BGI LAW (Eng)

BALMS GROUP INTERNATIONAL LAW MAGAZINE

RENEWABLE ENERGY AROUND THE WORLD

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CONTENTS Argentina

5

Austria

13

Brazil

23

Bolivia

35

Bulgaria

45

England

57

France

63

Germany

75

Italy

85

Romania

97

Russia

107

Spain

117

Uruguay

129

ARGENTINA 1. Law of Electricity In Argentina, given the multiplicity of levels that the questionnaire addresses, it encompasses regulations from the central, local and municipal governments. National Law 24,065 of 1991 defined the regulatory framework of the electricity sector. The Electricity Regulatory Agency (ENRE) oversees compliance with the law and the concession contracts. Compañía Administradora del Mercado Mayorista Eléctrico (CAMMESA), a privately run company, is responsible for setting wholesale prices and financial transactions through the National Grid System. Law 26,190 of 2006 lays down the national system to promote use of renewable energy sources targeted at electricity production. The targets set through Law 26,190 are “to achieve a contribution of renewable energy sources that reaches 8% of national electricity consumption within 10 years”. Over that period, the regulation envisages a system of investments to build new sites targeted at electricity production using renewable sources. The National Advisory Committee (public body) was created in Argentina to help and advise the authority responsible for enforcing that law.

2. Securing the land The need for a legal framework that ensures legal certainty in ownership rights is the main incentive behind investment in renewable energies, given that these depend on a physical site where technology can be installed to produce energy. The ownership rights over lands where technology is assembled to produce energy are essential for any renewable energy power plant. This is because if these rights are not properly established, it may be difficult to execute a renewable energy project. Pursuant to article 127 of the National Constitution “the provinces own the natural resources that exist in their territory”. Consequently, the authorities in charge of environmental issues are the Provincial Authorities for those power plants within their territory.

3.Permits and Licenses Official approval for plants that produce biofuels will only be given to those plants that duly satisfy the requirements laid down by the applicable authority with regard to quality of biofuels and sustainable production. Consequently, the plant must submit the different projects to an Environmental Impact Assessment (EIA) that includes treatment of effluent and waste management. Once the EIA has been approved, the plant must be registered with the

Secretariat of Energy together with the approved hermetic nature and safety audits. The environmental impact assessment is a technical-administrative tool of a preventive nature, targeted at identifying, interpreting and preventing consequences or effects that public or private actions or projects could cause to the ecological balance, the maintenance of life quality and to the preservation of existing natural resources. Official approval will not be authorised until the fuel production process is guaranteed, the final installations are deemed to correspond to those submitted and certification is obtained to show that the product obtained complies with the quality standards established by the appropriate authority.

4. Choosing a Business Structure There are public law and private law entities and those of mixed capital. In accordance with Law 26,093, only those plants that have been authorised by the applicable authority (Ministry of Federal Planning, Public Investment and Services, through the Secretariat of Energy) will be able to produce biofuels. In Argentina, projects are prioritised to provide benefits in accordance with the following of promotional criteria: small and medium enterprises (SMEs), farmers and regional economies.

The system is applicable to industries which, inter alia, satisfy the following requirements: are set up in Argentina; belong to mercantile, private, public or mixed companies, or cooperatives, set up in Argentina and exclusively authorised to produce biofuels; whose share capital is provided mainly by individuals in Argentina, in the city of Buenos Aires, in the provincial states, the municipalities, or natural persons or legal personalities involved in farm production; are in conditions to be able to produce biofuels; have reached the fiscal quota. The last one prioritises projects in accordance with the following criteria: small and medium enterprises (SMEs), production of farmers and the promotion of regional economies. Companies that engage in the production, blending and/or marketing of biofuels, registered with the appropriate registers, pursuant to the regulations of Law 26,093, will pay the Inspection Fee defined in Law 11,672 for each litre of biofuel marketed in the domestic or foreign market. In accordance with Law 26,190, over that period the regulation envisages a system of investments to build new sites targeted at electricity production using renewable sources. Among the promotional benefits the law mentions the fact that companies can choose early reimbursement of VAT (value-added tax) for those assets included in each project that are subject to depreciation (except vehicles) or, as an alternative, they can choose early amortisation of income tax for their investments. The Renewable Energies Trust Fund has also been created, administered by the Federal Electricity Council

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(CFEE), whose funds stem from a levy of 0.30 pesos/megawatt hour over the tariffs of distributors and wholesale market users.

Decree 562/09 established the implementation of the Federal Programme for the Development of Renewable Energies, coordinated by the CFEE, which involves the National Government and the provincial authorities.

5. Equipment Purchase and Installation Article 1 of Law 26,190 calls for “the production of electricity from renewable energy sources targeted at public services as well as research into technological development and the manufacture of equipment for that purpose to be declared of national interest”.

Simultaneously, there will be a System of Investments for a period

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of TEN (10) years for the construction of new sites targeted at electricity production using renewable sources. The beneficiaries of the system will be those natural persons and/or legal personalities that hold investments and concessionaires of new works for the production of electricity produced from renewable energy sources, approved by the applicable authority and understood as within the scope laid down in article 2, throughout national territory, the production of which is to be sent to the Wholesale Electricity Market (MEM) or used to provide public services.

With regard to Value-added Tax and Income Tax, the purchase of capital goods and/or performance of works that correspond to the aims of this system will be processed in accordance with Law 25,924 and its implementing regulations. Decree 562/09, which enacts Law 26,190, lays down in article 3 that: “Law 26,190 applies to all investments in electricity production based on the use of

renewable sources throughout national territory, whether these are new power plants or extensions and/or repowering of existing production plants, carried out on new or used equipment in accordance with the regulations pronounced by the MINISTRY OF FEDERAL PLANNING, PUBLIC INVESTMENT AND SERVICES, through the SECRETARIAT OF ENERGY, in accordance with the guidelines of the FEDERAL PROGRAMME FOR THE DEVELOPMENT OF RENEWABLE ENERGIES to be developed

with the provincial jurisdictions through the FEDERAL ELECTRICITY COUNCIL, including capital goods, civil engineering, electromechanical engineering and assembly and other associated services that make up a new production plant or are integrated into existing plants and which are essential overall given their functional aptitude for electricity production based on renewable energies defined against Section a) of Article 4 of Law 26,190�.

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6. Financing a Green Energy Project In 1991, the Argentine government created the National Electricity Fund (FNEE), partially funded by the tax on oil and partly through a surcharge on wholesale market sales. This fund, which is administered by the Federal Electricity Council (CFEE), provides funding for the following funds: Subsidiary Fund for Regional Tariff Compensation to Final Users (FCT), to make tariffs the same throughout the country (this created a de facto subsidy for users in areas with higher electricity costs; Electricity Investment Development Fund (FEDEI), for production, transmission, and rural and urban distribution works.

