Public-Private Partnership Agreements. Preliminary Bidding Terms of the National and International Tender: “Highways and Safe Roads Network– Stage 1”

The Undersecretariat of Public-Private Partnership (the “UPPP”) published on its website an executive summary and the main aspects of the Public-Private Partnership Program (“PPP”) related to “Highways and Safe Roads Network– Stage 1” (the “Project”) and preliminary draft of the bidding terms and conditions (the “Preliminary Bidding Terms”).

This implies the first implementation of PPP under Law No. 27,328 –approved on November 16th, 2016- and it Regulatory Decree No. 118/2017 –issued on February 17th, 2017- which implies an alternative regime to Public Works Act (Law No. 13,064) and Public Works Concession Act (Law No. 17,520).

Public hearings are to be held for informative purposes on January the 8th, 10th and 12th in the City of Buenos Aires, Buenos Aires, Santa Fe and Córdoba. Prior registration is requested and can be done in the UPP´s website.

The Project implies an investment of 6 billion USD and the execution of approximately 3,000 kilometers of national highways.

The tender will result in the awarding of PPP agreement (the “PPP Agreement”) to be executed with the National Directorate of Roads and Highways (“DNV” for its Spanish acronym) for a fifteen year-term.

On December 21st, 2017, a draft of the PPA Agreement (“Preliminary Agreement”) was published on DNV´s website.


Main aspects of the Preliminary Bidding Terms and PPA Agreement

Both the Preliminary Bidding Terms and Preliminary PPA are subject to amendments to reflect suggestions that will arise on the public hearings.

Highways and Safe Roads Network included in the Project

The Project consists on the execution of five (5) Highways and Safe Roads (the “Highways”):

  • “A” NATIONAL HIGHWAY: includes parts of National Routes No 3 and 226 (706 kilometers)
  • “B” NATIONAL HIGHWAY: includes parts of National Route No 5 (538,65 kilometers).
  • “C” NATIONAL HIGHWAY: includes parts of National Routes No 7 and 33 (875,92 kilometers)
  • “E” NATIONAL HIGHWAY: includes parts of National Routes No 9, 193, 34, A012, A008 and 11 (389,41 kilometers)
  • “F” NATIONAL HIGHWAY: includes parts of National Routes No 9 and 33 (634,99 kilometers)
  • “SOUTH” NATIONAL HIGHWAY: includes parts of National Routes Riccheri Highway, Ezeiza-Cañuelas Highway, No. 205 and 3 (298,63 kilometers)

Structure:

The awarding includes:

  • The design, construction, rehabilitation and improvement of the Highways (the "Main Works") and
  • Its operation and maintenance (the “Main Services”)

The compensation for the execution of each work will be divided in order to mitigate the construction, rehabilitation and improvement risk of the Main Works.

The Preliminary Bidding Terms include the possibility to execute additional mandatory works –in terms of section 9, 1) of Law No. 27,328- (the “Additional Mandatory Works”) and additional voluntary works (“Additional Voluntary Works” together with the Additional Mandatory Works, the “PPP Contracting Party´s Works”).


Main aspects of the Preliminary Bidding Terms

  • Prequalification requirements – Strategic Partner
    Each bidder will be required to meet certain specific technical prequalification requirements, including submission of proof of having experience in the construction of road projects and/or operation of road concessions or other PPP infrastructure projects.

    Furthermore, each bidder must designate a strategic shareholder (“Strategic Partner”), which will be required to meet certain minimum solvency prequalification requirements and to maintain a minimum level of shareholding in the PPP Contractor of 30% until at least (i) 20% of the PPP Agreements has been executed or (ii) 20% of the committed investment has been made.

  • Tender process
    The PPA Agreement awarding will be subject to a multiple-stage tender process. The Ministry of Transport will call for the Tender and it will conducted with the UPPP.

    Laws No. 13,064, 17,520, its amendments and Decree No. 1023/01, its amendments will not apply to the Tender.

  • Limitations to the awarding: each bidder can only be awarded with a maximum of two (2) Highways.
  • National Component: bid submission will imply a commitment to execute the PPP Contracting Party’s Works with, at least, thirty three per cent (33%) of national component.
  • Bonds: each bidder will be required to submit a Bid Bond and, on the date of execution of the PPP Agreement, a Financial Close Bond. If the Bidder is composed by two (2) or more natural persons or legal entities, the Bid Bond shall be issued in name of the Financial Strategic Partner.

    PPP Contractor shall also submit the following bonds: (i) Main Works Performance Bond; (ii) Additional Mandatory Works Performance Bond; and (iii) Main Services Performance Bond (the “Compliance Bonds”).

