Energy And Natural Resources, Energy News, Natural Resources, Solar Power

July 2015

Energy & Natural Resources 2015

EXPERT GUIDE

2 3July 2015 July 2015

ExpErt guidE: EnErgy & natural rEsourcEs 2015

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SNAPSHOT: Oil Consumption vs Solar Consumption vs Wind Consumption 2014

Asia

India: Sunny Days Ahead

Recent Policy Initiative in the Indian Oil and Natural Gas Sector

Arbitration made difficult in the energy sector in Bangladesh: BERC Act must be aligned with the Arbitration Act

The Dissolution of Petral

LNG in Singapore – The Next Stage

Europe

Spanish Government Announces a New Regulation on Electric Self-Consumption

Contents

“Energy and the Sea - time to go forward”

An Exclusive Q&A With Yves Baratte, Simmons & Simmons

An Exclusive Q&A With Jochen Terpitz, Simmons & Simmons

The Americas

An Exclusive Q&A With Mosby G. Perrow, Jones Day

An Exclusive Q&A With Karen Wong, Milbank, Tweed, Hadley & McCloy

An Exclusive Q&A With Ariel Lopez Jumbo, Lopez & Associates Law Firm

Expert Directory

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Contents

Contributing OrganisationsKhaitan & Co, J.Sagar Associates,

Dr. Kamal Hossain & Associates, KarimSyah, Allen & Gledhill LLP,

Jones Day, Milbank, Tweed, Hadley & McCloy LLP,

Lopez & Associates, Araoz Rueda Abogados, S.L.P.,

CMS Rui Pena & Arnaut, Simmons & Simmons LLP,

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J.Sagar

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4 5July 2015 July 2015

ExpErt guidE: EnErgy & natural rEsourcEs 2015

Introduction

The biggest story to break this year has undoubtedly been the dramatic drop in Brent oil prices. Since rising in mid 2014 to around $115 a bar-rel prices began to slip, and then to plummet, reaching their lowest levels since the aftermath of the 2008 eco-nomic crisis at lows of $43 a barrel. The crisis was caused by a number of factors, including decreased demand for oil imports and significant politi-cal turmoil in Libya and Iraq, and has been purposely exacerbated by OPEC to force less competitive oil produc-tion out of the market. The United States has been one of the hardest hit, with its shale oil industry strug-gling to remain competitive, but for major importers of oil, such as India, the news has bolstered the economy. Singapore too will benefit from the lower oil prices, while major energy consumers like Indonesia and Ban-gladesh may struggle, despite being large producers themselves.

Whether OPEC’s strategy will work or not remains to be seen, but one increasingly plausible outcome could be that the US begins to invest more heavily in alternative forms of en-ergy production, especially solar power. Germany has demonstrated that solar power is a viable energy source, and a recent think-tank pre-dicted that it could be the cheapest form of energy in many parts of the world by as early as 2025, with parts of the Middle East and Africa already producing cost efficient solar power. Spain and Portugal too have invested heavily in renewables, with a mixture of solar, tidal and wind energy, while France, in contrast, has taken a dif-ferent approach, getting most of its energy from a highly developed nu-clear programme. Currently France enjoys significantly cheaper energy than Germany, but it will be inter-esting how renewable energy prices change over the coming years.

Editor In Chief

James Drakeford

IntroduCtIon

SOURCE: BP Statistical Review 2015 for Renewables / Oil

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EOil Consumption vs Solar Consumption vs Wind Consumption 2014SNAPSHOT

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3229

824

158

11056

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Oil Consumption

1000 barrels / day

Terawatt–hours

Solar Consumption

Wind Consumption

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2015/bp-statistical-review-of-world-energy-2015-renewables-section.pdf

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2015/bp-statistical-review-of-world-energy-2015-oil-section.pdf

Asia

10 11July 2015 July 2015

ExpErt guidE: EnErgy & natural rEsourcEs 2015IndIA

upendra Joshi [email protected]+91 22 6636 5000

India: Sunny Days Ahead By Upendra Joshi

The Indian Government’s emphasis on solar energy has met with posi-tive response from states, and the state of Andhra Pradesh and the newly formed state of Telangana are emerging as frontrunners in taking this initiative forward at the state lev-el. Both have clear solar policies in place and are pursuing this opportu-nity aggressively. While the Andhra Pradesh policy sets a goal of 5GW of solar energy in the next five years – half of which is envisaged to be set up in the form of solar parks in line with the central government’s pol-icy – the Telangana policy does not set a target but does demonstrate a resolve for harnessing the solar po-tential of the state. Both states pro-vide incentives such as exemption from electricity duty and also from cross-subsidy surcharge for solar en-ergy consumed within the respective states, but the Telangana policy addi-tionally provides for a single window clearance and a number of incen-tives and concessions. The top three states in terms of installed solar ca-pacity namely Rajasthan, Gujarat and Madhya Pradesh will need to be on their toes with Andhra Pradesh and Telangana snapping at their heels.

For perhaps the first time, states seem to be competing for their fair share of solar power and more.

Although these efforts should have a positive impact on the investor sen-timent – especially foreign investor sentiment – and encourage invest-ments in this space, debt financing for solar projects in India has been a bottleneck, with Indian banks either having limited capacity or appetite or both. The proposal of Mr Piyush Goyal – the Minister for Power, Coal and New & Renewable Energy – could therefore be a game changer. It is proposed that solar power purchase agreements (PPA) with distribution companies (discoms) will be denomi-nated in US Dollars, thereby enabling developers to access cheaper foreign debt which in turn could result in a dramatically lower solar power tariff. To explain, debt from Indian banks and financial institutions generally cost around 12-13% while the cost of foreign debt is about the same af-ter aggregating LIBOR, credit default spread, interest rate hedge and cur-rency risk hedge, the last component accounting for almost 4-4.5%. A US Dollar denominated PPA – which

That stemming climate change needs urgent attention and decisive action is news no more. The need for clean energy is being felt like never before. As a country with the third largest carbon footprint, India needs to find solutions. Paradoxically though, in a country with the fourth largest coal reserves the per capita electricity consumption is abysmally low and a significant number of Indians ei-ther have little or no access to electricity, while uninterrupted and reliable electric-ity supply is a chal-lenge for others. The significance of the largely untapped re-newable energy potential in India – particularly solar – is therefore hard to miss. In its Report on India’s Re-newable Electricity Roadmap 2030, the Niti Aayog (the successor to the erstwhile Planning Commission) esti-mates India’s solar potential to be in excess of 10,000 GW.

The Indian Government has set am-bitious targets – 100 GW of solar energy by 2022; compared with the present total installed solar capacity

of 3GW, the task seems herculean. The National Solar Mission is lagging behind schedule as well. The Indian Government however is stepping on the gas with a massive push for re-newable energy generally and solar energy in particular. In December 2014 it announced a scheme for de-veloping solar parks and ultra-mega solar projects. At least 25 such so-lar parks across states, each with a

capacity of 500MW and more with a total central financial assis-tance of about US$675 million are planned over a period of five years. The scheme envisages various

modes of implementing these solar parks – either through the designat-ed state nodal agencies or the Solar Energy Corporation of India (“SECI”) or a through a joint venture of the two, or by private solar developers in collaboration with the relevant state government. Replicating the success of the Charanka Solar Park in Gujarat and the Bhadla Solar Park in Rajast-han is clearly a priority for the Gov-ernment.

mailto:[email protected]

12 13July 2015 July 2015


including Bangladesh and Sri Lanka, green bonds are an attractive fund-raising avenue for renewable energy initiatives generally and solar proj-ects in India in particular. A predic-tion therefore of the possibility of Indian issuance of overseas securi-ties meeting environmental criteria surging to $1.5bn annually in the next two to five years should inject excitement in this immensely potent sector.

India seems intent on aligning itself with the Sun. Positive intent appears to be coupled with beginnings of de-cisive action. Steps being taken by the National Thermal Power Corpo-ration to buy 15 GW of solar energy on behalf of the Ministry of New & Renewable Energy (MNRE), its com-mitment to add another 10 GW of solar capacity itself, the Power Trad-ing Corporation seeking to call bids from solar project developers on be-half of MNRE, coupled with enthu-siastic response from the Indian pri-

vate sector including Adani Power’s plans to set up a 1 GW solar park in Tamil Nadu and a 10 GW solar park in Rajasthan should strengthen the belief in India’s solar future. Apollo will be smiling.

Upendra JoshiPA senior member of the corpo-rate and infrastructure team of the Firm, Upendra has rich experience in all aspects of law and documenta-tion relating to infrastructure proj-ects including power (conventional and renewables), telecoms, mining, ports, airports, oil & gas, and proj-ect financing and has headed several large infrastructure related matters and has substantial experience in regulatory aspects of nuclear energy. Upendra has advised on a number of major M&A transactions including Vedanta’s acquisition of Sesa Goa, NTT DoCoMo’s acquisition of stake in Tata Teleservices, Nippon Life Insur-ance’s acquisition of stake in Reliance Life Insurance.

therefore obviates the necessity of the hedging cost – opens up the pos-sibility of borrowing cost dropping to 6-7% translating in lower solar tar-iff. While of course this does not do away with the necessity of a hedge per se, it is proposed that a hedging cost of INR 0.90 or about 1.5 cents will be added to the tariff to provide for depreciation in the value of the Indian Rupee. With this the final tar-iff could be in the region of INR 4.50 or 7.5 cents, significantly lower than the current solar tariff of INR 6-7.

This power can then either be sold di-rectly to the discoms or can be bun-dled with power from conventional sources. The proposal is still being considered by the Government, but it does certainly seem to have the potential of significantly improving the contribution of solar energy in the electricity mix if it sees the light of day.

While smart, out-of-the-box solu-tions can create opportunities for a solar revolution, leveraging other accessible contemporary funding sources is important. Close on the heels of the first-of-its-kind domes-tic issue of Indian Rupee denominat-ed green bonds aggregating about $160m by Yes Bank, the EXIM Bank of India launched a five year green bonds issue of $500m in March this year.

This is significant for a number of reasons: it was the first US Dollar denominated green bond offering from India, the first benchmark-sized green bond out of Asia in 2015 and the third ever green bond issuance out of Asia. Significantly, the EXIM Bank was looking at raising only $250m but it garnered double that amount thanks to an over-subscrip-tion by more than three times. Al-though in this particular case, EXIM Bank will use the proceeds to fund eligible green projects in countries

14 15July 2015 July 2015


sumanto [email protected] +91 124 439 0699

Recent Policy Initiative in the Indian Oil and Natural Gas SectorBy Sumanto Basu and Nishita Budhraja Malik

main feature of the NELP regime was the sourcing of investment, technol-ogy and efficient operations from companies within the country, and from outside, on a level-playing field with domestic public sector compa-nies. With this end in mind, ‘arms-length pricing’ was introduced in the production sharing contracts of NELP; but the concept of such ‘arms-length pricing’ was never really im-plemented.