The Ministry of Science, Technology and Productive Information made two official announcements to present R&D projects for

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alternative energies: biomass and biofuels. Within the framework of the Energy Sector Technology Innovation Fund 2012 (FITS Energía 2012), public-private consortia are invited to tender for development projects concerning technological capacities to obtain energy from biomass and to improve current biofuel production processes.

In the case of FITS 2012 Energía Biomasa, the products must be geared at the development of the technology required to produce thermal, mechanical and electrical energy from biomass waste as a raw material. The development of highly efficient production systems will be weighted using lower powers of up to 50 MW. The FITS 2012 Energía Biocombustibles invitation to tender will consider initiatives that support the creation or enhancement of biofuel production processes using rape, sunflower, sorghum and/ or sugar cane as raw material.

7. Interconnection, Transmission and Selling Power In Argentina there is a national grid system to which individual generators can feed in their surplus energy in return for remuneration. This enables effective distribution of resources throughout the country. Decision 0035/1993 of the Secretariat of Energy, regulates the operation of the Argentine Grid System (SADI). Faced with the growing demand for electricity (more than 6%/year) and ever lower margins of reserves, the government of Argentina is in the process of commissioning huge projects, both in the production sector as well as in transmission. It is estimated that capacity needs to be increased by 1,000 MW/year to satisfy the growing demand. Many projects are funded by the government through trusts, while private initiative is still limited as the effects of the Argentine economic crisis are still being felt (1999-2002).

The reforms put into practice at the beginning of the 1990s split the electricity sector into production, transmission and distribution. Production takes place in a competitive market that is mainly deregulated, with 75% of production capacity in the hands of private companies. In contrast, the transmission and distribution sectors are highly regulated and far less competitive than the production sector.

8. Liability Concerns for Green Energy Development The sanctions laid down in Law 26,093 may be summarised as follows: ■ Cautions; ■ Fines; ■ Disqualification or prohibition from carrying out activities authorised by the applicable authority;

■ Disqualification from inclusion in the registers concerning farming and agro-industry activity ■ Revocation, suspension or cancellation of benefits granted ■ Payment of unpaid taxes, plus interest and surcharges ■ Seizure of goods and products related to biofuel production In Argentina, the types of sanctions are classified into different players: plants authorised to produce biofuels, taxpayers that are the beneficiaries of the tax system and for those facilities where mixes are carried out. The types of sanctions are classified into different players: plants authorised to produce biofuels, taxpayers that are the beneficiaries of the tax system and for those facilities where mixes are carried out. In turn, article 41 of the National Constitution must be taken into account, which lays down that “All inhabitants have the right to a healthy and balanced environment, suitable for human development and so that productive activities satisfy current needs without compromising future generations; and they have a duty to preserve this. As a priority, environmental damages must be repaired, as laid down in law. The authorities will decree the protection of this right, the rational use of natural resources, the conservation of natural and cultural heritage and biological diversity, and environmental information and education. It is up to the State to introduce regulations that govern minimum protection, and the provinces will be responsible for introducing regulations that supplement these, without these changing the local jurisdictions. Waste that is or which could be hazardous or radioactive is forbidden from being brought into national territory.” Law 25,675, referred to as the “General Environment Law” which lays down the minimum premises to achieve sustainable and appropriate environmental management, conservation and protection of the biological diversity and implementation of sustainable development.

The Argentine environmental policy is subject to compliance with the following principles: suitability, prevention, precaution, intergenerational fairness, progressivity, responsibility, subordination, sustainability, solidarity and cooperation.

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ELBERT VAGEDES ABOGADOS BALMS GROUP INTERNATIONAL

Elbert Vagedes Abogados Sociedad Civil (EVA) is a law firm providing comprehensive legal counsel to companies and businesses. We intend to supersede your expectations, offering an agile, professional and creative service.

Our three defining concepts: ■ International + Multicultural ■ Act local+ Think global ■ Specialists in You

INTERNATIONAL + MULTICULTURAL Our professionals have worked and/or studied overseas. We believe that understanding different cultures and languages is essential for meeting the needs of foreign individuals and companies. EVA has dedicated departments providing services in foreign languages, mainly German, English and Portuguese.

ACT LOCAL + THINK GLOBAL As part of our professional commitment, we constantly update our transboundary legal and financial information. Through our partner firms abroad we maintain a high-functioning international network. Working with bi-national chambers, embassies and professional associations we insure the progress of international projects, training and professional formation.

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Business & Commercial Civil Corporate Tax Labor Litigation Foreign Investment Telecommunications and Technology Media Intellectual Property International Trade Mergers and Acquisitions New Energy Agricultural and Financial Business Banking Administrative Law, Bids and Tenders, Antitrust Sports and Sports Marketing New Public Law

SPECIALISTS IN YOU Personalized service is our defining trait. We seek to build long-term relationships and achieve a deep understanding of your business. Our clients see us not only as their trusted advisors, but also as strategic partners who tailor to their particular needs.

ELBERT VAGEDES ABOGADOS

PARTNERS

Av. Olga Cossettini 1545, 4° Piso Ala Sur (Puerto Madero) C1107CEK Ciudad Autónoma de Buenos Aires República Argentina

Cristian Ernesto Elbert Matías Alejandro Vagedes

Tel: 00 54 11 5275 2500

Santiago Viglierchio

info@eva.com.ar www.eva.com.ar

Juan Manuel Peire

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AUSTRIA 1. Electricity act

2. Land conservation

1.1. Introduction to the Legal Framework of the Electricity Market

2.1. Property Requirements and Rights in Renewable Energy Projects

Since October 2001 the Austrian electricity market has been fully liberalised.

Property requirements for implementing a Renewable Energy Project like a renewable-energy power plant can be found within the different requirements of environmental law, building law, energy law and even, potentially, the Industrial Code as well.

The Electricity Act contains a wide spread of regulations which not only cover the electricity market, but also, for example, the gas market and the supply of District Heating.

Based on the Federal Constitution, the authority to regulate electricity is divided between the federal government and the states.

The federal states have the power to regulate different electricity concerns based on federal law.

A very important Austrian Act in this field of the law is the Federal Electricity Act (ElWOG) which implemented the European Union Electricity Directive. The ElWOG contains common principles relating to electricity and its main purpose includes a costeffective agreement for the Austrian community.