  • Incorporation of the PPP Contractor:
    - Awarded bidders must incorporate, prior to the execution of the PPP Agreement, the PPP Contractor as a Corporation. Its minimum capital share will be determined by the competent authority. A breach will imply: (i) execution of the Bid Bond and (ii) an awarding of the PPP Agreement to the following bidder in merit list.
    - If one Bidder is awarded with two (2) Highways, a Corporation for each Highway must be incorporated.
  • PPP Agreement:
    - It shall be executed within ten (10) days from the awarding, term that can be extended by the Ministry of Transport.
    - It will have a fifteen-year- term.
    - Financial Close must be achieved within six (6) months from execution. Such deadline can be extended (i) three (3) months, prior to an increase of the Financial Close Bond of fifty basic points (50 bsp); and (ii) six (6) months, prior to an increase of the Financial Close Bond of one hundred basic points (100 bsp).
    - To achieve Financial Close, the PPP Contractor shall be required to submit proof of funds availability for an amount equal to the Main Works specified in the PPP Agreement. This can be through the capitalization of the PPP Contractor or a commitment issued by a financial institution. If financing will be achieved by loans, the entity providing such loans will be required to meet certain minimum credit requirements.
    - The PPP Contractor shall be required to submit proof that its shareholders have made equity contributions for, at least, ten per cent (10%) of the amount of the Main Works (“Equity Contributions”). Such Equity Contributions can be made by instalments, but no later than the date specified therefor in a schedule to be established in the PPP Agreement. If this is option is taken, the shareholders or affiliated entity shall satisfy certain financial solvency requirements.
  • Main Works’ Compensation
    - The Main Works´ Compensation shall consist on the delivery to the PPP Contractor of one or more Investment Payment Tittles (“TPI”, for its acronym in Spanish), after the compliance of works milestones.
    - The PPP Trust shall issue, every three months, one or more TPIs, in US Dollars, which will be unconditional, irrevocable and freely transferable. Each TPI shall provide for twenty (20) semi-annual payments in US Dollars and the interest rate for delayed payments. PPP Contractor can choose between fixed and unconditional TPI or a combination of fixed TBIs and variable and conditional TBIs.
  • Main Services Compensation
    - As compensation for the provision of Main Services, the PPP Contractor shall receive: (i) the incomes obtained from tolls, excess load charges and commercial exploitation of the Highway ("Compensation by Users"), and (ii) the compensation for infrastructure availability (the "Availability Compensation"), through monthly issuance and delivery of Availability Payment Titles (“TPD” for its Spanish acronym) to the PPP Contractor.
    - The TPDs shall be unconditional, irrevocable and freely transferable. The TPDs shall be issued by the PPP Trust, prior discount of applicable penalties. Interest rates for delay payment will be established.
    - Each TPD will provide for a single cash payment in Argentine Pesos, to be made within 15 business days from the date of its issuance
  • PPP Trust:
    - The parties to the PPP trust agreement ("PPP Trust Agreement") will be the Republic of Argentina, as trustor, a financial entity to be selected, as trustee, and each PPP Contractor, as beneficiary.
    - The PPP Trust will be solely destined to administrate cash flows allocated to make all payments related to the Projects, by the issuance of TPI and TPD at the contracting entity´s request.
    - The PPP Trust will have one or more collection accounts shared by all Projects. Each Project will also have individual accounts waterfall, which will be segregated from the accounts related to other Projects.
    - The PPP Trust shall be funded with (i) amounts corresponding to diesel fuel taxes allocated to the “Sistema Vial Integrado” (“SISVIAL”, for its Spanish acronym); and (ii) the PPP Contractor´s monthly payment to the PPP Trust (“Traffic Contributions”). The National Estate will be required to make one or more contingent contributions each year for the necessary amount to cover funding shortfalls in the PPP Trust.
    - Each PPP Contractor shall execute an adhesion agreement to the PPP Trust, in order to become the beneficiary.
  • Other relevant aspects
    - A specific treatment of certain risks is settled in order to ensure the economical-financial equilibrium along the term of the PPP Agreement. For instance, under some conditions, the PPP Contractor shall request adjustments to the PPP Agreement term or the Availability Compensation.
    - Related to the rate-exchange risk, PPP Contractors may enter into a currency collar agreement with the PPP Trust, which will remain in force during the construction period of the Main Works. The currency collar will establish a ten per cent (10%) band between the US Dollar and the “Unidad de Valor Adquisitivo” ("UVA"), published by Argentinean Central Bank at the time of the awarding.
    - Early termination of the PPP Agreement will not affect payment to be made under any Fixed TPIs or TPDs issued prior to the termination date. In addition, payment of undepreciated investment is established.
    - The PPP Agreement shall provide typical protections for secured creditors, such as step-in rights or cure periods, among others.
    - Regarding dispute resolution mechanism, the PPP Agreement shall provide for an initial stage for technical or financial matters, to be submitted to a technical board. A second stage of arbitration in established, to be settled in the Republic of Argentina or in any other jurisdiction.

