues to have quite a strong impact,
number of shareholders and the intended financing structure (lim- especially in sectors such as energy and infrastructure, though it is
still to be seen what position public authorities will take in relation
ited liability companies cannot issue bonds, nor can they list shares). to matters such as continuing the liberalisation of the natural gas
In June 2010, the Company Law was amended and the transfer of market and the implementation of various privatisations in the
shares in limited liability companies from current shareholders to energy field and in relation to the PPP legislation.
third parties was made more complicated. Thus, the shareholders’ Further legislative changes expected to occur concerning
general matters such as insolvency may also have a substantial
resolution approving the transfer must be published in the Official
impact on the rights of investors.
Gazette and third party creditors of the company have the right to
oppose the transfer within 30 days of such publication. Although it
appears that the opposition cannot ultimately prevent the transfer,
the creditors can claim indemnification for any damages resulting authorities or entities in the field of defence and security, PPP agree-
from the transfer. The transfer becomes effective only after the expiry ments resulting in the public partners’ ability to provide or exploit
of the term in which third-party creditors can raise the objections or public telecommunication networks or supply telecommunication
after their objection is rejected, as the case may be. Therefore, a joint- services to the general public and PPP agreements entered into on
stock company (in which the shares are transferred as a rule upon the basis of certain international treaties or following the appli-
registration in the shareholders’ registry) may have become more cation of a procedure typical for an international organisation.
attractive as business structure than a limited liability company. Due do the inefficiency of the PPP law in force, in 2012 the
In practice, the principal sources of financing available to pro- government initiated a project for a new PPP law (Draft PPP Law)
ject companies (other than shareholder finance) are loans granted intended to solve some of the issues at present blocking PPP pro-
by Romanian and foreign financial institutions, usually in a syn- jects. The Draft PPP Law was repeatedly disputed on grounds of
dicate for larger projects. The domestic capital market has not, so unclear provisions regarding awarding and unilateral termination
far, proved to be a constant viable alternative for financing, and rights granted to the contracting authority and had not been enacted
although the legal basis for these types of financing is generally in by mid-2014.
place, there have been some recent precedents and there seems to be
growing interest in the market. PPP – limitations
Public-private partnership legislation 28 What, if any, are the practical and legal limitations on PPP
transactions?
The novelty of the PPP legislation and the various unclear aspects
related to its application (including its relatively unclear correlation
A legal framework applicable to PPPs has been in force for a few with other legislation, eg, on privatisation, public procurement and
years (namely, 2002 to 2006). Until 2010, PPPs (although not too concession) are often seen as obstacles to the implementation of PPP
many) were implemented on the basis of concession structures or transactions in Romania. In addition, the legal framework fails to
based on public procurement legislation. provide any solutions to common issues for PPP projects, as it does
At the end of 2010, the Parliament approved a new law on not set up any mechanism to facilitate the financing of these projects.
PPPs, which was subsequently amended in 2011, 2012 and 2013. In addition, PPPs (especially in certain industries and sectors –
The new PPP law covers institutionalised PPPs in a general manner, eg, infrastructure and energy) require a significant permitting effort
without industry-specific provisions. However, following its 2011 and the involvement of several regulatory and public authorities.
amendments the law sets forth conditions required for activities in Due to the lack of centralisation in this respect, the unclear legisla-
the fields of gas, thermal and electric energy or potable water to fall tion and the inconsistent practice, the permitting process is often
under its provisions. Further, in its present form the law also covers unclear, convoluted and time-consuming.
PPP projects concerning sectorial agreements (namely, exploitation However, the Draft PPP Law brings some improvements as
of public transportation networks, postal, courier and logistics ser- follows:
vices), services in relation to e-mail and services provided entirely • it attempts to clarify the terms and conditions for its applica-
through electronic means, services in relation to the exploitation of tion (as opposed to applying the Public Procurement Law). The
certain resources (namely, petrol, gas, coal and other solid fuels) as Draft PPP Law (if adopted) will apply when the public partner
well as exploitation of ports, airports and other transport terminals. is not able to fully finance the PPP project and cannot determine
Certain types of projects and operations are specifically the legal or financial structure of the project and the most effi-
excluded from the scope of PPP legislation, for example, PPP agree- cient technical solution for achieving the public needs targeted
ments entered into with the purpose of buying or leasing land or by the project. Unfortunately, these provisions are again unclear
existing constructions or other immoveable assets, PPP agreements as PPP projects may also be very useful when the public partner
concerning research and development services other than those is not in a state of being unable to fully finance, but just wants
strictly benefiting the public partner and aimed for its own use, to reduce its exposure and increase efficiency by involving the
provided that the costs are entirely covered by such a partner, PPP private sector;
agreements for works, supply and service contracts by contracting
ROMANIA PeliFilip
• contribution of the partners and risk allocation: under the draft PPP – transactions
Draft PPP Law, these projects can be financed entirely through
private funds or through both private and public funds (includ- 29 What have been the most significant PPP transactions completed
ing EU funds). The public partner may also participate with cash, to date in your jurisdiction?
not only in kind at the financing of the project. The public part- No major projects have been completed to date based on PPP struc-
ner can be the main or sole beneficiary of the services provided tures. The 2010 PPP legislation was passed with the main purpose
by the project company. The public partner will be also able to of supporting such projects, although it does not provide all the
grant certain guarantees exclusively in favour of the financers of relevant instruments in this respect. In April 2011 the government
the project (eg, credit institutions, financial institutions); and published a list containing 18 projects it intends to develop based
• certain termination cases of the agreement and return of assets on PPP structures, in various sectors, such as infrastructure, energy,
to the public partner: there is a slightly clearer regime on the environment and health care. Additional lists of projects were pub-
ownership and use of the assets brought or created during the lished in July 2013.
project. The assets created as well as those used during the PPP By mid-2014, a few of these projects have been initiated (ie,
project shall be transferred to the public partner (i) for free, at three highway projects), however, not on the basis of PPP legisla-
the termination of the PPP due to the expiry of the term, or (ii) tion, but under the general public procurement and concession legal
provided a compensation for the unamortised value of the assets framework. For two of these highway projects, the awarding proce-
is paid, in any other cases of termination. dure was completed and the winning bidders are in the process of
obtaining financing.
In December 2013, the government also announced that 100
projects for research and development with an aggregate value of
€500 million will be seeking EU co-financing for implementation
using PPP structures.
Alina Stancu Bîrsan alina.stancu_birsan@pelifilip.com

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Baker Botts LLP SAUDI ARABIA
Saudi Arabia
Babul Parikh, Sumit Soni and Keith Bullen
Baker Botts LLP
Creating collateral security packages • machinery, equipment and motor vehicles can be pledged;
• ships can be secured by registration of the security interest with
1 What types of collateral are available? the Ministry of Transport pursuant to the Regulation for Ship
Pledges, real estate mortgages and assignments are the primary Mortgages 1955. In addition, ‘marine borrowing contracts’ are
forms of security available in Saudi Arabia. Their characteristics are provided for under the Commercial Court Law, which gives rise
set out in question 2, including, in the case of pledges and real estate to a quasi-security interest over the ship. The enforceability of
mortgages, recent changes brought about by legislation. such marine borrowing contracts is unknown at this time;
Types of collateral regularly secured include: • aircraft can be secured by registration of the security interest
• money held in a bank account, which is typically secured using with the General Authority of Civil Aviation (GACA);
a bank account pledge that contains a concurrent assignment of • structured investment products – the Commercial Pledge Law
the sums standing to the credit of that account. Borrowers make and its implementing regulations specifically provide for the
periodic restatements of the assignment of a fluctuating balance pledging of certain types of investment products, namely, sukuk
as: notes and bonds. The Commercial Pledge Law provides that
• Saudi Arabian law does not recognise the floating charge other securities are to be pledged in accordance with the pro-
concept; and cedures set out in the Capital Market Law and its implement-
• only absolute, unconditional and ascertainable assets can ing regulations. The Capital Market Law and its implementing
be assigned. This mechanism is untested. Financiers taking regulations only prescribes detailed procedures for registering a
the benefit of such security typically require the pledged pledge of shares issues by a joint stock company; and
account to be maintained with their institution. This allows • the Saudi Arabian courts recognise corporate and bank
the financier to rely on a contractual set-off right (which is guarantees.
itself an uncertain legal concept);
• real property – commercial lenders cannot take real estate mort-
gages as real estate mortgage documents must be notarised (see
question 2). Accordingly many real estate financiers use a legal
conveyance of real estate to a special purpose vehicle as security.
Entities other than commercial lenders have historically been
able to take real estate mortgages. An exception to these rules
is the Saudi Industrial Development Fund (SIDF), which partici-
pates in a large number of Saudi project financings on behalf of Various types of security are perfected as follows:
the Saudi government. The SIDF is thought to be the only Saudi • pledges have traditionally been perfected by transfer of pos-
financial institution that may take the benefit of real estate mort- session and control of the pledged asset to the pledgee. These
gages for the purposes of project finance; requirements make it conceptually difficult to pledge intangible
• assignments of contractual rights including rights of tenancy assets. Registration of pledges is provided for in the Commercial
and financial receivables are typical in project finance transac- Pledge Law to the extent that a registry has been established
tions. However their enforceability is uncertain. For financial for that asset class. Until recently, Saudi Arabia only had reg-
receivables, financiers typically require third party creditors to istries for the purpose of securing ships and aircraft, making it
pay the receivable into a secured account (see above). Insurance difficult to pledge many assets that would typically form part
proceeds are often assigned in project finance transactions. of a project finance security package. The recently established
However, financiers typically require that they are named as Unified Centre for Lien Registration (UCLR) has changed things
loss payee or that the insurance proceeds are paid into a secured greatly, as it provides a registry in which asset pledges can be
account as additional risk mitigation; registered. Such assets should be in existence, moveable, trade-
• shares in a joint-stock company can be pledged and must be able and specifically identifiable in order for their pledge to be
registered in the company’s shareholders’ register and with the registered with the UCLR. The implementing regulations are
Saudi Company for Share Registration (the Tadawul); silent on whether the failure to register a pledge with the UCLR
• the shares of a limited liability company are not evidenced by makes the pledge unenforceable. Accordingly, while it is becom-
share certificates and there are no public registries of limited lia- ing common practice for pledges to be registered, the effective-
bility company shareholders. Accordingly, for the reasons set out ness of such registration is uncertain. Financiers have, generally,
in question 2, a pledge of such shares has historically been con- not used further assurance obligations set out in the pledges to
ceptually difficult. Despite this difficulty, the majority of project require borrowers to register pledges entered into prior to the
financings use a limited liability company as a special purpose establishment of the UCLR;
vehicle rather than a joint-stock company;
SAUDI ARABIA Baker Botts LLP
• real estate mortgages are perfected through notarisation by a Pledges are enforced by taking action before the Enforcement
notary public. Historically, notaries have exercised their discre- Court by presenting an enforceable instrument such as a suitable
tion not to notarise real estate mortgages in favour of commer- judgment order. The Enforcement Court will order a public auction
cial lenders as they relate to interest-bearing loans. Such loans of the pledged asset. There are no restrictions on lenders participat-
are against the principles of the Sharia (on which all Saudi law is ing in sales of pledged assets nor express provisions with respect to
based). Accordingly, real estate mortgages are of limited applica- the currency of the sale.
tion in project finance transactions. A new Real Estate Mortgage
Law came into effect in 2013, providing for real estate registries
in which real estate mortgages may be registered. However, the
implementation of the new Real Estate Mortgage Law is pro-
ceeding slowly. It is not anticipated at this stage that the new
Real Estate Mortgage Law will have an impact beyond the retail
market;
• ship mortgages require registration with the Ministry of
Transport pursuant to the Regulation for Ship Mortgages 1955.
There are set procedures and documentary requirements for
registration;
• aircraft mortgages are filed with the General Authority of Civil Saudi Arabia lacks a detailed insolvency regime and the limited leg-
Aviation (GACA), along with aircraft registration documenta- islative provisions dealing generally with bankruptcy are very dated.
tion; and In addition, there is also a lack of guidance with respect to the prac-
• assignments must be notified to, and subsequently acknowl- tice and proceedings of the Grievances Board due to both the infre-
edged by, the contract counterparty, for example, an offtaker, quency of bankruptcy proceedings and the fact that cases are neither
account bank or insurer. An assignment is only enforceable reported nor collected centrally. In addition, there are certain types
against the contract counterparty upon their acknowledgment of corporate entities (such as banks and insurance companies) for
of such an assignment. which there is no precedent of insolvency proceedings.
The commencement of insolvency proceedings does not of itself
As a general rule, any document being submitted as evidence to a effect a stay of other types of enforcement action. However, as a
Saudi court must be translated into Arabic by a certified translator. practical matter, given that the same court has jurisdiction for insol-
There are no local governing law requirements and no stamp duty vencies and enforcement of security (the Grievances Board) it is pos-
is payable. sible that the Grievances Board would not allow for the enforcement
Corporate entities can hold security as security agent on behalf of a pledge against the bankrupt’s property except in the context of
of others. the insolvency proceedings.
Saudi Arabia does have Regulations for Settlement to Protection
against Bankruptcy, which can be invoked by a debtor for the pur-
3 How can a creditor assure itself as to the absence of liens with poses of reaching a settlement with its creditors. Such proceedings
priority to the creditor’s lien? are court-supervised (by the Grievances Board) and upon com-
It is a principle of Saudi law that an asset cannot be secured more mencement, a moratorium of enforcement action against the debtor
than once. As a result, there is at present no general concept of sec- prevails until the settlement has been approved by the court.
ond ranking security in Saudi Arabia. However, we are aware of an There are preferred debts in liquidation including:
arrangement that permits Saudi banks to provide second mortgages • residential and business rents, wages for servants and clerks and
to Saudi nationals that have been provided financing by the Saudi the bankrupt’s wife’s dowry – Commercial Court Law;
Arabian Real Estate Development Fund, as part of strategy to grow • amounts owed to an employee or dependant – Labour Law; and
the domestic affordable housing market. We understand that it is • liquidation expenses, social insurance and social security pay-
possible for such second mortgages to be registered as second-rank- ments and customs fees – Royal Decree No. M/14 dated
ing security directly on the title deeds maintained under the Notary 16/04/1421 H (corresponding to 18 June 2000).
Public system. Whether this development foreshadows a more gen-
eral availability for second-ranking mortgages remains to be seen. From the day the insolvency is declared and a liquidator is appointed,
Notwithstanding the above, assignments and pledges may be any transaction entered into by the entity may be questioned by the
subject to any prior claim of other interested parties and creditors. It liquidator and, if deemed inappropriate, unwound. The liquidator
is not clear whether execution or registration is the basis for ranking, may also question transactions that were entered into prior to the
or whether a later dated but registered pledge takes priority over an declaration of insolvency and his or her appointment on the basis
earlier unregistered pledge. that the debtor was acting in a misleading manner, for example, by
The register held by the UCLR is publicly accessible, allowing deception, transactions at an undervalue or transactions not con-
searches against a company’s assets. However, in practice, lend- ducted on an ‘arms length’ basis. Although there is no period for
ers rely on the borrower’s representation as to the absence of any which the liquidator may go back in time and question suspect
other security interests rather than requesting a search of the UCLR transactions, we believe that the further back in time the liquidator
register. goes, the stronger the reason needs to be to unwind the transaction.
Once all outstanding contracts of the entity have been settled and
all debts paid, the liquidator will advertise in a national newspaper
in Saudi Arabia that he or she is proposing to strike the entity off
the Commercial Register. If there are no further claims from any
outstanding creditors, the entity will be struck off the Commercial
As a general rule, self-help remedies are not permitted under Saudi Register and technically cease to exist.
law. The Commercial Pledge Law expressly prohibits self-help and Under the Commercial Court Law the liquidator is obliged to
deems unenforceable any provision that purports to provide the treat all the creditors of the entity in bankruptcy on an equal foot-
pledgee with a power of sale or the power to take ownership of the ing. The liquidator is obliged to recover sums owed to the entity
pledged asset. in bankruptcy, pay creditors preferred by law and then settle debts

owed to unsecured creditors on a pari passu basis. In our opinion remain closed, or otherwise restricted, to foreign investment, even
the liquidator has the right to demand the payment of debts owed in though they are not listed on the Negative List. For example, for-
full irrespective of whether the debtor has a mutual debt owed to it eign investment in education remains prohibited even though educa-
by the entity in bankruptcy. tion is not included on the Negative List. However, pursuant to the
Gulf Cooperation Council Economic Agreement (referred to below)
Foreign exchange issues GCC nationals are permitted to invest in education at all levels
except higher education. Only Saudi nationals can invest in higher
6 What are the restrictions, controls, fees, taxes or other charges education. In addition, a business licence to undertake professional
on foreign currency exchange? services (eg, engineering or legal services), permits foreign investors
With the exception of Israeli currency, there are no restrictions to hold an ownership interest of up to 75 per cent, but the remaining
or exchange controls in Saudi Arabia on the holding of foreign 25 per cent interest must be held by at least one licensed professional
exchange or on the making of payments in US dollars or other for- who is a Saudi Arabian national.
eign currency. Creditors seeking to foreclose on the assets of a project company,
for example, pursuant to step-in rights or an enforcement of a share
pledge126Pledge127, and creditors generally, are not exempt from
and are bound by the restrictions under the Foreign Investment Law.
Their ability to enforce on their security is restricted accordingly.
Before carrying out any activities, the foreign investor must first
With the exception of the Israeli currency, there are no restrictions obtain a foreign investment licence from the Saudi Arabian General
or exchange controls in Saudi Arabia on the making of payments in Investment Authority (SAGIA), which will take the form of an
US dollars or any other foreign currency. industrial licence or a service licence. In addition, the approval of
other governmental bodies with jurisdiction over certain sectors of
8 Must project companies repatriate foreign earnings? If so, must the economy, for example, the Ministry of Education, the Ministry
they be converted to local currency and what further restrictions of Health, the Saudi Arabian Monetary Agency (with respect to
exist over their use? banking and insurance) and the Communication and Information
Technology Commission (CITC) (with respect to investments in
Project companies are not required to repatriate foreign earnings.
the telecommunications industry), may also be required for foreign
investment in that sector.
9 May project companies establish and maintain foreign currency Corporation tax at a flat rate of 20 per cent is payable on net
accounts in other jurisdictions and locally? profits attributable to a foreign shareholding pursuant to the Income
Project companies may establish and maintain foreign currency Tax Law, issued under Royal Decree M/1, dated 15/1/1425H (cor-
accounts in other jurisdictions. Due to the uncertainty surrounding responding to 6 March 2004). In addition, withholding tax at 5 per
security over accounts in Saudi Arabia, a common feature of pro- cent is payable on dividends remitted to a shareholder located out-
ject financing transactions and security packages is a requirement side Saudi Arabia. There are presently no foreign exchange controls
for project accounts and debt service reserve accounts to be held in in force in Saudi Arabia.
jurisdictions where lenders have greater confidence in the security Under the Gulf Cooperation Council Economic Agreement
granted with respect to such accounts. (entered into by GCC member states in December 2001 and adopted
into Saudi Arabian law by Royal Decree No. 204 dated 25/7/1424H
Foreign investment issues (corresponding to 22 September 2003)), nationals of GCC member
states are generally not treated as foreign nationals for the purpose
10 What restrictions, fees and taxes exist on foreign investment in or of investment in Saudi Arabia, except with respect to investment in
ownership of a project and related companies? Do the restrictions real estate in the holy cities of Mecca and Medina and commercial
also apply to foreign investors or creditors in the event of agency (within the meaning of the Commercial Agency Regulations
foreclosure on the project and related companies? Are there issued under Royal Decree M/11 dated 20/2/1382H (corresponding
any bilateral investment treaties with key nation states or other to 22 July 1962), as amended), both of which are restricted to Saudi
international treaties that may afford relief from such restrictions? Arabian nationals.
authority?
Foreign investment in Saudi Arabia is governed principally by the over project assets provided or guaranteed by foreign insurance
Foreign Investment Law issued under Royal Decree No. M/1 dated companies? May such policies be payable to foreign secured
5/1/1421 H (corresponding to 10 April 2000) and its Implementing creditors?
Regulations. Primary oversight and policy development in relation In Saudi Arabia, the Cooperative Insurance Companies Control
to foreign investment is provided by the Supreme Economic Council Law, issued under Royal Decree No. M/32 of 2/6/1424H (cor-
of Saudi Arabia, established pursuant to Royal Decree No. 111 responding to 31 July 2003), requires that insurance over project
dated 17/5/1420H (corresponding to 29 August 1999). The regu- assets located in Saudi Arabia must be obtained through a Saudi
latory overseer of licensing and policy implementation appointed insurance company. No offshore insurance is allowed. However, an
under the law is the Saudi Arabian General Investment Authority. exception exists if Saudi insurance companies are not able or do not
In December 2005, Saudi Arabia acceded to the World Trade have the capacity to fund the insurance coverage. In this case, an off-
Organization, pursuant to which the country was committed to shore insurance policy would be permitted, but only if the insurance
open up several economic sectors to foreign investment. policy is obtained through a Saudi agent.
The general rule is that foreign investment is permitted across
all sectors of the Saudi Arabian economy other than those activities
on the Negative List issued and periodically reviewed and updated 12 What restrictions exist on bringing in foreign workers, technicians
by the Supreme Economic Council. If a particular activity is not or executives to work on a project?
listed on the Negative List then it should generally be open to for- Under the Saudi Residency Law issued under Royal Decree No.
eign investment. However, in practice, certain sectors and activities 17/2/25/1337 of 11/9/1371H (corresponding to 4 June 1952), a
foreign national may not work in Saudi Arabia without a valid work Under the Unified Customs Rules a common customs tariff of
permit. Foreign workers must have work visas (permits), intended 5 per cent is applied to all foreign goods imported into the GCC.
for long-term work assignments coupled with a residence permit). Technically under the terms of the GCC Customs Union, goods
The foreign national also needs an exit/re-entry visa (renewable entering at any point in the GCC have a duty assessed on them at
every six months) to enter and exit Saudi Arabia. the point of entry and can then move freely throughout the GCC.
Under the Saudi Residency Law and also the Labour Law, issued Under the Saudi Customs Law issued under Royal Decree No.
under Royal Decree M/51, dated 23/8/1426H (corresponding to 27 425 dated 5/3/1372H (corresponding to 23 November 1952) the
September 2005), a foreign employee is not permitted to work for majority of goods are subject to 5 per cent customs duty. Some
any person or entity other than his or her sponsor. imports, however, continue to be subject to higher tariffs of up to 20
In May 2011, the Ministry of Labour substantially overhauled per cent to protect local suppliers.
the rules and regulations regarding job creation for Saudi nationals An exception to the general rule, though, is the Law for the
(Saudisation) by the introduction of a new regime called Nitaqat Protection and Encouragement of National Industry issued under
(meaning zones). The Nitaqat regime seeks to maximise the employ- Royal Decree No. 50 dated 23/12/1381H (corresponding to 28
ment of Saudi nationals in those sectors where suitably qualified May 1962), which provides that industrial projects in Saudi Arabia
Saudi nationals are more readily available. Businesses are catego- may import machinery, tools, equipment and spare parts free from
rised in 41 sectors with varying Saudisation requirements applica- customs duties. Semi-manufactured materials, raw materials and
ble to different sectors. The actual percentages of Saudi nationals packaging materials may also be imported duty-free by industrial
required to achieve a certain category is dependent on the size of projects but only to the extent that such materials are not available
the employer’s workforce and on the industry or sector in which the in Saudi Arabia.
employer operates. Further, under article 2 of the Unified Customs Rules for GCC
Based on its level of compliance with the Saudisation require- Countries, certain equipment can be imported on a temporary basis
ment applicable to its sector, each business is then classified in to for six months, renewable at six-monthly intervals for up to a maxi-
one of four zones, namely, red, yellow, green or premium. The pur- mum period of three years. However, if the project for which the
pose of the classification system is to incentivise compliance and equipment has been imported requires more than three years to
punish non-compliance with applicable Saudisation requirements. complete, the temporary importation licence can, at the discretion of
Businesses falling into the yellow zone (those considered to be non- the Customs Department, be extended for more than three years. No
compliant with the applicable Saudisation requirements) cannot customs duty is payable on any importation of goods that is granted
apply for work or residence permits for new foreign employees and temporary status.
can only renew the residence permits of existing foreign employees Pursuant to Customs Resolution No. 29/11/M of 2010 customs
who have been engaged for less than six years. Businesses in the clearance applications for goods imported by companies owned
red zone (those considered to be materially non-compliant with the wholly or partly by foreign investors with a capital of less than 10
applicable Saudisation requirements) can neither apply for work or million Saudi riyals must be approved by the customs head office
residence permits for new foreign employees nor renew the residence in Riyadh. However, customs clearance applications for companies
permits of existing foreign employees. with a capital of above 10 million Saudi riyals can be approved
by the customs department at the relevant port, which is generally
quicker and more convenient.
Government contractors wishing to acquire equipment and supplies
are generally obliged to obtain them from local suppliers. Council 14 What laws exist regarding the nationalisation or expropriation
of Ministers Resolution No. 124, dated 29/5/1403H (correspond- of project companies and assets? Are any forms of investment
ing to 14 March 1983) directs that all government contractors must specially protected?
purchase the tools and equipment necessary for performance of their Under the Law for Expropriation of Real Estate for the Public Interest
duties from Saudi traders within Saudi Arabia. However, importa- and Temporary Claim of Real Estate issued under Royal Decree No.
tion is allowed if the contractor is importing tools or equipment M/51 of 11/3/1424H (corresponding to 12 May 2003), government
already belonging to him or her. authorities and agencies are, if there are no suitable publicly owned
Further, the Resolution requires all non-Saudi contractors to sub- lands, empowered to expropriate real estate for the public interest
contract to Saudi contractors 30 per cent of the value of the works to carry out projects budgeted for in the national annual budget. In
provided for in a government contract. At present, contractors duly most cases, the real estate owner is entitled to ‘fair compensation’.
incorporated in Saudi Arabia as local companies are considered to Government authorities and agencies are also empowered to claim
be Saudi contractors, even if fully foreign-owned, and are therefore real estate for a maximum of three years (renewable upon agreement
not subject to the subcontracting requirement under the Resolution. with the real estate owner), in the case of emergencies or where there
However, it should be noted that ministries are afforded broad dis- is no option but to claim the land to carry out a project beneficial to
cretion regarding interpretation of laws and regulations and may the public interest. The owner is then entitled to rent.
exercise that discretion so as to consider a foreign-owned Saudi
company to be a non-Saudi contractor and therefore be subject to Fiscal treatment of foreign investment
the subcontracting requirement. A branch of a foreign company reg-
istered in Saudi Arabia is, however, considered to be a non-Saudi 15 What tax incentives or other incentives are provided preferentially
contractor and is subject to the 30 per cent contracting requirement. to foreign investors or creditors? What taxes apply to foreign
The Council of Ministers Resolution No. 139, dated 25/6/1407H investments, loans, mortgages or other security documents,
(corresponding to 24 February 1987) further requires that all gov- either for the purposes of effectiveness or registration?
ernment contracts shall contain terms requiring contractors to give It should be noted that Saudi law firms are unable to advise on Saudi
priority in procurement to goods from within member states of the taxation matters. We recommend seeking advice from a tax consult-
Gulf Cooperation Council (GCC) (namely, Saudi Arabia, Qatar, ant or licensed auditor. Set out below is simply our understanding
Oman, Kuwait, Bahrain and the United Arab Emirates). of the tax regime.
As regards customs regulation, the GCC Customs Union came We are not aware of broad ranging tax incentives for foreign
into effect on 1 January 2004 and pursuant to the Unified Customs investors or creditors. We note that publicly available information
Rules for GCC member states created a single GCC customs zone. from the Saudi Arabian General Investment Authority indicates tax

incentives being made available for investment in six underdevel- resources from the competent ministry. This chapter focuses on the
oped regions of Saudi Arabia. mining and oil and gas industries, as they are the two most impor-
Other than withholding tax payable on interest payments and tant sectors with regard to natural resources investment in Saudi
loan proceeds, we are not aware of any other taxes applicable to Arabia.
investments, loans, mortgages or security documents.
Saudi Arabia has in place a number of double taxation treaties Mining
that may be relevant to a consideration of the broader Saudi tax Title in mineral deposits and quarry raw materials belongs to the
climate. state. However, a private company, which can be wholly owned by
foreign nationals, may apply for a mining licence from the Ministry
Government authorities of Petroleum and Mineral Resources to exploit mineral resources.
The licence will typically impose various obligations and conditions
16 What are the relevant government agencies or departments with relating to such matters as preservation of the environment, the
authority over projects in the typical project sectors? What is the employment and training of Saudi nationals (including an obligation
nature and extent of their authority? What is the history of state to employ a minimum quota of Saudi nationals), the requirement to
ownership in these sectors? give priority to local contractors and suppliers and the stipulation
Each ministry is responsible for projects within its jurisdiction. For to not alter the company’s ownership structure without the consent
example, the following ministries have jurisdiction for particular of the ministry.
project categories:
• the Ministry of Petroleum and Mineral Resources – oil and gas Oil and gas
and mining; Title to oil and gas and the right to carry out exploration and pro-
• the Ministry of Water and Electricity – power and water; duction activities rests solely with the state. Exploration and produc-
• the Ministry of Culture and Information and the Communication tion is primarily carried out by Saudi Aramco, however, exemptions
and Information Technology Commission – telecommunications; and partial exemptions such as the concessions awarded under the
• the Saudi Railways Organisation – railways. The Saudi Railways Saudi Gas Initiative have been granted. Private companies in Saudi
Organisation is itself under the jurisdiction of the Ministry of Arabia (whether owned by foreign or Saudi nationals) may only
Transport. The Minister of Transportation is the Chairman of provide ancillary services such as pipeline installation, drilling ser-
the Saudi Railways Organisation; and vices and safety services.
• the General Authority for Civil Aviation – aviation and airports.
Each ministry has broad discretion to plan and implement projects resources, and are they revenue- or profit-based?
within its jurisdiction and if contemplated within the government’s
Mining
overall development and strategic planning. In certain sectors, there is
Under the Income Tax Law, a foreign investor must pay an income
a history of majority state ownership in companies carrying out pro-
tax of 20 per cent of his or her net profit. For Saudi investors, the
jects. For example, oil and gas exploration and production projects
Mining Investment Law issued under Royal Decree No. M/47 and
can only be carried out by Saudi Aramco, the state owned national
dated 20/8/1425H (corresponding to 4 October 2004) requires pay-
oil company. Foreign investment in upstream oil and gas exploration
ment of a fee that varies depending on the type of licence held. It can
and production is not permitted under the Foreign Investment Law.
be either a fee of 25 per cent of the annual net profit or the equiva-
Oil and gas projects involving international oil companies do not
lent of income tax, whichever is lower or a fee calculated according
generally occur in Saudi Arabia. However, exemptions have been
to the volume and type of mineral extracted.
granted, for example, for upstream activity in the partitioned zone
between Saudi Arabia and Kuwait (where Chevron has a conces-
Oil and gas
sion agreement) and in Rub’ al Khali (the empty quarter) where gas Although investors may generally not engage in exploration and
exploration concessions were awarded to international oil compa- production of oil and gas, those carrying out ancillary services
nies under the Saudi Gas Initiative. Power generation and mining within the oil and gas industry fall within different taxation bands.
projects are typically carried out by the Saudi Electricity Company Under the Income Tax Law, investors engaged in the natural gas
and Ma’aden respectively, both of which are majority state-owned, sector are liable to income tax of 30 per cent, while those engaged
although a good number of mining opportunities are available to in the oil and gas and hydrocarbons sector must pay income tax of
private investors. 85 per cent.
In other sectors such as telecommunications, however, the gov-
ernment generally licenses private companies to take up projects.
The government may impose a requirement on those companies 19 What restrictions, fees or taxes exist on the export of natural
to give a minority stake in the project company to a state owned resources?
organisation, such as the General Organisation for Social Insurance The Mining Investment Law provides that investors wishing to
(GOSI) or the Pension Fund, as a condition to the licence. Public export minerals must submit an application to the Ministry of
offerings have also been considered as a condition to concessions Petroleum and Mineral Resources with various details relating to
offered to the private sector. the goods to be exported. The ministry would then complete the
necessary procedures for exportation. The Mining Investment Law
Regulation of natural resources also provides that, unless an investor has an existing obligation to
sell extracted minerals to a third party, the state has priority in pur-
17 Who has title to natural resources? What rights may private chasing mineral production on the conditions and at the prevailing
parties acquire to these resources and what obligations does the prices for those minerals.
holder have? May foreign parties acquire such rights? In practice, though, licences may carry further restrictions. The
Primary title to all natural resources belongs to the state under the licence may, for example, require the licensee to sell certain miner-
Basic Law issued under Royal Decree A/90, dated 27/8/1412H als to local purchasers and may even go further by providing for a
(corresponding to 2 March 1992). However, private investors may pricing formula.
generally obtain licences for exploration and production of natural
Legal issues of general application 23 Which jurisdiction’s law typically governs project agreements?
20 What government approvals are required for typical project finance Which matters are governed by domestic law?
While there is no common approach towards the governing law of
Saudi banks that are participating in syndicated financing that are non-financing project agreements, as with other jurisdictions in the
either not in Saudi riyals or involve foreign financial institution par- Middle East, English law is the most common except where both
ticipants are required to notify the Saudi Arabian Monetary Agency. counterparties are Saudi companies.
No fees are applicable. Financing agreements, whether conventional or Islamic, are
most commonly governed by English law. Security documents with
21 Must any of the financing or project documents be registered or respect to assets in Saudi Arabia are governed by Saudi law.
formalities to be valid or enforceable? 24 Is a submission to a foreign jurisdiction and a waiver of immunity
There are no registration or filing requirements with respect to effective and enforceable?
financing and project documents. There is no concept of sovereign immunity under shariah law – all
For financing and project documents to be admissible in evi- persons including the King are subject to the law and suit. This con-
dence in Saudi Arabia, they must be transacted into the Arabic lan- cept is legislatively provided for in a limited sense in the Grievances
guage by a duly licensed translator. This is usually not done until Board Law, which excludes from the board’s general jurisdiction for
such time as a dispute arises and the need to admit the documents matters involving government agencies ‘disputes against the govern-
into evidence arises. Almost without exception, financing and pro- ment’s sovereign acts’. This phrase is not defined.
ject documents are documented and executed in English.
Some notable exceptions to this rule include: Environmental, health and safety laws
• promissory or ‘order’ notes, which will usually be bilingual
(English and Arabic); and 25 What laws or regulations apply to typical project sectors? What
• any document to be entered into by a Saudi government agency; regulatory bodies administer those laws?
under Saudi law all correspondence with (including agreements Projects are typically subject to the Environmental Law issued under
entered into by) Saudi government agencies must be in Arabic. Royal Decree No. M/34 dated 28/7/1422H (corresponding to 15
October 2001), which places duties on companies to protect and
There are no registration, stamp or other similar taxes or charges preserve the environment. Breaches of the law render the violator
payable in Saudi Arabia in respect of the financing or project liable to various penalties including cessation or suspension of busi-
documents. ness activity, fines and even imprisonment.
Projects may also be subject to the jurisdiction of the Higher
22 How are international arbitration contractual provisions and Commission for Industrial Safety (HCIS), responsible for approv-
awards recognised by local courts? Is the jurisdiction a member ing safety and security plans and monitoring the implementation
of the ICSID Convention or other prominent dispute resolution of security systems in industrial projects. Companies falling within
conventions? Are any types of disputes not arbitrable? Are any the HCIS’s jurisdiction are required to have their safety and security
types of disputes subject to automatic domestic arbitration? plans approved by the HCIS.
A judgment obtained in a country outside Saudi Arabia may be sub-
Project companies
mitted to Enforcement Courts, which will enforce all of such judg-
ment or part thereof provided that the judgment is not inconsistent 26 What are the principal business structures of project companies?
with Islamic law or Saudi law and certain other procedural condi- What are the principal sources of financing available to project
tions are satisfied. If the foreign jurisdiction is not a signatory to the companies?
Arab League Treaty for the Reciprocal Enforcement of Judgments
The ease of establishment and flexibility offered by a limited liability
or the Agreement on Enforcement of Judgments, Delegations and
company has been the most common form of corporate entity.
Judicial Summonses in the States of the Cooperation Council for
The principal sources of funding are:
the Arab Gulf States, then the judgment creditor must demonstrate
• public funding from the Saudi Industrial Development Fund or
to the Enforcement Court that the courts of the jurisdiction grant-
the Public Investment Fund;
ing the judgment will reciprocally enforce Saudi court judgments.
• commercial bank debt – either conventional or Islamic;
Effectively, these requirements allow a Saudi court to rehear any
• sponsor and shareholder funding;
matter brought before it in order to determine whether any aspect of
• export credit agencies; and
the underlying judgment was contrary to shariah principles.
• project sukuk – this is a relatively recent development and is
The Enforcement Court may refuse to enforce a foreign judg-
discussed further in ‘Update and trends’.
ment if, in proceedings between the same litigants and involving the
same subject matter, a Saudi court has rendered a final judgment or
Saudi court action was commenced prior to the foreign proceedings
and the Saudi court decision is pending. 27 Has PPP enabling legislation been enacted and, if so, at what
Saudi law does not recognise the concept of appointing a process level of government and is the legislation industry-specific?
agent for service of process and Saudi courts may not consider this
No specific PPP enabling legislation has been enacted in Saudi
to be valid service of process, even where the parties have agreed.
Arabia. However, PPP is an important component of the Saudi gov-
When considering the enforcement of foreign judgments, the
ernment’s strategy for infrastructure development. Government res-
Grievances Board (and other Saudi courts in proceedings before
olutions in 1997 and 2002 identified 20 sectors where the national
them) will likely require that parties resident in Saudi Arabia be
economy could be improved by public private partnerships. Specific
served through diplomatic channels.
Council of Ministers resolutions have dealt with specific industries.
To date, the key sectors for PPP activity have been the water and
power sectors.

PPP – limitations
Update and trends
transactions? Saudi Arabia expects to double its installed electricity generation
The Saudi government and government agencies face a number of capacity during the next 15 years, with Saudi Electricity Company
expecting to generate 30 per cent of its electricity from IPP
practical and legal limitations with respect to financing transac- projects. This amounts to an additional 20 to 30GW of IPP projects
tions. These include the prohibition on transacting in a language to be undertaken by Saudi Electricity Company.
other than Arabic, agreeing to a foreign law, submitting to a foreign KA Care, the Saudi Arabian atomic and renewable energy
court’s jurisdiction, submitting to arbitration and incurring debt or authority, has announced ambitious renewable energy generation
targets, which contemplate more than 40GW of renewable IPP
financial obligations. However, with the support of the Council of projects. Financing this bulk installation of generation capacity
Ministers, who are able to waive such requirements, these restric- requires the implementation of a new IPP model. The structure
tions do not impose a significant impediment to PPP transactions. of the IPP model is unknown. Stakeholders are waiting to see
Additionally, many PPP style transactions are undertaken by whether there will be a fee-in-tariff, a priced-based bid mechanism
companies owned by the government rather than by the govern- or a hybrid of the two such as those found in South Africa and
Jordan
ment themselves. This structure allows the parties to agree to those Given the volume of power generation transactions expected
elements of PPP transactions that are precluded by the restrictions in years to come, we should expect a shift away from the present
on the Saudi government and government agencies. funding mix for Saudi power projects. Banks are quickly reaching
their lending limits to this sector. Renewable energy projects, in
particular, could be the testing ground. International renewable
energy companies regularly look to alternative sources of finance
to bridge fund their projects. Any success in this area is likely to be
29 What have been the most significant PPP transactions completed replicated in the conventional power market.
The early adopter for PPP in Saudi Arabia was the water sector.
Soon after, water management agreements were signed for each of
Transport is another sector that has embraced PPP. With an esti-
the major population centres and build, operate, own and build,
mated project cost exceeding US$15 billion, Saudi Arabia’s largest
operate, transfer (BOO and BOT) contracts signed for the develop-
PPP transaction is the Riyadh metro project. Other transport trans-
ment of waste water treatment plants.
actions include the 2012 Medina airport expansion project and the
Saudi Electricity Company (represented by Baker Botts LLP)
planned Taif airport, Jeddah monorail and Riyadh bus projects.
closed its fourth independent power project (IPP) in 2013 and has
We are starting to see an increase in the number of small-scale
commenced work on new IPP projects in 2014. The IPP programme
PPP projects, particularly in education, which has seen multiple
is a continuing success story for private participation in infrastruc-
rounds of projects under the Colleges of Excellence programme.
ture development.
Babul Parikh babul.parikh@bakerbotts.com

Sumit Soni sumit.soni@bakerbotts.com
Keith Bullen keith.bullen@bakerbotts.com
Emaar Square Sowwah Square Law Office of Mohanned bin Saud Al-Rasheed
Building 6, 7th Floor Al Sila Tower, 21st Floor in association with Baker Botts LLP
Dubai Abu Dhabi Mashareq Tower, 7th Floor
United Arab Emirates United Arab Emirates King Fahad Road
Tel: +971 4 436 3636 Tel: +971 2 813 0200 Mo’tamarat District
Fax: +971 4 436 3737 Fax: +971 2 813 0300 Cairo Square, Southwestern Corner
www.bakerbotts.com Riyadh 11595
Saudi Arabia
Tel: +966 11 218 7800
Fax: +966 11 218 7801
SLOVENIA Taxgroup pravno svetovanje d.o.o.
Slovenia
Miha Mušič and Dušan Jeraj*
Creating collateral security packages or registered), depends on the assets on which a collateral shall be
established. When certain types of assets (namely, inventory, equip-
1 What types of collateral are available? ment, motor and rail vehicles, trailers and semitrailers) are subject to
Mortgages over real estate, buildings, pledges over moveable prop- non-possessory pledge, the pledge is established when it is inserted
erty (machinery, vehicles, equipment, inventory, etc), receivables, in the Register of Non-possessory Liens and seized property is main-
securities (also business shares in other companies), intellectual tained by the Agency of the Republic of Slovenia for Public Legal
property rights (trademarks, licences, etc), cash deposits and insur- Records and Related Services.
ance policies, surety and fiduciary ownership are the most common
types of collateral. Additionally, promissory notes (normally blank) Pledge over receivables
are usually demanded by banks. The Financial Collateral Act recog- This is established on the basis of the written agreement and the
nises two types of financial collateral, namely title transfer collateral notification of the debtor of the pledged receivable on which the
arrangement and pledge on the financial instrument or cash. receivable has been pledged. For the creation of a pledge, a notifica-
tion to the debtor of the pledged receivable is required. Existing and
future receivables of the pledger against third parties can be subject
to the establishment of the pledge.
Pledge over securities
The establishment of the pledge over securities depends on the type
of securities. Basically, two types of securities can be distinguished,
namely, material and non-material securities. Material securities can
In Slovenia, each type of collateral is subject to special formal and be bearer instruments (the pledge is established with the conclusion
registration requirements. Below is a brief description of the most of the pledge agreement and the pledger must hand over the securi-
common requirements. ties to the pledgee), instruments issued on the order (the pledge is
established by endorsement for security and delivery of the securi-
Mortgage ties to the pledgee) and registered securities issued in the name of
Establishment of a mortgage demands written pledge agreement and the legitimate claimant (the same requirements as in the case of the
the irrevocable land registry permission issued by the mortgagor to establishment of a pledge over a receivable). The debtor (the person
register such a mortgage with the land registry. The signature of the issuing such securities) must be notified of the pledge. When reg-
mortgagor must also be notarised. To ensure direct enforceability of istered securities are transferable on the basis of endorsement, the
a mortgage, it must be established in a form of a directly enforceable procedure the requirements for establishment of the pledge are the
notarial deed, otherwise the executory title for realisation of mort- same as in the case of instruments issued to the order).
gage must be obtained by initiating a foreclosure action in front of If, subject to the pledge, shares are issued in non-materialised
the competent court. form, the pledge is established when registered with the Central
If however, real estate is not registered with the land registry, Securities Clearing Corporation. When business shares of the other
special procedure applies to establish a valid mortgage on such real company are subject to the pledge, the agreement must be concluded
estate. A pledge agreement must be concluded in the form of a notar- in the form of a notarial deed and registered with the court register.
ial deed and deposited with the notary public to prevent further
pledges on the same real estate. The notarial deed must be published Pledge over industrial property rights
in the Official Gazette of the Republic of Slovenia. In the case of a pledge over industrial property rights – General
Rules of the Law of Property Code (article 190 – Pledge on other
Pledge over moveable property – possessory pledge Assets) apply as there are no rules specifically governing pledge of
This is established on the basis of a written pledge agreement and transferable intellectual property rights. As for formalities, rules for
executed on the basis of transfer of pledged property from pledger possessory pledges on the moveable property apply, meaning that
to pledgee or a third party in a manner that its handing over may no special form is demanded. However, when intellectual prop-
only be demanded by the pledgee. There is no special register for this erty rights are pledged, the registration of the pledge in the register,
type of pledge, therefore possession is required for the purposes of maintained by the Intellectual Property Office of the Republic of
publicity. Slovenia, is obligatory. This is not a special register of the pledged
intellectual property rights, but a register of patents, industrial
Pledge over moveable property – non-possessory pledge designs, trademarks and geographical indications, where the pledge
This is established on the basis of directly enforceable notarial must be indicated.
deed. The type of non-possessory pledge (ordinary (not registered)

Taxgroup pravno svetovanje d.o.o. SLOVENIA
The deposit agreement and the pledge agreement are usu- Pledge on moveable assets
ally concluded in order to establish a pledge over funds on a bank Moveable assets may be sold out-of-court when a written agreement
account. containing such a provision was concluded, whereas in the case of
contracts between commercial entities such a provision is presumed.
Financial collateral arrangements In the absence of such a provision, a pledge over moveable assets
Financial collateral arrangements do not require any special formal- must be realised in a judicial proceeding.
ity to be validly concluded, however, a document confirming that the
financial collateral agreement has been concluded is necessary. The Pledge over receivables
financial collateral is validly established when the cash or financial When such a receivable is due, the creditor is entitled to payment
instrument is transferred to the collateral taker (in the case of title from such a receivable. If the receivables are not paid when due, the
transfer arrangement) or the collateral taker’s right on the collateral creditor may enforce their payment in judicial proceedings. Should
is entered into the register (in the case of a pledge). there be any surplus received from the receivable that exceeds the
Costs in the above cases cannot be avoided (in the case of court secured claim and costs of enforcement, the creditor must hand it
fees regarding recording of mortgage or pledge over business share, over to the debtor.
a company may ask for relief from payment of court fees when
payment of such fees could have negative impact on its financial Pledge over securities
standing and endanger its operations), are related to preparation of Pledge on material securities
a notarial deed and to registration duties, depend, in some cases, on Securities may be sold within judicial execution procedure. Since
the value of the secured claim (eg, a mortgage) and in some cases on commercial contracts presume out-of-court sale in the case of
the standard tariffs of the competent body. pledges over securities and moveable property, securities may be sold
Slovenian legislation does not regulate the concept of agent or outside court, usually in public auctions.
trustee. In the case of several creditors, collateral is established in
favour of all creditors. Perhaps the closest to the concept of agent Pledge on non-material securities
or trustee is found under Slovenian law in the case of a possessory Non-material securities not traded on the organised market are sold
pledge over moveable property where it establishes a possibility of in the same manner as materialised securities and those that are sub-
an agreement between pledger and pledgee and that the pledged ject to trading on the organised market are sold on the organised
moveable property is to be deposited with some third person on market following prior written notice (at least eight days before the
behalf of the pledgee. intended day of sale) of the intended sale to the debtor or pledger.
A creditor, on whose proposal the enforcement was started, is
exempted from pledging securities if his or her claim reaches the
value of the securities and if his or her claim could be settled regard-
ing an order of his or her claim on the real estate in question and the
As most of the collateral must be inserted in different public reg- determined value of the real estate. If the buyer is the sole creditor,
isters, a creditor may carry out a public search through the regis- he or she may be exempt from lodging the amount of the purchase
ters to establish any prior encumbrance of the assets. Some of the price to the amount that would have fallen to the creditor based on
registers (such as court register, land registry and register of non- a court’s decision of the repayment. On such a proposal of a creditor,
possessory liens and seized property) are available online without the court makes the decision by special resolution. The Provisions of
any additional costs, while others offer information upon a paid Enforcement and Securing of Civil Claims Act regulates the same
fee or presentation of a legal interest, or both. Creditors may also procedure with moveable property as with real estate regarding
demand information from court. Usually, however, prior to any pro- exemption from the lodging of the amount of the purchase price
ject or investment, extensive legal due diligence is conducted and and selling the moveable property below the determined value.
appropriate guarantees, warranties and representations regarding Sales have to be made in euros. In all of the above cases a credi-
received information are demanded. tor may participate as a potential buyer and in some cases (a pledge
over moveable property) an agreement can be concluded so that the
object of the pledge is transferred to the creditor (this kind of agree-
ment may only be concluded after the claim is due) or that it shall be
sold for the agreed price.
Enforcement of rights depends upon the object of the right. Below is

a description the most common ones. 5 How does a bankruptcy proceeding in respect of the project
Mortgage as a secured party over the collateral? Are there any preference
If a mortgage is established in a form of a directly enforceable notar- periods, clawback rights or other preferential creditors’ rights
ial deed, the creditor may directly file for the enforcement. Otherwise, (eg, tax debts, employees’ claims) with respect to the collateral?
the mortgage can only be enforced through judicial proceedings. The What entities are excluded from bankruptcy proceedings and
lawsuit demanding enforcement of the mortgage must be filed and what legislation applies to them? What processes other than
the claimant must prove the existence and maturity of the debt. A court proceedings are available to seize the assets of the project
mortgage can be executed on the basis of the final judgment, on the company in an enforcement?
basis of which the order for execution of the mortgage is filed. Next, If a company is declared insolvent and files for bankruptcy or if such
the mortgaged real estate is evaluated, and sold in a public auction a procedure against the company has been initiated by its creditors,
with the organisation of the court or with direct contract (only after the administrator is appointed by the court. The company’s assets
the debt has become due and payable). are primarily divided into so called common bankruptcy estate,
which includes all the assets of the debtor in bankruptcy other than
Mortgage on non-registered real estate the assets belonging to a special estate, which consists of the assets
The procedure for this is the same as in the case of a mortgage. that are the object of the right to separate settlement (claims secured
Direct enforcement may be demanded based on a directly enforce- with a pledge or mortgage) or financial assets obtained through the
able notarial deed. realisation of such assets.
The court realises the company’s assets upon the proposal made The Financial Operations, Insolvency Proceedings and
by the administrator and on the basis of an opinion of the creditors’ Compulsory Dissolution Act regulates insolvency proceedings
committee. The claims are settled either from the financial assets against legal (involved in commercial and non-commercial activi-
received through the realisation of the common estate or the spe- ties) and natural persons.
cial estate, depending on the security of each creditor’s claims. A Outside insolvency proceedings, the assets of the project com-
collateral – real security – prioritises creditors in a manner where pany can be seized in the enforcement procedure, where again, the
they can satisfy their claims from the asset constituting the object of procedure differs slightly, depending on the nature of assets (real
the respective collateral before other creditors, which gives them the estate, claims, moveable assets, securities, etc).
right to separate settlement from special assets. Also, those claims
can be normally enforced in the case of bankruptcy proceedings. Foreign exchange issues
Distribution of the assets received from the sale of common
estate (for the settlement of claims that are not secured with col- 6 What are the restrictions, controls, fees, taxes or other charges
lateral such as a pledge or a mortgage) are carried out after the set- on foreign currency exchange?
tlement of the costs of the bankruptcy procedure in the following Slovenian legislation does not regulate any restrictions, controls,
priority order: fees, taxes or other charges on foreign currency exchange. Anti-
• priority claims (such as salaries and wage compensation for money laundering procedures are strictly followed. Some financial
the previous three months prior to the initiation of insolvency transactions are also subject to reporting to the Bank of Slovenia.
proceedings, compensation for accidents related to work for
the debtor, as well as occupational diseases, unpaid compensa-
tion for the termination of a working relationship, to which the
employees are entitled pursuant to the act governing working
relationships prior to the initiation of bankruptcy proceedings.
However, the amount will not exceed the amount of compen- In accordance with Slovenian tax legislation, dividends, interests and
sation fixed for an employee who has his or her employment royalties are subject to a withholding tax at the rate of 15 per cent.
contract terminated by the employer due to redundancy, sala- The withholding tax rate may be lowered in accordance with the
ries and wage compensations for employees whose work is no double tax treaties that Slovenia has concluded with other countries
longer necessary due to the initiation of bankruptcy proceed- or the payments can be exempt from withholding tax if the criteria
ings for the period from the initiation of bankruptcy proceed- determined in EU legislation (Parent Subsidiary Directive: directive
ings until the expiration of the notice period, compensations to on a common system of taxation applicable to interest and royalty
employees who had their employment contract terminated by payments made between associated companies of different member
the administrator as their work became unnecessary due to the states, which are adopted in the Slovenian Corporate Income Tax
initiation of bankruptcy proceedings or during the proceedings, Act) are met. In order to avoid paying the withholding tax the com-
taxes and duties that the payer has to charge or pay at the same pany paying this income must obtain confirmation that the recipient
time regarding the above payments, as well as unsecured claims is entitled to these tax benefits from the local tax office.
for the payment of taxes and duties that the debtor has to charge
and pay pursuant to regulations and that occurred in the year 8 Must project companies repatriate foreign earnings? If so, must
prior to the initiation of bankruptcy proceedings); they be converted to local currency and what further restrictions
• ordinary claims (unsecured claims or claims secured with col- exist over their use?
lateral that do not provide for separated settlement); and
Project companies are not liable to repatriate their foreign earning
• subordinated claims.
to Slovenia.
The creditors are paid in equal proportion to the amount of their
claim (eg, each creditor shall be paid 3 per cent of his or her claim). 9 May project companies establish and maintain foreign currency
Assets received from the sale of special estates are distributed accounts in other jurisdictions and locally?
to the creditors who had collateral on that particular special asset Slovenian companies are allowed to have bank accounts abroad, but
(creditors who received their security first rank before others). their existence must be reported to the tax office and to the Bank of
In regard to bankruptcy proceedings, it must be pointed out Slovenia (with information about the balance on the account).
that it is very important when the project lender receives its col-
lateral, especially taking into consideration what is called the chal- Foreign investment issues
lengeability period. Namely, all legal transactions and other legal
actions, which the debtor in bankruptcy has concluded or carried 10 What restrictions, fees and taxes exist on foreign investment in or
out in the period from the beginning of the 12 months before the ownership of a project and related companies? Do the restrictions
introduction of bankruptcy proceedings up to the initiation of bank- also apply to foreign investors or creditors in the event of
ruptcy proceedings, are scrutinised by the bankruptcy administrator foreclosure on the project and related companies? Are there
and the court and can be declared void if the consequence of such any bilateral investment treaties with key nation states or other
actions were among others that benefited the person for whom the international treaties that may afford relief from such restrictions?
act has been executed and who has acquired more favourable pay- Would such activities require registration with any government
ment conditions for a claim against the debtor in bankruptcy (legal authority?
presumption: if the creditor, as a result of a legal action of the debtor There are no general restrictions on foreign investment and owner-
in bankruptcy, acquires the position of a creditor with the right to ship. Some restrictions apply (but not specifically to foreign own-
separate settlement concerning payment of the claim that arose prior ership). Approvals have to be granted to pass certain ownership
to such an act that has been performed). thresholds in specific industries considered to be of specific national
In insolvency proceedings, claims of foreign creditors are treated importance (eg, energy supply, media) or in highly regulated indus-
in the same manner as the claims of local, domestic creditors. If their tries (eg, financial institutions).
claims are based on the final decisions of the foreign courts, the deci-
sions must be recognised by the Slovenian court.