More detailed electricity regulations can be found in the Electricity Management and Organisation Acts of the nine Austrian states.

The ElWOG and the Electricity Management and Organisation Acts in the federal states both provide regulations regarding the organisation and management of the Austrian electricity market.

Since the gradual liberalisation of the European Union’s internal energy sector and the full liberalisation of the Austrian electricity market, the legal conditions for electricity produced from renewable energy sources has also been further developed. Therefore the Green Energy Act – another very important Austrian Act – should be mentioned as it focuses on renewable energy.

1.2. State Regulation of the Electricity Market Due to Austrian legislation, regulatory authorities have been established in the electricity market. Some of the most important ones are the Federal Ministry for Economic Affairs and Labour, E-Control GmbH and the E-Control Commission. E-Control GmbH is in charge of monitoring competition, supporting the EControl Commission and controlling the grid. Meanwhile the EControl Commission presents itself as a fully independent authority closely related to jurisdiction.

Since the full liberalisation of the electricity market in 2001, EControl GmbH has been in charge of regulating the gas market as well.

For instance, in the case of grids, the federal Act on Transmission Lines in connection with the state-level Act on Transmission Lines contains terms for the construction and operation of power lines on private property. In general, the state or district government’s approval may be required for the construction and operation of power lines.

2.2. Types of Legal Agreements In general, the different state building laws require a permit to build a power plant. Since building laws fall within the competency of the federal states in Austria, the regulations may vary from state to state.

Overall, building laws include regulations about the construction of a building and the administrative permit process.

The permit process includes the issuance of three different documents: a site permit, the building permit and the operating permit.

3. Permits and licences 3.1. Land Use and Operating Permits and Licences for Renewable Energy Projects In Austria a quick planning process for renewable-energy power plants doesn’t exist.

Several authorities are responsible for the process, mainly the state government, and different kinds of permits are required (i.e.

ElWOG, landscape protection, regional development plan).

Corresponding to Section 7 of the Green Energy Act, Renewable Energy facilities which are operating only on the basis of specifically-listed renewable energy sources have to be approved by the governor of the state in which the facility is located.

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Since the authority to regulate electricity is divided between the federal government and the states, all the state statutes contain different regulations for permit processes and notification requirements for renewable-energy power plants.

In most cases, a permit relating to the applicable building law is required as well to build a renewable-energy power plant. Since the building law is also within the sole competency of the federal states, it also varies among the states of Austria.

3.2. Environmental Permits and Other Permits Some types of renewable-energy power plants, e.g. certain wind power projects or certain hydro power plants, are subject to an environmental impact assessment permit process which is implemented by the state government of the federal state in which the power plant is located.

Other permits can be related to regulatory requirements, for example, in the fields of water management, energy efficiency, public land, water management and so on.

4. Choosing a business structure 4.1. Choosing the Business Enterprise: Introduction to the problems that affect the choice of business enterprise Renewable-energy power plants are usually arranged as corporate entities such as public limited companies or private limited companies. But they also seem to appear as individual enterprises or business partnerships as well.

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The different legal forms of organisations each have their advantages and disadvantages. Tax aspects corresponding to each type of legal business entities should be considered.

Neither specific Austrian Acts like the Green Energy Act nor other Austrian regulations envisage a specific type of renewableenergy power plant.

Certainly it should be mentioned that funding is available for smaller power plants – which can also be a determining factor in choosing the ideal type of business entity.

4.1.1. Personal Liability of Owners Generally the liability of the owners is based on the statutes of each type of legal business entity.

Within private limited companies, in general shareholders have a limited liability for obligations of the business. The company itself is solely liable with the company’s appointed equity.

In public limited liability companies, shareholders are not personally liable for the debts of the company. The company is solely liable with the assets of the company.

4.1.2. Tax Assessment Methods The largest differences between the different types of legal entities exist in connection with tax matters.

Most notably is the extent of the taxable annual earnings. This aspect could also be relevant when deciding on the ideal business structure.

4.1.3. Complexity in Training and Operational Requirements and Impact on Incentives and Other Regulatory Restrictions

Renewable Energy facilities generate electricity only on the basis of specifically-listed renewable energy sources – i.e. solid or liquid biomass, biogas, wind and solar energy. If the Renewable Energy facility has been recognised as such under the Green Energy Act (such an official recognition is issued by the state governor), it benefits from a purchase guarantee from the corresponding administrative centre (OeMAG) with guaranteed feed-in tariffs for a certain period of time.

4.2. Types of Business Enterprises As already mentioned above, there is no specific Austrian regulation envisaging a specific business enterprise type for renewableenergy power plants.

5. The purchase of equipment and facilities 5.1. Tax and Customs Implications and possible Supply Limitations Taxing non-renewable energy production could be a very efficient way of encouraging renewable energy sources and has been under discussion since the 1980s. In 2000, the tax on gas and electricity increased due to budgetary reasons and there was no exemption for renewable energy sources.

However, nowadays the higher prices of oil due to taxes make biomass more competitive.

Section 15 of the ElWOG, along with the state-level Electricity Acts determines that grid operators shall grant access to their grids to all entitled parties thereto.

This has to be guaranteed on the basis of approved general terms and conditions and also in accordance with specific fees regulated

by E-Control.

5.2. Safety requirements, Operation and Maintenance Grid operators in Austria are committed to operating their facilities in accordance with technology regulations. Especially in the field of gas, operators have to provide proof of liability insurance.

Furthermore a safety commitment has to be admitted by the owner of the facility as a requirement for the licensing process.

Grid operators have to ensure the safety and the quality of their goods and services.

6. Financing renewable energy project 6.1. Financing Large Projects As mentioned in Chapter 4, electricity production from renewable energy sources is supported by the Austrian policy through feedin tariffs which are adjusted annually by law. The corresponding authority is committed to buying electricity from renewable energy sources and pay therefore a feed-in tariff. Until 2011 the annual budget allocated for supporting renewable energy sources was €17 million for new electricity production from renewable energy sources. The yearly budget was divided into different types of renewable energy sources (biomass, biogas, wind and other renewable energies). Within these categories, funds were given on a “first come, first served” basis.

Subsidies are also very important for the generation of electricity from renewable energy sources. They exist for energy producers

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on the one hand as well as for energy consumers (households) on the other.

The Green Energy Act contains specific regulations about investment grants and subsidies for all kinds of renewable energy producers.

6.2. Negotiating Agreements with Lenders and Capital Investors Federal subsidies for renewable energy producers such as firms, associations and public entities are adjusted mainly by the Kommunalkredit (local loan authority). These kind of federal grants usually establish an amount of eligible costs, are granted to businesses investing in small hydro plants and in modern biomass heating systems, and can also be combined with financial aid from the local government.

