2015 Project Finance in 45 jurisdictions worldwide Contributing editor: Phillip Fletcher
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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 Contributing editor: Phillip Fletcher Milbank, Tweed, Hadley & McCloy LLP Overview3 Dominican Republic Phillip Fletcher and Aled Davies Milbank, Tweed, Hadley & McCloy LLP Fabio J Guzmán-Saladín, Alfredo A Guzmán-Saladín and Alberto Reyes Báez Guzmán Ariza Angola7 Alberto Galhardo Simões Miranda Correia Amendoeira & Associados Getting the Deal Through is delighted to publish the the fully revised and updated eighth edition of Project Finance, a volume in our series of annual reports, which provide international analysis in key areas of law and policy for corporate counsel, crossborder legal practitioners and business people. Following the format adopted throughout the series, the same key questions are answered by leading practitioners in each of the 45 jurisdictions featured. New jurisdictions this year include include Canada, China, the Dominican Republic, Greece and India. This year the publication again includes quick reference tables, focusing on public-private partnerships in US states. Every effort has been made to ensure that matters of concern to readers are covered. However, specific legal advice should always be sought from experienced local advisers. Getting the Deal Through publications are updated annually in print. Please ensure you are referring to the latest print edition or to the online version at www. gettingthedealthrough.com. Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We would also like to extend special thanks to contributing editor Phillip Fletcher of Milbank, Tweed, Hadley & McCloy LLP for his continued assistance with this volume. Brazil16 Fabrizio de Oliveira Sasdelli and Felipe Eluf Creazzo Lobo & de Rizzo Advogados England & Wales 63 69 Andrew Petry, Adam Cooper and Helen Forsey Simmons & Simmons LLP France78 Cambodia24 Martin Desautels, David Doran and Sambo Ly DFDL Jean-François Adelle Jeantet Associés AARPI Georgia86 Revaz Javelidze and Nino Begalishvili Colibri Law Firm Canada29 Germany94 Alison R Manzer and Charles Newman Cassels Brock & Blackwell LLP Claus H Lenz and Rouven F Bodenheimer LLS Lungerich Lenz Schuhmacher China35 Greece100 Andrew Ruff and Claude Jiang Shearman & Sterling LLP Colombia41 Bernardo P Cárdenas Martínez and Daniela Mejía Mariño Cárdenas & Cárdenas Abogados Dimitris Assimakis and Alexandros Pavlopoulos Norton Rose Fulbright Hungary107 Zoltán Varga and Viktor Jéger Nagy és Trócsányi Croatia48 India115 Dinka Kovac̆ević and Dino Simonoski Bukovski Žurić i Partneri Law Firm Democratic Republic of the Congo Jatin Aneja Amarchand & Mangaldas & Suresh A Shroff & Co 56 Emery Mukendi Wafwana, Nady Mayifuila, Jonathan van Kempen and Arnaud Tshibangu Mukendi Emery Mukendi Wafwana & Associates Indonesia121 Rahmat Soemadipradja, Robert Reid and Rachel Situmorang Soemadipradja & Taher Getting the Deal Through London August 2014 Publisher Gideon Roberton gideon.roberton@lbresearch.com Subscriptions Sophie Pallier subscriptions@gettingthedealthrough.com Business development managers George Ingledew george.ingledew@lbresearch.com Alan Lee alan.lee@lbresearch.com Dan White dan.white@lbresearch.com www.gettingthedealthrough.com Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: +44 20 7908 1188 Fax: +44 20 7229 6910 © Law Business Research Ltd 2014 No photocopying: copyright licences do not apply. First published 2007 Eighth edition ISSN 1755-974X The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer– client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of August 2014, be advised that this is a developing area. Printed and distributed by Encompass Print Solutions Tel: 0844 2480 112 1 CONTENTS Japan131 Oman199 Thailand273 Naoaki Eguchi, Gavin Raftery and Yasuhisa Takatori Baker & McKenzie (Gaikokuho Joint Enterprise) Graham Mouat and Ravinder Singh Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants) Roy Lee, David Doran and Duangkamol Ingkapattanakul DFDL Panama207 Turkey280 Erika Villarreal Zorita Anzola Robles & Associates Orçun Çetinkaya and Alişya Bengi Danışman Mehmet Gün & Partners Jordan138 Khaled Asfour, Leena Nusseir and Dima Khuffash Ali Sharif Zu’bi Advocates & Legal Consultants CPSC Laos145 Walter Heiser, David Doran and Duangkamol Ingkapattanakul DFDL Luxembourg151 Denis Van den Bulke and Laurence Jacques Vandenbulke Peru215 Ukraine287 César Arbe and Jessica Valdivia Arbe Abogados Corporativos Financieros Republic of Congo 221 Emery Mukendi Wafwana, Sancy Lenoble Matschinga, Antoine Luntadila, Nady Mayifuila, Jonathan van Kempen and Kekeli J Kodjo Emery Mukendi Wafwana & Associates United States Rogelio López-Velarde and Amanda Valdez López Velarde, Heftye y Soria SC Uzbekistan302 Alina Stancu Bîrsan and Oana Bădărău PeliFilip Zineb Idrissia Hamzi Hamzi Law Firm Mozambique173 Fernanda Lopes Fernanda Lopes & Associados Jaime Casanova, James Finch and Bernard Cobarrubias DFDL 237 Babul Parikh, Sumit Soni and Keith Bullen Baker Botts LLP Reinaldo Hellmund, Carlos Martinez and Miguel Velutini Rodríguez & Mendoza Slovenia244 Vietnam318 Miha Mušič and Dušan Jeraj Taxgroup pravno svetovanje d.o.o. Martin Desautels and Hoang Phong Anh DFDL South Africa Myanmar178 Sofia Shaykhrazieva Colibri Law Firm Venezuela311 Saudi Arabia Morocco167 296 David P Armstrong and Natascha G Kiernan Skadden, Arps, Slate, Meagher & Flom Romania228 Mexico159 Oleksander Plotnikov and Oleksander Zadorozhnyy Arzinger 250 Eric le