11 What restrictions, fees and taxes exist on insurance policies 14 What laws exist regarding the nationalisation or expropriation
over project assets provided or guaranteed by foreign insurance of project companies and assets? Are any forms of investment
companies? May such policies be payable to foreign secured specially protected?
creditors? There is no law regulating expropriation of project companies.
Insurance activities may only be provided by local insurance compa- There is also no specific legislation regulating nationalisation.
nies or by EU insurance companies registered with a local insurance There are however, still many denationalisation proceedings open,
agency. as a consequence of past nationalisation procedures.
Foreign insurance companies are liable to insurance tax and fire There are, however, laws regulating the possibility of expropria-
tax payable on certain types of insurance. tion, mostly connected to real estate. Expropriation is an interfer-
ence with property rights and a waiver of property rights in the
public interest for the monetary consideration or compensation in
kind. The Spatial Management Act is a general act regulating expro-
priation and there are also many sector-specific laws regulating this
Citizens of third countries (meaning nationals of countries outside matter, such as, for example, the Act on Public Roads and the Spatial
the EU, the EEA and Switzerland) may only work in Slovenia if they Planning Act. Recently, there have been discussions in the National
obtain a work permit or another type of permit. A work permit is Assembly regarding lowering the compensation for expropriation of
not required only when explicitly stipulated by law or international agricultural land.
treaty. On the basis of an issued work permit, which is issued by
the Employment office of the Republic of Slovenia, one can apply Fiscal treatment of foreign investment
for a residence permit issued by the competent administrative unit.
Both documents are legally necessary for working and living in the 15 What tax incentives or other incentives are provided preferentially
Republic of Slovenia, except if one is a holder of the so-called EU to foreign investors or creditors? What taxes apply to foreign
blue card that is issued for highly skilled jobs only and that combines investments, loans, mortgages or other security documents,
both a work and residence permit. either for the purposes of effectiveness or registration?
Nationals of all EU and EEA member states as well as Switzerland Slovenia has developed an incentive system in an effort to give
can freely access the Slovenian labour market and can apply for job impetus to foreign direct investment, which is expected to boost the
vacancies under the same conditions as Slovenian citizens. No work country’s economic development through the creation of new jobs,
permit is necessary, only the registration of the commencement of the transfer of new technologies and know-how, and outsourcing
service or employment with the Employment Office of the Republic opportunities where the local companies would get new business
of Slovenia, but a residence permit is necessary if the period of stay partners.
in Slovenia is to exceed three months.
For goods that are imported into the Republic of Slovenia, cus- authority over projects in the typical project sectors? What is the
toms duties and other duties payable on imports (customs duties, nature and extent of their authority? What is the history of state
VAT, motor vehicle tax, environmental levies (for carbon dioxide ownership in these sectors?
emissions from liquid fuel, gaseous fuel, solid fuel, lubricating oil,
The government regulates the energy field (covering electricity, gas,
countervailing duties, antidumping duties, exercise duties, default
oil and minerals) and transportation and ports through the Ministry
interests, etc) are charged. Customs rules are based on EU legislation
of Infrastructure and Spatial Planning – Directorate for Energy,
and enforced by the customs authorities on the import to the EU.
which consists of the Sector for Energy and Mining and Sector for
The amount of import duties depends on the classification of goods
Energy Efficiency and Renewable Energy, a Directorate for Traffic
in the Combined Nomenclature Customs Tariff of the European
and a Directorate for Maritime. Public agencies are also established
Communities (the Combined Nomenclature), as well as the origin,
to perform certain activities. The competent body for consultation
customs value and quantity of goods. For the purpose of customs
on certain matters related to projects depends on the subject of the
formalities the goods for import are classified within the Combined
project as the bodies have strictly divided tasks set forth by the laws
Nomenclature, where, for each type of goods, the customs rates are
and by-laws.
defined on the basis of which customs duties shall be charged.
Many so-called public services (in the field of energy and gas)
Most goods originating from EFTA countries are also free of
are carried out by private companies on the basis of the concession
duty upon evidence of origin.
agreements. In most of the companies the state still has significant
Goods sold to Slovenia that were already admitted to free cir-
interest.
culation in another EU country are free of customs duties, but other
duties and levies are charged by the customs authorities in Slovenia.
VAT is, in this case, charged by the Slovenian recipient using the so-
called reverse charge mechanism. 17 Who has title to natural resources? What rights may private
Goods originating from third countries may be subject to full parties acquire to these resources and what obligations does the
customs duty. If the goods are exported after the duty on them has holder have? May foreign parties acquire such rights?
been paid, a refund of certain paid customs may be claimed.
Natural resources are publicly owned or operated by the Republic
Import transactions are normally subject to import VAT. Certain
of Slovenia or a municipality or are under special protection of them
transactions, such as import of goods intended to be sold in another
in accordance with the law.
EU member state, are subject to VAT exemption. In the case that the
A state or municipality may grant a concession for the man-
imported goods are used for a VAT-taxable activity, VAT is recover-
agement, use or exploitation of natural resources that it owns or is
able (foreign companies).
lawfully entitled to administrate or manage a natural or legal person
if they fulfil conditions for that kind of activity. Additionally, a con-
cession may be granted to a foreign legal entity if the law does not
state otherwise for specific cases. State and municipality are entitled arranged by Slovenian banks, the agreements will often be governed
to compensation for the granted concession. by Slovenian law. Domestic law governs all matters regarding prop-
erty law, tax and customs duties, employment law, environmental
law, companies’ law and family law.
Royalties, or rather, compensation for the awarded concession, have 24 Is a submission to a foreign jurisdiction and a waiver of immunity
to be paid. The structuring of the compensation is case-specific but effective and enforceable?
is usually in a form of an annually payable fixed fee. A company registered in Slovenia may be subject to a court proce-
Special compensation has to be paid upon change of land status dure of foreign courts. Usually, when a company enters into interna-
from agricultural to non-agricultural. tional contracts with foreign partners, neutral jurisdiction is agreed
to resolve possible disputes.
Judgments of foreign courts are subject to a declaration of
enforceability that is issued by the Slovenian courts. Enforceability
resources?
of the foreign judgment is only declared if it is enforceable in the
There is no specific legislation concerning the export of natural state of origin and if reciprocity is ensured by international treaties
resources. or ordinances.
Judgments issued by courts of another EU member state shall
Legal issues of general application be enforced according to Council Regulation EC No. 44/2001 on
Jurisdiction and the Enforcement and Recognition of Judgments in
Civil and Commercial Matters and the Convention on Jurisdiction
and the Enforcement of Judgments in Civil and Commercial Matters.
For typical project finance transactions there is no requirement for According to the aforesaid regulation, a judgment given in a member
any government approvals, except in the case of acquisition of a sig- state shall be recognised in the other member states without any
nificant share of a company in specific industries that are considered special procedure being required. A judgment given in a member
to be of national importance (eg, energy supply and media) or are state and enforceable in that state shall be enforced in the Republic
highly regulated (eg, financial institutions). of Slovenia when, on the application of any interested party, it has
been declared enforceable there.
filed with any government authority or otherwise comply with legal Environmental, health and safety laws
If government approval for a specific transaction is obtained, the regulatory bodies administer those laws?
documentation as required by the deciding administrative body has
Laws and bodies regulating typical project sectors are:
to be completed. The required documentation is case and industry
• the Environment Protection Act: Ministry for Agriculture and
specific.
the Environment;
• the Water Act: Ministry for Agriculture and the Environment;
22 How are international arbitration contractual provisions and • the Mining Act: Ministry of Economic Development and
awards recognised by local courts? Is the jurisdiction a member Technology;
of the ICSID Convention or other prominent dispute resolution • the Energy Act: Ministry for Agriculture and the Environment;
conventions? Are any types of disputes not arbitrable? Are any • the Road Transport Act: Ministry of the Interior, Ministry of
types of disputes subject to automatic domestic arbitration? Infrastructure and Spatial Planning of the Republic of Slovenia,
Slovenia is a member of the ICSID Convention. Since Slovenia is Chamber of Commerce and Industry of Slovenia, The Chamber
a member of the New York Convention on the Recognition and of Craft and Small Business of Slovenia;
Enforcement of Foreign Arbitral Awards, enforcement of foreign • the Aviation Act: Ministry of Infrastructure and Spatial Planning
awards is also subject to this treaty. Arbitral awards are enforced of the Republic of Slovenia, Transport, Energy and Spatial
after the District Court of Ljubljana declares their enforceability. Planning Inspectorate of the Republic of Slovenia;
The court may refuse the request for enforcement if a reason for • the Railway Transport Act: Ministry of Infrastructure and
reversion by an official duty exists (if the subject matter of the dis- Spatial Planning of the Republic of Slovenia, Public Agency
pute cannot be the subject of the arbitration agreement or that the of the Republic of Slovenia for Railway Transport, Slovenske
award is against Slovenian public order). Since Slovenia is a party to železnice;
the New York Convention on the Recognition and Enforcement of • the Maritime Code: Ministry of Infrastructure and Spatial
Foreign Arbitral Awards, enforcement of foreign awards is also sub- Planning of the Republic of Slovenia, Centre for Rescue and
ject to this state treaty. Any pecuniary claim may be the subject of the Surveillance at Sea and the Slovenian Maritime Administration;
arbitration agreement. Other claims may be the subject of the arbi- • the Maritime and Inland Waterways Navigation Safety Act:
tration agreement only if they are capable of settlement. Contractual Ministry of Infrastructure and Spatial Planning of the Republic
parties cannot agree on foreign arbitration in a claim if subject to of Slovenia, Ministry for Agriculture and the Environment,
the exclusive jurisdiction of the Court of the Republic of Slovenia. Ministry of Foreign Affairs;
• the Inland Waterways Navigation Act: Ministry of Infrastructure
and Spatial Planning of the Republic of Slovenia, Slovenian
23 Which jurisdiction’s law typically governs project agreements? Maritime Administration;
Which jurisdiction’s law typically governs financing agreements? • the Telecommunications Act: Telecommunications and
Which matters are governed by domestic law? Broadcasting Agency, Post and Electronic Communications
Contractual parties may choose the law applicable to the project or Agency of the Republic of Slovenia, Inspectorate of the Republic
agreement. The project is often governed by neutral law for both of Slovenia for Electronic Communications and Electronic
parties or in the case of the project being more connected to one Signature; and
country, the law of such a country. If the project or its financing is

• the Electronic Communications Act: Ministry of Economic the transformation of public companies, the system of law that
Development and Technology. applies to resolving disputes arising from public-private partnerships
and the jurisdiction of the courts and arbitration services to decide
Project companies on disputes arising from such relationships.
The Public-Private Partnership Act applies when particular
26 What are the principal business structures of project companies? public private issues are not governed by lex specialis or regulation
What are the principal sources of financing available to project issued on the basis thereof for individual forms of public-private
companies? partnerships.
Unless the nature of the project requires a specific structure, the
most common structure is a limited liability company or a joint- PPP – limitations
stock company.
The principal sources of financing available to project compa- 28 What, if any, are the practical and legal limitations on PPP
nies, in addition to private investment (usually private placement), transactions?
are bank loans. Slovenia has a domestic public securities market (the There are no specific limitations. Principles of transparency, propor-
Ljubljana Stock Exchange), but seeking new capital through IPO is tionality, balance, competition, procedural autonomy, cooperation
relatively rare due to the low liquidity of the stock market. and subsidiary liability must be observed at every stage of a public-
Government-sponsored agencies support entrepreneurship private partnership. In establishing and operating a public-private
and government subsidies or subsidised loans are usually available partner relationship the public partner must continuously act so as
to small and medium-sized companies with innovative and value not to violate the regulations on the permissibility and monitoring
added focused projects. of state aid.
Public-private partnership legislation PPP – transactions
27 Has PPP enabling legislation been enacted and, if so, at what 29 What have been the most significant PPP transactions completed
level of government and is the legislation industry-specific? to date in your jurisdiction?
General law regarding public-private partnership has been adopted The biggest public-private partnership project in recent years is the
on a national level, namely the Public Private Partnership Act (Official project, Sports Park Stožice. Project Stožice is a result of coopera-
Gazette of the Republic of Slovenia, No. 127/2006) regulating the tion in the form of a public-private partnership between the city of
purpose and principles of private investment in public projects and Ljubljana and Grep LLC. Sports Park Stožice consists of a football
of the public co-financing of private projects that are in the public stadium and a multi-purpose sports hall with a shopping centre. The
interest, the methods of encouraging public-private partnership and estimated value of the project is approximately €240 million.
the institutions concerned with its encouragement and development,
the conditions, procedure for creation and the forms and methods of * The information contained in this chapter is accurate as of
operating public-private partnerships, the special features of works August 2013.
and service concessions and of public-private equity partnerships,

Miha Mušič mmusic@taxgroup.si
Dušan Jeraj djeraj@taxgroup.si
Litostrojska 52 Tel: +386 1 360 3040

1000 Ljubljana Fax: +386 1 360 3064
Slovenia www.taxgroup.si
SOUTH AFRICA ENSafrica
South Africa
Eric le Grange, Noma Sibanda, Kim Eichorn and Innes Du Preez*
ENSafrica
The nomenclature of security available under South African law, lawful techniques to minimise them? May a corporate entity, in
based as it is on Roman-Dutch law, differs from that in use in the capacity of agent or trustee, hold collateral on behalf of the
English law and most other ‘common law’ systems. project lenders as the secured party?
Under South African law, the basic types of security that can be Perfection is not a defined legal concept in South African law; how-
granted over moveable and immoveable property (including intan- ever, the steps taken by the lenders in establishing security over an
gible assets) are as follows: asset allow for perfection of its security interest in respect of such
• mortgage bonds registered in respect of immoveable property; an asset.
• pledges of moveable, tangible property; The holder of the security may not take the law into its own
• notarial mortgage bonds registered over moveables (general: all hands by seizing possession of the assets in question, even where
the moveables of the debtor; special: specifically identified move- a ‘perfection clause’ appears to afford it the right to do so. It is a
ables only); constitutional requirement that the sanction of the court be obtained
• cessions of personal rights in securitatem debiti (namely, as secu- for the taking of possession. Where the creditor is already in posses-
rity for a debt) (now treated as pledge of incorporeal assets); sion of the asset, as in the case of a true pledge or a deemed pledge,
• tacit hypothecs (arising by operation of law, rather than by and, in the case of a special notarial mortgage, no such perfection
agreement): landlord’s hypothec for unpaid rent; hypothec of is required, but the consent of the court is required for any sale of
seller under instalment sale transaction; the asset unless either the debtor consents to the sale, or (in the case
• judicial pledge (arising on attachment under a writ of execu- of moveables) if the debtor has given prior consent by means of a
tion); and parate executie clause, authorising the pledgee to sell the asset in the
• rights of retention or liens (arising by operation of law): enrich- event of default. Such summary sale in execution is not permitted in
ment liens, debtor and creditor liens. the case of immoveable property and a parate executie clause in a
mortgage bond over immoveable property is invalid.
Immoveable property is the most common type of asset used to Where there is more than one mortgage bond registered against
secure debt. This includes land and buildings comprising capital a property in favour of different creditors, the general rule is ‘first in
projects (such as power stations, roads, mining operations, office time, first in law’, thus the mortgage bond that was registered first
buildings, factory buildings, warehouses and shopping centres). will have preference over the second and the second will have prefer-
Certain mining rights are also capable of being mortgaged although ence over the third and so on. However, a preferent bondholder can
the ability to dispose of such mining right when foreclosed upon elect to waive his or her preferent creditor status and agree for his
may be limited. Manufacturing plants and equipment that is not or her mortgage bond to rank pari passu with the other mortgage
immoveable property, including machinery, trucks, and similar items bonds.
used in the manufacturing processes can be the subject of security In respect of taxes related to the granting of security, no specific
granted under a special or notarial mortgage (similar to the English taxes would be payable in respect of any security cession of rights in
law concepts of fixed and floating charges). Raw materials including relation to bank accounts or contracts (and, in particular, no docu-
natural reserves such as minerals, oil and gas reserves as estimated mentary, stamp or other taxes would be payable).
by qualified engineers and, upon reasonable and informed assump- Normal administration charges are payable in respect of the reg-
tions being made, can also be used as collateral, especially in those istration of mortgage bonds, as well as the professional fees of the
types of projects in which the particular resource plays a main role. lawyers attending to such registration.
Further, securities such as shares, debentures, bonds, treasury
certificates can be used as collateral. Insurance policies taken over
any insurable assets or interest, or both, of the borrower can also be 3 How can a creditor assure itself as to the absence of liens with
used as collateral to the extent that if and when the borrower claims priority to the creditor’s lien?
in terms of those policies the proceeds thereof shall settle the debt In South Africa there is no central register detailing existing security
owing to the lender first before any other use. The same applies to that is given by way of a cession or a pledge. In the case of mortgage
bank accounts or any cash standing to the credit of the borrower bonds, however, which are registered against the title deed of a prop-
and any future receivables of the borrower. erty or required to be registered in the appropriate deeds registry, a
creditor would be able to ascertain the existence of such security by
conducting a search of the deeds registry database – it is a public
record and upon payment of a nominal fee the database is available
to the public at large.

ENSafrica SOUTH AFRICA
4 Outside the context of a bankruptcy proceeding, what steps not been perfected merely confers upon the pledgee or bondholder a
should a project lender take to enforce its rights as a secured preference over other concurrent creditors on the winding-up of the
party over the collateral? project company. It is only on perfection of the bond that secured
See question 2. creditor status will be conferred.
Creditors are thus ranked as either secured, preferent or concur-
rent. If a creditor registers security over an asset, then this creditor
5 How does a bankruptcy proceeding in respect of the project is paid from the proceeds of such asset upon liquidation. Employees
company affect the ability of a project lender to enforce its rights of the project company in liquidation are preferred over concurrent
as a secured party over the collateral? Are there any preference creditors up to an amount of 12,000 rand (for outstanding salaries
periods, clawback rights or other preferential creditors’ rights not exceeding three months, severance and leave pay) and thereafter
(eg, tax debts, employees’ claims) with respect to the collateral? any balance remaining is concurrent. Any claim by the South African
What entities are excluded from bankruptcy proceedings and Revenue Services is also preferred over concurrent creditors.
court proceedings are available to seize the assets of the project Foreign exchange issues
In South African law, when one deals with bankruptcy proceedings 6 What are the restrictions, controls, fees, taxes or other charges
involving a company, the terminology used is for the ‘winding up’ or on foreign currency exchange?
‘liquidation’ of a company rather than using the term ‘bankruptcy’. In certain instances, South African tax legislation subjects realised
If a company is liquidated, the effect of the liquidation order and unrealised gains or losses on foreign currency exchange items
is to bring about a convergence of the claims of creditors against to normal income tax.
the company in liquidation (known as a ‘concursus creditorum’) to In addition, South Africa’s Exchange Control Regulations
ensure that it is wound up and liquidated in an orderly fashion. administered by the South African Reserve Bank (SARB) control
Creditors may not execute their claims other than in accordance business transactions between residents and non-residents. In par-
with the insolvency laws of South Africa. Creditors may also not ticular, South African companies are generally not permitted to
attach and sell assets of the company in liquidation after a winding export capital from South Africa, hold foreign currency in excess
up order is granted. of certain limits or incur indebtedness denominated in foreign cur-
If a creditor is secured, the liquidator appointed to administer rencies without the prior approval of the South African Exchange
and wind-up the company in liquidation will recover and realise the Control authorities.
secured asset and will make payment to the secured creditor of the
proceeds of the security, less the liquidator’s costs and any fees and
disbursements, which include costs of maintaining, realising and 7 What are the restrictions, controls, fees and taxes on remittances
preserving the secured asset. of investment returns or payments of principal, interest or
There are various sections of the Insolvency Act No. 24 of 1936 premiums on loans or bonds to parties in other jurisdictions?
(as amended) (the Insolvency Act) dealing with collusive dealings, At present, South Africa imposes a withholding tax on dividends
preferences and impeachable transactions and local advice should be levied at a rate of 15 per cent,
obtained with reference to the particular type of security in question. South Africa also intends imposing a withholding tax on interest
Certain entities such as banks, pension or provident funds, long- with effective from 1 January 2015. It is anticipated that the rate
term and short-term insurers, or companies in which the government will be 15 per cent.
has the sole shareholding or an interest, are subject to specific rules The domestic rates outlined above may be reduced by the rel-
and to the supervision of certain bodies regulating the particular evant double tax treaty.
industry, and may be excluded from bankruptcy proceedings in cer- In terms of the South African Exchange Control Regulations,
tain instances. It is not possible in this medium in the space provided authorised dealers may allow the transfer of dividends, profits and
to detail each and every such entity and it is suggested that prior income distributions to non-resident shareholders in proportion to
to dealing with such an entity careful investigation is conducted to their percentage shareholding or ownership, or both, provided cer-
determine the specific legislation applicable. tain requirements are met.
As far as collateral or security in favour of the project company Prior Exchange Control approval is, for example, required for
is concerned, there is no process available in South Africa to seize any loan funding advanced by a non-resident to a resident. The rate
assets of the project company (other than with the consent of such and terms at which interest may be remitted must be approved either
a company) unless one obtains a court order. While a pledge may by the SARB or an authorised dealer at the time of introduction of
be registered over an asset, for a pledge to be effective one must be the loan.
in possession of the asset. If the project company does not deliver The interest rate charged on the funding must fall within cer-
the asset and place it in the possession of the project lender, one tain prescribed limits. In determining the prescribed limits SARB will
must obtain a court order to perfect the pledge. Similarly, with a have regard to all the interest, including penalty interest and any
general notarial bond registered over the moveable assets of the pro- other fee paid by the borrower to the lender in respect of the fund-
ject company in favour of the project lender, the project lender may ing. This is referred to as the all-in rate.
either take possession of the hypothecated assets with the project In respect of shareholder loans, the all-in rate that may be levied
company’s consent or, where such consent is refused, an order of is currently limited to the South African prime overdraft rate for
court. A ‘perfection clause’ in a general notarial bond would enti- rand-denominated loans or the relevant base-lending rate for foreign
tle the project lender to take physical possession and control of the currency-denominated loans. SARB is more lenient with regard to
hypothecated assets, thereby converting the general notarial bond to the interest rate on third-party loans, where the maximum interest
a pledge and conferring on the bondholder the rights of a pledgee. rate usually allowed is the prime plus 3 per cent for rand denomi-
The wording of the relevant perfection clause will determine the nated loans or relevant base-lending rate plus 2 per cent for foreign
effectiveness of such bond. currency-denominated loans.
Project lenders should therefore take cognisance of the principle The prior approval of the SARB in respect of the terms of repay-
in South African law that a pledge or general notarial bond that has ment of the capital portion of the loan is also required.
8 Must project companies repatriate foreign earnings? If so, must ‘Work’ is very broadly defined in the Immigration Act No. 13 of
they be converted to local currency and what further restrictions 2002 as ‘conducting any activity normally associated with the run-
exist over their use? ning of a specific business or being employed or conducting activities
South Africa resident project companies must repatriate their for- consistent with being employed or consistent with the profession
eign earnings to South Africa. In general, the Exchange Control of the person, with or without remuneration or reward within the
Regulations require that foreign currency receipts must, unless Republic.’ The effect of this is that the requirement to obtain a work
credited to a Customer Foreign Currency Account (CFC), be surren- permit is applicable not only to ‘employees’ as defined in terms of
dered and converted to rand within 30 days from the date of accrual, our employment law legislation, but also to independent contractors
unless an exemption is obtained from SARB. and consultants.
The Immigration Act

9 May project companies establish and maintain foreign currency In terms of the Immigration Act No. 13 of 2002, companies are enti-
accounts in other jurisdictions and locally? tled to employ permanent residents, provided that their employment
Authorised dealers may approve the opening of foreign currency is not in contravention of any restrictions that may be placed on
bank accounts by South Africa resident companies subject to certain their permanent residence status. For example, permanent residency
conditions. may be obtained on the basis of an offer of permanent employment
that provides for work in a specific field of employment and for a
Foreign investment issues prescribed period.
The Immigration Act was recently amended by the Immigration
10 What restrictions, fees and taxes exist on foreign investment in or Amendment Act 13 of 2011. The Amendment Act was, how-
ownership of a project and related companies? Do the restrictions ever, only promulgated on 22 May 2014, by proclamation in the
also apply to foreign investors or creditors in the event of Government Gazette. The most significant changes to the present
foreclosure on the project and related companies? Are there immigration regime are that new regulations removed the quota and
any bilateral investment treaties with key nation states or other exceptional skills permit categories and replaced them with a critical
international treaties that may afford relief from such restrictions? skills permit.
Would such activities require registration with any government Further, the Department of Home Affairs has entered into a five-
authority? year contract with Visa Facilitation Services (VFS) who will estab-
South Africa seeks to create an attractive climate for investment and lish 11 offices nationally to receive applications. Applications must
has continued to develop the regulatory framework that is broadly henceforth be submitted to these offices rather than to the offices of
favourable to an investor. Generally speaking, there are no restric- Home Affairs.
tions on a foreign company having ownership in a South African
project company. However, the requirements of a specific project or Visas and the immigration process
tender under which the project company will operate (as the case A foreign national is obliged to obtain a work permit by applying
may be), may place certain foreign ownership restrictions on the in the prescribed manner to the South African consular office in the
project company and require that the project company is held, to foreign national’s country of origin or ordinary residence. In excep-
some extent, by South African citizens. tional cases, where it is necessary to apply within South Africa, a
Important to mention in this regard, is the government’s Broad- foreign national is obliged to personally submit any application for a
Based Black Economic Empowerment (B-BBEE) Policy. The B-BBEE work permit via VFS. Applications must henceforth be submitted to
Policy is consistent with section 217(2) of the Constitution of the these offices rather than to the offices of Home Affairs. Good cause
Republic of South Africa (which permits the allocation of prefer- must be shown for the application being brought locally.
ences for historically disadvantaged persons in the public procure- Application times vary greatly, depending on the type of per-
ment context) and is defined in the Broad-Based Black Economic mit applied for and the country in which the application is lodged.
Empowerment Act, 2003, as ‘the empowerment of all black peo- Although applications at most consular offices take 30 days to pro-
ple including women, workers, youth, people with disabilities and cess, it can take between five days and two months to obtain a per-
people living in rural areas through diverse but integrated socio- mit. Canadian, EU, United Kingdom and United States applications
economic strategies […]’. The importance of this is that the partici- are generally processed within 10 to 14 days, while countries in the
pation of B-BBEE companies in South African project companies is Far East usually take six to eight weeks to process an application.
often a requirement. The processing time of the Department of Home Affairs in South
Africa is between 30 days and 10 months.
A foreign national is not permitted to hold more than one permit
at a time. A company may employ an unlimited number of foreign
nationals who all hold different categories of work permit, provided
that each foreign employee holds the appropriate work permit. One
creditors?
of the requirements of a work permit includes a motivation from
The issuance of credit insurance or guarantees by foreign institu- the company regarding the reasons for employing a foreign national
tions or non-resident entities to residents, including to RSA banks, rather than a South African citizen or permanent resident.
does not require prior SARB approval. Such policies may be paid
to foreign secured creditors and no local insurance involvement is Immigration permit types
required. There are various categories of work permits provided for in the
Immigration Act.
or executives to work on a project? Visitor’s visa
For a placement of under three months, a visitor’s visa with permis-
Overview of South Africa’s immigration system
sion to conduct work activities may be applied for in terms of sec-
Any foreign national who is not a permanent resident of South
tion 11(2) of the Immigration Act.
Africa and who wishes to render services in South Africa needs to
A section 11(2) visitor’s visa/permit is considered as a one-off,
obtain a work permit in order to do so.
non-renewable visa/permit that addresses an immediate short-term

or urgent need for a limited duration of work activity that cannot • finally, DoL has also indicated that they want all opportunities to
be met by an application for a work permit. Those foreign nation- be registered with the local Labour Centre on the Employment
als who are ‘visa exempt’ (which includes Australian, Canadian, Services Database (ESSA), and, depending on the applications
European, United Kingdom and United States nationals) are permit- received, a detailed account of the recruitment process that
ted to obtain a visitor’s visa with permission to conduct work by ensued.
applying in person at their closest consular offices, at least a week
prior to the foreign national’s departure, to confirm why the foreign An intra-company transfer work permit may be issued to a foreign
national cannot apply for a work permit and the reasons why the national who is employed abroad by a business operating in the
limited duration work is necessary and urgent. Republic in a branch, subsidiary or affiliate relationship, and who by
reason of his or her employment is required to work in the Republic.
Spousal visa The maximum of validity of an intra-company transfer work visa
Spouses of South African citizens or permanent residents are entitled was increased to four years and is not renewable. The requirements
to apply for a spousal work or business permit in terms of section for the intra-company work permit are the simplest and easiest to
11(6) of the Act. obtain.
A company wishing to employ a number of foreign workers
Work permits may also apply for a corporate permit in terms of section 21 of
Section 19 of the Act makes provision for various categories of work the Act. Corporate permits are suited to corporate applicants who
permits, for example, general work permits, intra-company transfer intend to employ a number of foreign nationals in specific positions.
permits and critical skills work permit, each of which have particu- The regulations also propose that in order to qualify for a corporate
lar requirements that need to be complied with. permit a company must demonstrate that at least 60 per cent of its
An applicant may apply for a general work permit in terms of employees are South African. The corporate permit can be issued
section 19(2) of the Immigration Act. The process is cumbersome, for a maximum of three years. Workers cannot renew or apply for a
but the greatest advantage of a general work permit is that it can be change of status in South Africa.
issued for up to five years. The new regulations amplify the role of The critical skills work visa category will be issued to for-
the Department of Labour in the approval process. The Department eign nationals who meet the minimum qualifications and experi-
of Labour is charged with issuing a certificate that confirms that: ence listed on the critical skills list, which has yet to be published.
• despite a diligent search the employer has been unable to find a Applicants must submit, inter alia, written confirmation from the
South African citizen or Permanent Resident with qualifications accredited professional body, board or council of the skills, qualifi-
and skills or experience equivalent to those of the applicant; cations and post qualification work experience, proof of application
• the applicant has qualifications or proven skills and experience for professional registration if required in law and Saqa evaluation.
in line with the job offer; The critical skills permit can be granted for a period not exceeding
• the salary is not inferior, the contract of employment is in line five years.
with labour standards; and
• that the contract of employment is in line with labour standards
and is conditional upon approval of the visa.
To the extent that goods will need to be imported for the purposes of
The role of the Department of Labour (which has historically been a project, it must be noted that all goods imported into South Africa
to certify that the remuneration, as well as the terms and conditions must be ‘duly entered’ or declared to customs within seven days of
of employment offered to the foreign national, are equal to those the date on which the goods are imported. No person shall remove,
offered to South Africans occupying similar positions) has been receive, take, deliver or deal with or in any imported goods unless
extensively extended. such goods have been duly entered.
Although there is no prescribed list of documents that must Whenever goods are exported from South Africa, the exporter
be submitted to the Department of Labour for them to base their must, before the goods are exported, duly enter or declare the goods
findings on, the Department of Labour’s has indicated that they are to customs.
tasked with satisfying themselves that a due and diligent search of The rate of duty that is payable on any goods imported is gov-
the labour market has been made to ensure that South Africans who erned by the provisions of the Schedules to the Customs and Excise
can fill the identified expat roles have been given due opportunity Act.
before the role is filled by an expat, in order to recommend approval It must also be noted that all persons that participate in any
of an application and that, in conducting their evaluation of the activities regulated by the Customs and Excise Act may be required
company’s efforts to employ South Africans in the role, they will to register with South African Revenue Services (SARS).
have regard, inter alia, to the following: It should also be noted in this regard that in accordance with the
• advertising of the relevant positions in the form of newspaper SADC Free Trade Protocol to which South Africa acceded in 1996,
print advertisements and other methods of advertising and import and export duties on excisable goods and services traded
recruitment such as online advertisements, etc (the new regu- between the SADC states are currently being phased out.
lations do not prescribe advertisement of the position but it
appears that the Department of Labour will still insist on adver- 14 What laws exist regarding the nationalisation or expropriation
tising in the national print media in order to satisfy themselves of project companies and assets? Are any forms of investment
that a proper labour market test has been performed); specially protected?
• a private employment agency report as written evidence of the
The right to property is specifically included in the Bill of Rights
labour search from a private recruitment agency;
(chapter 2 of the Constitution of the Republic of South Africa).
• to the extent that South African candidates may have been inter-
Section 25(1) provides that no one may be deprived of property
viewed for the roles concerned, interview notes indicating the
except in terms of law of general application, and no law may permit
rationale for appointment of the foreign national or the reasons
arbitrary deprivation of property.
for locals not being appointed; and
Section 25(2) provides that property may be expropriated only
in terms of law of general application:
• for a public purpose or in the public interest (this includes our MPRDA must comply with the provisions of the MPRDA and the
nation’s commitment to land reform, and to reforms to bring terms and conditions on which the titles are granted. There is no
about equitable access to all South Africa’s natural resources); bar to foreign parties acquiring such titles, except for such parties’
and compliance with all requirements for grant of title, notably the ‘local
• subject to compensation, the amount of which and the time and content’ requirements of the MPRDA. Applicant companies wish-
manner of payment of which have either been agreed by those ing to exploit minerals must, among other requirements, be 26 per
affected or decided or approved by a court. cent owned by historically disadvantaged South Africans. Applicant
companies wishing to exploit petroleum must, among other require-
The Expropriation Act No. 63 of 1975 specifically provides for the ments, be 9 per cent owned by historically disadvantaged South
expropriation of land and other property for public and certain Africans.
other purposes and for matters connected therewith. Title to use water generally (reasonable domestic use, domestic
To date, there is no case law dealing with the expropriation of a gardening, animal watering, fire fighting and recreational use) exists
project company or its assets. by operation of the law for all persons including foreign parties. To
undertake certain other water uses (eg, to obstruct or divert a flow
Fiscal treatment of foreign investment of water, to affect the quality of water, to receive any particular flow
of water, to receive a flow of water of any particular quality or to
15 What tax incentives or other incentives are provided preferentially construct, operate or maintain any waterwork), local and foreign
to foreign investors or creditors? What taxes apply to foreign parties, treated equally, must be issued by the state with an authori-
investments, loans, mortgages or other security documents, sation or licence under the National Water Act, 1998.
either for the purposes of effectiveness or registration? Title of ownership to land is privately transferable and a cadas-
The South African government and the revenue authorities do not tral system for registering land ownership title exists, flowing from
provide any specific foreign investment incentives or stabilisation which a doctrine of constructive notice applies. No limitations
regimes and such investors participating in the South African market are placed on transfer to foreign parties. The title to land can be
will be treated equitably with all other market participants (includ- acquired by means of registration, occupation or prescription. Other
ing local participants). Various schemes are open to the participation specialised forms of land title exist, such as, long leases, common law
of foreign investors and these are largely regulated and facilitated by co-ownership and group or cluster housing. Land title can constitute
the Department of Trade and Industry. security interests and limited real rights such as servitudes can be
granted in respect thereof.
16 What are the relevant government agencies or departments with 18 What royalties and taxes are payable on the extraction of natural
authority over projects in the typical project sectors? What is the resources, and are they revenue- or profit-based?
nature and extent of their authority? What is the history of state The Mineral and Petroleum Resources Royalty Act No. 28 of 2008
ownership in these sectors? (MPRRA) is applicable. Section 2 states that ‘a person must pay a
The relevance of any government department to a project is largely royalty for the benefit of the National Revenue Fund in respect of the
dependent on the nature of the project in question. Government transfer of a mineral resource extracted from within the Republic.’
departments that are common role players in the project finance The fiscus administers a revenue tax on the first disposal of minerals
industry include the following (to name a few): and petroleum in terms of the MPRRA where applicable.
• the Department of Water Affairs; The royalty in respect of refined minerals is calculated by divid-
• the Department of Energy (with National Energy Regulator of ing earnings before interest and taxes, or EBIT, as calculated under
South Africa (NERSA) the electricity, oil and gas regulator); IFRS, by the product of 12.5 times gross revenue calculated as a
• the Department of Trade and Industry; percentage, plus an additional 0.5 per cent. EBIT refers to taxable
• the Department of Environmental Affairs; mining income (with certain exceptions such as no deduction for
• the Department of Finance (National Treasury); interest payable and foreign exchange losses) before assessed losses
• the Department of Transport; and but after capital expenditure. There is a maximum royalty of 5 per
• the Department of Mineral Resources. cent of revenue for refined minerals.
The royalty in respect of unrefined minerals is calculated by
Within the above-mentioned government departments, there may be dividing EBIT by the product of nine times gross revenue calculated
additional bodies that have been established to act as functionaries as a percentage, plus an additional 0.5 per cent. There is a maxi-
and regulators within the specific sector and from which approvals mum royalty of 7 per cent of revenue for unrefined minerals. Where
or other participation may be required. unrefined mineral resources constitute less than 10 per cent in value
of the total composite mineral resources, the royalty rate in respect
Regulation of natural resources of refined mineral resources may be used for all gross sales and a
separate calculation of EBIT for each class of mineral resources is
17 Who has title to natural resources? What rights may private not required.
The state exercises sovereignty over natural resources (mineral and resources?
petroleum resources, water and land) and regulates the entitlement
Mineral and petroleum resources are not subject to export restric-
to each differently.
tions except in the case of diamonds and precious metals (such
Titles to explore and exploit mineral and petroleum resources
as gold and platinum group metals), in which case, titles must be
are limited real rights granted by the state. Applications for titles
obtained to export these minerals in terms of the Precious Metals
are made in the manner and form prescribed by the Mineral and
Act, 2005 (PMA) or the Diamonds Act, 1986 (DA) where applica-
Petroleum Resources Development Act, 2002 (MPRDA) and are
ble. Export taxes are levied in terms of the Diamond Export Levy
processed on a ‘first come, first served’ basis. The holder of such
Act, 2007 (DELA) where applicable.
a title has ownership of the minerals and petroleum on severance
thereof from the ground. Holders of titles granted in terms of the

Section 12(1) of the PMA provides that no person may export The choice of foreign law as the governing law of the project
any unwrought or semi-fabricated gold, except with the approval of and financing documents is legal and would be recognised by courts
the National Treasury in terms of the Exchange Control Regulations in South Africa. The only restriction on party autonomy as regards
made under the Currency and Exchanges Act 1933, which must choice of foreign law is South African public policy and the court
be granted with the concurrence of the Minister. Section 12(2) of will not give effect to the provisions of the foreign law if to do so
the PMA provides that no person may export any unwrought or would be contrary to public policy in South Africa.
semi-fabricated metals of the platinum group except with the writ- If the parties have elected the law of a particular country to gov-
ten approval of the Minister, which shall be granted subject to the ern their rights and obligations, that choice of law will apply to the
promotion of equitable access to, and the orderly local beneficiation determination of any disputes between the parties either in litigation
of such metals. or arbitration.
In respect of the DA, chapter 2 of this act makes it a criminal However, while the substantive issues will be governed by the
offence for a person to be in possession of, to sell or to deal in any choice of law, procedural issues will be governed by the curial law,
way mentioned therein, unpolished diamonds, unless that diamond which, unless otherwise stated, will be presumed to be the law of the
has been registered and released for export in terms of the DA and place where the arbitration or litigation takes place.
the exporter is registered in terms of the DELA.
South Africa also has a number of laws that govern the move- Recognition and enforcement of foreign arbitral awards
ment, trade or export of certain plants and species. For example, South Africa is not a party to the ICSID Convention. However, it
the National Environmental Management: Biodiversity Act 2004 acceded to the New York Convention without reservation in 1976.
prohibits the export of certain identified threatened and protected Following its accession to the New York Convention, South
species without a permit. Africa promulgated the Recognition and Enforcement of Foreign
Arbitral Awards Act in 1977. In terms of this statute foreign arbi-
Legal issues of general application tral awards may be made an order of the South African courts and
enforced in the same manner as any domestic judgment where cer-
20 What government approvals are required for typical project finance tain authentification and procedural requirements are met.
transactions? What fees and other charges apply? South African courts concur with the international principle that
This is largely dependent on the nature and location of the project, judicial intervention when reviewing international commercial arbi-
the project company and the lenders to the project company as well tration awards should be minimised. Further, where the arbitration
as other parties to the transaction. was carried out under domestic law, the courts refuse to interfere
Generally, commercial project finance transactions between pri- with an arbitral finding unless there are clear procedural irregulari-
vate parties may not require any government approvals; however, ties, or unless the parties have agreed to allow for an appeal to the
where a party to the transaction is a government department or courts.
where the project relates to a natural resource or other regulated Various defences can be raised by a party wishing to oppose
industry in South Africa, government approvals may be required, the enforcement of a foreign arbitral award being made an order of
even if only indirectly. The specifics of each transaction therefore court and thereby becoming enforceable in South Africa.
need to be considered in order to determine if any governmental In terms of section 4(1)(b) of the Recognition and Enforcement
approvals are required. of Foreign Arbitral Awards Act a foreign arbitral award will not be
enforced if it is shown to the satisfaction of the court that:
• the parties to the arbitration agreement concerned had, under
the law applicable to them, no capacity to contract, or that the
said agreement is invalid under the law to which the parties have
subjected it or of the country in which the award was made;
Financing and project documentation does not need to be filed with • that the respondent did not receive the required notice of the
any government authority or otherwise comply with any legal for- appointment of the arbitrator or of the arbitration proceedings
malities except that the terms thereof are not inconsistent with South concerned or was otherwise not able to present his or her case;
African law or against public policy. • the award deals with a dispute not contemplated by or falling
Mortgage bonds (in respect of immoveable property), special within the provisions of the relevant reference to arbitration, or
and general notarial bonds (over moveable property) and notarial that it contains decisions on matters beyond the scope of refer-
long-term lease agreements (in excess of 10 years) are required to ence to arbitration;
be in a specific format and to be registered in the relevant deeds • the constitution of the arbitration tribunal concerned was or the
office having geographical jurisdiction over the property in ques- arbitration proceedings concerned were not in accordance with
tion. Mortgage bonds and long-term lease agreements are registered the relevant arbitration agreement or with the law of the country
against the title deeds of the properties to which they relate. in which the arbitration took place; or
• the award has not yet become binding on the parties, or has been
22 How are international arbitration contractual provisions and set aside or suspended by a competent authority of the country
awards recognised by local courts? Is the jurisdiction a member in which, or under the law of which, the award was made.
conventions? Are any types of disputes not arbitrable? Are any The courts will not enforce a foreign arbitral award that is contrary
types of disputes subject to automatic domestic arbitration? to public policy. Where the arbitral award is connected to mining,
production, importation, exportation, refinement, possession, use
Governing law and submission to international arbitration
or sale of or ownership to many matter or material, either inside
Arbitration in South Africa is governed by the Arbitration Act,
or outside the Republic, ministerial consent is required to enforce
which does not distinguish between domestic and international
an arbitral or judicial award in terms of 1(3) of the Protection of
arbitration and which applies to all arbitration proceedings in South
Businesses Act. Where such consent is not obtained, the award will
Africa, including those to which the state is a party (unless the coun-
not be made an order of court.
terparty is a foreign state or an undertaking that is wholly owned
However, the courts have traditionally applied a very narrow
and controlled by such a government). The forum of arbitration is
interpretation to the Protection of Businesses Act, and have restricted
well-established, and various bodies exist to facilitate the process.
the purview of its use to cases where there is direct involvement of
raw materials. This approach has recently been confirmed in a string it is recommended that the governing law of the security documents
of cases, including one by the Supreme Court of Appeals. are governed by law of the jurisdiction of the project company or, if
different, they are governed by the law of the jurisdiction in which
Disputes that are not arbitrable the assets can be executed upon.
In terms of the Arbitration Act, matrimonial disputes and matters
relating to status may be not referred to arbitration. In terms of
domestic legislation, municipalities may also not refer decisions on
their status, powers or duties, or the validity of their actions or by-
laws to arbitration. Submission to a foreign jurisdiction and a waiver of immunity is
effective and enforceable.
Disputes that are subject to automatic domestic arbitration In the instance of contracting with a state-owned entity (SOE),
The most prevalent form of compulsory domestic arbitration occurs its status as an SOE does not entitle it to any statutory immunity
in terms of labour law in South Africa, which states that certain dis- from suit or attachment (including for assets used for public services)
putes are subject to compulsory arbitration by the Commission for (the State Liability Act is relevant in this regard). This is because
Conciliation, Mediation and Arbitration. the courts follow a restrictive approach to the question of sovereign
immunity by which immunity can only be claimed on acts de jure
Enforcement of foreign judgments, including judgments of imperii (governmental public acts) but not on acts de jure gestionis
bankruptcy courts (commercial acts).
Under South African common law, a judgment rendered by a foreign
court (including foreign bankruptcy court) is, in general, enforceable Environmental, health and safety laws
against a debtor’s property in South Africa.
A foreign judgment is not directly enforceable in South
Africa, but constitutes a cause of action and will be enforced by
South African courts. In terms of the Enforcement of Foreign Civil South Africa has a progressive environmental regulatory frame-
Judgments Act of 1988, an application may be made to a South work. Most notably, the right to an environment that is not harmful
African court for the registration and enforcement of a foreign civil to one’s health or well-being is entrenched as a fundamental right in
judgment, provided that certain procedural rules are adhered to and the Constitution of the Republic of South Africa (the Constitution).
the following conditions are met: The Constitution also provides that the government must take rea-
• the foreign court that issued the judgment must have been sonable legislative and other measures to:
competent to decide the case, either in terms of the common • prevent pollution and ecological degradation;
law provisions relating to international competence of courts • promote conservation;
or the foreign country is a designated country in terms of the • secure ecologically sustainable development; and
Enforcement of Foreign Civil Judgments Act of 1988, and the • use natural resources while promoting justifiable economic and
judgment must have been certified in accordance with this Act; social development.
• the judgment must be final and conclusive;
• the recognition and enforcement of the judgment must not This obligation, to a limited degree, also applies to private enti-
breach either public policy or the rules of natural justice; and ties as well and not just between public and private entities. The
• prior ministerial consent (by the Ministry of Trade and Industry) environmental right in the Constitution is supported by other envi-
must have been obtained in accordance with section 1 of the ronmental legislation that aims to protect the environment while
Protection of Businesses Act, where necessary (see ‘Recognition pursuing sustainable economic growth on terms applicable to a
and enforcement of foreign arbitral awards’); developing nation. The main statute is the National Environmental
• the judgment must not have been obtained by fraudulent means; Management Act 107 of 1998 (NEMA). This statute:
and • provides for cooperative governance and decision-making in
• the judgment must not involve the enforcement of a penal or matters affecting the environment;
revenue law of the foreign state. • is based on best international principles of sustainable develop-
ment and integrated environmental management;
The Constitutional Court has recently extended the enforcement of • contains various listed activities that require an either a Basic
foreign judgments to include those handed down by international Assessment (BA) or environmental impact assessment (EIA) in
courts and tribunals. order to obtain an environmental authorisation;
One of the recognised procedures for the enforcement in our • grants wide powers to environmental management inspectors to
courts of a foreign judgment is through provisional sentence, on the enforce various environmental laws; and
basis that the foreign judgment will be accepted as a liquid docu- • contains a general ‘duty of care’ to the environment, which
ment, provided that the judgment has been duly certified in accord- means that every person has the duty to avoid pollution and
ance with the Rules of Authentication of the South African courts. environmental degradation. Both civil parties and the govern-
This short-cut procedure may be used to circumvent the application ment rely on this when enforcing environmental obligations.
process in terms of the Enforcement of Foreign Civil Judgments Act,
but may not be appropriate in all circumstances. The NEMA is also enabling in nature and specific environmental
management acts have been enacted to regulate various sectors of
the environment. These include:
23 Which jurisdiction’s law typically governs project agreements? • the National Environmental Management: Biodiversity Act
Which jurisdiction’s law typically governs financing agreements? 2003;
Which matters are governed by domestic law? • the National Environmental Management: Protected Areas Act
Typically, projects in South Africa are governed by South African 2003;
law. To the extent that there is any security in a foreign jurisdiction, • the National Environmental Management: Air Quality Act No.
security documents in relation thereto will be governed by the law 39 of 2004;
of that jurisdiction. If there are foreign lenders in a deal, laws of dif- • the National Environmental Management: Integrated Coastal
ferent jurisdictions can govern the financing agreements. However, Management Act No. 24 of 2008; and

• the National Environmental Management: Waste Act No. 59 of among others, implement a hierarchal structure of staff appoint-
2008. ments, ensure an adequate supply of health and safety equipment
to employees, provide health and safety training to employees and
While many of the above statutes may be applicable to one activity, conduct hazard identification and risk assessment. The Department
the NEMA also provides for the alignment of environmental author- of Mineral Resources and, in particular, the Mine Health and Safety
isations, upon the initiative of the relevant authorities, where a listed Inspectorate, is responsible for monitoring compliance with the
activity is also regulated by another law or specific environmental requirements of the MHSA and regulations, as well as enforcement.
management act. The Department of Labour is responsible for compliance monitoring
Environmental rights and duties can also be enforced through and the enforcement of the OHASA and regulations. The statutory
South African common law, which is mainly based on Roman- and regulatory frameworks grant inspectors of the relevant govern-
Dutch law. However, some English law concepts have been imported ment bodies various powers pursuant to their roles in compliance
into South African law such as, in an environmental context, the law monitoring and enforcement, including powers to halt operations
of nuisance. at mines or workplaces. They also provide for investigations and
The authority with the primary responsibility for enforcing envi- inquiries into accidents at mines and incidents at workplaces that
ronmental legislation nationally is the Department of Environmental result in injury, death or illness.
Affairs (DEA). The DEA is responsible at a national level for envi-
ronmental authorisations and waste management licences where Project companies
BAs or EIAs must be undertaken. In issuing such authorisations, the
DEA takes into consideration other specialist environmental depart- 26 What are the principal business structures of project companies?
ments’ recommendations. What are the principal sources of financing available to project
Provincial authorities can issue many of the authorisations for companies?
listed activities under the national EIA regulations and are also A special purpose entity (a privately owned limited liability com-
empowered to undertake enforcement action. Each of South Africa’s pany that is ring-fenced as a single-purpose vehicle) is generally
nine provinces has its own regional department of agriculture, con- created for each project, thereby shielding other assets owned by a
servation and environment, which is equivalent to the national DEA. project sponsor from the detrimental effects of a project failure. As a
The national DEA generally only considers issuing listed activity special purpose entity, the project company has no assets other than
authorisations when the matter has cross-border effects, is of a sig- the project. Capital contribution commitments by the owners of the
nificant size or nature, or is a matter of national interest. project company are sometimes necessary to ensure that the project
is financially sound, or to assure the lenders of the sponsors’ com-
Water mitment. The project company generally takes on the structure of a
Another important regulator at a national level is the Department of limited liability company appropriately ring-fenced according to the
Water Affairs (DWA). The DWA is responsible for issuing all licences requirements of the lenders and of the project as a whole.
relating to the use of water, which includes the discharge of pollut- Projects are generally funded by lenders on a project finance and
ants into South Africa’s water resources. limited recourse basis; however, there is no restriction on projects
being funded through the capital markets or through bonds being
Agriculture, forestry and fisheries issued or by other means.
The Department of Agriculture, Forestry and Fisheries (DAFF), is
primarily responsible for the formulation and implementation of Public-private partnership legislation
policies governing the agriculture, forestry and fisheries sectors. The
various divisions administer the licensing and permitting of activi- 27 Has PPP enabling legislation been enacted and, if so, at what
ties relating to these specific sectors, for example, licences under level of government and is the legislation industry-specific?
the National Forests Act and Commercial Fishing Rights as well as In South Africa there is no single act dealing specifically with public-
authorisations relating to the subdivision of or registration of long private partnerships, however there is a vast array of legislation and
leases over agricultural land. regulations, on both a municipal and national level, that may be
relevant to PPP transactions, depending on the nature of the transac-
Minerals and energy tion, the parties and the specific industry or sector for which the PPP
The Department of Minerals Resources (DMR) regulates the mining is planned.
industry. The DMR’s main function is to regulate matters concern- Notwithstanding the above, the Public Finance Management
ing minerals and energy. Part of this function requires the DMR to Act, 1999 (PFMA) and National Treasury Regulation 16 require
regulate and approve EIAs and environmental management plans special mention.
(EMPs) in respect of new or existing the mining activities and will (as The PFMA’s purpose is to regulate financial management in the
of 7 December 2014) be the relevant authority to approve environ- national government and provincial governments; to ensure that all
mental authorisations for mining activities in accordance with the revenue, expenditure, assets and liabilities of those governments are
transitional provisions provided for in the National Environmental managed efficiently and effectively; to provide for the responsibili-
Management Amendment Act 62 of 2008, as read with the MPRDA ties of persons entrusted with financial management in those govern-
Amendment Act 42 of 2008. ments; and to provide for matters connected therewith. The PFMA
sets out clear requirements in respect of PPP transactions in terms
Mine and occupational health and safety of, inter alia, procurement procedures and restrictions in respect of
Mine and occupational health and safety is primarily regulated by borrowing monies by certain government entities.
the Mine Health and Safety Act, No. 29 of 1996 (MSHA) and the National Treasury Regulation 16 deals specifically and in detail
Occupational Health and Safety Act, No. 85 of 1993 (OHASA), with various aspects of public-private partnerships and pertinent
as well as the regulations promulgated thereunder. The MHSA aspects related thereto, including but not limited to, obtaining
and regulations regulate activities at mines, while the OHASA and Treasury approval, feasibility studies (to determine whether the PPP
regulations regulate all other industries and sectors of the economy. is in the best interests of the institution), approval of procurement
These statutory frameworks create obligations on employers to documentation before its issuance to any prospective bidders, the
ensure, as far as reasonably practicable, the health and safety of management and amendment of PPP agreements.
employees while working. Obligations are placed on employers to,
PPP – limitations The B-BBEE Act reflects the government’s realisation that eco-
nomic transformation will take place faster and more effectively if
28 What, if any, are the practical and legal limitations on PPP the government is to use its own purchase and regulatory power to
transactions? incentivise such transformation. It also reflects a desire by the gov-
In terms of section 66(1) of the PFMA, a public entity may not bor- ernment to promote the activities of black people in the economy,
row money or issue a guarantee, indemnity or security, or enter into and focuses on black ownership and control of businesses, access
any other transaction that binds or may bind that institution to any to finance, skills and training for black people through inter alia
future financial commitment unless such borrowing, guarantee, empowering the Minister of Trade and Industry to implement codes
indemnity, security or other transaction is authorised by the PFMA of good practice and publish sectoral empowerment charters.
and by other legislation not in conflict with the PFMA. In terms of Section 10 of the B-BBEE Act provides that every organ of state
section 66(3), the PFMA authorises the sponsor to borrow money and public entity must, as far as is reasonably possible, apply any
or issue a guarantee, indemnity or security, or enter into any other code of good practice issued in terms of the B-BBEE Act (the Codes)
transaction that binds or may bind the sponsor to any future finan- when it, among other things:
cial commitment through its accounting authority, which in spon- • develops and implements a preferential procurement policy; and
sor’s case is the board of directors. • develops criteria for entering into partnerships with the private
Section 54 of the PFMA obliges a public entity that plans to sector.
enter into any of the following transactions to notify the National
Treasury in advance and to seek the written approval of the relevant PAJA gives effect to section 33 of the Constitution, which requires
minister for such a transaction as: that administrative action must be lawful, reasonable and procedur-
• establishment or participation in the establishment of a ally fair. When the sponsor (or the project company), makes a deci-
company; sion (or fails to make a decision) in the course of exercising a public
• participation in a significant partnership, trust, unincorporated power or performing a public function in terms of legislation, which
joint venture or similar arrangement; decision adversely affects a person’s rights and has a direct, external
• acquisition or disposal of a significant shareholding in a legal effect, this constitutes an ‘administrative action’ that is subject
company; to PAJA. PAJA requires, as mentioned above, that all administrative
• acquisition or disposal of a significant asset; action be lawful, reasonable and procedurally fair, and includes the
• commencement or cessation of a significant business activity; right to request and obtain reasons for the decision.
and
• a significant change in the nature or extent of its interest in a PPP – transactions
significant partnership, trust, unincorporated joint venture or
similar arrangement.
The general rule applicable to an entity (that is an organ of state), The largest PPPs have been concluded in the health sector with five
acting as a sponsor, for example, is that when it contracts for goods PPPs in South Africa having been implemented to date and one in
or services, it must do so in accordance with a system that is fair, Lesotho (based on the South African model). Concessions in the roads
equitable, transparent, competitive and cost-effective (section 51(1) and toll road sector have been prevalent and currently some seven
of the PFMA). For a contract of significant scale, this would nor- projects in this sector has been implemented or are in the process of
mally entail a competitive tender process. procurement – the largest of these are the newly proposed N1N2 Toll
Certain transactions envisaged in section 66 of the PFMA, if Road Project in the Western Cape Province of South Africa.
entered into otherwise in accordance with the provisions of section
66 of the PFMA may be voidable at the instance of the public entity * The authors would like to thank Otsile Matlou, Edwin Berman,
and may also constitute a criminal offence by the person purporting Jason Rusch, Mohamed Moosa, Muhammed Vally, Kate Swart,
to enter into such transaction on behalf of the public entity. James Brand, Olivia Rumble, Gerhardt Ehlers, Arnaaz Camay
The B-BBEE Act is an enabling framework that allows govern- and Andrew Bembridge of ENS (Edward Nathan Sonnenbergs)
ment to implement detailed B-BBEE policies and to provide a stand- for their contributions to this chapter.
ard framework for the measurement of B-BBEE across all sectors of
the economy.
Eric le Grange elegrange@ensafrica.com

Noma Sibanda nsibanda@ensafrica.com
Kim Eichorn keichorn@ensafrica.com
Innes Du Preez idupreez@ensafrica.com
150 West Street Tel: +27 11 269 7600

Sandton 2196 Fax: +27 11 269 7899
Johannesburg www.ens.co.za
South Africa

Staiger, Schwald & Partner SWITZERLAND
Switzerland
Mark-Oliver Baumgarten and Thiemo Sturny
Staiger, Schwald & Partner
Creating collateral security packages registered in the relevant IP register. Among the parties, however, the
pledge agreement is sufficient. Further, there may be registration fees.
1 What types of collateral are available? Real estate is normally encumbered by way of a mortgage or a
Under Swiss law, many types of collateral are available for securing mortgage note. A mortgage must take the form of a notarised deed
a loan. Often a combination of different types of collateral is used. and be registered in the land register. From the beginning of 2012
Collateral may include real estate, ships and aeroplanes, inventory mortgages do not have to be in paper form anymore. It is now pos-
and moveable property, after-acquired property, securities such as sible to issue mortgages that are only registered in the land register
shares, drafts, promissory notes, but also bank accounts, receivables (Register-Schuldbrief). For such types of mortgages all modifica-
or intellectual property rights like patents, trademarks, designs and tions, especially creditor changes, can be made in the land register.
copyrights. First experiences in practice, especially with transactions involving
Unlike in other jurisdictions, the floating charge is not a recog- big financial institutes, show that this kind of mortgage may replace
nised concept under Swiss law. Further, trade secrets and know-how the old-fashioned mortgage certificates. Generally, practitioners pre-
may not serve as collateral. Security may be granted by the debtor fer the mortgage note because this is a tradable security that can
and also by a third party (eg, parent company or group affiliate). itself be sold and pledged. Registration fees for notarisation vary
Lastly, guarantees or sureties given by third parties may also serve between cantons but are often calculated on the amount secured. If
as security. However, the provision of upstream or side-stream secu- the mortgagor encumbers his or her land by a mortgage declaration,
rity may be limited by corporate benefit issues and corporate capital no notarisation is required and no notarisation fees are payable. The
protection rules. mortgage note constitutes a novation of the secured amount and
will be issued by the land registry, in bearer or registered form. The
mortgage note can be given by way of pledge or full title transfer
for security purposes, the latter of which is the customary way of
taking security over real estate. Also the full title transfer for security
purposes requires the possession of the transferee. In certain situa-
tions, clearance needs to be sought from the appropriate authorities
that the real estate is not subject to Swiss rural and land protection
legislation.
The debt is often documented by a facility agreement. In a syndi- Companies that do not have a registered office or place of
cated facility agreement or multiple lien financings, one creditor or effective management in Switzerland are subject to taxation if they
a third party is often appointed to act as security agent and to hold are creditors with claims secured by a mortgage on real estate in
the security for and on behalf of the project lenders. In the case of Switzerland. This source tax is 14 per cent in the canton of Zurich
non-accessory security, the agent usually acts as indirect representa- based on the Zurich Cantonal Tax Act and 3 per cent based on the
tive of the secured parties, namely, the security is usually granted to Federal Act on Direct Federal Taxes, unless a tax treaty reduction
the agent itself. In the case of accessory security, the agent acts as applies, and is deducted from the gross interest payment.
direct representative of the secured parties with the effect that the Company shares are normally pledged. The perfection formali-
security is granted to the project lenders and the agent to secure its ties are for bearer shares, the pledgee must have physical possession,
own claims. or for registered shares, the pledgee must have physical possession
The parties enter into a written security agreement that governs, and a duly endorsed share certificate (normally an endorsement in
in essence, the type of, and way of granting, the collateral, the depo- blank is provided). In the caseof registered shares, the pledge can be
sition, representations and warranties as to existing liens, covenants, registered in the company’s share ledger.
duties and obligations of the grantee, enforcement rights such as pri- Receivables are normally assigned by way of global assignment.
vate sale or public auction, governing law and jurisdiction. The assignment is independent from, and non-accessory to, the
For some types of collateral, registration in public registers is secured obligation. During the term of the agreement, the assignor
available or even necessary. Most importantly, the registration of should be obliged to deliver, on a regular basis (eg, monthly or quar-
encumbrances over real estate, ships and aircraft is necessary for terly), to the assignee its lists of receivables showing the assigned
perfection. There are special registers for recording ownership of, receivables, otherwise the assignment may be deemed to be termi-
and holders of encumbrances on, real estate, ships or aircraft. The nated over time. Third-party debtors are often not notified of the
registration is binding in rem against the counterparty and third par- assignment until the borrower’s default. As long as third-party
ties. On the other hand, certain other types of collateral need not be debtors are unaware of the assignment, they can validly fulfil their
registered for perfection among the parties but is required to bind obligations by payment to the assignor. Global assignments are very
third parties, for example, the pledge of registered intellectual prop- often used.
erty rights such as patents, trademarks and designs, which need to be
SWITZERLAND Staiger, Schwald & Partner
Bank accounts can be taken by means of a written accounts debt clause concept is questionable because it has not yet been tested
pledge agreement. However, a Swiss bank at which the account is in court.
held will regularly have a pre-existing right of set-off and pledge,
which is normally set forth in its general terms and conditions. These
rights should be waived by the bank.
As to moveables, Switzerland adheres to the system of the pos-
sessory pledge, meaning that the moveable property needs to be As to real estate, priority depends on the time of registration. The
transferred into the possession of the pledgee or a pledge holder who land register excerpt shows all pre-existing encumbrances with rank
holds the pledge for and on behalf of the pledgee. Thus, the security and amount. The same applies to ships and aircraft. As to other
agent should act as direct representative of the lenders. No pledge moveable property, it is more difficult to be assured of the absence
is perfected as long as the pledgor retains exclusive control over the of liens ranking senior to the creditor’s lien. Here, legal due diligence
moveable asset. Due to the pledge’s possessory nature, particular with the pledgor is central as well as representation and warranty
thought must be given to structuring suitable security over inven- that the security is free of any lien. This is particularly true for the
tory, (raw) materials in the manufacturing process or moveables in pledging of bearer company shares and bank accounts as well as the
transit. In certain cases, a seller will wish to retain full legal title global assignment of receivables.
until full payment is received from an acquirer. This can be achieved
by a special retention of title provision in the sales agreement plus 4 Outside the context of a bankruptcy proceeding, what steps
registration in a retention of title register. The agreement has binding should a project lender take to enforce its rights as a secured
effect only among the parties, whereby the registration has effect party over the collateral?
against third parties. The registration can occur at any time during
The foreclosure procedure for collateral under the Debt Enforcement
the life of the agreement and be initiated by the seller or the acquirer.
and Bankruptcy Act (DEBA) is the public auction (in particular,
However, such registration is complicated and in practice hardly
enforcement into real estate), subject to certain exemptions. The
ever used and then only in a situation of potential financial distress.
DEBA sets forth respective rules and procedures and requires the
Also, capital market instruments such as bonds or structured
involvement of the debt enforcement office. However, under Swiss
products may need to be secured. Today, this is usually done by way
law the parties of a security agreement on claims, moveables and
of a guarantee and no longer by surety. The guarantee according to
security papers (including mortgage notes) are free to a large extent
article 111 of the Swiss Code of Obligations is a direct, independent
(albeit not completely) to agree on other foreclosure mechanisms.
and non-accessory payment obligation of the guarantor and, thus,
Not permissible is an agreement by which the collateral shall per se
provides better security than a surety, which is only accessory to the
and immediately fall into the property of the pledgee if the pledgee’s
secured debt obligation.
claims are not satisfied. But the parties can agree, for example, on a
If book-entry securities shall serve as collateral, the new Book-
public auction or public offering without regard to the procedures
Entry Securities Act (BESA) applies, which came into force on 1
and formalities of the DEBA or on a private sale. A private sale clause
January 2010. Book-entry securities constitute fungible claims or
should expressly mention the right of the secured party to purchase
membership rights against the issuer having all functional features
the collateral. The value of the collateral will be determined based on
of a security in paper form without, however, (and this in contrast
the market value (eg, stock exchange price) or by appraisal as per the
to securities in paper form) being a right in rem. The creation of
date of the sale. If the value is higher than the secured amount, the
book-entry securities is effected in two stages. First securities or a
surplus amount is to be paid out to the securing party. A private sale
global certificate are deposited with a depositary institution; or dem-
in foreign currency can be agreed. However, claims in foreign cur-
aterialised rights are registered in the main register maintained by a
rency will be enforced in Switzerland only in Swiss currency. Further,
depositary institution.
the purchase of real estate by foreign nationals might be subject to
Second, a credit entry is effected to the securities account of an
approval by the appropriate authorities (see question 10).
account holder. Such credit entry is of constitutive effect for the crea-
tion of book-entry securities.
Dispositions over book-entry securities (including granting of 5 How does a bankruptcy proceeding in respect of the project
security) are effected based on a transfer order of the account holder company affect the ability of a project lender to enforce its rights
to the depositary institution and a credit entry of the book-entry as a secured party over the collateral? Are there any preference
securities to the acquirer’s securities account. The account holder periods, clawback rights or other preferential creditors’ rights
may cancel his or her order until such point in time as agreed in (eg, tax debts, employees’ claims) with respect to the collateral?
his or her agreement with the depositary institution or, as the case What entities are excluded from bankruptcy proceedings and
may be, as stipulated in other regulations of a settlement and clear- what legislation applies to them? What processes other than
ing system. The account holder’s order becomes irrevocable in any court proceedings are available to seize the assets of the project
case with the debit of his or her securities account. Orders given company in an enforcement?
by the account holder pursuant to the BESA are unilateral declara- Swiss bankruptcy law provides for avoidance actions. With the
tions of the account holder towards his or her depositary institution. exception of the customary occasional presents, all gifts and volun-
The credit entry in the acquirer’s securities account is of constitutive tary settlements that the debtor made during one year before the sei-
effect for the transfer of book-entry securities. zure of assets or the adjudication of bankruptcy (Konkurseröffnung)
The granting of security interests over book-entry securities (eg, are voidable. The following transactions are deemed equivalent to
pledge) may also be effected by an irrevocable written agreement a gift:
between the account holder (pledgor) and the depositary institution. • transactions in which the debtor accepted a counter-perfor-
In such an agreement, the depositary institution agrees to execute mance out of proportion to his or her own; and
orders received from the secured party (pledgee) without the cooper- • transactions through which the debtor obtained for him or her-
ation of the security provider (pledgor). In this case, the book-entry self or a third party a life annuity, an endowment, an usufruct or
securities remain in the securities account of the security provider. a right of habitation (article 286 DEBA).
Whether the security assets are separable from the bankrupt
estate in the event of a security agent’s bankruptcy largely depends
on the chosen security structure. The enforceability of the parallel