7. Connecting to the grid, transmitting and selling electrical power 7.1. Connecting to the Grid. Government Regulation of Connection and Mandatory Connection under Public Utilities: Connection Procedures and Agreements

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Since the liberalisation of the Austrian market in 2001, the Austrian energy sector has changed and market economy structures have been adopted. The ElWOG states that transmission grid operators have to be either ownership unbundled or be set up as an independent grid operator or independent transmission operator.

Due to Article 12 of the ElWOG, the different state-level Electricity Acts require different authorisation and notification conditions to build and operate a power plant. In general an authorisation from the federal state is needed for the construction and operation of power plants. Furthermore Article 42 of the ElWOG states that the operation of a distribution grid within a federated state requires a licence.

7.2. Transmitting and Selling Power: Performance of Energy Purchase Agreements with Public Utilities The ElWOG combined with the state-level Electricity Acts determines that grid operators have to enter into civil contracts for connection to their network with all individuals, legal persons or businesses supplying electricity to the grid.

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8. Liability in the development of renewable energy 8.1. Liability for Negligence 8.1.1. Liability for Negligence as a Renewable Energy Project Owner/Operator The grid operators in Austria are committed to operating their facilities in accordance with technology regulations. What is crucial is not the level of the technology but rather the current technology regulations which lead to greater safety for the grid operators and the public authorities.

8.1.2. Liability for Negligence as a Landowner of a Renewable Energy Project

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Farmers in Austria play a central role when it comes to providing renewable energy sources such as wind and solar energy, geothermal energy, biomass or biogas.

Particularly in the rural environments, the most important renewable energy source is biomass and the second is hydropower.

The authority to regulate this special field of the law concerning farmers is also divided between the federal government and the states. Based on an agreement between the federal government and the states, the states are committed to building adequate measures. However there are no fines for this purpose.

8.2. Liability for Nuisance Basically and essentially, it has to be assumed that, under special circumstances, a renewable energy project also may be defined as an energy management system as in administrative law and therefore it also may need an industrial licence.

This regulation of the administrative law for special energy management systems has its own requirements and legal consequences.

At the same time the regulations of the Austrian general civil law, corporate law, labour law and others can be relevant.

8.2.1. Personal Injury or Property Damage In case of Personal Injuries, civil claims exist as well as claims under the labour law depending on the specific case. Regarding Personal Injuries of employees of an energy management system, the law of damages is modified by the social law.

If Property Damages are produced by an energy management system outside of the business establishment, the employer is fully liable to pay compensation.

8.2.2. Noise, Signal Interference, View Obstruction and Wildlife Protection Due to all the aforementioned possible disturbances and interferences, an industrial licence is required in most cases for building a renewable energy management system.

Regarding View Obstruction, attention has to be paid to the regulations of the comprehensive regional planning including the zoning plan and the designation of the area.

An energy management system as a localised institution requires a special permit if the emissions of the energy management system could have an influence on its surroundings or on the environment.

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NEUMAYER, WALTER & HASLINGER LAW PARTNERSHIP BALMS GROUP INTERNATIONAL

The Neumayer, Walter & Haslinger Law Partnership was founded in 1997 by MMag. Dr. Johannes Neumayer (who has worked as a lawyer in Vienna since 1987) and by Mag. Ulrich Walter (who was a trainee lawyer in the same firm and qualified in 1993). Mag. Dr. Wolfgang Haslinger, LL.M. has worked for the firm since 2004 and became a partner in 2007. These three free-thinkers are united by their passion for handling challenging legal issues and their desire to offer the best solutions for their clients. This partnership of experts, specialising in different areas of Commercial Law, enables Neumayer, Walter & Haslinger to offer professional legal services in a wide variety of specialised fields. Absolute dedication, along with personal commitment to their clients, has paved the way to success and allowed the team to grow, both in terms of legal expertise and as a successful enterprise. In this respect, this law firm constitutes a highly competent and dynamic team, one that is well prepared for rapid economic growth and the challenges that the future may bring.

Neumayer, Walter & Haslinger is a co-founding member of Balms Group International, BGI. Through this association, the firm can offer the best possible legal support, even beyond the borders of Austria, granting clients access to the counsel of an almost worldwide network of law firms. Regular, personal contact among the associated law firms that make up the network ensures that clients are supported with the same level of commitment from other members of BGI as provided by Neumayer, Walter & Haslinger.

Offering high-quality legal support to clients is of prime importance to Neumayer, Walter & Haslinger. In order to achieve this goal, the firm has access to a comprehensive legal research library, augmented by modern computer resources and a carefully selected supporting network of external consultants and tax experts.

The main aim of our actions is to develop our skills and expertise further, ensuring that clients receive the best support possible from associated firms, and always giving our clients the clearest picture of the way matters are being handled on their behalf, based on a strict policy of transparency. This is what Neumayer, Walter & Haslinger stands for.

NEUMAYER, WALTER & HASLINGER LAW PARTNERSHIP A-1030 Wien, Baumannstraße 9/11 Austria

PARTNERS MMag. Dr. Johannes Neumayer Mag. Ulrich Walter Mag. Dr. Wolfgang Haslinger, LL.M.

Tel: 00 43 1 712 84 79 Fax: 00 43 1 714 52 47 rechtsanwalt@neumayer-walter.at www.nwhp.at

AREAS OF EXPERTISE ■ Business Law/International Trade Law ■ Taxation/International double taxation ■ Company Law ■ Competition Law, copyrights, trademarks, etc.

■ Intellectual property ■ Media Law ■ Cross-border company direction and finance ■ Financial and banking matters ■ Company foundation ■ Construction Law ■ Agents Law ■ Joint ventures and take-overs in Eastern countries ■ Seminars in Media Law, Intellectual Protection Law, Label Laws and reputation ■ Protection for companies and managers ■ Real estate transactions ■ Public permissions ■ Labour Law and foreign employee matters ■ Corporate Law ■ Branch offices in foreign enterprises ■ Trade Law ■ Civil Law ■ Administrative Law/framework of economical regulations ■ Zoning Law ■ Criminal Law in economic offences ■ Town and rural planning

BRAZIL 1. Electricity Act 1.1. Introduction to the Legal Framework of the Electricity Market The basic legislation of the electrical sector in Brazil comprises articles of the Constitution, complementary and ordinary laws, decrees, inter-ministerial and ministerial (MME) ordinances and resolutions brought by regulatory agencies (ANEEL, ANA) and councils (CONAMA). Bases for a new model of the Brazilian Electrical Sector are supported by Laws 10847 and 10848, and by Decree 5163, of 2004.