In May 2012, the government consti-tuted the Rangarajan Committee for determining, among other issues, the basis or formula for the price of domestically produced natural gas. In December 2012, the Rangarajan Committee recommended a formula for natural gas pricing for a period of five years, with effect from 1 April 2014. The recommendations of the Rangarajan Committee, with some modifications, were adopted by the Cabinet Committee on Economic Af-fairs in 2013, and subsequently, the Indian government notified the Do-mestic Natural Gas Pricing Guide-lines on 10 January 2014. However, such guidelines were deferred due to the general elections for 2014 being

announced on 5 March 2014, on the advice of the Election Commission of India, and the prevailing prices, i.e., US $4.2/MMBTU fixed for NELP blocks, were continued.

The government then issued the New Domestic Natural Gas Pricing Guidelines, 2014 in “supersession” of the earlier pricing guidelines. The New Domestic Natural Gas Pricing Guidelines, notified on 25 October 2014, fix the price of domestically produced natural gas by providing a formula for calculation of the price of domestic gas by taking into account the weighted average price (based on annual volume of natural gas con-sumed in the relevant geographical area) at Henry Hub, National Balanc-ing Point, rates in Alberta (Canada) and Russia. The price and volume data for the calculation of the weight-ed average price is to be that of the trailing four quarters, with a lag of one quarter, wherein $0.50/MMBTU is to be subtracted from each of the three hub prices and Russia price to account for transportation and treat-ment charges. The domestic natural gas price is to be revised every six months.

The Indian economy is at a critical stage of development and energy resource security remains a concern due to its inadequate domestic pro-duction. India is the fourth largest oil and gas consumer in the world after USA, China and Japan. How-ever, the growth in domestic oil and gas production in India is not aligned with the growing consumption of pe-troleum products. The last year has seen various policies being issued by the Indian Government with regard to the country’s oil and gas sector, at a time when the oil and gas world seems to be in a general state of flux. The aim of such government policies seems garnered towards countering its oil and natural gas deficit and to provide an impetus to domestic pro-duction.

The New Domestic Natural Gas Pric-ing Guidelines, 2014

The fixation of the price of domestic natural gas by the government of In-dia has been a fairly contentious re-cent development in the oil and gas sector. Till the early 1990s, natural gas was produced only from fields operated by Government compa-

nies, i.e. Oil & Natural Gas Corpora-tion (“ONGC”) and Oil India Limited (“Oil India”). These fields were sub-ject to an Administered Price Mech-anism (APM) where the basis for pricing was cost-plus, i.e., the cost of production plus marginal profits (as determined by the Government), was the sale price.

Subsequently, the exploration and production of oil and gas was thrown open to the private sector. During the mid-1990s, private investment was sought on competition basis and certain blocks were awarded under a production sharing contract. The pricing formula was specifically men-tioned in such production sharing contracts. However, the contractors who signed such contracts were re-quired to sell all the gas produced and saved to the Gas Authority of India Limited (or GAIL India Limited), and did not have marketing freedom as regards natural gas.

This regime was then replaced by the New Exploration Licensing Poli-cy (NELP). Introduced by the Indian government in 1997, the NELP came into effect on 10 February 1999. The


4.2/MMBTU

0.50/MMBTU

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try players as insufficient for boosting domestic production, so as to cover costs for exploration and production from such complex/deep-water off-shore fields.

Natural Gas Price Pooling Mecha-nism, 2015

In addition, and in order to supple-ment lagging domestic production, the Indian government has intro-duced the Natural Gas Price Pooling Mechanism, 2015. Under this policy the Indian Government will “pool” existing limited supply of domestic gas with imported re-gasified LNG to average out the price of costly imported LNG and cheaper domes-tically available gas. The gas would be sold at an average “pooled” price, while electricity from the plants sold to distribution companies would be capped at INR 5.5 per unit. The re-duction in revenue due to the cap on electricity price is to be partially borne by the Indian government as subsidies/tax concessions, and par-tially borne by inter-linked sectors taking cuts in their revenues (such as

a reduction in pipeline tariff and re-gasification charges).

Impact and Issues Various regulatory steps will need to be taken so as to effectively imple-ment the natural gas pooling mech-anism. For instance, tariff determi-nation of natural gas based power plants in India is determined through both a negotiated route and by a competitive bidding mechanism, the imposition of a cap on the tariff may require regulatory action. Further, in order to grant the fiscal/tax benefits, as contemplated by this gas pooling mechanism, specific exemption noti-fications by the central government as well as the state governments (as well as a mechanism for availing such exemptions) may need to be issued. In this regard, the ability of a govern-ment policy to interfere/dictate mat-ters on which legislation/regulations are in place will need to be further examined.

The natural gas price determined pursuant to these guidelines, is to be applicable to all gas produced from nominations fields given to ONGC and Oil India, NELP blocks, pre-NELP blocks where the production shar-ing contract provides for Govern-ment approval of gas prices and CBM blocks. However, the guide-lines specifically exclude from their ambit contracts where prices have been contractually fixed for a cer-tain period, where the production sharing contract provides for a spe-cific formula for natural gas price in-dexation/fixation, pre-NELP produc-tion sharing contracts which do not provide for government approval of formula/basis for gas prices, and, small/isolated fields in nomination blocks (for which the gas price is to be determined pursuant to separate guidelines). Additionally, for all dis-coveries post such guidelines in Ultra Deep Water Areas, Deep Water Areas and High Pressure High Temperature areas, a premium is to be given over the gas price determined pursuant to the formula, as per a prescribed procedure (such procedure has not

yet been prescribed).

Pursuant to the New Gas Price Guide-lines, on 26 October 2014, the Petro-leum Planning & Analysis Cell, Min-istry of Petroleum and Natural Gas notified the price of domestic Natu-ral Gas for the period from 1 Novem-ber 2014 to 31 March 2015 as $5.05/MMBTU on a gross calorific value ba-sis, and revised the price to $4.66/MMBTU on a gross calorific value ba-sis from the period 1 April 2015 to 30 September 2015.

Impact and Issues

The linkage of India’s domestic gas prices to the international market is expected to eventually increase the gas price so as to incentivise up-stream investments. However, the lack of clarity regarding the price premium for gas produced from complex offshore fields is a dampen-er especially considering that a lot of India’s domestic natural gas reserves fall within this category. Additional-ly, the increase in the domestic price hike has been viewed by some indus-

5.05/MMBTU

5.05/MMBTU

4.66/MMBTU

4.66/MMBTU

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ExpErt guidE: EnErgy & natural rEsourcEs 2015BAnglAdesh

dr. sharif Bhuiyan Maherin Islam [email protected]+880 2955 2946

[email protected]+880 2955 2946

Arbitration made difficult in the energy sector in Bangladesh: BERC Act must be aligned with the Arbitration Act By Dr. Sharif Bhuiyan & Maherin Islam Khan

Section 40 of the BERC Act requires that any dispute between licensees, or licensees and consumers, must be referred to Bangladesh Energy Regu-latory Commission (“BERC”), which is a statutory body regulating the en-ergy sector. This provision is to ap-ply notwithstanding anything to the contrary contained in the Arbitration Act or any other law in force in Ban-gladesh.

Section 2 of the BERC Act defines “li-censees” to mean a person who has received a licence under the BERC Act for generation of electricity, transmission, marketing, distribu-tion, storage and supply of energy. Pursuant to section 27(3) of the BERC Act, private companies, with whom agreements have been executed by the Government or any of its agen-cies, immediately before the BERC Act came into force, would be treat-ed as licensees for the generation of power and for the supply, transmis-sion, distribution, storage and supply of energy. Due to the very wide defi-nition of the term “licensees,” sec-tion 40 appears to be applicable in respect of most of the energy sector contracts in Bangladesh; and if that

were the case it would no longer be possible to settle energy sector dis-putes by arbitration, instead such disputes have to be referred to BERC.

According to section 40(3), the methods and procedures of dis-pute settlement would be specified by regulations to be framed by the Government. The Bangladesh En-ergy Regulatory Commission Dispute Settlement Regulations, 2014 (“2014 Regulations”) have been framed for these purposes. Under regulation 5(1), BERC has been given the discre-tion to accept or reject applications for dispute settlements submitted to it.

BERC, as an arbitrator, can itself take steps to make an award or appoint arbitrators for settlement of dis-putes. Under regulation 12(2) of the 2014 Regulations, BERC has the ex-clusive authority to appoint any ar-bitrator from amongst its members, officials or any other persons as it deems suitable (however, where the tribunal consists of three or more ar-bitrators, the majority of them shall be of legal background and at least one arbitrator would be appointed

It is common in most energy sector contracts in Bangladesh to have ar-bitration as the agreed method of dispute resolution. Arbitration has obvious and well-known advantag-es. The parties can freely agree on the procedure, the composition of the tribunal, the venue, the rules by which the arbitration is to be con-ducted and can also select arbitra-tors with the necessary expertise and experience. Arbitration can be much faster than litigation in Bangladesh and is therefore more efficient. Yet another important reason for opting for arbitration in Government con-tracts is to ensure that both parties are in equal footing in respect of the dispute resolution mechanism.

In keeping with the international trend, Bangladesh has over the years reformed its laws to promote and fa-cilitate arbitration. The Arbitration Act of 2001 (“Arbitration Act”) was enacted and largely modeled on the UNCITRAL model law on arbitration. Bangladesh is a party to the New York Convention. The Arbitration Act pro-vides for enforcement of foreign ar-bitral awards in accordance with the New York Convention. Bangladesh

is also party to the ICSID Convention (Convention on the Settlement of In-vestment Disputes between States and Nationals of Other States) and over 20 bilateral investment treaties (BITs), most of which provide for arbi-tration for the settlement of disputes between investors and Bangladesh.

Energy being a reserved sector in Bangladesh, all activities in this sec-tor, such as, exploration of petro-leum, gas purchase, power produc-tion, etc., must take place through agreements with the Government or by obtaining a licence from the Government. As already mentioned, in the energy sector, it is a standard practice to have an arbitration clause in agreements with the Government of Bangladesh. There are also in-stances where arbitration clauses in Government contracts have been invoked. However, this freedom of the parties to choose arbitration has been challenged by the Bangladesh Energy Regulatory Commission Act, 2003 (“BERC Act”). This Act contains a very odd provision restricting the use of arbitration as a method of dis-pute resolution.



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ExpErt guidE: EnErgy & natural rEsourcEs 2015BAnglAdesh

which the establishment of such un-dertaking was sanctioned (section 5). Companies who had executed an agreement with the Government pri-or to the BERC Act would be subject-ed to section 40 when their agree-ments are renewed or substituted af-ter the commencement of the BERC Act. Such a unilateral change in the terms of sanction would contravene section 5 of the 1980 Act.

It is recommended that the appro-priate amendment to the BERC Act be introduced to provide consisten-cy with the Arbitration Act and the 1980 Act and as well as preserving the integrity of parties’ freedom of choice for dispute resolution in the energy sector.

