Vaca Muerta: The Contracting Process for the Construction of an Essential Natural Gas Pipeline has Begun

On July 10th, 2019, Decree No. 465 (the “Decree”), issued by President Macri, has been published in the Official Gazette. By means of the Decree, the Secretary of Government of Energy (the “SGE”) has been instructed to call a public national and international tender with the purpose of awarding a new natural gas transport license for a new facility. This new infrastructure project entails the design and construction of a natural gas pipeline that will connect the Neuquén’s Subzone with the cities of Salliqueló and San Nicolás, both located in the province of Buenos Aires.

Pursuant to the Decree, the new transport license shall include a special regime lasting 17 years as from commercial operation date. The main terms of this special regime are summarized below:

  1. The licensee’s remuneration shall be freely negotiated with the users of the gas pipeline;
  2. The licensee’s remuneration shall not impact in the natural gas residential end users’ rates;
  3. The terms and conditions of the tender to be called by the SGE shall provide a partial award of pipeline’s capacity. The remaining capacity shall be assigned through public tenders, in compliance with the applicable regulations.

Finally, the Decree provides that Law No. 24,076 -that rules natural gas’ transportation and distribution-, shall be the project’s legal framework, instead of the Law No. 17,319 -that recognizes the operating concessionaire’s right to transport its hydrocarbons-. However, as long as the special regime remains effective, Law No. 24,076, Title IX, Chapter I provisions to the extent they contradict the Decree, shall not be applicable.

For further information, please do not hesitate to contact either Nicolás Eliaschev, Javier Constanzó or Juan Pablo Filippini.

by trsym

20 Minute Insight

📺 👉🏼 Our partner Nicolás Eliaschev was interviewed by Jamie Dowswell, Programme Director of AIREC, about the outlook for Argentina's Renewable Energy Sector for this year.

by trsym

Regulatory Updates: New Terms and Conditions for Hydrocarbon Transport Concession's Public Tendering

On July 1st, 2019, Resolution No. 357 (the “Resolution”), issued by the Secretary of Government of Energy (the “SGE”), has been published in the Official Gazette, with important implications in regards to public tendering procedures which shall be carried out in order to grant concessions for hydrocarbon’s transportation. Tenders of this nature may rely on project’s submitted by private entities, as further described below.

Pursuant to Annex I of the Resolution, those tenders may comprise:

  1. Concessions for hydrocarbon’s transportation, which have been reverted from the former concessionaire to the pertaining governmental body or entity.
  2. Projects submitted by private entities, which shall contain minimum standards such as a general description of the project’s nature and aspects involved in its execution, land matters, etc.
  3. New hydrocarbon transportation projects required to satisfy demands of the users.

The Resolution also foresees that all public tenders launched by the SGE in order to grant a hydrocarbon transport concession shall contain a bid document containing main terms and conditions of such competitive procedure.

In addition the Resolution further stipulates requires that all projects submitted by any private entity to the relevant governmental authorities must clearly specify land matters-related issues involved in such project.

The Resolution also authorizes foreign corporations (not registered in Argentina’s registries of commerce as of the date on which the Resolution is issued) to submit proposals of this nature for purposes of being evaluated and subject to a public tendering thereafter. However, foreign entities are bound to register before the mentioned registries’, to the extent that their proposal is admitted and prior to the public tender being issued.

Furthermore, the Resolution indicates that the governmental authorities shall provide their ruling regarding project’s feasibility no later than thirty (30) business days from the project being submitted thereof.

Finally, the Resolution requires prior registration of the interested companies before the Hydrocarbon Transport Registry for their participation in the public tenders.

For further information, please do not hesitate to contact either Nicolás Eliaschev or Javier Constanzó.

by trsym

New works and expansion of existing infrastructure – Neuquén basin gas pipeline and PPP Power transmission

On March 8, 2019, two resolutions issued by the Secretary of Government of Energy (the “SGE”), containing relevant rules in connection with infrastructure works of the electricity and gas industries, were published in the Official Gazette:

(1) Resolution SGE No. 81/2019 (“Resolution 81”), related to the construction and further operation of the 500-kV high-voltage line, the future substations Río Diamante and Charlone, and complementary works, under a public-private partnership structure (“PPP”). By means of this Resolution 81, call for bids set out in 2018 have been relaunched; and

(2) Resolution SGE No. 82/2019 (“Resolution 82”), related to the construction of a new gas pipeline or the significant expansion of existing transport capacity for the transportation of natural gas produced in the Neuquén basin towards the metropolitan area of the province of Buenos Aires.

The most relevant aspects of both resolutions are summarized below:
 

  • Resolution SGE No. 81/2019 – PPP Power transmission works

    Resolution 81 calls for a two-stage national and international tender procedure for the construction and further of the 500-kV high-voltage line, the future substations Río Diamante and Charlone, and complementary works.

