Solar Power Plant (SPP) Investments with or without License and Legal Risks It Reserves for Investors 27 November 2017
It is well-known that; the cleanest energy source in green energy area is solar power. Because of the high insolation rate and being one of the countries which receive sunlight the most through the year due to the geographic location of our country, investments regarding solar power are increasing lately.
Several encouragement regulations of State of Republic of Turkey aiming to support entrepreneurs who desire to invest in this area such as Value-Added-Tax (KDV) exemption, custom duty exemption, and guaranty to buy the energy produced by solar power boost the interest of both domestic and foreign investors for solar power investments.
While enabling the investors to finance the major part of the investment with bank loan through project financing within 10-year tariff guaranty and to have their investments returned within a 7-8 years period of time, SPP investments also bring some risks for the investors.
For instance, many problems are faced arising from defective performance because the contracts and their technical annexes which are signed between the investors and EPC firms are not properly drafted. Since the investors are under a serious time pressure due to the risk of the time foreseen in the Connection Agreement for provisional acceptance to lapse and there is no regulation providing them the right to come up with practical solutions accordingly, they frequently have to accept some of this defective performance. This situation, without a question, causes failure to make the production as it was foreseen and consequently, failure to actualize the sale depending on electricity production as it was foreseen.
Another risk is the damages induced because the required insurances are not done properly or not done at all. It is observed that most of the risks which are actually important are excluded within the scope of the insurance policies presented by some insurance firms. Since policies issued this way are accepted without examination of competent people; possible accidents, damages and losses might occur in the field are not compensated by the insurance counted upon its existence and the investor faces important damages from the very beginning of the business.
Additionally, investors face many risks since it is not clearly determined in EPC Contracts by whom the process (for example, project revisions, incentive revisions etc.) before the related administrative authorities and some parts of this process before TEDAŞ or related Distribution Companies is done deficient, wrong or not on time and related legislation changes are not followed efficiently.
In addition to the matters given above, another important legal risk arises for the investor who wishes to take over the right of an already existing project instead of executing the one that he developed himself. According to Article 31 of the Regulation on Electricity Generation without License in Electricity Market (“Regulation”); the issue of regulation that shareholders of a legal entity which owns a production facility whose provisional acceptance is not made shall not transfer the shares of this company that they hold and consequently, whether the transfer of the facility by shareholders to the investor who financed the investment following the provisional acceptance can be guaranteed, also induces serious risks for the investor.
As follows; share transfer for certificated shares in joint stock companies is legally done via endorsing the related share certificate/temporary share certificate and delivering it physically to transferee. However, according to Article 31 of the Regulation mentioned above; since no share transfer can legally be done prior to the provisional acceptance of the facility, this legal procedure cannot be completed and shares cannot be transferred in this way to the investor before the commencement of the investment. As a matter of course, considering that investment cost for a SPP project of 1MW is approximately 1 million dollars, it is not a risk even the bravest merchant would take to undertake the investment of a project which he has not taken over its shares and cannot legally assure that he will take over.
For this reason; legal mechanisms should be developed to assure the transfer of the project to the investor after the provisional acceptance. However, these guarantees should be built in such a way that once the provisional acceptance is done, the shares shall automatically pass to the new shareholder without any further transaction or consent, signature or authorization of the former shareholder. Otherwise, usage of the classical guarantee mechanisms of law (such as signing a bill, providing a letter of guarantee etc.) in a possible dispute shall be via a law suit which will result in the investor suffering huge amounts of loss with a litigation process of at least 6-7 years in current circumstances.
There are many parameters to be taken into account by the lawyers while building abovementioned mechanisms. For example; matters of whether the related company has any project other than the one planned to be transferred, whether the land which the facility will be built on is single parcel, whether this land is being used upon ownership or lease, whether the transferor and transferee are real or legal persons and most importantly, whether the project company which is subject to the transfer is a limited liability or joint stock company shall be taken into consideration by a competent lawyer and whole setup shall be shaped accordingly.
For instance; while setting guarantee mechanisms providing automatic transfer of the shares following the provisional acceptance in joint stock company is quite easy, it is almost impossible to do the same in limited liability company. Thus, this matter shall be considered before preparing the related share purchase agreement and perfect execution of the setup is ensured by planning the change of the company type prior to the operation.
Notwithstanding, since the guarantees that a project company subject to transfer can provide to the banks are also limited, this makes it harder to finance projects through loan and result in increase of the amount of equity capital foreseen by the banks. Building the transfer setup well and proving to the bank that the facility shall be transferred to the investor without complications following the provisional acceptance in a legally solid way would increase the chance of the project to be financed through bank loan and enables both the loaner banks and the investors to have more flexibility.
Therefore, taking opinion of a professional lawyer regarding the related transfer process and building the guarantee mechanisms and the share purchase agreement to be signed between the parties and legal procedure to be followed very well will provide the investor to prevent unavoidable damages and realize the project successfully.
Similarly; for the investor who desires to execute the project that he developed himself, having an EPC Contract which involves articles letting the investor to come up with practical solutions for the problems faced through the process and an insurance policy drafted in accordance with the aim will always provide advantages and prevent the investor from suffering from damages which will affect the profitability of the whole project.
Türkçe Versiyonu İçin
http://www.kasaroglu.av.tr/tr/gunes-enerjisi-yatirimlarinda-yatirimcilarin-hukuki-riskleri