Grange, Noma Sibanda, Kim Eichorn and Innes Du Preez ENSafrica Zambia324 Eustace Ng’oma Chibesakunda & Co Advocates Quick Reference Tables – US State PPP 329 Switzerland259 Netherlands185 Rutger de Witt Wijnen, Luc Cohen and Viviana Luján Gallegos Simmons & Simmons LLP Mark-Oliver Baumgarten and Thiemo Sturny Staiger, Schwald & Partner Tanzania265 Nigeria193 Fred Onuobia, Oluwatoyin Nathaniel and Okechukwu Okoro G Elias & Co 2 Angela Thorns, Kamanga Wilbert Kapinga and Jacqueline Tarimo Mkono & Co Advocates Getting the Deal Through – Project Finance 2015 Cassels Brock & Blackwell LLP CANADA Canada Alison R Manzer and Charles Newman Cassels Brock & Blackwell LLP Creating collateral security packages 1 What types of collateral are available? Security can be taken against assets on an all-asset basis in Canada. This means that all types of collateral are available to secure the project finance. There are two registration systems for security in Canada, one for personal property, which will include intangibles, 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 certain assets, particularly intangibles, certificated and un-certificated securities and bank accounts can be achieved by having possession of additional documentation or certificates of ownership. Personal property taken as collateral can include after-acquired property and proceeds. Real estate taken as collateral will not include afteracquired property and each piece of real estate must be the subject matter of a specific charge. 2 How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party? Security interests can be taken in all types of collateral in Canada by the use of a written agreement. Some types of personal property can, alternatively, be secured by the holding of possession of that property. Perfection of a security interest in personal property requires all of the following: a written agreement, creation of an interest in the collateral for the debtor, the provision of valid consideration by the creditor and registration or, for those specific assets where so permitted, the holding of possession. Priority is established by the first in time of registration or possession. There are some limited instances where priority established by registration may be altered; this is most commonly with regard to after-acquired property. A purchase money security interest for after-acquired property can achieve priority over a prior perfected security interest that would otherwise exist in that collateral when acquired. Other limited liens can achieve priority, these include mechanics or construction liens, storage liens and statutorily imposed liens. Security over real estate is established by the first in time to register. There are a limited number of interests in real property that can achieve priority over a registered charge. These include construction liens, and on a practical if not registered basis, environmental claims and real property taxes. There are generally no stamp taxes applicable to perfect a security interest in personal property and limited charges to register a lien against real property. An entity may act as agent or trustee to hold both personal and real property security for other lenders, as secured parties. Canada fully recognises the concepts of agency and trust relationships and accordingly no parallel debt clause concept is required. 3 How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien? Under centralised security registration systems in Canada the registration, or for limited types of assets possession, of that asset creates an absolute order of priority. The limited interests that can achieve priority over the registered security interest in the collateral can be identified by a search of public systems. Government liens do not have priority in bankruptcy, but may achieve priority in processes other than bankruptcy. Government liens can be searched with the authority of the debtor. The status of litigation, employment, tax and environmental claims can be searched in public records. 4 Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral? A secured lender can enforce its rights using either judicial assistance or on a self-help basis. The three methods by which enforcement of rights is most generally taken are: • the private appointment of a receiver or the taking of steps directly by the lender; • a proceeding in foreclosure or judicial sale by court intervention; and • application to the court for the appointment of a receiver, as a court officer, to undertake the steps requested pursuant to the court order, generally including business operation and eventual sale. Self-help remedies are available through the use of a direct sale, or seizure in lieu (foreclosure), a process by a lender-appointed receiver or a process by the lender. A judicial sale is not necessary for either personal property or real estate; the applicable statutes allow for sale without judicial intervention. A sale can be undertaken by either a public or a private process provided that minimal standards of commercial reasonableness are met. There are statutory notice periods dictated with respect to a sale of assets, which range from 15 to 45 days. Lenders may participate as buyers in a sale. Sales can be conducted in the currency of the transaction, and there is no requirement that they be undertaken using Canadian currency. www.gettingthedealthrough.com 29 © Law Business Research Ltd 2014 CANADA Cassels Brock & Blackwell LLP 5 How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors’ rights (eg, tax debts, employees’ claims) with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement? 