    Such works also comprise the electrical interconnection in 500-kV of the future substations Río Diamante, Charlone, and complementary works, as well as operation and maintenance of these facilities.

    The tender’s terms and conditions and its annexes are published on the website of the Undersecretary of Public-Private Partnership, together with the rest of the preliminary tender documents.

    The most important dates to keep in mind are:

    Date and time Activity
    May 10, 2019 Public consultation period due date
    May 27, 2019 Deadline for bids
    June 27, 2019 Publication of the Prequalification Ruling (Dictamen de Evaluación de Precalificación)
    July 2, 2019 Opening of envelope no. 2
    July 10, 2019 Publication of the Economic Offers’ Evaluation Ruling (Dictamen de Evaluación de las Ofertas Económicas)
    July 12, 2019 Resolution awarding PPP Contract
    August 14, 2019 Due date for PPP Contract execution

    •  

  • Resolution SGE No. 82/2019 – Vaca Muerta gas pipeline

    Resolution 82 calls for expressions of interest in connection with: (i) the construction of a new gas pipeline; or (ii) the development of a significant expansion of the current transport capacity.

    Expressions of interests aim to enhance transportation of natural gas produced in the Neuquén basin towards the metropolitan area of the province of Buenos Aires and the littoral area.

    Interested parties in participating in this procedure shall submit their expressions of interest no later than April 8, 2019.

    1. Scope

      With respect to the construction of a new transport system, a public tender procedure for the construction, operation and maintenance of the new infrastructure shall be called on a later stage.

      Capacity expansions of one or all existing transport systems shall be authorized in accordance with section 16 of law No. 24.076. Expansions which generate an additional capacity of 10 MMm3/d shall be considered as “significant expansions”.

      In all scenarios a technical description of the proposed project shall be issued. Such description must include the necessary works, design, nominal transport capacity to be added and construction and launch dates. Moreover, information to evaluate the potential demand associated to the project shall be issued.

    2. Rate structure

      Interest parties may propose a rate scheme applicable for the new facilities.

      For expansions, criteria set forth in Resolution No. 1483 issued by the Ente Nacional Regulador del Gas (ENARGAS) shall be applicable (incremental cost criteria).

    3. Access to the facilities by third parties

      Open access and no third-party discrimination shall be applicable. Moreover, long-term agreements with parties acting as gas traders may be executed, in the event that the proposed rate scheme requires so.

 
Desde TRSyM, estamos siguiendo este proceso con mucha atención y estamos a disposición para ampliar cualquiera de los puntos aquí tratados.

by trsym

Public-Private Partnership Agreements – Preliminary Terms for National and International Public Tender Power Transmission Works

On September 21, 2018, the Secretary of Public-Private Partnership (the “SPPP”) has made available in its website, the preliminary tender terms (the “Preliminary Tender Terms”) for the first-high voltage power transmission lines under a new public-private partnership (“PPP”) scheme. The awardee will be selected as contractor (the “PPP Contractor”), who will undertake the construction and further operation and maintenance of the 500 kV high-voltage line, the future substations Río Diamante and Charlone, and complementary works (the “Project”).

The preliminary PPP Agreement (the “PPP Agreement”), the Preliminary Tender Terms and its appendixes contain the main characteristics of the Project as of September 21, 2018.

The awarded bidder will execute a PPP Agreement for a total fifteen-year term. The PPP Agreement comprises (i) a construction period (the “Construction Period”), for the term comprised within its execution and commercial operation date (“COD”), term that may not exceed the maximum a term of thirty-six (36) months; and (ii) further to COD, an operation and maintenance services period (the “O&M Period”), up to the fifteenth (15) year as from its execution.

The Project’s total compensation –CAPEX and OPEX– (the “Required Total Amount”) will be due and payable by means of (i) investment payment titles (“TPI”, for its Spanish acronym) equivalent to 90% of the Required Total Amount, and (ii) a residual compensation (the “Residual Compensation”) equivalent to 10% of the Required Total Amount. Both will be issued and paid by and individual PPP Trust (Fideicomiso Individual PPP Transmisión Eléctrica and hereinafter, the “PPP Trust”), which will be constituted specifically for the Project and in order to manage issuance and payments due to the PPP Contractor. For specifics about this matter, please refer to point 9 below.

The Argentine government, through the Secretary of Government of Energy (the “SGE”), currently under the Ministry of Treasury, shall provide funding to the PPP Trust by yearly budgetary contributions. The PPP Trust will also receive those funds collected by the Compañía Administradora del Mercado Mayorista Eléctrico S.A. (“CAMMESA”), related to charges under Resolution No. 1085/17 of the former Secretary of Energy.