Further, the following acts are voidable if the debtor carried them Foreign investment issues
out during one year prior to seizure of assets or the adjudication of
bankruptcy and was, at that time, already insolvent: 10 What restrictions, fees and taxes exist on foreign investment in or
• the granting of collateral for existing obligations that the debtor ownership of a project and related companies? Do the restrictions
was hitherto not bound to secure; also apply to foreign investors or creditors in the event of
• the settlement of a debt of money by another manner than in foreclosure on the project and related companies? Are there
cash or by other normal means of payment; or any bilateral investment treaties with key nation states or other
• the payment of an unmatured debt. international treaties that may afford relief from such restrictions?
However, the transaction is not voided if the recipient proves that authority?
he or she was unaware, and had no need to have been aware, of the Based on the GATT/WTO treaties, bilateral treaties with the
debtor’s insolvency (article 287 DEBA). Finally, all transactions are European Union and further Swiss legislation, foreign participants
voidable that the debtor carried out during the five years prior to sei- are no longer excluded from public projects, etc, and their tender
zure of assets or the adjudication of bankruptcy with the intention, offers must be considered in competition with those of Swiss com-
apparent to the other party, of disadvantaging his or her creditors panies. If real estate is subject to Swiss rural and land protection
or of favouring certain of his or her creditors to the disadvantage of legislation, approval might be sought from the appropriate authori-
others (article 288 DEBA). ties for an investment by foreign nationals. There are few other
In the case of a bankruptcy, creditors whose claims are secured restrictions as to foreign ownership, for example on projects relating
by collateral have preferential rights. All other claims are divided to the exploitation of oil (see question 17). The greater question,
into three ranking classes. Employee and social security claims are however, is whether private investment and ownership as such are
preferred (article 219 DEBA). permitted. This basically depends on whether a sector is subject to a
As a rule, apart from bankruptcy proceedings, debt enforcement state monopoly. Some sectors such as telecommunications, aviation,
against communities, cantons, the Swiss Confederation or state- transport or energy have been privatised and liberalised (see also
owned enterprises resulting in seizure and realisation of assets is question 16). So private entities are basically free to engage, but they
permissible, however, subject to certain restrictions. need a government concession and may be subject to state supervi-
sion. The state may also act as a competitor in a certain market (eg,
Foreign exchange issues in telecommunications through Swisscom).
Other sectors are not open to private entities. For example, the
6 What are the restrictions, controls, fees, taxes or other charges Federal Reserve System is handled exclusively by the Swiss National
on foreign currency exchange? Bank (SNB), a stock corporation subject to special legislation. The
In Switzerland there are no foreign exchange restrictions or mean- New Rail Link through the Alps, one of the world’s largest railway
ingful fees, taxes or charges on currency exchange. tunnel construction projects, is being led by AlpTransitGotthard, a
private corporation subject to special legislation and wholly owned
by the Swiss Federal Railways (SBB), which itself is a private corpo-
7 What are the restrictions, controls, fees and taxes on remittances ration subject to special legislation and wholly owned by the Swiss
of investment returns or payments of principal, interest or Confederation. Also in other sectors, large companies that are pri-
premiums on loans or bonds to parties in other jurisdictions? vate stock corporations subject to special legislation operate, but the
In Switzerland there are no remittance restrictions. However, Swiss Swiss Confederation, the cantons or the communities have, directly
withholding tax of 35 per cent may have to be deducted from inter- or indirectly, at least a controlling stake in these corporations. Here,
est payments by a Swiss debtor if, in essence, it borrows from more the possibility for private persons for equity investment is excluded,
than 10 non-banks under one facility agreement or from more than or permitted only to a certain extent; for example AlpTransit
20 non-banks in general. Withholding tax may be refundable based Gotthard and SBB are not open to private shareholders and SNB
on a double taxation treaty. Therefore, in a facility agreement with has tight restrictions on private shareholders. Under the Federal
a Swiss debtor a respective representation or covenant should be Electricity Supply Act (ESA), Swissgrid, the owner and operator of
included. the nationwide electricity transmission grid, is expressly excluded
from stock exchange listing but still open for private shareholders
within limits. On the other hand Swisscom is stock exchange-listed,
although controlled by the Swiss Confederation.
There are no statutory repatriation or conversion requirements, but 11 What restrictions, fees and taxes exist on insurance policies
this might be requested by the creditors to increase control over the over project assets provided or guaranteed by foreign insurance
project company’s income and cash flow. companies? May such policies be payable to foreign secured
creditors?
Based on the Swiss Insurance Supervisory Act (ISA), in principle,
foreign insurers may only offer insurance relating to risks situated in
Switzerland through a Swiss branch or subsidiary. Apart from this,
Yes, project companies may establish and maintain foreign currency there are no major restrictions on insurance policies over project
accounts in other jurisdictions and locally. assets.

Citizens from the EFTA member states and the EU countries (except
Bulgaria, Croatia and Romania) are granted easy access to the Swiss
labour market based on bilateral treaties. Apart from nationals from
the said EU and EFTA member states, foreign workers need work
and residence permits. The Swiss government has allocated quotas ownership of the soil implies the ownership of all that is above and
per nation. Workers are admitted if their skills are urgently required below the surface to such a height and depth as the owner may
and they are well qualified. The employer must demonstrate that require. It extends, subject to certain restrictions, to all buildings on
in spite of considerable efforts no suitable Swiss national or citi- the ground as well as plants and springs in it. On the other hand,
zen from an EU or EFTA member state could be found to fill the the right of mining and exploitation of natural resources such as
vacancy. EU and EFTA nationals taking up a job in Switzerland up minerals, oil and gas or natural waters can be regulated, restricted or
to three months may stay in Switzerland even without a residence prohibited by federal or cantonal legislation based on public inter-
permit. They only have to register with the authorities. est, depending on the matter involved. In such an event, a conces-
sion for mining and exploiting is necessary. Foreign nationals may
acquire such rights to a certain extent, subject to federal or cantonal
rural and land protection legislation. For example, the Concordat
There are no major restrictions on the importation of project Concerning Mining and Exploiting of Oil, entered into by 10 (out of
equipment. 26) cantons, requires that at least three-quarters of the share capital
of the exploitation company is and remains in Swiss hands.
of project companies and assets? Are any forms of investment 18 What royalties and taxes are payable on the extraction of natural
specially protected? resources, and are they revenue- or profit-based?
Expropriation is permissible but in each case subject to a statu- The granting of a concession is subject to payment of concession
tory basis, sufficient public interest, appropriateness and compen- fees or royalties. In principle, the amount shall depend on the value
sation. The expropriation procedure is governed by the Federal of the concession. As a rule, domestic and foreign parties are treated
Expropriation Act. Decisions by the administration on expropria- equally.
tion and compensation are subject to appeal to the Swiss Supreme
Court.
Fiscal treatment of foreign investment resources?
Most notably, export restrictions may extend to nuclear energy,
15 What tax incentives or other incentives are provided preferentially water for energy production and goods that can be used for military
to foreign investors or creditors? What taxes apply to foreign purposes.
either for the purposes of effectiveness or registration? Legal issues of general application
When security papers are involved, Swiss stamp duty may be appli-
cable. As to source tax see question 2 and as to withholding tax on 20 What government approvals are required for typical project finance
interest payments see question 7. Further, by incorporating a Swiss transactions? What fees and other charges apply?
stock company with capital over 1 millon Swiss francs a moderate Depending on the sector, project financing transactions might be
stamp duty rate is applicable. subject to government approvals. This may apply to investments in
equity, debt or to operating activities, etc. Approval authorities are
Government authorities basically the DETEC and its agencies or cantonal governments (see
also questions 16 and 17). As a rule, with regard to financing, a
16 What are the relevant government agencies or departments with private entity, albeit state-controlled such as Swisscom, applies pri-
authority over projects in the typical project sectors? What is the vate law, and for financing no government approvals are basically
nature and extent of their authority? What is the history of state required.
Because of Switzerland’s state organisation, federal as well as
cantonal authorities could be relevant, depending on the mat-
ter involved. The relevant cantonal authorities deal with mineral
extraction and other natural resources including oil and gas, and
both the Federal Department of the Environment, Transport, Energy The disposition including encumbering of real estate requires a
and Communications (DETEC) and cantonal authorities are compe- notarised deed and registration in the land register. If real estate is
tent regarding water. Most importantly, the DETEC and its agencies subject to Swiss rural and land protection legislation, approval may
deal with matters like transport, railway system, aviation, energy, be sought from the appropriate authorities for an investment by for-
power generation, telecommunication, radio and television. In eign nationals (see question 10). Further, depending on the project,
particular as to telecommunications, the Federal Communications party and question involved (eg, in relation to PPP), relevant financ-
Commission, which is an independent commission deciding disputes ing and project documents may need to be submitted to competent
over concessions and interconnections etc, and the Federal Office authorities for information or approval. This can include, but is not
of Communications, which is a DETEC agency acting as supervi- limited to, planning, zoning, tax, construction and environmental
sory authority, are competent and should be mentioned. Regarding issues and concessions. Of course, if the public sector is party to
energy, the Federal Electricity Commission (ElCom) acts as regulator an agreement, the execution, delivery and performance of respective
of the electricity market, supported by the Federal Office for Energy. agreements must be duly authorised by the competent authority. In
addition, the Federal Public Procurement Act (PPA), in force since 1
Regulation of natural resources January 1996, applies to public procurement projects of the Swiss
Confederation and sets forth rules for participation, qualification,
17 Who has title to natural resources? What rights may private and awarding. Awarding of projects is done by means of formal
parties acquire to these resources and what obligations does the decrees, which are subject to appeal.
On the one hand, the ownership of real estate extends also to
the property’s integral parts and natural products. Further, the

Update and trends
Switzerland remains a solid location for financial and corporate weakening of the Swiss franc to counteract the risk of a recession as
investments. It continues to have a robust economy. This has proven well as deflationary developments. As to the labour market, in spring
true during the past years, despite the global economic downturn. 2014, Switzerland decided to implement new legislation on the influx
The Swiss economy shows it has recovered. Switzerland has not of new foreign workers. This legislation is expected to enter into force
experienced a severe credit crunch as seen in other parts of the in 2017 or 2018.
world. The unemployment rate in 2014 is at 3 per cent. Many A major event for the Swiss economy was the merger of
international enterprises continue to establish their global or European Glencore with Xstrata on 2 May 2013. The resulting merged company
headquarters in Switzerland. As an independent and strong currency, operates under the name Glencore Xstrata plc. It is an Anglo-Swiss
in 2013, the Swiss franc has experienced an increased attractiveness multinational mining and commodity trading company headquartered
for investors and savers, especially considering the growing weakness in Baar, Switzerland. Moreover, the Swiss government signed and
of other currencies. International developments have resulted in the ratified a free trade agreement with China on 6 July 2013. China is the
Swiss franc appreciating in value within a very short period of time. world’s second largest national economy, after the United States, and
In September 2011, the Swiss National Bank (SNB) reacted to the Switzerland’s third most important trading partner, after the European
resulting overvaluation with the introduction of a minimum Swiss franc Union and the United States. The treaty entered into force on 1 July
exchange rate against the euro, aiming for a substantial and sustained 2014.
22 How are international arbitration contractual provisions and Project companies

of the ICSID Convention or other prominent dispute resolution 26 What are the principal business structures of project companies?
conventions? Are any types of disputes not arbitrable? Are any What are the principal sources of financing available to project
types of disputes subject to automatic domestic arbitration? companies?
Switzerland is a very arbitration-friendly country and an important In Switzerland, the preferred company form is the stock corporation.
arbitration venue. Not only Swiss disputes, but also foreign dis- International holding structures are sometimes used. When setting
putes are regularly arbitrated in Switzerland. Switzerland is a signa- up the financing structure, Swiss tax issues should be considered.
tory state to the International Centre for Settlement of Investment The principal financing sources are national or international lending
Disputes (ICSID) Convention and the New York Convention on syndicates, capital markets and state subsidies.
the Recognition and Enforcement of Foreign Arbitral Awards and,
therefore, foreign arbitration awards are recognised and enforceable Public-private partnership legislation
in Switzerland.
23 Which jurisdiction’s law typically governs project agreements? In Switzerland, there is no legislation that deals specifically with PPP
Which jurisdiction’s law typically governs financing agreements? projects in the narrow sense. However, under the present legislation
Which matters are governed by domestic law? on a federal and on a cantonal level PPP projects are permissible
Project or joint-venture agreements are normally governed by Swiss in principle. Depending on the sector involved (eg, infrastructure,
law, in particular, when there is a Swiss project company. The law construction, culture, education, health care, social infrastructure,
governing financing agreements may follow the country of the defence, waste removal or development), multiple legal statutes and
arranger, lead manager or original lender, in particular, in large inter- regulations on a federal and cantonal or even communal level can
nationally syndicated loans. Security agreements involving Swiss apply. Worthy of note is, for example, the PPA, which applies to
security interest or Swiss companies are regularly subject to Swiss public procurement projects of the Swiss Confederation (see ques-
law. Irrespective of the chosen law, Swiss tax rules may apply and tion 21). The public awareness and desirability of PPP projects has
must be dealt with appropriately (see also questions 1, 7 and 15). very much increased over the past years. The current (political) dis-
cussion is more about stimulating, facilitating and furthering rather
than about questions of permissibility. These discussions may lead
to enactment of new legislation or amendment of existing sector
legislation.
A Swiss company may subject itself to foreign jurisdiction. Also,
state-owned private enterprises are free to do so with respect to PPP – limitations
their private (as opposed to public) activities. Swiss courts would
recognise a final and conclusive judgment of a foreign court, subject 28 What, if any, are the practical and legal limitations on PPP
to Swiss conflict of law rules and international treaties such as the transactions?
Lugano Convention on Jurisdiction and Enforcement of Judgments In principle, the state is permitted to contract with private par-
in Civil and Commercial Matters. ticipants. To what extent, however, certain public functions can be
divested to private participants depends on the topic involved and
Environmental, health and safety laws the respective sector legislation (see also questions 10, 21 and 27).
See questions 16, 17 and 20. 29 What have been the most significant PPP transactions completed
One of the first PPP projects in the strict sense is the construction
and operation of the culture and congress centre in Lucerne (KKL
Luzern). Its multi-million Swiss franc realisation dates back to the
mid-1990s. The KKL Luzern is a PPP by the City and Canton of
Lucerne and private participants.
As to infrastructure, one can mention the construction and Sportarena Luzern, which is a 300 million Swiss franc project and
operation of a local heating grid in the Geneva area (Chauffage à includes a football arena, other sports facilities and further build-
distance Onex), in operation since 2002. ings. The whole complex has been operational since mid-2011. In
As a pioneer PPP project in the Swiss health-care system, the Burgdorf, a town near the capital Berne, a 150 million Swiss franc
radiology project of the Cantonal Hospital Lucerne and the Swiss project includes business premises, facilities for the local administra-
Paraplegic Centre can be mentioned. Since April 2008 a magnetic tion (including a prison) and was opened in spring 2012. Another
resonance tomograph has been operated jointly. 200-million Swiss franc PPP sports project is the construction of the
Some important PPP activity has recently taken place in the stadiums in Bienne (Stades de Bienne), expected to be operational
sports sector: the 220 million Swiss franc completion of the sta- in 2015.
dium La Maladière in Neuchâtel, operational since 2007, is a PPP There are a number of PPP projects pending that cover other
model case in this sector. Another sports-related PPP project is the sectors such as schooling, construction and nursing homes.
Mark-Oliver Baumgarten mark-oliver.baumgarten@ssplaw.ch

Thiemo Sturny thiemo.sturny@ssplaw.ch
Genferstrasse 24 Elfenstrasse 19
8002 Zurich 3006 Berne
Switzerland Switzerland
Tel: +41 58 387 8000 Tel: +41 58 387 8800
Fax: +41 58 387 8099 Fax: +41 58 387 8899
www.ssplaw.ch

Mkono & Co Advocates TANZANIA
Tanzania
Angela Thorns, Kamanga Wilbert Kapinga and Jacqueline Tarimo
Mkono & Co Advocates
Creating collateral security packages the details of the property encumbered. Registration is essential for
the mortgagee to be able to exercise any of his or her remedies under
1 What types of collateral are available? that mortgage as a mortgage will only take effect once it is regis-
The most common types of assets granted as collateral in project tered. Further, registration also determines priority since mortgages
finance transactions include land rights, machinery, fixed assets, rank according to the order in which they are registered. Payment of
trading stock, shares, intellectual property, goodwill, contractual registration fees consisting of 160,000 Tanzanian shillings in respect
rights, receivables, licences, aircraft and bank accounts. of a mortgage over land is required and must be accompanied by the
A security interest may be created by way of pledge, assignment, stamp duty levied on mortgage deeds of 1,000 Tanzanian shillings.
mortgage, charge or lien, depending on the asset being provided as When a mortgage is granted by a company over any of its prop-
collateral. erty, the mortgage and the applicable statutory form must be regis-
In project finance transactions, the following tend to be the most tered with the Registrar of Companies (Registrar) at the Companies
common types of collateral favoured by lenders: Registry within 42 days of creation. The Registrar maintains a reg-
• charge over bank accounts; ister indicating all mortgages, charges and debentures granted by
• pledge of shares; companies registered in Tanzania and records the information rele-
• all-asset debenture creating fixed and floating charges; vant to these encumbrances. The Registrar will issue a certificate evi-
• assignment or pledge of contractual rights or licences; and dencing the registration of the encumbrance indicating the amount
• mortgage over land rights. thereby secured. Failure to effect registration with the Registrar will
render the mortgage void against any creditor, receiver, administra-
tor or liquidator. Registration fees consisting of 15,000 Tanzanian
shillings and stamp duty of 10,000 Tanzanian shillings apply.
Mortgages may also be granted over moveables such as ships,
aircraft, machinery, fixed assets and vehicles. Special rules apply
depending on the nature of the asset being mortgaged. For instance,
the Merchant Shipping Act, 2003 regulates the creation, registration
and perfection of a mortgage over a ship or a share therein. It also
There are four main types of consensual security in Tanzania: the establishes a register for the purpose of recording the date and time
mortgage, the charge, the pledge and the consensual lien. the mortgage was created and its ranking.
Mortgage over land and moveables Charge over company assets

A mortgage is a security interest in property or an asset owned by a A charge is a security interest that confers on the chargee a right to
borrower that is granted to a lender. It is discharged after the condi- resort to specific assets (known as a fixed charge), or a shifting pool
tions of the mortgage have been met. In default, the lender enjoys all of assets, whether present or future (known as a floating charge),
the powers and remedies conferred or implied in a transfer of the in satisfaction of a debt. As charges are created by companies these
interest. A mortgage is created by execution of a mortgage deed by are regulated by the Companies Act, 2002. Charges can be created
the mortgagee. over any asset including contractual rights, shares, goodwill, intellec-
All land in mainland Tanzania and Zanzibar is vested in the tual property, book debts or for the purpose of securing an issue of
Presidency in trust for the people of the United Republic of Tanzania. debentures. The Act also allows for the creation of a floating charge
Consequently, Tanzanian law allows for mortgages to be created on the undertaking or property of the company. Although charges
over a right of occupancy or a lease in order to secure the payment may be created by using any form of document such as a mortgage
of money or money’s worth or the fulfilment of a condition. An indi- deed, charges tend to be created by way of debenture. Similar to
vidual granting such a mortgage is required to sign the deed before a a mortgage, a company is required to file the instrument creating
notary public who is to attest the mortgagor’s signature and identity. or evidencing the charge, if any, and the statutory form stating the
If a mortgage is granted by a company, the mortgage deed must prescribed particulars of the charge with the Registrar within 42
be sealed in the presence of two directors or one director and the days after creation of the charge. Subject to this requirement being
company secretary. Consent by the Commissioner for Lands has to fulfilled, ranking is determined according to the date of creation of
be obtained prior to the creation of a mortgage. Perfection occurs the charge. Failure to register the charge with the Registrar within
when the mortgage and the applicable statutory form are registered the requisite time limit renders it void against any creditor, receiver,
with the Land Registry, which keeps a record of any right, title or administrative receiver or liquidator.
interest over land and any dispositions, transmission and encum- A fixed charge attaches forthwith to a charged asset, which is
brances of and over registered land. Among other information, the definite or is capable of being ascertained and, consequently, the
Land Register will state the date of registration of the mortgage and asset should be defined as specifically as is possible in the document
TANZANIA Mkono & Co Advocates
creating the charge. Conversely, a floating charge is created over a Contractual lien
fund of changing assets and is generally used to create security over A contractual lien is similar to a pledge in the sense that it gives the
assets that the debtor needs to deal with in the ordinary course of creditor a right to retain possession of another person’s property
his or her business or over those assets that are not caught under the until a specific obligation is satisfied. It is different from a pledge
fixed charge. Another difference lies in the fact that a fixed charge because the property would not have been deposited as a form of
requires the lender to have control over the charged asset, while, in security but rather for some other contractual purpose. A creditor
the case of a floating charge, the lender does not need to have control has the right to retain the goods bailed to him or her as security for
over the asset. a balance due, if an express contract has been entered into by the
A floating charge crystallises upon the occurrence of specified parties.
events set out in the document creating the charge. Once crystallised,
the floating charge becomes a fixed charge. Taxes and fees
As indicated earlier, it is commonplace for an all-asset debenture Stamp duty is payable on instruments creating security interests in
to be granted containing both fixed and floating charges over all accordance with the Stamp Duty Act, 1972. The stamp duty payable
assets of the company granting the charge. However, it is also possi- varies depending upon the type of instrument. Registration of docu-
ble to create a charge over specified assets only, such as commodities ments with the competent authorities attracts registration or filing
and bank accounts. fees per instrument. In the case of land rights, filing fees apply per
An instrument creating a charge is stamped with nominal stamp title registered.
duty of 10,000 Tanzanian shillings and registration fees of 15,000
Tanzanian shiings are payable. Specific issues in relation to the security instruments and
whether a security trusteecan be appointed to hold that security
Pledge Tanzanian law does not regulate the concept of a ‘security trustee’ or
A pledge involves taking possession of property for the duration of ‘security agent’. However, in practice, the lenders and borrower can
the pledge as security for payment of a debt or performance of a agree to appoint a security trustee for the purpose of holding collat-
promise. Actual or constructive possession is required for perfection eral in trust in accordance with the provisions of the facility agree-
of the pledge. Although the Law of Contract Act, Cap 345, RE 2002, ment and any applicable transaction document. In the absence of
regulates pledge of ‘goods’ as security for the payment of a debt or specific provisions of law regulating this concept, it is recommended
the performance of a promise, it is common practice for shares of that the role of the security trustee is clearly defined and its pow-
Tanzanian companies to be pledged. In the absence of specific provi- ers clearly stated in the transaction documents. By doing so, in the
sions regulating a pledge of shares, a number of steps ought to be event of a default, the security trustee would be the rightful entity
taken by lenders to ensure that their rights are properly secured. responsible for enforcement of the security in accordance with the
A share pledge agreement has to be executed by the parties provisions of the applicable transaction documents.
whereby the shareholders pledge and cede to the creditor the shares
specified in the agreement. Among other matters, the agreement
should clearly set out the rights of the creditor over the pledged
shares and whether or not the same extend to receiving dividends
and exercising shareholder rights such as attending and voting at It is advisable that title to the property is verified and assurances
shareholders’ meetings. Further, the agreement should also set out sought from the borrower that no liens with priority to the credi-
the events that will constitute a default and include provisions for tor’s lien exist. Where possible, searches with all relevant authorities
the enforcement of the pledge by the pledgee. should be carried out. Investigations on the certificate of title should
There is no consent requirement from any regulatory author- extend to any matter that affects the ability of the lender to sell the
ity in respect of a pledge created over shares, neither are there any property in the event of an enforcement and cover any matters that
requirements for the pledge agreement to be notified or registered. It would affect the value of the property.
is recommended, however, that the agreement is notified to the com- In the case of immoveable property, a formal search at the Lands
pany whose shares are being pledged and that it is registered with Registry as well as a visit to the property (wherever possible) is rec-
the Registrar of Documents in accordance with the Registration of ommended to satisfy oneself that the physical location, structure and
Documents Act, Cap 117. The filing fees are approximately 80,000 state of the property conform to the description provided by the bor-
Tanzanian shillings, in addition to stamp duty of 1,000 Tanzanian rower, the certificate of title and the valuation report. The search at
shillings payable on the share pledge agreement. the Registry should shed light on the following facts:
It is also possible for a licence to be utilised as collateral by way • description and location of the property;
of pledge or assignment in accordance with the law regulating the • nature of the title under which the property is held and term of
particular sector. For instance, the Mining Act, 2010 allows the tenure;
holder of a mineral right to assign such right or an undivided pro- • rent or other dues payable on the property per annum;
portionate part thereof to another person upon being granted prior • reservations, if any, on the tenure;
written consent of the Minister for Minerals. However, where an • the identity of the registered owner of the property; and
assignment is to take place to a bank or other financial institution by • existence of any registered encumbrances.
way of mortgage or charge given as security for a loan or guarantee
in respect of mining operations, then no consent from the licens- Where corporate entities are involved, it is important to carry out
ing authority is required. The Commissioner for Minerals must be searches at the Companies Registry and to verify the internal records
notified of the creation of the encumbrance in the manner required of the company. Companies registered in Tanzania are required to
by the Mining Act. The Commissioner maintains a register of all maintain a register of members, register of debenture holders and a
mineral rights including a record of all applications, assignments, register of charges.
transfers, suspension and cancellation of mineral rights. The task is
complete when the Commissioner issues a certificate of acknowl-
edgement in terms of the Act. Similarly, the Electronic and Postal
Communications Act, 2010 allows for a licence issued in terms of
the Act to be assigned or pledged upon prior written consent of the
Tanzania Communications Regulatory Authority being granted.

4 Outside the context of a bankruptcy proceeding, what steps it must be noted that compromise arrangements or company volun-
should a project lender take to enforce its rights as a secured tary arrangements cannot affect the rights of preferential creditors.
party over the collateral? There is no ranking of claims during administration if the
Mortgages administrator’s goal is to preserve the company as a going concern
In accordance with the Land Act, Cap 113, RE 2002, a mortgagee rather than realise the company’s property. If, on the other hand, the
would, upon default, have power to appoint a receiver, lease or sub- administrator decides to realise some or all of the company’s prop-
lease the mortgaged land, enter into possession of the land, or sell erty in satisfaction of its debts, then the following ranking applies:
the rights or interests over the mortgaged land by public auction or • all costs, charges and expenses properly incurred in the adminis-
private sale. Consequently, a well-drafted mortgage would include tration, including the administrator’s remuneration are payable
all the above rights along with a power of attorney appointing the out of the company’s assets in priority to all other claims;
mortgagee and any receiver as the mortgagor’s attorney. • after these have been paid, the company’s preferential debts
The Land Act requires a 60-day notice period that must be (including due taxes, government rents and employees’ wages in
given before enforcement may take place. Further, where the mort- respect of services provided within the four months before the
gaged property constitutes a matrimonial property additional notice relevant date), must be paid; and
requirements are in place. Publicity requirements also apply in the • all other claims (ie, secured and unsecured creditors) are payable
case of a public auction. out of the remaining assets on a pari passu basis.
The best method of enforcement would be for the receiver to
exercise the power of sale over the mortgaged property and realise All costs, charges and expenses properly incurred in the winding up,
the outstanding funds. including the liquidator’s remuneration, are payable out of the com-
pany’s assets in priority to all other claims. After the costs, charges
Charges and expenses have been paid, the company’s preferential debts (as
After giving notice of default, the remedies available include the above) must be paid. All other claims (ie, secured and unsecured
appointment of a receiver over the charged assets. On enforcement, creditors) are payable out of the remaining assets on a paripassu
a fixed charge holder will rank prior to other creditors, while a float- basis.
ing charge holder will be paid only after fixed charge holders and
preferential creditors are paid. Notice of appointment of a receiver Transactions at an undervalue
has to be given to the Companies Registry in the prescribed form. When a company is in administration or goes into liquidation and
Other remedies include putting the company under administration has, within two years before the commencement of the administra-
and liquidating it. tion or winding up, entered into a transaction with any person at
an undervalue, the administrator or the liquidator, as the case may
Pledge be, may apply to the court requesting it to make such an order as
In the event of a default, the pledgee may bring a suit against the it thinks fit for restoring the company to the position it would have
pledgor and retain the goods pledged as a collateral security or sell been in had it not entered into that transaction.
them, on giving the pledgor reasonable notice of the sale. If the pro-
ceeds of the sale are less than the amount due to the pledgee, the Preferences
pledgor remains liable to pay the balance. On the other hand, if the When a company is in administration or goes into liquidation and
proceeds of the sale are greater than the amount due, the pledgee is has, within six months before the commencement of the administra-
obliged to pay the surplus to the pledgor. tion or winding up, given a preference to any person, the administra-
tor or liquidator may apply to the court for an order restoring the
Contractual Lien company to the position it would have been in had it not given that
In the event of a default the creditor would be able to exercise the preference.
power of sale upon obtaining an order from the courts authorising
the sale. Floating charges
When a company is being wound up, a floating charge on the com-
pany’s undertaking or property created within 12 months of the
5 How does a bankruptcy proceeding in respect of the project commencement of the winding up is presumed to be invalid unless
company affect the ability of a project lender to enforce its rights it is proved that the company, immediately after creating the charge,
as a secured party over the collateral? Are there any preference was solvent.
(eg, tax debts, employees’ claims) with respect to the collateral? Foreign exchange issues
what legislation applies to them? What processes other than 6 What are the restrictions, controls, fees, taxes or other charges
court proceedings are available to seize the assets of the project on foreign currency exchange?
The applicable restrictions and controls are contained in the Foreign
All companies incorporated in Tanzania are subject to corporate Exchange Act, 1992, regulations issued under this Act and circulars
insolvency law, which is mainly contained in the Companies Act and issued from time to time by the Bank of Tanzania. If a transaction
the Insolvency Regulations, 2005. is not explicitly allowed under these instruments, one must assume
that it is prohibited and obtain prior approval from the Bank of
Formal procedures Tanzania.
There are four main types of formal procedures available for com-
panies in financial distress: compromise arrangements, voluntary
arrangements, administration and winding up. Where a distribu- 7 What are the restrictions, controls, fees and taxes on remittances
tion is made pursuant to a compromise arrangement or a voluntary of investment returns or payments of principal, interest or
arrangement, the terms on which it will be made will be governed premiums on loans or bonds to parties in other jurisdictions?
by the arrangement itself, which the creditors will have voted on Payment of dividends and repatriation of capital to foreign investors
and approved by the requisite majorities. Accordingly, there is no are unrestricted. Authorising banks will require audited accounts
general rule that applies to the ranking of claims in these procedures; and authenticated tax clearances from the Tanzania Revenue
Authority confirming payments of all relevant taxes before affecting 11 What restrictions, fees and taxes exist on insurance policies
payment. Dividends paid by companies listed on the Dar es Salaam over project assets provided or guaranteed by foreign insurance
Stock Exchange are subject to a withholding tax of 5 per cent while companies? May such policies be payable to foreign secured
dividends paid by non-listed companies are subject to a withholding creditors?
tax of 10 per cent. Insurance for risks arising in Tanzania must be placed with an insurer
In the case of loan facilities, the Bank of Tanzania is to be licensed in Tanzania. Should it not be possible to acquire insurance
informed of the loan and requested to confirm the arrangement. On cover locally, then it will be possible to obtain such cover from a
doing so, the Bank of Tanzania must be provided with a copy of non-resident insurer after obtaining the prior written approval of the
the loan agreement together with a disbursement and debt-servicing Commissioner of Insurance.
schedule. The purpose of this is to obtain a debt record number that
will serve as the reference for the disbursement and debt servicing
of the loan. 12 What restrictions exist on bringing in foreign workers, technicians
Once the debt record number is issued, all payments made or executives to work on a project?
in respect of the loan may be made by merely indicating the debt Foreign nationals seeking to reside in the Tanzania for investment,
record number. The Bank of Tanzania requires to be notified of such business, employment or any other legal activity are required to have
transactions so that it may monitor the movement of inward and a residence permit. The authority to issue residence permits is vested
outward funds. Failure to notify it will lead to restrictions on the in the Principal Commissioner of Immigration Services (PCIS).
movement of funds outside Tanzania. No fees or taxes are payable There are three types of residence permits:
in respect of the notification to the Bank of Tanzania. • Residence Permit class A for self-employed individuals;
A withholding tax of 10 per cent applies on interest payments. • Residence Permit class B for jndividuals having a specified
employment in Tanzania and who possess qualifications or skills
necessary for that employment; and
• Residence Permit class C for individuals intending to enter and
reside in Tanzania for purposes other than those specified for the
grant of Residence Permit class A or B.
There is no obligation for a project company to repatriate foreign
earnings.
Generally, there are no restrictions on the importation of project
equipment,subject to payment of duties and taxes and provided the
equipment contains no hazardous materials detrimental to public
Foreign currency accounts may be maintained locally. Specific health and the environment. It is recommended that any application
approval from the Bank of Tanzania must be sought by resident for exemption from duty payable on importation of project equip-
companies prior to opening a bank account abroad. ment be taken to the tax authorities before the commercial develop-
ment of the project.
10 What restrictions, fees and taxes exist on foreign investment in or 14 What laws exist regarding the nationalisation or expropriation
ownership of a project and related companies? Do the restrictions of project companies and assets? Are any forms of investment
also apply to foreign investors or creditors in the event of specially protected?
foreclosure on the project and related companies? Are there Tanzania is a participant of numerous bilateral agreements that pro-
any bilateral investment treaties with key nation states or other mote and strengthen the protection of foreign investment against
international treaties that may afford relief from such restrictions? nationalisation and expropriation with the likes of Denmark,
Would such activities require registration with any government Finland, Germany, India, Italy, the Netherlands, Norway, Sweden,
authority? Switzerland, the United Kingdom and Zambia. It is also an active
Restrictions exist in specific sectors, including oil and gas, mining, member of Multilateral Investment Guarantee Agency (MIGA),
insurance and telecommunications. In the case of land, foreign inves- which is a member of the World Bank Group.
tors are allowed to hold a right of occupancy or long term lease in Tanzania is also a member of the International Centre for
relation to a project involving a minimum fixed direct investment of Settlement of Investment Disputes (ICSID), which is a leading
US$500,000 registered with the Tanzania Investment Centre (TIC). international arbitration institution dedicated to the settlements of
On registration a certificate of incentives is issued in accordance investment disputes between governments and private sector foreign
with the Tanzania Investment Act, 1997. investors.
To overcome this, a foreign investor can either enter into an Yet the actual advancement and security of investment in
agreement with a Tanzanian citizen who will hold a stake in the Tanzania is derived from the Tanzanian Investment Centre (TIC).
project or incorporate a Tanzanian company with a percentage of its The main functions of TIC are to promote and support measures
shares held by Tanzanian citizens. that will enhance the country’s investment climate for both local and
Restrictions continue to apply to foreign investors irrespective foreign investors while also guaranteeing against nationalisation and
of foreclosure. expropriation.
No bilateral investment treaties signed by Tanzania relieve for- Some of the investment projects covered under the TIC are in
eign investors from these restrictions. the agriculture and livestock, transportation, telecommunications,
natural resources, energy and infrastructure sectors.

Fiscal treatment of foreign investment STAMICO is an agency controlled by the government that oversees
the transformation of small-scale mining sub-sector into regulated,
15 What tax incentives or other incentives are provided preferentially environmentally friendly, safe, productive and sustainable opera-
to foreign investors or creditors? What taxes apply to foreign tions among other matters.
either for the purposes of effectiveness or registration? Oil and gas
Tanzania offers investment and fiscal incentives for projects wholly The Ministry for Energy and Minerals facilitates energy, oil, natu-
owned by foreign investors or joint ventures that have been approved ral gas and mineral projects. The Tanzania Petroleum Development
by the TIC, including: Company (TPDC) is the principal body responsible for the explo-
• the recognition of private property and protection against any ration of oil and gas. Its main functions are to promote, develop,
non-commercial risks; distribute and manage the exploration and production of oil and
• 100 per cent repatriation of all profits, dividends and capital gas, and to safeguard the national supply of petroleum products.
after tax; The TPDC works in conjunction with EWURA in terms of the
• no import duty on project capital goods, computers and com- Petroleum Act, 2008.
puter accessories, raw materials and replacement parts for agri-
culture, animal husbandry and fishing, human and livestock Electricity
pharmaceuticals and medicaments, motor vehicles in completely The Tanzania Electric Supply Company Limited (TANESCO), is a
knocked down (CKD) form and inputs for manufacturing phar- wholly-owned government entity. Alongside EWURA and pursuant
maceutical products; to the Electricity Act, 2008, it is charged with generation, transmis-
• 10 per cent on import duty for semi-processed inputs and spare sion and distribution of electricity in Tanzania.
parts other than for motor vehicles;
• 15 per cent import duty for fully processed inputs and motor Ports, transport and roads
vehicle spares; The Ministry of Works oversees all major projects relating to trans-
• 25 per cent import duty for final consumer goods; port (such as railways, aircraft and roads), ports and telecommu-
• zero-rated VAT on exports; and nications. Various regulatory authorities are charged with licensing
• VAT special relief on project capital goods such as plant, machin- such projects, for instance projects relating to the development of
ery, cranes, etc. port infrastructure are required to be directed to the Tanzania Ports
Authority, which is established under the Ports Act, 2004.
A full list of benefits can be found on the TIC official website: www. The principal body responsible for shipping and road licences in
tic.co.tz/ Tanzania is the Surface and Marine Transport Regulatory Authority
As indicated in question 1, stamp duty is chargeable over all (SUMATRA), being a government authority established by law.
instruments creating security interests. Instruments executed in SUMATRA’s main function is to regulate, promote and facilitate the
Tanzania must be stamped within 30 days from the date the docu- availability of efficient, safe, high-quality and reliable transport ser-
ment was executed. Instruments executed outside Tanzania must be vices in the surface and marine transport sectors through economi-
stamped within 30 days of arrival in Tanzania. It is important to cal, competitive and fair trade practices.
have the document stamped since this is a tax obligation in terms The Tanzania National Roads Agency (TANROADS) is
of the Stamp Duty Act. Further, once this is done the instrument responsible for maintenance and development of the trunk and
becomes admissible as evidence in terms of the Act. regional road network. As an executive agency established under
the Executive Agencies Act, Cap 245 RE 2002, its functions are to
Government authorities improve the delivery of public service and to create an environment
conducive to efficient and effective management.
authority over projects in the typical project sectors? What is the Telecommunications
nature and extent of their authority? What is the history of state The Tanzania Communications Regulatory Authority Act, 2003
ownership in these sectors? merged the Tanzania Communications Commission and the
The Energy and Water Utilities Regulatory Authority (EWURA) reg- Tanzania Broadcasting Commission to establish the Tanzania
ulates electricity, petroleum, natural gas and water sectors, projects Communications Regulatory Authority (TCRA), a regulatory body
and activities. responsible for the telecommunications and broadcasting sectors in
It provides guidelines, tariff review and standards with regard Tanzania.
to quality, safety, health and environment. Further, EWURA is also The TCRA’s responsibilities are to regulate tariffs and charges,
responsible for licensing and regulating entities, operating in the establish standards for regulated goods and regulated services. It
above sectors. also issues, renews and cancels licences and resolves complaints and
Alongside EWURA each sector mentioned above has its specific disputes that arise within the project sector. Before granting any
governing legislation and governing body. major licence, the TCRA must seek consent from the Minister of
Infrastructure Development.
Mining
The Mining Act, 2010 governs projects in connection with the min- Competition
eral sector. The institutional bodies that oversee mining projects Finally it is also worth mentioning that all projects to be under-
within the sector are the Tanzania Minerals Audit Agency (TMAA) taken in Tanzania must ensure that they comply with notification
and the State Mining Corporation (STAMICO). Some of the main requirements under the Fair Competition Act where a merger is tak-
functions of TMAA include: ing place. The Fair Competition Commission is responsible for the
• monitoring and auditing quality and quantity of minerals pro- monitoring and regulating of all competition matters in the country.
duced and exported by large, medium and small-scale miners;
and
• determining revenue generated to facilitate collection of payable
royalty.
Regulation of natural resources 22 How are international arbitration contractual provisions and
17 Who has title to natural resources? What rights may private of the ICSID Convention or other prominent dispute resolution
parties acquire to these resources and what obligations does the conventions? Are any types of disputes not arbitrable? Are any
holder have? May foreign parties acquire such rights? types of disputes subject to automatic domestic arbitration?
Title to natural resources in Tanzania is vested in the government of Tanzania is a member of the ICSID Convention and is also a party to
the United Republic of Tanzania. several multilateral agreements such as the New York Convention,
Accordingly, foreign private parties can acquire limited rights to which entered in force in Tanzania in 1964. It is also a party to 15
natural resources for a specific duration of time and upon certain bilateral agreements relating to arbitration with countries such as
conditions and covenants that the government and governmental Germany, Switzerland and the United Kingdom.
authorities may seek to impose. The Arbitration Act, 2002, Cap 15 RE 2002 is the governing
law regulating arbitration in Tanzania. It oversees both domestic
18 What royalties and taxes are payable on the extraction of natural arbitral proceedings as well as the enforcement of foreign arbitral
resources, and are they revenue- or profit-based? awards. International arbitration provisions in contractual docu-
ments are recognised by local courts; however, exceptions exist in
There is no distinction between the royalties and taxes on extraction
that disputes relating to land are not arbitrable.
payable by foreign and domestic parties. For royalties payable on
The Act provides that foreign arbitral proceedings shall be rec-
the extraction of minerals under the Mining Act, 2010, please see
ognised as binding if and when they are or have been conducted in
the table below:
the territories of any contracting party of the Geneva Convention on
the Execution of Foreign Arbitral Awards of 1927.
Mineral royalties tax The Act further outlines that in order to obtain such recognition
Rate (%) Mineral or enforcement of an award the following are necessary:
5 Diamonds, gemstones, uranium • that the award has been made in pursuance of a submission to
4 Metallic minerals (including copper, gold, silver and platinum arbitration that is valid under the applicable law;
group minerals) • that the subject matter of the award shall be capable of settle-
3 General rate ment by arbitration under the law of the country in which the
1 Gems
award is sought to be relied upon;
• that the award has been made by the Arbitral Tribunal provided
for in the submission to arbitration or constituted in the man-
The basis for calculating mineral royalties is gross value.
ner agreed upon by the parties and in conformity with the law
governing the arbitration procedure;
19 What restrictions, fees or taxes exist on the export of natural • that the award has become final in the country in which it has
resources? been made; and
There are no restrictions on the export of natural resources, provided • that the recognition or enforcement of the award is not contrary
that the legal requirements in the Export Control Act, Cap 381 RE to public policy or to the principles of the law of the country in
2002 are adhered to. A permit is required from the Commissioner which it is also sought to be relied upon.
for Minerals for export of minerals as per the Mining Act and appli-
cable regulations. The latter set out the procedure for export and Yet even if the above conditions are fulfilled, recognition and
applicable export fees to be paid. enforcement of the award will be refused if the court is satisfied that
the award has been annulled in the country in which it was made
Legal issues of general application and that the party against whom it is sought to use the award was
not given notice of the arbitration proceedings in sufficient time to
20 What government approvals are required for typical project finance enable him or her to present his or her case; or that, being under a
transactions? What fees and other charges apply? legal incapacity, he or she was not properly represented. Further, if
Borrowing does not require a licence or permit. However, for loan the award does not deal with the differences contemplated by or
servicing purposes, a debt record number is required as indicated in falling within the terms of the submission to arbitration or that it
question 7. contains decisions on matters beyond the scope of the submission
Similarly, payment of interest and repayment of principal in for- to arbitration, the recognition of such an award and enforcement
eign currency to foreign entities do not require licences or permits will be refused.
but a debt record number is required.
If the project entity is a subsidiary company registered in 23 Which jurisdiction’s law typically governs project agreements?
Tanzania, it will require approval by the Bank of Tanzania to open Which jurisdiction’s law typically governs financing agreements?
and maintain an offshore bank account. Which matters are governed by domestic law?
Dividend payments do not require approval. However, see ques-
In Tanzania, parties to project and financing agreements are permit-
tion 7 regarding proof of payment of taxes.
ted to choose the applicable law that will govern their agreements.
Matters relating to land or assets situated in Tanzania and docu-
21 Must any of the financing or project documents be registered or ments creating security over such assets are governed by Tanzanian
filed with any government authority or otherwise comply with legal law.
Although not mandatory, it is advisable that key financing or project 24 Is a submission to a foreign jurisdiction and a waiver of immunity
documents are filed with the Registrar of Documents for registration. effective and enforceable?
Submission to a foreign jurisdiction and waiver of immunity is effec-
tive and enforceable.

Update and trends
Construction, infrastructure, natural resources and energy continue to • in order to qualify for the benefits afforded under the Tanzania
underpin the majority of the deals being carried out in Tanzania. Investment Act to strategic investors, minimum investment by
On mainland Tanzania it is expected that infrastructure projects foreign nationals wishing to qualify as strategic investors has
under PPP arrangements will increase. Authorities such as the risen to US$50 million;
Tanzania Ports Authority and TANROADS are seeking to use PPP • the Business Licensing Act, Cap 25 RE 2002 was amended to
structures for development and expansion of existing infrastructure regulate business licences, which are renewable annually. At
and port facilities and construction of new roads respectively. the time of renewal a fee is payable, depending on the type of
In Zanzibar, a PPP unit was established within the President’s business licence required; and
Office for Finance, Economy and Development Planning (POFEDP) with • withholding tax exemption on rent charges on aircraft leases paid
a view to supporting the development of a PPP policy for Zanzibar. to non-residents has been removed.
Zanzibar is focusing on the need to expand coverage, improve quality,
and ensure efficient delivery of infrastructure services by tapping into A Value-Added Tax Bill has recently been published and it is expected
PPPs. that a new Value-Added Tax Act will be promulgated by Parliament in
The Finance Act 2014 introduces certain new measures including: the coming months.
Environmental, health and safety laws Project companies
25 What laws or regulations apply to typical project sectors? What 26 What are the principal business structures of project companies?
regulatory bodies administer those laws? What are the principal sources of financing available to project
The principal law regulating the environment is the Environment companies?
Management Act, 2004, which provides for sustainable management The most common principal business structures of project compa-
of the environment while setting the standards for management, nies in Tanzania are limited liability companies; these may be private
impact and risk assessments, prevention and control of pollution or public and may also be foreign or locally owned or joint ventures.
and associated matters. The National Environment Management Most project companies are financed through local or foreign bank
Council (NEMC) enacted under the National Environmental loans yet other financing methods such as share and bond issues are
Management Act, 1983 is the regulatory body overseeing the envi- also widely used.
ronmental management issues in Tanzania. The objects for which
NEMC is established are to undertake environmental enforcement, Public-private partnership legislation
compliance, review and monitor environmental impact statements,
research and raise awareness on environmental matters. 27 Has PPP enabling legislation been enacted and, if so, at what
The principal law governing health and safety standards is the level of government and is the legislation industry-specific?
Occupational Health and Safety Act 2003. The Act sets out proce- The Public Private Partnership Act, 2010 (PPP Act) provides an insti-
dures for registration of all machinery and equipment and granting tutional framework for development and implementation of PPP
and renewal of compliance certificates for factories or other places agreements between public sector and private sector entities and
of work. The Occupational Health and Safety Authority (OSHA) applies in mainland Tanzania.
established under the Executive Agencies Act, 1997 is the governing The main sectors targeted by the PPP Act include agriculture,
agency that administers health and safety standards in Tanzania. The infrastructure, industry and manufacturing, exploration and mining,
primary objective of OSHA, among others, is to ensure the creation health, environment and waste management, information and com-
and maintenance of an ideal work environment that is free from munication technology, natural resources and energy.
occupational hazards that may cause injuries or illness to employees PPPs in Tanzania, may be initiated by the public sector (solic-
in the workplace. ited)or the private sector (unsolicited). Solicited and unsolicited PPPs
are governed by the Public Procurement Act, 2011 and the Public
Private Partnership Regulations, 2010, in addition to the PPP Act.
Angela Thorns angela.thorns@mkono.com

Kamanga Wilbert Kapinga kamanga.kapinga@mkono.com
Jacqueline Tarimo jacqueline.tarimo@mkono.com
8th Floor, EXIM Tower Tel: +255 22 211 8789 / 8790 / 8791 / 4664
Ghana Avenue Fax: +255 22 211 3247 / 6635
Dar es Salaam www.mkono.com
Tanzania
One of the practical difficulties with PPPs is that of coordinating The most significant PPP transaction in Tanzania thus far has been
the various aspects of a project between the various ministries and the Mchuchuma-Liganga Project involving a joint venture between
authorities. For this purpose a coordination committee has been set the Tanzanian National Development Corporation and China-
up to facilitate such coordination. based Sichuan Hongda. The joint venture company, Tanzania China
A limitation that used to exist until recently has been removed International Mineral Resources Limited manages the project worth
by virtue of amendments to the PPP Act and the Public Procurement US$3 billion, which involves development of the Mchuchuma coal
Act: unsolicited PPP projects are no longer required to go through mine and a thermal power station concession and Liganga iron
a competitive bidding process. As a result of this change after the ore concession in the south of the country. Implementation of the
approval of the project agreement by the minister responsible for Mchuchuma project, among other things, aims to improve power
the sector, the application together with other supporting docu- output in the country. The exploration works have confirmed that
ments will be submitted to the coordination unit for assessment and the coal and iron ore deposits will be mined for more than 100 years.
approval.