9 May project companies establish and maintain foreign currency accounts in other jurisdictions and locally? A bankruptcy proceeding in Canada will generally affect a secured creditor only by a limited reordering of priorities and by the imposition of a stay period. Once the existence and value of the security interest over the collateral is verified the secured party effectively has the right to take steps to enforce its security outside the bankruptcy proceedings. Bankruptcy proceedings in Canada proceed either as a liquidation or as a debtor in possession of a going concern pursuant to a plan. Preference periods do exist under Canadian law but have a limited effect in a commercial matter for a third party as a secured party. There are limited preferential creditors’ rights; a limited number of tax debts and employee claims can have priority over the secured creditors’ rights. Foreign creditors claims are treated identically to the claims of local secured creditors. There is no difference in legal rights for a foreign secured creditor from that of a domestic secured creditor. Foreign investment issues Foreign exchange issues 6 What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange? Canada does not have foreign currency exchange restrictions. Accordingly there are no restrictions, controls, fees or taxes with regard to the exchange of currency from Canadian currency to foreign, or foreign to Canadian currency, within Canada. Canadian debtors and secured creditors can deal freely in the currency of their choice, subject only to laws of civil procedure which dictate that judgments given in Canada can only be given in Canadian dollars. It is usual to have a foreign currency exchange clause that will require reconciliation to a chosen foreign currency from the judgment rendered in Canadian currency. 7 What are the restrictions, controls, fees and taxes on remittances of investment returns or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions? There are no restrictions or controls on the repatriation of investment returns or capital invested from Canada to any foreign jurisdiction. Capital may be returned, and dividends, interest or premiums paid on investments made in Canada to foreign jurisdictions without limitation other than general corporate law. Withholding tax is not payable for Canadians paying interest on debt obligations to foreign lenders. Withholding tax is payable on amounts that are payable on loans or bonds as a participating premium, and is payable on dividends. There is no fee or tax payable on the repatriation of capital. The amount of withholding tax payable will depend on the nature of the payment and the country to which the payment is being made. Canada has an extensive system of bilateral tax treaties that will reduce tax otherwise payable on a withholding tax basis. 8 Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use? Project companies are not required to repatriate foreign earnings to Canada or to export Canadian earnings to foreign investors. Project companies in Canada, whether branches or domestically created Canadian resident entities, may establish and maintain foreign currency accounts where they choose. These accounts can be maintained in other jurisdictions or, if available through a bank or currency exchange office, locally. There is no restriction on operating in foreign currency. 10 What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions 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 international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority? Restriction on foreign investment in, or ownership of, project and related companies, is very limited in Canada. Federal legislation, the Investment Canada Act, is the mechanism that requires a review of acquisitions of control of an existing Canadian business or the establishment of a new Canadian business by non-Canadians in Canada. The statutorily-dictated transactions that require such a review are limited, and are divided into two categories: one requiring only notification and the other requiring review. If the investors are from a World Trade Organization member country and the investment is in a non-cultural Canadian business, the threshold level is C$1 billion of gross assets. If the investor is a non-World Trade Organization member the threshold levels are considerably lower. Canadian cultural businesses have a lower threshold and a review will be required if the government of Canada considers the investment injurious to national security; however, this is rarely invoked. If the transaction is reviewable then the authority to proceed will require that the transaction be of net benefit to Canada. Net benefit to Canada is determined by the relevant federal government ministry and is based upon criteria set out in the Investment Canada Act. Some industries, such as financial services, require consent as to ownership criteria, applicable to the foreign investor in the same manner as to the domestic investor. In the event that the debt investment has been made into Canada, and the foreign investor or creditors are seeking to foreclose, or otherwise exercise their remedies as secured creditors, the Investment Canada restrictions would apply only to the extent that the foreign investors intend to take and retain ownership of the project. The restrictions otherwise do not apply to the realisation of security. A foreign investment promotion and protection agreement – a bilateral agreement aimed at protecting and promoting foreign investment – is available between Canada and a significant number of jurisdictions. Canada is a member of a number of international trade agreements including the World Trade Organization, the North American Free Trade Agreement and, more recently, other agreements extending Canada’s free trade zone. This provides national treatment of most favoured nation status for foreign investors of many countries, such that they are treated equally and no less favourably than domestic investors. These treaties do not require registration with any government authority on the part of investors or nations seeking to access the benefits of those treaties. 