The relevant authorities in relation to the Project are: (i) the SGE, as convening authority of the tender, and (ii) Integración Energética Argentina S.A. (the “Contracting Entity”), successor of former Energía Argentina S.A. (“ENARSA”).

Schedule, final terms and conditions of the tender are yet still to be defined. A consultation period and a deadline for the tender of bids will be specified in such schedule.

It should be noted that, due to the preliminary nature of the documents and the fact that the SPPP will be publishing complementary information regarding the Project, the information contained herein may be updated in the future and therefore, subject to further modifications In this respect, we will be closely following this process and inform any relevant updates as soon as possible.

The most relevant aspects of the Preliminary Tender Terms are summarized below:

1) Selection process

The selection process of the PPP Contractor will be implemented through a two-stage national and international tender procedure.

2) Main rules

The main legal rules and documents to be considered regarding the Preliminary Tender Terms are comprised by the following: (i) Law No. 27,328 and its regulatory Decree No. 118/2017; (ii) Law No. 27,431, which approved the national budget for the current 2018 year; (iii) the 2019 period national budget law1; (iv) the PPP Agreement; (v) the agreement and rules of the Law 27,431 PPP Trust; (vi) the Trust Agreement; (vii) Trust joinder agreement; (viii) Resolution No. 1/2017 issued by the SPPP; (ix) Resolution No. 1/2018, issued by the SPPP; and (x) specific regulations of the electricity regulatory framework, such as (a) Laws No. 15,336 and 24,065; (b) their regulatory decrees (i.e., Decrees No. 1398/1992 and 186/1995), and (c) the Procedures for Programming the Operation, the Dispatch and Calculation of Prices, approved by the former SEE Resolution No. 61 dated April 29, 1992, as amended and supplemented to date.

3) Tender documents

The final tender terms and conditions will be published by the SPPP. Clarifying circular letters (circulares aclaratorias) may be issued upon queries of the bidders, which shall be performed no less than fifteen (15) days as from the date set forth as deadline for bid submission.

4) Bidders

  • Legal capacity: bidders may accredit their legal capacity by any of the following: (i) having an address in the Republic of Argentina; (ii) having its principal place of business in the Republic of Argentina; or (iii) being dully registered as a branch.
  • Limitations: the same legal entity or may not integrate different bidders. However, a bidder may be integrated by two or more legal entities or persons, in which case they will be held as jointly and severally liable vis-à-vis the SGE.
  • Corporate purpose and term: the corporate purpose of those legal entities acting as bidders or members of a bidder must allow their performance as bidders and, subject to being awarded, PPP Contractor. The term of these legal entities must be, for at least three (3) years greater than the total duration of the PPP Agreement.
  • Restrictions: certain restrictions are set forth in the tender documents (i.e., corporation matters, anti-corruption).
  • National component: minimum thresholds for national component are mandatory.
  • Minimum capital stock: the PPP Contractor must subscribe a capital stock of at least 0,1% of the Required Total Amount as follows:
    1. 25%, concurrently with the execution of the PPP Agreement.
    2. 50%, at the sixth (6) month anniversary as from the execution of the PPP Agreement.
    3. 75%, at the twelfth (12) month anniversary as from the execution of the PPP Agreement.
    4. Outstanding balance, at the eighteenth (18) month anniversary as from the execution of the PPP Agreement.
  • Prior to the execution of the PPP Agreement, the awarded bidder must incorporate the PPP Contractor as a sociedad anónima, which will act as a sole purpose vehicle.

5) Reference and alternative projects

The reference project comprises the design, construction, expansion, maintenance and operation of the Project, in accordance to the technical specifications, which must be complied with by the PPP Contractor. These are attached as Appendixes V, VI, VII, VIII, IX and X (the “Reference Project”).

Bidders must expressly indicate if they adopt the Reference Project or if they propose alternatives, in which case they must include a detail of their alternative project (the “Alternative Project”). Alternative projects must comply with the minimal technical requirements which are attached to the Preliminary Tender Terms as Appendix V.

If an Alternative Project fails to comply with the Preliminary Tender Terms’ minimal technical requirements or if the Alternative Project fails to obtain CAMMESA’s approval, the PPP Contractor must adopt the Reference Project with the same Annual Fee (as such term is defined below) than the one offered for the Alternative Project.

6) Bid formalities

Bids must be submitted in original or certified copies.

Bidders must submit the following documents:

  • Envelope No. 1: this envelope shall include the technical bid, which is comprised of (i) legal documents regarding the bidder and its legal capacity; (ii) documents which prove technical capacity and bidder’s track record, and (iii) documents which prove financial capacity of the bidder.