This Project provides answers to the strong expectations that have been in place regarding the sanction of PPP´s Act, introducing a favorable opportunity for the development of new infrastructure under this new regime that presents specific modulations, different from traditional mechanisms as Public Works and Public Works Concession.

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

by trsym

Electricity in Argentina: Sale of generation and transmission assets and other relevant changes

On November 1st, Decree No. 882/2017 was published in the Official Gazette (hereinafter, the “Decree”), introducing major change in Argentina’s Electricity Market.

The Decree provides for the spin-off and sale to the private sector of transmission and generation assets, including power plants totaling 840 MW of capacity, a power plant of 810 MW under construction, minority shareholding stakes in other power plants and the sale of 50% of the shares of CITELEC S.A., holding company of TRANSENER -main electricity transmission company in Argentina-.

This step is the first sale of State-owned infrastructure assets in more than 18 years.

In addition, a new State-owned company is created, from the merger of two existing entities, who will retain certain assets and is in charge of public works under State supervision, including gas pipelines, hydroelectric and thermal power plants.

Main aspects of the Decree

1) Asset sale: future competitive procedures

The Decree instructs the Ministry of Energy and Mining (“MEYM”, for its Spanish acronym) to proceed to the sale, assignment and transference, by means of a public and competitive process, of the following assets:

  • Thermal Power Plants “Ensenada de Barragán” and “Brigadier López”, under the condition precedent of executing the works to operate as a Combined Cycle Power Plant.
  • “Manuel Belgrano II” Thermal Power Plant
  • The shares in the following companies:
    • “Compañía Inversora de Transmisión Eléctrica CITELEC S.A.”
    • “Central Dique S.A.”
    • “Central Térmica Güemes S.A.”
    • “Central Puerto S.A.”
    • “Centrales Térmicas Patagónicas S.A.”
    • “Empresa de Transporte de Energía Eléctrica por Distribución Troncal de la Patagonia S.A. (TRANSPA)”

  • State rights related to:
    • Thermoelectric Power Plant Manuel Belgrano
    • Thermoelectric Power Plant José de San Martín (Central Timbúes)
    • Thermoelectric Power Plant Vuelta de Obligado
    • Thermoelectric Power Plant Guillermo Brown

The Decree enables the interested parties to submit certain titles issued by CAMMESA in the past (“Liquidaciones de Venta con Fecha de Vencimiento a Definir”) as a way of payment for the assets.

2) Absorption Merger of ENARSA and EBISA: IEASA

The Decree instructs the MEYM to proceed to the absorption merger of Energía Argentina S.A. (“ENARSA”, for its Spanish acronym) and Emprendimientos Energéticos Binacionales S.A. (“EBISA”, for its Spanish acronym), becoming ENARSA the absorbing entity, whose business name will be Integración Energética Argentina S.A. (“IEASA”).

3) Public works transfer and concession agreements awarding

The Decree sets the transfer of certain public works under the direction of MEYM to IEASA, who shall act as principal in the following works:

  • “Central Térmica Río Turbio”
  • “Hydroelectrical Poryects over the Santa Cruz river “Cóndor Cliff” and “La Barrancosa”
  • “Extension of Natural Gas´ Distribution and Transmission System” Project that includes the following works: (i) Regional Centro II gas pipeline – Esperanza/Rafaela/Sunchales; (ii) Cordillerano/Patagónico System; (iii) Cordillerano gas pipeline and (iv) “La Costa” gas pipeline
  • Additionally, IEASA is awarded with concession agreements to generate electricity from hydroelectric power plants Cóndor Cliff and La Barrancosa

At TRS&M, as a leading Law Firm in the electricity sector, we are following these developments with great detail and are available to discuss any query regarding the above.

by trsym

Renewable Energy: Draft Regulation for Corporate PPA´s

The National Ministry of Energy and Mining has published on its website a draft regulation (hereinafter, the “Draft Regulation”) for corporate power purchase agreements from renewable resources (hereinafter, “PPA”).