11 What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance 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 30 Getting the Deal Through – Project Finance 2015 © Law Business Research Ltd 2014 Cassels Brock & Blackwell LLP CANADA and product. Insurance can be provided outside Canada for risks in Canada, including to Canadian domestic enterprises or to foreign entities carrying on business in Canada. Provided that the insurer is not found to be carrying on business in Canada, insurance policies can be provided to persons resident in, or domestic to, Canada. In such an instance, fees and taxes will not be applicable in Canada because the transaction will be found to be carried on entirely outside Canada. Insurance policies provided by foreign insurers, outside Canada, for Canadian risks, may be payable to the foreign secured creditors without restriction by Canada, and without fees or taxes in Canada. 12 What restrictions exist on bringing in foreign workers, technicians or executives to work on a project? Canada imposes immigration restrictions on persons seeking to enter and work in Canada. Visas, permanent residence or citizenship status will be required for foreign workers, of any nature, to work in Canada. The ability to obtain such a work visa in Canada will depend on the nature of the enterprise and the intended involvement of the foreign workers sought to be brought into Canada. Where Canadians are not available, such as where specialised technical expertise, management expertise or administrative tasks for corporate integration are required, work visas will generally be available upon appropriate application and justification of the need for the workers’ presence in Canada. In addition there is a temporary foreign worker programme, which has been implemented by the government of Canada, which lets employers hire foreign workers to fill temporary labour shortages. The employer will need to get approval from Employment and Social Development Canada. This will require a labour market opinion verifying that there is a need for the foreign workers because there are no Canadians reasonably available to do the job. 13 What restrictions exist on the importation of project equipment? Importation of goods into Canada has two aspects: the ability to import goods and the taxes payable on the importation of the goods. Foreign Affairs, Trade and Development oversees the import of goods into Canada. The Canada Revenue Agency, Excise Duties and Tax division, oversees the payment of required taxes on the importation of goods. Canada freely allows goods to be imported into Canada subject only to compliance with some limited federal and provincial restrictions. There is a narrow range of goods that are fully prohibited. Some goods are restricted by the requirement to meet specified standards and will require an import permit. There are very few items listed on the restricted import control list. In addition, some goods will be required to meet standards that are also applicable to domestic goods. These include labelling laws for certain retail products, motor vehicles that are required to meet safety and emission control standards and food and agriculture products that have to pass health and sanitary checks. In the instance of the import of equipment, these limited restrictions may be applicable, but, in general, project equipment can be imported relatively freely. 14 What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected? Canada strictly adheres to the concept of there being no expropriation without equivalent compensation. Expropriation is limited to the expropriation of real property required for governmentsponsored projects, schools, hospitals, roads, power lines, government facilities or transit lines. While land acquisition for these projects may involve a normal purchase of the land from a willing seller, federal, provincial and municipal authorities can invoke powers of expropriation to force the acquisition of the real property. Protection is provided by the restriction that expropriation must meet very specific government-determined projects and not be for the purposes of nationalisation. Fiscal treatment of foreign investment 15 What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration? Canada has eliminated withholding tax on arm’s-length interest paid or credited to non-residents. While withholding tax remains payable on dividends, Canada has implemented lower rates pursuant to several bilateral treaty agreements and further lower rates apply where the beneficial owner of the dividend is a company that owns or controls a certain equity percentage of the payer, effectively a parent company. Canada’s international tax rules adhere to the tax models promoted by the Organization for Economic Cooperation and Development. Foreign investors doing