    With respect to the documents mentioned in point (ii), the bidder shall comply with the following requirements:

    1. Background on construction of high-voltage lines and substations:
      Requirements Acceptable minimum
      i. Civil works and mechanical and electromechanical assembly and erection of power transmission lines and of substation projects, which operate with a voltage equal or higher than 500 kV, with metallic structures, including control, protection and telecommunications systems, in the last twenty (20) years. - Length of high-voltage lines of no less than two-hundred and fifty (250) kilometers
      - 1 substation
      - 1 project in the last ten (10) years
      ii. Civil works and mechanical and electromechanical assembly and erection of substation projects, which operate with a voltage equal or higher than 500 kV, with metallic structures, in the last twenty (20) years. - Length of high-voltage lines of no less than two-hundred and fifty (250) kilometers.
      - 1 substation
      - 1 project in the last ten (10) years


    2. Background on provision of operation and maintenance services for high-voltage lines and substations:
      Requirements Acceptable minimum
      i. Power transmission lines and substations which operate with a voltage equal or higher than 500 kV maintenance, in the last twenty (20) years. Five (5) years
      ii. Power transmission lines and substations which operate with a voltage equal or higher than 500 kV operation, in the last twenty (20) years. Five (5) years


    3. Design engineering background:
      Requirements Acceptable minimum
      i. Preparation of electric studies and projects for 500 kV facilities One project of at least two-hundred and fifty (250) kilometers

      Bidders must submit a copy of those contracts or certificates issued by their contracting parties, for compliance with these standards.

      With regards to those requirements indicated in point b) above, the Preliminary Tender Terms do allow subcontracting as a way to comply with those minimum standards.

  • Envelope No. 2: this envelope must include the economic bid, which must be submitted using the forms attached in Appendix IV of the Preliminary Tender Terms.

    The economic bid must indicate a specific amount of an annual fee in US dollars (the “Annual Fee”)2. Preference will be granted to the bidder who bids the lowest Annual Fee.

7) Guarantees

Pursuant to the Preliminary Tender Terms, the following guarantees are mandatory and therefore required: (i) a bid bond, (ii) a financial close bond, and (iii) a main works bond.

Such guarantees must be constituted by the PPP Contractor in favor of the SGE as first-demand guarantees and may be constituted as (i) a bank deposit, (ii) a bank guarantee, and/or (iii) a stand-by letter of credit.

  • Bid bond:
    1. Amount: fifteen-million US dollars (US$ 15,000,000).
    2. Requirements: if bidders are integrated by more than one legal entity, the bid bond must be issued by the bidder’s controlling shareholder.
    3. Execution: the SGE shall be entitled to execute the bid bond in the event that (i) a bidder withdraws its bid in advance; (ii) a bidder forges information; (iii) the PPP Agreement is not executed; or (iv) a bidder fails to issue the main works bond or the financial close bond in accordance with the PPP Agreement.
    4. Term: one-hundred and twenty (120) days as from tender submission with automatic term renewal.
    5. Return: upon execution of the PPP Agreement and submission of the financial close bond and main works bond.
  • Financial close bond:
    1. Term: as from execution of the PPP Agreement and achievement of financial close.
    2. Initial amount: 2% of the Required Total Amount.
    3. Increases: if the financial close is not achieved by the PPP Contractor within the term of six (6) months since the PPP Agreement is executed, the PPP Contractor must increase the financial close bond in a 2.25% of the Required Total Amount for TPI. If financial close is not achieved within the term of nine (9) months, the financial close bond must be increased in a 2.75% of the Required Total Amount for TPI.
    4. Execution: the Contracting Entity may execute the financial close bond in the event that (a) the PPP Contractor does not achieve financial close upon the committed date (considering extensions); and/or (b) the PPP Contractor does not extend or renew the financial close bond.
  • Main works bond:
    1. Term: as from execution of the PPP Agreement once year further to COD.
    2. Initial amount: the amount of the main works bond shall be equal to: (a) as from the execution of the PPP Agreement, 2.5% of the Required Total Amount for TPI; and (b) from the financial close until one (1) year after the Project’s COD, to 4.5% of the Required Total Amount for TPI.
    3. Increases: the main works bond may be subject to renewals and increases in the event of late COD.
    4. Execution: the Contracting Entity may execute the main works bond in case that (i) the PPP Contractor is fined under the PPP Agreement and such penalty is not paid in due time; (ii) the PPP Contractor fails to compensate the Contracting Entity for liquidated damages related to the execution of the Project; (iii) the PPP Contractor fails to pay any charges or penalties owed to the Contracting Entity if the PPP Agreement is terminated prior to its maturity date; (iv) the PPP Contractor fails to pay any amounts which are determined by recommendation of a technical board or an arbitral award in favor of the Contracting Entity; or (v) the PPP Agreement is terminated by justified decision by the Contracting Entity.