Sharif Bhuiyan, LLM, PhD, University of Cambridge, is an Advocate of the Supreme Court of Bangladesh and a Partner at the law firm, Dr Kamal Hossain & Associates. He was Hon-orary Director of the South Asian Institute of Advanced Legal and Hu-man Rights Studies (2007-14), Co-Rapporteur of the Committee on In-ternational Trade Law, International Law Association (2009-14) and visit-

ing fellow at the Lauterpacht Centre for International Law, University of Cambridge (2006). He is the author of National Law in WTO Law: Effec-tiveness and Good Governance in the World Trading System (Cambridge: Cambridge University Press, 2007, paperback, 2011) and co-editor (with Philippe Sands and Nico Schrijver) of International Law and Developing Countries: Essays in Honour of Kamal Hossain (Leiden/Boston: Brill Nijhoff, 2014).

Maherin Islam Khan, Barrister-at-Law, is an Advocate of the Supreme Court of Bangladesh and a Senior Associate at the law firm, Dr. Kamal Hossain & Associates. She has obtained her LL.B. degree from the University of London, UK in 2006. She was called to the Bar of England and Wales in 2008. She is currently pursuing her Masters in the University of Oxford, UK.

She practises in a wide range of areas, mostly in corporate and commercial matters, including mergers and acquisitions.

from amongst the members or offi-cials of BERC and at least one arbitra-tor from amongst the independent technical experts having specializa-tion on the subject matter).

Under section 40(4), the arbitrators are required to place the arbitra-tion award before BERC for scrutiny, which in turn has the power to ap-prove, disapprove or amend the award. The order or award of BERC would be final (section 40(5)).

Section 40(7) of the BERC Act gives BERC unlimited powers to make any interim order which it deems appro-priate at any time prior to or during the proceedings.

Regulation 14 of the 2014 Regula-tions provides that the place of ar-bitration is the office of BERC or any other place as may be determined by BERC. Under regulation 24, BERC may require the parties to deposit, in advance, in one or more install-ments, such sums of money as it deems necessary to defray expenses of the arbitration including the ad-ministrative charges and arbitrators’ fees.

The only exception to section 40 is in the case of contracts executed be-tween the Government and any of its agencies or a private company, immediately before the BERC Act came into force. The conditions of the contract would be applicable for the settlement of the disputes (sec-tion 40(1)).

The provisions of the BERC Act and the 2014 Regulations discussed above derogate completely from the parties’ freedom of choice in respect of dispute resolution. These provi-sions are also inconsistent with the Arbitration Act, the BITs to which Bangladesh is a party and are hard to understand in light of various other law reforms adopted with a view to promote and facilitate arbitration.

Section 40 of the BERC Act is also in-consistent with the Foreign Private Investment (Promotion and Protec-tion) Act 1980 (“1980 Act”), which provides that the terms of sanction, permission or licence granted by Gov-ernment to an industrial undertak-ing having foreign investment shall not be unilaterally changed so as to adversely alter the conditions under

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ExpErt guidE: EnErgy & natural rEsourcEs 2015IndonesIA

Karen Mills [email protected]+62 21 2966 0001

The Dissolution of PetralBy Mirza A. Karim, Karen Mills & Margaret Rose

reorganisation whereby the Baha-mas company was replaced by Perta Oil Marketing Limited (a Hong Kong company). The Perta Group contin-ued to stand between Pertamina and its offshore suppliers and customers for the duration of Suharto’s rule and later, as Petral, until today.

The Perta Group was established in the “New Order” era, under the vir-tual dictatorship of Suharto, with minority interests held by Suharto’s youngest son, Hutomo Mandala Pu-tra, known as “Tommy Suharto”, and an unoffical business partner, Bob Hasan. It was, and for the most part still is, suspected that these latter held their interests not only on their own behalf but also on behalf of an “oil mafia” of various current and for-mer officials and business persons, reportedly including the most recent past President, who had been a Min-ister of Energy during the relevant time. The rumors have it that more than half of the oil imported into In-donesia was controlled by a certain “Gasoline Godfather” operating out of Singapore, connected with and, of course, benefitting, this “oil mafia”. Unsurprisingly, seeing the breadth

and power of those involved, no in-vestigation had ever been undertak-en into these seemingly shady prac-tices, despite the monumental losses to the state they represented.

In 1998, when Suharto had stepped down, Pertamina took over control of the Perta Group, but both Tom-my Suharto and Bob Hasan retained their unofficial interests.

In 2001, the Perta Group became known as Pertamina Energy Trading Limited (Petral), and was incorpo-rated in Hong Kong, maintaining its head office in Singapore. (For ease of reference the term “Petral” shall hereinafter be applied to refer both to the Perta Group and to the later legal entity, Petral.)

Petral has two wholly owned subsid-iaries:

Pertamina Energy Services Pte Limit-ed (PES), formerly Perta Oil Services Pte Ltd, established in Singapore in 1992. PES’s role is to perform trade activities of oil, oil products, and pet-ro-chemicals; and

Indonesia’s state-owned oil and gas company, PT. Pertamina (“Pertami-na”) has officially halted the opera-tion of its Singapore-based subsidiar-iy, Pertamina Energy Trading Limited (“Petral”), and is currently working on efforts to liquidate Petral’s sub-sidiaries, Pertamina Energy Services Pte Limited (“PES”) and Zambesi In-vestments Limited (“ZIL”). The an-nouncement was made by the Presi-dent Director of Per-tamina, Dwi Soetjipto, accompanied by the President Commis-sioner of Pertamina, Tanri Abeng, Minister of State Owned Com-panies, Rini Soemar-no, and Minister of Energy and Min-eral Resources, Sudirman Said, at the Ministry of State Owned Companies offices on 13 May 2015. Petral cur-rently handles imports of crude oil and fuel oil for Pertamina, however this role has been deemed no longer significant in Pertamina’s business processes. There have been calls to liquidate Petral for a number of years, but the process was continual-ly stalled for one reason or another.

Background

Pertamina was established in 1968 as a merger of the then three state oil companies: Pertamin, Permina and Permigan. Its President Direc-tor, a close “crony” of Suharto, Ibnu Soetowo, became rather infamous in subsequent years through his vari-ous dealings (books have been writ-ten about these), which were under-

stood to be as much on behalf of Suharto as himself. One of Soetowo’s projects was Petral. As early as 1968, Pertamina joined with a num-ber of US investors to

form what was known as the Perta Group to perform marketing activi-ties for Pertamina’s oil and gas prod-ucts in the United States. The Perta Group began such activities in 1972.

The Perta Group structure consisted of: Perta Oil Marketing Limited (es-tablished in the Bahamas and based in Wanchai, Hongkong) and Perta Oil Marketing Corporation (estab-lished in California and operating in the US). In 1978 there was a major


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According to the former chairman of the now dissolved Oil and Gas Governance Reform Team (RTKM), Faisal Basri, one of the aberrations performed by Petral was the ma-nipulation of the oil supply through oil companies owned by foreign gov-ernments or National Oil Companies (NOCs). According to Basri, many of the NOCs successful as winning bid-ders did not possess their own oil and needed to acquire the supply from other parties. The Minister of Ener-gy and Mineral Resources, Sudirman Said, has also revealed missappropri-ation by Petral in Singapore, through the existence of suspicious cartel practice in one of Pertamina’s sub-sidiaries. This suspicion is one of the anomalies that had been analysed by the Oil and Gas Governance Reform Team (RTKM). Sudiman also indicat-ed a number of other unclear prac-tices in Petral’s fuel oil procurement process, controversey over which has indicated the existence of the “oil mafia” seeking personal profits from the fuel oil imports.

These aberrations could only occur through Petral’s role as Pertamina’s

trading arm, while it was authorised only to act as oil importer.

Petral’s Dissolution

Based on these abberations, on 13 May 2015, Pertamina officialy ter-minated all operations of Petral and its subsidiaries, Pertamina Energy Services Pte Limited and Zambesi In-vestments Limited, and announced that Petral and these subsidiaries are slated to be liquidated by April 2016 at the latest. Pertamina noted that the need for Petral has been the sub-ject of debate in the domestic ener-gy sector for some time and it was increasingly clear that Petral’s role was no longer a significant factor in Pertamina’s business processes. This current move has finally been made as a part of the efforts to clean up the country’s graft-tainted oil sector. The current President Director of Pertamina, Dwi Soetjipto, stated that Petral’s business activities, especially those related to crude oil and fuel oil imports and refinery products shall now be fully performed by Pertam-ina’s own Integrated Supply Chain

Zambesi Investments Limited (ZIL), established in Hongkong in 1979. ZIL’s role is to perform non-oil busi-ness development and investment.

At the time of the establishment of Petral, Indonesia was a net oil ex-porter and a member of OPEC, and Petral was positioned by Pertamina as its international trading and mar-keting arm. Crude oil’s role was still dominant as either or both a source of foreign exchange revenue and/or state’s revenue in the State Bugdet. The establishment of Petral was made in line with Pertamina’s policy which desired to increase trading and marketing functions. Petral’s main business was crude oil exports and imports and refinery products. Pe-tral also performed trading activities of oil and derivative products origi-nating from other countries. Petral’s main market was in the Asia Pacific but also included Europe, the Middle East, Africa, and other regions. How-ever, the decrease in oil production along with the rapid increase of oil consumption in 2003 created more demand, which needed to be cov-ered by oil imports. Changes in In-

donesia’s status from net exporter to net importer did not alter Pe-tral’s role. Petral remained the trad-ing arm of Pertamina with an addi-tional function, as crude oil and fuel oil “procurement agent”, providing great opportunity for enrichment of any unscrupulous players involved.

Petral’s Aberration Naturally, considering Indonesia’s high demand for fuel oil and Petral’s role as the sole authorised seller and purchaser of crude and fuel oil, Pe-tral’s business volume increased ex-ponentially. However, Petral acted only as a “tender administrator”, without performing any actual trans-action with third parties. Therefore it cannot be characterised as a trading company. Nor could Petral perform any transaction at the Platts Window Market (Singapore Oil Exchange), since Petral did not physically pos-sess any product. But Petral set both buying and selling prices, standing in between, with no transparency or accoutability.

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By the dissolution of Petral, Per-tamina through its own ISC can fully handle crude oil and fuel oil imports and refinery products, without the necessary of using an agent. This will eliminate the payment of any agency fee, while prices can be bargained directly between Pertamina and the supplier. Efforts to clean up Pertam-ina, Indonesia’s largest state owned entity, have been ongoing ever since Ibnu Soetowo almost bankrupted the nation through questionable fi-nancing transactions in 1978. It has been 17 years since Suharto stepped down and, although it appears that Pertamina itself is now operating in a transparent manner, it is only now that her subsidiaries are receiving the scrutiny they clearly deserve. A fully transparent oil and gas industry will certainly spell not only a wel-come increase in state revenue, but also a more attractive energy sector for investors: domestic and foreign alike.

(ISC), and in fact much has already been performed gradually by ISC since early this year. Petral’s assets shall also be transfered to Pertamina. Minister of Energy and Mineral Re-sources, Sudirman Said, has reported to Indonesia’s new President, Joko Widodo, that Pertamina has already managed to save US $22,000,000 over the past three months, since ISC took over Petral’s business ac-tivities, indicating the likelihood of missappropriation by Petral. Prior to Petral’s liquidation, Pertamina in-tends to perform diligent financial audit and legal due dilligence to ex-amine Petral’s business track record. The Ministry of Energy and Mineral Resources has also indicated its in-tention to perform a full audit inves-tigation over Petral. However, since Petral is a Hong Kong legal entity, based in Singapore, Indonesia’s gov-ernment may find some difficulty in performing such investigations, par-ticularly as these ought rightly to involve Indonesia’s Supreme Audit Agency (“BPK”).