DFDL THAILAND
Thailand
Roy Lee, David Doran and Duangkamol Ingkapattanakul
DFDL
Creating collateral security packages is registered at the Central Office for Machinery Registration under
the Department of Industrial Works, Ministry of Industry provided
1 What types of collateral are available? that, prior to the registration of the mortgage, the machinery is
Thailand’s Civil and Commercial Code BE 2468 (1925) governs installed or located at the premises of the owner of such machin-
the types of collateral available for secured transactions. The three ery and first registered for ownership at the Central Office for
main forms of security are the mortgage, pledge and assignment. Machinery Registration. Ships and barges (and security over them)
Mortgage is defined as a non-possessory security, available for all can be registered at the Marine Department or the relevant regional
kinds of immoveable assets and for moveable assets for which the registry office. Security over registered motor vehicles is registered at
law requires registration; while pledge is defined as a strictly pos- the Department of Land Transport, Ministry of Transport.
sessory security (whether secured assets are physically delivered to Security over shares is recorded in the shareholders’ register of
the pledgee directly or kept by a third party). It is of note, where the relevant company, as the Ministry of Commerce does not main-
the secured asset is intangible and represented by a written docu- tain a general registry of security interests.
ment, effectiveness of the pledge shall require delivery of the relevant Collateral over unregistered vehicles, aircraft, other moveable
document. property (other than registrable machinery) or intellectual property
In principle, any asset can be used as collateral. The following cannot be registered as no security registry exists for these types of
are the most common assets that are used as collateral to obtain property.
finance for projects: A security created by way of pledge generally requires delivery of
• land, plants, buildings, registered machinery, registered motor the pledged item to the pledgee or security holder. The pledged items
vehicles (specifically cars, steamrollers or tractors) and ships, must be kept under the control of the pledgee or security holder. The
over which security may be created in the form of a mortgage; pledge is automatically extinguished when the secured obligation is
• shares, stock or inventory, vehicles and other moveable property extinguished or the pledged item is returned to the possession or
over which security may be created in the form of a pledge; and control of the pledgor.
• rights to receive money and interests in bank accounts, accounts There is no registration required for assignment of rights under
receivables, leasehold interests, intellectual property and other contracts. However, the assignment agreement must be signed by
intangible assets, over which security may be created in the form the assignor and the assignee. Consent must be obtained from the
of an assignment. obligor of the assigned receivables or written notice of assignment
must be given to the obligor. If not, the assignment will not bind the
Of note, the enforceability of a pledge of bank accounts is a subject obligor.
of debate in the Thai legal community. A Thai security package may An assignment of obligations under the Civil and Commercial
also include security in the form of guarantee or cost overrun agree- Code BE 2468 (1925) is invalid unless the assignment is made under
ments, by shareholders. a novation agreement between the assignor and the assignee and
At present, the common law floating charge is not recognised provided that consent is obtained from the person to whom the obli-
under Thai law. However, the draft Secured Transactions Act, which gation is owed.
should permit the creation of a floating charge, is now under consid-
eration by the legislature. Further amendments to the Air Navigation Fees
Act BE 2497 (1954) are also being considered, notably, to enable A mortgage registration will be complete only upon full payment
that an aircraft can be registered and hence mortgaged. of the required registration fee. To perfect a mortgage on land and
buildings, official registration fees of 1 per cent of the mortgage
amount, up to a maximum fee of 200,000 baht must be paid. The
official registration fee payable for a mortgage of machinery is 1
baht per 1,000 baht of the mortgage amount up to a maximum fee
of 100,000 baht. Stamp duty shall be affixed on the mortgage agree-
ment. Stamp duty for guarantees ranges from 1 to 10 baht, and the
guarantor is liable to pay the duty.
Registration Other requirements
Perfection of a mortgage in freehold land, registered (factory) A mortgage must be in writing, duly executed and registered with
machinery, and ships or barges requires registration with the regis- the competent official. A Thai language version (which may be a
trar responsible for the relevant category of assets. Security over land translation attached to a foreign-language executed version) of
is registered at the relevant land office that has jurisdiction over the the mortgage must be provided to the relevant mortgage registry
secured land. Machinery and any security over registered machinery (see above details of competent authorities subject to the relevant
THAILAND DFDL
category of assets). Written notification must be provided to the par- the sale proceeds are inadequate to settle the entire indebtedness, the
ties of an assigned contract. debtor remains liable for any shortfall. The creditor must obtain a
court order to enforce a claim for the amount of the shortfall.
Priority
Priority between registered interests is given to the interest that was
registered earlier. A registered interest will have priority over an
unregistered interest. Priority in relation to unregistered interests is
given to the unregistered security interest that was created earliest.
Note that tax and labour wage claims have priority over security
interests.
Security trustee
As the common law concept of trust is not recognised under Thai
law, the concept of a ‘security trustee’ is also not recognised and is
unenforceable under Thai law. Certain limited exceptions do exist, Under the Bankruptcy Act BE 2483 (1940), an insolvent borrower
in particular under the Trust for Capital Market Transaction Act BE can commence an informal restructuring, which largely relies on the
2550 (2007). However, Thai law does recognise the principal–agent agreement of the borrower and its creditors to formulate a restruc-
relationship and allows project lenders to appoint a security agent turing plan. Alternatively, a court-supervised restructuring process
(rather than trustee) to hold collateral on their behalf. As a result, the can be entered into if the borrower’s creditors are owed more than
names of the project lenders must also be included as principals in 10 million baht. The creditors will then be subject to the court’s
the mortgage agreement registered with the land registry. processes. The drafting of a restructuring plan must be completed
within three months from the appointment date of a planner, with
two possible extensions of one month each. Approval of the restruc-
3 How can a creditor assure itself as to the absence of liens with turing plan will generally require a special resolution (namely, a
priority to the creditor’s lien? resolution passed by creditors owning 75 per cent of the debt owed
In relation to mortgages, the relevant registration record (Land present at that meeting) from either each group of creditors (ie, each
Office, Department of Industrial Works, etc) can be searched to dis- secured creditor who has security over debt equivalent to not less
cover the existence of any registered security interest. Likewise, the than 50 per cent of all debt claimed, other secured creditors and
share register of a company can be searched for any registered inter- unsecured creditors); or a group of creditors owed at least 50 per
ests; as the register is deemed to be conclusive as to the existence of cent of the total debt.
any security interest in the relevant shares. Any transfer or other act that is prejudicial to the other creditors
Possession of a pledged item must be granted in order for a or that shows a preference to a particular creditor, can be cancelled
pledge to be perfected, and physical inspection of the item (or inspec- by the court if it took place up to three months prior to the date of
tion of documentary title) is necessary. the bankruptcy petition. Likewise, an act of fraud can be rescinded if
it took place up to one year prior to the date of the bankruptcy peti-
tion. As noted above, tax and wage claims must be satisfied before
any payment to the general creditors (whether secured or unsecured).
Thailand’s Bankruptcy Act BE 2483 (1940) only applies to indi-
viduals and corporate entities. However, the Bankruptcy Act does
Prior to enforcing a mortgage, reasonable written notice must be not apply to Thai state agencies as the dissolution or liquidation of a
given to the debtor to comply with its obligations. If the debtor state agency requires a legislative act.
fails to comply with its obligations, the lender is entitled to request Generally a court order will be required to enforce security over
a court to enforce the mortgage, order a seizure of the mortgaged assets, except in the case of pledged securities where self-help rem-
property and the subsequent sale of the property by way of public edies may be available.
auction. Private sales are not permitted, but a lender may partici-
pate on an arm’s-length basis. The sale must be made in baht only. Foreign exchange issues
Foreclosure may be ordered if interest is in arrears for a period over
five years; the value of the property does not exceed the redemption 6 What are the restrictions, controls, fees, taxes or other charges
value; and there is no other registered mortgage or preferential claim on foreign currency exchange?
over the same property. The Exchange Control Act BE 2485 (1942) regulates the exchange
With regard to the enforcement of a pledge, the pledgee must of currency and delegates the authority to the Bank of Thailand. The
first serve written notice to the debtor requiring it to perform its basic control rules are as follows:
obligations within a reasonable time. Failure to comply will enable • any person wishing to remit foreign currency abroad must apply
the pledgee to sell the pledged property by way of public auction to the Bank of Thailand for prior approval; and
following notification to the pledgor of the time and place of the • any person receiving foreign currency from overseas must report
auction. The Civil and Commercial Code BE 2468 (1925) prohib- the importation of currency to the Bank of Thailand.
its parties of a pledge agreement from entering into any agreement
made prior to the date in which the obligation is due, stating that the Unless the relevant account is denominated in a foreign currency,
pledgee shall become the owner of the pledged item or the pledged the foreign currency must be converted into baht within the time
property by any way other than through public auction. Any agree- prescribed by the Bank of Thailand (ie, 360 days from the date of
ment made in violation of the aforesaid provision shall be deemed remittance into Thailand). The Bank of Thailand recently relaxed its
invalid. control on the remittance of foreign currency abroad by authoris-
If it is impracticable for reasonable notice to be provided to a ing commercial banks to approve applications for foreign currency
pledgor, the pledgee may sell the pledged property one month from remittance and to collate reports on the importation of foreign cur-
the date the obligation became due by way of public auction. Again, rency on behalf of the Bank of Thailand.
private sales are not permitted and a pledgee may participate in the Thailand imposes no specific restrictions on project finance deals
auction on an arm’s-length basis. The sale must be made in baht. If with offshore financial institutions. There are no taxes, duties or

DFDL THAILAND
other government charges applicable to foreign currency exchange required. A Thai obligor can then obtain the foreign currency as
transactions. With prior approval by the Bank of Thailand, a project required and deposit an amount that does not exceed the underlying
company may establish an offshore bank account for the purpose of obligation. The maximum amount of foreign currency that can be
paying for supplies and services acquired overseas. deposited in Thailand (notwithstanding the amount of the underly-
ing obligation) is US$1 million for a natural person and, for a corpo-
ration, US$100 million or the total foreign currency obligations due
in 12 months; whichever is greater. Such obligations can also include
a repayment of a foreign currency loan to an authorised bank.
In other cases (namely, where there are no underlying foreign
Remitting funds from Thailand to repay principal and interest currency denominated obligations), the total outstanding balance of
requires prior approval from the Bank of Thailand. The commercial all foreign currency (obtained in Thailand) of a depositor shall not
bank acting on behalf of the Bank of Thailand will require evidence exceed US$500,000 for both natural persons and for corporations.
of the payment obligations, such as a copy of the credit agreement In addition, it is not permitted for an individual or company to
or, in the case of overseas dividend payments, a copy of the dividend deposit foreign currency in notes or coins in an amount exceeding
declaration notice together with a list of shareholders. US$10,000 per person per day.
Dividends can only be paid out of profits, and 5 per cent of each A project company must obtain prior approval from the Bank
dividend distribution must be withheld to be paid into a reserve fund of Thailand before establishing a foreign currency account outside
until the fund reaches 10 per cent of the company’s capital. No divi- Thailand and must submit details of the transaction together with
dends can be paid if accumulated losses exist. the related documents. In addition, the Bank of Thailand must be
Withholding tax rates range from 10 to 15 per cent for payment notified of each foreign currency transaction.
of dividends, capital, interest or premiums. Where a double taxation
treaty is in force, the withholding tax may be reduced. Foreign investment issues
For transfer of foreign currency or Thai currency abroad 10 What restrictions, fees and taxes exist on foreign investment in or
Foreign currency ownership of a project and related companies? Do the restrictions
To purchase or transfer foreign currency, the purchaser must transfer also apply to foreign investors or creditors in the event of
the foreign currency to an authorised bank and submit documentary foreclosure on the project and related companies? Are there
evidence of international trade or investment. However, in the event any bilateral investment treaties with key nation states or other
that the purchase, sale, deposit or withdrawal of foreign currency international treaties that may afford relief from such restrictions?
with an authorised bank involves an amount of US$50,000 (or its Would such activities require registration with any government
equivalent) or more, the purchaser is required to report the foreign authority?
exchange transaction to the authorised bank in the prescribed form There are several laws and regulations governing participation by
(the Foreign Exchange Transaction Form or Forex Form). foreign investors in business activities in Thailand. The main govern-
ing law is the Foreign Business Act BE 2542 (1999) (FBA). The FBA
Thai currency limits the rights of foreign nationals to engage in certain restricted
There is no restriction on the amount of Thai baht banknotes that business activities prescribed under the FBA in Thailand unless a
may be brought into the country. A person travelling to Thailand’s foreign business licence is obtained prior to the operation of the
bordering countries (including Vietnam) is allowed to take out up to restricted business. A corporation is considered ‘foreign’ if 50 per
500,000 baht without further authorisation. For other countries the cent or more of its share capital is owned by a foreign individual or
maximum amount of currency that can be exported is 50,000 baht. corporation.
The FBA also lists three categories of controlled business
8 Must project companies repatriate foreign earnings? If so, must activities:
they be converted to local currency and what further restrictions • activities that fall under List 1 are strictly prohibited to foreign
exist over their use? nationals, such as newspapers, land trading, rice farming and
animal farming;
Thailand does not require project companies to repatriate foreign
• businesses that may affect national security or safety, art, cul-
earnings. On the contrary, Thailand encourages foreign investors
ture, customs and native manufacturing are covered by List 2
and lenders to reinvest their earnings in activities such as business
and are prohibited for operation by foreign nationals unless per-
expansion or project extensions.
mission is granted by the Ministry of Commerce; and
However, if repatriation of investment funds is required, it will
• businesses that are covered by List 3 may not be carried out
require the submission of supporting documents (eg, evidence of sale
by foreign nationals unless permission is granted by the direc-
or transfer of such investment) to an authorised commercial bank.
tor-general of the Department of Business Development of
The repatriation of profit is subject to a 10 per cent withholding tax
the Ministry of Commerce with the approval of the Foreign
on the gross amount and to any applicable double tax agreement.
Business Board. Such businesses include retail and wholesale of
goods, hotel businesses, engineering services, legal services or
9 May project companies establish and maintain foreign currency other services.
Subject to the regulations imposed by the Bank of Thailand noted In some instances, foreign nationals may be exempted from certain
above, project companies may maintain foreign currency accounts requirements imposed by the FBA. These include the following:
in both Thailand and other jurisdictions. The deposit of foreign cur- • foreign nationals operating a business allowed under the pro-
rency from abroad into a Thai bank is unrestricted. Any person in tection of a treaty to which Thailand is a signatory, such as the
Thailand can purchase, exchange or borrow foreign currency from Thailand–US Treaty of Amity and Economic Relations;
an authorised currency dealer and deposit such an amount into a • foreign nationals who engage in regulated businesses with the
foreign currency account with a bank in Thailand. permission of the Thai government for a specific duration; and
Where there is an obligation to pay a foreign creditor in for- • foreign nationals who engage in businesses with permission
eign currency, proof of the obligation (eg, the credit agreement) is granted by the Board of Investment (BOI) and the Industrial
Estate Authority of Thailand.
THAILAND DFDL
Further, the Ministry of Commerce does not regard the opera- oxidation agents and explosive materials. Such restrictions range
tions of a holding company (ie, a parent company that merely holds from a total ban on imports to the imposition of importer compli-
shares in another company) as a restricted business under the FBA. ance rules, such as requiring specified import permits and setting
The Land Code BE 2497 (1954) (LC) is the main act governing import quantity limitations.
the ownership of land for both Thai and foreign nationals. Under
the LC, any corporation that is more than 49 per cent foreign-owned
or has foreign shareholders that number more than half of the total
number of shareholders, is prohibited from owning land, except
in certain cases (namely BOI-promoted investments). If a foreign
national obtains land in violation of the LC, the land must be sold to Thailand is a signatory to many multinational, regional and bilateral
a qualifying buyer within one year from the date the violation was trade or investment agreements that limit nationalisation and expro-
discovered. A foreign company can lease land or obtain a concession priation except on a non-discriminatory basis for public interest
from the government. The maximum lease term is 30 years, and a purposes. In such cases, fair compensation based on the assessment
lease term can be increased to a maximum period of up to 50 years of the market value of the investment must be paid to the affected
if it is for the purposes of operating certain industrial or commercial investors. While treaty protection from expropriation applies only
businesses as specified. to the signatory country investors, all foreign investors enjoy protec-
tion under the Constitution BE 2550 (2007) and the Expropriation
of Immoveable Property Act BE 2530 (1987), which provide that
11 What restrictions, fees and taxes exist on insurance policies the state can exercise its right to expropriate immoveable property
over project assets provided or guaranteed by foreign insurance only for the purposes of public utilities, national defence, exploita-
companies? May such policies be payable to foreign secured tion of national resources, town and country planning, promotion
creditors? and preservation of the quality of the environment, agricultural or
Insurance for projects in Thailand must be placed with a Thai- industrial development, land reform, conservation of ancient monu-
licensed insurer. Thai-licensed insurers are permitted to reinsure por- ments and historic sites or other public interests. In all cases, fair
tions of their underwriting exposure with overseas reinsurers. compensation must be paid. In addition, BOI-promoted companies
As Thai law permits the assignment of insurance proceeds, a and petroleum concessionaires are provided with explicit guarantees
project company may assign its right to receive compensation from against nationalisation.
an insurer to its lenders, foreign or domestic.
12 What restrictions exist on bringing in foreign workers, technicians 15 What tax incentives or other incentives are provided preferentially
or executives to work on a project? to foreign investors or creditors? What taxes apply to foreign
The Immigration Act BE 2522 (1979) and the Working of Aliens investments, loans, mortgages or other security documents,
Act BE 2551 (2008) (WAA) are the main acts governing the hiring either for the purposes of effectiveness or registration?
of foreign nationals in Thailand. Under the WAA, a foreign national Foreign and Thai investors are eligible for the same tax incentive
is allowed to perform ‘necessary and urgent work’ in Thailand for schemes. Thailand’s present tax incentives include: corporate income
a period not exceeding 15 days by submitting a notification to the tax holidays of three to eight years; reduced or zero-rated import
Ministry of Labour. However, apart from this exception, foreign duty on capital goods, specialised construction equipment, tools
nationals generally cannot perform any service unless they have and instruments; value added tax refunds for materials imported for
obtained a work permit from the Ministry of Labour. In addition, export manufacturing; and zero-rated value added tax on exports.
certain occupations are reserved exclusively for Thai citizens. Other incentives include the right to repatriate equity and profits
The granting of a work permit is discretionary. In general, a Thai in foreign currency, entitlement to hold freehold land titles for the
corporate employer must have a registered paid-up capital of not project, and eligibility to hire foreign experts to work in Thailand
less than 2 million baht for each foreign worker it has hired. In addi- during the execution of the project and thereafter.
tion, an employer must maintain a ratio of four Thai employees for Interest on foreign loans is normally subject to a 15 per cent
each foreign employee hired. Further, if the employer is foreign as withholding tax. Thailand is a party to various treaties related to the
defined under the FBA, it must invest no less than 3 million baht avoidance of double taxation (usually based on the OECD model
for each foreign worker. However, where government contracts, agreement) with 57 countries, including Australia, Bahrain, Belgium,
upstream oil and gas companies, or BOI-promoted companies are Canada, Chile, Denmark, France, Germany, India, Italy, Japan, the
involved, work permits are readily granted. In addition to a work Netherlands, South Africa, South Korea and the United Kingdom.
permit, any foreign national entering Thailand for employment The withholding tax on interest under these treaties may be in dif-
purposes must obtain a non-immigrant visa type ‘B’. Any spouse or ferent from the Revenue Code in terms of various rates for recipient
dependant wishing to enter Thailand must obtain a non-immigrant categories. To this extent, the rate that is more favourable to the tax-
visa type ‘O’. Multiple-entry options are available for an extra fee. payer or as specified under the treaties shall prevail. The Thai with-
These visas are subject to annual renewal. holding tax amount may be credited against the corporate income
tax due in the treaty countries.
The Export and Import Act, BE 2522 (1979) and the Customs Act,
BE 2469 (1926) and their related implementing regulations are 16 What are the relevant government agencies or departments with
the main acts governing import and export controls. However, the authority over projects in the typical project sectors? What is the
importation of project equipment is subject to a wide range of laws nature and extent of their authority? What is the history of state
and regulations. Thailand restricts the importation of any equipment ownership in these sectors?
that is available domestically from manufacturers promoted by the
Government agencies with authority over projects in Thailand vary
BOI, such as electrical cables and cars. The restrictions also apply to
by sector. For oil and gas projects, a concession to explore, pro-
equipment that could be hazardous to public and personal health
duce, store, transmit and sell must be granted by the Department
or national security, including radioactive sources, concentrated
of Mineral Fuels, Ministry of Energy. Mineral extraction and

DFDL THAILAND
chemical refining projects are subject to Ministry of Industry regula- 19 What restrictions, fees or taxes exist on the export of natural
tion. Water treatment projects are supervised and controlled by the resources?
Department of Water Resources, Ministry of Natural Resources and Thai law permits the imposition of restrictions on natural resource
Environment. Electric power generation and transmission projects exports in cases of national security. For example, the Energy
as well as gas transmission by pipelines are subject to regulation by Minister is authorised to prohibit the export of indigenous petroleum
the Energy Regulatory Commission. All public transport and ports as necessary to ensure adequate supply for domestic consumption.
are subject to regulation by the Ministry of Transport. Thailand also complies with natural resource export restrictions as
State-owned or controlled enterprises include: PTT Public mandated by UN sanctions. Export duties are imposed per tariff
Company Limited, which operates oil, gas and petrochemical pro- schedules.
jects; the Port Authority of Thailand, which is responsible for man-
aging and developing ports; the Airports of Thailand Plc, which Legal issues of general application
owns and operates all public airports; the Expressways Authority of
Thailand, which owns and operates (by itself or through concession- 20 What government approvals are required for typical project finance
aires) all expressways in the Greater Bangkok Area; the Electricity transactions? What fees and other charges apply?
Generating Authority of Thailand, the Metropolitan Electricity Thailand has restructured and liberalised its finance and banking
Authority and the Provincial Electricity Authority, which together industry. As a result, project finance transactions with foreign parties
monopolise the retail, distribution and sale of electricity; the State are not restricted. There are no project finance specific approvals
Railways of Thailand, which owns and operates the railway system; required other than those imposed by general law.
and the Metropolitan Water Works Authority and Provincial Water
Works Authority, which are responsible for operating the water sup-
ply. The state-owned telecommunication enterprises, TOT Plc and 21 Must any of the financing or project documents be registered or
CAT Incorporation Plc, provide the operating backbone of the tel- filed with any government authority or otherwise comply with legal
ecommunications systems in Thailand. formalities to be valid or enforceable?
Loan agreements must be in writing in order to be enforceable.
Regulation of natural resources Share transfer instruments must be signed and witnessed by a third
party where the shares being transferred relate to shares in a lim-
17 Who has title to natural resources? What rights may private ited company. A pledge of shares can only be enforced against a
parties acquire to these resources and what obligations does the company or a third party if the pledge of shares is registered in the
holder have? May foreign parties acquire such rights? share register book of the company (and provided, again, that the
Under Thai legal principles all natural resources belong to the state. share certificates are possessed by or under the control of the credi-
Any person wishing to exploit natural resources must obtain a con- tor or any of its agents). While agreements can be in any language, if
cession or licence. The granted concession may not infringe upon the agreements are to be enforced in a Thai court of law or require
fundamental rights such as landownership of third parties. Under approval from the Bank of Thailand, they will need to be translated
these principles, a landowner has no inherent mineral or other natu- into the Thai language. Notarisation of typical project documents
ral resources rights, and rights may be granted by the state to third and finance documents is not required.
parties under a concession or licence. However, the concessionaire
must seek permission from the landowner in order to carry out min-
eral exploitation activities and compensate the landowner for losses,
such as loss of land use and crop damage.
The government, in the public interest, may expropriate pri-
vate property for use in natural resource exploration and produc-
tion. Mitigation measures concerning the affected population
must be implemented by the government. Such mitigation meas- Thailand’s Arbitration Act BE 2545 (2002) adopts the core of the
ures may include relocation, occupational training and monetary UNCITRAL Model Law. The Act allows the parties the choice of
compensation. arbitration rules, language and venue. Any enforcement of arbitra-
Thailand does not recognise any special rights of aboriginal, tion and awards in Thailand must proceed in compliance with this
indigenous or tribal peoples. All Thai citizens, including tribal peo- Act.
ples, have equal rights. Thailand has been a party to the New York Convention on
The Foreign Business Act generally prohibits a foreign individ- Arbitration since 1959. Arbitration awards that have been awarded
ual or entity from operate a business relating to the exploitation of in the Convention’s member states can be enforced in Thailand.
natural resources except for certain exceptions that are permitted Thailand also recognises ICSID as well as the ICC Arbitration
under the list of BOI-approved investments. Rules. Arbitration and awards using the ICSID and ICC arbitration
process are enforceable in Thailand through the process outlined in
the 2002 Arbitration Act.
18 What royalties and taxes are payable on the extraction of natural Dispute resolution through arbitration is limited to civil issues
resources, and are they revenue- or profit-based? such as business, trade and commercial disputes. State enterprises
Concessions granted for natural resource exploration and produc- may agree to have disputes with private sector counterparties
tion generally require payment of both royalties and specified taxes. resolved through arbitration. In some instances, disputes with state
Under the standard petroleum and mineral mining concessions, con- agencies may be resolved through arbitration, such as oil and gas
cessionaires are subject to monthly royalties on gross revenue and royalty disputes.
an annual income tax. There is no distinction between royalties and
taxes payable by domestic or foreign concessionaires. However, the
total amount of royalty that the concessionaire paid during a fiscal
year can be credited against the amount of petroleum income tax
(profit-based tax) that is payable by the concessionaire at the end of
the relevant fiscal year.
THAILAND DFDL
23 Which jurisdiction’s law typically governs project agreements? The Building Control Act BE 2522 (1979) deals with construc-
Which jurisdiction’s law typically governs financing agreements? tion safety and public safety by issuing ministerial regulations and
Which matters are governed by domestic law? directives. The Department of Public Works and Town and City
With certain exceptions, contracting parties may freely choose the Planning is the secretariat office for the Building Control Committee.
governing law of their contract and the choice of foreign law will The Public Health Act BE 2535 (1992) regulates public sani-
be enforceable. tation by empowering the Health Minister to issue ministerial
However, the choice of foreign governing law must not be con- regulations and directives. The Department of Public Health is the
tradictory to the national law or the good morals and public order secretariat office for the Public Health Committee.
of the people of Thailand. The general rule on severance of con- For sectors with greater impact on the environment, health, and
tract terms applies to contract provisions that contradict the law. safety, the minister in charge may impose additional measures to
For example, if a contract provision requires a borrower to repay ensure proper protection for both workers and the public through
its loan in foreign currency without first obtaining an approval for the following Acts:
remitting foreign currency from the Bank of Thailand, in violation • the Petroleum Act BE 2514 (1971), which governs the upstream
of the Exchange Control Act BE 2485 (1942), such a clause will be oil and gas sector and the implementation of regulations on
void and unenforceable. operational environment, health and safety for petroleum con-
Project documents such as concession agreements, domestic cessionaires and contractors;
power purchase agreements and construction agreements (with Thai • the Factory Act BE 2535, which governs downstream manufac-
contractors) will typically be governed by Thai law. Finance agree- turing activities, including oil refining, gas separation and petro-
ments, such as facility agreements, will generally apply English law chemical manufacturing;
in large syndicated transactions, whereas smaller projects that are • National Executive Decree No. 28 of 1972, which authorises
wholly domestically funded may use Thai law as the governing law. regulation of gas storage construction, gas filling plant opera-
The security agreements will apply a mix of Thai law for ‘onshore’ tions and gas dispensing facilities; and
assets and English law for ‘offshore’ assets. • the Fuel Oils Control Act BE 2542 (1999) and the Fuel Oils
Control Act (No. 2) BE 2550 (2007), both authorise regulation
of the construction and operation of large oil storage facilities.
effective and enforceable? Project companies
Thai law is silent on the legal effect of submission to the jurisdic-
tion of foreign courts. At present, there is no legislation or provision 26 What are the principal business structures of project companies?
explicitly specified in the Civil Procedural Code or in the Act on What are the principal sources of financing available to project
Conflict of Law of Thailand BE 2481 (1938) that deals with the companies?
recognition and enforcement of a judgment made in a foreign coun- Project companies in Thailand generally take the form of a private
try. A foreign court judgment has never before been recognised or limited liability company. The shareholding structures are dictated
enforced in Thailand, but a final judgment made in foreign countries largely by the nature of the pursued business; subject to the con-
is admissible as supporting evidence in legal proceedings in Thailand. straints of the FBA. Concessions for projects of major national eco-
However, Thai courts will not take the context in the foreign judg- nomic significance typically include state participation in the equity.
ment for granted. A waiver of sovereign immunity will be effective Riskier ventures, such as upstream petroleum concessions, are often
provided that such waiver has been explicitly stated in writing. wholly foreign-owned in the exploration phase with state equity
participation following commercial production.
Environmental, health and safety laws Major projects are generally funded with sponsor equity such
as domestic and foreign loans. Projects under government sponsor-
25 What laws or regulations apply to typical project sectors? What ship are often financed in part through funding from international
regulatory bodies administer those laws? financial institutions such as the World Bank, ADB and JBIC. Thai
General and specific laws govern each sector. Various government banks frequently participate in syndicate lending with foreign pro-
departments, committees or state enterprises oversee the granting of ject lenders acting both as the security agent for the syndicate and as
concessions and licences to project companies, the prescription of providers of local currency (baht) loans to the borrower.
rules, issuance of regulations and the collection of royalties. The key The issuance of publicly traded securities for the financing of
environmental, health and safety laws are the following: new ventures is not possible as listing rules prohibit it. Similarly, new
The Environmental Conservation and Protection Act establishes project companies would also be restricted from taking advantage
the National Environment Board with the Prime Minister as chair- of securitisation and borrowing from the domestic capital market. It
person and the Office of Natural Resources and Environmental is possible for a project company to raise capital in an initial public
Policy and Planning as the board secretariat to ensure the protec- offering after a sufficient project operating and earnings history has
tion, conservation and promotion of the natural environment. If the been established in accordance with listing rules.
investment requires an environmental impact assessment (EIA) and
a report on the impact of proposed mitigation measures, the pro- Public-private partnership legislation
ject company must conduct a study and submit an EIA report for
approval before embarking on the project work. In addition to the 27 Has PPP enabling legislation been enacted and, if so, at what
EIA requirements, any project or activity that may seriously affect the level of government and is the legislation industry-specific?
community with respect to the quality of the environment, natural Thailand enacted its public-private partnership legislation in 1992
resources and public health must have a Health Impact Assessment (the Act of Private Participation in State Undertakings, BE 2535
completed and approved before commencing the project work. (1992)). The Act was not industry-specific but applied to any public-
The Workplace Health and Safety Act BE 2554 (2011) deals private partnership for any project venture that has an investment
with health and safety for workers, and its implementing regulations level at or above a threshold of 1 billion baht or as prescribed by
provide guidelines on the required safety protocols, health measures, royal decree. The enforcement of the Act during its effective period
and standards for employees. The Labour Department is the secre- had been inconsistent due to lack of clarity in its interpretation and
tariat office for the Labour Committee. to inconsistencies of standard terms in a typical PPP agreement. As
a result, the Act of Private Participation in State Undertaking Act

DFDL THAILAND
BE 2556 (2013) (the 2013 PPP Act) has been enacted; repealing the
1992 PPP Act. The 2013 PPP Act became effective on 4 April 2013. Update and trends
The main objectives of the new Act are to streamline the project
approval procedures and establish a national PPP Committee (the In recent years, there has been a large increase in Thai-financed
and sponsored power projects, particularly in Laos, which is ideal
Committee of Private Investment in State Undertaking) to act as the for the generation of hydroelectric power. Major recent projects
single oversight agency for all facets of approved PPP projects includ- include the Xayabouri hydropower power project located on the
ing procedural and promotional activities. The PPP Committee also Mekong River, and the Hongsa Power Project, which is a large-
considers such things as whether or not the project can provide more scale lignite mine mouth power plant and the Xe-Pian Xe-Namnoy
efficient services to the public, compliance with fiscal discipline and hydropower project (of which financial close occurred in February
2014). Planning for the future, Thailand has sought to diversify its
ensuring appropriate risk allocation between the public and private electricity supply by looking abroad. By 2015, Thailand expects
sectors. to buy 7,000MW of electricity from Laos; as the energy needs
To avoid conflict among government agencies, the 2013 PPP of Thailand increase and new sources of cheap gas dwindle.
Act applies to all public-private partnerships projects that are at or PTT Public Company Limited, the listed state-owned oil and gas
company, has recently made acquisitions as far afield as Africa
above the specified threshold; except the operation of petroleum in order to lock in Thailand’s energy supplies for the future. Given
concessions under the petroleum law and the operation of mining Thailand’s steady growth, this trend looks set to continue in the
concessions under the mining law as well as other specific projects near future.
stipulated by royal decree from time to time.
Any PPP venture with an investment level of 1 billion baht or more The IPP project initiative has been well executed and is considered
is subject to the requirements and procedures prescribed in the 2013 one of the most successful PPP project initiatives in Thailand. The
PPP Act. Nevertheless, the Act also allows flexibility for the PPP key to success was mainly the efficient allocation of risk between
Committee to decide that a PPP with an investment value of less EGAT and the IPPs, as well as the power purchase payment structure,
than 1 billion baht can also qualify under the stipulations of the which collectively provided the right incentives for IPPs to meet their
2013 PPP Act by issuing specific legislation that is subject to the pro- obligations and deliver a high-quality service to the public. To date
visions of the Act. The 1992 PPP Act did not provide a framework IPP power projects total a combined capacity of some 12,742MW.
for PPPs, whereas the new PPP Act shortens the procedures required Similarly, the VSPP programme for producing and selling electricity
for project approval to a seven to 12-month time frame. generated from alternative energy sources such as solar energy and
The 2013 PPP Act also provides more promotions to the private agro-industry waste attracted investment applications for a total of
sector by creating a government project development fund for the over 1,585MW, with 412 projects currently in the pipeline adding
purposes of surveying information in relation to preparation and another 2,142MW; versus the 500MW programme target. Over 476
improvement of the strategic plan relating to private participation in power plants are now operational and the construction works of
state undertakings; engagement of a project adviser; and payment of over 412 such power plants are currently underway.
the relevant expenditures of the project. Other significant projects include the:
The 2013 PPP Act is certainly more in line with the recent poli- • telecommunications networks by AIS Mobile, DTAC, Thaicom
cies of the Thai government by focusing on ‘mega projects;’ includ- and others (BTO);
ing the upcoming high-speed train project and the roll out of mass • the Laem Chabang Port expansion (BOT);
rapid transportation projects in Thailand’s major cities. However, • the Si Rat Expressway (stage 2) (BTO); and
the success of the 2013 PPP Act remains to be seen as it has not yet • the Bangkok Skytrain Expansion (BOT).
been fully implemented.
Roy Lee roy.lee@dfdl.com

Duangkamol Ingkapattanakul duangkamol@dfdl.com
9th Floor, The Dusit Thani Building Tel: +66 2 636 3282
946 Rama IV Road, Silom Fax: +66 2 636 3290
Bangkok 10500 www.dfdl.com
Thailand
TURKEY Mehmet Gün & Partners
Turkey
Orçun Çetinkaya and Alişya Bengi Danışman
Mehmet Gün & Partners
Creating collateral security packages registered share certificate is perfected by the endorsement of the
registered certificate or conclusion of a separate written pledge
1 What types of collateral are available? agreement for the establishment of a pledge thereon.
In the area of project financing, the most preferred and frequently
used collaterals in Turkey are pledges, mortgages and guarantees. Mortgage
Although other types of collaterals such as assignment of receivables A mortgage under Turkish law is created on immoveable proper-
and suretyships are also available under Turkish law, they are not ties by enacting a written mortgage agreement before the relevant
commonly used in respect of project finance as they are more suited Title Office where the immoveable property is located, which must
for personal securities. be registered with the same Title Office for it to be effective against
third parties.
Guarantee
Unlike the above-mentioned types of collaterals, there is no formal
requirement in respect of a guarantee contract, however, in practice,
parties prefer to enact a guarantee contract in writing for the ease
of provability.
As stated in question 1, assignment of receivables and suretyship
The rules and procedures governing the perfection of collateral as are rarely used tools for providing securities in project finance. The
well as the establishment of their priorities vary widely depending on formal requirements for the assignment of receivables are the same
the type of the collateral. The following descriptions briefly outline with the requirements for the perfection of a pledge on a receivable.
the requirements for the perfection and prioritisation of the collat- The only difference between them is that, when a creditor assigns
erals that are deemed to be the most commonly used collaterals in its receivables to a third party, all rights and accessory rights thereto
project financing. automatically pass to the assignee whereas the pledge of receivable
only gives the pledgee the right to claim thereon. In order to validly
Pledge perfect a suretyship contract, it should be concluded in writing and
As a general rule, a pledge of moveable assets is perfected by assign- the amount subject to the surety must be definite.
ment of possession. While this is the general rule, certain moveables
under specific registries, such as motor vehicles, are perfected by way Priority
of registration at the relevant registry, in which case the assignment With regard to the priority among immoveable properties, Turkish
of possession is not required. law has adopted the fixed degree system. Accordingly, the owner of
On the other hand, for the perfection of a commercial enter- an immoveable property is entitled to establish different mortgages
prise of a pledge, firstly a written agreement prepared ex officio by on the same property by way of dividing the property into supposi-
the public notary is required to be signed by the parties. Then, this tional shares and thereby each mortgagee will be entitled to secure
agreement must be registered with the relevant trade registry within its debt on a share of the property.
10 days from signing. Registration is a condition for validity of the On the other hand, in respect of moveable properties that par-
pledge as the pledge will be invalid unless it is registered with the ticularly require to be registered with the relevant registries, the pri-
relevant trade registry within the prescribed period of 10 days. ority among the pledgees is determined in accordance with the date
In order to establish a pledge on a receivable, first of all, the of establishment of such pledges. Accordingly, the pledgee in favour
subject receivable must be transferrable or assignable under Turkish of whom the first pledge is established shall be satisfied first and the
law. A written agreement must be enacted for the perfection as oth- remaining pledgees will be paid in the same order to the extent that
erwise the pledge shall be invalid. While establishing a pledge on a the remaining amount of the security is sufficient.
receivable, it is not required to obtain the consent of the debtors or In respect of the moveable properties where the assignment of
to inform them thereof. However, unless the debtor is informed of possession is required for being perfected, there is no priority issue
such pledge, he or she may make the payment in good faith to the since there is only one party holding the possession of the subject
principal creditor, which relieves him or her from liability. Therefore, moveable property.
in order to avoid such a situation it is recommended that the pledg-
ees inform the debtors accordingly. Fees, taxes and other charges
As regards the pledge of shares, the perfection of the pledge The Code on Stamp Tax No. 488 and dated 11 July 1964 provides
depends on the type or the share certificate. Namely, a pledge on that the agreements, bonds, certificates issued for establishing col-
a bearer share certificate is perfected by assigning the possession of laterals are subject to 0.948 per cent stamp tax, which shall be
such a certificate to the pledgee. On the other hand, a pledge of a

Mehmet Gün & Partners TURKEY
determined and charged in accordance with the amount of the debt the lender – without initiating enforcement proceedings against the
secured. project company – may directly own the assets on which the collat-
In addition to the stamp tax obligation, in the cases where the erals are established if the project company goes into default, such
agreements, bonds or certificates are required to be registered to the an agreement shall be invalid. However, one of the exceptions to
relevant authorities for the related collateral to be perfected, a cer- this principle, which is worth mentioning would be the cases where
tain amount of registration fee must be paid to the relevant authori- the lenders’ step-in rights are allowed. For instance, article 5 of the
ties where the fee will also be calculated pro rata to the amount of Electricity Licence Regulation provides that, in the event of the pro-
the debt secured. ject company’s default, the lenders, banking or finance institutions
As the fees and taxes are calculated pro rata to the amount of that have given loans to the said project company on a limited or
the debts secured by related agreement, bond or certificate, the only non-recourse based project finance, are entitled to request from the
way to minimise these taxes and fees might be reducing the sub- Energy Market Regulatory Authority transfer of the existing licence
ject amount of the securities. This, however, is not advisable as the of the project company to itself or a new entity, which will undertake
transaction would be collusive in respect of the amount and there- all the obligations of the project company.
fore could be regarded as fraudulent and the criminal and financial
consequences on the parties as well as the project itself would be
obviously heavier.
Finally, there is no provision under Turkish law on whether or
not a corporate entity, in the capacity of agent or trustee, can hold a
collateral on behalf of the project lenders as the secured party. This is
(eg, tax debts, employees' claims) with respect to the collateral?
why parties may establish such a security freely in which case, how-
ever, the rights and obligations must be determined very carefully as
there is no regulatory framework in this respect.
3 How can a creditor assure itself as to the absence of liens with Under Turkish law, bankruptcy proceedings can be initiated by
priority to the creditor’s lien? the company itself or one of its creditors before commercial courts
As stated in question 2, with regard to the priority of mortgages on against the merchants defined under the Turkish Commercial Code
immoveable properties under Turkish law, the fixed degree system is No. 6102 (the TCC) as well as the real persons and legal entities,
adopted. As a result of the fixed degree system, the creditors cannot which are subject to bankruptcy proceedings according to their spe-
move up to another degree if there is a prior lien existing. A creditor, cial laws. According to the TCC, a person who operates a commer-
conducting research through the records in the relevant Title Office, cial business partially or totally under his or her name is defined as
can assure itself on whether or not there is an existing lien prior to a merchant. Claims of foreign creditors are treated identically to the
its lien. claims of local creditors. Initiating a bankruptcy proceeding against a
With regard to the pledges for moveables, which are separately project company results in all collaterals of such a company becom-
registered with the relevant registries, the priority is constituted by ing payable, with the exception of mortgages. Being deep in debt is
chronological order of the establishment and registration of the a mandatory reason for initiating bankruptcy proceedings against
pledges. capital companies and cooperatives under Turkish commercial law.
A commercial enterprise pledge can be revealed by research con- Only the public entities are excluded from bankruptcy proceedings
ducted through the records at the relevant trade registry. As stated since they are not classified among the entities subject to bankruptcy.
in question 2, registration of a commercial enterprise pledge to the On the other hand, postponement of bankruptcy may either
relevant trade registry is a condition for validity of such pledge. be requested by creditors or by the project company itself from the
Therefore, a creditor can assure itself by checking the registry records court, if it can be deemed that the financial situation of the pro-
of the commercial enterprise and may allege that there is no existing ject company may get better if some time is granted and the right
lien prior to its lien if no other lien is indicated in the records. of creditors shall not be violated due to such postponement. The
fundamental result of the postponement of a bankruptcy is that all
debt collection proceedings exercised against the project company
automatically pauses where no other proceeding can be exercised
during the postponement.
Under Turkish law, there are different clawback rights that may
Under Turkish law, the enforcement procedure to be followed var- be used in the case of the debtor transferring its assets on a non-
ies on the type of the collateral. The procedures are set forth under controversial base, or if the transfer is fraudulent. In accordance
the Turkish Bankruptcy and Enforcement Law No. 2004 (the BEL). with the Turkish Bankruptcy and Enforcement Law, the transfers
Accordingly, all types of collaterals are realised through public auc- that intend to harm creditors can be challenged through initiating
tion held by the judicial authorities, namely, the relevant enforce- lawsuits regarding the cancellation of the disposition. According to
ment offices. There are certain statutory notice periods set forth Turkish law, while the assets of the insolvent company are distrib-
under the BEL, varying on the type of the enforcement procedure. uted between the creditors, the receivables are classified under two
Besides, there is no provision preventing a project company partici- main groups as:
pating in a public sale as a buyer where the sales price should be • privileged receivables (they are the receivables that will be pri-
determined in Turkish liras. marily paid, ie, public receivables, receivables of employees
Private sales are not regulated under Turkish law, though there under labour law, etc); and
is no provision preventing private sales. However, while it is theo- • the remaining receivables (after the privileged receivables are
retically possible, it may be quite difficult in practice as the parties covered from the assets, a distribution average is made on the
usually cannot agree on the terms and conditions of the sale. remaining part among the creditors).
As the principle is public sale, any agreement to circumvent this
principle shall be invalid. In other words, if an agreement between Other than court proceedings, there is no other alternative proceed-
the lender and the project company is enacted that provides that ing available to seize the assets of a project company.
Foreign exchange issues ownership, provided that the company is to be established to oper-
ate in the referred fields of business where permission from the gov-
6 What are the restrictions, controls, fees, taxes or other charges ernmental authorities is required to be obtained. Similarly, there is
on foreign currency exchange? no discrimination between the local and foreign investors in respect
Under Turkish law, there are no restrictions or controls on the use of of fees and taxes while doing business in Turkey.
foreign currency exchange in respect of the area of project financing. There are very few restrictions applied to companies having
foreign capital in Turkey. For instance, according to the Code No.
6112 Regarding the Establishment and Broadcasting Services of
Radio and Televisions, dated 15 February 2011, companies provid-
ing media services cannot have foreign capital exceeding the ratio
of 50 per cent. According to the same code, a foreign real person or
In respect of the investment returns or loan payments to parties in a legal entity can only have shares in two media companies at the
other jurisdictions, restrictions or controls adopted under Turkish most. There are a few similar restrictions in respect of the marine
law are quite limited. In the event that the dividends are transferred transportation and civil aviation sectors as well as investments in
to foreign shareholders, the Foreign Investment Directorate of relation to harbours.
the Undersecretariat of the Treasury needs to be informed of the Companies with foreign capital established in Turkey are also
details of such transactions. However, with regard to certain types restricted in respect of purchasing real estate within the territory
of income payable to the non-residences, withholdings at source are of Turkey. Namely, companies with foreign capital are entitled to
applied to income tax or corporate income tax. acquire real estate or establish limited rights in rem within the ter-
ritory of Turkey only in order to conduct the operations set forth
8 Must project companies repatriate foreign earnings? If so, must under their articles of association. However, due to the wide inter-
they be converted to local currency and what further restrictions pretation given to the principle of ultra vires by the new Turkish
exist over their use? Commercial Code, it is open to discussion whether companies with
Turkish capital can acquire real estate or establish limited rights in
According to Turkish law, there is no requirement with regard to the
rem within the territory of Turkey even though it is not allowed in
repatriation of foreign earnings and there is also no requirement for
their articles of association. Nevertheless, the referred restrictions in
conversion of foreign earnings to Turkish lira.
terms of acquiring real estates do not apply to the attachment of
legal liens or acquisition of real estate by liquidation of legal liens.
9 May project companies establish and maintain foreign currency Similarly, the referred restrictions do not apply to the transfer of real
accounts in other jurisdictions and locally? estate and limited rights in rem arising from mergers and demerg-
Turkish project companies may establish and maintain foreign ers of companies. In parallel with this, no restriction is applied to
and offshore currency accounts in other jurisdictions and locally, the acquisitions of real estate and limited rights in rem in special
since there is no restriction in this regard. However, such compa- investment zones such as organised industrial zones, industrial
nies establishing foreign and offshore currency accounts abroad are zones, technology development areas and free zones. Likewise, the
obliged to comply with Turkish money laundering rules as well as referred restrictions do not apply to the acquisition of real estate by
tax regulations. banks due to the transactions considered as loans within the scope
of the Banking Law No. 5411 or due to the collection of receiva-
Foreign investment issues bles provided that these properties are sold by banks within the pre-
scribed period of time. On the other hand, pursuant to the Code of
10 What restrictions, fees and taxes exist on foreign investment in or Title No. 2644, foreign companies having legal personality, which
ownership of a project and related companies? Do the restrictions were established according to the laws of their countries, are not
also apply to foreign investors or creditors in the event of entitled to own real estate or establish limited rights in rem on the
foreclosure on the project and related companies? Are there same in Turkey, with certain exceptions set forth under the Tourism
any bilateral investment treaties with key nation states or other Incentive Law No. 2634, the Petroleum Law No. 6491 and the
international treaties that may afford relief from such restrictions? Industrial Regions Law No. 4737.
authority?
Turkey has a foreign-friendly policy in respect of foreign investment over project assets provided or guaranteed by foreign insurance
as there is no specific law among Turkish legislation restricting for- companies? May such policies be payable to foreign secured
eign nationals to invest in Turkey. The Turkish Ministry of Economy creditors?
announced on its official website that, according to the A.T. Kearney
According to article 15 of the Insurance Act No. 5684, persons
FDI Confidence Index, Turkey ranks as the world’s 13th most attrac-
(either real or legal) domiciled in Turkey have to insure their insur-
tive destination for Foreign Direct Investment (FDI) in 2012. (There
able interests in Turkey and with insurance companies operating in
is no recent statistic for 2013 in this respect.)
Turkey. As seen, with a few exceptions envisaged by the same arti-
There is no discrimination between local and foreign investors
cle, local insurance is required for the Turkish project companies.
where both are subject to the same requirements when establishing
However, there is no restriction for these local insurance policies to
enterprises or branches in Turkey. However, the establishment of liai-
be reinsured abroad, which may enable the usage of cut-through
son offices of foreign companies in Turkey is subject to the permis-
clauses.
sion of the Foreign Investment Directorate of the Undersecretariat of
Pursuant to the Insurance Act, insurance and reinsurance com-
the Treasury, which, however, is an easy process to undergo, requir-
panies in Turkey must obtain a licence from the Undersecretariat of
ing an application to that effect only. In addition to this, there are
the Treasury for each insurance field in which they want to operate.
certain sectors like insurance, banking, etc where both local and
Foreign insurance companies may only operate in Turkey by open-
foreign investors must obtain permission from the relevant govern-
ing a branch office where they would also be obliged to obtain the
mental authorities while establishing enterprises to operate in the
relevant licences from the Undersecretariat.
referred areas of business. As seen, there is no specific restriction that
is applied to project companies in terms of foreign investment or

12 What restrictions exist on bringing in foreign workers, technicians according to the size, field and location of the investment where for-
or executives to work on a project? eign and local investors are treated similarly.
Foreign employees assigned to work for a project in Turkey are In addition to certain tax exemptions applicable to a number of
obliged to obtain a work permit from the Ministry of Labour and investments, there are also specific tax incentives available for invest-
Social Security, where an accelerated procedure is provided for key ments in Turkey. In this regard, large-scale and strategic investments,
employees of companies (ie, executives), under the Regulation on investments of at least 5 million Turkish liras, as well as the invest-
Employment of Foreign Personnel in Foreign Direct Investment, ments taking place in relatively less developed regions of Turkey, are
which was prepared within the context of the Foreign Direct stimulated most.
Investments Law No. 4875. According to Law No. 6458 on
Foreigners and International Protection, foreign employees who Government authorities
hold a valid work permit are not required to obtain an employment
visa or a residential permit. 16 What are the relevant government agencies or departments with
13 What restrictions exist on the importation of project equipment? ownership in these sectors?
Apart from restricted items, for example, firearms, hazardous mate- Certain sectors in Turkey are regulated and controlled by the rel-
rials, x-ray films, precious metals, stones, etc, which can be imported evant regulated independent authorities, whereas certain other sec-
only by authorised establishments and specific government agencies tors are subject to the authority of central governmental bodies. For
or pre-approved organisations, an importer would be able to import example, in mining and mineral extraction, the relevant authority is
any goods in principle. In importing some goods such as agricultural the General Directorate of Mine Works of the Ministry of Energy
imports, however, control certificates from relevant official authori- and Natural Resources, which has the authority to issue licences for
ties have to be sought. Besides, importers must obtain and prove the exploration and operation rights and control of mining activities.
they have the forms of permission when importing including, but The telecommunications and energy sectors are regulated by
not limited to, industrial products requiring after sales service, tele- independent authorities. Namely, the telecommunications sector is
communications equipment, chemicals, human and veterinary phar- regulated by the Telecommunication Regulatory Authority where
maceutical products, vehicles and coal. Temporary anti-dumping telecommunications activities are subject to different licences.
and subvention measures are taken to protect domestic producers. Similarly, energy market activities, such as the generation, distribu-
The measures may include import permit requirements, additional tion, transmission, wholesale, import and export of electricity, natu-
tax burdens and quantity restrictions. Quotas are implemented as a ral gas, petroleum and LPG, are all regulated and controlled by the
requirement for the harmonisation of the import policy of Turkey independent Energy Market Regulatory Authority, where private
with that of the EU. parties must obtain licences for performing their activities in the
market. On the other hand, the General Directorate of Petroleum
Affairs of the Ministry of Energy and Natural Resources is the rel-
evant authority for the exploration of petroleum and natural gas.
Apart from the above, the use of water is generally controlled
by the General Directorate of State Hydraulic Works as well as local
Both nationalisation and expropriation are regulated in the Turkish authorities of municipalities for energy, irrigation, potable water,
Constitution. Article 35 of the Constitution provides that property supply purposes, etc. Lastly, the competitive and functioning air
rights may be limited by law only if it is required in respect of pub- traffic of Turkey is supervised by the General Directorate of State
lic interest. Therefore, nationalisation and expropriation may only Airports Authority.
be exercised if the public interest requires, in which case the exact
consideration amount of the property must be paid to the title hold- Regulation of natural resources
ers. Along with the explicit provisions of the Constitution, some
specific provisions under the Direct Foreign Investments Law have 17 Who has title to natural resources? What rights may private
been regulated to provide convenient protection to foreign investors. parties acquire to these resources and what obligations does the
Accordingly, a foreign direct investment cannot be subject to nation- holder have? May foreign parties acquire such rights?
alisation or expropriation unless it is of vital importance to the pub- In Turkey, the state has the exclusive ownership of and disposi-
lic interest and exact compensation amount is paid in cash thereof. tion rights on natural resources that are either mined or quarried,
In Turkey’s bilateral investment treaties, such protection taking irrespective of the ownership of the surface, which can be subject
place in the Constitutions and the relevant legislations in terms of to private ownership. Therefore, the state has the right to explore
nationalisation and expropriation are strengthened and reinforced, and operate such resources, while it may transfer such rights to, or
while Turkey also undertakes to act in a non-discriminatory manner operate them together with legal entities and real persons by way of
when nationalising and expropriating foreign investments in respect granting concessions or licences.
of project companies and their assets. The exploration and operation rights of mines and minerals as
well as geothermal resources and natural spring waters may only
be granted to Turkish citizens and Turkish capital companies, with
the exception of borate mineral, which can only be carried out by
the state itself. Accordingly, no foreign legal entity may be granted
such rights.
However, there is no restriction imposed on foreign companies
in acquiring shares of a company granted such rights. There are
A broad and varied framework of incentives are provided to inves- no similar restrictions imposed on foreign capital companies with
tors by the recent Incentives Package in Turkey, issued in response regard to obtaining the exploration and operation rights of petro-
to the increasing demands of the investors, as well as to attract more leum and natural gas.
investments. Turkey’s long-lasting public support seeking to encour- In order to have such rights, parties must first obtain necessary
age private investments has been a constant move towards stimulat- permission and licences from the relevant governmental bodies or to
ing foreign nationals to invest in Turkey. The incentives may vary be granted concessions by them.
The acquisition or exercising of such rights is not affected by the York Convention (the Convention) or the International Private and
rights of aboriginal, indigenous, or other recognised groups of peo- Procedural Law No. 5718 (the IPPL). In determining such division,
ple. As stated above, natural resources are subject to the exclusive it is of vital importance to distinguish if the country where the award
ownership of the state, regardless of the ownership on the surface. is given is a signatory to the Convention. Accordingly, the provi-
In the case of exploration and operation rights that are granted to sions of the IPPL are applicable where the underlying award is ren-
private parties, required for the use of surface or any other property dered by a non-contracting state to the Convention. It should be
subject to the private ownership, then the licence holder may request stated that the enforcement and recognition rules of the IPPL do not
the governmental body that has granted the licence, to expropriate substantially differ from the rules of the Convention following the
such property in its favour. amendments to the IPPL in 2007.
The grounds for the enforcement of the foreign arbitral awards
in Turkey are set forth under article 60 of the IPPL. Accordingly, in
order for a foreign arbitral award to be recognised or enforced in
Turkey, such an award should be final and conclusive. The court
The granting of a concession or licence is subject to payment of con- cases in relation to the recognition and enforcement of foreign arbi-
cession or licence fees or royalties, which differ according to the type tral awards are held before the Civil Courts of First Instance.
of the natural resource and are calculated considering the sale price. Pursuant to article 61 of the IPPL, an applicant who seeks to
Concessionaires or licensees also have to pay an annual licence fee enforce a foreign arbitral award should provide the court with cer-
determined by the Ministry of Finance annually. tain documents when applying to the court, which are as follows:
• the original or a duly certified copy of the arbitration agreement
19 What restrictions, fees or taxes exist on the export of natural or the arbitration clause;
resources? • the duly authenticated original award, or a duly certified copy of
it, verifying that the award has become final and conclusive; and
As a natural consequence of Turkey’s policy, which aims to promote
• official translations of these documents translated by a sworn
export, there are no restrictions in respect of quantity and type of
translator and notarised (or approved by a diplomatic or consu-
goods to be exported from Turkey. This is particularly because of the
lar agent).
adoption of a free market economy as well as the increasing foreign
trade deficit in Turkey. Besides, having no restriction in terms of the
Pursuant to article 62 of the IPPL, which is a wider reflection of
goods’ quantities and type, there are no other additional financial
article V of the New York Convention, however, recognition and
burdens, such as additional taxes and fees, applicable to export of
enforcement of the foreign arbitral awards may be rejected by the
natural resources either. However, the amount of taxes and fees to be
court ex officio if the subject arbitration agreement or clause is inva-
paid may vary, depending on the type of the natural resource to be
lid, if the subject matter of the dispute is a dispute that cannot be
exported, and are required to be evaluated on a case-by-case basis.
resolved by arbitration pursuant to the laws of Turkey or the rec-
ognition or enforcement of the award would violate Turkish public
order or public morale.
20 What government approvals are required for typical project finance Notwithstanding, the request for the recognition and enforce-
transactions? What fees and other charges apply? ment of a foreign arbitral award may also be rejected in some other
certain cases, particularly where a party, against whom the award is
The required government approval may vary depending on the
requested to be enforced, proves one of the following:
nature of the conduct, industry, size and location of the project.
• he or she was not properly represented during the arbitration
Each project may require various forms of permission, licences and
tribunal and therefore has expressly rejected all the proceedings
approvals to be obtained from central or local authorities of the
taken;
state. Foreign investors are treated equally with the local investors
• his or her defence rights were restricted and he or she was not
in relation to such requirements. Loans obtained from banks and
duly notified of the selection of the arbitrators;
foreign credit institutions, as well as the related security documents,
• the arbitration agreement or clause was invalid pursuant to
are exempted from stamp tax.
the governing law chosen by the parties, or in the case where
no applicable law is determined, the arbitration agreement or
21 Must any of the financing or project documents be registered or clause was invalid under the law of the state where the arbitral
filed with any government authority or otherwise comply with legal award was rendered;
formalities to be valid or enforceable? • the award rendered exceeded the scope of the arbitration agree-
The formalities explained in question 2 are applied in relation to ment or clause; or
the documents as to collaterals in project financing. Further, if a • the arbitral award has not become final and conclusive pursu-
governmental body is a party to an agreement, there may be other ant to the law that it is subject to or under the laws of the state
procedures and formalities that must be complied with. As to loan where the award is rendered, as per the procedure applied to the
agreements, there is no notarisation formality and if one of the award or the award was cancelled by the competent authority of
parties is foreign then there will be no language restriction either. the country where the award was rendered.
However, for providing provability and in order to be on the safe
side, a written form is advisable in respect of all agreements regard- Some certain types of disputes, namely in cases in relation to
ing the collaterals, even if it is not required by the relevant law. bankruptcy, divorce, immoveable property rights, which are often
accepted to be subject to the Turkish public order and therefore are
within the scope of the Turkey’s exclusive jurisdiction, cannot be
22 How are international arbitration contractual provisions and taken to arbitration under Turkish law.
awards recognised by local courts? Is the jurisdiction a member Further, both domestic and international arbitration are avail-
of the ICSID Convention or other prominent dispute resolution able in Turkey. However, there is not any specific type of dispute
conventions? Are any types of disputes not arbitrable? Are any automatically referred to the domestic arbitration.
types of disputes subject to automatic domestic arbitration? Turkey has been a signatory state to the International Centre
Turkish law acknowledges that the recognition and the enforce- for Settlement of Investment Disputes (ICSID) since 1989 and the
ment of foreign arbitral awards are either governed by the New

1958 New York Convention on the Recognition and Enforcement far more developed area, as project companies are most commonly
of Foreign Arbitral Awards since 1991. bank-financed, as well as coupled with sponsor guarantees, which
are usually provided by IFC, EBID and the like in the market.
Which matters are governed by domestic law? 27 Has PPP enabling legislation been enacted and, if so, at what
There is no specific law that can be automatically regarded as gov- level of government and is the legislation industry-specific?
erning project agreements in Turkey. However, under Turkish law, Although there is not a specific PPP law regulated in Turkey, the
any dispute arising out of ownership rights and other types of rights PPP model has been widely used in financing Turkish public projects
in rem on any moveables and immoveable properties are exclu- since 1984 where the first legislation in respect of project finance,
sively governed by Turkish law. Therefore, it may be concluded namely the law on the Build-Operate-Transfer (the BOT) model,
that Turkish law would, by and large, apply to collaterals related to was introduced. There are several laws and legislations enabling the
assets located in Turkey. PPP transactions under different models, namely, Build-Operate-
Other than the above, parties may freely choose the applicable Own (BOO), BOT and the Transfer-of-Operating-Rights (the TOR).
law to be applied to a contract under Turkish law, provided that Further, as to the implementation of the PPP model in the health
such choice does not intend to circumvent Turkish public order and facilities sector, which is deemed to be an industry specific regula-
does not conflict with any mandatory rules of Turkey. According to tion, the Regulation on the Construction of Health Facilities on a
the IPPL, in the absence of the choice of applicable law, the most
Lease-and-Build basis and the Restoration of the Services and Areas
closely related law shall apply.
in Facilities other than Medical Service Areas on the Restore-and-
Operate Basis entered into force on 3 July 2006. On the other hand,
24 Is a submission to a foreign jurisdiction and a waiver of immunity there are severe problems crippling the execution of the PPPs in the
effective and enforceable? healthcare sector. In 2011, the Turkish Doctors’ Union brought a
Under Turkish law, parties can refer a dispute to a foreign jurisdic- lawsuit against the Ministry of Health in relation to a tender of one
tion provided that the dispute has a foreign element and is not sub- of the PPP projects. The Union claimed that the tender process had
ject to the exclusive jurisdiction of Turkish courts. The jurisdiction not been executed in accordance with the principles and procedures
agreement must be in writing and the selected court must have juris- stated under the relevant regulation and that the government had not
diction over the dispute, which must be explicitly stated. complied with the principle of transparency. Consequently, in July
2012, the 13th Chamber of the Council of State issued a stay order
Environmental, health and safety laws for the execution of the tenders of the Ankara Etlik Integrated Health
Campus Project and Ankara Bilkent Integrated Health Campus
25 What laws or regulations apply to typical project sectors? What Project (see question 29) due to unconstitutionality of the relevant
regulatory bodies administer those laws? legislations and tender contract provisions. This case is still pending.
Although, there are various laws and regulations applicable to spe-
cific project sectors, the most important regulations applicable to all PPP – limitations
typical project sectors in terms of environmental, health and safety
issues in Turkey are as follows:
transactions?
• the Environmental Law No. 2872;
• the Energy Efficiency Law No. 5627; In principle, the state is allowed to enter into contracts with private
• the Forestry Law No. 6831; sector participants. Although there is no specific PPP law in force,
• the National Parks Law No. 2873; different forms of PPPs are provided under relevant legislation such
• the Environmental Impact Assessment Regulation; as the BOT and TOR Laws.
• the Labour Law No. 4857;
• the Social Security and General Health Insurance Law No. PPP – transactions
5510; and
• the Occupational Health and Safety Law No. 6331. 29 What have been the most significant PPP transactions completed
The most important regulatory bodies administering the above laws A few of the most significant PPP transactions in Turkey can be
are as follows: listed as follows:
• the Ministry of Environment and Urban Planning; • the North Marmara Highway and Third Bosphorus Bridge
• the Ministry of Labour and Social Security; and Project (a joint venture of Turkish construction firm ICTAS and
• the Ministry of Energy and Natural Resources. Italian construction group Astaldi won the tender to finish the
construction of the bridge after three years, with an estimated
Project companies cost of US$4.5 billion. The North Marmara Highway project
will be 414 kilometres long and the bridge is to be a suspension
26 What are the principal business structures of project companies? bridge, 1,275 metres long, which will connect the neighbour-
What are the principal sources of financing available to project hood of Garipce in the Sariyer district and Poyrazkoy neighbor-
companies? hood in Beykoz;
In Turkey, project companies are usually incorporated in the form • the Golden Horn Port Project (a joint venture of Sembol-
of joint stock companies due to certain tax advantages in the case Ekopark İnşaat-Fine Otelcilik-Rixos Hotels chain won the ten-
of share transfer in such companies. However, there is no provision der with a US$2 billion bid. They hold the operation rights for
under Turkish law that prevents project companies to be incorpo- 49 years, four years of which is the duration of the construction.
rated as limited liability partnerships. It is difficult to name a prin- The project in the Golden Horn includes two yacht ports, two
cipal source of financing, given that the sources are varied in kind five-star hotels, each with 400 rooms, a large mosque for 1,000
and nature. A securities or bond offering is available. However, these persons and shopping malls, parks, restaurants, congress and
are not commonly used in Turkey as project financing is not devel- culture centres, cinema and entertainment facilities);
oped enough. However, bank financing may rather be regarded as a
• the new (third) airport project in Istanbul (a Turkish joint ven- • the Ankara Etlik Integrated Health Campus Project (a project
ture consortium won the tender, promising to pay the govern- with a construction area of 1.4 million square metres covering
ment €26,142 billion, including value added tax, for a 25-year a health campus investment with a total capacity of 3,566 beds
lease starting from 2017); consisting of a 718-bed general hospital, a 500-bed women’s
• the Galataport project (Dogus Holding won the tender with a hospital, a 508-bed children’s hospital, a 362-bed cardiovascular
US$702 million bid, to operate the port area for 30 years); hospital, a 494-bed oncology and children’s oncology hospital, a
• the Ankara Bilkent Integrated Health Campus Project (the pro- 478-bed orthopaedics hospital, a 300-bed physical therapy and
ject includes a health facility investment of 3,660-bed capacity rehabilitation hospital, a 106-bed psychiatric hospital and a100-
with a construction area of 1.2 million square metres. The cam- bed high-security psychiatric hospital); and
pus also consists of an institute of health sciences, a commercial • the Kayseri Integrated Health Campus Project (the project
area, congress centres and R&D centres, etc); includes a health facility investment of 1,583-bed capacity with
a construction area of 750,000 square metres. The campus also
consists of commercial spaces, congress centres, recreation areas,
etc).
Orçun Çetinkaya orcun.cetinkaya@gun.av.tr