The Draft Regulation will be subject to public consultation for 15 days starting on June 9th, 2017.

The Draft Regulation sets out several relevant rules, including, not only the ones referred to PPAs, but also, pertaining to issues such as curtailment and how dispatch will be assigned in such cases. Furthermore, it sets guidelines for Targeted Large Users (please, see below) who must comply with renewable portfolio targets.

The main aspects of the Draft Regulation are summarized below. Please do not hesitate to contact us for further information.

Main aspects of the Draft Regulation

1) Specific Fees

These provisions enable Targeted Large Users to assess the costs of Wholesale Electric Market Management Company´s (hereinafter, “CAMMESA” for its Spanish acronym) joint purchase mechanism in comparison with other available alternatives.

  • The Draft Regulation provides for a Trading Fee and an Administration Fee referred by Decree No. 531/2016 (the “Decree”), regulatory of Law No. 27.191 (the “Law”). Electricity consumers whose average electricity demand in the previous calendar year exceeds 300 kW (“Targeted Large Users”) and opt to comply with their consumption obligation through the joint purchase mechanism must pay the Administration and Commercialization Fee.
  • The Commercialization and Administration Fees are stipulated in U$S/MWh and will vary according to their consumption obligation and electricity demand. The Commercialization Fee will be allocated to the Stabilization Fund of the Wholesale Electricity Market (“MEM” for its Spanish acronym) and its value is set to increase through the years (starting in U$S 4/MWh up to U$S 20/MWh). The Administration Fee will be a fixed charge, destined to fund administrative expenses of the joint purchase mechanism.

2) Curtailment

The Draft Regulation seeks to establish a priority dispatch in cases of curtailment.

  • A priority order is established until transmission risks are overcome.
  • The priority order is as follows:
    1. Run of the river hydroelectric power plants and renewable energy power plants that have achieved commercial operation (“COD”) before January 1st, 2017.
    2. Power plants awarded with a PPA under “Program RenovAr, Rounds 1 and 1.5”.
    3. Power plants that will be awarded with PPAs in future Rounds of Program RenovAr.
    4. Power plants that operate under the corporate market and have been granted priority after future Rounds of Program RenovAr are published. If priority has been obtained before such publication, these power plants will have priority over the ones mentioned in (iii).
    5. Between the power plants that operate under the corporate market, the one who has obtained priority earlier, will have priority dispatch. If they had the same order, dispatch will be done at pro rata basis.

3) Registries

  • The Draft Regulation provides the creation of a Priority Dispatch Assignation Registry (“RAPID” for its Spanish acronym) under CAMMESA.
  • The creation of a National Renewable Energies Project´s Registry (“RENPER” for its Spanish acronym) under the Renewable Energy Sub-secretary where generation, cogeneration and self-generation projects connected to the Argentinian Interconnection System (“SADI” for its Spanish acronym) must be registered.

4) Main aspects of the corporate market

  • For purposes of complying with the consumption target, power generated from authorized projects will be considered. Authorized projects will be generation, self-generation or cogeneration projects that:
    1. Achieve COD after January the 1st, 2017;
    2. Are registered at the RENPER.
    3. Are not committed under other contractual arrangements or are expansions of projects committed under another contractual regime; the latter, only for the expanded power capacity and must have an independent commercial measuring system for the expanded capacity.

  • Tax benefits will apply and will be ruled by Resolution MEyM No. 72/16.
  • The terms of the PPA will be freely negotiated between the parties.
  • Up to 10% of the project´s energy generation can be sold to CAMMESA or in the spot market under Resolution SEE No. 19/2016, or its amendments.
  • Priority dispatch order: a specific procedure is prescribed, which will depend on proposed COD and tax benefits. Generators that assume the costs for transmission capacity expansions will have priority.
  • Capacity back-up: will not be required.

5) Authorized Large Users (“ALU”)

  • CAMMESA will publish a list of ALU obliged to individually comply with the consumption obligation.
  • After the list is published, the ALU will have twelve (12) months to opt out from CAMMESA´s joint purchase. Such exclusion, since communicated, will last for five (5) years.
  • Within the twelve-period term, the opt out can be made two (2) times per year, according to seasonal programming of the MEM.
  • The Draft Regulation provides the effects of the exclusion of the joint purchase mechanism and the obligation to inform and register the PPA or the self-generation or cogeneration project.
  • The audit of consumption target is annually and year past due.
  • The procedure for the fines is regulated. A 10% tolerance is prescribed that can be compensated the following year. The standards to establish sanctions is stipulated.
  • Authorized Large Users can choose to assign their energy consumption to base energy or energy plus program.