Karen Mills, a founder of the KarimSyah Law Firm of Jakarta, and member of the Bar of the State of New York, has practiced in Indonesia for over 30 years. A Chartered Arbitrator, Fellow of the Chartered Institute of Arbitrators (“CIArb”) and of the Singapore and Hong Kong Institutes, Ms. Mills founded and co-chairs the Indonesian Chapter of CIArb, sits as arbitrator internationally, and is on the panel of most arbitral institutions in the region, including those in Indonesia, China, Malaysia, New Zealand, Hong Kong, Korea, and the Philippines, as well as AAA/ICDR. A Board Member of ArbitralWomen since its inception, Ms. Mills also sits on the first appointing authority of the Chinese-European Arbitration Institution, the IBA/IMI task force on investor-state mediation, as well as others, is an approved tutor for all CIArb courses and teaches and speaks widely on arbitration and ADR related topics throughout the Asia-Pacific region.

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Kelvin Wong lynette [email protected]+65 6890 7644

LNG in Singapore – The Next Stage By Kelvin Wong & Lynette Lim

that each of these tranches would be for a certain specified duration and subject to parameters which the EMA determines as the most suitable based on the prevailing domestic and global market condi-tions. To give effect to this, the EMA will be conducting successive RFPs (requests-for-proposals) to appoint the most suitable LNG importer(s) for Singapore at the relevant time. This is intended to provide Singapore with the flexibility to take advantage of opportunities which may present themselves from time to time in the ever-changing landscape of the gas industry.

First request-for-proposal (“RFP”) process

Overview

The first RFP for Singapore’s LNG aggregator(s) post-BG was launched in mid-2014, and is currently on-go-ing. The search is for up to two new LNG importers. Each of these new importer(s) will be required, and will be granted the exclusive right, to aggregate demand in Singapore for LNG, and source for and import

into Singapore LNG to meet such de-mand.

It is envisaged that the import li-cence awarded to each of these new importer(s) will expire on the ear-lier of three years from the date of such licence, or the date the relevant importer has sold an aggregate of 1 Mtpa of LNG (based on gas sales agreements (GSAs) concluded by the relevant importer, each with a mini-mum duration of one year). If two importers are appointed, the import-er who reaches the end of its fran-chise first may continue to market and sell LNG until the other importer reaches the end of its franchise.

It is also intended that each of these new importer(s) may, concurrently with their exclusive import franchis-es, engage also in other activities, such as importing competitively-priced spot LNG cargoes and pro-viding gas shipping services to end-users in Singapore. However, the import of LNG to fulfil Singapore’s demand for natural gas must never-theless remain the priority of these importer(s).

It has been almost a decade since the Singapore Government announced its intention to construct the coun-try’s first liquefied natural gas (LNG) storage and regasification terminal. This initiative brought a number of new participants into Singapore’s gas industry. These new participants included Singapore LNG Corpora-tion (SLNG), the LNG terminal opera-tor which is charged with the task of developing, manag-ing and operating the LNG terminal. BG Sin-gapore Gas Marketing (BG), a wholly-owned subsidiary of BG Group plc, was appointed in 2008 as the sole LNG aggregator with the exclusive right to import LNG and sell regasified LNG in Singapore. BG’s exclusive franchise was to last until 2023 or when its total sales volume reached 3 Mtpa, whichever came earlier. Both SLNG and BG are regulated by the Gas Act and the regulations passed under it.

Competitive licensing framework

As of December 2011, barely two years since BG first concluded gas

sales agreements with Singapore power generators for the supply of regasified LNG, BG had reportedly already secured an uptake of about 2.65 Mtpa. Today, BG has almost reached its franchised volume of 3 Mtpa.

In anticipation of BG’s exclusivity coming to an end, the industry regu-lator, the Energy Market Authority of

Singapore (EMA), has developed, following consultation with the industry, a competi-tive licensing frame-work for the LNG ag-gregator role to be applied post-BG. In

developing the framework, the EMA considered, amongst other things, the fact that Singapore’s short-term incremental demand for gas may not be large – the estimated incremental demand for gas in 2018 is 0.7 Mtpa, with the demand only expected to increase more rapidly from 2020 on-wards.

Under the framework, Singapore will seek to procure LNG in various tranches over time. It is envisaged


30 31July 2015 July 2015


nal and Inter-Customer Agreement. Such accession by each Shortlisted Company, and the effectiveness of each TUA, are conditional on the rel-evant Shortlisted Company being ap-pointed as an LNG importer pursuant to the RFP.

The nine-month negotiation period will end on 29 February 2016. By 11 am on 29 February 2016, the Short-listed Companies are required to submit their proposals to the EMA for the second stage of the RFP. Such proposals must contain, amongst other things, the commitments from gas buyers which the relevant Short-listed Company has secured, and the set of terms representing the rel-evant Shortlisted Company’s initial and minimum offer for any gas buy-er during the period of its exclusive franchise, if appointed (known as the “Baseline GSA”).

The proposals submitted for the sec-ond stage of the RFP will be evaluat-ed by the EMA based on a list of cri-teria published by the EMA. These criteria include (a) the ability of the Shortlisted Company to initiate the

import of LNG earlier, (b) the quan-tity of LNG demand secured under binding commitments with gas buy-ers, (c) the firmness of the commit-ment of the relevant gas buyers to purchase such quantity of LNG de-mand from the Shortlisted Company, (d) the diversity of the Shortlisted Company’s LNG sources and the risk level of the Shortlisted Company’s portfolio of such sources, and (e) the competitiveness of the Shortlisted Company’s offered price for gas.

Stage 1

In the first stage of the RFP, the EMA invited interested parties to submit proposals to demonstrate how they were able to provide the best overall solution for Singapore as Singapore’s next LNG importer. Interested par-ties were required, amongst other things, to set out in their proposals the price and key supply terms the relevant interested party was pre-pared to offer potential buyers, and to demonstrate its ability to secure reliable sources of LNG supply.

The first stage closed on 31 Decem-ber 2014.

Stage 2

On 29 May 2015, the EMA an-nounced the four companies which it had shortlisted to participate in the second stage of the RFP (Shortlisted Companies). The Shortlisted Com-panies comprise BG (the incumbent LNG importer), Pavilion Gas, Semb-corp Industries and Shell Eastern Pe-troleum.

In the nine-month period immedi-ately following such announcement, each of the Shortlisted Companies will compete to secure binding com-mitments from gas buyers in Singa-pore for the purchase for gas. The Shortlisted Companies are obligated to make offers to all interested gas buyers in Singapore during this pe-riod. Such commitments could be in any form, from full-fledged GSAs to broad key terms set out in term sheets or heads of agreements. The Shortlisted Companies are required to be able to demonstrate binding downstream commitments that, if appointed, would underpin the sale of at least an aggregate of 0.6 Mtpa of LNG for a minimum supply period of three years.

The second stage of the RFP will also see the Shortlisted Companies negotiating and entering into bind-ing terminal use agreements (TUAs) with SLNG for the receipt of terminal services at the LNG terminal. These TUAs will be materially consistent across the Shortlisted Companies. In addition, the Shortlisted Companies will also need to accede to the Termi-

32 33July 2015 July 2015


players in the energy, gas, petro-chemical, utilities and resources sec-tors in South-east Asia. In Singapore, Kelvin frequently advises the various electricity and gas licensees and utili-ties providers on their business op-erations, including the import and production, transportation and sup-ply of gas, and the generation, trans-mission and retail of energy. Kelvin has been consistently listed as a leading Projects & Energy law-yer by many notable publications, including Chambers Asia-Pacific and IFLR1000 Energy & Infrastructure Guide.

Looking ahead

We have just entered the nine-month negotiation period in the second stage of the RFP. All eyes will no doubt be fixed on the Short-listed Companies in the next coming months to see how the negotiations between the Shortlisted Companies and gas buyers in Singapore unfold. It is an exciting time for Singapore as its fledgling LNG industry enters into its next stage of development.

Kelvin Wong heads the Corporate & Commercial Department and the En-ergy, Infrastructure & Projects prac-tice at Allen & Gledhill LLP. Kelvin is counsel to the key global and local

Appointment of new LNG importer(s)

It is envisaged that the EMA will ap-point the next LNG importer(s) by the second quarter of 2016. Follow-ing such appointment, binding com-mitments which gas buyers may have entered into with the unsuccessful Shortlisted Companies would need to be unwound. Such buyers may then negotiate and enter into GSAs with the appointed LNG importer(s). The terms of such GSAs must be no less favourable to such buyers than the terms offered by such importer(s) as the “Baseline GSA” in their respec-tive proposals submitted for the sec-ond stage of the RFP.

Lynette Lim is a Senior Associate with the Energy, Infrastructure & Projects practice at the Corporate & Commer-cial Department of Allen & Gledhill LLP.

Lynette has worked extensively in the energy, gas, and petrochemical sec-tors in Singapore, and regularly ad-vises licensees and service providers in the gas, electricity, petrochemical and utilities sectors on licensing and regulatory matters, business opera-tions and supply arrangements.

europe

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Francisco [email protected]+34 91 319 02 33

Spanish Government Announces a New Regulation on Electric Self-ConsumptionBy Francisco Solchaga

subjects, the consumer and the pro-ducer linked by a direct lines and the production facility must be duly reg-istered before the relevant adminis-trative registry. This third structure does not imply a limitation of power generation, so that, is the only alter-native for solar self-consumption fa-cilities of more than 100 kW.

The Draft of the RD is not applicable to (i) emergency generating facilities used only in case of a supply disrup-tion and (ii) completely isolated but, for preventing any type of fraud, the Government has expressly include a definition of a facility connected to the network, considering as included those facilities which can be connect-ed and disconnected alternatively by virtue of any type of switches.

One of the most eagerly awaited questions of the Draft RD has been the previous so called “back-up toll” which has been replaced by the new “charges for other system services”. Even though the Government has re-named this “toll”, both concepts are based on and justified by the same arguments, that is, in accordance to the Draft that “the consumers ben-

efiting from self-consumption struc-tures have to face, like other con-sumers, the electricity system costs, including those needed to fund sup-port technologies”.

These charges for other system ser-vices consist of two different compo-nents:- a variable component (€ / kWh) which multiplies the self-consump-tion per hour, and - a fix component (€ / kW and year) which multiplies to the con-tracted power.

The fix component will apply only to the structure of production of a consumer connected through a di-rect line to a production facility, that is, it is not applicable to type a) and b) provided that they have not accu-mulation systems and are of wind or photovoltaic technology.