Alişya Bengi Danışman alisya.danisman@gun.av.tr
Kore Sehitleri Cad. No. 17 Zincirlikuyu Tel: +90 212 354 0000
Sisli Fax: +90 212 274 2095
34394 Istanbul www.gun.av.tr
Turkey

Arzinger UKRAINE
Ukraine
Oleksander Plotnikov and Oleksander Zadorozhnyy
Arzinger
Creating collateral security packages in favour of the foreign company and securing the obligations of a
foreign company.
Today the following types of collateral are most widely used in
Ukraine: mortgages, pledges of moveable property, pledges of receiv-
ables, shares, securities and suretyships.
Mortgages
Under applicable Ukrainian law mortgages are permitted on land
plots and buildings (real estate). A mortgage is permitted provided
that the immoveable property belongs to the mortgagor, may be Generally, in order to be valid a security interest in each type of col-
alienated by the mortgagor and be enforced, and is registered as a lateral has to be in writing. In addition, mortgage agreements have
separate object. to be notarised. For all other types of collateral notarisation is typi-
The object of unfinished construction, the property rights to it, cally not required, unless one of the parties insists on it.
and other real estate, which will become the ownership of the mort- In accordance with the law, the state duty payable at notarisa-
gagor after the mortgage agreement is concluded, can also be the tion of a mortgage agreement is 0.01 per cent of the value of the
object of a mortgage. In such case the mortgagor must confirm with collateral under the mortgage agreement.
documents that it has obtained (or will obtain) ownership to such The state duty payable at notarisation of the pledge agreement
immoveable property. Registration of such mortgage takes place also constitutes 0.01 per cent of the pledge, but unlike with the mort-
regardless of who the owner of such property is at the moment of gage agreement is limited to a maximum of 850 hryvnas.
concluding the mortgage agreement. In practice, granting a mortgage or a pledge, as well as issuing
The rules established by the Law of Ukraine on Mortgages also a suretyship by a Ukrainian company, would require consent of the
apply to pledges of aircraft and sea vessels, and property rights to general meeting of shareholders or participants or the decision of the
real estate the construction of which has not been completed. supervisory or management body of that company.
Registration of a mortgage in the relevant register is mandatory
Pledges and serves as a precondition for the existence of the mortgage as
Ukrainian legislation generally establishes that any property (in par- a property right, as well as the encumbrance. Under general rule
ticular goods, securities, property rights) that can be alienated by the unregistered collaterals are valid for the parties (ie, the pledgee and
pledgor and be enforced can serve as the object of pledge, except for the debtor), but have no priority in terms of relations with third
certain limited objects that may not be pledged (eg, those of personal parties. Registered collaterals have priority over non-registered
character, certain cultural objects, etc). In addition, property that the collaterals.
pledgor will acquire in future (eg, future crops, offspring of cattle) A mortgage is typically registered by the notaries in the State
can serve as the object of a pledge. Register of Property Rights to Immoveable Property simultaneously
Pledges of intellectual property rights, as well as pledges of lease- at execution of the mortgage agreement based on the relevant appli-
hold, are allowed, except for pledges of leasehold rights to state- cation of the mortgagee. A pledge is typically registered by the reg-
owned or municipal land plots. istrar in the State Register of Encumbrances of Moveable Property
Bank accounts can be pledged, although specific conditions will upon the relevant application of the pledgee. Registration of the
apply. Generally, such pledges are not widely used in practice. mortgage or pledge in the relevant register is executed upon pay-
Unlike the pledges of shares, the pledge of participatory interest ment of the relevant registration fee.
in a Ukrainian limited liability company is hard to enforce in prac- Ukrainian legislation does not specifically allow a corporate
tice. Therefore, such pledges are used as additional collateral. entity, in the capacity of agent or trustee, to hold collateral on behalf
of the project lenders as the secured party. First, only the creditors,
Guarantees and suretyships and not the third parties, may be a holder of the collateral. Second,
A guarantee under Ukrainian law may be issued only by a bank unregistered pledgees or mortgagees would not be entitled to receive
or a licensed financial institution. In contrast, a suretyship may be satisfaction of claims. Third, the agent or trustee will have no legal
issued by any natural person or legal entity. Suretyships are com- grounds to transfer funds abroad to the project lenders due to
monly provided by the owners of Ukrainian businesses to foreign restrictions established by the Ukrainian currency control regula-
lenders as additional collateral. However, due to certain regulatory tions. Therefore, in practice collateral agreements may be concluded
constraints, including the currency control rules, it may become by an agent (ie, one of the creditors) acting on behalf of all other
problematic to enforce a suretyship issued by a Ukrainian company project lenders based on the relevant proxies. However, even in such
UKRAINE Arzinger
case all project lenders will have to be included in the relevant state on the satisfaction of the creditors’ claims. Out-of-court enforce-
registers. ment becomes impossible once a bankruptcy procedure is opened.
The Bankruptcy Law establishes that property claims against
the debtor (including disputes on the validity of the debtor’s agree-
ments, payment of taxes and invalidation of decisions of state bodies
affecting the debtor’s property rights) are to be reviewed by the court
There are basically two options for a creditor to assure itself as to within bankruptcy proceedings.
the absence of liens with priority to the creditor’s lien: Generally, it is established that the plan of sanation has to be
• obtain extracts from the relevant state registers; and approved in writing by all of the secured creditors of the debtor. If
• include a warranty clause in the relevant agreement assuring the any or all of the secured creditors are against approval of the plan of
absence of liens with priority to the creditor’s lien. sanation, other secured creditors may adopt a decision on separation
of the secured property from the property of the debtor, its sale at
In practice, we recommend using both of them. auction and satisfaction of claims of such creditor at the expense of
The relevant state registers from which to seek extracts would received money from such sale; or on purchase of debt in accordance
be the State Register of Property Rights to Immoveable Property with the date of the register of the creditors’ claims.
for mortgages and the State Register of Encumbrances of Moveable The Bankruptcy Law also provides that the pledged property
Property for pledges. of the debtor is not included in the liquidation pool and is used
Those liens that were registered earlier have a higher priority. solely for satisfaction of claims of creditors under obligations that
Liens that are registered simultaneously will have the same priority. it secures. Such property is sold exclusively upon the consent of the
Unregistered liens have no priority over registered liens. respective secured creditor or upon the court decision.
Unsecured creditors’ claims have lower priority. They are satis-
4 Outside the context of a bankruptcy proceeding, what steps fied in the fourth rank after claims of secured creditors, claims of
should a project lender take to enforce its rights as a secured employees and tax claims.
party over the collateral? At present, a moratorium on bankruptcy of legal entities in the
mining sector, which are at least 25 per cent state-owned, is imposed
Under Ukrainian law enforcement of collateral is possible upon a
until 1 January 2015.
court decision, arbitral award or the notarial execution writ, unless
Generally, the claims of foreign secured creditors are treated in
otherwise established by the respective agreement. The sale of the
the same way as the claims of domestic secured lenders.
pledged or mortgaged property is carried out by specialised organi-
sations using auctions (public sale), unless established otherwise by
the agreement. The project lenders may participate in such auctions
as bidders. 6 What are the restrictions, controls, fees, taxes or other charges
According to the general legal rule, the above sales are to be car- on foreign currency exchange?
ried out in the national currency (hryvnas).
Ukraine still has one of the strictest currency control regimes
Usually, enforcement procedures may be started if the debtor has
throughout Europe. For instance, it is established that the currency
failed to remedy the default within 30 days of the lender’s enforce-
of Ukraine (hryvnas) is the sole legal means of payment in the terri-
ment notice. Collateral is typically enforced through public auction
tory of Ukraine, which is accepted without limitation for payment
on the basis of a court decision or notary’s execution writ; how-
of any claims and obligations, unless otherwise established by law
ever, the law also provides for an out-of-court settlement procedure
or regulations. The use of foreign currency for payments within
requiring notarised agreement of the parties and providing for either
Ukraine (ie, between residents) is only possible provided the relevant
transfer of the title to the mortgaged property to the creditor or sale
individual licence is obtained from the National Bank of Ukraine
of the mortgaged property by the creditor to a third party. In prac-
(NBU).
tice the enforcement through an out-of-court settlement procedure
At the same time, it is established that in settlements between
is problematic because of imperfect legislation in this area. There
residents and non-residents, foreign currency and hryvnas can be
are no restrictions on the type of legal action that may be brought
used as a means of payment. In practice, hryvnas are very rarely
by lenders.
used in cross-border payments, mainly because non-residents do
Enforcement of a court decision is performed by the State
not have accounts in hryvnas. These operations (ie, settlements in
Executive Service. The legislation sets forth that the State Executive
foreign currency between residents of Ukraine and non-residents),
Office is obliged to perform all actions regarding the court’s decision
as well as certain others (loans granted to Ukrainian residents by
or notary’s execution writ within six months of the date of such
non-residents, payment by Ukrainian residents for services rendered
decision.
by non-residents) do not require obtaining of an individual licence
from the NBU.
5 How does a bankruptcy proceeding in respect of the project Commercial banks in Ukraine perform currency control func-
company affect the ability of a project lender to enforce its rights tions for operations of their clients. In practice this means that banks
as a secured party over the collateral? Are there any preference in essence control all payments of their clients under cross-border
periods, clawback rights or other preferential creditors’ rights agreements or agreements in foreign currency.
(eg, tax debts, employees’ claims) with respect to the collateral? At present, purchase of foreign currency is subject to a Pension
What entities are excluded from bankruptcy proceedings and Fund fee at the amount of 0.5 per cent of the sum of the operation.
what legislation applies to them? What processes other than The sale of foreign currency is not subject to any taxes. In addi-
court proceedings are available to seize the assets of the project tion, non-cash currency exchange operations, as a rule, are subject
company in an enforcement? to a certain bank fee, the amount of which typically depends on the
The Bankruptcy Law provides for the possibility of a pre-bankruptcy urgency of the currency exchange operation and the particular bank.
rehabilitation (sanation) of a debtor. The sanation may be imposed In certain cases, obtaining an individual licence from the NBU
by the court either on the debtor’s or the creditor’s request. At the will be required (eg, for making investments abroad in foreign cur-
stage of sanation of the debtor the bankruptcy proceedings cannot rencies, purchasing securities of foreign legal entities, etc). Obtaining
be commenced in court, and the court may establish a moratorium a licence from the NBU takes on average four to six weeks and is a
rather bureaucratic procedure. Such licences are granted for a limited

Arzinger UKRAINE
period of time, typically for one particular operation. In contrast to capitalisation’ limitations), provided such accrual is connected to the
the individual licences of the NBU, general licences are granted to business activities of the Ukrainian borrower.
banks and other financial institutions for the entire period of cur- Cross-border loans can be granted in euros, US dollars, Swiss
rency control; such licences do not require their holders to obtain francs or other foreign currencies. The amount of the loan is not
individual licences from the NBU for each separate case. limited by law and is with the full discretion of the parties to the loan
Cross-border loans (ie, loans in foreign currencies provided by agreement. The interest rate is defined by the parties, but may not
non-residents to the residents of Ukraine) require prior obtaining exceed the maximum interest rate defined by the applicable regula-
of the registration of the loan agreement before the first disburse- tions of the NBU, which are currently set at the following rates:
ment of the loan. Such registration shall be undertaken by the • if the loan is granted for less than a year, the interest rate may
resident-borrower. not exceed 9.8 per cent per year;
Most recent amendments established the temporary demand for • if the loan is granted for the period from one to three years,the
compulsory sale on the interbank currency market of Ukraine of interest rate may not exceed 10 per cent per year; and
proceeds in foreign currency from outside Ukraine in favour of indi- • if the loan is granted for more than three years, the interest rate
viduals (both residents and non-residents) in the sum of or exceed- may not exceed 11 per cent per year.
ing the equivalent of 150,000 hryvnas per month. Such demand
regarding compulsory sale of proceeds in foreign currency applies For loans with floating interest rates, the maximum allowable inter-
to the foreign currencies of the first group of the NBU Classifier of est rate is three months US dollar Libor plus 7.5 per cent.
Foreign Currencies and Bank Metals (includes the US dollar, euro The maximum allowed interest rate also includes the interest
and certain other currencies) and the Russian rouble. Banks execute payable on the principal and all payments under the agreement (ie,
compulsory sale of foreign currency proceeds without instruction penalties and other sanctions). This means that for each repayment
of the client and no later than the business day following the day of the loan, the servicing bank will control whether the amount to be
of crediting such proceeds to the analytical account. At that, banks repaid does not exceed the maximum allowed interest rate.
shall credit the hryvna equivalent to the current bank account of the Interest-free loans might cause additional tax on the borrower if
beneficiary no later than on the business day following the execution not returned within the same reporting period.
of the compulsory sale.
7 What are the restrictions, controls, fees and taxes on remittances they be converted to local currency and what further restrictions
of investment returns or payments of principal, interest or exist over their use?
premiums on loans or bonds to parties in other jurisdictions? Generally, there is no direct requirement to repatriate foreign earn-
Investments can only be remitted in certain currencies that belong to ings. But if a Ukrainian company obtained an individual licence
the first group of the NBU Classifier of Foreign Currencies and Bank from the NBU and made an investment or deposited money outside
Metals (includes the US dollar, euro and certain other currencies) Ukraine, the foreign earnings must typically be returned within one
and subject to the presentation of a number of supporting docu- year, unless the term of the individual licence has not been prolonged
ments to the servicing bank in Ukraine. The remittance can be done for a longer period.
either to the investment account of a non-resident foreign inves- Under effective Ukrainian laws the NBU has the right to intro-
tor, opened in one of the banks in Ukraine, or to the foreign bank duce temporarily (for up to six months) the demand on the manda-
account of the foreign investor. tory sale of foreign currency proceeds. A quite recent development is
The list of documents necessary for the payment of dividends the temporary requirement (effective until mid-August 2014) for the
was significantly shortened some time ago. In order to transfer mandatory sale of a part (50 per cent) of foreign currency receipts
the dividends to a mother company located outside Ukraine the in the amount of 150,000 hryvnas or more. Such a demand applies
Ukrainian company would typically be obliged to purchase foreign to the foreign currencies of the first group of the NBU Classifier of
currency on the interbank currency market (in those cases when it Foreign Currencies and Bank Metals (includes the US dollar, euro
does not have sufficient own funds in foreign currency). Also, to and certain other currencies) and the Russian rouble. Banks execute
repatriate the investments to a foreign country, as well as proceeds the compulsory sale of foreign currency proceeds without instruc-
from investments (at divestment), the servicing bank in Ukraine has tion of the client and no later than the business day following the
to be provided with a number of documents. day of crediting such proceeds to the analytical account. The banks
Generally, remittance of investments from Ukraine to a for- shall credit the hryvna equivalent to the current bank account of the
eign jurisdiction should not be subject to withholding tax. The gain beneficiary no later than on the business day following the execution
derived from such operations is subject to Ukrainian withholding of the compulsory sale.
tax, set at 15 per cent. However, Ukraine is party to a number of The remaining 50 per cent of the foreign currency receipts may
double tax treaties (more than 50 double tax treaties with the major- be used by residents at their own discretion.
ity of European and Asian countries at June 2014). The provisions of The NBU is not limited in the number of times it can introduce
such double tax treaties to which Ukraine is a member may provide such temporary measures. Initially, such measures were introduced
for more favourable taxation rules. in November 2012 for six months only, but in May 2013 they were
Dividends and interest are similarly subject to the application of prolonged for another six months in May 2013 and November
Ukrainian withholding tax. Dividends paid by Ukrainian companies 2013.
are subject to advanced corporation tax, which is calculated based
on the general corporate profits tax rate (18 per cent in 2014).
While interest can be taxable, repayment of the principal amount
of the loan is not subject to withholding tax in Ukraine. Interest
income from certain state securities is not subject to Ukrainian with- Project companies are generally free to open and operate foreign
holding tax. currency bank accounts in Ukraine. It is common for companies
Generally, the amount of interest accrued by a Ukrainian operating in Ukraine to have bank accounts in foreign currency.
company with a non-resident creditor in relation to the loan It is also possible to establish foreign currency bank accounts
should be tax-deductible in Ukraine (subject to certain ‘quasi thin outside Ukraine. However, the transfer of currency valuables to
UKRAINE Arzinger
these foreign bank accounts will be subject to prior obtaining of a become due, especially in certain asset deals in Ukraine. In contrast,
relevant individual licence from the NBU. share deals are typically not subject to VAT.

10 What restrictions, fees and taxes exist on foreign investment in or over project assets provided or guaranteed by foreign insurance
ownership of a project and related companies? Do the restrictions companies? May such policies be payable to foreign secured
also apply to foreign investors or creditors in the event of creditors?
foreclosure on the project and related companies? Are there Local insurance is typically not required for project finance deals
any bilateral investment treaties with key nation states or other and is up to the discretion of the parties.
international treaties that may afford relief from such restrictions? Non-resident insurance companies are limited in their insurance
Would such activities require registration with any government activities in Ukraine: they may insure risks related to transport, in
authority? particular by ships, aircraft and space rockets. In addition, it is pos-
Generally foreign investments can be made in any object, the invest- sible for such companies to perform insurance brokerage and con-
ment in which is not prohibited by law. Such prohibitions or limita- sultative services.
tions currently exist for foreign investors in certain industry sectors, At present, no taxes are payable by project companies in Ukraine
including broadcasting and the arms industry. At least until 2016, on the acquisition and holding of insurance policies.
foreign individuals and foreign legal entities would not be allowed The Ukrainian currency control regulations allow insurance
to own agricultural land. companies to purchase foreign currency in order to execute pay-
Pursuant to the Tax Code of Ukraine payments for land are ments under insurance agreements concluded in favour of foreign
established in the form of land tax and a land lease payment. Owners entities. It is possible to make the policies payable to foreign secured
of the land and permanent land users are required to pay land tax. lenders.
Land tenants are required to pay a land lease payment, which is
determined on the basis of an assessment of the value of the land. 12 What restrictions exist on bringing in foreign workers, technicians
The amount of tax payable depends on the type (eg, agricultural or executives to work on a project?
land plot) and location of the land. If the land plot has ‘standard
Foreign nationals can be employed in Ukraine only on the basis of
pecuniary valuation’ (a value estimate attached to the land), the land
a work permit, the term of which cannot exceed one year. The work
tax is established at the rate of 1 per cent of this ‘standard pecuniary
permit is individual (ie, issued for a particular foreign individual)
valuation’ per annum. If there is no document confirming the ‘stand-
and is issued for a particular position in a defined Ukrainian com-
ard pecuniary valuation’ of the inhabited land plot the amount of
pany (employer), and is not transferable. The work permit is issued
land tax ranges from 0.30 hryvnas per square metre in towns with
to the Ukrainian employer upon its application. A foreign citizen in
populations of fewer than 3,000 people to 4.28 hryvnas per square
Ukraine can be employed by only one employer.
metre in cities with over 1 million people. For regional centres zone
The employment of foreign nationals without a work permit can
coefficients of 1.2 to 3 apply.
lead to fines imposed on the Ukrainian employer and consequent
Agricultural land is taxed at the rate of 0.03-0.1 per cent of
deportation of foreign nationals from Ukraine.
the ‘standard pecuniary valuation’ (estimated value) of the land for
The introduction of foreign technicians to Ukraine within the
1 hectare per annum.
frames of international technical assistance projects does not require
Under a land lease agreement, the land tenant must pay a land
a work permit. In such case the information about the foreign
lease payment (rent payment) but is not responsible for the payment
employees must be mentioned during registration of the project with
of land tax. The annual land lease payment cannot be less than the
the Ministry of Economic Development and Trade of Ukraine.
land tax rate for agricultural land plots and three times the land tax
In practice, it is common for Ukrainian companies to obtain
rate for other land plots. The maximum annual land lease payment
work permits and invite foreign employees, including executives. In
is also established in the Tax Code of Ukraine.
the latter case, however, it is common that in the first stages of opera-
The tax period for the purpose of a land fee (both the land tax
tion of a project company (ie, before the relevant work permit is
and the land lease payment) is one year. Land tax and land lease pay-
obtained) Ukrainian citizens are appointed as executives.
ments are due on a monthly basis at one-twelfth of the annual tax,
The foreign employees of a representative office of a foreign
within 30 calendar days of the end of a reporting month.
legal entity must obtain service cards instead of work permits. In
Foreign investors are provided certain guarantees from the state
any of the above-mentioned cases, further registration of the foreign
(against changes in the law, against illegal actions of state bodies,
employees with the State Migration Service of Ukraine and obtain-
etc). Apart from this, foreign investors are generally treated similarly
ing of a temporary residence permit is required.
to domestic investors.
As a precondition for the above guarantees granted in respect
of the foreign investments in Ukraine, foreign investments must be 13 What restrictions exist on the importation of project equipment?
registered with the corresponding state authorities (typically local In Ukraine there is a compulsory certification procedure for cer-
state administrations) in Ukraine. However, such registration is not tain imported goods. The aim of such certification is to ensure that
mandatory. Registration of certain agreements (eg, on production imported goods comply with national standards. The certification is
cooperation, joint production) is compulsory. provided by the Ukrainian certification authorities (UkrSEPRO) in
Ukraine is party to a number of bilateral investment treaties respect of a wide range of imported goods. The result of the certifica-
with foreign countries, including the United States, Russia and cer- tion is the issuance of the Ukrainian Compliance Certificate. Certain
tain EU countries. Most of the investment protection treaties are goods cannot be imported to Ukraine without such certificate.
rather general. Their application on practice is not common. In addition, certain imported goods also require prior obtaining
Foreign investments are typically taxed in the same way as local of licences in Ukraine. Such imported goods include, inter alia, cer-
investments. For foreign investments a withholding tax should be tain ozone-damaging substances, food products, equipment, optical
considered (especially, at the later stage of divestments). The amount polycarbonate for manufacturing disks, etc.
of the withholding tax could be reduced subject to the relevant pro- Imported equipment is subject to customs duties and taxes
visions of the double tax treaties of Ukraine. In addition, VAT can (in particular, VAT). Importing equipment as a contribution to the

Arzinger UKRAINE
charter capital of a Ukrainian legal entity does not trigger the neces- energy complex. In addition to the Ministry, the National Electricity
sity to pay import duties in certain cases. However, if such equip- Regulation Commission of Ukraine regulates the activity of monop-
ment is alienated within three years after this equipment is credited oly entities in the energy sector and oil and gas industries, and imple-
to the balance of the Ukrainian legal entity, import duty becomes ments state prices and tariff-setting policies (including the feed-in
payable. tariff) in these areas.
In addition, Ukrainian legislation establishes the local content The Ministry of Infrastructure of Ukraine is the central body of
requirement regarding the required share and calculation procedure the executive branch of power that controls the Ukrainian transporta-
for certain objects of renewable energy. The effective laws provide tion-road complex and communications. The National Commission
for fixed shares of the local component elements for each kind or for the State Regulation in the Sphere of Communications and
type of object producing alternative energy commissioned after 1 Informatisation carries out the licensing of entities in the communi-
July 2013, as well as envisaging a number of elements and opera- cations sector and regulates the prices and tariffs in this sector.
tions to be performed in Ukraine, which count towards the local The State Agency for Investment and National Projects of
content requirement. Ukraine is a fairly new body. It is entrusted with realisation of the
state policy in the sphere of investment activity and management
of the national projects – strategically important projects, which
ensure technical renewal and development of many spheres of the
Ukrainian economy.
The National Securities and Stock Market Commission is
As mentioned previously, foreign investments receive special guaran- the central regulatory body on the stock market. The National
tees from the state. The necessary prerequisite for such guarantees is Commission for Regulation of Financial Services Markets of
the state registration of foreign investments. Ukraine is the central regulatory body for insurance companies,
Among other such guarantees, foreign investments are not sub- credit-unions and other non-banking financial institutions. The
ject to nationalisation. The laws further establish that state bodies NBU is the main regulatory body for banks.
do not have the right to expropriate foreign investments, except for Generally, the activity of all ministries is supervised by the CMU,
the execution of rescue measures in cases of natural disasters, emer- while the National Commissions are answerable to the President of
gencies, epidemics or epizootics. The indicated expropriation can be Ukraine. Some of the above state authorities act through their local
carried out based on the decisions of bodies authorised for this by subdivisions.
the Cabinet of Ministers of Ukraine (CMU). It should be mentioned that historically many enterprises in cer-
All damages and expenses of foreign investors incurred as a result tain sectors were state-owned. Even now certain enterprises main-
of such expropriation have to be reimbursed by the state based on tain close ties either to the government or the local state authorities.
the market prices or the motivated evaluation, confirmed by an audi- This is particularly true for the oil and gas industry, the energy sector,
tor or an audit firm. The compensation is to be determined at the telecommunications and transportation.
moment of termination of the ownership right of a foreign investor.
The effective legislation also sets forth that the compensation paid Regulation of natural resources
out to the foreign investor has to be swift, adequate and effective.
The decision on the expropriation of foreign investments and 17 Who has title to natural resources? What rights may private
the terms of compensation may be challenged in court. parties acquire to these resources and what obligations does the
Fiscal treatment of foreign investment According to the general legal rule, the title to natural resources
belongs to the Ukrainian people and is granted only for use. Any
agreements or actions that, whether directly or indirectly, breach
the ownership right of Ukrainian people to natural resources are
invalid. The ownership right to natural resources is exercised by the
Ukrainian people through the Ukrainian parliament, the Parliament
The Tax Code of Ukraine does not provide special incentives for of the Autonomous Republic of Crimea and local councils. Certain
foreign investors. The import of certain goods and equipment, espe- authorities as to management of natural resources can be granted to
cially in the sphere of renewable energy are exempt from customs the corresponding bodies of executive power. The ownership title is
duty and Ukrainian VAT. Also, the Tax Code of Ukraine foresees a thus not transferable.
special tax regime for the agricultural sector, insurance companies Enterprises, institutions, organisations and citizens of Ukraine,
and some other industries irrespective of the status of the investor. as well as foreign nationals and foreign legal entities, can all be users
As a general rule, there are no special rules regarding foreign of natural resources. The term for which use of the natural resources
investments, loans, mortgages or other security documents in respect is granted can be either constant or temporary (up to 50 years).
of foreign investments. There are also different types of use of natural resources (geo-
Loans from non-residents are subject to registration in the NBU. logical study, extraction of natural resources, execution of works
The main taxes to be applied to Ukrainian legal entities are cor- under product distribution agreements, etc). Generally, the use of
porate profit tax, VAT and payroll-related taxes. natural resources may be granted on the basis of specific permits.
The prerequisites for obtaining such permits include, inter alia, the
Government authorities proper qualifications, material, technical and economic ability to
use the resources, and a concluded agreement on product sharing
in some cases.
In certain cases a specific licence would also be required for the
potential user of natural resources to carry out certain works (eg,
mining).
The Ministry of Energy and Coal Industry of Ukraine is the cen-
tral body of executive branch of power that provides realisation
of the state policy in electric power-generating, nuclear-industrial,
and oil-gas complexes, often referred to simply as the fuel and
UKRAINE Arzinger
18 What royalties and taxes are payable on the extraction of natural Permits for the use of subsoil land are generally obtained
resources, and are they revenue- or profit-based? through special auctions.
Generally, taxes are levied on the users of natural resources (both
domestic and foreign) who are extracting natural resources (ie, 21 Must any of the financing or project documents be registered or
extracting oil, gas, ores, precious stones, etc) or using them (eg, using filed with any government authority or otherwise comply with legal
water, etc). As a rule, the taxes are calculated based on the volume formalities to be valid or enforceable?
of extracted or consumed natural resources. The rates vary depend-
ing on a range of factors, such as the particular natural resource, Under effective legislation, the Ukrainian language is the state lan-
the way of its extraction (how deep underground, onshore or in the guage of Ukraine. As such, its use is obligatory, inter alia, for docu-
sea), as well as the end consumer (ie, to whom natural resources are ments in institutions, organisations and enterprises. In practice, this
further sold). means that all official documents of Ukrainian companies have to be
Generally, there is no distinction between the royalties and taxes prepared in the Ukrainian language. At the same time, the effective
on extraction payable by domestic and foreign parties. legislation does not provide any negative consequences if documents
are prepared in a foreign (eg, Russian, English, etc) language only.
However, preparing bilingual documents (ie, with a Ukrainian ver-
19 What restrictions, fees or taxes exist on the export of natural sion on the left-hand side) is recommended, especially in cases where
resources? documents need to be notarised or otherwise registered in Ukraine.
Under Ukrainian legislation natural resources may be subject to At the same time, documents issued in a foreign country would
quotas (ie, their extraction may be limited by the state). The CMU typically require being either apostilled or legalised in the country of
decides on the list of natural resources to which the regime of quota- their issuance in order to be valid in Ukraine. In addition, such docu-
tion shall be applicable, as well as the quotas for a particular year. ments would typically need to be accompanied by a notarised trans-
In addition, the government may also approve the list of goods lation into the Ukrainian language. These particular requirements
that require a licence for their export and import. Such list may be would apply in most cases of submission of documents to the state
approved for each calendar year and may therefore differ year on authorities (eg, NBU, Antimonopoly Committee of Ukraine, etc).
year. Notarisation is required for certain types of agreements, for
As a general rule, the export of natural resources from the ter- example, agreements granting or transferring rights to land or build-
ritory of Ukraine is not subject to VAT and export duties. However, ings, mortgage agreements, etc. In addition, certain agreements are
there are some exceptions to this rule (eg, export duty for gas is also subject to state registration, for example, mortgage agreements,
35 per cent based on the customs value of exported gas). Recently, concession agreements, agreements on joint activity, etc.
Ukrainian Parliament has adopted the Law on cancellation of Also, certain agreements need to comply with model agree-
35 per cent duty on the export of gas to members of the Energy ments, for example, the concession agreement.
Community; however, the law has not been signed by the President Cross-border loans granted by non-residents to Ukrainian bor-
and thus has not entered into force yet. Certain kinds of metals are rowers must be registered with the NBU prior to the first disburse-
also subject to quotas. ment thereunder.

State registration of foreign investments is not mandatory but highly types of disputes subject to automatic domestic arbitration?
advisable. State registration of foreign investments is undertaken
free of charge. The procedure of recognition and enforcement of foreign arbi-
State registration of investments in the form of a joint activity is tral awards in Ukraine is regulated by the Civil Procedural Code
undertaken for the fee of 102 hryvnas. of Ukraine and the Law of Ukraine on International Commercial
Cross-border loans extended by non-residents to Ukrainian Arbitration. Moreover, Ukraine is a party to international treaties
borrowers need to be registered with the NBU. At present, the reg- such as the New York Convention, the ICSID Convention and the
istration is undertaken free of charge. The only fee would be for European Convention on International Commercial Arbitration.
the services of the servicing bank through which such registration Foreign arbitral awards are recognised by competent state courts
is undertaken. The amount of such a fee would depend on the par- (‘general courts’, not commercial courts) at the location of the
ticular bank. respondent or, if the respondent has no location in Ukraine, at the
Certain transactions (eg, acquisition of Ukrainian companies location of its assets in Ukraine. A decision of the court of first
in certain cases, establishing new companies, merger of companies) instance, which is rendered after consideration of an application
could require the prior consent of the Antimonopoly Committee of for recognition and enforcement of an arbitral award, is subject
Ukraine. The standard fee payable for such consent would depend on to appeal and second appeal (cassation). Consequently, cases on
whether it will be consent for ‘concentration’ or ‘concerted actions’ enforcement of arbitral awards are considered by Ukrainian courts
and would be in the range of 2,550 to 5,100 hryvnas. Foreign enti- for a long period of time and may involve up to three court instances.
ties can pay this fee in euros or US dollars at the official exchange Besides, the case may be reversed for reconsideration. The proce-
rate of the NBU at the date of payment. dure of recognition and enforcement by a competent state court in
Conducting certain operations in Ukraine requires a state licence general is similar to ordinary litigation; however, the court cannot
(eg, construction services, telecommunication services, oil and gas, re-examine the arbitral award on the merits and may deny granting
mining, banking, insurance, etc). Payment for the licence is equal its recognition and enforcement on limited number of procedural
to one minimum salary, effective at the date of adoption of a deci- grounds. The most common reasons for refusal are improper notice
sion to issue a licence, unless sector-specific laws establish otherwise. of the appointment of an arbitrator or of the arbitral proceedings
The fee for the licence is payable after the adoption of the decision and violation of public policy of Ukraine.
to issue a licence. The minimum salary in 2014 is 1,218 hryvnas. Disputes related to immoveable property, enforcement of intel-
The banking licence, the insurance licence and certain other types of lectual property rights, registration or winding up of foreign entities
licence are more expensive. on the territory of Ukraine, issuance or annulment of securities and

Arzinger UKRAINE
bankruptcy of the debtor registered in Ukraine are considered by • Resolution of the NBU on Transfer of Funds in National and
Ukrainian state courts, and not within arbitration proceedings. Foreign Currency in favour of Non-residents under Certain
Operations (No. 597, dated 30 December 2003).
Transport
• Law of Ukraine on Transport (No. 232/94-BP, dated 10
November 1994);
Generally, for those agreements where one of the parties is a foreign • Law of Ukraine on Railway Transport (No. 273/96-BP, dated 4
entity, Ukrainian regulations set forth that companies are free to July 1996);
choose the law governing their agreements. Typically, project agree- • Law of Ukraine on Automobile Transport (No. 2344-III, dated
ments are subject to Ukrainian law and English law is applicable to 5 April 2001);
financing agreements. However, the Law of Ukraine on International • Law of Ukraine on Pipeline Transportation (No. 192/96-BP,
Private Law contains certain restrictions on the right of the parties to dated 15 May 1996); and
choose the law applicable to their contract. • various regulations of Ukravtodor and the Ministry of
The parties may not deviate from application of mandatory Infrastructure of Ukraine (and its predecessors).
rules of Ukraine. For example, mortgages and pledges over assets
located in Ukraine are governed by Ukrainian law. Telecommunications
The application of foreign law shall not contradict the public • Law of Ukraine on Telecommunications (No. 1280-IV, dated 18
order of Ukraine, with the latter having quite a wide interpretation November 2003); and
in court practice. • various licensing conditions and other regulations of the
National Commission for the State Regulation in the Sphere of
24 Is a submission to a foreign jurisdiction and a waiver of immunity Communications and Informatisation (and its predecessors).
Ukraine is not a signatory to the Hague Convention on Recognition
• Law of Ukraine on Electrical Energy (No. 575/97-BP, dated 16
and Enforcement of Foreign Judgments in Civil and Commercial
October 1997);
Matters. Thus, foreign judgments are enforced under the appli-
• Law of Ukraine on Use of Nuclear Energy and Radiation Safety
cable bilateral or multilateral treaties or the reciprocity principle.
(No. 39/95-BP, dated 8 February 1995); and
As regards international instruments, Ukraine is a party mainly
• various regulations of the National Commission for Regulation
to treaties that were concluded with and between members of the
of the Electrical Energy.
Commonwealth of Independent States. The existence of reciprocity
is presumed.
Oil and gas and minerals extraction and refining
Generally, Ukrainian legislation allows companies to choose the
• Subsoil Code of Ukraine (No. 132/94-BP, dated 27 July 1994);
jurisdiction within which a case may be heard. At the same time, state
• Mining Law of Ukraine (No. 1127-XIV, dated 6 October 1999);
courts of Ukraine still may decide disputes with foreign elements
• Law of Ukraine on Oil and Gas (No. 2665-III, dated 12 July
even in the case of a venue selection clause in agreements, since there
2001);
are no imperative provisions prohibiting their jurisdiction.
• Law of Ukraine on Principles of Functioning of Natural Gas
There is a certain category of cases involving foreign parties that
Market (No. 2467-VI, dated 8 July 2010); and
Ukrainian courts have jurisdiction over to the exclusion of foreign
• Procedure for Issuance of the Special Permits for Subsoil Use
courts or international commercial arbitration. These are disputes
(approved by the CMU Resolution No. 615, dated 30 May
related to immoveable property, enforcement of intellectual property
2011).
rights, registration or winding up of foreign entities on the territory
of Ukraine, emission or annulment of securities and bankruptcy of
Below are the main regulatory bodies in the above sectors:
the debtor registered in Ukraine.
• the NBU is the main regulatory body defining the principles of
currency control and setting the general requirements for foreign
investments; it is also the main regulatory body for banks in
25 What laws or regulations apply to typical project sectors? What Ukraine;
regulatory bodies administer those laws? • the Ministry of Infrastructure of Ukraine and Ukravtodor (con-
cerning the roads) generally regulate the transport sector in
The principal laws and regulations applying to various sectors are
Ukraine;
as follows:
• the National Commission for the State Regulation in the Sphere
of Communications and Informatisation is the main regulatory
Foreign investment
body for the telecommunications sector; and
• Law of Ukraine on the Regime of Foreign Investment (No.
• the National Commission for Regulation of the Electrical
93/96-BP, dated 19 March 1996);
Energy oversees the energy sector.
• Law of Ukraine on Investment Activity (No. 1560-XII, dated 18
September 1991); and
Project companies
• Resolution of the NBU on Regulation of Matters of Foreign
Investment to Ukraine (No. 280, dated 10 August 2005). 26 What are the principal business structures of project companies?
Foreign currency companies?
• Decree of the CMU on the System of Currency Regulation and
The principal business structures of project companies involve the
Currency Control (Nos. 15-93, dated 19 February 1993);
establishment of a limited liability company in Ukraine. The advan-
• Regulation on Currency Control, as approved by the Resolution
tage of such structure is reduced reporting requirements, as com-
of the NBU No. 49, dated 8 February 2000); and
pared to a joint-stock company, and easier corporate management
(especially as regards the summoning of the general meeting of par-
ticipants). To a lesser degree project finance is structured in Ukraine
UKRAINE Arzinger
using joint-stock companies. Nevertheless, certain businesses are

required to operate in the form of public joint-stock companies (eg, Update and trends
banks) in order to ensure more transparency and provide more com-
fort to clients. Unfortunately, recent political instability and the general economic
situation in Ukraine have not encouraged classic project finance
The funding of project companies may come from abroad or deals. Because of the above reasons, business in general has
from Ukraine from the parties to the project finance, for example as been slow, especially with foreign investors, who have been rather
equity investment or as a loan. In addition, the project companies cautious in Ukraine and have put most of their projects ‘on hold’.
may enjoy certain advantages, such as access to bank financing on Nevertheless, Ukraine today offers a large potential for
favourable terms compared to domestic borrowers. Finally, the pro- investors in the sphere of green energy and the implementation of
energy-efficient programmes. The agricultural sector also continues
ject companies may borrow money on the local stock market, inter to remain attractive both for domestic and foreign investors.
alia, by issuing corporate bonds. Although such practice is still not Infrastructure-related projects appear to have lost a certain
very common. degree of their attractiveness compared to previous years. At the
same time, we are of the opinion that the present state of this
sector may change soon because of the construction or renewal of
existing roads, which are crucial for the economy and the constant
development of domestic economy.
27 Has PPP enabling legislation been enacted and, if so, at what We are certain that during next year there will be growth
level of government and is the legislation industry-specific? in the number of project finance deals as Ukraine continues to
establish closer ties with the European Union, as well as with
During 2011 and 2012 the CMU drafted a number of legal instru-
the development of the domestic banking sector. In particular,
ments designed to implement the Law of Ukraine on State-Private we forecast several deals regarding syndicated lending, both
Partnership (the PPP Law), which came into force on 31 October from foreign bank syndicates and Ukrainian bank syndicates. In
2010. addition, we may see several PPP projects with the involvement of
As a result, a special procedure on reporting by private part- foreign investors. We are confident that Ukraine today offers great
opportunities for investors.
ner to a public partner on execution of the PPP contract, concluded
within the bounds of PPP, was approved by CMU Resolution No.
81 on 9 February 2011. In February 2011, the CMU developed the
methodology to identify PPP risks, assess and determine the form of by the public partner and the owner of the PPP objects of state
risk management (CMU Resolution No. 232). or municipal ownership cannot be changed. Thus classical PPPs,
The CMU also approved the procedure on providing state sup- namely BOT (build-operate-transfer), are excluded.
port to PPP projects regarding state-owned facilities pursuant to In addition, according to article 5 of the PPP Law, PPPs shall
article 18 of the PPP Law by its Resolution No. 279 dated 17 March be implemented in a contractual form only. The type of the con-
2011. The mechanism to carry out the PPP effectiveness analysis is tract concluded within a PPP shall be determined by the authority
defined in CMU Resolution No. 384 dated 11 April 2011. responsible for decision-making on PPP implementation. Of course,
CMU Resolution No. 384 dated 11 April 2011 also approved by wide interpretation of the term ‘contract’ it can also mean char-
the procedure to hold a tender on determining a private partner to ter of a joint venture (apropos, establishment of joint ventures was
implement PPP for public facilities, utilities or property belonging to the first form of PPP). But the lawmaker directly defines certain
the Autonomous Republic of Crimea. contract forms and is excluded from the final version of the Law
On 27 February 2012, the Order of the Ministry of Economic provision present in the bill that PPP can be implemented through
Development and Trade of Ukraine No. 255 on Certain Problems of the establishment of a legal entity. Therefore, the PPP Law excludes
Conducting the Analysis of the Effectiveness of PPP Implementation institutional PPP forms that on their own can be based on a contract.
came into force. The Order approves the feasibility study form for For purposes of simplicity the contractual form of PPP shall mean
PPP implementation, as well as the methodology for analysing the a contract on cooperation in a certain field except for joint venture
effectiveness of PPP, which determines the basic parameters and indi- agreements.
cators of the effectiveness of PPP. The analysis of PPP implementa- Nevertheless, there always have been alternatives for codifica-
tion shall be conducted in stages specified in the procedure approved tion. The government should have directed its efforts and resources
by CMU Resolution No. 384 of 11 April 2011. to pilot PPP projects on different levels and in different spheres that
Therefore, we can assert that all PPP legislation is already would answer the arising questions more quickly and more clearly.
adopted at the national level. Moreover, public-private partnership
is indicated as a priority task of social-economic development of
Ukraine in the Economic Reformation Programme for 2010-2014 29 What have been the most significant PPP transactions completed
‘Prosperous Society, Competitive Economy, Effective State’ and In to date in your jurisdiction?
the state programme for promotion of economic development for
2013-2014. The Ukrainian government believes that only the construction of a
new contemporary infrastructure, including local infrastructure, can
PPP – limitations become the basis for prolonged economic growth. At the same time,
the problem of modernising Ukrainian infrastructure as well as the
28 What, if any, are the practical and legal limitations on PPP lack of investment became the reason why the Ukrainian legislature
transactions? commenced a large-scale privatisation and concession process in,
The first stumbling block to the implementation of PPP projects in among others, the transport and energy sectors.
the context of existing legislation can be found in the PPP Law. It did
not solve problems, but only introduced confusion to the practice. Airports
One problem is differentiating between the concession as a form of The conception of the State Airport Development Programme up
PPP and concessions as such. The question is whether we can differ- to 2020, approved by the CMU, provides for more active attraction
entiate concessions, because essentially any concession is a partner- of private investment into the operation of airports and infrastruc-
ship between public and private partners. ture. On 26 September 2012 the CMU adopted the Resolution on
Regarding the PPP Law, we see a significant problem in article 7 Amendments to the List of State Property, which can be given for
thereof, which provides that the ownership of all objects that have Concession. According to this Resolution, the international airport
been completed, rebuilt or reconstructed within a PPP are owned Boryspol may given up for concession. However, in April 2014 the

Arzinger UKRAINE
Minister of Infrastructure of Ukraine Maksym Burbak stated that, at a possibility for private investors to participate in privatisation of
present, the Ministry is not considering the concession of the inter- sea ports’ infrastructure objects, except strategic ones, through their
national airport Boryspol. buyout or acquisition on a competition basis (at an auction). By pri-
vatisation of an integral property complex of a state enterprise inves-
Roads tor is entitled to lease berths and land plots underneath such objects.
Public roads are state-owned and are not subject to privatisation, The document also provided for the possibility to construct berths at
but according to the present legislation on concessions there is a pos- the expense of private investors after its coming into force.
sibility for the conclusion of agreements on construction and opera- Moreover, on 21 November 2012 the CMU adopted the
tion of roads. Recently, six projects were announced by Ukravtodor Resolution on Certain Issues of the Transfer of State Property
(the authority in charge of roads in Ukraine) as seeking a feasibility Objects to Concession, which states that the list of state property
study with the eventual possibility of being built under a concession objects that can be transferred to concession includes all 18 state
agreement. One of the best-known examples is the ringroad around seaports of Ukraine. In addition, on 10 January 2014 The CMU
Kiev, which is to be built under a concession agreement. allowed the transfer into concession of public property, owned by
One pending issue is the construction of the first toll road in the Administration of Seaports of Ukraine (ASPU). The respective
Ukraine. On 11 April 2012 a tender for a feasibility study for the document gives opportunity to transfer into concession facilities
preparation of the construction of a part of an existing ringroad in and property of ASPU, obtained as a result of distribution of the
Kiev took place. It will be the first road infrastructure project that property of 18 seaports and the state enterprise ‘Delta-pilot’ and the
has a chance to be implemented on the basis of a concession agree- Kerch ferry. Meanwhile, concessions may be applied exclusively to
ment and aims to set a precedent, whereby infrastructure in Ukraine piers, rail and road access roads (the first branch outside port), line
is developed at the expense of private investment, not budgetary calls, heat, gas, water, electricity and utilities. Moreover, all the stra-
funds. In February 2014, the Ministry of Infrastructure of Ukraine tegic assets – port infrastructure facilities for general use, navigation,
stated that it was planned to announce the first concession tender on canals, waters, etc – will remain in state ownership.
the construction of the Lviv-Krakivets road in 2014. It should be noted that all of the above projects are concessions
rather than PPPs.
Sea ports At the time of writing, we are not aware of any project that has
According to the PPP Law, as well as the present legislation on con- been implemented on the basis of the effective PPP legislation. Of
cessions there is a possibility for the construction and operation of course, there are PPP projects in Ukraine, but they existed before the
sea ports and respective infrastructure on a concession basis. adoption of the PPP Law. In many European countries there are suc-
On 17 May 2012 the Parliament of Ukraine passed the new cessful PPP projects, although they do not have separate PPP laws.
Law of Ukraine on the Seaports of Ukraine. The Law determined To our mind, sometimes having too much legislation does not solve
the basis for PPP regarding sea ports, the legal status of the sea ports’ the problem, but makes it even more complex. Therefore, for a real
property, including land plots and water area of sea ports, powers of working mechanism of PPP in Ukraine pilot projects, it is necessary
state authorities in the sphere of regulating and supervising activity that they are implemented on the basis of procedure, provided for
of sea ports and other economic entities, and established rules for by effective legislation.
exercise of economic activity regarding sea ports. The Law provided
Oleksander Plotnikov oleksander.plotnikov@arzinger.ua

Oleksander Zadorozhnyy oleksander.zadorozhnyy@arzinger.ua
Eurasia Business Centre Tel: +380 44 390 55 33

75 Zhylyanska St, 5th Floor Fax: +380 44 390 55 40
01032 Kiev www.arzinger.ua
Ukraine
UNITED STATES Skadden, Arps, Slate, Meagher & Flom
United States
David P Armstrong and Natascha G Kiernan*
Skadden, Arps, Slate, Meagher & Flom
Creating collateral security packages Priority is generally established by the party that is first in time
to perfect a security interest over collateral. However, where perfec-
1 What types of collateral are available? tion by control is permitted, a party having control of such collateral
Since a project financing is typically structured through non- will generally have priority over a party that has only made a filing,
recourse or limited recourse loans, lenders can generally look only to regardless of when the relevant filing was made. There are also cer-
the assets and cash flow of the project company for repayment and tain types of liens that are given priority as a matter of law, such as
cannot make a claim against the project sponsor’s assets. However, mechanics’ liens and certain tax liens.
in US jurisdictions, all present and after-acquired property interests The fees for filing UCC financing statements vary from state to
of the project company can be used as collateral. This includes real state, but are generally not significant in nature. Fees associated with
property interests such as fee simple interests, leasehold interests and filing a mortgage instrument also depend on the laws of the relevant
easements, as well as a wide range of personal property interests, state, and are often significant.
such as contracts, licences, equipment, receivables, bank accounts, It is permissible for a corporate entity, in the capacity of agent
securities and general intangibles, as well as the cash flow resulting or trustee, to hold collateral on behalf of the project lenders as the
from any of the above. In addition, it is also common for lenders to secured party. In the event of a bankruptcy of an agent or trustee
take security over the shares in the project company, which often holding collateral on behalf of secured parties, the collateral should
allows the lenders a more practical means of enforcing on their col- be excluded from the estate, provided that the documentation estab-
lateral package. lishing the role of the agent or trustee has been properly structured.
2 How is a security interest in each type of collateral perfected 3 How can a creditor assure itself as to the absence of liens with
and how is its priority established? Are any fees, taxes or other priority to the creditor’s lien?
charges payable to perfect a security interest and, if so, are there There is no centralised national registry of mortgage interests or
lawful techniques to minimise them? May a corporate entity, in security interests in personal property. Lenders typically assure
the capacity of agent or trustee, hold collateral on behalf of the themselves as to the absence of liens by conducting searches of exist-
project lenders as the secured party? ing UCC filings, tax liens, judgments and bankruptcies in all relevant
With limited exceptions, available collateral can generally be sepa- jurisdictions. There are private companies that specialise in conduct-
rated into two main categories, namely personal property and real ing such searches on behalf of lenders, and the lenders in project
property. financings typically have such searches conducted or updated as
The Uniform Commercial Code (UCC) provides the framework close as possible to the proposed closing date. To the extent a search
for lenders and borrowers to grant, perfect and enforce most security reveals an existing lien, additional due diligence is necessary in order
interests over personal property. Security interests over real property to determine the nature and extent of the underlying secured obli-
must be established and perfected in accordance with the laws of the gation and whether the lien has been terminated. In respect of real
state in which the real property is situated. property, lenders typically rely on both lien searches and the pur-
Most personal property security interests that are subject to the chase of title insurance to provide assurances of the priority of their
UCC can be perfected by filing a financing statement in the state in lien.
which the debtor is incorporated. For project companies incorpo-
rated outside of the United States, UCC financing statements may
be filed with the central filing office for the District of Columbia.
There are, however, certain types of collateral that must be in con-
trol of the secured party in order for the secured party to ensure
perfection. Perfection by control is required for certain types of col- Most security documents will include specific remedies that are
lateral such as deposit accounts established through a depository. available to the secured parties if there is an event of default.
Generally perfection through control over depositary accounts is Article 9, Part 6 of the UCC also sets out statutory remedies that
achieved through a depositary agreement that establishes the right are available to secured parties, regardless of what is specified in the
of the secured party to exclusively control the accounts, though this relevant security documents. These statutory remedies include the
right is often not triggered unless there is an event of default. right to collect certain liquid collateral such as accounts receivables,
Security interests in real property are perfected by filing a mort- the right to repossess collateral, the right to sell or dispose of col-
gage or deed of trust in the state where the property is located. lateral and the right to retain collateral in total or partial satisfaction
Typically, a mortgage instrument must describe the property and of the debt.
debt and identify both the mortgagee and mortgagor. There are, however, certain limitations on the rights of lenders
to exercise the statutory remedies set forth in the UCC. For exam-
ple, although the UCC permits dispositions of collateral through

Skadden, Arps, Slate, Meagher & Flom UNITED STATES
both public and private sales, secured parties must provide notice consult the rules of the Office of Foreign Assets Control (OFAC),
to the debtor and other secured parties before disposing of collateral which impose economic and trade sanctions in certain instances.
and secured parties are prohibited from purchasing their collateral
through a private sale, unless there is a recognised market for such
collateral or it is the subject of a widely distributed price quotation.
Enforcement of security interests over real property is governed
by state laws, which vary, but the two most common methods of
enforcement are judicial and non-judicial foreclosure. Many states Foreign investors may generally remit US profits abroad. However,
require judicial foreclosure, whereby a local court issues a judg- the Treasury Department imposes sanctions and embargoes on cer-
ment requiring the real property be sold at a public auction, with tain countries, companies and individuals, restricting payments and
the proceeds going toward satisfying the underlying debt. In states remittances to entities on its sanctions lists.
that allow non-judicial foreclosure, it may be possible for a lender Dividends, interest, royalties, and service fees may be subject to
to sell the real property through a private sale without commencing US tax withholding at a rate of 30 per cent, unless certain conditions
judicial proceedings, but notice periods will generally apply and a are satisfied or certain exemptions, such as treaty exemptions, apply.
non-judicial foreclosure will generally only be permitted where the
mortgage instrument includes a clause giving the lender the power of 8 Must project companies repatriate foreign earnings? If so, must
sale outside judicial proceedings. In some states, debtors who have they be converted to local currency and what further restrictions
defaulted on a mortgage may have the right to redeem a property exist over their use?
that is subject to foreclosure proceedings, either by repaying the
US companies are not required to repatriate foreign earnings.
lender all amounts owed (including interest and costs) prior to the
However, profits realised in a foreign country may still be subject to
completion of a foreclosure proceedings or, where permitted by stat-
taxation by the United States.
ute, by paying the price paid for the real property in the foreclosure
proceedings within a specified period following the completion of
foreclosure proceedings. 9 May project companies establish and maintain foreign currency
5 How does a bankruptcy proceeding in respect of the project Although the United States does not prohibit offshore accounts,
company affect the ability of a project lender to enforce its rights such accounts may still be subject to taxation domestically. The
as a secured party over the collateral? Are there any preference Internal Revenue Service requires US persons with a financial inter-
periods, clawback rights or other preferential creditors’ rights est in or signature authority over a foreign financial account with
(eg, tax debts, employees’ claims) with respect to the collateral? funds exceeding US$10,000 to report such holdings by the end of
What entities are excluded from bankruptcy proceedings and June every year. Accounts of non-US entities controlled by a US com-
what legislation applies to them? What processes other than pany may also need to file a Report of Foreign Bank and Financial
court proceedings are available to seize the assets of the project Accounts (FBAR). A filing is required if the funds in foreign financial
company in an enforcement? accounts exceeded the IRS threshold at any point during the calen-
dar year, and non-compliance can result in significant penalties.
Liquidation and reorganisation proceedings in the United States are
governed by chapters 7 and 11, respectively, of the US Bankruptcy
Code. Generally, the commencement of bankruptcy proceedings
under the US Bankruptcy Code will result in an automatic stay that 10 What restrictions, fees and taxes exist on foreign investment in or
will pre-empt any other enforcement actions, including foreclosure ownership of a project and related companies? Do the restrictions
proceedings under state law. Lenders can seek relief from the auto- also apply to foreign investors or creditors in the event of
matic stay in order to take specific actions against a debtor with the foreclosure on the project and related companies? Are there
approval of the US Bankruptcy court. any bilateral investment treaties with key nation states or other
Security interests granted or perfected within 90 days of a bank- international treaties that may afford relief from such restrictions?
ruptcy (or one year if granted to an insider) may be subject to avoid- Would such activities require registration with any government
ance if they are deemed preferential transfers that would enable authority?
the secured creditor to recover more than it would have received
The US generally places very few restrictions on foreign investment.
through the proceeds of a liquidation. Transfers made within a two-
However, some restrictions do apply to the ownership of certain
year look-back period prior to a bankruptcy may be classified as
natural resources and production facilities. For example, deposits of
fraudulent transfer and may be subject to clawback if certain facts
certain natural resources, including oil, oil shale, coal and gas and
can be established, including that the company was insolvent at the
lands containing such deposits that are owned by the United States
time of the transfer, was rendered insolvent by the transfer or the
may only be sold to US citizens or US entities. Similarly, licences
intent of the transfer was to defraud creditors.
for the construction and operation of facilities for the development,
The claims of certain involuntary creditors such as employees
transmission or utilisation of power on land controlled by the federal
and taxing authorities may be given preferential treatment in bank-
government may only be issued to US citizens or US corporations.
ruptcy proceedings. Foreign creditors are given equal treatment to
Foreign investment or ownership in a project may also be
US creditors under the US Bankruptcy Code.
subject to national security-based reviews and restrictions. Under
the Foreign Investment and National Security Act of 2007, the
Committee on Foreign Investment in the United States (CFIUS)
6 What are the restrictions, controls, fees, taxes or other charges holds the power of review for transactions involving foreign invest-
on foreign currency exchange? ment or control over a US business that may have an impact on
US national security. CFIUS can recommend to the President of the
The United States does not impose exchange controls or taxes on
United States to suspend, block, or renegotiate such a transaction.
the exchange of foreign currency. The US government, however,
Since the power of CFIUS to review a transaction extends to where
monitors large foreign exchanges and requires the persons involved
such a transaction could result in control by a foreign entity through
in such transactions to make full and accurate disclosures of such
transactions. Moreover, persons involved in such transactions should
foreclosure or other means, restrictions may also apply in the event Fiscal treatment of foreign investment
of foreclosure.
The US is party to a series of multilateral treaties that provide 15 What tax incentives or other incentives are provided preferentially
protections to foreign investors, such as the North American Free to foreign investors or creditors? What taxes apply to foreign
Trade Agreement (NAFTA) and the Dominican Republic-Central investments, loans, mortgages or other security documents,
American Free Trade Agreement (DR-CAFTA). The US has also either for the purposes of effectiveness or registration?
recently concluded a host of bilateral free trade agreements with There are few tax incentives or other incentives provided preferen-
specific countries. Generally, registration with a government author- tially to foreign investors or creditors. While no federal taxes apply
ity is not required for a foreign investor to benefit from these treaties. to loans, mortgages or other security documents for the purposes of
effectiveness or registration, some states do levy taxes on security
documents (particularly mortgages) for such purposes.
creditors? 16 What are the relevant government agencies or departments with
While there are no overarching restrictions on insurance policies authority over projects in the typical project sectors? What is the
provided or guaranteed by foreign insurance companies, certain nature and extent of their authority? What is the history of state
restrictions, conditions and tax implications may apply to the issu- ownership in these sectors?
ance of such policies. For example, a federal excise tax may be levied US federal agencies share responsibility with state and, in some cases,
on the premiums paid to foreign insurance companies for certain local agencies for regulating projects. The agencies with authority to
types of insurance and reinsurance coverage. In addition, many regulate a project will depend on the jurisdiction and the industry
states provide certain guarantees for insurance policies issued by involved. Natural resources, transportation, energy and telecommu-
insurers that meet state regulatory requirements and these guaran- nications are regulated by federal agencies such as the US Department
tees may not be available for insurance policies issued by foreign of Energy, the US Department of Transportation, the Environmental
insurance companies that are not deemed admitted to conduct busi- Protection Agency (EPA), the Federal Communications Commission
ness in the relevant jurisdiction. (FCC) and the Federal Energy Regulatory Commission. The nature
and extent of their authority rests on the Constitution, federal stat-
12 What restrictions exist on bringing in foreign workers, technicians utes, state statutes, and the respective scope of Chevron deference.
or executives to work on a project? See Chevron USA Inc v Natural Resources Defense Council Inc, 467
US 837 (1984). Federal statutes, federal regulations, state statutes,
US companies are required to apply for work authorisations for state regulations and case law have shaped the nature and extent of
foreign workers under the Immigration Reform and Control Act of the authority of the relevant federal agencies. The federal govern-
1986. US companies are also required to verify each worker’s legal ment and state governments have held varying levels of ownership in
right to work in the United States and to maintain specified employ- these sectors over time in various forms through direct control, pub-
ment documentation for each new hire. Employers may sponsor for- lic corporations, joint ventures, and closely-scrutinised regulation.
eign workers for a number of temporary visa categories, eligibility
for which will depend on the experience and qualifications of the Regulation of natural resources
worker.
13 What restrictions exist on the importation of project equipment? parties acquire to these resources and what obligations does the
All imported equipment or products must be declared with the US
Customs and Border Protection Agency. Customs duties or tariffs The federal government, state governments and private citizens may
apply, but can, in some cases, be reduced or eliminated in accordance all hold title to land, oil, gas and mineral rights in the United States.
with the relevant trade agreement that governs the trade relationship There are variations as to how such titles are held under respec-
with the exporting country. Under the Foreign Assets Control Act, tive state laws. Title to the surface rights over a parcel of land does
there are import restrictions and bans on a series of countries and not necessarily imply ownership of all natural resources below the
persons. surface of such land, as surface rights and mineral rights are treated
as separate legal estates in many states within the United States.
The obligations imposed on the holder of a mineral estate will vary
14 What laws exist regarding the nationalisation or expropriation depending on the jurisdiction and may depend on whether the min-
of project companies and assets? Are any forms of investment eral estate or the surface estate is considered the dominant estate. In
specially protected? some states, mineral rights may be deemed to be abandoned if they
The US government or any state government may seize private are not developed within a certain time period.
property without consent, provided that the private property owner There are certain restrictions on the foreign ownership of natu-
receives just compensation under the doctrine of eminent domain. ral resources. For example, deposits of oil, gas and many types of
While the power of eminent domain is limited by the Takings minerals and lands owned by the United States that contain such
Clause of the Fifth Amendment and the Due Process Clause of deposits may only be acquired by US citizens or US entities.
the Fourteenth Amendment, the US Supreme Court has recently In the US, Native American tribes are classified as ‘domestic
expanded the definition of ‘public use’ regarding eminent domain. dependent nations’, meaning that they exercise qualified sovereignty
See Kelo v City of New London, 545 US 469 (2005). over their tribal lands and the natural resources associated with such
In addition to the protections provided by the Fifth Amendment, lands. Tribal agreements with outside entities are governed by both
many multilateral and bilateral investment treaties include expro- state and federal law. US case law has gradually sharpened the scope
priation provisions that offer protections to foreign investors. of tribal sovereignty. Accordingly, rights to natural resources within
tribal lands may be affected by the rights of Native American tribes
within the United States.