The Draft Regulation provides answers to the strong expectations that have been in place regarding the Argentine energy market around the possibility to start a corporate market.

Public consultation favors the opportunity for business players to state their opinions and proposals regarding the Draft Regulation.

This is good news for all the interested parties in the development of the renewable energy market in Argentina.

by trsym

Argentina: New Thermal Power Tender

On May 11th, Resolution No. 287/17 (the “Resolution”) of the Secretariat of Electric Energy (the “SEE”) was published, initiating the first round of tenders (“Stage I”) arising from the “Expressions of Interest” procedure called by Resolution SEE No. 420/16.

The Resolution approved the Tender´s Terms and Conditions (the “Bid Document”), including a draft of the Power Purchase Agreement (“PPA”) to be executed between bidders awarded in the Tender and the Wholesale Electric Market Management Company (“CAMMESA” or the “Off-taker”).

Projects included in Stage I:

  1. Close cycle gas turbine projects that: (i) currently operate or will be shortly in operation in simple cycle; (ii) have low specific consumption; (iii) are likely to improve its efficiency with the close cycle; (iv) do not affect transmission capacity; (v) have the necessary infrastructure to enable the permanent operation of the combined cycle and (vi) have a maximum term of construction of thirty (30) months.
  2. Co-generation projects that: (i) are efficient; (ii) do not affect transmission capacity; (iii) have available supply of the main and alternative fuel and (iii) have a maximum term of construction of thirty (30) months.

The main features of the projects allowed to participate in Stage I are outlined in Section II, Title I of the Bid Document.

New combined-cycle power plants and transmission and fuel supply projects will be contracted through future tenders.

Main aspects of the Bid Document:

  • Bid Bond: Among the formalities bidders should comply with, a bid bond equal to UDS 5.000 x the net power capacity (MW) offered should be submitted.

  • PPA´s term: 15 years.

  • Price: Seller will be entitled to collect a fixed price for the power availability established in US dollars per MW/month and a variable price for the energy produced established in US dollars per MW/hour. Such price will be paid in Argentine Pesos at the rate established in the PPA.

  • Fuel: If bidders offer alternative fuel, Buyer will monthly pay for such fuel calculated in accordance with the “The Procedures for Programming the Operation, the Dispatch and calculation of prices” and the reference prices detailed in Section II, Chapter 9 of the Bid Document.

  • Penalties: The PPA establishes daily penalties for not reaching Commercial Operation Date (“COD”) up to sixty (60) days from the estimated date included in the Offer. If COD is not reached within one hundred and eighty (180) days from the estimated date, the PPA shall be terminated. The penalty regime is equal to the one established under Resolution SEE No. 21/16.

  • Interconnection point: Section II, Chapter 7 of the Bid Document details the possible interconnection points to the Argentine Interconnection System, its maximum power capacity and loss factors.

  • Special Fund: An innovation compared to the PPAs under Resolution SEE No. 21/16 is given by the future incorporation of a special fund to secure six (6) month payments under the PPA. The features of this fund are to be stipulated in the following months.

Stage I schedule is as follows:

  • Q&A period: up to July 7th, 2017.

  • Bid submission and opening of envelope 1: July 19th, 2017 at 13.00.
  • Opening of envelope 2: August 9th, 2017.
  • CAMMESA´s prequalification: August 30th, 2017.
  • Execution of the PPA: no later than November 1st, 2017.

The Bid Document may be amended by the SEE through additional communications (“Circulares”).

For further information, please do not hesitate to contact us.

by trsym

Important News on FX Regulations: The Argentine Central Bank continues to simplify the FX Market

The Argentine Central Bank issued Communication “A” 6037, repealing some remaining regulations from the time in which the Argentine FX market was subject to considerable restrictions. Among other aspects, this new regulation has simplified the FX market, reducing bureaucratic requirements and operational costs.

Communication “A” 6037 has abrogated the need to produce documental evidence for undertaking FX transactions. Now it will be enough to execute a sworn statement in which the purpose of the transaction shall be specified (e.g., purchase of freely available currency, foreign trade, etc.), as well as certain basic information to be included. Monthly caps were also repealed and only transactions to be made in-cash continue to be limited, with the purpose of fostering anti-money laundering policies.

With these latest changes, the FX market can again be named as a “only and free FX market”, since now certain “alternative” transactions are no longer necessary, such as the blue-chip swap.

In addition, Communication “A” 4805, which considerably limited the ability of Argentine residents to enter into derivative transactions with foreign counterparties, was repealed.

by trsym