business in Canada through a separate legal entity will be considered to be Canadian residents as to that entity and will be taxed as such. Canadian residents are liable for taxes on income worldwide. Canada does, however, use models that avoid double taxation using tax credits and exemptions. Nonresidents that do business in Canada through a permanent establishment, as a branch, and not using a separate legal entity are only liable for income taxes on the income attributable to the business conducted in Canada. In addition there is a branch tax imposed on aftertax source income that is not reinvested in Canada. The statutory rate is 25 per cent but is reduced by many of the Canadian tax treaties. Non-resident corporations that are incorporated in Canada as principal business corporations can access special tax incentives. These corporations have principal businesses directly related to mining or oil and gas, including exploration, development, and extraction and processing. These provide access to the flow-through share mechanism for investment, a 100 per cent write-off and indefinite loss carried for exploration and development and an accelerated 30 per cent amortisation of the cost of acquiring resource properties. There are also accelerated allowances for capital costs and greenfield mines are major expansions. Canada is also identified as a low corporate tax jurisdiction, with a progressive, duty-free manufacturing tariff regime. Canada has a very large free trade geographic reach and is generally lowering tariffs on manufacturing inputs. Canada provides specific access to reduced or no tariff for the importation of machinery and equipment into Canada, particularly from parent companies. Canada provides favourable tax treatment for scientific research and experimental development. The federal system of tax credits is accompanied by an extensive provincial network of research and development tax incentives, which are provided in addition to the federal level. Tax incentives in Canada are designed to assist companies with reducing the cost for investment projects including reducing costs of capital expenditure on machinery, equipment, land and buildings, investments to increase productivity and direct involvement in research incentives of excellence. Government authorities 16 What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors? Canada operates with two levels of government, the federal government having jurisdiction over specified constitutionally dictated public matters and the provinces and territories over remaining www.gettingthedealthrough.com 31 © Law Business Research Ltd 2014 CANADA Cassels Brock & Blackwell LLP public sector matters. The municipal authorities are a subset of the provincial authorities and obtain their powers and authority from the provincial authority. There is an element of government regulation at either the federal or provincial level in the oil and gas, mining, refining, water treatment, power generation and transmission, transportation, ports, telecommunication sectors and similar sectors. Each of these sectors has had some element of state ownership. In areas where private delivery has been expanding to meet public delivery requirements, government authorities have been withdrawing from those sectors. This is the case for oil and gas, mining, refining and telecommunications. Government ownership continues in areas such as water treatment, which is frequently municipally delivered, power generation and transmission, which have extensive provincial ownership in most provinces, and limited ownership in transportation, ports and telecommunications, as these are increasingly being devolved to private authorities or providers. In the power generation and transmission sector, large government-owned integrated public utilities play the leading role in the generation, transmission and distribution of electricity. Ontario and Alberta have, however, created electricity markets to increase investment and competition in this sector by private providers. 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 transmission and distribution rates. Interprovincial and international power distribution is governed by the National Energy Board. The Canadian Nuclear Safety Commission has jurisdiction over nuclear safety, including in the power generation sector. Federal and provincial governments share jurisdiction over environmental regulation. This has a significant impact on the regulation in the power generation and transmission sectors. Natural resource development remains a significant concern at both the federal and provincial levels. In Canada, the first right to develop resources adheres to land ownership. The basic rule is that the ownership of land carries with it the right to the renewable resources such as crops, trees, fish and wildlife and in addition the right to extract non-renewable resources such as coal, minerals, oil and gas. Land ownership can, however, be bifurcated, and many land grants have separated resource development rights. As to minerals and forest lands, mining leases and limited cutting rights have been significantly replacing direct grants of ownership. Federal and provincial authorities continue to hold the rights to many of the resource properties in Canada. Provincial governments are the largest holders of undeveloped resource rights and, in many instances, have retained those rights but have granted oil, mineral and forest exploration and development rights to private enterprise. The federal government continues to