It is remarkable that, in comparison with the previous draft of royal de-cree circulated (i) the figures of the variable component have decreased by 25% approximately, but, in con-trast, (ii) the figures of the fix com-ponent have increased by 66% ap-

On 5 June 2015, the Ministry of In-dustry sent to the National Markets and Competition Commission (CNMC –Comisión Nacional de los Mercados y de la Competencia-) the draft royal decree regulating the self-consump-tion that assures to “allow the estab-lishment of such facilities where it is efficient for the whole electrical sys-tem, not individually to a consumer “ (the “Draft RD”)

The purpose of the Draft RD is establish-ing of the adminis-trative, technical and economic conditions of electric power self-consumption facili-ties. Thus, the Draft RD classifies the electric power self-consumption fa-cilities as:

Firstly, the structure of supply with self-consumption type a), by which consumers with a contracted power not exceeding 100 kW, install in his internal electric network one or sev-eral generation facilities, whose sum is equal to or less than the contract-ed power.

This structure (i) implies just one subject –as producer and consumer-, (ii) will not generate surplus energy to be fed into the grid and, therefore, (iii) does not require the authorisa-tion to sell electricity and its admin-istrative regime will be easier.

Secondly, the structure of generation with self-consumption type b). This type includes (i) generation facili-

ties of any technology whose sum of installed power also does not exceed 100 KW or (ii) cogeneration facilities with an installed ca-pacity exceeding 100 KW. Under this struc-

ture, there are two subjects, the con-sumer and the producer and, there-fore, the surplus of electricity can be fed into the grid. The production fa-cility must be duly registered before the relevant administrative registry.

Finally, the structure of a consumer connected through a direct line to a generation facility type c). There is no limit regarding the installed ca-pacity of this type of facilities. As the previous structure, there are two


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The Draft RD has found a strong op-position in the market and among its main operators. Subject to changes in the amount of said toll and the ap-proval of a good regulation regard-ing net metering, self-consumption could be a great success in Spain, may substantially change the Span-ish electric market and offer a future for renewable energy.

Francisco Solchaga is a partner at Araoz & Rueda since 2007. He joined the firm as an associate in 2000 af-ter two years as an associate at Uría Menéndez.

Francisco is specialised in energy, advising on numerous projects re-lating to the promotion, acquisition, construction and financing of energy projects in all its contractual and reg-ulatory related matters.

For over a decade he has focused on the renewable energy sector, having a deep knowledge of the regulation affecting this sector, especially of that approved in the last few years greatly affecting the regulatory and benefits frame of the renewable plants. He advises all kind of players involved such as project promoters, contractors, financing banks, project purchasers and/or sellers, managers of the installations, etc.

proximately. Consequently, this fix component of the charges for other system services implies the lack of economic viability of this type of fa-cilities.

Additionally to the charges for other system services, another difference from the previous draft of RD is the calculation of the contracted power. In this regard, the power of the facili-ties must be considered as the sum of the maximum capacities of the solar facilities according to RD413/2014, that is, the installed power shall be the power of solar modules and not of the inverter as considered un-til now in accordance with the RD 1699/2011.

This implies a reduction of the fa-cilities that can be developed under RD1699/2011 (type a and type b), which in accordance with the Draft of the RD have to be considered as larger facilities, with the subsequent modification of its applicable legal regime.

It also draws attention to the mea-sure included by the Third Transition-al Provision of the Draft RD which es-

tablishes the requirement that all fa-cilities legalised prior to the approval of the Royal Decree must be adapted to new conditions within a term of six months since the approval thereof.

Furthermore, it is worth mentioning that, by contrast to the rest of the ter-ritory, the Draft benefits the installa-tion of self-consumption facilities on the islands. To this end, the Draft es-tablishes a reduction of the charges for other system services until 2019 to encourage the participation of re-newable energy, high efficiency co-generation and the decrease in gen-eration costs in said territories.

Additionally, it is very important in relation to the Draft RD that a draft Royal Decree regulating net metering has not simultaneously circulated.

Due to the versatility, flexibility and climate conditions of Spain, self-con-sumption is a suitable and efficient technology for generating electricity in Spain. However, the new toll an-nounced by the Spanish Government avoids the economic feasibility of this technology and its development.

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Mónica Carneiro pacheco [email protected]+351 21 095 81 00

“Energy and the Sea - time to go forward”By Mónica Carneiro Pacheco

Portuguese coast (from its assembly facility near Setubal, Portugal).

It seems that we are learning how to use the energetic potential of our coast thus laying the foundations to become a relevant manufacturer and exporter of core technologies for the marine renewables.

Yet, to encourage use of this re-source much has still to be done in legal, fiscal, financial, regulatory and economic aspects of offshore wind farming.

For developers, clear and easy ad-ministrative consenting processes are essential when taking an invest-ment decision. A “one-stop shop” providing a single point of contact of-fering the services needed to enable all the required consents to be ob-tained (incorporating consents that are needed to environmental, land and marine-based elements, as well as, the required electrical permits) would have the advantage of making licensing efficient and convenient, saving time and money. However, this is currently rare, even in jurisdic-tions where the concept of one-stop

shops is understood.

In Portugal, given the existing ad-ministrative system with its different competent authorities and the level of regulatory requirements involved, deriving from numerous pieces of legislation, it is difficult to implement an integrated and coordinated deci-sion-making approach. In fact, the lack of co-ordination is often consid-ered one of the main reasons for the small number of offshore activities and, consequently, for the feeble ex-pression of the sea-economy in Por-tugal’s gross national product.

Despite this, Portuguese govern-ments have acknowledged for some time the need for the development of integration mechanisms for the different activities taking place at sea and have made efforts to approve legislation that creates the condi-tions for developing marine energy projects.

The most recent example is Decree-law n.º 38/2005 of 12 March, which develops the legal regime for plan-ning and management of the nation-al marine space approved by Law

“Politics of the Sea”, “Economy of the Sea”, “Blue growth” (recently used in the World Ocean Summit 2015, held in Cascais, Portugal) are trending words but present both challenges and opportunities.

What does Energy have to do with this?

The answer is very simple: the sea is itself a huge resource for offshore renew-able energy. According to the REN 21 Global Status Re-port, offshore wind has had a record year, with 1.6 GW added.

In the case of Portugal, due to the im-mense national marine space, its po-tential for offshore projects that can contribute to meeting our renew-able energy targets is evident. Off-shore wind and wave energy, of the range of potential offshore renew-able energy projects, are the ones that, in the short term, will provide the largest contribution to the na-tional targets for renewable energy. Notwithstanding, the National Ac-

tion Plan for RES (PNAER) approved by the Resolution of the Council of Ministers 20/2013 has established low targets (27MW of floating off-shore wind in 2016 and 6MW of wave energy by 2020, but has set a higher target for wave energy within the pilot zone, created in 2008, near S. Pedro de Moel).

Around the world, advances in tech-nology and the de-ployment of many renewable energy technologies, have demonstrated their immense potential. In Portugal, the Wind-float project (which

I am proud to have been involved with), located at 5km off the coast of Aguçadoura, is a very good example of how it is possible to mature the offshore wind sector by eliminating deep-water limitations with an inno-vative solution. To date, the system has produced in excess of around 14 GWh of electricity delivered by a sub-sea cable to the local grid. The structure was completely assembled and commissioned onshore before being towed some 400km along the

monica.carneiropacheco

cms-rpa.com

https://dre.pt/application/conteudo/25343987

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is the elaboration of an allocation plan, including the identification of the special and temporal distribution of uses as activities to be developed. This does not jeopardise the need to follow the elaboration and approval procedures and the observance of the legal regimes for the use of the maritime space, but will certainly fa-cilitate the development of projects, since developers can take the initia-tive by themselves and not wait for a government initiative.

Regardless of licenses that must be obtained before installing an off-shore project (the license to build infrastructures on land as the sub-station and the onshore electricity cable, and the power production and the grid connection licenses), the en-try into force of LBOGEM and its de-veloping legislation is decisive for the increase in Portuguese sea-economy through, amongst others, renewable offshore projects which can be, not only sources of energy, but also tools to address other needs, including im-proving energy security, reducing the

health and environmental impacts associated with fossil and nuclear energy, mitigating greenhouse gas emissions and creating jobs.

Mónica Carneiro Pacheco works pri-marily in the areas of Public Law, with an emphasis on Energy, PPP projects, Public Procurement, Concessions and Environmental law. Mónica has been heavily involved with work in the en-ergy sector including projects in the renewable area. She is also involved in innovative renewable energy proj-ects. She is recognised by the main international directories as a leader in her field.

Partner since 2007, Mónica has a strong and well known professional carrier as a lawyer. She is the co-au-thor of the first publication launched in Portugal with comments to the Natural Gas Legislation enacted in 2008 and frequently publishes opin-ion articles.

n.º 17/2014 of 10 April (“LBOGEM”), which has established, for the first time, the legal basis for Portuguese policy on marine spatial planning and management. It should be noted, that LBOGEM was published three months before the approval of the Directive 2014/89/EU of the Europe-an Parliament and of the Council, 23 July 2014, establishing a framework for maritime spatial planning, which determined that it should be trans-posed before 18 September 2016.

By approving a legal framework ap-plicable to the whole marine space adjacent to the Portuguese main-land and archipelagos, including the continental shelf beyond 200 nauti-cal miles, LBOGEM has introduced a new and larger concept of the Portu-guese territory, while recognising, at the same time, that uses and activi-ties in the national maritime space must be subject to coherent and ef-ficient spatial planning and manage-ment. This includes integrating the environmental, social and economic dimensions.

However, approval and implementa-tion of marine spatial plans needs to become operational, otherwise, in-stead of being an accelerator for the development of offshore projects could become an obstacle.

Indeed, the right to private utilisation of marine space depends on the ex-istence of an “allocation plan” (plano de afectação). The rights can be at-tributed through a concession of up to 50 years in the case of prolonged use (the use of an area or volume for a period equal or more than 12 months), a license of up to 25 years in the case of temporary use (the use for less than 12 months, intermittent or seasonal use of a reserved area or volume) or an authorisation of up to 10 years in the case of scientific in-vestigation or pilot projects of new technologies and non-commercial activities.

The good news is that people inter-ested in the elaboration of an alloca-tion plan can submit a proposal for a “contract for planning”, whose scope

https://dre.pt/application/conteudo/25343987

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Yves Baratte [email protected]+33 1 5329 1614

An Exclusive Q&A With Yves Baratte, Simmons & SimmonsBy Yves Baratte

with stable legal framework, where disputes, in particular disputes with the government or state-owned companies, can be settled fairly ei-ther before local courts or more of-ten through recourse to internation-al arbitration, and where contracts, in particular again contracts with the government or state companies, are complied with by both parties. 4) How important is international collaboration in accelerating the de-velopment and global deployment of sustainable energy technologies?

In Africa, the largest opportunities in renewable projects lie in cross-bor-der projects: whether because such large projects require international financings or because they are able, and need to, supply markets broader than their domestic market, with the need for the corresponding distri-bution networks (transmission lines for electricity projects; pipelines for major oil and gas projects etc). This is the case for example the Inga 3/Grand Inga hydropower projects in the Democratic Republic of Congo.

5) Are there any exciting technologi-cal developments on the horizon?