8) Transmission companies

The Preliminary Tender Terms provide that in case TRANSENER S.A. or TRANSBA S.A. are awarded as PPP Contractor, as applicable, they will be not entitled to collect he supervision fee that the PPP Agreement establishes. Project’s supervision will be defined in a future tender process to be carried out by the SGE.

9) PPP Contractor’s payment scheme

TPIs will be issued by the PPP Trust during the Construction Period on a quarterly basis, pursuant to the actual works progress. Monthly investment advancement acts (“ARAI”) will be executed. TPIs shall be considered mature on the forty-two (42) month anniversary of the PPP Agreement’s execution date and will be payable on twenty-four (24) semi-annual payments.

With respect to the Residual Compensation, it shall be due and payable as from the Project’s COD monthly. Invoices for the corresponding Residual Compensation shall be issued by the PPP Contractor and delivered to the Contracting Entity. The PPP Trust will pay those invoices within fifteen (15) days.

  • Both TPIs and the Residual Compensation will be nominated in US dollars and shall be deemed as fixed, unconditional, irrevocable and transferable, without the Contracting Entity’s prior consent.
  • Non-timely TPIs will accrue interests to a rate equivalent to two-hundred (200) points above the performance of bonds ARG2026, ARG2027 and ARG2028N.
  • As TPIs are issued in accordance with the main works’ progress, the PPP Contractor will benefit itself with a speedy execution of the works under the Project.

10) Dispute resolution

  • Amicable negotiations: the PPP Agreement sets forth an initial stage of amicable negotiations in case there are any disputes between the parties. This initial stage has a period of thirty (30) days.
  • Technical board: once the thirty (30) day period of amicable negotiations expires, a technical board must intervene and issue a recommendation.
  • Arbitration:
    1. Requirements: if the technical board does not issue a recommendation in the term of ninety (90) days, any party may submit the dispute to arbitration.
    2. Venue: venue shall be in the City of Buenos Aires, unless: (i) the dispute is not quantifiable; (ii) the value under dispute exceeds the sum of ten-million US dollars (US$ 10,000,000); or (iii) the controlling shareholder is not Argentine. Upon any of those circumstance, the seat of arbitration may be in the City of Buenos Aires or in a member state of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).
    3. Composition: the arbitral tribunal shall be composed of three (3) members when the dispute is not quantifiable or when the value under dispute is equal or higher to ten-million US dollars (US$ 10,000,000). If the value under dispute is less than ten-million US dollars (US$ 10,000,000), the arbitral tribunal shall be composed of one (1) member.
    4. Nationality: the president of the arbitral tribunal shall not be national to any of the parties nor to any controlling shareholder with a direct or indirect participation higher than 10% of the PPP Contractor.

11) Risk matrix

A preliminary risk matrix has been made available, whereby the Project’s risks are allocated either to the PPP Contractor or to the Contracting Entity, as the case may be. Such risk matrix indicates that the PPP Contractor shall bear, inter alia, (1) power-line easement-associated risk, pursuant to Law No. 19,552; (2) COD risk; (3) environmental risk. As for the Contracting Entity, it shall bear: (1) demand risk; and (3) exchange variation risk.


We are available to provide clarifications or further information of any matter addressed above.

*****

1. Currently, such bill as proposed by the National Executive is under review in the National Congress of the Republic of Argentina.↑
2. The Annual Fee is the PPP Agreement awarding variable and represents a sum equal to the twelfth part of the Required Total Amount.↑

by trsym

Public-Private Partnership Agreements. Indicative terms – Power transmission works

The Secretariat of Public-Private Partnership (the “SPPP”) has just outlined the tender terms for the first-high voltage power transmission lines (the “Executive Summary” and the “Project”, respectively), under the new public-private partnership scheme (“PPP”).

The Project comprises the construction and further operation and maintenance of: (1) the 500 kV high voltage line, between ET Río Diamante and the future ET Coronel Charlone; and (2) the future ET Coronel Charlone, along with the 132 kV connections in Laboulaye, Rufino, General Villegas, General Pico Sur and Realicó, and complementary works (hereinafter, referred as the “Main Works”).

The non-binding Executive Summary also foresees the provision of the O&M Services, during the O&M Period (as both terms are defined below).

The Project is designed under the PPP scheme, pursuant to Law No. 27.328 and its regulatory Decree No. 118/2017, which provides an alternative contracting structure to the Public Works and Public Works Concession frameworks (ruled by Laws No. 13,064 and 17,520, respectively).