18 What royalties and taxes are payable on the extraction of natural 23 Which jurisdiction’s law typically governs project agreements?
resources, and are they revenue- or profit-based? Which jurisdiction’s law typically governs financing agreements?
The US federal government does not impose any blanket taxation on Which matters are governed by domestic law?
the extraction of natural resources, though there is a federal excise It is typical for project agreements to be governed either by the laws
tax applicable to the production of coal. The federal government of the state in which the project is situated or by New York law.
does impose fixed royalties on the natural resources extracted under Given the extensive experience of New York courts in hearing
federal leases, which have varied in amount over time. Royalties cases involving financing agreements and the well-established case
imposed under state leases will vary depending on the resource and law in this area, financing agreements are most often governed by
the jurisdiction. Income taxes or corporate taxes may also apply to New York law.
profits made from the extraction of natural resources. Security documents, such as mortgages, may be required to be
governed by the law in which the secured property is located.
resources? 24 Is a submission to a foreign jurisdiction and a waiver of immunity
Exports of natural resources usually require prior approval from the effective and enforceable?
respective federal regulatory agency. For example, the Department The submission to a foreign jurisdiction is enforceable.
of Energy must approve exports of natural gas. Waivers of sovereign immunity are also enforceable pursuant to
the Foreign Sovereign Immunities Act.
transactions? What fees and other charges apply? 25 What laws or regulations apply to typical project sectors? What
The government approvals required for a project finance transaction regulatory bodies administer those laws?
will depend on the industry involved and the jurisdiction of the pro- A typical project will be subject to regulations at the federal, state
ject. Typically, project finance transactions will require approvals on and local level, with each jurisdiction able to adopt its own regula-
the federal, state and local level. For example, electric power projects tions as long as they do not conflict with those of the level above.
are regulated at the federal level by FERC as well as at the state level. Certain projects, including those receiving a loan guarantee from
FERC is responsible for regulating all wholesale sales of electric the US Department of Energy, may be subject to an environmental
power and state authorities have responsibility for regulating electric assessment under the National Environmental Policy Act.
power generation, transmission and distribution assets. Projects will Projects may also be subject to various statutes primarily admin-
also typically be required to obtain environmental approvals at the istered by the Environmental Protection Agency (EPA), such as the
federal, state and local level. Clean Air Act, the Clean Water Act, the Safe Drinking Water Act,
the Resource Conservation and Recovery Act, the Toxic Substances
Control Act and the Oil Pollution Act.
Many federal environmental laws also delegate administration
and enforcement responsibilities to state agencies and additional
state and local regulations may apply.
Pursuant to article 9 of the Uniform Commercial Code, security over
most types of personal property must be perfected through filing a Project companies
UCC financing statement in the relevant jurisdiction.
Typically, mortgages or deeds of trust over real property must 26 What are the principal business structures of project companies?
be recorded in the jurisdiction where the real property is situated. What are the principal sources of financing available to project
As a general matter, with the exception of certain real estate docu- companies?
ments (which often must be notarised and include certain language Project companies are typically formed as special purpose vehicles
required by the local filing office), the financing and project docu- that are structured to be ‘bankruptcy remote’. It is common for a
ments are not subject to legal formalities such as notarisation or project company to be formed as a joint venture between two or
apostillation. more entities. Project companies are often incorporated as limited
liability companies or as limited partnerships.
22 How are international arbitration contractual provisions and There are multiple sources of financing available for project
awards recognised by local courts? Is the jurisdiction a member companies, and projects are often financed through multiple sources.
of the ICSID Convention or other prominent dispute resolution Bilateral or syndicated commercial bank loans are a major source
conventions? Are any types of disputes not arbitrable? Are any of financing, but financing may also be available from a variety of
types of disputes subject to automatic domestic arbitration? other sources, including private equity investors, the ‘term loan B’
market or through the issuance of debt or equity securities, which
The US is a member of the ICSID Convention, the New York
are typically structured as Rule 144A/Regulation S project bonds or
Convention and the Panama Convention.
4(a)(2) private placements. Financing for certain projects may also
The Federal Arbitration Act (FAA) implements the New York
be available through government programmes such as the federal
Convention and the Panama Convention and promotes arbitration.
Department of Energy Loan Guarantee Program or various state-
If the arbitration is of a commercial nature, a foreign party or prop-
administered clean energy funds and municipal bond programmes.
erty situated abroad is involved or there is some reasonable relation-
ship with a foreign state, the international arbitration provisions of
the FAA will apply. If these conditions are not met, the FAA’s domes-
tic arbitration provisions will apply.
Parties may be excluded from recourse to arbitration in certain
criminal and family law matters, in disputes where civil penalties
may apply and in certain employment and civil rights matters.
Update and trends
The project finance market in the United States remained strong briefly touch on one source of capital that saw significantly increased
in 2013, and that trend continued into 2014. While overall market activity in 2013 and the beginning of 2014, namely, the ‘YieldCo’.
strength remained the norm for project finance in 2013 and 2014, the Although not a new structure, YieldCos emerged in the project
US project finance market continues to change and reinvent itself. For finance space as sponsors began to explore sponsor-managed public
instance, the market continues to search for, and develop, new funding vehicles as a source of capital for new and existing projects. In
sources to fill the funding gaps that have been left as European addition to the market issues identified above, owners of renewable
commercial banks (traditionally, the most active lenders in the project energy assets have begun searching for new sources of capital in
finance space) exit the market or take fewer or smaller positions in order to:
project finance loans in response to the liquidity and capital restraints • replace a dwindling number of tax equity players;
imposed by Basel III. Although the market continues to see solid • offset downward price pressure exerted by certain large-scale
overall activity from the commercial banks as a whole, with Japanese, buyers of renewable energy assets; and
Canadian and US regional banks filling some of the funding gap left by • take advantage of the low yields currently accepted by certain
the European commercial banks, the market has also seen increased classes of public investors.
activity in the term loan B and project bond markets.
These two markets have provided a critical source of funding A basic YieldCo structure involves formation of the YieldCo as either a
for projects in the US, particularly, in the case of the term loan B state law corporation or a state law limited partnership. The YieldCo’s
market, for projects that are subject to certain risks that are beyond only asset is the operating company that owns cash generating
the appetite of the commercial bank market. Despite providing a renewable energy assets contributed by the sponsor. The sponsor
critical source of funding for projects, both the term loan B market owns interests in the operating company and controls the YieldCo,
and the project bond market have some significant limitations. which is a publicly owned vehicle. Certain of the principal advantages
With certain recent exceptions, term loan B transactions tend to and strengths of the YieldCo structure include: a YieldCo can take
be more expensive and of shorter length than those available in advantage of accelerated tax depreciation and other tax benefits to
the commercial bank market and project finance sponsors lack the greatly decrease corporate-level income taxes and provide an income
relationship with the term loan B lenders that they typically have with stream similar to that of a publicly traded Master Limited Partnership
their commercial banks – accordingly, project sponsors typically fear (MLP); a YieldCo, although subject to corporate-level tax on its income,
that amendments and waivers will be more difficult on a term loan can provide tax deferral for sponsors and other asset owners who are
B transaction. Limitations of the project bond market include less willing to contribute their assets to the public company in exchange
flexible draw mechanics, which make project bonds less useful during for equity rather than selling those assets in exchange for cash;
the construction phase of a project and a more complex amendment and because there are no tax requirements related to its assets or
and waiver process (particularly in Rule 144A/Regulation S project operations, a YieldCo is more flexible than either a REIT or an MLP.
bond transactions). The emergence of the YieldCo has proved an interesting trend
Given the reduced activity in the commercial bank market and in the project finance market. As with all relatively new structures, it
the limitations of the term loan B and project bond markets, project continues to change and improve to address concerns and issues
sponsors have been seeking new sources of capital. It is beyond the raised by it – whether it becomes a permanent fixture in the project
scope of this analysis to identify all of the various sources of new finance market remains to be seen.
capital or to address any of them in great depth; accordingly, we will
Public-private partnership legislation PPP – limitations
27 Has PPP enabling legislation been enacted and, if so, at what 28 What, if any, are the practical and legal limitations on PPP
level of government and is the legislation industry-specific? transactions?
More than 30 states and Puerto Rico have enacted some sort of Practical and legal limitations vary by state, especially given that there
PPP enabling legislation. The legislation varies from state to state, are still a number of states without any PPP-enabling legislation.
although PPP legislation in many states is focused on the transporta- PPP has generally lagged in the US as compared to Europe and
tion sector. Other states broadly permit PPP contracts across various this may be attributable to practical issues such as the higher bor-
industries (eg, roads, power production, rail, water purification, etc). rowing costs associated with PPP projects, due to the fact that bor-
In certain circumstances, federal law may authorise PPP con- rowing is generally more costly for private entities as compared to
tracts for specific industries even where no state legislation exists.
For example, although New York has not adopted PPP legislation,
the Port Authority of New York and New Jersey has federal author-
ity to structure its projects as PPPs.
David P Armstrong david.armstrong@skadden.com

Natascha G Kiernan natascha.kiernan@skadden.com
Four Times Square Tel: +212 735 3000

New York Fax: +212 735 2000
New York 10036 www.skadden.com
United States

government entities and the risk that PPP projects will be subject to in New York, the Port of Miami Tunnel in Florida, the Midtown
litigation, particularly where the relevant enabling legislation is new Tunnel Project in Virginia and the Chicago Skyway in Illinois.
or relatively untested.
* The authors would like to thank the following for their
PPP – transactions assistance with this survey of the United States project finance
market: Sean Ahn, Lyubomira Docheva and Jeremiah Schwarz.
Some of the significant PPP projects that have recently been com-
pleted in the US include the Goethals Bridge Replacement project
UZBEKISTAN Colibri Law Firm
Uzbekistan
Sofia Shaykhrazieva
Colibri Law Firm
Creating collateral security packages pledge agreements are subject to registration with the cadastre (for
buildings and construction) and the relevant depositary (where
1 What types of collateral are available? pledged shares are held) respectively. Furthermore, immoveables
Uzbekistan has moved quickly since it gained independence in 1992 mortgage agreements and moveables pledge agreements (for vehi-
to introduce the concept of collateral and more generally of security cles) as well as agreements for pledging certain rights to a property
interest in its legislation governing the performance of an obliga- as a security for performance of obligations thereunder are subject
tion. Secured transactions have become more of an accepted stand- to notary certification. The mandatory registration or notarisation
ard and are widely practised in project finance in Uzbekistan, which requirement shall not apply in respect of any moveable collateral
has seen its respective legislation gradually develop in recent years. other than the pledge of vehicles (any motor vehicles, trailers) that
However, it is fair to say that the legislation governing the applica- are registered with the State Department of Motor Vehicles. In order
tion and use of different types of collateral is still at an early stage for a security interest to be validly created and perfected it must be
of its development. duly executed in the presence of a notary public. Execution of the
Under Uzbek law almost all types of property can be made the relevant security agreement before a notary public shall be subject
subject of a security interest. Only the owners of property or rights to review of a notary public of the following documents supplied in
may pledge such property or rights. A pledge in favour of a third certified copies:
party (who is an actual borrower) is also permissible under Uzbek • company deeds (charter, foundation agreement if applicable);
law. Of the types that are available and legally permissible in the • evidence of due incorporation of the company pursuant to the
context of Uzbek law – real estate, immoveable and moveable prop- laws of its jurisdiction of incorporation;
erty, buildings, leaseholds, goods in turnover and shares are among • minutes of the general meeting of shareholders (for joint-stock
the most popular. companies) or general meeting of participants (for limited
Whole enterprises, onshore bank accounts, receivables, proceeds liability companies) or any other executive supervisory board
from investments, contractual rights and the sale of collateral are authorising:
less well-defined concepts, even more rarely tested and practised for • the transaction;
lack of clear legislative guidance. Securities and rights may also be • execution of relevant security documents by representatives
pledged as collateral provided always that the pledgor is the owner of the company duly authorised to execute relevant security
of such securities and rights. documents on behalf of the company; and
Operating or licence rights as well as concessions are granted • filing duly executed relevant security documents with the
specifically to their respective holders on an individual basis, deemed appropriate registering authority by duly authorised com-
inalienable and are therefore non-transferrable under Uzbek law. pany representatives;
There are general laws and regulations of Uzbekistan that are • an instrument pursuant to which the company undertakes to
applicable to different types of security interests. These include with- perform the obligations to be secured by the collateral;
out limitation the Law on Pledge in new edition dated 1 May 1998, • title documents confirming the title to the collateral;
the Law on Mortgage dated 4 October 2006 and the Civil Code of • in respect of the mortgaged assets, a certificate from the cadastre
Uzbekistan effective since 1 March 1998. certifying that the collateral is not pledged and is free from any
encumbrances (issued in standard approved form and valid for
one month from the date of issue);
• evidence of payment of applicable notary fees; and
• passports of the authorised representatives signing on behalf of
the parties.
With the exception of notary and registration fees applicable to
a mortgage of immoveable assets and pledge of certain moveable
The concept of perfection is non-existent under Uzbek law. A secu- assets, no stamp, registration or similar tax or charge is payable in
rity interest for it to be recognised and enforceable is subject to Uzbekistan in security transactions.
notarisation and registration with the relevant registering authority It is valid and legally binding to create a pledge over an account
if required by law. There is no unified central registry for different where rent income is accumulated. The issue arises as to what will
types of security interest. be the subject matter of such pledge. The options are the following:
Perfection of a security interest in the context of Uzbek law • to create a pledge over receivables entering the bank account;
means its registration with the appropriate authorised government • to create a pledge over the bank account itself; or
agency. In particular, immoveables mortgage agreements and share • to create a pledge over the rights to the bank account.

Colibri Law Firm UZBEKISTAN
Pledge of receivables claims before other creditors. The debtor’s approval is required for
There are no specific requirements as to the opening of a bank such registration.
account as pledge for the loan. The general rules relating to open-
ing a bank account shall apply. Any bank account or receivables Agent and trustee concepts
credited to any bank account opened with an Uzbek bank may be The concept of a security trustee or security agent is alien to Uzbek
pledged under Uzbek law. To create a pledge over receivables, a bank civil law. The courts or the CBU may not be willing to accept the
account pledge agreement must be entered into by the borrower (as application of these concepts to Uzbek assets. This is because Uzbek
a pledge provider), a pledge holder and a servicing bank. law is currently more developed for a sole lender of record. However,
Should the transaction structure contemplate several bank the choice of a security agent would be justified if one of the lenders
accounts to be opened by the borrower with a servicing bank (for is acting on behalf of other lenders and is a signatory to the facility
example, revenue receipts account, debt service account, debt service agreement. There is no threshold limit that the security agent must
reserve account, etc), we would recommend that a bank account comply with to be eligible for appointment to represent all lenders.
agreement be entered into between the pledge holder, a servicing
bank and the borrower that would outline, inter alia, the obliga-
tions of a servicing bank in relation to maintaining several bank
accounts and operating with the proceeds that are paid in. Apart
from the pledge of the rent income account, the pledge holder may In relation to mortgages (charge over immoveable assets), a credi-
wish to obtain a pledge over other bank accounts of the borrower tor shall be provided with a certificate issued by the state cadastre
(if opened). registration authority prior to entering into a security transaction
There is no registration or notarisation requirement applica- involving a mortgage. The certificate would certify the absence of
ble to a bank account pledge agreement in Uzbekistan. The bank any existing liens with respect to the given immoveable assets.
account pledge agreement shall become valid from the date of its In relation to other types of collateral, at present, a creditor can-
execution. The signatories acting on behalf of the parties in a secu- not get any information on existing liens and may only rely on the
rity transaction must be duly authorised to enter into the respective representation of a pledge provider. However the Pledge Register
agreements. In Uzbekistan a signatory representing a representing a will be in operation from 1 July 2014, and potential creditors will be
company is regarded to be duly authorised if he or she acts on the able to check property status and get access to any information on
basis of a charter or a power of attorney. In Uzbekistan, a general existing liens and encumbrances. Please note that registration with
manager (for companies, a general director and for banks, a chair- the Pledge Register is not a mandatory requirement for a moveable
man of the management board) may act without power of attorney property and it will be a voluntary procedure aimed at securing
on the basis of the charter and resolution of the superior managing creditors’ rights.
body approving his or her appointment or election.
Uzbekistan has ratified the Hague Apostille Convention of 5 4 Outside the context of a bankruptcy proceeding, what steps
October 1961. If a power of attorney is issued in one of the signa- should a project lender take to enforce its rights as a secured
tory countries apostille must be affixed by a competent authority party over the collateral?
designated by the government of a state that is a party to the con-
vention. Otherwise, the power of attorney must be notarised and Uzbek law pledges can be enforced in the event of failure to perform
legalised by an Uzbekistan consulate in that country (or the nearest or improper performance by the pledge provider or the borrower (if
consulate responsible for legalisation of documents in that country) the borrower and pledge provider are not the same person) of the
to be admissible in evidence in Uzbekistan. secured obligation. The Uzbekistan court may also refuse to enforce
Only the project lenders as pledgees may be the holders of the a pledge if it determines that the non-performance is ‘extremely
collateral under Uzbek law. Agents or trustees are generally engaged insignificant’ and the pledge holder’s claim is ‘manifestly dispropor-
for the purpose of facilitating transactions with purely technical tionate’ to the value of the pledged property.
functions. The enforcement procedure for mortgages (charges over
immoveables) is different from that of pledges (charges over move-
Priority ables or other collateral). However, there are basic principles govern-
Article 134 of the Bankruptcy Law provides for the creditor ranking enforcement procedures that are universally applicable to both
ing structure for the purposes of discharging claims of a bankrupt types of collateral.
company. Court expenses, the remuneration of the external manager The enforcement of pledges must be through courts unless
and the liquidator, current utility payments and claims arising from expressly excluded in an agreement between the pledge holder and
the obligations assumed in the process of liquidation are always paid the pledge provider (separate and in addition to the basic pledge
before creditors. In a bankruptcy, as compared to unsecured credi- agreement). As a rule, this agreement does not have to be notarised
tor, a secured creditor has an advantage of being in the third tier of and may be entered into at any time, including any time before non-
creditors’ waterfall. The claims of secured creditors may be satisfied performance of the secured obligation has occurred. Enforcement
only at the expense of proceeds received from the sale of all pledged provisions can be set out in the original pledge agreement. Both the
property within the bankruptcy proceedings. To get these proceeds, pledge agreement and any subsequent enforcement agreement can
the liquidator must first sell the secured assets as well unsecured provide that the pledge holder has the right to enforce the pledge at
assets of the bankrupt entity, then distribute the proceeds of secured its own discretion, in certain circumstances. Usually, either failure to
assets to secured creditors and the proceeds from unsecured assets perform or improper performance of the secured obligation triggers
to unsecured creditors. Secured creditors are treated as one category the enforcement right.
with no distinction between such creditors on the basis of the prop- Whichever provision the parties agree upon, the subject mat-
erty pledged to each. ter of a pledge may only be sold through a public auction. Uzbek
law, therefore, does not contemplate the transfer of ownership
The pledge registry rights in relation to the pledged property upon a default as is the
It should be noted that from 1 July 2014, the pledge registry will case in Western jurisdictions. Rather, the discharge of a secured
become operative, although not mandatory. Registration with the obligation shall be made from the proceeds of the pledged prop-
pledge registry may serve as an ancillary protection of the lender’s erty sold through such a public auction. Public auctions are time-
rights against repeated pledges, as well as determining the priority of consuming and it may take months before actual payment is made
to a beneficiary. In addition, the Uzbek court has the right, at the • court expenses, the remuneration of the liquidator, current util-
pledge provider’s request, to suspend sale of the pledged property for ity payments, claims arising from the obligations assumed in the
a period of up to one year. process of liquidation are always paid before creditors;
The determination of the initial sale price at the auction depends • first tier – taxes and other mandatory payments to the budget;
on the method of enforcement. Any sales are denominated in local wages and tort claims (negligence);
currency, the soum. Where a judicial sale takes place, the initial sale • second tier – payments that are due in connection with manda-
price is fixed by the court. In all other instances, the initial sale price tory insurance and mandatory insured local bank loans (retails
is determined by an agreement between the pledge holder and the depositors loans);
pledge provider (namely, pursuant to the pledge agreement itself or • third tier – payments that are due to secured creditors (secured
any further agreement to be completed between the parties after an either by a pledge or by a mortgage);
event of default as permitted under Uzbek law). The highest bidder • fourth tier – payments that are due to unsecured creditors;
becomes the owner of the pledged property. • fifth tier – payments that are due to shareholders, participants or
Sale of the pledged property outside Uzbekistan is permitted founders of the bankrupt entity; and
under Uzbek law provided this provision is agreed by the parties in • sixth tier – all other payments.
the original pledge agreement or any further agreement to be com-
pleted between the parties after an event of default. The claims of secured creditors may be satisfied only at the expense
The parties are strongly recommended to use out-of-court rem- of proceeds received from the sale of all pledged property within
edies in event of default. The most notable out-of-court remedies the bankruptcy proceedings. To get these proceeds, the liquidator
are enforcement agreements. Set-off and novation, among others, must first sell the secured assets as well as the unsecured assets of the
are the means of discharging the original obligation under the Civil bankrupt entity, and then distribute the proceeds of secured assets
Code. to secured creditors, and the proceeds from unsecured assets to
We note that a new law of the Republic of Uzbekistan was unsecured creditors. Secured creditors are treated as one class with
signed off on 29 August 2010, tightening up the legislative environ- no distinction between such creditors on the basis of the property
ment governing the use of pledges in Uzbekistan. The law provides pledged to each. The distribution within the classes of creditors is to
for the respective amendments to the Civil Code of the Republic of be made on a proportionate basis. This risk of proportionate satis-
Uzbekistan, the Law of the Republic of Uzbekistan on Enforcement faction of claims of secured creditors under the laws of the Republic
of Judicial Acts and Acts of Other Bodies and in the Law of the of Uzbekistan shall be mitigated by the negative pledge covenant
Republic of Uzbekistan on Mortgage. The amended laws became under the facility agreement.
effective on 23 September 2010. The claims of secured creditors as a class shall not be subject to
In accordance with the amended Civil Code of the Republic of the obligatory six tiers of claims (as specified above) that must be
Uzbekistan, if a court ruling is in place in respect of pledged prop- satisfied from the proceeds of sale of the bankruptcy estate. Rather,
erty under an enforcement procedure or as a result of actions by the claims of the class of secured creditors shall be satisfied from the
state authorities, pledge holders are now entitled to call for accelera- pledged property separately from and without regard to the other
tion by the pledgor of a secured obligation, upon failure to perform unsecured creditors, even those with a higher priority (for example,
which, the pledge holder shall have the right to proceed with a claim creditors of first and second tiers). This is the one advantage that
against the subject of a pledge. Failure by the pledge holder to exer- the secured creditors may enjoy under the laws of the Republic of
cise its right to call for acceleration shall result in termination of a Uzbekistan on a pledgor’s insolvency.
pledge, other than in cases where pledged assets have not been sold In the meantime, if the proceeds are not sufficient to satisfy in
from public auction and unsecured creditors waived their right of full the claims of all secured creditors, the outstanding claims of any
claim against the borrower. of such secured creditors shall be regarded the claims of the fourth
Pursuant to the amended Law of the Republic of Uzbekistan on tier (unsecured creditors) and shall be paid from the bankruptcy
Enforcement of Judicial Acts and Acts of Other Bodies voluntary estate remaining after the satisfaction of claims of two preceding
compliance under an enforcement proceeding instituted on the basis tiers (without regard of the third tier).
of a court ruling ordering payment of a fine shall now be limited to There is no express or hidden provision under Uzbek law that
six months. Also revised under the above amended Law were the gives preference to local banks as unsecured creditors over foreign
procedure for enforcement and ranking of the security interest. banks, provided that an Uzbek court or state authorities of the
The Law on Mortgage details legal ramifications of enforcing Republic of Uzbekistan fail to interpret otherwise the provisions
creditors’ right upon enforcement orders issued by court and state of Decree No. UP-3047 issued by the President of the Republic
authorities. of Uzbekistan on 30 March 2003 and Decree No. PP-56 issued
by the President of the Republic of Uzbekistan on 15 April 2005
(the Decrees). Under the Decrees, an Uzbek bank is entitled to fore-
close on the liquid assets of an Uzbek resident should an event of
default occur under the loan agreement between such Uzbek bank
(as lender) and an Uzbek resident (as borrower). Our interpretation
of the Decrees is that the secured property of the Uzbek resident,
if any, shall fall outside the scope of such liquid assets and, there-
fore, notwithstanding the provisions of the Decrees, Uzbek banks
(as lenders) shall not be entitled to foreclose on the property that
has been already secured in favour of foreign banks or other secured
parties by the time of such fore-closure. The secured property shall
As a consequence of the creation of a security, upon insolvency of be ring-fenced from the claims of any third parties by the Law of
the project company, the project lender shall be regarded as a secured the Republic of Uzbekistan On Pledge and the Civil Code of the
creditor and shall be a third-tier creditor in the waterfall of creditors Republic of Uzbekistan. The latter have superior legal power over the
under the Law of the Republic of Uzbekistan on Bankruptcy. Decrees in the hierarchy of legal and normative acts of the Republic
The waterfall of creditors upon insolvency may be summarised of Uzbekistan. We therefore refer to the provisions of superior legal
as follows: and normative acts (the Civil Code and the Law on Pledge) when
opining on the validity and enforceability of the security created in

lenders’ favour. To the best of our knowledge, there are no reported The participant may not sell its stake and withdraw from the resi-
cases in which this question has been considered before the courts in dent company unless the purchaser of this stake obtains the antitrust
the Republic of Uzbekistan. clearance. No fee exists for the antitrust clearance approval.
In respect of control and regulation applicable to the remittance
Foreign exchange issues of capital, we further note that in case (ii), the ability of a share-
holder to withdraw from an Uzbek joint-stock company and ask
6 What are the restrictions, controls, fees, taxes or other charges this company to redeem its shares is limited to several cases only.
on foreign currency exchange? These cases include, inter alia, the situation when this shareholder
The main foreign exchange control restrictions in Uzbekistan that did not agree to vote for certain resolution at the shareholders’ meet-
may apply to foreign currency transactions (export, import, foreign ing and voted against but the resolution has been still adopted. This
loans, derivatives, foreign leasing, etc) are set out below: shareholder may claim that his or her right has been violated by this
• all export proceeds to be received by an Uzbek counterparty resolution and may ask the company to redeem his or her shares
must be credited to its Uzbek bank account unless there is a within the limited period of time.
specific permission of the CBU to do otherwise; When this period elapses, the shareholder will be deprived of the
• all export proceeds must be credited to an Uzbek account of right to claim redemption of his or her shares by the company. No
an Uzbek counterparty not later than 60 days after the dis- such limitations are applicable to limited liability companies.
patch of goods for export. Unless specific permission of the Another control that is applicable to the withdrawal of capital
CBU is obtained, sanctions will apply if the above rule is not relates to the manner of calculation of the amount of capital with-
complied with. This rule will apply to the export of goods only drawn in cases (ii) and (iii). Redemption of a participating interest in
and, accordingly, will not be relevant to non-physically settled a limited liability company shall be based on the latest balance sheet
transactions; value. No fair or market value shall be applicable for this. Therefore,
• goods must be imported to Uzbekistan within, at the latest, 180 the right of the withdrawing foreign participant to demand the pay-
days from the date when the payment under the import contract ment of fair value or market price for his or her stake is limited by
was made. This rule will apply to the import of goods only; law.
• there is a mandatory requirement to convert into soums 50 per Another control relates to the fact that any transfers in foreign
cent of foreign currency proceeds received by an Uzbek counter- currency made outside Uzbekistan for the sale of capital in an Uzbek
party under an export operation; company will trigger the special financial screening procedure men-
• we assume that an additional licence from the CBU may be tioned above.
required to avoid financial sanctions when the foreign currency The remittance of investment returns may be also affected by
proceeds are not paid into an Uzbek account and when, there- restricted access to foreign exchange in Uzbekistan. Allocation of
fore, the 50 per cent mandatory surrender requirement is not proceeds for repayment of any investment return to the foreign
met; shareholder (participant) shall be made in local currency only. The
• no assignment under foreign currency contracts is allowed. resident company then would need to seek the conversion of these
Penalty for the concealment of foreign currency proceeds is local currency proceeds into foreign currency proceeds. Although the
imposed on an Uzbek counterparty for the violation of this rule; law prioritises the conversion into hard currency for the purposes of
• no offshore account payment is allowed to be made from remittance of dividends, there may be certain delays in conversion of
Uzbekistan by an Uzbek counterparty unless CBU permission to local currency proceeds into foreign currency due to the availability
do so exists; and of hard currency reserves. Please see question 8.
• transactions associated with the movement of capital (foreign There are no restrictions that would prevent a resident company
loans, deferred import contracts, leasing) shall be subject to reg- from making payments of principal, interest or premiums on loans
istration with the CBU, however, to register the transaction, an or on bonds (issued by an Uzbek joint-stock company) to parties in
authorised bank has merely to notify the CBU about it. other jurisdictions (all collectively referred to herein as payments).
The payments with respect to loans will be transferred by an Uzbek
authorised bank (where the resident company holds a foreign cur-
rency account) to the non-resident bank providing that a loan is
registered with the CBU.There are no restrictions of Uzbek law relat-
ing to the amount of interest fee that may be agreed by a resident
There are no restrictions in place preventing a foreign participant borrower with a non-resident bank. The payments with respect to
(shareholder) of the resident company from receiving its dividends domestically issued bonds will be transferred to the non-resident
and repatriating them abroad. Return of capital is also possible pro- payee provided that these bonds are duly registered by the Uzbek
vided that a valid legal basis exists. The legal basis should be either: authorised agency. Any payments shall be made from hard currency
(i) withdrawal of the foreign participant from the resident com- funds accumulated on the resident company’s local bank account
pany via sale of its stake to another party; from export proceeds or other ‘own sources of currency receipts’,
(ii) withdrawal of the foreign participant by selling its stake to the otherwise the resident company will have to apply for a contin-
resident company (redemption of shares by the issuer of these gent and sustainable conversion procedure. In practice, conversion
shares); this option is limited for an open joint stock company to of local currency into a foreign currency is fraught with frequent
certain cases only; no limitations of a limited liability company delays owing to limited access of local commercial banks to foreign
where any participant may withdraw any time from the com- exchange reserves. There are no restrictions in Uzbek laws for the
pany; or transfer outside Uzbekistan to a non-resident bank of hard currency
(iii) as a result of liquidation of the resident company. proceeds directly from the resident company’s foreign currency
account so that to discharge its obligations for interest and principal
For case (i), state regulation rule applies if the stake at question payments under the loan agreement. However, any transfers to an
amount to 35 per cent plus one share of the resident company’s account located in an offshore jurisdiction triggers the special finan-
charter fund. No threshold, however, exists for buying a stake in cial screening procedure mentioned above. There are no restrictions
an Uzbek bank by a foreign participant. Antitrust clearance would under Uzbek law as to the payment of interest at the expense of
be required prior to entering into a sale and purchase agreement. borrowed money.
From a tax perspective interest or premiums on loans, as well as Foreign investment issues
any other fees and commissions, penalties or default interests, pay-
able in connection with a loan or bonds (issued by Uzbek joint-stock 10 What restrictions, fees and taxes exist on foreign investment in or
companies) shall be considered an income and subject to a withhold- ownership of a project and related companies? Do the restrictions
ing tax at the rate of 20 per cent payable at payment source, namely, also apply to foreign investors or creditors in the event of
by the resident company by virtue of deduction unless otherwise foreclosure on the project and related companies? Are there
provided for in a bilateral double tax treaty entered into with the any bilateral investment treaties with key nation states or other
country of the non-resident bank. international treaties that may afford relief from such restrictions?
From a tax perspective dividends or interest (on participating Would such activities require registration with any government
interest in an Uzbek LLC), as well as income generated from sale of authority?
capital, shall be subject to the Uzbek withholding tax. In relation to The regime governing foreign investments depends on a project or a
dividends and interest, 10 per cent withholding tax shall apply. In company established with the participation of foreign investments.
relation to income generated from the sale or withdrawal of the cap- To proceed smoothly a project must be negotiated with the govern-
ital, 20 per cent. In the latter case, income would be only considered ment from the very beginning. During negotiations, a specific regime
generated if there is a positive difference between the sale price of may be discussed if the project involves large amount of investment
capital and its original price (specified in the constituent documents). and will promote local production and employment. To start opera-
tions, certain licences or permits or other authorisations may be
required.
There are bilateral treaties with most Western jurisdictions,
as well as China and Korea, for mutual protection of foreign
investments.
With respect to dividends, there is no maximum or minimum
threshold established by Uzbek law for repatriation of dividends.
Dividends may be paid annually, semi-annually and quarterly sub- 11 What restrictions, fees and taxes exist on insurance policies
ject to satisfactory financial performance of the resident company. over project assets provided or guaranteed by foreign insurance
Any distribution of dividends on a monthly basis is not permit- companies? May such policies be payable to foreign secured
ted except as otherwise provided by shareholders in the charter of creditors?
an Uzbek borrower. Payment of dividends, however, is subject to Only Uzbek-licensed insurance companies are allowed to insure
certain restrictions: dividends cannot be distributed before charter risks in Uzbekistan. Once insured with an Uzbek insurance com-
capital is paid in full by the participant. If an Uzbek borrower faces pany, these risks may be reinsured by a foreign insurance company.
insolvency (or it is expected that it would face insolvency as a result Reinsurance is customarily required by foreign investors for major
of dividend distribution) or its net assets become less than its charter project finance transactions.
capital (and reserve fund), no dividends are allowed.
Dividends are payable and shall be allowed for repatriation only
after all taxes due from the borrower are paid in full. Any payment
of dividends by the resident company to a foreign shareholder are
subject to special financial monitoring scrutiny procedure by the tax Any foreign workers (without distinction between different catego-
authorities. ries) seeking employment in Uzbekistan must obtain work permits
Taxation of dividends shall be made at two levels, corporate prior to starting their assignment. Applications are submitted by
and individual. At the corporate level, the profit of the resident com- employers on a standard form and are reviewed by the Ministry
pany shall be subject to income tax and all other applicable taxes. of Labour and Social Protection (Labour Ministry) within 30 cal-
When all taxes at corporate level are paid by the resident company, endar days. Work permits are issued for a period of maximum one
the net profit shall constitute the dividends of a foreign participant year and may be renewed if necessary upon application from the
(shareholder). Such dividends shall be subject to withholding tax in employer. In addition, Uzbek law requires that employers bringing
Uzbekistan payable at payment source (namely, subject to withhold- in foreign workers must possess a valid licence for engaging foreign
ing obligations of the resident company) at 10 per cent unless other- labour, which is issued by the Labour Ministry. Any foreign nation-
wise provided for in a bilateral double tax treaty. als residing in Uzbekistan must register with the immigration service
either directly or through the Diplomatic Service Department of the
Ministry of Foreign Affairs. Failure to ensure compliance may result
9 May project companies establish and maintain foreign currency in deportation of the employee and sanctions against the employer.
Under Uzbek foreign exchange control an Uzbek company is not
allowed to open a bank account outside Uzbekistan unless the per-
mit to this effect is obtained from the CBU. A prerequisite for the There are standard customs and security rules that apply for any
issuance of a CBU permit is a resolution of the President and gov- equipment due for importation to Uzbekistan. In certain cases,
ernment of Uzbekistan or an international agreement instructing the where special-purpose equipment (arms, explosives, drugs, etc) is
CBU to do so. As a rule, only strategically important projects may entering Uzbekistan, prior entry clearance must be obtained from a
boast the privilege of being granted a CBU permit to open a foreign relevant government agency or the cabinet of ministers. Any equip-
currency bank account. As far as we are aware, joint ventures in ment entering Uzbekistan under an import contract must have a
the oil and gas sector were granted CBU permits and currently hold valid passport of import transaction issued by a servicing bank of
offshore bank accounts. the resident company. Import contracts must be registered with the
customs service and a servicing bank of the resident company.

14 What laws exist regarding the nationalisation or expropriation Monitoring compliance with environmental standards, issu-
of project companies and assets? Are any forms of investment ance of special water use and air emission permits, mandatory envi-
specially protected? ronmental impact assessments and enforcement of environmental
The laws regarding the nationalisation or expropriation of project requirements fall within the remit of the State Committee for Nature
companies and assets include the Civil Code of Uzbekistan, the Law Protection.
on Foreign Investments, and international bilateral and multilateral Antitrust clearance and general compliance with antimonopoly
treaties on mutual protection of foreign investments. legislation are dealt with by the State Anti-monopoly Committee of
There are no assets that may be specially protected from nation- the Republic of Uzbekistan.
alisation and expropriation. The State Committee of the Republic of Uzbekistan on Geology
and Mineral Resources is the licensing body for subsoil use rights
Fiscal treatment of foreign investment (mineral extraction or cement manufacturing projects).
Sanoatkontechnazorat is the government agency responsible for
15 What tax incentives or other incentives are provided preferentially ensuring safety standards in industry, mining and the utility sector
to foreign investors or creditors? What taxes apply to foreign and for licensing mining works.
investments, loans, mortgages or other security documents, Uzbekneftegaz, the state oil and gas holding, is the main partner
either for the purposes of effectiveness or registration? and coordinator for major oil and gas projects on behalf of the state
There are no general tax incentives applicable to foreign investors or in Uzbekistan.
creditors. Specific tax incentives may be granted by the government The CBU performs the regulatory and licensing function for the
under certain project on the basis of a resolution of the President and banking and financial sector in Uzbekistan. It issues licences to com-
government of Uzbekistan and an investment agreement entered mercial banks (including for foreign currency operations), micro-
between the specific investor and the Uzbek government. By way of credit institutions and pawnshops, acts as the registering authority
explanation, an investment agreement is one of the two legal instru- for cross-border lending transactions, and issues approvals to resi-
ments designed to grant tax, customs, payments and other exemp- dent companies for opening offshore accounts. CBU approval is
tions and waivers additionally to those existing under the general required for opening offshore accounts, purchase of shares in Uzbek
legal framework. Please note that ideally additional guarantees and banks by foreign banking/investment institutions, establishment of
remedies, exemptions and waivers are granted to foreign investors representative offices of foreign banks and opening banks.
if investing in: The Uzbek Agency for Communications and Information acts
as a coordinating hub for projects and the licensing authority in the
(a) prioritised sectors ensuring sustainable economic growth, pro- telecommunications sector.
gressive structural changes in the country’s economy; (b) prioritised
projects ensuring the strengthening and extending of the production Regulation of natural resources
and export potential of the republic, its integration into global con-
nections; (c) projects in the sphere of small entrepreneurship whose
implementation is directed at the processing of raw materials, pro-
duction of consumer goods and services, provision of employment
for the population. Title to all natural resources is retained by the Uzbek state. Private
parties may acquire long-term leasehold rights over natural
This list seems to be exhaustive and does not contain any indication resources. Land is owned by the state. Land may be allocated to
that other projects qualify for the status of investment agreement. private parties on the basis of leasehold or permanent use rights.
authority over projects in the typical project sectors? What is the Tax on royalties exists when a domestic or foreign party extracts
nature and extent of their authority? What is the history of state natural resources in Uzbekistan. There is distinction in defining
ownership in these sectors? the tax base for the royalty tax depending on who is the taxpayer,
Overall coordination of strategic project sectors such as oil and namely, a domestic entity, a foreign entity with or without perma-
gas, mineral extraction and power generation is performed rou- nent establishment.
tinely by the cabinet of ministers. Any projects in strategic sectors In relation to a foreign entity without permanent establishment
are approved at the cabinet at ministerial level. Priority investment in Uzbekistan, the present rate of royalty tax is 20 per cent. This is
projects are granted specific tax concessions and privileges on the a profit-based tax.
basis of a presidential decree. The decree sets out important param- In relation to a domestic entity or foreign entity extracting natu-
eters and deliverables of the project, appoints government agencies ral resources in Uzbekistan, the following taxes are payable in con-
responsible for overseeing the project, and extends specific privi- nection with extraction of natural resources:
leges to project partners (project companies or individual investors • tax on subsoil use;
including but not limited to financial institutions). • tax on extra profit (not relevant for foreign companies acting on
Government agencies (ministries, committees, departments, the basis of a product-sharing agreement); and
agencies and associations) in Uzbekistan are assigned the function • bonus (fixed or relating to each commercial discovery).
of performing regular monitoring and facilitation of projects. They
are also the issuing authorities for licences and permits. These taxes are based on the amount of extracted ultimate product.
Any projects involving the privatisation of state-owned assets The list of ultimate products is established by the cabinet of minis-
or transactions contemplating the transfer of facilities where the ters of Uzbekistan.
government holds a stake require explicit permission of the State
Committee of the Republic of Uzbekistan for State Property
Management (GKI).
19 What restrictions, fees or taxes exist on the export of natural 22 How are international arbitration contractual provisions and
resources? awards recognised by local courts? Is the jurisdiction a member
Export of natural resources is associated with the payment of the of the ICSID Convention or other prominent dispute resolution
following taxes: conventions? Are any types of disputes not arbitrable? Are any
• VAT at 0 per cent (except for precious metals); VAT for precious types of disputes subject to automatic domestic arbitration?
metals is established by the cabinet of ministers of Uzbekistan; The Republic of Uzbekistan is a party to the 1958 New York
and Convention on the Recognition and Enforcement of Foreign
• excise tax – rate varies depending on type of natural resources. Arbitral Awards. Accordingly, a foreign arbitral award obtained in
a state that is party to that convention should be recognised and
Other restrictions on the export of natural resources include prior enforced by an Uzbek court, subject to the qualifications in the UN
approvals of the state authority or prior registration of an export Convention and compliance with Uzbek civil procedure and the
contract with the state registration authority. For instance, a con- procedures established by the Laws of the Republic of Uzbekistan
tract for the exportation of gold, or crude oil, or uranium or natural on commercial arbitration for the enforcement of arbitration deci-
gas from Uzbekistan will be subject to registration with the Ministry sions. We note, however, that in practice reliance upon international
of Foreign Economic Relations, Investments and Trade. treaties may require that relevant Uzbek officials be supplied with
more information as to the effect and procedures under the treaty,
Legal issues of general application which may not be entirely consistent with the legislation relating to
procedure or with court rules. This could delay enforcement proce-
20 What government approvals are required for typical project finance dures in the Republic of Uzbekistan.
The scope of government approvals depends on various factors,
including in which economic sector the project company will oper-
ate and the amount of the project, as well as whether an investment
agreement has been made between the investor(s) and the Uzbek
government. Although the application of Uzbek law is mandatory in certain types
A typical project finance transaction would require the follow- of transaction (for example, transactions between Uzbek legal enti-
ing government approvals: ties, or between an Uzbek legal entity and a foreign investor in rela-
• resolution of the President of the Republic of Uzbekistan or tion to a lease, or mortgages over Uzbek real estate registered with
the government of Uzbekistan issued in the form of a decree the Uzbek immoveables cadastre), the choice of foreign law by an
(postanovleniye) approving the project and the investment agree- Uzbek legal entity in other contracts with a foreign counterparty
ment (if any) and granting certain tax incentives and benefits; should be recognised and given effect to by the Uzbek courts unless
• resolution of the President of the Republic of Uzbekistan or the the consequences of the application of foreign law contravene Uzbek
Uzbek government issued in the form of a decree approving the public order. Therefore, there is no particular need to be governed by
feasibility study of the project; local law for the pledge contract to be valid and enforceable.
• CBU approval for opening and maintaining an offshore bank In the meantime, please note that when foreign law is the gov-
account of the project company (if any); and erning law of a pledge agreement, mandatory rules of Uzbek law
• CBU approval for the registration of the financing documents relating to the methods and procedure of its performance shall
for the project. be still applicable. Hence for the pledge to be enforceable by the
Uzbekistan court, it must be valid under Uzbek law even though the
State approvals, consents and permits are generally on-time, ad-hoc governing law is foreign law. The foreign law shall be used by the
types of acts that do not provide for their duration. Uzbek court to interpret provisions of the pledge agreement with
regard to the rights and obligations of the parties, as well as to the
consequences of non-performance or undue performance of the
21 Must any of the financing or project documents be registered or obligations. However, the procedure for enforcement of the pledge
filed with any government authority or otherwise comply with legal shall be performed in accordance with Uzbek law, should the pledge
formalities to be valid or enforceable? be enforced locally.
The CBU requires that a loan agreement (or any other financing If the pledge holder obtains a judgment outside Uzbekistan, it
documents subject to registration with the CBU) be made in Russian will still need to enforce the pledge in Uzbekistan. To do so, recogni-
or the Uzbek language in addition to English, if English is required tion of the judgment in Uzbekistan would be required. However,
by lenders. Otherwise, the English version of the loan agreement (or Uzbekistan is not a party to treaties on the reciprocal enforce-
other finance document) must be legalised or apostilled. On the basis ment of judgments with most jurisdictions normally used to inter-
of the legalised or apostilled English version, the notarised Russian national financing documents (such as the United States and the
or Uzbek translation is required for submission to the registration United Kingdom) and thus foreign judgments will not be sufficient
with the CBU. To avoid difficulties with the legalisation or apostil- to enforce the pledge in Uzbekistan. Rather, it is advisable for the
lisation requirement, we recommend that a bilingual (English and pledge holder to seek a judgment from the Uzbek courts, which
Russian or Uzbek) financing agreement be executed by the parties. would be the basis for obtaining an order to enforce the pledge.
An investment agreement must be filed with the Ministry of Concerning financing agreements, in our practice it is English
Foreign Economic Relations, Investment and Trade and becomes law that is mostly applied in financing transactions – less frequently
legally effective upon its approval by the resolution of the President the law of New York State. Under Uzbek law, this choice of foreign
and government of Uzbekistan. law for financing agreements is acceptable. However, the mandatory
A facility agreement must be registered by the CBU. Any draw- rules of foreign exchange, bankruptcy rules, etc remain applicable.
downs under the facility agreement may be made upon its registra-
tion with the CBU.
The feasibility study for the project must be filed with the rel-
evant department of the Uzbek government. It is legally effective
only upon its approval by a resolution of the President and Cabinet The Republic of Uzbekistan is not party to any multilateral or bilat-
of Ministers. eral treaties with any Western jurisdiction or the United States for

the mutual enforcement of court judgments. Consequently, should • Ministry of Health – general regulatory body in relation of
a judgment be obtained from a court in any Western jurisdiction health protection;
or the United States it is highly unlikely to be given direct effect in • Oil and Gas Inspection – regulatory and controlling body at the
Uzbek courts. cabinet of ministers; and
In accordance with article 79 of the Uzbek Civil Code, the state • UNG – oil and gas sector holding, develops most of the technical
(represented by the government) takes part in relationships regu- and industrial standards, policies and requirements.
lated by civil legislation on an equal basis with other participants
and is liable for its undertakings with its own property. The Uzbek Project companies
Civil Code is therefore clear that if government enters into com-
mercial activity, it loses special treatment or sovereign immunity. It 26 What are the principal business structures of project companies?
is widespread practice in Uzbekistan when dealing with the govern- What are the principal sources of financing available to project
ment directly that the government as a public person waives its sov- companies?
ereign immunity. From our experience of direct contracts with the Project companies are set up in the form of a limited liability com-
government, whether investment agreements or PSAs, the waiver of pany or a closed joint-stock company. The LLC is the preferred form
sovereign immunity was not an issue. It is quite natural for a for- for investors. In strategically important sectors, a project company
eign investor to request the government of a host country to waive is established in association with the Uzbek state represented by the
immunity as otherwise the governmental concessions and privileges relevant authorised body (for example, National Holding Company
granted to an investor may appear revocable at any time by a public Uzbekneftegas in oil and gas; the Ministry of Geology and Mineral
act. Resources in mining). The usual split of shares in a project company
is 50/50 per cent (Uzbek state/investor) or 49/51 per cent (Uzbek
Environmental, health and safety laws state/foreign investor). The project company is usually a borrower
under the financing agreements. All operating licences, permits or
25 What laws or regulations apply to typical project sectors? What authorisations must be obtained by the project company. The princi-
regulatory bodies administer those laws? pal source of financing is foreign loans, owing to lack of local inves-
In industrial safety issues the Law on Industrial Safety on Hazardous tors willing to make large investments. Foreign loans are usually
Manufacturing Objects, dated 26 September 2006, and the Law on guaranteed by a subsidiary or parent company of the investor, who
Labour Protection, dated 6 May 1993, are the main legislation. is the shareholder in the project company.
In oil and gas the Unified Rules on Safety Systems in the Oil and
Gas Sector, from 2001, developed by UNG and approved by the Public-private partnership legislation
Works Safety Inspection, as well as the Instruction on Prevention of
Wild Flowing During the Construction, Exploitation and Capital 27 Has PPP enabling legislation been enacted and, if so, at what
Maintenance of Oil and Gas Wells, approved by the UNG are level of government and is the legislation industry-specific?
applied. In the mining sector the following laws are applicable: There is no legislation on PPP in Uzbekistan. We are not aware of
the Rules on Safety on Use of Mining Vehicles, as registered by any reforms in this sector that may change the situation. However,
the Ministry of Justice No. 1579 dated 7 June 2006; the Rules on in the light of the recent enactment of PPP laws in other CIS coun-
Safety on Tailing Works, as registered by the Ministry of Justice No. tries, we believe strongly that reforms in Uzbekistan are inevitable
1577 dated 31 May 2006; the Rules on Safety on Crushing, Sorting, and that a new law on PPP may be enacted within the next two to
Concentration and Agglomeration of Ore and Concentrates, as reg- three years.
istered by the Ministry of Justice No. 1575 dated 23 May 2006. PPP regulation is currently based on various laws of general
The following are the public authorities of the Republic of application, including, without limitation:
Uzbekistan responsible for forming, developing and amending the • the Law on Investment Activity;
Investment Programme of the Republic of Uzbekistan: • the Law on Foreign Investments; and
• Industrial Safety Inspection – regulatory body on industrial • the Law on Concessions.
safety matters;
• Ministry of Labour and Social Protection of People – general
regulatory body in relation of labour matters;
Sofia Shaykhrazieva sofia.s@colibrilaw.com
7 Toytepa Street Tel: +998 71 120 4778

Tashkent 100047 Fax: +998 71 120 4779
Uzbekistan www.colibrilaw.com
Although the Uzbek Law on Concessions and general investment There were no PPP projects from a purely traditional PPP point of
laws exist, PPP transactions are not specifically regulated by Uzbek view. However, at the moment the government of Uzbekistan is con-
law. Having said that, there is a number of legal acts providing sidering initiating three PPP projects, two in the road sector and the
for state procurement of goods and services from private entities, other in the medical sector.
including organising and holding public tenders, making investment
agreements with the Republic of Uzbekistan, etc.

