Project
Finance
Contributing editors
Phillip Fletcher and Aled Davies
2016
Project Finance 2016
Contributing editors
Phillip Fletcher and Aled Davies
Milbank, Tweed, Hadley & McCloy LLP
Publisher
Gideon Roberton
gideon.roberton@lbresearch.com
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Law
Business
Research
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© Law Business Research Ltd 2015
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First published 2007
Ninth edition
ISSN 1755-974X
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CONTENTS
Overview7
Korea96
Phillip Fletcher and Aled Davies
Milbank, Tweed, Hadley & McCloy LLP
Young Kyun Cho and Geon Ho Kim
Kim & Chang
The United States PPP market: growing pains
10
Kyrgyzstan101
Ivan E Mattei and Armando Rivera Jacobo
Debevoise & Plimpton LLP
Saodat Shakirova and Omurgul Balpanova
ARTE Law Firm
Bangladesh12
Laos107
Amina Khatoon and A B M Nasirud Doulah
Doulah & Doulah
Walter Heiser and Duangkamol Ingkapattanakul
DFDL
Brazil18
Luxembourg113
Fabrizio de Oliveira Sasdelli and Felipe Eluf Creazzo
Lobo & de Rizzo Advogados
Denis Van den Bulke and Laurence Jacques
Vandenbulke
Cambodia25
Mexico120
Martin Desautels and Sambo Ly
DFDL
Rogelio López-Velarde and Amanda Valdez
López Velarde, Heftye y Soria SC
Canada30
Mozambique127
Alison R Manzer and Charles Newman
Cassels Brock & Blackwell LLP
Fernanda Lopes
Fernanda Lopes & Associados
China36
Myanmar132
Andrew Ruff and Claude Jiang
Shearman & Sterling LLP
Jaime Casanova, James Finch and Bernard Cobarrubias
DFDL
Colombia41
Nepal137
Bernardo P Cárdenas Martínez, Catalina Pinilla and Angela Botía
Cárdenas & Cárdenas Abogados
Audray Souche and Vinay Ahuja
DFDL
Democratic Republic of the Congo
Anjan Neupane
Neupane Law Associates
48
Emery Mukendi Wafwana, Pathy Liongo Bootsi,
Lydie M’vumbi Bavukua and Popol Mwamba Mukengeshayi
Emery Mukendi Wafwana & Associates
Dominican Republic
Nigeria142
Fred Onuobia, Oluwatoyin Nathaniel and Okechukwu J Okoro
G Elias & Co
54
Oman147
Fabio J Guzmán-Saladín, Alfredo A Guzmán-Saladín and
Alberto Reyes-Báez
Guzmán Ariza
England & Wales
Graham Mouat and Ravinder Singh
Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants)
60
Andrew Petry, Adam Cooper and Yukiko Murasaki
Simmons & Simmons LLP
Hungary69
Zoltán Varga and Balázs Baranyai
Nagy és Trócsányi
India76
Jatin Aneja
Shardul Amarchand Mangaldas & Co
Indonesia81
Emalia Achmadi, Robert Reid and Denia Isetianti
Soemadipradja & Taher
Japan90
Naoaki Eguchi, Gavin Raftery and Yasuhisa Takatori
Baker & McKenzie (Gaikokuho Joint Enterprise)
2
Panama154
Erika Villarreal Zorita
Anzola Robles & Associates
Peru161
César Arbe, Jessica Valdivia and Doris Alvaro
Arbe Abogados Corporativos Financieros
Republic of Congo
166
Emery Mukendi Wafwana and Antoine Luntadila
Emery Mukendi Wafwana & Associates
Slovenia172
Andrej Andrić, Blaž Merčun and Sašo Jovčić
Odvetniška družba Andrić o.p. – d.o.o.
South Africa
177
Eric le Grange, Noma Modise, Kim Eichorn and Innes Du Preez
ENSafrica
Getting the Deal Through – Project Finance 2016
CONTENTS
Sweden186
United States
Peter Dyer and Andreas Lindström
Foyen Advokatfirma
Ivan E Mattei and Armando Rivera Jacobo
Debevoise & Plimpton LLP
Switzerland191
Uzbekistan216
Thiemo Sturny and Martin Kern
Staiger, Schwald & Partner
Sofia Shaykhrazieva and Kamilla Khamraeva
Colibri Law Firm
Thailand196
Vietnam224
David Doran and Duangkamol Ingkapattanakul
DFDL
Hoang Phong Anh and Kristy Newby
DFDL
Ukraine203
Zambia229
Oleksander Plotnikov and Kateryna Bezarova
Arzinger
Eustace Ng’oma
Chibesakunda & Co Advocates
www.gettingthedealthrough.com 211
3
CANADA
Cassels Brock & Blackwell LLP
Canada
Alison R Manzer and Charles Newman
Cassels Brock & Blackwell LLP
Creating collateral security packages
1
3
What types of collateral and security interests 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 that 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 uncertificated 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 after-acquired 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? Is it
necessary for the security agent and trustee to hold any
licences to hold or enforce such security?
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.
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,
even 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.
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?
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
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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 exchange and withholding tax 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
that 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.
9 May project companies establish and maintain foreign
currency accounts in other jurisdictions and locally?
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.
Foreign investment issues
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 statutorilydictated 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 of gross assets is C$600 million, rising to C$800 million on
24 April 2017 and C$1 billion on 24 April 2019. 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 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
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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 government-sponsored 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. Non-residents 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 after-tax
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 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 governmentowned 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 of the jurisdiction of the provinces. The provinces generally have ownership of natural resources within the provincial territorial areas and hold those rights
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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.
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
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Update and trends
As the Canadian PPP market has matured and gained a reputation
for being a stable market, a secondary market has developed in
which private sector participants are selling their equity interests in
various larger projects to other private sector participants eager to
acquire an interest in a stable, long-term revenue-producing asset.
Transportation projects – including the 407 express toll highway in
Ontario – have, in particular, seen significant activity in this regard.
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 project-specific 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 internationallybased 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.
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.
Public-private partnership legislation
27 Has PPP enabling legislation been enacted and, if so, at what
level of government and is the legislation industry-specific?
Public-private projects have been developing in Canada for some time.
All levels of government are able to participate in public-private 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 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 non-specific 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 longerterm 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.
PPP – transactions
29 What have been the most significant PPP transactions
completed to date in your jurisdiction?
Some notable recent PPP transactions have included the Pan American/
Parapan American Games, a city centre airport in Toronto, and the continued development of a large hydroelectric power generation plant. The
development of the needed infrastructure for the Pan American/Parapan
Alison R Manzer
Charles Newman
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Ontario M5H 3C2
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American Games to be held in Toronto, Ontario in the summer of 2015 gave
rise to a large number of coordinated but separate PPP projects throughout
the Greater Toronto Area. The public involvement ranged from municipalities and provincial governments to a major university. The scope of
the overall plans and projects is enormous, resulting in the complete redevelopment of parts of the City of Toronto. Second, the redevelopment and
sale with financing of the Billy Bishop Toronto City Airport was a large and
creative endeavour. Although it involved substantially private enterprise
taking over the site (located on the Toronto Islands) and refinancing, the
challenges of a city centre airport in a major municipality made this a significant project. Lastly, the continued development of the Lower Churchill
Hydroelectric Power Projects – with involvement by Canada, the provinces
of Newfoundland and Nova Scotia, and public utilities in each of those
provinces – remains one of the most significant PPP projects in Canada.
The creative structure, size and complexity of the project continue to make
it stand out as a noteworthy PPP project for Canada.
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