The awarded bidders will execute a PPP Agreement (the “PPP Agreement”), with the Secretariat of Energy Politics Coordination, currently under the Federal Ministry of Energy (the “Contracting Entity” and the “ME”, respectively), for the execution of the Main Works and the performance of the O&M Services (as defined below).

Transmission projects must be up and running within thirty-three (33) months from the signing of the PPP Agreement (the “Construction Period”), while O&M Services will be provided for up to 15 years (the “O&M Period”) as from commercial operation date.

Please find below a summary of the most relevant aspects of the Project, as per indicated in the non-binding Executive Summary.

Main Works and O&M Services comprised by the Project

As indicated before, the Project involves the expansion of the current high-voltage transmission grid, by means of the execution of the Main Works -which shall be executed within the Construction Period-. The Construction Period is capped at a maximum of thirty-three (33) months from the execution of the PPP Agreement.

Following the Construction Period, the PPP Contractor shall provide the O&M Services within the O&M Period –capped at maximum fifteen (15) years-, comprised by the provision of O&M Services of the Main Works, pursuant to the terms and conditions set forth in the PPP Agreement, electricity regulatory framework, The Procedures and applicable regulations.

Applicable regulatory framework

The PPP Agreement will be governed and construed by (1) Law No. 27,328 and its regulatory Decree No. 118/2017, (2) Law No. 27,431, which approved the national budget for the current 2018 year, and (3) specific regulations of the electricity regulatory framework, such as (a) Laws No. 15,336 and 24,065; (b) their respective regulatory decrees (i.e Decrees No. 1398/1992 and 186/1995), and (c) “The Procedures”, which is a compilation of many resolutions that rule the electric market’s operation (comprised by Resolution No. 61/1992 of the former Secretariat of Electric Energy, as further complemented and amended).

The obligatory and direct application of specific electricity regulations, turns out to be innovative, in comparison with similar projects under the same PPP scheme.

Project’s structure

The PPP Contractor shall (1) execute the Main Works, within the Construction Period, and (2) provide the O&M Services, within the O&M Period. Repayment of investments incurred both during construction –CAPEX- and operation (OPEX) of the Project will be split and subject to different provisions, in order to mitigate the typical risks to which the PPP Contractor is exposed during those stages.

PPP Contractor’s payment

Main Works Payment

When placing its bid, the PPP Contractor will have to choose within two different payment arrangements concerning the Main Works’ execution, whether by (1) Investment Payment Titles Fee and Remaining Compensation, or (2) by a Monthly Compensation.

Such structure is new and differs from those previously adopted for other Argentine PPP Projects, whereas the repayment of PPP Contractor’s CAPEX was linked to long term recoverable TPIs (for its Spanish acronym: Título de Pago por Inversión) or TPDs (for its Spanish acronym, Título de Pago por Disponibilidad) exclusively.

TPI Compensation and residual Compensation

Under the first option, the PPP Contractor will receive a part of the TPIs total amount –which will not exceed the maximum of 80%- as from the fourth (4) year of the PPP Agreement’s term, through TPIs, nominated in US dollars, unconditional and irrevocable, according to the actual Main Works’ progress. These TPIs are linked to the Construction Period phase only.

The remaining 20% of the required total amount will be due and payable as from the Project’s commercial operation date –after the end of the Construction Period-, on a monthly basis, and within the O&M Period, through the residual Compensation (the “Residual Compensation”).

Under this structure:

  • The bidder shall indicate the TPI required percentage –equal or lower than 80% of the required total amount-.
  • Each TPI –that, as mentioned, will be nominated in US Dollars and fixed, unconditional, irrevocable and transferable- will involve thirty (30) biannual payments in US Dollars, being TPI’s first payment date at the thirty-ninth (39) month as from the date on which the PPP Agreement is executed. Non-timely TPIs (either by delays on its issuance or in its payment) will accrue interests.
  • TPIs will be issued by the Electric Transmission Individual Trust (please, see below), by instruction of the Contracting Entity, which shall also be responsible for TPIs payment.
  • In connection with the Residual Compensation, it will also be due under the same terms of the Monthly Compensation (See below).

Payment under Monthly Compensation scheme

Under the second option, the PPP Contractor will receive the total required amount through a monthly compensation (the “Monthly Compensation”), as from the Main Works’ commercial operation date and during the O&M Period.

Such Monthly Compensation will be invoiced by the PPP Contractor to the Contracting Entity, and will be payable by the Electric Transmission Individual Trust in one hundred and eighty (180) US Dollars equal and monthly installments.