control the rights over much of the natural resources of northern Canada and in the offshore regions outside of provincial jurisdiction. Alberta is heavily oriented towards oil and gas, granting leases 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 reserves. In Canada native persons also have certain land claims to natural resources arising from treaties and from traditional use. The fees and charges that will apply will generally be those of taxation, lease payments and royalties, and these will be applicable to domestic and foreign investors on the same basis. Regulation of natural resources 17 Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights? The federal government of Canada has rights over much of Northern Canada and offshore natural resources that are outside 32 of the jurisdiction of the provinces. The provinces generally have ownership of natural resources within the provincial territorial areas and hold those rights over natural resources until they are otherwise granted to individuals. Private parties can acquire rights by ownership or the right to exploit by lease, licence, or permit. The basis upon which these rights are granted has varied over time and in many instances the granting of ownership rights to real property has not excluded the rights to the exploitation of the natural resources that are located on that property. The granting of title to real property has inherent in it the grant of title to the exploitation of the resources attached to that property unless those natural resources have been excluded from the grant. Aboriginal people have rights in Canada, and these rights can affect the granting and exploitation of rights to natural resources. The rights outside specific treaty territory are rights to consultation and compensation where there is an impact on traditional rights. These rights are frequently recognised by accommodation agreements. The accommodation agreements, generally, will grant benefits to the affected aboriginal peoples. Accommodation is generally negotiated directly with the party holding and seeking to exploit the natural resources. 18 What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based? Payments required to be made with regard to the extraction of natural resources vary, dependent upon the basis on which the exploitation has been permitted and the natural resource under consideration. There is no distinction between the amounts that will be payable between domestic and foreign parties; the differences are dependent upon the nature of the exploitation rights and the resource to be extracted. Where the resource being extracted is being exploited as a consequence of the resource forming part of the attributes of real property ownership, then taxation will be the applicable form of payment. Where the resource is being exploited by the grant of a specific right from the owner or the relevant government authority, these rights will range from lease payments to licence fees, permit costs, royalties and taxation. Oil and gas, both petroleum and natural gas, is generally royalty-based, with a freehold production tax being applied. The majority of taxation in this sector involves provincial legislation. Northern or offshore exploitation, which falls under federal authority, is governed by federal royalty and taxation systems. 19 What restrictions, fees or taxes exist on the export of natural resources? Fees and taxes are payable based upon the extraction and exploitation of the natural resources. Additional fees and taxes are not payable with regard to the export of these natural resources. Legal issues of general application 20 What government approvals are required for typical project finance transactions? What fees and other charges apply? A typical project finance transaction does not require approvals, nor are there fees and charges specific to the financing being obtained for project purposes or structured in the usual project finance manner. Approvals that are required do not differ between domestic Canadian proponents of a project and foreign proponents. The approvals, fees and charges depend on the requirements for specific consents and the acquisition of the rights necessary for the undertaking of the project. These differ by the nature of the project, the location of the project and the approvals and charges for any resources to be exploited, among other general requirements. Getting the Deal Through – Project Finance 2015 © Law Business Research Ltd 2014 Cassels Brock & Blackwell LLP CANADA 21 Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable? Project finance documents do not require registration or filing with a government authority in order to be validated and enforceable. Financing documentation that creates a security interest will need to be registered, as has been discussed previously, to ensure priority of the grant of security interest. If project rights are being obtained from a government authority then the documentation required will generally be dictated by the specific requirements of that government authority. 