1.2. State Regulation of the Electricity Market The Law of Concessions of Public Services, of 1995, and Law 9427 (creation of ANEEL), of 1996, configured the government’s withdrawal from the role of investor. In 2002, the government of Brazil created a Programme of Incentives for Alternative Sources of Electricity (PROINFA), focusing on wind, biomass and smallscale hydro projects as Autonomous Independent Producers.

2. Land Conservation 2.1. Property Requirements for Renewable Energy Projects Foreign individuals or foreign-owned companies may acquire real estate in Brazil under the same conditions as Brazilian individuals or companies. However, according to Internal Revenue Service Order (IN) 200, non-resident individuals or organisations must be registered with the General Registry of Corporate or Individual Taxpayers (CNPJ or CPF) prior to purchasing any real estate in Brazil. Furthermore, special conditions apply to ownership by foreign individuals or companies of property located in coastal or frontier zones, and in certain specifically designated national security areas. Essentially, issues relating to real estate property in Brazil are governed by the Brazilian Civil Code (CCB).

by the Civil Code as the right of an individual to use, enjoy and dispose of his goods, and to recover them from whoever may unlawfully have taken possession of them. It is an absolute and exclusive right. Ownership rights may be restricted in the public interest, or in respect of the property rights of third parties, in the following situations: (i) expropriation of real estate properties by the government (ownership of private property is transferred to the expropriating authority upon payment of fair compensation); (ii) restrictions on urban land use or zoning, including building codes, limitations on the location of industrial plants, established by a municipality master plan; (iii) restrictions imposed in the interests of national security, including limitations on the sale of private land in coastal areas or within 150 kilometres of national borders; and (iv) the restrictions to the right of the proprietor to freely dispose of his goods, arising from insolvency, bankruptcy or composition with creditors, with a view to protecting creditor’s rights.

2.3. Types of Legal Agreements Under Brazilian law, ownership of real estate property is constituted upon the registration of the public or private instrument (deed) whereby the sale was effected at a Real Estate Registry in the jurisdiction where the property is located. Any instrument involving real estate property that has not been duly registered at the respective Real Estate Registry is only binding between the parties to the sale agreement and, thus, is not enforceable against third parties. Aside from specific requirements relating to the transfer of immovable property, Brazilian law requires for all types of contracts that parties to a sale agreement be capable of fulfilling the transaction. They must be of full legal age, in sound mental health or duly represented. Under Brazilian law, rural property ranges from rustic buildings to continuous areas, regardless of location, devoted to farming, agro-industry, or stock raising, whether in the hands of the private sector or under public land tenure policies. Acquisition of rural property by foreigners who have permanent residence in Brazil or by foreign companies authorised to operate in Brazil is regulated by Law 5709/71

3. Permits and Licences

2.2. Property Rights in Renewable Energy Projects The two most significant concepts relating to real estate are the right of possession and the right of ownership. The right of possession stems from use of the land by an agent as if he were its owner; when the said agent acting on his own behalf behaves as if he were the owner, he assumes the right of possession. The most relevant of all property rights – rights of ownership – are defined

3.1. Land Use Permits 3.2. Operating Permits for Renewable Energy Projects, 3.3. Environmental Permits and 3.4. Other Permits

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A number of federal agencies comprise a system for enforcing environmental legislation in Brazil. The Brazilian Environmental System (SISNAMA) is comprised of the Brazilian Environmental Council (CONAMA), a normative, consultative and decision-making agency; the Ministry of the Environment, responsible for the coordination, supervision and control of Brazilian Environmental Policy; and the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA), its executive agency. SISNAMA also includes other federal agencies, public foundations that work with environmental protection, and state and municipal bodies (secretariats of the environment, etc., including CETESB/FEEMA/COPAM/IAP/CRA) in their respective jurisdictions. Law 6938 of 31 August 1981, known as the Brazilian Environmental Policy Law, marked the introduction of an entirely new approach to the environment. No environmental damage is exempted from redress and, strictly speaking, no pollutant emissions are tolerated. The legislation encompasses the concept of strict liability, which states that damages ought not to be borne by the community. The subtle difference is that even if a company abides by all standards of legal pollution standards, it may nonetheless be held liable for any residual damages. All that is needed is proof of a causal relationship between the company’s activities and specific environmental damage suffered. This, in essence, is the concept of objective liability: it is no longer acceptable to evade the obligation to redress environmental damage by claiming that all activities were carried out in compliance with current pollution standards.

Federal Constitution art. 21 establishes that services relating to electric power and the use of waterways for electricity production should be exploited by the Federal Union. The execution of these services can be carried out directly or by means of authorisation, concession or licence. The Union is authorised to delegate provision of these services, mainly through concessions or licences, to corporate entities of private law with competence to provide them. Authorisation is a unilateral, discretionary administrative act whereby the Public Authorities delegate the provision of public services to the private sector, and which may be revoked at any time. A concession entails a formal administrative contract, awarded by means of a tender procedure under the call for bids

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modality, upon which the delegation of responsibility for providing the service is legally transferred by the Public Authorities to a company or a consortium that, for its part, assumes the risks inherent to the business for the duration of the contract, and is remunerated by tariffs charged to users of the services. The aforementioned contract is further intended to fulfil conditions of regularity, continuity, efficiency and moderate tariffs, in the provision of services. Standards for public service concessions are provided

by Law 8987/95, with the alterations introduced by Law 9648/98.

Permission to provide a public service, as previously emphasised, is a simple, discretionary and ephemeral unilateral deligation by the public authorities, through a contract of adhesion that can be revoked at any time or to which the public authorities can impose new conditions to the grantee.

4. Choosing a Business Structure 4.1. Introduction to the problems that affect the choice of business enterprise 4.1.1. Personal Liability of Owners To bring into effect the environmental protection provisions of the 1988 Federal Constitution. Law 9605, of 12 February 1998, establishes criminal sanctions applicable in cases of activities that damage the environment. It does not repeal Law 6938/81, which provides for civil responsibility in cases of environmentally damaging acts.