Electric Transmission PPP Individual Trust

The Parties to the PPP Trust (the “Electric Transmission PPP Individual Trust”), will be (i) the Republic of Argentina, through the ME, as trustor; (ii) the Governmental Bank for Investment and Foreign Trade (in Spanish: Banco de Inversión y Comercio Exterior S.A., hereinafter, the “BICE”, for its Spanish acronym), as trustee; (iii) Banco de Valores S.A., as administrative agent of the trust; and (iii) PPP Contractor, as beneficiary.

The Electric Transmission PPP Individual Trust will operate as a single trust for the Project, for the administration of the allocated funds to the Project, and will be the obligor in respect to all payments due and payable to the PPP Contractor.

The Electric Transmission PPP Individual Trust will be funded by (1) contributions made by the Wholesale Electric Market Management Company (In Spansh: Compañía Administradora del Mercado Mayorista Eléctrico S.A, hereinafter “CAMMESA” for its Spanish Acronym), by means of Resolution of the former Secretariat of Electric Energy No. 1085/2017- and, (2) contingent contributions of the Federal State. The trust’s reserve account must be funded, at all times, in an amount equal or greater than the yearly PPP Contractor’s required amount. Such eventual contribution will be included in every year’s national budget law.

Bidding process and bidder’s selection

The selection process will be implemented through a national and international tender process, of multiple stages, on which bidders shall: (1) make their technical bid and comply with all the requirements set forth in the bidding terms and conditions (i.e. having experience on constructing high voltage lines in Argentina and abroad); and (2) indicate its selected payment option, as well as the required amount for the Main Works and O&M Services.

The awardee shall be the bidder which indicates the lower total required amount.

Incumbent transmission companies are entitled to place bids within the bidding process, as part of their non-regulated activity.

Required guarantees

The following guarantees are mandatory and therefore required by the Executive Summary (1) a bid bond (the “Bid Bond”), (2) the financial close bond (the “Financial Close Bond”, further to the PPP Agreement’s execution), and (3) the Main Works Bond (the “Main Works Bond”, further to the PP Agreement’s execution), which all of them shall be payable on demand by the issuer.

The term for the Financial Close Bond will be of six (6) months, extendable at the PPP Contractor’s request for additional two consecutive periods of three (3) months each, financial close is achieved. Financial Close shall occur no later than twelve (12) months as from the date on which the PPP Agreement is executed.

It is not required to provide an O&M guarantee during the O&M Period.

PPP Contractor’s constitution - SPV

Before the PPP Agreement is executed, the awarded bidder shall establish a sole purpose vehicle, in the form of a corporation (Sociedad Anónima), which will act as PPP independent transmission company, under the terms of Annex 16 of The Procedures.

Other relevant matters:

  • Risks related to the execution of the Project will be allocated pursuant to a risk matrix, to be agreed by both parties.
  • The early termination of the PPP Agreement for any reason will in no event affect the repayment of unamortized investments incurred by the PPP Contractor.
  • PPP Contractor will be in charge of obtaining all necessary permits and constituting the required power line easements, pursuant to Law No. 19,552.
  • The PPP Agreement will provide for an initial stage for dispute resolution in relation for matters of a technical or financial nature, or related to the interpretation of the PPP Contract, by a dispute board. The PPP Agreement will also establish a further stage of arbitration, whether locally or abroad, which foreign venue may be set forth in accordance with the PPP Contractor’s controlling parties.

At TRS&M, we are following these matters with great interest and are available to discuss any query regarding the above.

by trsym

PPP News – Stage I Safe Roads Network and LED Luminaires

  1. Highways – Final Documents and Contracting Schedule Publication

    On January 29, 2018, Resolution No. 147/2018 issued by the National Highway Administration (hereinafter, “DNV”, for its Spanish Acronym), was published in the official gazette, which: (i) initiated the national and international procedure applicable to “Highways and Safe Roads Network – Stage 1” (the “Project”), (ii) approved the final documents for the Project, and (iii) sets forth April 3, 2018, as deadline for bid submission.

    As previously indicated in the newsletter “Public-Private Partnership Agreements. Preliminary Bidding Terms of the National and International Tender: Highways and Safe Roads Network- Stage 1”, dated as of December 21, 2017, the Project is the first procedure under the PPP regime, an innovative modality in Argentina, creating a high expectative and interest in its development.

    In addition, final documents are also available in the Undersecretariat of Public-Private Partnership’s (the “UPPP”) website.
     

  2. LED Luminaries Program

    Additionally, on January 22, 2018, a preliminary document in connection to the Public Lighting Energy Efficiency Program (hereinafter, the “Program”) was published on the web site of the UPPP. This Program is the second project under the PPP regime, and its main aspects are described below:

    1. Object of the Program

      The Program seeks to develop the energy efficiency and illumination quality of the public lighting, by means of the replacement of existing luminaries, for brand new LED technology luminaries. Therefore, the energy saved by using this new technology will have a positive impact in the maintenance costs of the public lighting network, whereas these will be ultimately reduced. This saving allows to afford the new LED luminaries installation and maintenance, as the cash flow related to such energy saving will be destined -either partially or totally- to the Program.