22 How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration? Canada has ratified the International Treaty on Investment Disputes, accepting and ratifying the ICSID Convention. Canada, therefore, accepts the rules under which investment disputes between states and nationals of other states may be resolved by the use of conciliation or arbitration. Most of the Canadian bilateral treaties and the Foreign Investment Promotion and Protection Agreement (FIPA) or an FTA will dictate that the ICSID convention will apply. In states where Canada does not have such a treaty the Convention allows Canadian investors or investors into Canada to provide for ICSID arbitration in their contracts. An award rendered under the ICSID is binding and any resulting financial obligation will be enforced in Canada as if it were a final domestic court judgment in Canada. Courts in Canada will generally recognise an agreement that arbitration will be binding and final determination, and will accept the awards granted thereunder. 23 Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law? Canada permits parties to elect the jurisdiction to govern their contractual agreements if there is a reasonable connection to the selected jurisdiction. Financing agreements are most commonly governed by the jurisdiction most familiar to, and where generally 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 of security interests. 24 Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable? Submission to a foreign jurisdiction and waiver of immunity will generally be recognised and accepted in Canada. Only overriding public policy concerns would result in a refusal of the Canadian courts to recognise such a selection. Federal legislation in Canada under the State Immunity Act specifically provides that foreign states are immune from the jurisdiction of any court in Canada and that the court must give effect to the immunity conferred on the foreign state. The exceptions are if the state has waived immunity, the foreign state submits to the jurisdiction of the court or the matter relates to commercial proceedings of the foreign state. Environmental, health and safety laws 25 What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws? Canada does impose environmental, health and safety and similar laws and regulations in a manner that will affect a typical project, including specifically in the sectors noted. Legislation in these areas is split between federal and provincial authority, and the regulatory bodies that will administer the laws will depend upon federal or provincial authority. In addition, several different federal or provincial departments may have rights and obligations with regard to aspects of the applicable legislation. Water is a crucial area for environmental protection in Canada, and Canada’s coastal and inland waters are shared as to responsibility between the federal and the provincial and territorial governments. Fisheries are of significant concern in Canada and are dealt with at both federal and provincial levels. There are, in addition, specific acts dealing with protection of the Arctic and Antarctic, species 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 and finance. Specific sectors also have legislation that can affect the exploitation and financing of a project. As an example in the telecommunications sector, federal legislation will affect broadcast, telecommunications and the delivery of broadcasting under a number of statutes and regulations. There is also legislation and regulation at the federal level for ports and train transportation, with rail transportation acts involving matters such as bridges, international bridges and tunnels, railway relocations and crossings. Road transportation is governed at both the federal and provincial level. The federal level deals with interprovincial and international aspects, while provinces deal with intra-provincial transportation. Marine transportation is also the subject matter of legislated authority, at the federal level dealing with matters such as shipping, transportation, environmental protection, marine health and safety and labour. Air transportation is also the subject of legislation and regulation in Canada. Extensive legislation at both the federal and provincial level will apply to projects in the mining and oil and gas sectors. These will include not only the grant of rights to exploit the natural resources but will also deal with operations in the sector around environmental, health and safety issues. Project companies 26 What are the principal business structures of project companies? What are the principal sources of financing available to project companies? Project finance, as structured and undertaken in Canada, does not differ from the structures normally used in jurisdictions such as the United States. Generally, the project is set up with a projectspecific entity that acquires the rights, undertakes the exploitation and obtains financing specific to the project. The nature of the entity that is used is generally selected for tax planning, whether taxation in Canada as a domestic entity is desired or whether there will be direct repatriation to other countries. Different sectors tend to favour a different form of company for the project, depending upon the nature of its agreements and financing arrangements. In all instances Canadian law will support the separation of the project entity, its interest in the project and its business from the balance of a corporate group. Each of these types of entities will have the legal capability, given by statute or contractual agreement, to undertake the necessary steps for the development and exploitation of the project, including its financing. Financing is available from a broad range of potential sources. The private markets in Canada involve investment through financing by regulated financial institutions, pension plan and fund investors and internationally-based debt sources that have an interest in Canada. In addition there