Rodríguez & Mendoza VENEZUELA
Venezuela
Reinaldo Hellmund, Carlos Martinez and Miguel Velutini
Rodríguez & Mendoza
Creating collateral security packages Regular pledges, such as share pledges, require that the docu-
ment that evidences the pledge is executed before a public officer
1 What types of collateral are available? such as a notary by at least one of the parties, in order to evidence
In Venezuela there are several types of security interests over both the ‘certain date’ when it was created. In addition, the asset object
personal and real property, all of which grant the beneficiary a of the pledge, such as the share certificate, should be delivered to the
priority upon foreclosure of such assets. The agreement by which beneficiary, who will have it under its custody and care.
the debtor authorises the creditor to appropriate, upon default and Credits assigned as a collateral will also need to be signed before
without court intervention, the assets over which a security interest a public officer such as a notary, and the debtor must be notified
is created is null and void. Consequently, payment will occur either of such assignment through a dated document. The assignment of
by judicial foreclosure of the assets or by transfer of the assets by contractual rights, leaseholds, etc, will require a document signed
the debtor in satisfaction of the debt if so agreed after default has before a public notary and a notification to all third parties involved.
occurred. As for a security interest created pursuant to a trust, the trust
As to the particular types, one of the preferred security interests agreement must be registered. Only duly authorised banks, finan-
is mortgage, which is divided into mortgage over real estate assets, cial institutions and insurance companies may act as trustees under
and mortgage over moveable assets (chattel mortgage). The latter is Venezuelan law. The law provides that assets held by a trustee under
subdivided into several categories, one of which is mortgage over the a trust agreement are segregated from the patrimony of the trus-
business units of the debtor. In addition, Venezuelan laws provide tee, therefore any bankruptcy of the trustee will not affect the assets
for the creation of regular pledges where the possession of moveable given in trust.
assets is given to the creditor to secure the obligations of the debtor In addition, the foreclosure of assets owned by state-owned
and also a special ‘pledge without transfer of possession’, which will companies or used in activities that may be considered of public
require a special registration to become enforceable. Another type of interest, such as oil and gas activities, may be limited because of
security interest is the pledge over intellectual property rights, which, the nature of the activity to which the assets are assigned. In some
in order to be perfected, will require registration in the same manner industries, such as gas, assets considered as ‘essential assets’ cannot
as a real estate mortgage. There are other ways to create a security be the object of a security interest. In this respect, the Venezuelan
interest that, although they will not be considered as pledges in the attorney general must be notified in respect of any suit, execution on
proper sense, will have similar effects, for example, the guarantee a local or foreign judgment or attachment (whether before judgment
trust by which property, most commonly cash and moveable assets, or in aid of execution), to enable the government to take the neces-
is transferred to a trustee to be disposed of in certain manner in the sary steps so that the activity for which the assets are intended is not
event of default. The same applies to the assignment of credit rights, interrupted. When 45 days have elapsed after the date of notification
contractual rights or endorsements, which, after following certain without the attorney general having made a pronouncement on the
formalities, will have the effect of being a security interest matter, the court may proceed with the attachment.
2 How is a security interest in each type of collateral perfected 3 How can a creditor assure itself as to the absence of liens with
and how is its priority established? Are any fees, taxes or other priority to the creditor’s lien?
charges payable to perfect a security interest and, if so, are there The answer depends on the particular type of assets to be used as
lawful techniques to minimise them? May a corporate entity, in security. As to real estate property, a lien search has to be performed
the capacity of agent or trustee, hold collateral on behalf of the in those jurisdictions of incorporation as well as in those where
project lenders as the secured party? assets are located. Venezuelan registrars can issue a certification of
Not all security interests require the same formalities to be perfected. the existing liens or lack thereof. In any case, it is imperative to per-
In general terms, for those securities that require registration, prior- form an independent lien search in the registration office where the
ity will be given by filing and registration regardless of the date when real estate is located. In the case of real estate mortgages, as well
the security interest was created following the ‘first registered, first as pledge without delivery and mortgage over moveable assets, the
priority’ principle. filing of such mortgage before the public registrar will secure the
Mortgages, pledges without transfer of possession, and chattel priority.
mortgages should be filed (registered) before the civil registrar office As to shares of companies, the pledge is recorded in the share-
where the assets are located, and only after such filing has taken holders’ registry book of the company and the share certificates will
place will the security interest become perfected. In addition, a regis- be delivered to the creditor. Thus only one pledge can exist over the
tration fee calculated based on the value of the secured amount will same share. Liens over trademarks and patents will be reflected in
be payable upon registration, and the security interest will not be the Industrial Property Registry; however, there is a backlog and the
registered, thus perfected, without the payment of such fee. Registry is not updated, so there is a risk that the lien may not be
VENEZUELA Rodríguez & Mendoza
perfected on time. As to collateral and assignment of credits, collat- part of the proceeds have to be sold to the Venezuelan Central Bank
eral over contracts, third-party rights, etc, the parties have to ensure at one of the three official exchange rates currently in force.
that all formalities to the perfection of such security interest are duly At the present time, the regulations governing the exchange con-
fulfilled, since there is no registry system for such liens. In addition, trol regime provide three different official exchange rates applicable
it will be impossible to determine by a public search if a party has to different situations:
not previously assigned a credit right, in which case the first assignee • the first official exchange rate is 6.30 bolivars to US$1, applica-
will have all priority. ble to buy foreign currency in order to import priority products
or goods such as food and medicines;
• the second rate is called SICAD (Complementary System for the
Administration of Foreign Currency), a weekly auction system,
in which the Venezuelan government, on a weekly basis, names
the individuals or corporations entitled to buy foreign currency
The foreclosure over collateral needs to be done through Venezuelan through this mechanism. This rate fluctuates on a weekly basis
courts, and the agreements for ‘self-help’ remedies are null and void. and the average has been around 11.50 bolivars to US$1; and
Upon default, a creditor should file before a court a petition of fore- • the third official exchange rate is called SICAD II (Complementary
closure on a particular asset given as collateral, and though the pro- System for the Administration of Foreign Currency), an open
cedure will vary depending on the nature of the asset, in all cases the mechanism to buy and sell foreign currency, in which individu-
court will sell the assets at public auction, and use the proceeds to als and private corporations are entitled to participate on a daily
pay the creditors. The sale has to be carried out in local currency and basis. This rate fluctuates on a daily basis and the average rate
any party, including creditors, are entitled to participate, though in has been around 50 bolivars to US$1.
some cases the court requires a bond or guarantee in order to allow
participation. These transactions must be carried out through Venezuelan financial
institutions duly approved by the Venezuelan government to per-
5 How does a bankruptcy proceeding in respect of the project form these activities.
company affect the ability of a project lender to enforce its rights It is important to highlight that according to exchange regime
as a secured party over the collateral? Are there any preference regulations (Exchange Agreement No. 25), published in the Official
periods, clawback rights or other preferential creditors’ rights Gazette No. 6,122, dated 23 January 2014, the rate applicable to
(eg, tax debts, employees’ claims) with respect to the collateral? international investment is the rate set forth by SICAD (ie, at the
What entities are excluded from bankruptcy proceedings and present time, approximately 11.50 bolivars to US$1).
what legislation applies to them? What processes other than These foreign exchange regulations have special provisions in
court proceedings are available to seize the assets of the project respect to Petroleos de Venezuela, SA, its affiliates (PDVSA), mixed
company in an enforcement? companies (entities incorporated by an state-owned company and a
private company) engaged in the export of liquid and gas hydrocar-
In Venezuela there are no entities excluded from bankruptcy pro-
bons as well as to exporters.
cedures, however there is doctrinaire discussion as to whether
With regard to imports, in order to obtain foreign currency
moratorium and bankruptcy laws and procedures are applicable to
from the Venezuelan Central Bank at the official exchange rate to
state-owned companies, such as PDVSA. As to the procedures avail-
import goods and products, an authorisation should be granted by
able, debtors facing liquidity problems but with a positive balance
the Centro de Comercio Exterior (CENCOEX) (the governmental
sheet (assets are greater than liabilities) can request from the courts
agency entrusted with administering the exchange control system).
a moratorium protection, thus preventing creditors from initiating
Private parties have experienced periods of immediate delivery, as
recovery actions. Courts will grant such moratorium benefit only
well as long waiting periods, with delivery of foreign currency.
if the debtor is able to ensure that its assets exceed it liabilities and
As to PDVSA and Petroquimica de Venezuela, S.A. (Pequiven),
that the entity is viable after a temporary moratorium. Entities that
a special regime established in Exchange Agreement No. 9, dated
do not qualify for a moratorium protection will be declared bank-
August 2009 as amended, allows it and its affiliates to:
rupt and a special court administrator will be appointed to liquidate
• maintain offshore accounts;
assets in an orderly fashion.
• keep in foreign currency the proceeds arising out of export
In the event of a bankruptcy, secured assets will first be used
activities up to an amount to be determined with the favourable
to pay the secured debts; however, the project lender will need to
opinion of the Venezuelan Central Bank;
enforce its rights in the bankruptcy procedure, since no isolated or
• use the funds in its offshore accounts to pay its obligations in
separate procedures will be permitted and all foreclosures will need
foreign currency; and
to be centralised under the bankruptcy procedure.
• obtain from the Venezuelan Central Bank foreign currency to
replenish the funds used in payment of its foreign currency
obligations.
on foreign currency exchange? In addition, Exchange Agreement No. 9 also provides that enti-
ties incorporated pursuant to the association agreements entered
In February 2003, the Venezuelan government enacted a rigorous
into by PDVSA, as well as the mixed companies referred to in the
foreign exchange control regime that in general restricts the ability
Liquids Hydrocarbons Organic Law (the Hydrocarbons Law) and
of particulars to freely acquire, keep and dispose of foreign currency.
the Gaseous Hydrocarbons Organic Law (the Gas Law), may keep
The general principle is that Venezuelan bolivars may not be
offshore accounts in foreign currency, with the income received by
freely converted into foreign currency unless the Venezuelan gov-
them, with the purpose of making payments and disbursements that
ernmental agency authorises the purchase of the said currency at
are required outside Venezuela, the use of which will be overseen by
the official exchange rate or such an exchange is made through one
the Venezuelan Central Bank. The remaining foreign currency will
of the mechanisms officially approved by the government. There is
be sold to the Venezuelan Central Bank at the official exchange rate.
no restriction as to the amount of currency that enters the country,
Subject to certain rules and restrictions, the present foreign
but in some cases depending on the origins, such as export proceeds,
exchange regulations allow individuals and corporations to open,
maintain and manage foreign currency bank accounts in Venezuelan

financial institutions, including Petroleos de Venezuela, SA, its affili- and gas companies) must be sold to the Venezuelan Central Bank at
ates (PDVSA), mixed companies (entities incorporated by an state- the official exchange rate in force at the time of the export.
owned company and a private company) engaged in the export of
liquid and gas hydrocarbons.
7 What are the restrictions, controls, fees and taxes on remittances Subject to certain rules and restrictions, domestic and foreign
of investment returns or payments of principal, interest or companies are entitled to maintain foreign currency accounts in
premiums on loans or bonds to parties in other jurisdictions? Venezuelan financial institutions. They are also not restricted from
In general terms, foreign investors must possess registration of a maintaining offshore accounts in foreign currency, which can be
direct foreign investment in order to apply for the purchase of for- freely maintained outside Venezuela. It should be noted that while
eign currency at the official exchange rate to repatriate the invest- maintaining offshore accounts is permitted, as explained previously,
ment (or any dividends or other benefits obtained). To obtain such certain transactions require the compulsory sale to the Venezuelan
registration, the foreign investor must have made an investment in Central Bank of the foreign currency generated therefrom.
Venezuela (such as in the capital of a Venezuelan company) through
a transaction whereby foreign currency or goods will have effec- Foreign investment issues
tively entered the country. If the investment is done through cash,
then such cash should be brought to the country through the sale of 10 What restrictions, fees and taxes exist on foreign investment in or
such currency to the Venezuelan Central Bank. Consequently, any ownership of a project and related companies? Do the restrictions
amounts that enter the country in any manner that are not the sale also apply to foreign investors or creditors in the event of
of currency to the Venezuelan Central Bank at the official exchange foreclosure on the project and related companies? Are there
rate will not give the investors the right to register the investments or any bilateral investment treaties with key nation states or other
debts, and thus they will not be able to obtain foreign currency at the international treaties that may afford relief from such restrictions?
official exchange rate to distribute dividends, repatriate capital, etc. Would such activities require registration with any government
As to the repayment of debt, there are two different scenarios: debt authority?
acquired prior to the beginning of the exchange control; and new Venezuelan law treats foreign and national investors alike, although
debt. In both cases, as explained below, to obtain foreign currency at some benefits are provided for national investors. Venezuela is also
the official exchange rate to make repayments, such debt should be party to several bilateral investment treaties and was a member of
duly registered before CENCOEX (previously CADIVI). the ICSID Convention although this last was repealed, effective from
The acquisition of foreign currency intended for the remission June 2012. There are several sectors completely reserved for national
of dividends, capital and interest profits derived from direct for- investors, such as television, newspapers and radio stations, and
eign investment, as well as payments in foreign currency relating areas where private participation is limited, such as the upstream
to contracts of technology import and for the use and import of oil sector, where private participation is permitted only in associa-
patents and trademarks requires registration by individuals and tion with the state-owned companies and where such state-owned
corporations with the respective office that keeps records of such company will hold more than 50 per cent. In addition, in other areas
transactions. such as gas and petrochemicals, where such restriction is not legally
Also, an authorisation for acquiring foreign currency may be present, the government in practice has imposed the same restric-
requested for the repatriation of an international investment. Such tion. Foreign investments are required to be registered before the
authorisation may also cover amounts that are necessary for the Venezuelan Superintendence of Foreign Investments or before the
maintenance, broadening and development of international invest- same agency at the Ministry of the Popular Power for Petroleum and
ments, remission of benefits, profits, income, interests and dividends Mining or the Banking or Insurance Superintendence (depending on
of an international investment, indemnities to international investors the sector of the investment).
for the expropriation in cases of public and social service as provided Private companies of foreign ownership may purchase real
for in the law, proceeds of the total or partial sale or liquidation of estate in Venezuela provided that such real estate is not located in
an international investment, payments resulting from the resolution areas that have been designated as a ‘safety zones’. The National
of disputes, payments derived from contracts for the import of tech- Security Organic Law and the regulations thereunder, provide that
nology or on account of royalties or other rents derived from the the acquisition, possession, title and other rights over real property
exploitation of trademarks, patents, licences and franchises. located in safety zones by foreign persons will be authorised by the
As to remittances to repay foreign debt (for entities other than Ministry of the Popular Power for Defence.
PDVSA or those engaged in oil and gas activities) the debt should
have been registered before the foreign exchange authorities. For
debt entered into prior to the beginning of the exchange control,
the registration period has already elapsed. For new debt, the for-
eign exchange authority will authorise the assumption of the foreign
creditors?
debts prior to its formalisation and register such debt, and will also
authorise the sale of the foreign currency to service such debts. Insurance policies can only be issued by Venezuelan insurance com-
panies duly licensed by the Venezuelan Superintendence of Insurance.
Reinsurance by international companies can only be underwritten
8 Must project companies repatriate foreign earnings? If so, must by authorised foreign companies, however it is customary that cut-
they be converted to local currency and what further restrictions through clauses are included or reinsurance is obtained.
In general terms, Venezuelan companies do not have the express
obligation to bring into the country their earnings obtained from
their activities developed or carried out abroad. Notwithstanding
the above, some percentage of the foreign currency obtained from Foreign persons will require a working visa and permit in order
exports made by Venezuelan companies (other than PDVSA and oil to permanently work in Venezuela. In addition, the Venezuelan
Organic Labour Law provides that Venezuelan employers (domestic
or foreign) should have no more than 10 per cent of foreign employ- for Finance also has a direct involvement. In summary, no project
ees on their payroll. The same law and its regulations allow for some will be subject to the jurisdiction of one single entity.
exceptions in special circumstances provided that a special permit is
obtained from the Ministry of Labour. Regulation of natural resources

13 What restrictions exist on the importation of project equipment? parties acquire to these resources and what obligations does the
As a general rule, project equipment can be freely imported, with holder have? May foreign parties acquire such rights?
the exception of certain specific products that require permits and Goods that are located in the subsoil are the property of the
licences. All imports will be subject to import duties and VAT pay- Venezuelan state, and its recovery can be made only by state-owned
able at customs, though some waivers may be obtained for project companies, mixed companies with the participation of state-owned
equipment that will enter the country on a temporary basis. companies, or if a licensee is secured in the case of gas. All goods,
It should be pointed out that it has been the policy of the gov- including animals and things that grow on land are the property
ernment, enforced especially in those projects subject to licences, or of the owner of the land. Hydrocarbons and mineral resources,
where the government or its agencies are participating, to encourage as per constitutional provisions, belong to the Venezuelan state.
and request the maximum use of local goods and local content. Exploration, exploitation, initial transport and warehousing of liq-
uid hydrocarbons are reserved to the Venezuelan state, or entities
14 What laws exist regarding the nationalisation or expropriation in which it owns more than 50 per cent participation with private
of project companies and assets? Are any forms of investment parties. No private party may perform such activities without the
specially protected? participation of the state and such mixed entities require authorisa-
tion to be incorporated and a licence to perform any of the above-
Venezuelan law provides that expropriation can take place only
mentioned activities. Title to non-associated gas also belongs to the
for reasons of public interest and after due process with proper
Venezuelan state, but the activities of exploration, exploitation, ini-
and timely compensation. Over the last three years, the govern-
tial transport and warehousing can be performed entirely by private
ment has carried out many nationalisations, performed in different
parties that have obtained a licence from the Venezuelan govern-
forms, where in some cases participation of the state or its agencies
ment. Mineral resources also belong to the state and its exploration,
was requested or increased, project conditions were substantially
exploitation and processing can be performed by private parties
changed or projects were entirely nationalised. No single pattern has
provided that a concession or licence is secured from the Venezuelan
been followed.
government.
The Venezuelan Constitution grants equal protection to invest-
ments made by foreign and nationals alike, as does the Law to
Protect and Promote Private Investment, which grants specific pro- 18 What royalties and taxes are payable on the extraction of natural
tection rights to investors, including the right of foreign investors to resources, and are they revenue- or profit-based?
exercise their claims before international forums. Venezuela imposes royalties on the recovery of natural resources,
which are calculated based on the value of the recovered resources
Fiscal treatment of foreign investment at the moment of extraction, and calculated in accordance with a
formula that varies depending on the sector, payable in the same
manner by foreign or national investors. In most cases, the royalty
can, at the discretion of the government, be paid either in cash or in
kind with the recovered products.
Capital investments made in Venezuelan corporations, either by for-
eign nationals or local investors, are subject to a 2 per cent registra- 19 What restrictions, fees or taxes exist on the export of natural
tion stamp tax (and 2 per cent in some jurisdictions). In the absence resources?
of tax treaties, interest payments made to offshore non-financial Export of natural hydrocarbons (liquid and gaseous) is reserved to
institutions are subject to a 34 per cent withholding tax, payable the Venezuelan state or to entities, including mixed companies with
through withholding. Interest payments made to offshore financial private participation, that have been authorised to do so pursuant to
institutions not domiciled in Venezuela are subject to a 4.95 per a licence. Though export is not prohibited, both the Hydrocarbons
cent tax payable through withholding. The filing and registration of Law and the Gas Law provide that the production of hydrocar-
mortgages and other security documents subject to registration are bons should first satisfy the internal market. Such concept has been
subject, in most cases, to a 0.25 per cent registration fee calculated embedded in the preliminary considerations of both laws, as well
over the secured amount. as in different articles, and has been an obstacle to the development
of oil and gas projects. In practice, certain projects have been desig-
Government authorities nated as export projects and the majority, if not all, of their produc-
tion has been destined for the export market.
16 What are the relevant government agencies or departments with Due to the foreign exchange regime in force in Venezuela,
authority over projects in the typical project sectors? What is the explained above, some percentage of their export proceeds may
nature and extent of their authority? What is the history of state not be freely disposed of by exporters. In the case of mixed com-
ownership in these sectors? panies between the Venezuelan state and private parties engaged in
As a general principle, a particular ministry has the competence to the export of liquid or gaseous hydrocarbons or their by-products,
oversee specific activities and areas, however, several other minis- such as potential petrochemicals, export proceeds can be used freely
tries have additional direct involvement, since permits may need (subject to reporting obligations) in order to satisfy all offshore pay-
to be secured from different entities. In the case of hydrocarbons, ments to be paid in foreign currency, and the remaining must be sold
the Ministry of the Popular Power for Petroleum and Mining is in to the Venezuelan Central Bank. Export proceeds made by compa-
direct charge of an oil, gas or petrochemical projects, however, the nies other than those engaged in oil and gas must be sold to the
Ministry of the Popular Power for Environment is in charge of issu- Venezuelan Central Bank, with the exception of minor amounts that
ing all environment permits and the Ministry of the Popular Power can be maintained to satisfy certain obligations in foreign currency.

Legal issues of general application • the party against which the award is invoked had not been duly
notified of the designation of an arbitrator or the arbitration
20 What government approvals are required for typical project finance procedure requiring such designation or for any reason has been
transactions? What fees and other charges apply? unable to enforce its rights;
The creation of certain types of security interest, such as moveable • the composition of the arbitration court, or the arbitration pro-
mortgages of pledges without delivery, will require that the benefi- ceedings have not been effected in accordance with the law of
ciaries, other than local banks, obtain a special authorisation from the country where the arbitration took place;
the Venezuelan authorities. Due to the foreign currency regulations • the award refers to a controversy not contemplated in the arbi-
currently in force, borrowers located in Venezuela, apart from cer- tration agreement or contains any decisions exceeding such
tain exceptions, will not be able to freely obtain foreign currency in agreement;
order to pay debt denominated in foreign currency. In order to lend • the party against which the award is invoked proves that the
money to borrowers located in Venezuela, the borrower, prior to same is not yet binding on the parties or has been previously
the borrowing, must obtain an authorisation from the Venezuelan annulled or suspended by a competent authority as agreed by
Foreign Exchange Control Authorities, where the amount, use of the the parties for the arbitration proceeding;
proceeds and payment schedule will be authorised, and only with • the court before which the recognition or enforcement of the
this authorisation will the borrower be entitled to purchase foreign award is requested proves that according to the law the object
currency from the Venezuelan Central Bank in order to pay foreign of the controversy is not subject to arbitration or that the subject
debt. The above-mentioned principle is subject to exceptions, espe- of the arbitration is contrary to public order;
cially when the borrower is engaged in certain activities (hydrocar- • the arbitration agreement is not valid under the law to which the
bons, petrochemicals) that are subject to special foreign exchange parties have submitted such arbitration; or
regimes, which allow the use of sale proceeds to pay foreign debts. • the arbitration relates to a matter in respect of which Venezuela
The registration of certain types of security interest, such as mort- is solely entitled to assert jurisdiction under Venezuelan law.
gages, will cause registry fees.
21 Must any of the financing or project documents be registered or Which jurisdiction’s law typically governs financing agreements?
filed with any government authority or otherwise comply with legal Which matters are governed by domestic law?
formalities to be valid or enforceable? Typically, all financing agreements involving international financing
Loans agreements do not need to be filed nor signed before a public entities have been submitted to foreign law and jurisdiction, while
notary. Ordinary pledges need to be signed before a public notary, financing agreements with local financing entities have been submit-
and all security interest over real estate, chattel mortgages, pledges ted to local law and jurisdiction. Project agreements involving state-
without delivery need to be registered in Venezuela in order to be owned entities have typically been submitted to Venezuelan laws and
valid. Any loan agreement to be enforced before a Venezuelan court foreign jurisdiction or arbitration. However, certain matters such as
needs to be translated into Spanish by a certified public transla- those related to real estate cannot be submitted to jurisdictions other
tor and the same applies to all documents that are to be presented than the Venezuelan jurisdiction. In addition, the Hydrocarbons
before a Venezuelan court. Law and the Gas Law provide that all licences for the exploration
and exploitation should include a clause submitting controversies to
Venezuelan law and Venezuelan jurisdiction.
As to enforcement of foreign courts’ decisions, a final and con-
clusive judgment obtained from a court outside of Venezuela will
be recognised by and be enforceable in Venezuela, provided that an
official Spanish translation of each of the relevant documents that
is not originally in Spanish is submitted in the appropriate form to
In general, subject to certain limitations, Venezuelan laws do not the court and to any other governmental authorities in Venezuela to
prevent private parties from submitting agreements to foreign laws, which an enforcement action is brought. According to the Private
jurisdiction and domestic or foreign arbitration. In addition, apart International Law, for a judgment rendered by a foreign court to be
from the exceptions outlined below, Venezuelan state-owned com- judicially enforced in Venezuela, it is necessary to obtain a confirma-
panies are permitted to submit controversies to foreign laws and tory judgment (exequatur) issued by the Venezuelan Supreme Court
jurisdiction or arbitration (or both). It should be pointed out that of Justice (the Supreme Tribunal). According to the Venezuelan
in recent years the Venezuelan government has discouraged the use Private International Law, as a condition to the issuance of such
of foreign laws and jurisdiction as well as arbitration in agreements confirmatory judgment, the Venezuelan Supreme Court is required
where it, or any of its agencies, is a party. Moreover, agreements to determine that the foreign judgment:
entered into by PDVSA to form mixed companies with private par- • has been rendered by a court of competent jurisdiction;
ties in the oil and gas sector specifically provide for submission to • does not relate to real property located in Venezuela;
Venezuelan laws and local courts, and only in financing agreements • does not relate to subject matter in respect of which Venezuela is
has the government accepted the use of foreign courts of arbitration. solely entitled to assert jurisdiction under Venezuelan law;
Venezuela repealed the ISCID Convention, effective from June 2012. • was rendered following proper service of process made upon the
State-owned entities are required to obtain, prior to agreeing to parties pursuant to the laws of the country in which the foreign
submit any agreement or dispute to arbitration, the approval of the judgment was rendered;
Ministry that oversees such entity, and no controversy can be sub- • does not contain provisions deemed to be contrary to Venezuelan
mitted to an arbitration panel with less than three arbitrators. An public policy or public law, or conflict with a final decision ren-
arbitration award rendered outside Venezuela should be recognised dered by a Venezuelan court;
and enforced in Venezuela, without requiring confirmation from • does not refer to a judicial procedure between the same par-
Venezuelan courts, except when: ties and relating to the same controversy already initiated in
• the party against which it is invoked proves that one of the par- Venezuela prior to the date on which the foreign judgment was
ties was affected by any legal inability at the time of execution of rendered;
the arbitration agreement;
• is res judicata under the laws of the foreign jurisdiction in which The Venezuelan Commercial Code expressly allows com-
it was rendered; and panies organised in a foreign country to establish branch offices
• concerns only matters of private law. in Venezuela. The branch retains its nationality, even though it is
deemed domiciled in Venezuela, unless the main purpose of the
In addition, Venezuela is also a party to the Inter-American branch is the exploitation of a business in Venezuela, in which case
Convention on Extraterritorial Validity of Foreign Judgments and the branch will be reputed as a Venezuelan company. Unlike subsidi-
Arbitral Awards, which may apply in some cases. aries, branches have no separate legal status from the parent com-
pany. Branches will be required to appoint a legal representative that
should be domiciled in Venezuela, and capital has to be assigned to
the branch.
See questions 22 and 23. Public-private partnership legislation
Environmental, health and safety laws 27 Has PPP enabling legislation been enacted and, if so, at what
In June 2012, the Decree with Force and Rank of Law that Promotes
and Regulates the new joint associative Forms between the State,
All activities that may have an impact on the environment should the Community and Private Initiatives for the Development of the
obtain preliminary permits from the Ministry of the Popular Power National Economy was enacted setting forth certain principles for
for the Environment (in addition to any other permits). Industries the establishment of joint companies between the state and private
are required to comply with several general environmental rules and parties. In addition, several laws (Organic Hydrocarbons Law,
those particular regulations applicable to specific industries. The Organic Petrochemical Law) reserve certain activities to state-owned
main set of regulations is contained in the Organic Environmental companies or mixed companies between the public and private sec-
Law and multiple regulations issued for each of the different activi- tor where the Venezuelan state, or its agencies, will own, in some
ties capable of having an impact on the environment. cases more than 50 per cent, and in others more than 60 per cent.
Project companies PPP – limitations
26 What are the principal business structures of project companies? 28 What, if any, are the practical and legal limitations on PPP
What are the principal sources of financing available to project transactions?
companies?
Mixed companies where the Venezuelan state will own more than
In accordance with the Venezuelan Commercial Code, there are 50 per cent will be considered as state-owned companies pursuant
various types of legal entities that can and have been used as project to the provisions of the Organic Law for the Administration of the
companies. Public Sector and in consequence the following legislation will apply:
The CA – indistinctly referred to either as a compañía anónima • reporting – each state-owned enterprise is ascribed or assigned
(CA) or sociedad anónima – is the most common type of legal entity to a particular ministry, state or municipal entity. Such a govern-
used. The basic characteristic of this type of entity is that the partners mental entity will have access to the information of the particu-
will be isolated from the liability of the company, since their liability lar enterprise in respect to budget matters and will keep records
will be limited to the amount of capital they have contributed. The of the shareholding composition of the companies where the
capital of any CA will be represented by shares. Unless otherwise state holds a participation in its capital stock and that are under
provided for in the by-laws, the CA’s shares are freely transferable by its responsibility. Additionally, such governmental entity should,
endorsement of the shares and the signing of the shareholders’ book. twice a year, send a copy of the above to the National Assembly;
Venezuelan laws allow great flexibility regarding the management • accounting supervision – the Organic Law of the General
structure of the CA. The Venezuelan Commercial Code does not Comptroller’s Office of the Republic and of the National System
contemplate any floor or ceiling on the capital of a CA. Therefore, of Fiscal Control (the Comptroller’s Office Law) sets forth that
the amount to be allocated as capital of a CA is the decision of the the General Comptroller’s Office of the Republic is responsi-
partners, with no restrictions under local law. Notwithstanding the ble for the control, surveillance and fiscalisation of the income,
foregoing, the registry offices have discretionary authority to require expenses and operations of corporations of any nature in which
minimum capital in order to ensure that companies have sufficient the state has a participation; and
resources to develop their corporate purposes. The capital can be • budget approval – the Organic Law of the Financial
paid in kind or in cash, as so decided by the partners, and at the time Administration of the Public Sector (the Public Finance Law)
of incorporation at least 20 per cent of the total amount allocated as sets forth that the ‘Corporations in which the Republic or the
capital must be paid in. remaining persons referred to in this article [6] have a participa-
A limited liability company (SRL) is a hybrid of partnerships and tion equivalent or higher than fifty per cent (50 per cent) of the
share corporations. The Commercial Code establishes a minimum capital stock’, are subject to the regulations of the Public Finance
capital of 20 bolivars and a maximum capital of 2,000 bolivars for a Law as provided therein.
SRL. The capital of a SRL will be divided into participation quotas,
which must be transferred pursuant to a notarised deed. If the capi- Articles 65 to 74 of the Public Finance Law define the budgetary
tal contribution is in cash, the partners may initially pay 50 per cent regime corresponding to state-owned entities with business pur-
of the amount subscribed, but if the capital contribution is in kind, poses. These regulations include, among others, the oversight by the
it must be paid in full. The legal limit on the maximum capital has National Budget Office of the proposed annual budget projections
made this entity unattractive for project companies; however, based approved by the supervised entity’s managing body. The proposed
on a provision of the Commercial Code that allows for partner budget and the National Budget Office’s report should be submit-
funding of the SRL, known as ‘additional compensation and com- ted to the President of the Republic for its approval by the Council
plementary payments’, this type of entity has, in some cases, been of Ministers and such approval should include any adjustments
used as a project company. deemed convenient, provided that such adjustments do not require
limitations in respect to income volumes and budgeted expenses but

only deal with compliance with the objectives and goals of the busi- against public goods and provide the criminal sanctions to be applied
ness performance in respect to the policies approved by the relevant to those who violate these provisions and whose acts or omissions
supervising ministry. cause harm to the public patrimony’.
Debt obligations Arbitration

Another consequence deriving from the applicability of the Public Legally, state-owned entities are permitted to submit controversies
Finance Law is that a state-owned entity will be limited in its ability to arbitration provided that the arbitration panel is composed of at
to enter into financing agreements and will be required to comply least three arbitrators and that the arbitration was approved by the
with certain requirements. minister to which the particular entity is ascribed to. Recently the
government has made very clear that it will not submit any mat-
Procurement ter to arbitration or foreign courts, with the exception of financing
The Bidding Law sets forth that its purpose is to regulate contrac- agreements.
tors’ selection procedures by the public entities regulated by such
law, for the execution of work, the acquisition of personal property PPP – transactions
and the rendering of services different from those of professionals
and labour. This law applies to entities of the public sector. However, 29 What have been the most significant PPP transactions completed
under the newly enacted Decree with Force and Rank of Law that to date in your jurisdiction?
Promotes and Regulates the new joint associative Forms between the In the recent past, several new projects have been structured in the
State, the Community and Private Initiatives for the Development of form of mixed companies, where the government has maintained at
the National Economy, such rules will be not be applicable to joint least 60 per cent project ownership. In addition, several agreements
companies where the state owns 40 per cent or more of the capital. have been signed by the government or its agencies aiming at form-
ing mixed companies for different projects. Among the most impor-
The Anti-corruption Law tant is the formation of mixed companies with Belarusian, Chinese,
The main objectives of this Law are to ‘establish the rules that gov- Russian and Vietnamese entities for oil projects, and the signing of
ern the behaviour of the persons subject to its application for the memoranda of understanding with Portuguese, Japanese and the
purpose of safekeeping the public patrimony, and to define crimes United States companies for the development of gas projects.
Reinaldo Hellmund rhellmund@romen.com

Carlos Martinez cmartinez@romen.com
Miguel Velutini mvelutini@romen.com
Edif Parque Cristal, Torre Este Tel: +58 212 285 4944
11th Floor, Av Francisco de Miranda Fax: +58 212 285 1379
Los Palos Grandes www.romen.com
Caracas
Venezuela
VIETNAM DFDL
Vietnam
Martin Desautels and Hoang Phong Anh
DFDL
Creating collateral security packages • mortgage of land use rights, of production forest as an artificial
forest;
1 What types of collateral are available? • mortgage or pledge of aircraft;
In principle, all types of collateral allowed to be provided as secu- • mortgage of ships; and
rity in Vietnam are available for securing project finance transac- • other cases as provided for by future Vietnamese regulations.
tions. Pursuant to Vietnamese laws, more specifically the Civil Code
and the Decree on Secured Transactions, collateral can be objects, Other secured transactions can be registered if agreed by the con-
money, valuables, papers and property rights. tracting parties.
Generally, collateral used within project financing includes Priority is established by order of registration. If none of the
immoveable property (land use rights, properties attached to the secured transactions are registered, priority will be determined by
land), moveable assets, contractual rights, onshore and offshore order of establishment of the security transaction. The applicant
bank accounts and conditional assignment of equity. The collateral must pay a fixed fee for notarisation or certification of security
can also be property that arises in the future, for example a construc- agreements and for registration of each secured transaction. In gen-
tion or agreement to be signed (please note, future assets may not eral, this fixed fee is a nominal amount (ie, US$4 for registering one
include land use rights). secured transaction).
It must be noted that there is no private ownership of land in It is possible for a corporate entity, such as an agent or trus-
Vietnam. Land is owned by the people and administered exclusively tee, to hold collateral on behalf of the project lenders as the secured
by the state. Land use rights and properties attached to the land party. There is no precedent of a bankruptcy of the collateral agent
cannot, in principle, be mortgaged in favour of a foreign lender. In or trustee in Vietnam. However, the collateral is not an asset of the
certain cases for large infrastructure-related projects, the properties collateral agent or trustee. Therefore, this collateral shall be excluded
attached to the land can be mortgaged in favour of a foreign lender from the estate of such collateral agent or trustee in the case of bank-
through an onshore security agent, subject to special approval of the ruptcy. The parallel debt clause concept is not recognised in Vietnam.
Prime Minister.
2 How is a security interest in each type of collateral perfected priority to the creditor’s lien?
and how is its priority established? Are any fees, taxes or other It is common practice to perform lien searches. Such searches may be
charges payable to perfect a security interest and, if so, are there duly conducted with respect to secured transactions requiring reg-
lawful techniques to minimise them? May a corporate entity, in istration. However, in the case of secured transactions that are not
the capacity of agent or trustee, hold collateral on behalf of the required to be registered, it could be more difficult for the creditor to
project lenders as the secured party? get outside assurance as to the absence of liens. Instead, the creditor
A secured transaction needs to be established in writing and needs must rely on information provided by the debtor.
to be notarised or certified as agreed by the parties or as required With respect to the land use rights, the creditor can obtain mort-
by law. It is usually recommended that the secured transaction be gage information from the provincial agency for the registration of
notarised, especially those involving real property such as mortgage land and house. As regards to other assets, the creditor can search
or guarantee based on land use right must be notarised or certified for security information at an office for the registration of secured
by the local people’s committee, as the case may be. transactions. There are three offices, located in Hanoi, Ho Chi Minh
Secured transactions become effective from the signing date City and Da Nang City.
except:
• if otherwise agreed by the parties;
• a pledge shall be effective from the time of transfer of assets
being pledged;
• the mortgage of land use rights, forest use rights and ownership,
aircraft and sea-going vessels shall be effective from the time of The method of collateral enforcement is provided in the security
registration of the mortgage; or agreement. Before the enforcement of collateral, if a single property
• secured transactions shall take effect from the time of notarisa- is used to secure the performance of several obligations, the realisor
tion or certification if so required by law. must provide written notices of realisation of the security property
to other jointly secured parties at the addresses recorded at the secu-
However, secured transactions will be effective against a third party rity transactions registration office or must register the notice of real-
from the date of registration. Vietnamese laws require that the fol- isation of the property in accordance with the law on registration of
lowing secured transactions must be registered: security transactions. If the parties have not agreed otherwise, in the
case of moveable property, land use rights and property attached to

DFDL VIETNAM
land, collateral (security property) shall be sold by auction (except Also, all foreign loans of over 12 months have to be registered
where the value of the security property may be clearly determined with the SBV. In this regard, foreign loans can be provided if such
on the market, the property may be sold at the market price without loans are within the quota of foreign loans that was approved by the
conducting an auction sale, subject to a notification to the securing relevant authorities for a specific project.
party and the jointly secured parties, if any). Transfer of foreign currency overseas is possible provided that
A lender can seize or sell secured property itself, or petition a such transfer complies with the purposes permitted by the foreign
court to permit it to do so in the case of disputes. When seizing a currency regulations, for example repayment of debt, payment in
property, a lender must not apply any measures in breach of law or relation to offshore agreements, remittance of dividends or invest-
public order during the process of seizure. ment return. There is no fee, tax or other charges on foreign currency
Foreign lenders cannot seize or buy immoveable secured exchange imposed by the government.
property.
A security property shall be realised within a time limit agreed
by the parties; if there is no such agreement, then the secured party
shall have the right to make a decision on the time for realisation,
which shall not be earlier than seven days in respect of moveable
property and 15 days in respect of immoveable property, counted In general, payments of interest and charges by the project company
from the date of notice of realisation of the security property. to offshore banking lenders, are subject to Foreign Contractor Tax
of 5 per cent (withholding income tax). Remittance of investment
return is not subject to any restriction, specific tax or fee.
5 How does a bankruptcy proceeding in respect of the project The project company is entitled to buy foreign currencies with
company affect the ability of a project lender to enforce its rights its local bank to make lawful remittances. However, only in certain
as a secured party over the collateral? Are there any preference cases for large infrastructure-related projects, project companies
periods, clawback rights or other preferential creditors’ rights may be granted a guarantee on the availability of foreign currency.
what legislation applies to them? What processes other than 8 Must project companies repatriate foreign earnings? If so, must
court proceedings are available to seize the assets of the project they be converted to local currency and what further restrictions
company in an enforcement? exist over their use?
In principle, a bankruptcy proceeding in respect of the project com- Project companies are required to repatriate foreign earnings as long
pany has no major impact on secured lenders: debts secured by as they relate to the operations of the project. Such foreign earnings
pledged or mortgaged assets that have been established before the must not be converted to local currency. Nevertheless, these foreign
petition for bankruptcy proceedings and accepted by the court shall earnings can be kept abroad in an offshore account of the project
be given priority in payment by such assets. Where the value of the company if the project company was granted a proper authorisa-
pledged or mortgaged property is insufficient to pay the debts, the tion from the SBV. The use of foreign currency, including foreign
remaining debts shall be paid during the asset liquidation of the pro- earnings, must comply with foreign currency exchange regulations
ject company. Where the value of the pledged or mortgaged property in Vietnam.
is greater than the debt, the difference in value shall be included in
the value of the remaining assets of the bankrupt project company. 9 May project companies establish and maintain foreign currency
The period for claw-back rights is three months before a petition for accounts in other jurisdictions and locally?
bankruptcy proceedings is processed by the court. Other preferential
The project company may establish and maintain foreign currency
creditors’ rights with respect to the collateral are not related to the
accounts locally at duly authorised banks. However, the opening
collateral.
of foreign currency accounts in other jurisdictions is only possible
To our knowledge, no type of entity is excluded from bank-
when it is expressly required by the lender and prior approval from
ruptcy proceedings. There are also no other processes except court
the SBV is obtained. Please note that such bank accounts may only
proceedings that are available to seize the assets of a business. To our
be used for the receiving and paying of foreign loans or other pur-
knowledge, claims should be treated in the same way regardless of
poses strictly authorised by the SBV.
whether they emanate from foreign or local creditors.
Please note that an amendment to the Law on Bankruptcy will
be issued in 2014 after the date of this publication, and this amend-
ment may affect the above. 10 What restrictions, fees and taxes exist on foreign investment in or
Foreign exchange issues also apply to foreign investors or creditors in the event of
The Vietnamese currency (dong) is not freely convertible into Would such activities require registration with any government
other currencies. From a Vietnamese law perspective, some foreign authority?
exchange transactions, such as opening offshore accounts and off-
In principle, Vietnam has committed to maintain a policy of
shore direct payments, will need to be approved by the State Bank
national treatment for foreign direct investment, subject to several
of Vietnam (SBV).
restrictions applicable to sensitive sectors. Restrictions in terms
Moreover, within the territory of Vietnam, all transactions, pay-
of foreign ownership vary depending on the sectors in which the
ments, listings, advertisements, quotations, fixing prices and record-
foreign investor will operate. For instance, with regard to project
ing of prices in contracts and agreements and other similar forms
finance transactions, foreign investors may invest without any
(including conversion or amendment of prices of goods and services
restriction on ownership in the production of electricity. In contrast,
and of contract and agreement prices) of residents and non-residents
foreign ownership is restricted with respect to the establishing of
must be denominated and conducted in dong.
VIETNAM DFDL
telecommunication network infrastructure, which requires state par- 14 What laws exist regarding the nationalisation or expropriation
ticipation, and investing in the oil and gas sector in Vietnam. of project companies and assets? Are any forms of investment
To our knowledge, there are no provisions in any bilateral specially protected?
investment treaties with key nation states or in other international Several laws govern the issue of nationalisation or expropriation of
treaties that may afford relief from such restrictions. Registration foreign investments, as follows:
with governmental authorities is required at the start of any project.
Vietnam has signed more than 60 double taxation treaties, some The 2005 Investment Law
of which allow, subject to certain conditions, relief from income tax, The 2005 Investment Law stipulates that lawful assets and invested
including possible exemption or reduction of the withholding tax capital of investors shall not be nationalised or confiscated by
rates. administrative measures. In a case of real necessity for the purposes
of national defence and security and in the national interest, if the
state compulsorily acquires or requisites an asset of an investor, such
investor shall be compensated or paid damages at the market prices
at the time of that such compulsory acquisition or requisition is
creditors?
announced. Payment of compensation or damages must respect the
lawful interests of investors and must be made on a non-discrimina-
Only insurance companies duly licensed in Vietnam may provide tory basis between investors. Any compensation or damages payable
insurance policies over project assets of a local project company in relation to assets to foreign investors shall be made in a freely
(without a foreign sponsor). However, a foreign invested project convertible currency and shall be permitted to be remitted overseas.
company (having a foreign participation with an interest higher than
49 per cent) may enter into insurance policies with local or foreign The 2005 Law on Enterprises
insurance companies. It is of note that these foreign insurance com- The 2005 Law on Enterprises provides that the lawful assets and
panies must have headquarters in a country with which Vietnam has invested capital of an enterprise and its owner shall not be national-
signed an international trade treaty, which includes an agreement on ised or expropriated by administrative measures. In cases of extreme
provision of cross-border insurance services in Vietnam. necessity where the state compulsorily acquires or requisites the
It should be noted that under the Vietnam’s Foreign Contractor assets of an enterprise for reasons of national defence or security and
Tax Circular the following withholding taxes are applied: in the national interest, the enterprise shall be paid or compensated
at the market price at the time the compulsory acquisition or requisi-
Type of business/ Effective VAT rate Deemed corporate tion is announced. The payment or compensation must ensure the
transaction income tax rate
interests of the enterprise without discrimination as between types
Insurance 5 per cent 5 per cent of enterprise.
International Exempt 0.1 per cent
re-insurance The BOT Decree
The BOT Decree provides that investment capital and legitimate
property of the investors shall not be nationalised or expropriated
by administrative action. In necessary cases where acquisition and
requisition of the state’s property are required in accordance with
There is no particular restriction on bringing in foreign workers, the provisions the Law on Investment, the state must assure payment
technicians and executives to work on a project (foreign employees) or compensation for property and capital of the investors at market
provided that such foreign employees satisfy conditions applicable prices or by other methods as agreed.
to the recruitment of foreign employees.
These conditions include notably technical skills, qualifications The procedures and conditions in relation to expropriation are stip-
and professional experience. Please note that in order to work in ulated by the Law on Compulsory Purchase and Requisition.
Vietnam, foreign employees must obtain a work permit beforehand.
In the event of foreign employees being transferred to Vietnam Fiscal treatment of foreign investment
from the head offices of foreign companies, the Vietnamese employer
must ensure that at least 20 per cent of the total number of its man- 15 What tax incentives or other incentives are provided preferentially
agers, executives, and specialists are Vietnamese citizens. However, to foreign investors or creditors? What taxes apply to foreign
each foreign enterprise is permitted to have a minimum of three investments, loans, mortgages or other security documents,
managers, executive directors and experts who are not Vietnamese. either for the purposes of effectiveness or registration?
Tax incentives are usually related to corporate income tax and
13 What restrictions exist on the importation of project equipment? import duty. Under Vietnamese tax and investment law, the level
In general, there is no restriction applicable to the importation of of tax incentives depends on both the sector of the investment and
project equipment. However, the importation of project equipment its geographical location. Foreign investors in infrastructure projects
must comply with provisions relating to the protection of the envi- in the form of BOT, BTO and BT contracts, or in PPP projects will
ronment. The project company may enjoy customs duty exemption enjoy special investment incentives status, which include a conces-
for equipment and materials (which cannot be produced in Vietnam) sionary 10 per cent tax rate for the duration of the project, a four-
used to form its fixed assets. No particular restriction exists on the year tax exemption period plus nine years of a 50 per cent reduction
importation of project equipment, except the importation of used in tax rate. In addition, these foreign investors are entitled to a ben-
equipment. efit of an exemption on rental on land use rights. After the incentive
period, the regular rate of 22 per cent will apply.
Finally, in certain special cases for large infrastructure-related
projects, project companies could be granted a guarantee on the
availability of foreign currency.

DFDL VIETNAM
Government authorities without applying for an export permit, except in cases where the
investor is required to sell in the Vietnamese market at the request
16 What are the relevant government agencies or departments with of the government:
authority over projects in the typical project sectors? What is the • natural gas owned by it, on the basis of agreements in projects
nature and extent of their authority? What is the history of state for the development and production of gas; and
ownership in these sectors? • a portion of its share of crude oil at an internationally competi-
For a typical project sector, authorisations would be required from tive price.
both central level (government, line ministries) and local level (peo-
ple committees of the city or province where the project is located Export of minerals is generally administered by the Ministry of
and department of line ministries). Industry and Trade.
For example, the Ministry of Industry and Trade is mainly in Most exported goods and services are exempt from export taxes.
charge of projects in the oil, gas, electricity and petrochemicals Export duties are imposed on a few items, mainly natural resources
sectors; the Ministry of Natural Resources and Environment is in such as minerals, forestry products and scrap metal. Export duty
charge of investment in natural resources such as mineral extraction; rates range from zero per cent to 40 per cent.
water treatment would be under the management of the provincial
people committee. Legal issues of general application
See also question 12.
Regulation of natural resources transactions? What fees and other charges apply?
In an infrastructure project transaction, several permits and approv-
17 Who has title to natural resources? What rights may private als are required. The main permits and approvals are as follows:
parties acquire to these resources and what obligations does the • special approvals from the government, such as an approval of
holder have? May foreign parties acquire such rights? award and formal notification of winning bidder (always appli-
In principle, natural resources including oil and gas, minerals, water cable to international bidding process of build-operate-transfer
and other natural resources located in the land, islands, internal (BOT) projects), approval of project agreements, etc;
waters, sea territory, exclusive economic zones and continental shelf • an investment certificate issued by the Ministry of Planning and
of Vietnam are owned by the entire people and are uniformly man- Investment or provincial people’s committees;
aged by the state. • SBV’s approval or certificate for offshore bank accounts (if any)
Private parties cannot ‘own’ these resources, but may acquire and for registration of foreign loan;
rights to conduct exploration, exploitation, mining, processing, etc, • approval of an environment impact assessment report; and
in accordance with applicable Vietnamese laws. Foreign investors • one or more operating licences or approvals depending on sec-
may also acquire such rights subject to relevant regulations. tors in which the investor will be operating, for example electric-
According to the Mineral Law, organisations and individu- ity permit, construction permit, mining permit, jetty permit.
als permitted to mine or process minerals shall be responsible for
combining the requirements of mineral mining or processing activi- Fixed and nominal fees are applicable for these licences, approvals
ties with the infrastructure construction, protection and rehabilita- and permits.
tion of the local environment, ecology and land in accordance with
approved feasibility studies. They shall also give priority to local
people in the recruitment of labour for mineral activities and related
services.
Loan agreements of over 12 months must be registered with the SBV
18 What royalties and taxes are payable on the extraction of natural in order to be legal (see question 6 on foreign exchange).
resources, and are they revenue- or profit-based? Certain secured transactions need to be notarised or certified
The extraction of natural resources (excluding oil and gas, which and registered (see question 2). Although registration is not com-
have a specific regime) is subject to royalties in Vietnam. The rate of pulsory for all secured transactions, it is advisable to proceed with
royalty varies, from zero to 35 per cent, depending on the kind of registration formalities because priority will be established by order
resource. The basis for the calculation of royalties shall be the quan- of registration (see also question 2). Any document registered or
tity of commercial resources actually exploited, the taxable value filed with a government authority must be in Vietnamese language
and the royalty rate. or include a Vietnamese translation.
Royalties applicable to crude oil vary from 1 to 29 per cent
depending on the rate of production, and for natural gas they vary
from 1 to 30 per cent depending on the rate of production. There
is no distinction between the royalties on extraction payable by
domestic and foreign parties.
19 What restrictions, fees or taxes exist on the export of natural In 1995, Vietnam acceded to the United Nations Convention on
resources? the Recognition and Enforcement of Foreign Arbitral Awards of
Export of goods, including export of natural resources, shall gener- 1958 (the New York Convention), with two reservations. The first
ally be subject to export duties, the basis and rate for each item are permitted Vietnam to restrict the enforcement of international arbi-
specified in the Export Tariff. tral awards only to such awards involving a ‘commercial dispute’;
Export controls on natural resources are imposed to protect and the second was that of reciprocity: Vietnam would recognise
domestic supply and national security and, in practice, such control enforcement of foreign arbitral awards in Vietnam from countries
may be introduced by a specific export licence. not party to the New York Convention only if those countries simi-
In the case of oil and gas, the investor may export its prod- larly recognised enforcement of arbitral awards from Vietnam.
uct share in petroleum in accordance with the petroleum contract
VIETNAM DFDL
Further, according to the new Code for Civil Procedure, a deci- oil and gas sector, the Petroleum Law would apply and for power
sion of a competent court in Vietnam is required in order to enforce generation and transmission, the Electricity Law would apply. For
a foreign arbitral award in Vietnam provided that such arbitral both these laws, the Ministry of Industry and Trade is the regulatory
award is not contrary to the basic principles of the laws of Vietnam. body. For the telecommunications sector, the Telecommunications
Vietnam is not yet a member of the ICSID Convention. Laws would apply under the regulatory authority of the Ministry
The dispute resolution mechanism provided under the 2005 of Information and Communication. With respect to the transport
Investment Law provides that any dispute to which one party is a sector, the applicable laws and regulations depend on the type of
foreign investor or an enterprise with foreign-owned capital or any transport involved. In cases involving aviation, the relevant law is
dispute between foreign investors shall be resolved by one of the fol- the Law on Aviation. The regulatory body administrating this law is
lowing bodies and organisations: a Vietnamese court; a Vietnamese the Ministry of Transport.
arbitration body; a foreign arbitration body; an international arbi-
tration body; or an arbitration tribunal established in accordance Project companies
with the agreement of the disputing parties (ad hoc arbitration).
The Investment Law also provides that any dispute between 26 What are the principal business structures of project companies?
domestic investors or between a domestic investor and a state What are the principal sources of financing available to project
administrative body of Vietnam relating to investment activities in companies?
the territory of Vietnam shall be resolved at a Vietnamese court or The Law on Enterprises of 2005 provides for five forms of corporate
arbitration body. structure, namely:
Non-commercial disputes are not arbitrable. • one-member limited liability company;
• limited liability company with two or more members;
• shareholding company or joint-stock company;
• partnership; and
• private enterprise.
The BOT Decree confirms possible application of a foreign law For projects involving infrastructure in Vietnam, a limited liability
as the governing law of project agreements, which are guaranteed company is the commonly chosen corporate form.
by the competent state authority, provided that the application of Principal sources of financing available to project companies
foreign law is not contrary to the basic principles of the laws of are onshore or offshore bank lending and local financial leasing
Vietnam. companies.
In practice, the establishment and the operations of the project
company will be governed by Vietnamese law. In the case of dispute Public-private partnership legislation
relating to the application or interpretation of the project agree-
ments, foreign law can be applied. Either English or Singaporean law 27 Has PPP enabling legislation been enacted and, if so, at what
is often chosen to govern financing agreements, except for onshore level of government and is the legislation industry-specific?
security agreements, which are governed by Vietnamese law. A decision issuing regulations on trial PPP investment form was
issued by the Prime Minister in 2010 (this PPP Decision will be
24 Is a submission to a foreign jurisdiction and a waiver of immunity applicable within three to five years until a decree on PPP is prom-
effective and enforceable? ulgated by the government). The regulations apply to the following
sectors:
Under the 2005 Investment Law, any dispute to which one party is a
• roads, road bridges and tunnels, and ferry landings for road
foreign investor or an enterprise with foreign-owned capital or any
traffic;
dispute between foreign investors shall be resolved by one of the fol-
• railways, and railway bridges and tunnels;
lowing bodies and organisations: a Vietnamese court; a Vietnamese
• traffic in urban areas;
arbitration body; a foreign arbitration body; an international arbi-
• airports, sea ports and river ports;
tration body; or an arbitration tribunal established in accordance
• clean water supply systems;
with the agreement of the disputing parties (ad hoc arbitration). A
• power plants;
foreign court judgment would, in principle, not be recognised by a
• health (hospitals);
Vietnamese court, without looking at the merits of the case.
• environment (waste treatment plants); and
There is no clear legal basis for the sovereign immunity waived
• other projects for infrastructure development or provision of
de jure by a sovereign entity in connection with a commercial rela-
public services as decided by the Prime Minister.
tionship and through contractual arrangements. This issue should be
confirmed by a legal opinion from the Ministry of Justice.
It should also be noted that the regulations are only applicable to a
limited number of pilot projects selected by the government, which
were announced in June 2011. See also question 25.
25 What laws or regulations apply to typical project sectors? What A draft decree on PPP is expected to be issued in 2014 after the
regulatory bodies administer those laws? date of this publication to replace both the BOT Decree and the
PPP Decision. This will be the common legal framework for all PPP
For all projects, the Law on Environment would apply regarding
investments in Vietnam.
environmental issues and the Labour Code would apply regarding
health and safety issues. The Ministry of Natural Resources and
PPP – limitations
Environment and the Ministry of Labour, War Invalids and Social
Affairs, respectively, are the regulatory bodies administering those 28 What, if any, are the practical and legal limitations on PPP
laws. transactions?
More specifically, for each project sector, the laws and regula-
See questions 17, 22, 23, 24, 25 and 27.
tions relating to each sector shall be applied. For example, in the

DFDL VIETNAM
Update and trends
to date in your jurisdiction? Recently, several new regulations related to energy projects in
On the assumption that BOT projects are classified as PPP trans- Vietnam have been adopted and have entered into force, including
a decision on the structure of the electricity retail price list, a
actions, the most significant PPP transactions completed to date circular on the calculation of the average electricity retail selling
are two BOT power plant projects (Phu My 2-2 and Phu My 3, price, as well as a decision on support for development of the
the capacity of each project is more than 700MW with an invest- biomass power projects. Any effects on project structure or
ment of more than US$400 million) and the Phu My bridge pro- investment trends would deserve closer attention.
From a ‘macro’ perspective, it should be noted that further
ject. Recently, Mong Duong II (a BOT power plant project – with to the issuance of the 2013 Constitution, important legislation
a capacity of about 1,200MW and an investment of US$2 billion) is expected to be issued in 2014 and 2015. Some of this new
reached financial close. Other recent major BOT projects include legislation or amendments, including, notably, the amendments to
Vung Ang 2 (a BOT thermoelectric plant project with a capacity of the Investment Law, the Enterprise Law, the Environment Law and
about 1,200MW and an investment of more than US$2.5 billion), the Bankruptcy Law are anticipated to imply significant changes to
the legal framework applicable to project finance transactions in
Hai Duong (a BOT thermal power plant project with a capacity of Vietnam.
about 1,200MW and an investment of US$2.25 billion) and Vinh
Tan 1 (a BOT thermal power plant project with a capacity of about
1,200MW and an investment of US$2 billion).
Martin Desautels martin.desautels@dfdl.com

Hoang Phong Anh phonganh.hoang@dfdl.com
9th floor, BIDV Tower Tel: +84 4 3936 6411 / 6412

194 Tran Quang Khai Street, Hoan Kiem District Fax: +84 4 3936 6413
Hanoi www.dfdl.com
Vietnam
ZAMBIA Chibesakunda & Co Advocates
Zambia
Eustace Ng’oma
Chibesakunda & Co Advocates
Creating collateral security packages • a charge for the purpose of securing any issue of a series of
debentures;
1 What types of collateral are available? • a charge on uncalled share capital of the company;
Collateral may be taken over any property, whether real or personal • a charge to which the Trade Charges Act applies;
including land and buildings, receivables, shares, moveable property • a floating charge on the whole or part of the undertaking or
future property, offshore property and assets, etc. property of the company;
Collateral may also be taken over statutory licence rights, where • a charge on land, wherever situated, or any interest therein;
the taking of such collateral is permitted under the statute under • a charge on any present or future book debts of a company;
which the licence is created, for example, a charge maybe taken over • a charge on calls made but not paid;
mining licences created under the Mines and Mineral Development • a charge on a ship or aircraft or any share in a ship or aircraft;
Act No. 7 of 2008 of the Laws of Zambia (Mines Act). • a charge on goodwill, on a patent or a licence under a patent, on
a trademark, or on a copyright or a licence under a copyright;
2 How is a security interest in each type of collateral perfected and
and how is its priority established? Are any fees, taxes or other • a charge over shares in another body corporate, not being:
charges payable to perfect a security interest and, if so, are there • a charge in favour of a broker who has paid for a share
lawful techniques to minimise them? May a corporate entity, in purchased or applied for on behalf of the company; or
the capacity of agent or trustee, hold collateral on behalf of the • a charge created by or accompanied by delivery of the cer-
project lenders as the secured party? tificates for such shares.
Creation of security over land
Thus any document that evidences a charge over any of the above
Under section 4 of the Lands and Deeds Registry Act, chapter 185
assets will be required to be registered on the Register of Charges.
of the Laws of Zambia (Lands and Deeds Act), any document that
Such charges are required to be registered within 21 days of execu-
purports to grant or convey title in land is required to be registered
tion failing which the charge will be invalid against any other person
upon the Lands Register within the time stated in section 5 of the
other than the borrower or debtor.
Lands and Deeds Act.
Priority is established by time of registration.
Section 5 provides as follows:
Fees are payable based on the value of the security interest but
are capped.
(2) All other documents, except probate of a will, required to be
registered as aforesaid shall be registered
Agricultural charges
(a) in the case of a document executed at the place where it is reg-
The Agricultural Credits Act, No. 35 of 2010 of the Laws of Zambia
istered, within 30 days from its date;
(the Agricultural Credits Act) provides for the registration of agri-
(b) in the case of a document executed elsewhere in Zambia, within
90 days from its date;
cultural charges over, inter alia, agricultural commodities, growing
(c) in the case of a document executed out of Zambia, within one
crops, farming assets and receivables. The agricultural charge may
year from its date.
be fixed or floating or both, and may be created by farmers, persons
who provide loan finance to farmers for use in procurement of agri-
A mortgage in respect of land is an interest in land and as such is cultural inputs and traders in agricultural commodities.
required to be registered upon the Lands Register. The consequence Under section 16 of the Agricultural Credits Act, a document
of failing to register a mortgage or other document evidencing the creating an agricultural charge must be registered within 30 days
conveyance of an interest in land is that the document is invalid of its execution otherwise it is void against any person other than
against all parties other than the borrower or debtor. the farmer.
Priority is established by time of registration. Priority is established by time of registration.
Fees are payable based on the value of the security interest but
are capped. 3 How can a creditor assure itself as to the absence of liens with
Creation of security over assets of a company
We understand the word ‘lien’ as used above to cover encumbrances
The provisions of section 98 of the Companies Act, chapter 388 of
generally and as such we would advise as follows.
the Laws of Zambia (the Companies Act) provides that the registrar
In respect of charges that are required to be registered, the rel-
of companies is required to maintain a Register of Charges, where
evant statute will prescribe that there be maintained a register upon
companies registered under the Companies Act are required to reg-
which such encumbrances be registered. Thus, for instance, the pro-
ister charges taken over their assets. Under section 99, the following
visions of the Companies Act and the Lands and Deeds Act prescribe
charges are required to be registered:

Chibesakunda & Co Advocates ZAMBIA
that there must be maintained a Register of Charges by the Registrar exercise a right of set-off where there are cross-claims for money
of Companies (in respect of charges over assets of a company) and between the project lender and project company.
the Registrar of Lands and Deeds (in respect of charges over land
and agricultural charges) respectively. These registers are available Foreign exchange issues
for inspection by the public.
Therefore a creditor would seek assurance as to the absence of 6 What are the restrictions, controls, fees, taxes or other charges
existing encumbrances by conducting a search upon the applicable on foreign currency exchange?
register. At present, there are no Zambian exchange control laws, rules or
regulations that prohibit the exchange of Zambian currency with
any other foreign currency through an authorised foreign exchange
dealer.
Under Zambian law a lender may, in exercise of its security rights, 7 What are the restrictions, controls, fees and taxes on remittances
enforce a security by: of investment returns or payments of principal, interest or
• appointing a receiver in respect of the charged assets: receiver- premiums on loans or bonds to parties in other jurisdictions?
ship is the process by which a lender appoints a receiver or man- Under the Income Tax Act, Chapter 323 of the Laws of Zambia, a
ager to take possession over the charged asset with the mandate person seeking to remit funds out of Zambia by way of dividends
to recover from the borrower the sum of money owing under and interest is required to pay a withholding tax on such a remit-
the debt instrument. The document, which gives power to the tance. Withholding tax is currently levied at 15 per cent on dividends
lender to appoint a receiver, will set out the powers that the and interest. Relief on withholding tax may, however, be sought
receiver may exercise and often this will include the power to if the recipient of the funds is a resident of a country that has in
sell the charged asset. This is typically the means by which a place a double taxation agreement with Zambia, but to the extent
lender will enforce security rights taken over land; and permissible.
• foreclosure and sale: this is a remedy that is exercised by a
lender in respect of mortgaged property, where a borrower has
defaulted in payment. Foreclosure is the process that allows the
mortgagee to take possession of the mortgaged property thereby
depriving the owner of the mortgaged property of their own-
ership of the property. The deed creating the charge over the There is no legal impediment for repatriation of foreign earnings;
land will set out the mechanisms by which foreclosure and sale project companies may repatriate their foreign earnings if they wish.
should take place. There is no legal requirement to have repatriated foreign earn-
ings converted to local currency. A project company may repatriate
its foreign earnings in foreign currency.
5 How does a bankruptcy proceeding in respect of the project There are no legal restrictions on the use of repatriated foreign
company affect the ability of a project lender to enforce its rights earnings.
(eg, tax debts, employees’ claims) with respect to the collateral? 9 May project companies establish and maintain foreign currency
What entities are excluded from bankruptcy proceedings and accounts in other jurisdictions and locally?
what legislation applies to them? What processes other than Yes. There are no restrictions on a project company establishing and
court proceedings are available to seize the assets of the project maintaining foreign currency accounts whether locally or outside
company in an enforcement? Zambia.
In the instance that a project company is subject to bankruptcy pro-
ceedings, the project lender’s ability to recover the debt owed to it Foreign investment issues
by the project company is subject to the Zambian bankruptcy rules
relating to preferential claims. Broadly the preferential claims are as
follows:
• fixed secured creditors;
• statutory preferred creditors;
• floating secured creditors; and
• unsecured creditors.
authority?
All bodies corporate are subject to winding-up proceedings as pro-
vided for under the Companies Act (with necessary modifications) There are no restrictions on the ownership of a project company or
except for a body corporate incorporated under another written law project related company in Zambia at present. However, there may
and such other law makes specific provisions for the winding-up of be restrictions on investment in certain sectors unless the project
such a body corporate, in which case the provisions of such other company is citizen-owned. For example, under the Mines Act, only
law shall apply. a citizen or citizen-owned company (51 per cent citizen ownership)
Under the provisions of the State Proceedings Act, chapter 71 may be the holder of a small-scale prospecting or mining licence.
of the Laws of Zambia, no form of execution can be levied against There are bilateral investment treaties with Germany and
the state. Switzerland that require equality of treatment for existing
Other than court proceedings, a project lender may enforce its investments.
security interest against the project company in the event of default
by way of appointment of a receiver, outright sale where the collat-
eral is in form of pledged goods and by exercising a lien over goods
of the project company in its possession. A project lender may also
11 What restrictions, fees and taxes exist on insurance policies An investor investing not less than US$500,000 or the equiva-
over project assets provided or guaranteed by foreign insurance lent in convertible currency, in a priority sector or product, is also
companies? May such policies be payable to foreign secured entitled to incentives as specified by or under the Income Tax Act or
creditors? Customs and Excise Act, although these are now only available to
Section 120 of the Insurance Act No. 27 of 1997 (the Insurance Act) investors who are in multi-facility economic zones or are rural busi-
provides that all assets, liabilities and interests situated in Zambia ness enterprises.
shall be insured with insurers licensed under the Insurance Act. This
in essence means that there is a requirement that insurance policies Government authorities
taken in respect of assets in Zambia are required to be insured by a
Zambian-registered insurance company. 16 What are the relevant government agencies or departments with
12 What restrictions exist on bringing in foreign workers, technicians ownership in these sectors?
Oil and gas
The Immigration and Deportation Act, No. 18 of 2010 of the Laws The oil and gas industry is regulated by the Petroleum (Exploration
of Zambia (Immigration Act) governs the eligibility or otherwise of and Production) Act, No. 20 of 2008 of the Laws of Zambia
foreign nationals to enter and work in Zambia. (Petroleum Act), which regulates the exploration, production, taxa-
Under the provisions of section 28 of the Immigration Act, a tion and health and safety standards applicable to the oil and gas
foreign national is permitted to reside within Zambia and engage industry. The Minister of Energy is responsible for petroleum reg-
in employment if such a foreign national is the holder of a valid ulation. The Energy Regulation Act, Chapter 436 of the Laws of
employment permit issued by the Director General of Immigration Zambia also provides for the licensing of undertakings for the pro-
in consultation with the Ministry of Labour. Such employment duction of energy or the production or handling of certain fuels. The
permit is issued for a term and on such conditions as the Director Energy Regulation Board is responsible for licensing and inspection
General of Immigration may deem fit. of premises of undertakings that produce and handle fuel.
Mineral extraction
Mineral extraction is governed by the provisions of the Mines Act,
There are no restrictions on the importation of project equipment which provide for the exploration, production and taxation of min-
except for such equipment that may be restricted or prohibited by a eral extraction. The relevant governing body is the Department of
statutory instrument issued under the provisions of the Control of Mines and Minerals, which is run under the aegis of the Ministry
Goods Act, chapter 421 of the Laws of Zambia. of Mines.
Further, customs duties are levied on the importation of goods
into Zambia under the provisions of the Customs and Excise Act, Water treatment
chapter 322 of the Laws of Zambia (the Customs and Excise Act), Water treatment is governed under the provisions of the
subject to applicable exemptions provided thereunder. Environmental Management Act, No. 12 of 2011 (the Environmental
Management Act). Licensing of water supply and sanitation utilities
14 What laws exist regarding the nationalisation or expropriation is, however, governed by the Water Supply and Sanitation Act, No.
of project companies and assets? Are any forms of investment 28 of 1997 and the Water Resources Management Act No. 21 of
specially protected? 2011.
The Constitution of Zambia, chapter 1 of the Laws of Zambia (the
Constitution) contains a Bill of Rights. Of relevance is article 16,
Power generation and transmission is governed by the Electricity
which guarantees investors protection from deprivation of property,
Act, chapter 433 of the Laws of Zambia, read with the provisions
except as provided in the Lands Acquisition Act, chapter 189 of the
of the Energy Regulations Act. The regulator for this sector is the
Laws of Zambia, (the Lands Acquisition Act) or any other act of
Energy Regulation Board. The government currently and historically
Parliament that provides for adequate compensation to the person
has owned infrastructure for power generation and transmission.
so deprived of the property.
There are a number of instances, however, where property may
Transport, ports and telecommunications
be lawfully taken from the title holder. This normally occurs in
Transport and ports are regulated by the Ministry of Transport and
pursuance of public interest or in an effort to avoid prejudicing the
Communication. The ministry is responsible for licensing and issu-
rights and freedoms of others. For example, property may be taken
ing permits in respect of transport and ports.
in execution of judgments of the court against the title holder or in
In respect of telecommunications, the provisions of the
satisfaction or any tax or property rates due from the registered title
Information and Communication Technology Act No. 15 of 2009
holder.
provide for, inter alia, the licensing of undertakings that are engaged
In addition the Zambia Development Agency Act No. 11 of
in telecommunications, such as mobile phone operators and internet
2006 (the ZDA Act) provides for the protection of investment and
service providers. The sector is regulated by the Zambia Information
provides guarantees relating to expropriation.
and Communications Technology Authority. Historically the state
played a large role in the technology industry, particularly in the area
of the provision of telephone services. Today, however, provision of
15 What tax incentives or other incentives are provided preferentially telecommunication services is in the hands of privately owned tel-
to foreign investors or creditors? What taxes apply to foreign ecommunications companies.
For investments in sectors designated as priority sectors under the
ZDA Act, the ZDA Act provides that equipment and machinery may
be imported exempt from duties.