Geothermal power projects, al-though not entirely new, are spread-ing across East Africa. This is also the case, more widely, of wind and solar projects, which were initially confined to North Africa, in particu-lar Morocco, and South Africa, and which are now developing quickly in many Sub-Saharan countries.

Yves Baratte is a partner at Simmons & Simmons in the Paris office of the firm’s energy and infrastructure group. He has expertise in advising international corporate clients on complex power, water, mining and in-frastructure projects internationally, with a particular focus on France and North and Sub-Saharan Africa. Yves joined Simmons & Simmons in Sep-tember 2001 and is a French qualified lawyer. He graduated from the Paris Business School (ESCP-EAP) in 2000 and is also a post-graduate in pri-vate law from the university Paris X.

1) Have there been any recent regu-latory changes or interesting devel-opments?

The mining industry is hit by falling commodity prices and difficult equi-ty markets. Interestingly, this is lead-ing a number of mineral-rich African countries to realise that the trend of “resource nationalism” in mining countries may be counter-productive if they want to keep mining investments and mining jobs. Re-source nationalism is used to characterise the attempts of host governments in min-eral-rich countries to get a bigger share of mining profits: through higher taxes, free equity in-terest for the state or the renego-tiation of mining contracts. Some countries are still in this mindset like Zambia which has announced higher mining taxes but some have started to soften the tax burden for mining companies a little.

2) What challenges is the sector cur-rently facing?

The natural resources sector, in par-ticular the mining sector, faces the combination of falling commodity prices and more difficult access to equity markets, which badly impacts a number of projects, especially ear-ly stage exploration or development projects or high-cost producers, for example in the gold sector. The chal-lenge for many mining companies is to survive during that period and

comply with their var-ious obligations: to-wards the host state, under mining and in-vestment codes for example in terms of the timetable for the implementation of

projects, towards lenders under fi-nancing agreements, towards joint-venture partners, etc.

3) What should companies look for when deciding on a location to in-vest?

More than ever, energy and natural resources companies are looking for “safe” jurisdictions to invest in. Safe jurisdictions are not necessarily de-veloped countries but jurisdictions

yves.baratte

simmons-simmons.com

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Jochen terpitz [email protected] +49 69 90 74 54 51

An Exclusive Q&A With Jochen Terpitz , Simmons & SimmonsBy Yves Baratte

3) What markets currently provide the best opportunities?

Over the last two years, many incum-bent players perceived the renewable markets as being in a critical status across Europe: would there be suffi-cient and reliable further support for renewables, and would there be a place in the market for the ‘tradition-al’ set of players, such as developers, innovative manufacturers, project fi-nancing banks, cooperatives or retail funds.


A main challenge for investors in en-ergy generation generally is the low wholesale prices. No new power plant project could ever amortise at prices below 4 €-cents. Although further nuclear plants, and some coal power plants, will be shut down, the wider area of Germany and its neighbours continue to face over-capacities across the different tech-nologies. The German government seems determined to wait for the time when tighter offers bring the price back up in the future.

Another potential challenge is the cost of the grid infrastructure. Cost allocation systems in the different EU member states are quite differ-ent, and Germany’s current system is mainly based on variable income (connected to the kWh consumed) while the overwhelming part of the costs are fixed. Strategies which are based on delivering clear of grid costs, while still using the grid as a fall-back supplier, could be at risk in future if the cost allocation moves towards a higher capacity premium.


I would like to highlight two basic considerations: find out whether a project will be capable of amortis-ing its investment cost, even if the regulatory environment in the given location evolves over the years; and try avoiding overly positive assump-tions for the years towards the end. Promises of permanently high ongo-ing subsidies mislead some investors to invest in countries which are now unwilling to continue such subsidy payments, and too many investors


The energy transition has been at the centre of public attention for a couple of years now, and will likely remain there for a few more. Fol-lowing a heavy debate, Germany has implemented, in August 2014, an amended version of its renewable energy act. The new regime impacts the entire electricity market, and government is already confronted with criticism because by the year end solar investments were down, and coal fired power plants turned to record production. However, the amended act is widely being regard-ed as an interim step only: the feed-in tariffs which made the renewable energy grow over the last 15 years are phasing out now, substituted by a system of difference payments for the time being, but that is set to be further Europeanised. Europe’s new ‘Guidelines on State aid for environmental protection and energy 2014-2020’, in force from 1 July 2014, provide a comprehensive statement of Europe’s current ideas

for integrating renewable sources into the power markets. However the methods in which Europe is sup-porting renewables will change sub-stantially over the next few years: it seems unavoidable that power gen-eration and electricity networks re-quire a certain amount of state aid, but they will in principle only be avail-able to sustainable technologies.

2) Can you talk us through the cur-rent energy and natural resources landscape in your jurisdiction?

Germany is in the middle of a process of defining the future of its energy supply. Traditional perceptions of security of supply, which are orient-ed towards national or even regional self-sufficiency, compete with the more recent European approach ac-cording to which every single mem-ber state can realise savings and maximise welfare by partially relying on its neighbours. As a country in the middle of the continent, Germany is supposed to take a leading role while at the same time the energy econo-my should become more decentral-ised and less governmentally led.

jochen.terpitz

simmons-simmons.com

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not have been possible in a scenario with people sitting in dispatch cen-tres making phone calls to people sit-ting next to a power plant. Obviously there is still a long way to go until private households install systems able to control their air con-ditioning in a way it is only being run as long as there is sufficient sunshine electricity on offer, but for industry scale installations it already seems feasible. At the same time, the quality of pro-duction forecasts also increases due to computing capacity and based on improved weather data.

9) What eco-friendly products or innovative technology can you see taking 2015 by storm?

I do not see any specific new tech-nology coming up, but rather lots of smaller improvements on existing technologies. In a way, these are the signs of a maturing market where product quality rises while prices reduce and at the same time many smaller players consolidate into few-er but bigger companies.

10) In an ideal world what would you like to see implemented or changed?

The EU ETS really requires reform, namely I am hoping for a reduction of the available certificates and a re-vised concept regarding the use of certificates from CO2 savings in oth-er parts of the world. In principle, it has proven to be capable of setting the right incentives, but at the mo-ment the price level is just too low to have any impact.

Jochen Terpitz is a corporate finance lawyer based in Frankfurt. He spe-cialises in the energy and infrastruc-ture sectors.

Jochen has handled a wide variety of energy and infrastructure related transactions for German and interna-tional clients, including M&A trans-actions and privatisations. He ad-vises developers, investors and banks on power projects in many European countries and has expert know-how in particular with regard to the devel-opment, financing and acquisition of renewable energy projects. Jochen’s practice also covers relevant regula-tory aspects.

are trying to put a gloss on their fig-ures by assuming high returns post year 15 or 20. Realistically, most clean energy technologies are still relatively young, and we should all prepare for one or two other surpris-es over the lifetime of a project.

6) Are there any renewable or al-ternative energy sources which can emulate the success of the shale gas boom?

It seems difficult to think of any new form of truly renewable ener-gy source which would suddenly be located as a hidden treasury – once you start exploiting the treasury, im-plicitly it does not normally renew, except perhaps in the case of geo-thermia (which is not new). Howev-er, any type of cheap, robust photo-voltaic cells (perhaps those based on chalkopyrites instead of silicon?) cer-tainly has the potential for a similar impact on the market if millions of household worldwide started gener-ating substantial parts of their home electricity consumption – or for their electric vehicles.

7) How important is international collaboration in accelerating the de-

velopment and global deployment of sustainable energy technologies?

We already have a fairly global mar-ket for these technologies, and while specific international collaboration can certainly accelerate deployment a bit, the real drivers will be two groups of countries: those without sufficient home resources, such as Europe, and those without sufficient current electricity supply. Photovol-taic modules especially can become a very simple yet sustainable way to making energy accessible; to that extent, international cooperation in the production of modules could ac-celerate the development.


In my view, the main development worth mentioning is the convergence of information technology into grid management and balancing. It is amazing to see how one of the most discussed concerns vis-a-vis decen-tralised and volatile power genera-tion is evaporating. It is all about switching or dimming either genera-tion or consumption very quickly in order to always match. This would

the Americas

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Mosby g. [email protected]+1 832 239 3895

An Exclusive Q&A With Mosby G. Perrow, Jones DayBy Mosby G. Perrow


If there is a prolonged decrease in the price of oil, those with a strong bal-ance sheet will have opportunities to acquire distressed assets and com-panies and there will be other invest-ment and financing plays. On a dif-ferent note, one of the big headlines in North America has been Mexico’s sweeping energy reforms. The new legal framework stripped Pemex’s control over all aspects of explora-tion, extraction, production, trans-portation, storage and refining of oil and natural gas in Mexico. Already, there have been openings for foreign companies to participate. For exam-ple, natural gas pipeline companies are competing for opportunities to build infrastructure from the United States to Mexico and within Mexico to fuel Mexico’s economy.


Before the drop in oil prices, I would have answered this question by fo-cusing on regulatory challenges. For example, the FERC conducts a review

under the National Environmental Policy Act when it certificates inter-state pipeline projects under the Natural Gas Act. Recently, stakehold-ers successfully challenged FERC’s decision to analyse the environmen-tal impact of several segments of a project separately rather than look-ing at the cumulative impact of all segments combined. Such challeng-es delay projects and increase costs. Notwithstanding such regulatory challenges, currently capital markets look to be the greater challenge fac-ing the sector in the coming months.

5) What can new markets entering into shale gas production learn from established projects such as those in the United States?

Conventional wisdom is that a key in-gredient to successful shale produc-tion is a well-established system of private property and mineral rights. My understanding is that, unlike the United States, mineral rights in many places around the globe default to the state rather than the land owner. Farmers and ranchers in the United States who are sitting on shale re-serves have a financial incentive to


Yes. One of the more significant reg-ulatory developments that we will be tracking in 2015 is the interplay between the Federal Energy Regula-tory Commission (“FERC”) and other federal regulatory agencies such as the U.S. Environmental Protection Agency (“EPA”). For example, the FERC recently announced a series of technical conferences around the United States to address electric re-liability, wholesale electric markets and operations, and energy infrastructure in response to EPA’s proposed “Clean Power Plan.” Under the proposed rule, EPA would try to control carbon emissions from existing electric generating units by establishing state-wide limits on car-bon intensity to reduce national lev-els of greenhouse gas emissions by 30%in 2030 compared to 2005 lev-els. FERC is charged with protecting electric reliability and ensuring that wholesale electric rates are just and

reasonable. The technical confer-ences will focus on the Clean Power Plan’s potential impact on the reli-ability of the power grid and the effi-cient operation of wholesale electric markets.


All eyes are on the price of crude oil, which in early Janu-ary, closed below $50 a barrel in the U.S. for the first time in near-ly six years. The pre-cipitous drop means

broad uncertainty, potential prob-lems for some, and potential oppor-tunities for others. It is no secret that there has been a revolution in gas and oil production in the United States in places like North Dakota, Texas, and Appalachia. Shale fields in these regions and new and pro-posed new pipelines constructed to service those fields have been driv-ing so much growth over the past few years. This year has the poten-tial to be turbulent.