is a strong domestic public securities market, with a particular interest in the financing of mining. www.gettingthedealthrough.com 33 © Law Business Research Ltd 2014 CANADA Cassels Brock & Blackwell LLP The Canadian domestic public securities market provides a very substantial portion of the mining finance for the world. Financing sourced in Canada is not limited to domestic Canadian projects. The range of sources of financing for projects in Canada essentially encompasses all financing sector participants with an interest in longer term investment. The market for construction or development financing may be more limited than take-out financing against assured revenue streams. Depending upon the importance of the project to the Canadian economy, government assistance may be available by way of credit insurance, direct funding or project finance guarantees. the preferred route. Governments in Canada may have limitations on longer term obligations. Generally, an annual budget process will dictate the ability of government in connection with nonspecific acquisition obligations, such as the provision of guarantees or additional support. Governments can enter into longer term leases, licences and off-take agreements, and these can be the subject of longer-term agreements. Generally, it will be necessary to ensure that the appropriate legislative support for the longer-term contracting is in place but this will frequently be available. 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 level of government and is the legislation industry-specific? The most significant public-private partnership transactions completed in recent years have involved toll roads, bridges and power generation and transmission. The recently completed federal government credit substitution guarantee for the Lower Churchill Hydroelectric Power Projects represents the most significant public-private transaction completed in Canada in recent years. That transaction involved the financing for the development of a large hydroelectric power generation plant on the Lower Churchill River, with transmission facilities running from Labrador to the island of Newfoundland and from there to the mainland through Nova Scotia. The project required significant federal government of Canada assistance, on a public-private basis, through a federal credit-wrap-based financing assurance to allow access to favourable financing costs. In addition, there have been two significant toll road projects completed in Canada, one being the Highway 407 Project in Ontario and the other being the New Brunswick toll road project. When the Highway 407 Project was being undertaken it represented a very unique approach, providing for a highly developed partnership agreement requiring open access tolling, and highway expansion and extension based upon per-lane traffic counts. Public-private projects have been developing in Canada for some time. All levels of government are able to participate in publicprivate partnerships for the development of needed infrastructure. The general legislative authority of each of the levels of government in Canada permits participation without specific legislation in many instances. There has been limited legislation in specific areas, generally to permit the construction of significant projects in areas such as highways (toll roads), bridges, significant power projects and similar. PPP – limitations 28 What, if any, are the practical and legal limitations on PPP transactions? The government is able to contract with private participants, subject to public procurement law. Public procurement law will generally only require that there be a competitive process for the contracting for the project. The government, subject to ensuring an open and transparent process, can enter into public-private partnerships without a full public procurement process, but this will generally not be PPP – transactions Alison R Manzer Charles Newman amanzer@casselsbrock.com cnewman@casselsbrock.com 2100 Scotia Plaza – 40 King Street West Toronto Ontario M5H 3C2 Canada Tel: +1 416 869 5300 Fax: +1 416 360 8877 www.casselsbrock.com 34 Getting the Deal Through – Project Finance 2015 © Law Business Research Ltd 2014 Annual volumes published on: Acquisition Finance Air Transport Anti-Corruption Regulation Anti-Money Laundering Arbitration Asset Recovery Banking Regulation Cartel Regulation Climate Regulation Construction Copyright Corporate Governance Corporate Immigration Data Protection & Privacy Dispute Resolution Dominance e-Commerce Electricity Regulation Enforcement of Foreign Judgments Environment Foreign Investment Review Franchise Gas Regulation Insurance & Reinsurance Intellectual Property & Antitrust Investment Treaty Arbitration Islamic Finance & Markets Labour & Employment Licensing Life Sciences Mediation Merger Control Mergers & Acquisitions Mining Oil Regulation Outsourcing Patents Pensions & Retirement Plans Pharmaceutical Antitrust Private Antitrust Litigation Private Client Private Equity Product Liability Product Recall Project Finance Public Procurement Real Estate Restructuring & Insolvency Right of Publicity Securities Finance Shipbuilding Shipping Tax Controversy Tax on Inbound Investment Telecoms and Media Trade & Customs Trademarks Vertical Agreements For more information or to purchase books, please visit: www.gettingthedealthrough.com Strategic Research Partner of the ABA Section of International Law Official Partner of the Latin American Corporate Counsel Association PROJECT FINANCE 2015 ISSN 1755-974X