4.1.2. Tax Assessment Methods The Brazilian Federal Constitution, promulgated on 5 October 1988, confers upon the Federal Union, the States and the Municipalities the authority to levy taxes. Taxation may be instituted by any of the three levels of government, in accordance with specific powers conferred under the Constitution. Only the Federal Government may levy the following taxes: Import Duties (II); Export

Duties (EI); Income and Capital Gains Tax (IR); Tax on Industrialised Goods (IPI); Tax on Credit, Exchange and Insurance, or on Securities Transactions (IOF); Tax on Rural Land (ITR); and Tax on Large Fortunes (IGR). The Federal Government may also levy the following charges (or social contributions) to fund social programmes: (i) Social contribution on corporate profits (CSL); (ii) Social contribution for funding Social Security (COFINS); (iii) Contribution toward the Social Integration Programme (PIS); (iv) Payroll charges for Social security contributions (CINSS).

4.1.3. Complexity in Training and Operational Requirements The Brazilian legal structure provides for forms of association whereby parties may form corporate entities and other forms of incorporation which do not imply corporate structure. The latter group includes consortia and other forms of legal businesses whereby parties do not relinquish their status as individuals. Incorporation of a company, on the other hand, entails a written agreement, either private or public, in which the contracting parties express their aims either individually or as a partnership (sociedades personificadas or não personificadas). The latter include sociedades em comum and sociedades em conta de participação.

4.1.4. Impact on Incentives and Other Regulatory Restrictions Foreign capital in Brazil is governed by Law 4131 (the Foreign Capital Law) of 3 September 1962, and Law 4390 of 29 August 1964.

Both of these laws were put into effect by Decree 55762 of 17 February 1965 and subsequent amendments. According to the Foreign Capital Law, “foreign capital is considered to be any goods, machinery or equipment that enters Brazil with no initial foreign exchange disbursement, intended for the production of goods and services, and any funds brought into the country for use in economic activities, provided that they belong to individuals or corporate entities domiciled or incorporated abroad”. Foreign capital must be registered by means of an Electronic Statement of Registration – Foreign Direct Investment Module (RDE-IED), on the Central Bank Information System (SISBACEN). For the purposes of the Electronic Statement of Registration, foreign direct

investment is defined as permanent holdings in Brazilian companies or, in accordance with common market practices, long-term ownership by non-resident investors, individuals or corporate entities residing, domiciled or incorporated abroad, through ownership of shares or stock in Brazilian companies, or investments in foreign companies authorised to operate in Brazil. According to rules currently in effect, the party responsible for the foreign direct investment must register with SISBACEN, prior to registering on the RDE-IED Module. He is then issued a permanent number, and all subsequent changes and additions must be recorded under this same registration. According to provisions of Circular 2997/00, foreign investments to be effected and registered are not subject to preliminary review or verification by the Central Bank.

All foreign investment must be registered with the Central Bank.

Such registration is required for remittances abroad, repatriation of capital and for registration of reinvestment of profit. Generally speaking, there are no restrictions on the distribution of profits and their remittance abroad. Profit remittances must be registered as such through the RDE-IED Module, considering the stake held by the investor in the total shares or stock as a proportion of paid-up corporate capital in the company. Reinvested earnings are registered in the currency of the country to which such earnings are to be remitted, whereas those reinvestments in Brazilian currency are registered in Brazilian currency (Article 20 of Circular 2997). Such reinvestments must be registered as foreign capital (in the same manner as the original investment) and thereby increase bases for tax assessment on any future repatriation of capital.

Repatriation of foreign capital registered with the Central Bank of Brazil to its country of origin requires no prior authorisation. In the specific case of repatriation of capital, it should be noted that the Central Bank of Brazil generally examines the net worth of the company involved, as shown on its balance sheet. If the net worth is negative, the Central Bank of Brazil may deem that a dilution of the investment has occurred, and may thus deny authorisation for repatriation of part of the investment in proportion to said negative result. The foreign purchaser is entitled to register the same amount of capital as the registration previously held by the selling company, regardless of the price paid for the investment abroad.

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Nonetheless, the registration number on the RDEIED Module of the Central Bank of Brazil should be changed to reflect the name of the new foreign investor, essential to allow the new investor to remit/reinvest profits and to repatriate capital. Foreign capital investment is prohibited in activities involving nuclear energy.

Following the 1995 constitutional reform, Brazilian companies (even if foreign-owned) may now acquire, operate and lease rural lands. However, acquisition of rural lands by foreigners residing in Brazil or by foreign-based corporate entities authorised to operate in Brazil is subject to certain conditions prescribed by law and to congressional authorisation. Furthermore, for reasons of national security, certain limitations apply to the acquisition of properties by foreigners in border areas. Purchase of such lands requires authorisation from the General Secretariat of the National Security Council.

4.2. Types of Business Enterprises The law attributes corporate status to companies upon registration with the competent pubic registry, which thus become legal entities, and their liability is separate from that of their partners.

Brazilian law also provides for associations, foundations and cooperatives. Such forms of association are not-for-profit, either due to their charitable nature or in view of their particular characteristics and aims, and are thus different from commercial organisations, regardless of whether they generate revenue. A joint stock company (Sociedade Anônima – SA or Companhia), as described in article 1088 of Brazilian Civil Code and Law 6404 of 15 December 1976, partially amended by Law 9457 of 5 June

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1997, and by Law 10303, of 31 October 2001, is fundamentally a legally constituted business corporation, with capital stock represented by shares. The principal purpose of companies is to generate profits for distribution among the shareholders. There are two kinds of SAs: publicly traded companies which obtain funds through public offerings and subscriptions and are supervised by the Brazilian Securities Commission (CVM); and closed capital companies which obtain the shareholders own capital or that of subscribers, in which case the accounting and administration is simpler. Capital stock is represented by shares. Depending on the nature of the rights or advantages that these conferred upon their holders, shares may be common, preferred or fruition shares. By means of a Shareholder’s Agreement, the shareholders may decide issues relating to the purchase and sale of their shares, establish preferential acquisition rights, or exercise voting rights. All obligations set forth in Shareholders Agreement are binding, and must be respected by the Company. An SA may be managed by its Board of Directors and Administrative Council, or exclusively by a Board of Directors, as determined in Law or in its Bylaws.

An Administrative Council is a collegiate decision-making body.

Such councils are optional for closed-capital corporations, and mandatory for open-capital or authorised-capital corporations.

The Administrative Council must be comprised of at least three members, who must be individual shareholders, resident or nonresident in Brazil. The Board of Directors is the executive body of an SA. The Board is composed of no less than two directors, that may or may not be shareholders, who must be individuals residing in the Brazil, elected for a maximum term of three years. The shareholders may supervise corporate management by means of

the Fiscal Council. Such supervision may be permanent or periodic. In certain cases, members of a Fiscal Council represent specific categories of shareholders. In the context of Brazilian corporate legislation, however, a consórcio is an association between two or more companies for the purpose of pursuing a specific project.