54 55July 2015 July 2015


the energy space. He practices regu-larly before the Federal Energy Regu-latory Commission on rate proceed-ings, asset acquisitions and divesti-tures, and enforcement matters.

Prior to joining Jones Day, Mosby worked as an attorney-advisor for the Office of General Counsel at the FERC. There he worked on key orders and rules regarding FERC’s open ac-cess reform, issues arising out of the organized electric markets, transmis-sion incentive rates, and mergers and acquisitions.

Mosby is an active member of the Energy Bar Association, serves on the EBA Houston Chapter Board of Direc-tors, and co-chairs the EBA Programs and Meetings Committee. He also serves on the Advisory Board for the Institute for Energy Law, a division of the Center for American and Interna-tional Law. Mosby has chaired other EBA committees in the past, includ-ing the Finance and Transactions Committee, and also served on the editorial board for Energy Law360.

invite drilling and production on their land because they get a cut. This not only benefits the landowners, but the local economies where they live and work.


I think it would be foolish to answer no to this question. Technology al-ways seems to unlock new and un-expected ways of producing energy

more efficiently and at lower costs. This has been true in the oil and gas fields and will continue to be true in the renewable energy space.

Mosby Perrow represents clients in the energy industry on transactional and regulatory matters. He focuses on regulatory counseling, drafting and negotiating documents such as precedent agreements, and admin-istrative litigation. Mosby’s clients range from natural gas pipelines to electric utilities to renewable energy developers to investors focused on

56 57July 2015 July 2015


Karen [email protected]+1 213 892 4419

An Exclusive Q&A With Karen Wong, Milbank, Tweed, Hadley & McCloy By Karen Wong

term oversupply, and increased cost of new regulations on greenhouse gas and methane emissions. The wind industry in the U.S. is confronted by the potential loss of production tax credits without a phase-out period. Meanwhile many electric utilities are having to deal with the challenges posed by the increased in distribut-ed generation and customer-owned distributed energy resources, as well as on-going proceedings that may ul-timate redesign of the electric utility market as they know it. Energy com-panies with energy trading practices or who perform cross-market hedg-ing may face greater scrutiny from the Federal Energy Regulatory Com-mission and the U.S. Commodity Fu-tures Trading Commission.


As photovoltaic solar projects ap-proach grid parity and with the in-creasing improvements and innova-tions in the wind turbine designs and technology, these two renewable energy sources have arguably sur-

passed the success of the shale gas boom.

5) How important is international collaboration in accelerating the de-velopment and global deployment of sustainable energy technologies?

International collaboration is vital. Countries collaborate with each oth-er in research and development to improve or commercialise sustain-able energy technologies. In adopt-ing energy policies and incentives to drive such development, it stands to reason that the development would be accelerated by virtue of such col-laboration.


Improvements to and commerciali-sation of battery storage technology and smart grid technologies.


For the U.S. wind industry, it would be ideal to have a long-term exten-sion of the production tax credits


On 14 January 2015 the Obama Ad-ministration announced a new goal to decrease methane emissions from the oil and gas industry by 40-45% of the 2012 levels by the year 2025 along with a number of specific mea-sures to achieve this goal. The EPA is expected to issue the proposed rule for the first-ever regulation on meth-ane emissions for new and modified oil and gas production sources, and natural gas processing and transmis-sion sources in summer 2015, with the final rule to follow in 2016. Sum-mer 2015 is also the timeframe that the EPA will issue its final rule for regulating greenhouse gas emissions for new, modified and existing power plants pursuant to the Clean Power Plan released in June 2014. With a Republican-controlled Congress and lawsuits challenging the EPA’s regu-lations, it will remain to be seen whether such carbon legislation will be effective in the coming year. 2) What markets currently provide the best opportunities?

The sustained decline in oil and crude oil prices has resulted in many oil and gas companies slashing budgets and reducing spending in the U.S. shale production, as well as impacting po-tential new LNG projects in the U.S. and globally. Despite the fact that Congress did not extend the federal production tax credit available for wind power projects and the amount of the available investment tax credit for solar projects will decline from 30% to 10% for projects that are placed in service after the end of 2016, activity in the U.S. and global renewable energy sector should con-tinue to be robust in 2015 and 2016. The U.S. Energy Information Admin-istration report released on 13 Janu-ary 2015 projects that U.S. solar util-ity-scale power projects will increase by more than 60% between the end of 2014 through the end of 2016 and wind power projects will increase by about 23% between 2014 and 2016.


The obvious challenges for the oil and gas sector include the sustained and declining oil and crude prices, short-


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synthetic leases, municipal finance transactions, aircraft financings, and monetization transactions.

Her recent representations include:

• representing the tax equity in-vestors and lenders in the financing of renewable energy transactions (wind, solar and biomass)• representing the sponsors of concentrating solar power projects receiving a loan guarantee under Section 1705 of the U.S. Department of Energy Loan Guarantee Program.• representing the sponsors in the development of several coal gasifica-tion projects throughout the United States• representing the sponsors in a mine-mouth lignite fired project in Lao People’s Democratic Republic

Recognition & Accomplishments

Ms. Wong was selected as one of the

Daily Journal’s “Top 25 Clean Tech Lawyers” in California and also fea-tured as one of the state’s “Top 75 Women Lawyers”. She was also listed in the 2012 edition of Chambers USA for Projects and The International Who’s Who of Business Lawyers, and has been recommended in PLC Which Lawyer? for banking and finance.

She authored a chapter on “Overview of the Development and Financing of Renewable Energy Projects” in Ener-gy and Environmental Project Finance Law and Taxation (Oxford University Press, 2010), and she co-authored the U.S. chapter in The Projects and Construction Law Review (Law Busi-ness Research Ltd, 2011).

She served on the editorial boards of Major Tax Planning and the Southern California Interdisciplinary Law Jour-nal (formerly known as Computer/Law Journal).

with a reasonable phase-out period in lieu of the historical short-term and retroactive extensions which have created bust and boom cycles in the sector and negatively impact-ed the overall sustained growth of the sector.

A partner since 1996, Ms. Wong fo-cuses on the representation of spon-sors and financing parties in connec-tion with the development, acquisi-tion, financing and/or restructuring of energy and other infrastructure facilities in Asia and North Ameri-ca. In her over twenty-five years of practice, she has led numerous de-velopment, financing and acquisition transactions involving generation as-sets (including large-scale coal, gas and LNG-fired cogeneration plants, as well as hydroelectric, wind, solar, geothermal, biomass, waste energy and other renewable energy facili-ties), transmission lines, and oil and gas pipelines. Ms. Wong has exten-

sive experience in complex commer-cial and financial project financings, acquisitions and dispositions, as well as leveraged and synthetic leases. Her practice is balanced among rep-resenting sponsors and debt provid-ers, and she has significant experi-ence with the development of green-field power and gasification projects in the United States and Asia.

In addition to her specialty in the en-ergy sectors, she has also worked on development and financing transac-tions involving satellites, telecom-munications, technology companies, and real estate (including office build-ings, hotels, stadiums, golf courses, amusement parks and other enter-tainment complexes). She has exten-sive experience in complex commer-cial and financial transactions and has participated in numerous project financings, restructurings, private placements, acquisitions and dis-positions, as well as leveraged and

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Ariel lopez [email protected]+593 4 2293922

An Exclusive Q&A With Ariel Lopez Jumbo, Lopez & Associates Law FirmBy Ariel Lopez Jumbo

biodiversity, genetic heritage, the ra-dio spectrum and water, among oth-ers, are the strategic resources of the nation. With regards to hydrocarbons; oil and its derivatives are one of the main exports in Ecuador. During 2013, 140.2 million barrels were ex-ported, according to Petroecuador EP, which generated total revenue of US$13,411.8 million; signifying around 31.3% of all nonfinancial pub-lic sector income. Over the last years, the main destination of Ecuadorean oil was to the United States, followed by Chile, Peru, Japan and China. On the other hand, demand for oil prod-ucts in the country reached a total of 90.4 million barrels per year. The consumption of natural gas for electricity production and for using in industrial processes has increased significantly in recent years. Ecuador has a natural gas production from 30 million to 60 million cubic feet per day, according to the Non Renewable Natural Resource’s accountability. During 2013 more than $10,400 mil-lion was invested in strategic sectors

related with projects on hydrocar-bons, energy, telecommunications connectivity, environmental protec-tion, and mining, among others. Ecuador is currently working at an ac-celerated pace in the construction of eight emblematic hydropower proj-ects with an investment of $5.5 bil-lion. It is projected by 2016 to dou-ble the installed capacity to 6,779 megawatts (MW), while generating 11,446 jobs and in the near future is expected that the country can export electricity. This is Coca-Codo-Sinclair, Sopladora, San Francisco mines, Del-sintanisagua, Manduriacu, Mazar-Dudas, Toachi-Pilatón and Quijos. The Ministry of Electricity and Renew-able Energy announced that by 2016 over 90% of the energy produced in the country will be generated from hydroelectric sources, clean energy without pollution to satisfy domestic electricity demand. These projects are in addition to changing energy matrix that drives the system, within which the process is included to con-verting from gas stoves to electric. Furthermore, the production of new hydroelectricity, the state will save


In November 2014 the National As-sembly passed the Organic Law of Public Service Electric Power. Ac-cording to regulations, the Ministry of Electricity would be the highest authority, under which it will be the Agency for Regulation and Electric-ity Control (Arconel) that until now has the name of National Electric-ity Council (Conelec). Among some provisions set that any power gener-ation or distribution and marketing company could be managed and op-erated by international state compa-nies which reach an agreement with the Ecuadorian state. In the meantime, Law Production In-centives and Tax Fraud Prevention, published in Official Record 29 De-cember 2014, contained an initia-tive to avoid reducing social spend-ing. Among the tax measures that will generate more revenue for the Treasury are the non-deductibility of expenses on products advertis-ing considered “hyper processed” for purposes of the Income Tax. Also

stoves, water heaters and other ap-pliances for cooking operating with gas, pay 100% of special consump-tion tax, these are so far exempt. Furthermore, VAT and Tax Overseas Remittance were removed for the purchase of kitchen, pots, induction heaters and electric showers. Thus seeks to encourage the change of energy matrix in the country. While this 2015 will host new regu-lations, the National Assembly is discussing the proposed of a new Labour Code, and the promotion of draft amendments to the Social Se-curity Law, set between other things: regulations regarding the distribu-tion of workers profits, the thirteenth salary, incorporating housewives to the Social Security, the elimination of the permanent contract for indefi-nite time, among others.


The Constitution of Ecuador Repub-lic considers energy in all its forms, telecommunications, non-renewable natural resources, hydrocarbons,


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tasks in both contracting entities: suppliers and general public. Foreign investment includes a num-ber of securities such as the equal conditions and protection for invest-ment, property protection of inves-tors (prohibition of all forms of con-fiscation), production freedom, trad-ing, import and exports of goods and services, with subjection to the pro-visions of the Constitution, laws and regulations established by current legislation, regarding tax payments, national and foreign investments are liable to the same Taxation. For investment contracts foreign inves-tors may agree arbitration clauses to resolve disputes that arise between the government and investors, the dispute may be submitted to inter-national arbitration in accordance with the treaties signed by Ecuador.

