Practical Legal Issues concerning the relationship between project proponents, investors and buyers Workshop on Landfill Gas Development and the CDM Denpasar, Indonesia September 5 -7, 2005 Douglas V. Tingey dtingey@tingey. com. sg
Practical Legal Issues n Categories of issues n n Legal issues relating to the qualification under the Clean Development Mechanism and the trading of CERs Legal issues relating to landfill projects Legal issues linking project proponents and CDM investors and buyers of CERs These “categories” overlap in complicated ways…and in more complicated ways the more complex the project structure
Practical Legal Issues n Legal issues relating to the Clean Development Mechanism and the trading of CERs n n n n Project Design - PIN/PDD (scale, baseline, additionally, etc) Validation Registration Monitoring Verification/Certification Issuance and Distribution of CERs Trading
Practical Legal Issues n Legal issues relating to landfill projects n n n n Legal structure of project risk allocation and mitigation Government entity, domestic or foreign investment company Shareholders/Joint venture agreement Project financing Operating licenses Relationship with PLN/ Power Purchase Agreement Tax planning
Practical Legal Issues n Legal issues linking project proponents and CDM investors and buyers of CERs n n n Distinction between CDM investor and Buyer of CERs Investment contracts Sale and Purchase contracts for CERs
Practical Legal Issues n Distinction between CDM investor and Buyer of CERs n An investor contributes value in support of the project in exchange for value and access to CERs n n n n Equity (venture capitalist) Debt financing (specialist investment fund) Key services (CDM consultants) Kind (Equipment suppliers, land owners) Off take contractors (PLN) Project proponents are offering parties that invest special access to CERs (participate in the initial distribution of CERs) Investors may also be Buyers (special access might mean a right of first refusal or an option to purchase project CERs)
Practical Legal Issues n Investment contracts n n n Nature of the investment drives the type of contract Risk and reward balance applies. . . higher risk investors will be entitled to claim higher share of CERs Distinction between project proponent and CDM investor may blur…e. g. ground floor “equity” CDM investor – we are investing because we believe in the profitability worth of the underlying business and want CERs
Practical Legal Issues n n n Sale and Purchase contracts for CERs Long term buy sell contracts Options Puts and calls Right of first refusal Spot and exchange sales. . . trading accounts
n Due diligence n n The approach is different depending on party’s perspective Certain underlying elements that go to project proponents governance standard and management practices are common to all Conditions precedent, representations and warranties and covenants (positive and restrictive) It is never too early to be prepared to be scrutinized… “Governance perceptions are very important”
Practical Legal Issues n n n The Project Entity represents and warrants to the Buyer in each of the following terms as at the date of this Agreement and at the Project Commissioning: The Project Entity is duly organized and validly existing under the laws of [**] and is qualified to conduct its business in [**]. The execution, delivery and performance of this Agreement are within its powers, have been duly authorized by all necessary action and do not violate or conflict with or require any consent or waiver under any of the terms or conditions in its governing documents or any material contract to which it is a party or by which any of its assets are bound or affected, or any law, rule, regulation, order, statement of claim, judgment, decree or other legal or regulatory determination applicable to it. All Consents necessary for: (i) the Project Entity to perform its obligations under this Agreement; and (ii) the conduct of the business of the Project Entity and the construction, maintenance and operation of the Project, have been obtained and are in full force and effect. As of the Project Commissioning Date, the Project Entity has not received any notice of violation of any material Consents relating to the Project.
Practical Legal Issues n n n This Agreement constitutes legal, valid and binding obligations of the Project Entity enforceable in accordance with its terms. There are no Bankruptcy Proceedings pending or being contemplated by the Project Entity or[, to its knowledge, ] threatened against the Project Entity. There are no claims, actions, proceedings or investigations pending or[, to the Project Entity’s knowledge, ] threatened against or relating to the Project Entity before any competent authority that may materially adversely affect its ability to perform this Agreement. The Project Entity is not subject to any judgment, rule, order, statement of claim, injunction or decree of competent authority that materially adversely affects its ability to perform this Agreement. This Agreement, the execution and delivery of this Agreement and the fulfillment and compliance with the terms of this Agreement by the Project Entity will not materially conflict with any of, or require the consent of any person under, any loan or security agreement, or other material agreement to which the Project Entity is a party.
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