The parties thus preserve their corporate identity, while pooling their efforts to achieve specific objectives. Although based upon a contract, the resulting consortium does not have corporate standing, since the parties only bind themselves under the terms of the consortium agreement. Each party is liable for its specific obligations as established therein, without presumption of joint liability before third parties, except in regard to labour relations. If the parties to the consortium are SAs, the consortium agreement must be approved by their general meeting. If they are not SAs, the consortium agreement must be registered before the competent authorities. The consortium agreement and any subsequent amendments must be filed before the Board of Trade within the jurisdiction the head office is located. Law 11079 of 31 December 2004, sets rules for Public-Private Partnerships (PPP). These new rules enable the transfer of responsibility for execution of public works and delivery of public services to the private sector. Furthermore, in addition to the common public service concessions described in the previous section and governed by Public Services Concession Law 8987/95, two new modalities were created. The first of these is the sponsored concession (Concessão Patrocinada) whereby the private concessionaire is remunerated not only by tariffs paid by users of the services, but also transfers of funding from the public partner. The second is the administrative concession (Concessão Administrativa), undertaken by means of

a service provision contract, when the Public Administration is the direct or indirect beneficiary of the service (as in the case of construction and management of public buildings), even if it involves execution of works or supply and installation of goods. The difference between these new modalities of concession and the common concession (alluded to earlier) is the possibility of direct payments to the private partner by the Public Administration. For the signing of a PPP contract it is necessary to establish a Special Purpose Company, for the sole purpose of implementing and managing the PPP project. The law now also foresees the possibility of arbitration in disputes arising from a PPP contract.

5. The Purchase of Equipment and Facilities 5.1. Tax and customs implications See Chapter 4, I, 2.

5.2. Possible Supply Limitations Without expertise and innovation, especially on new and modern energy sources, Brazil will have great difficulty in meeting its rising electricity demand. As demand increases, the need for viable systems, coherent policies and alternative sources have brought equipment suppliers into a prominent role in the nation’s energy sector.

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4.3. Safety Requirements According to the Consolidated Labour Act (CLT), activities and operations that, by their nature, conditions or work methods, expose workers to agents hazardous to the health, above the tolerance limits defined according to the nature and intensity of the agent and the time of exposure to its effects, are considered hazardous activities or operations. The Consolidated Labour Act also determines that the Ministry of Labour must approve the list of hazardous activities and operations and adopt rules on the criteria for the characterisation of health hazards, the tolerance limits of aggressive agents, protection measures and the maximum time of the workers’ exposure to these agents. Currently, such regulation is established by Regulation 15 (NR 15) of the Ministry of Labour and Employment.

6. Financing Renewable Energy Projects 6.1. Financing Large Projects BNDES is the major supporter of renewable energy projects. The Bank finances implementation, expansion, modernisation and increasing production capacities, but does not finance the acquisition of land and real estate, nor swaps assets. Private companies of any size, with headquarters and administration set up in Brazil, and individual business persons can obtain financing from the BNDES. Public Administration and individuals are also financed, in specific cases. Foreign companies with headquarters and administration set up in Brazil can be financed, as well as Brazilian companies with controlling capital abroad. A company with

headquarters and administration overseas may be financed in the buyer’s credit modality. Information on investments of foreign companies in Brazil can be obtained through the Brazilian Trade and Investment Promotion Agency (Apex Brazil). Minimum requirements apply, including full compliance with tax and socioenvironmental legislation (and the Bank´s own related policies).

Energy projects should prove their contribution to saving power, the increase in the global efficiency of the power system or the replacement of fossil fuels with renewable sources. Investment Banks are specialised in temporary equity interest transactions and production financing, providing fixed and working capital, and management of third-party assets.

6.2. Negotiating Agreements with Lenders and Capital Investors The most notable characteristic of electricity agreements is their primordially financial nature. This means that the agreements intend to supply electricity to the electrical and distribution grid as a whole, and not exactly to the client/buyer. Likewise, the electricity acquired will be removed from the electrical and distribution grid, and not directly from a client/seller. As such, these agreements do not represent in fact a supply and consumption directly established between the contracting suppliers/consumers.

Another characteristic that is should be highlighted is that the agreements related to the Regulated Environment, resulting from electricity sale auctions, contain a specific validity period for each type of auction.

7. Connecting to the Grid, Transmitting and Selling Power 7.1. Connecting to the Grid A. Government Regulation of Connections The regulation of the sale of electricity in Brazil was created by Law 10848 of 2004, by Decrees No. 5163 and No. 5177 of 2004, and by ANEEL Normative Ruling 109 of 2004, which created the Electric Power Commercialisation Convention. This legislation establishes that the commercial relationships among the participants of this market must be established by electricity sale contracts, with mandatory registration with the Electric Power Commercialisation Chamber (CCEE), within the National Interconnected System. For any type of contracting, the registration must include the parties involved, the quantities of electricity agreed and the period of electricity supply. The prices stipulated in private dealings are, naturally, not registered before the CCEE. One of the CCEE’s functions includes the accounting of the differences between the quantities produced and the quantities effectively consumed, in relation to the contracts executed. The positive or negative differences are settled in the Short Term Market and valued by the Price of Settlement of the Differences, determined weekly for each load level and for each submarket. The Ministry is responsible for establishing a list of the new ventures that may be put up for tender, for licensing quantities of electric power to be contracted to meet the needs of the Brazilian market, and for preparing a list

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of new generation ventures to be tendered. For their part, it is incumbent upon generation and distribution companies, traders and individual consumers to inform the Ministry as to the energy needed to meet the needs of their respective markets.

B. Mandatory Connection under Public Utilities: Connection Procedures and Agreements Law 10848/2004 forbids control or association of generation concessionaires and other parties authorised to use the interconnected system with companies engaged in distribution activities.

Likewise, distribution companies may no longer: engage in generation and transmission activities; sell energy to individual consumers, excepting consumers located in their concession areas; perform activities beyond the scope of the concession; or maintain direct or indirect interests in other companies (with a few exceptions). Generation and transmission activities may continue to be vertically integrated. The law also sets a deadline for companies to implement separation of activities.