As to the Sectorial Incentive, the Or-ganic Code of Production Trade and Investment, in force since December 2010, established its purpose to gen-erate and strengthen the regulations that enhance, promote and encour-age production to create conditions for increasing productivity and pro-

mote the transformation of the pro-ductive matrix, facilitating the appli-cation of tools for productive devel-opment. Additionally, it provides tax incentives, such as exemption from payment to income tax for five years for all new investments, at the begin-ning of the operation phase in sec-tors that contribute to the change in the energy matrix; strategic import substitution; export promotion and rural development.

6) What can new markets entering into shale gas production learn from established projects such as those in the United States?

New markets can learn from estab-lished projects in the United States regarding the advanced technologi-cal methods used, as well as econom-ic, political, social and environmental trends, to help to form a stable out-look in such projects. Further, in the United States, most incentives come from energy policies, concerning fi-nancial incentives, such as tax ex-emptions, tax reductions, discounts, loans and specific funding, which can be a model for our market. The U.S. has produced many incentives cre-

about $800 million without spending on gas subsidy for human consump-tion.


Ecuador has established objectives which indicate renewable energy is the strongest market and will contin-ue to increase domestic production. To fulfil this objective, hydroelectric projects should be implemented without delay; and additional proj-ects should be encouraged using other renewable energy sources such as geothermal, biomass, wind and solar. Between 2013 and 2016 3,223 MW of renewable energy will join the national grid through public investment. Until 2018, it is estimat-ed to incorporate 394 MW of private investment. This investment will be achieved by building eight hydro-electric plants with an investment of USD 4.983 million – which is set to double the current installed capacity of 5.8 GW.


Currently the energy sector in Ec-uador faces several challenges, the most outstanding are environmental problems such as environmental deg-radation, weather changes, and the inadequacies of technological devel-opment and infrastructure. Further, in Ecuador non-renewable sources are used to obtain energy, because our main source is hydropower use, oil, natural gas and coal.


Ecuador offers a regulatory frame-work in which investment incentives in Strategic Sectors are enhanced with opportunities to build mutual benefits and achieve the develop-ment of our country. As government policy, the priority is to provide the public and private, domestic and foreign sector, with the tools which allow the conditions’ consolidation required to attract investors. The procurement process is conducted by the National Institute of Public Procurement, through transparent, efficient and technologically updat-ed procedures that facilitate control

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The development of new additional hydroelectric projects in the coming years will consolidate the position of Ecuador as an important generator pole in the region.

8) How can 3D printing transform the energy supply chain?

Researchers at MIT (Massachusetts Institute of Technology) believe that the application of 3D printing to so-lar panels could be made about 20% more efficient than flat solar panels, as 3D printing can extend the amount of solar energy taken up by cells. Another advantage of these print-ers is the cost; researchers estimate the 3D printing precision could lower production costs about 50% by elimi-nating many of the inefficiencies as-sociated with the loss of expensive materials such as glass or poly silicon. 3D printers and their applications in different fields will be a topic of high importance, and could give a signifi-cant improvement to sectors from an economic, strategic and even po-litical view for energy production.

9) How important is international collaboration in accelerating the de-velopment and global deployment of sustainable energy technologies?

International collaboration is impor-tant because we need to have access to cleaner energy technologies with the ability to adapt to any ecosys-tem, also to improve our resources and energy services for sustainable development, have a more reason-able cost, and viable economically and ecologically. The IEA (International Energy Agen-cy) is by far the most comprehensive network, in which thousands of ex-perts around the world coordinate their energy technology programs. These networks need strong interna-tional leadership from policy makers at senior level. With the leadership of the General Secretary of the ONU, Ban Ki-moon, ONU-Energy, a coor-dinating group 20 ONU´s agencies, prepare a new global initiative, “Sus-tainable Energy for the entire world”. This initiative will involve the govern-ments, the private sector and part-ners from civil society around the

ated through energy policy, as the creation of Energy Policy Act in 2005, Energy Independence and Security in 2007, and Economic Emergency Stabilization Law in 2008; each pro-motes a variety of improvements on energy efficiency and encourages the development of specific energy sources. In addition, incentives for energy policy of the United States can serve as a strategic way to expand certain industries which are planning to reduce their dependence of the United States on foreign oil products and create jobs and industries that boost the local economy.


The government proposal of an en-ergy matrix change recommends the development of large power plants in the power sector, especially in the Amazon basin. According to data from the Ecuadorean Centre for Environ-mental Law, there are viable energy sources in Ecuador, within which geo-thermal energy offers great potential for electricity generation. There are

also other viable sources such as bio-energy, electricity generation from agricultural waste such as rice husks, solar energy (both plants as SP PV modules) and wind energy areas. The biofuel in Ecuador has achieved positive results; its use began in Jan-uary 2010 in Guayaquil city, through the Ecopaís program as a pilot before extending into the national territory. Ecopaís is a biofuel compound with 5% of ethanol from sugarcane 95% gasoline base. In view of the results, by resolution of the Production Sec-torial Council, it was decided to ex-pand sugarcane planting to 80,000 hectares, where alcohol production is exclusively for the manufacture of biofuels. With these new hectares of sown for the production of alcohol, is intended to fill the annual domestic demand of about 900 million litres of ethanol to the distribution of Ecopaís with 15% ethanol, in 2020. Other energy sources such as eolian, generated by wind and geothermal located in the deep earth, are sources of generation available all the time, and will displace other more expen-sive fuels such as gasoline and diesel.

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The government is working to make energy the new wealth of the coun-try once it has passed the oil phase. Thus it is expected that within two years 93% of Ecuadorean energy will be generated in a clean, sustainable and renewable way. One of the prod-ucts included in this sense, is the pro-cess of converting gas stoves to elec-tric. These devices are already sold with a discount between 12 and 20% due to withdrawal from VAT and Tax Overseas Remittance when parts are imported for local assembly. By ef-ficient cooking program, the Govern-ment seeks to replace 3.5 million gas stoves to induction stoves to reduce fuel subsidy.


Government policies in Ecuador ap-plying the same trend of a shift to-wards sustainable development. If the oil resource could be replace by other types of energy resources such as biofuels and eolian energy for technological and industrial devel-opment. Also, to achieve a paradigm shift in terms of consumerism that currently affects the pattern of citi-

zens’ life with incentives for recycling and saving support.

Ariel López Jumbo is the founder and President of López & Associates Law Firm. Attorney of the Republic of Ec-uador, graduated from Universidad Católica de Santiago de Guayaquil. He is an expert on litigation, with a master´s in procedural law. He per-formed as vice president of the In-teramerican Lawyer Federation, Ecuador Chapter. Professor at the Universidad Católica de Santiago of Guayaquil in 2007. He was general counsel in the Bank and Insurance Superintendence, 2007 and was an advisor in the Congress of Ecuador. He is member of the International Bar Association (IBA) including Oil and Gas Law Committee and Power Law Committee; Inter- Pacific Bar As-sociation (IPBA) including Cross-Bor-der Investment Committee, Energy and Natural Resources Committee; and Inter-American Bar Association (IABA-FIA). Additionally, he has been involved in three international pub-lications: Getting the Deal Through Dispute Resolution 2014, Getting the Deal Through Oil Regulation 2014 and Law Reviews Oil and Gas 2014.

world to achieve three important objectives for 2030: ensure universal access to modern energy services, reduce the intensity of global energy by 40% and increase the renewable energy use worldwide to 30%.10) Are there any exciting technolog-ical developments on the horizon?Some of the exciting new technolo-gies in a near future we have the fol-lowing: Clean Energy. It is the biggest chal-lenge in the energy sector: solar, wind, biofuels, bioenergy, carbon capture and storage, energy from nuclear fusion, and storage batteries (including batteries plutonium and strontium). Nanotechnology. Based on manipu-lation of microscopic materials and allows working and manipulating molecular structures and their at-oms. PCs and mobile convergence, the contact Lens Smartphones (glass-es that will make phones). Soon we can surf the internet and communi-cate with friends through glasses. Synthetic Biology. Applications have emerged such as smart fuels, syn-

thetic algae, synthetic food that could feed billions of people, and al-tered stem cells that can prolong life. Study of the relationship between brain connectivity and human be-haviour is beginning to understand how neurons in the brain connect and work together to enable learn-ing and memory. As for robotics, attempts are being made to create automated machines that can replace humans in harmful environments or manufacturing pro-cesses.

11) What eco-friendly products or innovative technology can you see taking 2015 by storm?

Ecuador closed 2014 with three new ecological works aimed at increas-ing the use of renewable energy and to reduce dependence on oil and its derivatives. Furthermore, President Rafael Correa recently inaugurated three important works in Galapagos Islands, considered as a World Heri-tage Site by UNESCO, Educational, Scientific and Cultural United Na-tions Organization.

68 69July 2015 July 2015

ExpErt guidE: EnErgy & natural rEsourcEs 2015expert dIreCtorY

Expert Directory:

Khaitan & Co

upendra [email protected]+91 22 6636 5000

www.khaitanco.com

Dr. Kamal Hossain & Associates

dr. sharif Bhuiyan [email protected]+880 2955 2946

Maherin Islam [email protected]+880 2955 2946

www.khossain.com

KarimSyah

Karen Mills [email protected]+62 21 2966 0001

www.karimsyah.com

Allen & Gledhill LLP

Kelvin [email protected]+65 6890 7644

lynette lim

www.allenandgledhill.com

Jones Day

Mosby g. [email protected]+1 832 239 3895

www.jonesday.com

Lopez & Associates

Ariel lopez [email protected]+593 4 2293922

www.lpzlaw.com

Milbank, Tweed, Hadley & McCloy LLP

Karen [email protected]+1 213 892 4419

www.milbank.com

J.Sagar Associates

sumanto [email protected] +91 124 439 0699

www.jsalaw.com

India Bangladesh Indonesia Singapore USA Ecuador


www.khaitanco.com



www.khossain.com


www.karimsyah.com


www.allenandgledhill.com


www.jonesday.com


www.lpzlaw.com


www.milbank.com

J.Sagar


www.jsalaw.com

70 71July 2015 July 2015

ExpErt guidE: EnErgy & natural rEsourcEs 2015expert dIreCtorY

Expert Directory:

Araoz Rueda Abogados, S.L.P.

Francisco solchaga

[email protected]+34 91 319 02 33

www.araozyrueda.com

CMS Rui Pena & Arnaut

Mónica Carneiro pacheco [email protected]+351 21 095 81 00

www.cms-rpa.com

Simmons & Simmons LLP

Yves Baratte [email protected]+33 1 5329 1614

www.simmons-simmons.com

Simmons & Simmons LLP

Jochen terpitz [email protected] +49 69 90 74 54 51

www.simmons-simmons.com

Spain Portugal France Germany


www.araozyrueda.com

monica.carneiropacheco

cms-rpa.com

www.cms

-rpa.com

yves.baratte

simmons-simmons.com

www.simmons

-simmons.com

jochen.terpitz

simmons-simmons.com

www.simmons

-simmons.com

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