    2. Scope of the services

      The services to be provided by those awardees comprises:

      • Design of the LED luminaries, in accordance to high-quality standards.
      • Provision of the LED luminaries.
      • Installation and commissioning of such luminaries.
      • Waste disposal.
      • Training of municipal employees.
      • Public lighting service provision during the whole term of the PPP Contract.
    3. Contractual scheme
      • The Ministry of Energy and Mining is set forth as the entity in charge of the Program.
      • The Ministry of Energy will also act as contracting party thereof, by means of the Secretariat of Strategic Planning. Different agreements will be entered by and between the respective Governmental spheres involved in the execution of the Program.
      • The PPP Contractors will be those selected bidders.
    4. Program Stages and PPP Contractor’s works and services

      Upon selection as winner in this Program, the PPP Contractors will enter into a PPP Contract, for a total term of ten (10) years from its execution thereof. This PPP Contract will comprise two different stages: (i) Main Works construction and, (ii) Main Services provision.

      During the Main Works stage, the PPP Contractor will undertake all necessary works for the construction and commercial operation of the LED Luminaries. During the Main Works construction stage, the PPP Contractor shall conduct all the necessary works and tasks to put the luminaries into operation. The term for this stage is for a term of one (1) year, following the PPP Agreement execution.

      After the Main Works stage is completed, the Main Services provision stage will take place, for a term of nine (9) years. During the Main Services provision stage, the PPP Contractor is bound to comply with the following services: (i) LED luminaries’ maintenance; (ii) municipalities and citizens queries and claims, and (iii) elaboration of daily reports.

      In addition of these Main Works and Main Services, the Program also foresees the execution of: (i) Mandatory Additional Works –in light of public interest reasons-, and (ii) Voluntary Additional Works -proposed by the PPP Contractor-. Terms and conditions in regards to the payment of these additional works and services will be subject of regulation in the final bid documents.

    5. PPP Contractor’s income

      The PPP Contractor’s income comprises the Public Contribution (Spanish: Contraprestación Pública), which includes: (i) Availabilty contribution (Spanish: Contraprestación por Disponibilidad), linked to the Main Services during the Main Services Stage (OPEX); and (ii) Investment Contribution (Spanish: Contraprestación por Inversión), linked to the Main Works during the Main Works Stage (CAPEX).

      In regards to the Availability Contribution, Payment Availabilty Titles (“TPD”, for its Spanish acronym), will be issued in favor of the PPP Contractor, on a monthly-basis, whereas with respect to the Investment Contribution, Payment Investment Titles (“TPI”, for its Spanish acronym), will be issued in favor of the PPP Contractor. This TPI will represent the actual works executed during the respective investment period.

    6. Risk mitigation

      The PPP sets forth a risk-mitigation matrix, where the different risks that comprise the Program are assigned to each contracting party. As the PPP will be executed in EDENOR’s and EDESUR’s concession areas, these companies will act as collectors of the municipal taxes that will be affected to the Program, as a way to reduce the PPP Contractors’ payment risk. Therefore, the Program foresee that such distribution companies will collect the municipal taxes in favor of the Program, and these amounts will be then allocated to the Program.

      Additionally, for those cases where the exceeding cash flow results insufficient for the payment of the respective amount, the trustee will require the Province to allocate amounts resulting from the federal co-participation quota.

    7. Expected investment

      The Program contemplates the installation of around a hundred thousand (100,000) luminaries per year, with an expected initial investment of approximately US Dollars fifty millions (US$ 50,000,000) and annual operative costs (operation and maintenance) of approximately US Dollars two millions (US$ 2,000,000).

    8. PPP Trust

      As in the Highways Project, Stage 1, a separate PPP Trust will be created in order to administrate the necessary flows to perform the corresponding payments by the emission of the TPIs and TPDs. The trust will be funded with: (i) local municipal taxes, and (ii) contingent public contribution. The PPP Trust parties are not detailed, but it may be assumed that the National Estate – through the Ministry of Energy and Mining – will act as trustor; a financial entity as trustee; and every PPP Contractor as beneficiary.

    9. Other relevant matters
      • A risk matrix where the risk distribution between the contracting parties is available, in accordance to Section 9, subsection b) and c) of Law No. 27,328.
      • With regards to dispute resolution mechanism, a first technical instance is prescribed, following which arbitration will take place.

From TRS&M, we are following this process with much attention and we are available to expand any point developed above.

by trsym