Chibesakunda & Co Advocates ZAMBIA
Regulation of natural resources • in the case of a document executed in any of Her Britannic
Majesty’s territories or protectorates in Africa it be duly authen-
17 Who has title to natural resources? What rights may private ticated by the signature and seal of office of any notary, mag-
parties acquire to these resources and what obligations does the istrate, permanent head of a government department, resident
holder have? May foreign parties acquire such rights? commissioner or assistant commissioner in or of any such terri-
Generally, title to natural resources is vested in the state. However, tory or protectorate; or
licences to exploit these resources may be granted subject to • in the case of a document executed in any place outside Her
conditions. Britannic Majesty’s dominions (hereinafter referred to as a ‘for-
eign place’) it be duly authenticated by the signature and seal of
office of:
• a British consul-general, consul or vice-consul in such a for-
eign place; or
In respect of the extraction and production of minerals that are • any secretary of state, under-secretary of state, governor,
subject to the Mines Act, royalties are payable in respect of the colonial secretary, or of any other person in such a foreign
production of minerals. In respect of petroleum exploration and place who shall be shown by the certificate of a consul or
production, a royalty is also payable to the state, which, under sec- vice-consul of such a foreign place in Zambia to be duly
tion 74 of the Petroleum Act, may be paid in cash or in kind at the authorised under the law of such a foreign place to authen-
discretion of the state. ticate such a document.
19 What restrictions, fees or taxes exist on the export of natural Under the Notaries Public and Notarial Functions Act, Chapter 35
resources? of the Laws of Zambia certain members of the Zambian diplomatic
service may also authenticate documents. This power is granted
Under section 47 of the Customs and Excise Act, no person is per-
to an ambassador, high commissioner, envoy, minister and charge
mitted to export goods out of Zambia without first producing to
d’affaires thereof, secretary of an embassy or legation, consul, gen-
a customs officer the bill of entry together with other prescribed
eral consul, pro-consul, acting consul and consul agent exercising his
documents, which include consignment notes, waybills, and bills of
or her functions in any Commonwealth or foreign place.
lading.
Under section 133 of the Mines Act, any person who extracts
minerals or any person in possession of minerals extracted in 22 How are international arbitration contractual provisions and
Zambia, whether extracted under a mining right or not, will be awards recognised by local courts? Is the jurisdiction a member
charged a mineral royalty at the rates prescribed in the Act. of the ICSID Convention or other prominent dispute resolution
Legal issues of general application types of disputes subject to automatic domestic arbitration?
The Arbitration Act No. 19 of 2000 (Arbitration Act) regulates, inter
alia, the recognition of arbitration provisions in contracts as well as
the enforcement of arbitral awards. Section 6 of the Arbitration Act
• Investments: depending on the sector, licences may be required. provides: ‘(1) Subject to subsections (2) and (3), any dispute that the
• Loans: none. parties have agreed to submit to arbitration may be determined by
• Operations: none. arbitration’.
• Transactions: none. Zambia is a signatory of the New York Convention and has
• Remittances: none other than bank fees and compliance with enacted its provisions under the Arbitration Act and as such Zambia
anti-money laundering regulations. will enforce and register arbitral awards of states that are party to
the New York Convention.
filed with any government authority or otherwise comply with legal 23 Which jurisdiction’s law typically governs project agreements?
formalities to be valid or enforceable? Which jurisdiction’s law typically governs financing agreements?
Financing documents that create registrable encumbrances (securi- Which matters are governed by domestic law?
ties) are required to be registered upon the relevant register. In respect of security documentation, the governing law will typi-
In addition to this requirement, the provisions of the cally be the law of the place where the security is to be taken, while
Authentication of Documents Act, chapter 75 of the Laws of Zambia the finance documents, such as the loan agreement, will be expressed
(Authentication of Documents Act) require that any document pro- to be governed by the jurisdiction agreed upon by the parties.
posed for use in Zambia is required to be duly authenticated. Section
3 of the Authentication of Documents Act provides for the means by
which documents maybe authenticated. Section 3 provides: 24 Is a submission to a foreign jurisdiction and a waiver of immunity
Any document executed outside Zambia shall be deemed to be effective and enforceable?
sufficiently authenticated for the purpose of use in Zambia if: Submission to a foreign jurisdiction is enforceable provided that
• in the case of a document executed in Great Britain or Ireland it submitting to such a foreign jurisdiction is not contrary to any writ-
be duly authenticated by a notary public under his or her signa- ten Zambian law or otherwise contrary to public policy.
ture and seal of office;
• in the case of a document executed in any part of Her Britannic Environmental, health and safety laws
Majesty’s dominions it be duly authenticated by a mayor of any
town or of a notary public or of the permanent head of any 25 What laws or regulations apply to typical project sectors? What
government department in any such a part of Her Britannic regulatory bodies administer those laws?
Majesty’s dominions; The control of pollution is principally governed by the Environmental
Management Act, which governs, inter alia, air, water and noise pol-
lution; as well as various Regulations issued thereunder.
The Zambia Environmental Management Agency has regula- PPP – transactions

tory oversight of environmental matters.
However, the provisions of the Environmental Management Act 29 What have been the most significant PPP transactions completed
are to be read in conjunction with the particular statute governing to date in your jurisdiction?
the project, which may also contain environmental-related provi- Significant completed PPP projects include the construction of hos-
sions, for example, the Mines Act. tels at the University of Zambia (UNZA). A number of other PPP
projects in power generation and transmission, road and rail con-
Project companies struction, health and infrastructure development, among others, are
being implemented or under consideration. These include:
26 What are the principal business structures of project companies? • the recently launched Police Forensic Laboratory and Child
What are the principal sources of financing available to project Advocacy Programme, a partnership between the governments
companies? of Zambia and the United States, and the private sector partners
Project companies will typically take the form of a company limited the Georgian Foundation, Sorensen Forensics and the Zambia
by shares and registered under the provisions of the Companies Act. Society for Child Protection;
Financing will usually take the form of shareholder and finan- • the irrigation development support project (IDSP) being imple-
cier or bank loans. To date, the domestic public securities market has mented by a partnership of the government of the Republic of
been a limited form of raising debt. Zambia (through the Ministry of Agriculture) and a number of
private firms providing consultancy services;
Public-private partnership legislation • the US$2 billion Kafue Gorge Lower project being implemented
by a partnership made up of Zesco Limited (a public util-
27 Has PPP enabling legislation been enacted and, if so, at what ity company), Sino Hydro Corporation and the China Africa
level of government and is the legislation industry-specific? Development Fund;
The Public-Private Partnership Act 2009 (the PPP Act) was enacted • the US$50 million Itezhi-tezhi hydropower project being imple-
in 2009 to deal specifically with the need to structure public-private mented by a partnership of Zesco Limited and TATA Africa
partnership transactions. At present the PPP Act is geared to improv- Group Plc;
ing infrastructure projects, but it is not industry-specific. • infrastructure development at various border posts;
The legislation is not industry-specific but sets out the forms of • construction of 4,000 housing units each in Livingstone, Lusaka
public-private arrangements that may be entered into. and Ndola;
• construction of a multimillion-dollar ultra-modern business
PPP – limitations park at University of Zambia (UNZA), being implemented by
a partnership of UNZA and Graduare Property Development, a
28 What, if any, are the practical and legal limitations on PPP Zambian consortium;
transactions? • construction of an ultra-modern centre of excellence hospital in
Generally there are no limitations on PPP transactions; each con- Lusaka;
cession is subject to agreement as between the parties. However, a • construction of the Chingola-Solwezi-Lumwana-Jimbe railway
private sector-initiated PPP will be first advertised to the public to line;
ascertain whether any other party can provide such a project on • development of Kalumwanga and Luena farming blocks; and
better terms. This presents a risk to private sector initiated projects. • development of the Kabompo mini-hydro farming blocks.
Eustace Ng’oma ca-cco@cco.co.zm
2nd Floor Maanu Centre Tel: +260 211 366400 / +260 211 254151
Stand 4647 Beit Road Fax: +260 211 254151
Addis Ababa Roundabout cco@cco.co.zm
Lusaka www.dlapiper.com/zambia
Zambia

Quick Reference Tables
US State PPP
These tables are for quick reference only. They are not intended to provide
exhaustive procedural guidelines, nor to be treated as a substitute for specific
advice.
QUICK REFERENCE TABLES
Massachusetts
PPP enabling legislation
• www.malegislature.gov/Laws/GeneralLaws/PartI/TitleII/Chapter6C/Section62.
• Effective 1 July 2009, the Commonwealth of Massachusetts (the Commonwealth) enacted Senate Bill 2087 (the Transportation Reform Act), which
includes provisions authorising the board of directors of the Massachusetts Department of Transportation (MassDOT), in conjunction with a special public-
private partnership infrastructure oversight commission (the P3 Commission), to solicit proposals and enter into contracts for design-build-finance-operate-
maintain (DBFOM) or design-build-operate-maintain (DBOM) services with the party submitting the proposal that is most advantageous to MassDOT
through the sale, lease, operation and maintenance of a transportation facility within the Commonwealth. See Massachusetts General Laws (MGL),
chapter 6C, sections 62-73.
• The PPP portion of the Transportation Reform Act requires the establishment of a seven-member P3 Commission -- comprised of experts in transportation
law, public policy, public finance, management consulting, transportation or organisational change -- to comment on and approve all requests for proposals
for DBFOM and DBOM services.
• The P3 Commission, appointed by the Governor, Senate President, Speaker of the House of Representatives and State Treasurer, began meeting in the
spring of 2013. In the autumn of 2013, the P3 Commission received P3 Project Suitability Assessment Reports from its advisor, KPMG on the following
potential projects: South Station Expansion, Route 3 South Managed Lanes Project; Highway Rest Stops & Service Areas; South Coast Rail Project; Blue
Line Extension to Lynn; and Red Line/Blue Line Connector. In December 2013, KPMG gave presentations on the Housatonic Rail Project and ‘twinning’
of the Sagamore Bridge. At that meeting, the P3 Commission voted to direct MassDOT to move forward with legal and financial analysis of affordability
(costs and revenue), environmental and other issues relative to developing a request for proposals on the Rest Stops and Services Areas Project.
Additionally, the commission voted to direct MassDOT to move forward with feasibility studies of the Route 3 South Managed Lanes Project and the
‘twinning’ of the Sagamore Bridge. In May 2014, the P3 Commission heard presentations by investment banking and consulting firms with respect to
these three projects.
For information on the P3 Commission’s current agenda and copies of presentations made to the P3 Commission, visit:
www.massdot.state.ma.us/BoardsCommittees/PublicPrivatePartnershipOversightCommission.aspx
Applicable regulations
• To date, no regulations have been adopted in connection with the PPP portion of the Transportation Reform Act.
Sectors affected
• The PPP portion of the Transportation Reform Act authorises MassDOT, in conjunction with the P3 Commission, to enter into public private partnerships
with respect to the sale, lease, operation and maintenance of ‘transportation facilities’ within the Commonwealth. The PPP portion of the Transportation
Reform Act defines ‘transportation facility’ broadly as a new or existing highway, road, bridge, tunnel, overpass, ferry, airport, public transportation facility,
terminal facility, vehicle parking facility, seaport facility, rail facility, intermodal facility or similar facility open to the public and used for the transportation
of persons or goods, and any building, structure or networks of buildings, structures, pipes, controls and equipment that provide transportation services,
including rolling stock and equipment, and any building, structure, parking area, appurtenances or other property needed to operate such a facility that is
subject to a public-private agreement.
Permitted structures (BOT/BOOT/Other)
• The PPP portion of the Transportation Reform Act authorises DBFOM and DBOM project delivery methods. The term of the related public-private
agreement may not exceed 50 years without the written approval of the Governor.
Limitations on investment or investors
• While any DBFOM or DBOM proposal in connection with the PPP portion of the Transportation Reform Act must comply with all applicable requirements of
federal, state and local law, the provisions of the PPP-enabling legislation do not include any specific limitations on investment or investors.
• All or a portion of the funds required to pay for contractor services provided under a DBOM contract must either be appropriated by the Commonwealth or
by MassDOT prior to award of the contract or secured by the Commonwealth or MassDOT through fare, toll or user charges. Effective 18 April 2014, public
funds are no longer restricted from a DBFOM project: any potential available payments to be appropriated by the Commonwealth while services are being
provided by the contractor during the contract period shall be identified in the request for proposals and contract. The financial amount and duration of
such potential available payments and the terms and conditions upon which they may be appropriated shall be identified in the request for proposals and
contract.

Massachusetts
Recent or landmark transactions
• Except for the potential projects described above (in PPP Enabling Legislation) for which the P3 Commission has instructed MassDOT to issue RFPs by
the end of 2014, MassDOT has not yet utilised the PPP portion of the Reform Transportation Act to solicit proposals or enter into any DBFOM or DBOM
public-private agreements.
• However, the Commonwealth also has other programmes designed to foster private investment in infrastructure and certain areas of economic
development that are not technically PPPs. These programmes may affect broader public infrastructure, depending on the specific project and area of
application.
• For example, the Infrastructure Investment Incentive Program, or I-Cubed, provides for a total of up to US$250 million in financing for significant new
public infrastructure improvements necessary to support major new private development projects. The public infrastructure improvements for a certified
economic development project are financed with bonds issued by the Massachusetts Development Finance Agency through an innovative cost and
risk sharing arrangement among the Commonwealth, the municipality and the private developer. See Statute 2008, chapter 129, amending Statute
2006, chapter 293, sections 5-12; see also 801 CMR 51. I-Cubed financed projects include the mixed-use development at the Assembly Square site in
Somerville, Massachusetts and Fan Pier in Boston, Massachusetts.
• A number of projects have also been developed using the District Improvement Financing (DIF) and Tax Increment Financing (TIF) programmes, which allow
cities or towns within the Commonwealth to use tax increments to support investment in certain development districts or zones. See MGL, chapter 40Q
and 402 CMR 3.00 et seq; see also MGL, chapter 40, sections 59-60 and 760 CMR 22.01.
• To use DIF, a city or town must first designate a development district, which must also be approved by the Economic Assistance Coordinating Council
(EACC), and must adopt a development programme designed to improve the quality of life, structures, traffic control and transportation within a
development district. In addition to providing a city or town with various economic tools aimed at supporting the development programme, a city or town
utilising DIF may retain all or a part of the related tax increment for the purpose of financing the project costs needed to carry out the development
programme, which may be effectuated through the issuance and sale by the city or town of bonds.
• A city or town may adopt a TIF plan in certain areas designated by the director of Economic Development, pursuant to EACC regulations, as presenting
exceptional opportunities for increased economic development. TIF allows landowners that enter into certain agreements with the city or town in
furtherance of the TIF plan to receive tax increment exemptions from property taxes for a specified term not to exceed 20 years.
• www.malegislature.gov/Laws/GeneralLaws/PartI/TitleVII/Chapter40Q and www.lawlib.state.ma.us/source/mass/cmr/cmrtext/402CMR3.pdf.
• www.malegislature.gov/Laws/GeneralLaws/PartI/TitleVII/Chapter40/Section59 and www.mass.gov/hed/economic/eohed/dhcd/legal/regs/760-cmr-22.

html.
• Outside the PPP statute, through a Memorandum of Agreement (MOA) that was approved by the Commonwealth in 2013, New Balance Corporation
(New Balance) has broken ground on a new Mass Bay Transit Authority (MBTA) train station, which it is designing and building with the oversight of
state officials and the MBTA. The MBTA station will provide commuters easy access to the new New Balance world headquarters, which is also under
construction. No federal, state, or MBTA funds will be expended, as the station will be constructed at the sole expense of New Balance (estimated
between US$14 million and US$16 million). New Balance has agreed to maintain the station for a period of at least 10 years. While not strictly a PPP, this
project should benefit both public and private sectors, through private provision of a public service.
Marc Reardon marc.reardon@bingham.com

Kathleen Phelps kathleen.phelps@bingham.com
One Federal Street Tel: +1 617 951 8000

Boston MA 02110-1726 Fax: +1 617 951 8736
Massachusetts www.bingham.com
United States
New York
• Traditionally, New York State procurement law has not permitted the types of contracting arrangements typically used in public-private partnerships for
the development of infrastructure by government entities. The Highway Law and the Public Authorities Law, for example, required the Department of
Transportation and other transportation authorities, such as the New York State Thruway Authority, to contract for the construction and improvement of
highways in a two-step process. First, a highway project had to be designed, and only after the relevant plans and specifications were completed and
approved, could the state contract for the construction of the applicable project. In December 2011, Governor Cuomo signed into law the Infrastructure
Investment Act (the IIA), which enables the New York State Thruway Authority, the Department of Transportation, the Office of Parks, Recreation and
Historic Preservation, the Department of Environmental Conservation and the New York State Bridge Authority to use design-build contracts for capital
projects related to the state’s physical infrastructure. This can be seen as a first step towards the adoption of procurement methodologies common in
PPPs. However, this statute is effectively an experiment by the state, as it has a limited life of three years.
• On 5 June 2012, the Transportation Committee of the State Senate approved the Innovative Infrastructure Development Act (Senate Bill S5445, the
IIDA; reintroduced in the Senate in January 2014 as Bill S6264), which is intended to give the Department of Transportation, the New York State Bridge
Authority, the Metropolitan Transit Authority and the New York State Thruway Authority greater flexibility to enter into public-private partnership agreements
to finance and deliver transportation infrastructure projects. This legislation would create a dedicated PPP authority (the Innovative Infrastructure
Development Board) to exercise oversight during each stage of project development. As of June 2014, the reintroduced bill remains pending in the state
legislature, referred to the Transportation Committee.
• In May 2013, a competing bill was introduced in the State Senate (Senate Bill S5501) to amend the executive law ‘to authorize the establishment
and operation of public private partnerships for the construction and operation of public infrastructure’ and other ancillary statutes in connection with
incurrence of indebtedness for those purposes. In October 2013, a similar bill was introduced in the State Assembly (Assembly Bill A8183), which
does not include amendments relating to incurrence of indebtedness (we refer to both Senate and Assembly Bills as the PPP Statute). The PPP Statute
would authorise the procurement of all types of infrastructure projects, not only transportation, under a PPP model, including permitting submission
of unsolicited proposals. The PPP Statute would create a dedicated PPP authority (the Public-Private Partnership Board), which would be charged with
enacting guidelines for and approving the procurement of projects under a PPP model by state and local agencies.
• Generally applicable legislation includes the Highway Law, the Public Authorities Law, the State Finance Law, the Environmental Conservation Law, the
Education Law and the Labor Law.
• The IIA applies to qualifying projects undertaken by any of the agencies specifically listed in the law. As noted above, the IIA has a limited life of three
years. Projects for which a request for qualifications (RFQ) is issued prior to the expiration of the act may continue under the IIA thereafter. The selection
process must consist of two stages. First, the procuring agency selects a short list of entities that have demonstrated their general capability to perform
the applicable design-build contract on the basis of submissions responding to an RFQ. The second stage consists of the review and selection of a
winning proposal from among those submitted by the shortlisted entities. The contract is awarded to the entity deemed to offer the ‘best value’ to the
state, which will not necessarily be the lowest bidder. Best value is determined on the basis of quality, cost and efficiency, price and performance. As
an alternative, the IIA allows the agencies covered by the statute to award construction contracts using two other procurement formulas – (i) cost-plus
contracts, subject to an agreed maximum price, and (ii) fixed-price, lump-sum contracts.
• The IIA authorises the applicable agency to negotiate final contract terms and conditions (including price) after an award has been made. Agreements may
include incentive clauses for various performance objectives, but cannot include an incentive that exceeds the quantifiable value of the benefit received
by the state.
• The proposed IIDA, if enacted, would also use a best value approach to select winning bidders. However, before an agency may decide to carry out
a project under a PPP form, the IIDA would require the agency to use a ‘cost comparator’ analysis to determine that a PPP procurement is the most
advantageous procurement method for the project in question. One important feature of the IIDA is that, if enacted, it would pre-empt a range of local
laws regarding land use review and real property tax or other local taxes that could otherwise hinder the development of projects on a PPP basis.
• On the other side, the proposed PPP Statute, if enacted, would allow the procuring authority to select winning bidders on the basis of lower cost or
through an analysis of the best option based on factors expressly enumerated in the PPP Statute. The PPP Statute pre-empts local laws to a lower degree
than the IIDA. Therefore, a greater degree of coordination among authorities may be required. Once awarded, the PPP agreement (called by the PPP
Statute ‘Comprehensive Agreement’) must be approved by the State Comptroller.
Sectors affected
• The IIA enables the authorised agencies to use design-build contracts to carry out a wide variety of capital projects of physical infrastructure, including,
but not limited to, highways, bridges, dams, flood control projects, canals and parks. The term ‘capital project’ refers to projects involving the acquisition,
construction, demolition or replacement of fixed assets, or major repairs or renovations that materially extend the useful life of fixed assets or materially
improve or increase their capacity.
• The proposed IIDA focuses on transportation infrastructure projects only, including highways, railroad, airports, ports, transit facilities, among others. All
revenue of the state, pursuant to agreements entered under the IIDA, must be used for developing transportation infrastructure. The PPP Statute allows
pursuit of PPP in any form of infrastructure, subject to the guidelines to be established by the PPP authority.

New York
• The type of contracts that state agencies may enter into pursuant to the IIA are limited to design-build contracts. The act defines design-build contracts
in fairly generic terms as a contract for the design and construction of a capital project with a single entity, which may be a team comprised of separate
entities.
• Neither the IIDA or the PPP Statute limits the type of contract that can be used to develop a project. Although the PPP Statute incorporates a very
prescriptive list of terms that must be included in a Comprehensive Agreement, it should provide great flexibility in the allocation of responsibilities, as
well as revenue distribution, between the private and the public sector and among different private participants. Similarly, both the IIDA and the PPP
Statute would permit a wide range of combinations of activities to be undertaken by one or more parties in connection with any particular project.
• Beyond financial capacity and past experience, the selection criteria under the IIA requires that the contractor be able to demonstrate compliance with the
requirements of professional certifications and applicable labor law. The contracting agencies must also consider participation by (i) minority or women-
owned businesses and the ability of other businesses under consideration to work with minority and women-owned businesses and (ii) small business
concerns.
• Under the IIA, if a consortium is short listed for participation in the bidding process for a project, the entities that comprise such a consortium must
remain unchanged unless otherwise approved by the applicable agency. It is not clear from the statute whether this is intended to limit transfers after
completion of a project, or merely during the bidding or construction phases, or both.
• The agencies authorised to act under the IIA may maintain a list of prequalified contractors who are eligible to submit proposals. Entry into such list is
continuously available.
• The PPP Statute would prohibit entering into a Comprehensive Agreement with a party that is controlled by a foreign government to the extent that the
contracting party would be subject to sovereign immunity.
• Perhaps one of the most visible design-build projects currently in process in New York is the replacement of the Tappan Zee Bridge with the new New York
Bridge by the New York State Thruway Authority and the Department of Transportation. This is the first project undertaken under the IIA. The US$3.142
billion design-build contract for this project, awarded to a consortium formed by Fluor, American Bridge, Granite, and Traylor Bros, was approved in January
2013. The total project costs are now estimated at about US$5 billion. Financial close occurred in December 2013. The financing consists of a US$1.6
billion TIFIA Loan and US$3 billion in Toll Revenue Bonds.
• Although not under the umbrella of the IIA, another significant project undertaken on a PPP basis is the major expansion of JFK International Airport’s
Terminal 4. This expansion is being carried out via a long-term lease by the Port Authority of New York and New Jersey to JFK International Air Terminal
LLC. JFK International Air Terminal LLC is developing the expansion of Terminal 4 through a US$796 million municipal bonds financing and an Anchor
Tenant Agreement with Delta Air Lines.
• In April 2013, the Port Authority of New York and New Jersey awarded a US$1.5 billion, 40-year PPP contract to a consortium formed by Macquarie
and Kiewit, among others, for the replacement of the Goethals Bridge. The PPP contract takes the form of a DBFM arrangement. The new bridge will
be located immediately south of the existing bridge. This is the first new bridge built with the participation of the Port Authority since 1931. Financing
includes a US$500 million TIFIA loan and US$453 million in tax-exempt private activity bonds.
• At present, the Port Authority of New York and New Jersey is conducting the procurement, on a PPP basis, of the estimated US$3.6 billion replacement of
the Central Terminal Building of LaGuardia Airport, which originally opened to the public in 1964. Proposals were submitted by three short listed consortia
in the second quarter of 2014. Selection is expected in the third quarter of 2014. Construction will be performed while the terminal continues to serve
passengers.
Ivan E Mattei iemattei@debevoise.com

Armando Rivera Jacobo arivera@debevoise.com
919 Third Avenue Tel: +1 212 909 6000

New York NY 10022 Fax: +1 212 909 6836
United States www.debevoise.com
Texas
Texas has a number of statutes that provide authority for governmental entities to enter into contractual arrangements with private entities on public projects. Below is
a brief description of some of Texas’s PPP statutes:
• Chapter 223, Texas Transportation Code, is the primary authority for the Texas Department of Transportation (TxDOT) to enter into comprehensive development
agreements (CDAs) with private entities for tolled and non-tolled state highway improvement projects. Subchapter E of chapter 223 sets forth the general guidelines
for many of the types of projects TxDOT or regional mobility authorities (RMAs) may enter into with private parties, as well as the guidelines for both solicited and
unsolicited proposals. It also sets forth the basic structure of the PPP agreement (ie, CDA).
• Chapter 228, Texas Transportation Code, pertains to tolled or non-tolled state highway improvement projects, rail facilities or systems, state-owned ferries, certain
public transportation projects, aviation facilities and passenger rail projects of another governmental entity.
• Chapter 366, Texas Transportation Code, provides the authority for the creation of regional tollway authorities (RTAs), which are political subdivisions of the state
created by two or more counties meeting certain requirements for the purpose of (i) securing and acquiring rights-of-way for urgently needed transportation systems
and (ii) planning, designing, constructing, operating, expanding, extending and modifying those systems. Under this statute, RTAs may ‘enter into leases, operating
agreements, service agreements, licenses, franchises, and similar agreements with public or private parties [...] with respect to a turnpike project’.
• Chapter 370, Texas Transportation Code, provides the authority for the creation of RMAs, which are political subdivisions of the state created by one or more
counties or municipalities meeting certain requirements for the purposes of constructing, maintaining and operating transportation projects in a region of the state.
Under this statute, RMAs may ‘enter into leases, operating agreements, service agreements, licenses, franchises, and similar agreements with a public or private
party [...] with respect to a transportation project’.
• Chapter 504, Texas Local Government Code, allows a local government to create Type A economic development corporations, which are typically created to fund
industrial development projects, but can also fund military base realignment, job training classes and public transportation.
• Chapter 505, Texas Local Government Code, allows a local government to create Type B economic development corporations, which can fund all projects eligible
for Type A projects, as well as parks, museums, sports facilities and affordable housing, but they are subject to more administrative restrictions than Type A
corporations.
• Chapter 334, Texas Local Government Code, allows a sports and community venue district created under chapter 335, Texas Government Code or a municipality or
county to ‘contract with a public or private person, including a sports team, club, organization, or other entity to […] plan, acquire, establish, develop, construct, or
renovate an approved venue project’.
• Chapter 380, Texas Local Government Code, allows a municipality to create a programme to make loans or grants of public money or provide municipal personnel,
facilities or services at minimal or no charge, to any entity to promote state or local economic development and stimulate business and commercial activity in the
municipality. In addition, the statute allows cities along the Texas-Mexico border with populations in excess of 500,000 to establish non-profit corporations and
cooperative associations that would stimulate economic development by creating and developing an intermodal transportation hub that may also function as an
international intermodal transportation centre. Such international centre may be ‘colocated with or near local, state, or federal facilities and facilities of Mexico in
order to fulfil its purpose’.
• Chapter 281, Texas Health and Safety Code, allows hospital districts to contract or enter into a joint venture with a public or private entity as necessary to enter into
a lease of undeveloped real property for not more than 50 years to provide for the development and construction of facilities designed to generate revenue for the
financial benefit of the hospital district.
• Chapter 53, Texas Education Code (Higher Education Facility Authority for Public Schools Act) authorises one or more cities to create a higher education facility
authority and contract with private entities or persons for the operation of ‘an education facility, housing facility or any facility incidental, subordinate or related to or
appropriate in connection with an education facility or housing facility’.
• Article 1528m, Vernon’s Texas Civil Statutes (Cultural Education Facilities Finance Corporation Act) authorises a city or county to create a non-member, non-stock,
public, cultural educational facilities finance corporation in the same manner as a health facilities development corporation created under chapter 221, Texas Health
and Safety Code, and having the same powers (i) with respect to cultural facilities and health facilities as a health facilities development corporation and (ii) with
respect to educational facilities, housing facilities and other facilities incidental, subordinate or related to those facilities that a non-profit corporation created under
section 53.11, Texas Education Code, or an authority created under chapter 53.35(b), Texas Education Code, has under chapter 53, Texas Education Code.
• Chapter 2267, Texas Government Code (Public and Private Facilities Infrastructure Act (PPFI)) was enacted in 2011 to provide additional authority for ‘responsible
governmental entities’ to enter into comprehensive agreements with private entities for the development of certain qualifying projects, namely, ‘any ferry, mass
transit facility, vehicle parking facility, port facility, power generation facility, fuel supply facility, oil or gas pipeline, water supply facility, public work, waste treatment
facility, hospital, school, medical or nursing care facility, recreational facility, public building, technology facility or other similar facility currently available or to be
made available to a governmental entity for public use, including any structure, parking area, appurtenance, and other property required to operate the structure or
facility and any technology infrastructure installed in the structure or facility that is essential to the project’s purpose’ or ‘any improvements necessary or desirable to
real property owned by a governmental entity’.
• Chapter 2269, Texas Government Code (Contract and Delivery Procedures for Construction Projects) (originally enacted in 2011 as chapter 2267, but reclassified
in 2013 as chapter 2269). The statute was enacted to consolidate contracting and delivery procedures for construction projects for most governmental entities
into a single chapter and expand the types of entities that would be allowed to use those contracting methods. The chapter applies to public work contracts made
by certain governmental entities, including state agencies, local governments (eg, counties, municipalities, school districts, hospital districts and conservation and
reclamation districts) and public junior colleges. A ‘public work contract’ is defined as ‘a contract for constructing, altering, or repairing a public building or carrying
out or completing any public work’. The chapter does not apply to institutions of higher education, university systems, TxDOT, RTAs, RMAs, county toll authorities,
or certain local government corporations exempt from competitive bidding requirements or restrictions. Under this chapter, an entity could award a contract using
the following methods: competitive bidding, competitive sealed proposals, construction manager-agent, construction manager-at-risk, design-build and job order
contracts.

Texas
The Texas Legislature and TxDOT have developed regulatory guidelines for PPP transportation projects and have been implementing these guidelines for a
number of years. Nevertheless, while non-transportation-related PPP projects have been authorised under Texas law, many of these arrangements have not
been standardised under state laws or regulations. The 2011 PPFI attempted to remedy that situation but the state process created much confusion in
the industry. As a result, there have been no state PPP projects that have been authorised under the PPFI. In addition, the 2013 Texas Legislature placed a
moratorium on the execution of any comprehensive agreement by a state entity prior to 1 September 2014, excluding institutions of higher education (see
section 2267.0531, Texas Government Code). In light of this situation, the Texas Speaker of the House charged the House Committee on Economic and
Small Business Development with finding ways to make the law work better. Industry witnesses have suggested that the Legislature should create a ‘center
of excellence’, which would be a quasi-governmental body of experts that would help all levels of government consider PPPs before a project is constructed.
The Texas Legislature is likely to take up this matter and others during the next legislative session, which convenes on 13 January 2015.
The PPFI lists basic requirements that state and other governmental entities may use to develop their own standards (see section 2267.52, Texas
Government Code). State governmental entities are required to submit guidelines to the Partnership Advisory Commission for approval (see section
2267.52(d), Texas Government Code). The Texas Facilities Commission (TFC) has published a set of guidelines based on these basic requirements and
currently is accepting proposals. Other non-state governmental entities have used the TFC’s guidelines as a model to develop their own guidelines. The
TxDOT and TFC guidelines are briefly described below:
• Title 43, Part 1, chapter 27, subchapter A of the Texas Administrative Code provides general guidelines for transportation CDAs under chapter 223 of the
Texas Transportation Code.
• For solicited proposals, TxDOT will post a request for qualifications (RFQ) for an eligible project and come up with a short list of proposers that will then
be invited to submit a request for proposals (RFP). These proposals will be evaluated based on criteria deemed appropriate for the project and submit a
recommendation to the Texas Transportation Commission. If the recommendation is approved, the CDA is awarded, but still may be subject to negotiation,
federal action and other necessary conditions.
• Unsolicited proposals are required to contain certain specific information, including: the limits, scope, and location of the proposed project; a conceptual
project design and preliminary geotechnical information; and information describing how the project will be consistent with the Statewide Transportation
Plan and, if appropriate, with the metropolitan transportation plan developed by the metropolitan planning organisation.
• In certain instances, TxDOT may prequalify a private entity to submit a detailed proposal to provide services under a design-build contract. TxDOT is not
required to publish an RFQ for a design-build contract, and may enter into such an arrangement based solely on an evaluation of detailed proposals
submitted by prequalified private entities in response to an RFP.
The TFC guidelines (amended in October 2012) set forth the application requirements for qualifying projects and the criteria and processes by which the
applications will be evaluated related to the facilities it manages for state agencies. The TFC accepts both solicited and unsolicited proposals and requires
the proposer to specifically and conceptually identify any facility, building, infrastructure or improvement included in the proposal as a part of the qualifying
project.
As stated above, other non-state governmental entities (eg, the City of El Paso) have used the TFC guidelines as a model to develop their own guidelines.
Developers should contact the individual governmental entity to determine its guidelines before submitting a proposal.
Texas
Sectors affected
• Transportation.
• State/local/regional government.
• Cultural, educational, and health facilities.
• Speciality areas (including sports and community venues and research, development and teaching facilities at state universities).
TxDOT primarily uses two forms for its transportation-related PPPs – design-build and concession agreements. The design-build structure combines design
and build aspects under one contract. Concession agreements are CDAs under which a private entity agrees to develop, finance, and construct a toll project,
and to assume operation or maintenance responsibilities for a toll project, in exchange for rights to revenue of the project. These agreements build on the
design-build concept and allow the private entity to bring in financing opportunities as well as operation and maintenance of the project over a long lease
term (maximum of 52 years). With concession agreements, the developer takes the full traffic and revenue risk.
The guidelines issued by the TFC allow for several types of project delivery methods including, but not limited to, build-own-operate (BOO); build-operate-
transfer (BOT) or build-transfer-operate (BTO); and buy-build-operate (BBO). The guidelines also provide for different types of contract services including, but
not limited to, operations and maintenance (O&M); operations, maintenance and management (OMM); design-build-operate (DBO), including design-build-
operate-transfer and design-build-own-operate; developer financing; enhanced use leasing, including lease-develop-operate and build-develop-operate; lease-
purchase; turnkey and other methods allowed by law.
TxDOT may enter into CDAs only for all or part of certain projects specified in section 223.201(f), Texas Transportation Code (note, however, that except for
the Grand Parkway project and the State Highway 183 managed lanes project, such authority is scheduled to expire 31 August 2017). Authority for the State
Highway 183 managed lanes project expires 31 August 2015. In addition, TxDOT, RTAs and RMAs may enter into CDAs only with a private participant if the
project is identified in TxDOT’s unified transportation programme or is located on a transportation corridor identified in the statewide transportation plan.
CDAs must be reviewed by the Texas Attorney General to determine whether they are legally sufficient. The State Legislative Budget Board also requires
certain information to be submitted to it by a toll project entity prior to entering into a CDA (see sections 371.051 and 371.052, Texas Transportation Code).
The PPFI does not apply to state highway projects; projects created by certain metropolitan transit authorities, RTAs, municipal transit departments, or
coordinated county transportation authorities; any telecommunications, cable television, video service, or broadband infrastructure, unless such technology
is part of, and essential to, a qualifying project; or projects located in the State Capitol Complex (see section 2267.003, Texas Government Code).
Under the PPFI, prior to entering into a comprehensive agreement, a state entity ‘must submit copies of detailed proposals, including drafts of any interim
agreement and the comprehensive agreement, to the Partnership Advisory Commission’ (see section 2267.053(h), Texas Government Code). As stated
above, the Texas Legislature has placed a moratorium on the execution of any comprehensive agreement by a state entity prior to 1 September 2014,
excluding institutions of higher education (see section 2267.0531, Texas Government Code).

Texas
Texas SH 130: State Highway 130 is a state-owned toll road that was developed in several stages. SH 130 is a four-lane, 91-mile tollway intended to
provide relief to the heavily congested Interstate 35 through Central Texas. Segments 5 & 6 are a continuation of the northern segments of SH 130 and
form a 41-mile link through Travis, Caldwell and Guadalupe Counties to Interstate 10 near Seguin. They were developed under a 50-year facility concession
agreement between SH 130 Concession Company, LLC (a joint venture of Cintra Concessiones de Infraestructuras de Transporte, SA and Zachry American
Infrastructure) and TxDOT. The $1.3 billion project is the first privately developed and operated open toll road facility in Texas. The form of delivery is a
DBFOM, wherein the developer agreed to design, build, finance, operate and maintain the toll road. Under the facility concession agreement, the developer
and the state share in the toll revenues. The segments opened to traffic in October 2012.
Dallas Cowboys Stadium: in 2004, the City of Arlington, Texas entered into a master agreement with the Dallas Cowboys Football Club Ltd, in which the
parties agreed to share the costs of designing, constructing and equipping a multi-functional stadium, coliseum, sports and community venue project to be
owned by the city and leased to the Cowboys. Later that year, city voters approved the venue project and authorised the city to levy and collect certain taxes
for the purpose of providing the city’s contribution to project costs. The city also was required to acquire the land for the construction and development of the
project. Under the lease agreement with the city, Cowboys Stadium LP agreed to pay all project costs in excess of the city’s contribution and to design and
build the project, including conference facilities, offices for the stadium and complex operations, restaurants, retail establishments, museums, a Cowboys
Hall of Fame and parking facilities. In addition, the Cowboys have the right to sublet use of the venue and own all revenues, profits, royalties, payments and
rentals derived therefrom.
Texas A&M Center for Innovation in Advance Development and Manufacturing: in 2012, Texas A&M University (TAMU) entered into partnership with the
United States Department of Health and Human Services (DHHS), other academic institutions and private firms to establish the Texas A&M Center for
Innovation in Advance Development and Manufacturing (CIADM). The centre is one of three national centres and was founded for the purpose of enhancing
the United States’ emergency preparedness against emerging infectious diseases, including pandemic influenza, and chemical, biological, radiological and
nuclear threats. The State of Texas pledged $40 million to the $285.6 million project, which also includes a $176.6 million contribution from DHHS, with the
remainder cost-shared by commercial and academic proposal partners. Under the contract between TAMU and DHHS, the CIADM will perform research and
advanced development to accelerate vaccines and other medical products through pre-clinical and clinical development and produce these products in cases
of pandemics or other national emergencies. In that connection, the DHHS approved the establishment of a $91 million influenza-vaccines manufacturing
facility at the CIADM in March 2013 in partnership with GlaxoSmithKline plc. Once constructed and operational, the CIADM’s influenza manufacturing facility
could supply 50 million doses of pandemic influenza vaccine within four months of an outbreak. By April 2014, construction on the facility was on budget
and on schedule to start mass production by the end of 2018.
Bradley J Richards brad.richards@haynesboone.com

Robin R Smith robin.smith@haynesboone.com
1221 McKinney Street, Suite 2100 Tel: +1 713 547 2000

Houston TX 77010 Fax: +1 713 547 2600
United States www.haynesboone.com
Virginia
• Virginia first enacted enabling legislation nearly two decades ago authorising public-private infrastructure projects:
• the Virginia Public-Private Transportation Act of 1995, as amended, codified at Virginia Code sections 56-556, et seq (the PPTA), applies to transportation
facilities; and
• the Virginia Public-Private Education Facilities and Infrastructure Act of 2002, as amended, codified at Virginia Code sections 56-575.1 et seq (the PPEA)
applies to a wide range of other infrastructure projects.
• The statutory framework is similar under both acts. Private entities may either develop or operate qualifying projects, or both, under contracts with state
and local governmental entities if the public entity could develop itself or operate the project and also determines that a public need exists, which would
be facilitated by the private sector’s involvement.
• Both solicited and unsolicited proposals are permitted. Concession payments to the public entity and service payments to the private entity are
authorised. Where appropriate, user fees, including tolls, may be imposed and collected by the private entity.
• The Virginia Public Procurement Act does not apply to the PPTA or the PPEA. However, the public entity must proceed under a procurement process
consistent with ‘competitive sealed bidding’ unless it determines that a ‘competitive negotiation’ process, which allows consideration of factors in addition
to price, is likely to be in the public interest. Such other factors include, for example, the scope, complexity or urgency of the project, the opportunity for
risk-sharing or private debt or equity investments proposed by the private entity.
• In November 2013, the Supreme Court of Virginia delivered a comprehensive opinion affirming the constitutionality of public-private transportation projects
developed under the PPTA and financed in part by the imposition and collection of tolls. The important decision in Elizabeth River Crossings OpCo LLC
v Meeks, et al, Nos. 130954 and 130955 (Va 31 October 2013) confirms the constitutionality of the tolling provisions of the PPTA and provides public-
private partnerships with clear guidance as to how to structure transportation projects to minimise the risk that projects dependent on tolling will run afoul
of either the Virginia Constitution or Virginia Code. The ruling is also likely to protect the provisions authorising user fees under the PPEA.
• The Office of the Secretary of Transportation has adopted PPTA Implementation Manual and Guidelines (last revised May 2012) for use by the
Commonwealth’s transportation agencies, including the Department of Transportation, the Virginia Port Authority, the Department of Rail and Public
Transportation, the Department of Aviation, the Virginia Commercial Space Flight Authority and the Department of Motor Vehicles in implementing PPTA
projects.
• Virginia has established an Office of Transportation Public-Private Partnerships (OTP 3) to develop and implement a state-wide programme for multimodal
PPTA projects, joining only a few other states in the US yet to have done something on a similar scale.
• The PPTA Guidelines contain a detailed statement of the Commonwealth’s objectives, policies and procedures relating to its PPTA process, covering
a comprehensive list of matters including project identification for solicited and unsolicited proposals, project screening and prioritisation, project
development and procurement and timelines and milestones.
• The Chairs of the House and Senate Committees on General Laws have adopted PPEA Model Guidelines (last revised October 2009) for use by the
Commonwealth and its agencies and authorities in implementing PPEA projects.
• All ‘responsible public entities’ are required to adopt and make publicly available guidelines for implementing facilities or projects under the PPTA or
the PPEA. Many local governmental entities (ie, cities, counties, towns and regional authorities) have adopted the Commonwealth’s Guidelines or some
variation.
Sectors affected
• The PPTA primarily affects the transportation sector, including roads, bridges, tunnels, overpasses, ferries, airports, mass transit facilities, port facilities,
vehicle parking facilities, etc.
• The PPEA affects a wide range of other industry sectors that provide services to governmental entities, including technology (eg, telecommunications,
automated data processing and management information systems), education (eg, public schools), public safety and security facilities, recreational
facilities and solid waste management facilities that produce electricity derived from solid waste.
• The transportation sector, particularly surface transportation, has been most prominently affected in Virginia to date. Several high-profile highway, bridge
and tunnel projects have been closed under the PPTA. While there is interest in non-transportation infrastructure projects and although several school and
public safety projects and at least one significant technology systems project have reached financial close under the PPEA, there has not yet been much
P3 activity in Virginia beyond transportation.

Virginia
• In adopting the PPTA and the PPEA, the Virginia General Assembly expressed its intention to provide the public and private sectors with the greatest
possible flexibility in contracting with each other to plan, acquire, design, develop, construct, expand, finance, operate, maintain and repair qualifying
facilities or projects. Accordingly, BOT/BOOT/DBFO/DCMF and other innovative structures are permitted in Virginia.
• The PPTA expressly authorises ‘concessions’, which are broadly defined to include any lease, license, franchise, easement or other agreement transferring
rights for the use or control of a qualifying transportation facility by the public entity to a private entity for a definite term during which the private entity
provides a wide range of transportation-related services.
• No specific limitations on investments or investors are imposed by the PPTA or the PPEA except through the process established by the Guidelines. In
adopting the P3 legislation, the Virginia General Assembly expressly stated its intention to encourage investment in the Commonwealth by private entities
to facilitate and provide private capital for qualifying facilities.
• The detailed project identification and screening process and the general approach to the development and negotiation of commercial terms taken
by OTP3 and the Office of the Secretary of Transportation under the PPTA/PPEA and related guidelines impose practical and economic limitations on
investments and investors’ returns.
• Certain exemptions from Virginia’s Freedom of Information Act apply to protect confidential or proprietary information in connection with PPTA and PPEA
proposals, but the statutes and related guidelines promote an overall transparent process.
Virginia
Landmark PPTA project

• The first start-up toll road project under the PPTA reached financial close in 1998. The Pocahontas Parkway/Route 895 Airport Connector project was
constructed under a comprehensive agreement between the Virginia Department of Transportation and a private entity and was initially financed with
US$375 million tax-exempt toll road revenue bonds issued by a special purpose ‘63-20’ corporation. Those bonds were later defeased when the contract
was converted into a 99-year concession agreement and the project was refinanced with bank debt. In June 2013, the concessionaire announced its
approval of a transfer of the concession agreement to the lenders, stating that the project is not generating enough revenue to service the bank debt.
Landmark PPEA project

• US$2 billion long- term contract between the Virginia Information Technologies Agency, an agency of the Commonwealth of Virginia, and a private entity for
comprehensive IT infrastructure technology services by the private entity to modernise, refurbish, maintain and operate the Commonwealth’s IT systems.
Recent PPTA projects

• US$2 billion Midtown Tunnel project located in Hampton Roads, Virginia, to be designed, constructed, financed, maintained and operated under a 58-year
concession agreement between the Virginia Department of Transportation and a private concessionaire. Shortly after financial close, a citizens group
filed suit against VDOT and the concessionaire challenging the legality of the concession agreement and the tolls on a variety of grounds. In November
2013, the Supreme Court of Virginia ruled against the plaintiffs in Elizabeth River Crossings OpCo LLC v Meeks et al, Nos. 130954 and 130955 (Va 31
October 2013), unanimously overturning an earlier ruling by a state circuit court judge that had called into question the tolling provisions of the PPTA. In an
important opinion confirming the constitutionality of the PPTA, the Supreme Court held that the tolls collected on the midtown tunnel constituted user fees,
not unconstitutionally levied taxes. In early 2014, the newly elected governor agreed to contribute additional funding to the project so as to reach a deal
with the concessionaire to lower tolls during the construction period in an attempt to address public concern that the tolls were too high.
• US$1.4 billion US Route 460 Corridor Improvements Project to improve the approximately 55-mile corridor between Petersburg and Suffolk, Virginia.
In December 2012, the Virginia Department of Transportation reached commercial and financial close with a private party to finance, design and build
the project. In March 2014, after nearly US$300 million of expenditure by the state, the Virginia Secretary of Transportation announced that contract
and permit work being completed by the design-build contractor was temporarily suspended to complete a review of the status of certain environmental
permits. At the request of the US Army Corps of Engineers and the Federal Highway Administration, the Virginia Department of Transportation and the
private party are updating the environmental impact study for the project that includes a study of additional alternative road alignments within the corridor.
In the wake of public criticism regarding the size of the expenditure and scope of the risks undertaken by the state, the Governor and Commonwealth
Transportation Board have directed OTP3 and the Virginia Department of Transportation to propose reforms by October 2014 that will strengthen the
transparency of public private transportation development and delivery and aid in the proper evaluation of risks in those projects.
• US$1.5 billion I-495/Capitol Beltway HOT lanes project located in Northern Virginia, being designed, constructed, financed, maintained and operated under
a long-term concession agreement between the Virginia Department of Transportation and a private concessionaire. The project was placed in service
in December 2012. In February 2014, citing lower than expected traffic and revenues, the concessionaire announced plans to pay down approximately
US$430 million in debt on the project as part of a restructuring that will include infusions of new equity and a release of cash trapped in reserves.
• US$0.9 billion I-95 Express HOV/HOT lanes project located in Northern Virginia, being designed, constructed, financed, maintained and generated under a
long-term agreement between the Virginia Department of Transportation and a private concessionaire. The project is anticipated to be placed in service in
2015.
John D O’Neill, Jr joneill@hunton.com

J Waverly Pulley III wpulley@hunton.com
Riverfront Plaza, East Tower Tel: +1 804 788 8200

951 East Byrd Street Fax: +1 804 788 8218
Richmond VA 23219 www.hunton.com
United States

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PROJECT FINANCE 2015 ISSN 1755-974X

Project Finance: in 45 Jurisdictions Worldwide

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Project Finance

Project Finance 2015 Overview3 Dominican Republic 63

Getting the Deal Through

Publisher The information provided in this publication is

Japan131 Oman199 Thailand273

2 Getting the Deal Through – Project Finance 2015

The Art of Getting a Project Finance

4 Getting the Deal Through – Project Finance 2015

Phillip Fletcher Aled Davies

10 Gresham Street 21F Midtown Tower

6 Getting the Deal Through – Project Finance 2015

Assignment of credits 5 How does a bankruptcy proceeding in respect of the project

8 Getting the Deal Through – Project Finance 2015

10 Getting the Deal Through – Project Finance 2015

Regulation of natural resources Land

Audit Court 22 How are international arbitration contractual provisions and

12 Getting the Deal Through – Project Finance 2015

damage to the environment. Companies may also carry out volun-

MINAMB shares responsibility for coordination, development, Public-private partnership legislation

Alberto Galhardo Simões alberto.simoes@mirandalawfirm.com

Av Engenheiro Duarte Pacheco, 7 Tel: +351 21 781 48 00

14 Getting the Deal Through – Project Finance 2015

• increase of costs; • a public sector comparator should demonstrate the advantages

16 Getting the Deal Through – Project Finance 2015

13 What restrictions exist on the importation of project equipment?

18 Getting the Deal Through – Project Finance 2015

20 Getting the Deal Through – Project Finance 2015

Fabrizio de Oliveira Sasdelli fabrizio.sasdelli@loboderizzo.com.br

22 Getting the Deal Through – Project Finance 2015

• penalties applicable to private and public administration in the PPP – transactions

24 Getting the Deal Through – Project Finance 2015

8 Must project companies repatriate foreign earnings? If so, must

Foreign exchange issues

26 Getting the Deal Through – Project Finance 2015

24 Is a submission to a foreign jurisdiction and a waiver of immunity Public-private partnership legislation

throughout the country. The Law on Concessions only provides for

Martin Desautels martin.desautels@dfdl.com

33 Street 294 (Corner Street 29) Tel: +855 23 210 400

28 Getting the Deal Through – Project Finance 2015

2 How is a security interest in each type of collateral perfected

30 Getting the Deal Through – Project Finance 2015

32 Getting the Deal Through – Project Finance 2015

Alison R Manzer amanzer@casselsbrock.com

34 Getting the Deal Through – Project Finance 2015

Foreign exchange issues

6 What are the restrictions, controls, fees, taxes or other charges

36 Getting the Deal Through – Project Finance 2015

16 What are the relevant government agencies or departments with

38 Getting the Deal Through – Project Finance 2015

Update and trends

SOE privatisation Free trade zones

PPP – transactions Hangzhou Metro Line 1

Andrew Ruff aruff@shearman.com

11th Floor, Platinum Tel: +86 21 6136 5000

40 Getting the Deal Through – Project Finance 2015

3 How can a creditor assure itself as to the absence of liens with

42 Getting the Deal Through – Project Finance 2015

44 Getting the Deal Through – Project Finance 2015

Regulation of natural resources Legal issues of general application

46 Getting the Deal Through – Project Finance 2015

In 2013, Congress enacted Law 1682 of 2013 whereby the regu-

Bernardo P Cárdenas Martínez bcardenas@cardenasycardenas.com

Carrera 7, No. 71 – 52 Torre B 9th Floor Tel: +57 1 313 7800

Project Finance 2015 Overview3 Dominican Republic 63

Japan131 Oman199 Thailand273

2 Getting the Deal Through – Project Finance 2015

23 Which jurisdiction’s law typically governs project agreements? • Law 158-01 on