Slide Set 8 HW John Beardsworth

Legal Framework & Project Contractual Framework Kosovo e Re Powerplant: International Investors’ Conference Pristina, Kosovo 20 January 2010 John J. Beardsworth, Jr. Hunton & Williams

Outline I.

Legal Framework

II.

Project Contractual Framework

Legal Framework In Transition

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Former Legal Framework was based largely on European standards; ad hoc implementation.

Independence February 2008.

Under Government of Kosovo, legislative and regulatory frameworks continue to evolve rapidly, broadly within EU norms.

Little judicial clarification on most commercial laws.

Legal Framework: Electricity and Mining sectors Government Committed to Conforming Laws to Project Structure   

5 year statutory limit on Power Purchase Agreements to be removed/extended.

Uncertainty regarding application of Law on PublicPrivate Partnerships to mining will be clarified.

Electric Sector laws under revision now.

Legal Framework Conclusions:   

Identify Legal and Regulatory Concerns as part of due diligence.

Express concerns to Transaction Advisor and Legal Advisor – the earlier the better.

Assume “Deal Breaker” issues will be addressed by time RfP is published, and resolved before transaction effective date.

Project Contractual Framework Balancing Clarity and Complexity   

Project Agreements being drafted for clarity for both Bidders and Government/ Counterparties.

This deal has inherent complexities in its various components – mining, new build, rehabilitation.

Parallel sector unbundling; counterparty identification will be addressed throughout transaction process.

Project Contractual Framework Process Underway   

Transaction and Legal Advisors developing transaction process and draft termsheets with counterparties now.

Draft RfP will include drafts of primary project documents/contracts for comment.

Objective is to have “final” contract drafts on primary documents included in Bidding Package.

Project Contractual Framework Five Groups of Project Documents Under Development

1.

Asset Transfer Agreements

2.

Regulatory Documents

3.

Operating Agreements

4.

Support Agreements/Documents

5.

Shareholder Agreements

Project Contractual Framework 1. Asset Transfer Agreements 

Electric Assets: Kosovo B

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Mining Assets: Sibovc •

Assets and liabilities included/excluded specified.

•

Form of transfer (sale, license, other Public-Private Partnership structure) may vary with asset class and related liabilities.

•

Compensation may be cash or shares.

Project Contractual Framework 2. Regulatory Documents Generation Licenses: Kosovo B, New Unit  Mining Licenses: Sibovc SW, Exploration License for Sibovc  Electricity Export License: “Trader” license • Will provide stable and long term rights for project activities under other agreements.

• Exploration License for entire Sibovc field; Mining Licenses related to generation facilities as existing/ to be constructed.

• Project Companies must comply with normal regulatory oversight and performance standards. 

Project Contractual Framework 3. Operating Agreements: Primary 

PPA for New Unit with DiSCo

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PPA for Kosovo B with DiSCo

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Lignite Sale Agreement for Kosovo A

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Lignite Sale Agreement for Kosovo B and New Unit

Project Contractual Framework 3. Operating Agreements: Primary • • • •

PPAs will contain normal performance criteria and standards.

PPAs include 2 part tariffs, including availability and energy payments.

PPAs will extend past financing period to provide certainty to lenders.

PPA for Kosovo B will provide outage allowance and tariff readjustments for rehabilitation works following COD of New Unit.

Project Contractual Framework 3. Operating Agreements: Primary • • • •

LSAs will provide uniform “mine boundary” pricing for all units; pricing proposal under development.

LSAs will provide for sales of power plant fuel requirements at each unit.

LSA for Kosovo A to terminate at retirement of facility.

LSA for Kosovo B, New Unit expire at end of PPA terms.

Project Contractual Framework 3. Operating Agreements: Other     

Interconnection Agreement with KOSTT for Kosovo B and New Unit Transmission Service Agreement with KOSTT for Kosovo B and New Unit Water Supply Agreement with Iber-Lepenc water company Overburden Disposal Agreement for Bardh mine-pit Ash Disposal Agreement for Mirash mine-pit

Project Contractual Framework 3. Operating Agreements: Other • •

• •

KOSTT Agreements based on standard terms, Grid Code.

Interconnection Agreement provides physical interconnection; Transmission Service Agreement addresses scheduling/dispatch issues.

Water Supply Agreement to provide reliable water supply to generation units.

Overburden and Ash Disposal Agreements to provide access to existing mine pits.

Project Contractual Framework 4. Support Agreements 

Implementation Agreement with Government of Kosovo • Provides terms of payment support and certain performance support for state entities.

• Provides change in law protection for regulatory instruments and Kosovo legal framework.

• Provides terms of option for additional unit (may be separate document).

Project Contractual Framework 5. Shareholder Agreements  

Between Government of Kosovo and mining entity shareholders Between Government of Kosovo and generation entity shareholders • Number of agreements and appropriate parties depends on project company structure adopted by winning bidder/consortium.

• Addresses principal terms of interest to Government.

Project Contractual Framework Conclusions: 

Schedule requires parallel development of contractual framework with transaction structure.

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Short-listed bidders will have substantial opportunity to provide input prior to submission of Bids.

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Kosovo seeking a successful project in interests of all parties, so will request proposals based on customary and “bankable” documents.

Legal Framework & Project Contractual Framework Thank you.

John J. Beardsworth, Jr. Hunton & Williams JBeardsworth@Hunton.com +1 (804) 788-8637