7.2. Transmitting and Selling Power: performance of an energy purchase agreements with public utilities Law 9648/1998 provided for the following contractual models for transactions in the energy sector: (i) freely negotiated bilateral contracts, under which the amounts not covered by the initial contracts or those contracts subject to a progressive liberalisation may be negotiated. Article 12 of Law 9648/98 stipulates that energy purchase and sale operations within the scope of the electric interconnected systems should be effected within the MAE; and (ii) short-term spot contracts, enabling the sale of power actually produced or demanded that has not been subject to either

initial or bilateral contracts. Thus the MAE was the environment in which processing and financial settlement of operations not covered by contracts took place, subject to a number of pricing mechanisms and the periodic clearing and settlement of the transactions. This system of free negotiation among agents is balanced against a defence mechanism in favour of the consumer’s interest, namely, a system of ”normative values” which limits transfers to freely-negotiated prices for the purchase of electric power. Law 10433 of 2002, that provided for the creation of MAE under the regulatory authority of ANEEL, established that purchases and sales of all energy not subject to bilateral contracts should be conducted according to MAE Convention and Market Rules defined by ANEEL. Since 2002, the distributors have been obliged to contract energy exclusively by means of public auctions, and have been excluded from free market negotiation. With regard to transmission and distribution activities, there follows a brief description of the functioning of specific contracts. In the transmission segment, lines comprising the Interconnected Electrical System Network are made available to ONS by transmission concession holders by means of Contracts for the Provision of Transmission Services. The ONS, for its part, then signs Contracts for Use of Transmission Systems with representatives of the concession holders. A Connection Contract with the respective transmission concession holder is necessary, to determine responsibility for the implementation, operation and maintenance of connection facilities. In the distribution segment, a Contract for Use of the Distribution System (CUSD) and a Contract for Connection to the Distribution System (CCD) must be signed with the local distribution concession or permission holder. ANEEL sets tariffs for the use of transmission facilities and for the use of electricity distribution systems, in line with applicable resolutions. The current model introduced significant changes into the energy trading system. It has created two energy trading environments: the Free Trade Environment (Ambiente de Livre Contratação – ALC), and

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the Regulated Trade Environment (Ambiente de Contratação Regulada – ACR) or Pool. All the players are now required to trade energy within the interconnected system, either in the ALC, or in the Pool. The purchase – by concessionaires, permission holders and authorised public utilities – of electric power from the Interconnected System for distribution to regulated markets must be effected through the Pool by means of auctions and distributors must guarantee full service to their markets through regulated trading. Purchases and sales are effected under bilateral contracts known as the Energy Trading Contract in the Regulated Environment (Contrato de Comercialização de Energia no Ambiente Regulado – CCEAR), between each concessionaire or authorised power generator and the distribution companies. Such contracts may specify a quantity of energy or availability of energy. The distributors must provide guaranties and contracting is effected by means of a tender organised either directly by ANEEL or by CCEE. Furthermore, supply tariffs are strictly regulated in this environment and must be ratified by ANEEL. Contracts for the purchase and sale of energy through the Pool necessarily involve long-term supplies. Independent Producers (both of hydroelectric and thermoelectric power) and Self-Producers that have surplus electricity to sell, may participate in the Pool, in the ALC, or in both simultaneously. If they participate and contract energy in the Pool, they become subject to all of its rules, whereas their activities in ALC are at their own expense and risk. In the ALC environment, the only operations that con be conducted entail the purchase and/or sale of electric power, involving concessionaires and authorised generation agents, traders, importers of electric power and individual consumers. Trading in the ALC is effected by means of bilateral contracts freely negotiated by the parties, in accordance with specific rules and trading procedures. The CCEE is responsible for the registration and settlement of contracts. The CCEE is also responsible for the registration and settlement of purchases of energy in the spot market (not covered by bilateral contracts), and the CCEE shall set forth the price of liquidation of differences that shall be valid for these operations. Contracts registered with the CCEE do not imply the actual delivery of electric power, and energy sales by any agent must have as collateral energy generation or purchase agreements. Under the new model, any disputes among members of the CCEE’s are resolved by arbitration. The present model does not offer prospects for privatisation of the federal government owned companies, which hold the major energy generation and distribution concessions

8. Liability in the Development of Renewable Energy 8.1. Liability for Negligence

dealer from being held liable for any problems which may take place in the user’s internal electricity grid, considering that it is the user who is responsible for keeping the property’s wiring in good conditions. The civil liability imposes on the agent the legal obligation to hold the victim of the damage harmless, repairing the damage or redressing the losses caused by its illegal conduct.

Today, contrary to what the classic legal teachings said, the damage to be repaired will not necessarily be material, even if it may be expressed in monetary amounts for indemnification purposes. In civil liability, we find the least strict system of them all, while in criminal and administrative law only fraudulent intent is punished and exceptionally the fault, in civil liability it is only required intent, being unnecessary the demonstration of the fraudulent intent. Based on a system where the rule of thumb was subjective liability, the trend has lead to the ample acceptance of the idea of objective liability for certain cases, upon the provision of specific situations for the presumption of fault and liability with no fault. Currently, with respect to Civil Liability, the system adopted is two-fold, with the following general rules: one of subjective liability (Civil Code, art. 186) and the other of objective liability (art. 927, sole paragraph). In this sense, as per article 12 of the Consumer Defence Code, article 10 of Resolution 456/2000, and article 10 of Resolution 61/2004, all from ANEEL, power dealers are objectively liable for the damages caused.

8.2. Liability for Nuisance.

8.2.1. Personal Injury or Property Damage 2. Noise 8.2.3. Signal Interference 8.2.4. View Obstruction 8.2.5. Wildlife Protection See Chapter 3.

References Almeida et al (s.d.) Almeida Corporate Law. ‘Legal Review on the Brazilian Power Sector’, http://www.almeidalaw.com.br/almeidalaw/upload/noticia/Brazilian%20Power%20Sector_Legal%20 Review_ing.pdf Almeida, E.L.F.d. and Pinto, H.Q., (2005). ‘Reform in Brazilian electricity industry: the search for a new model’. International Journal of Global Energy Issues, 23 (2/3):169-187 ANEEL, (2009). ‘Agência Nacional de Energia Elétrica’, http:// www.anel.gov.br.

Brazil. Ministry of External Relations. Centro de Estudos das Sociedades de Advogados (CESA). Legal Guide for Foreign Investors in Brazil / Ministry of External Relations. – Brasília: MRE: Brazil Trade Net, 2007. 228p. ISBN 85-98712-71-X

8.1.1. Liability for Negligence as a Renewable Energy Project Owner/Operator.

Electricity sector in Brazil. Globserver Global Economics, http:// www.globserver.com/en/press/electricity-sector-brazil.

8.1.2.. Liability for Negligence as a Landlord of a Renewable Energy Project

Lock, R., (2005). ‘The New Electricity Model in Brazil: An Institutional Framework in Transition’. The Electricity Journal, 18 (1):52-61

Power dealers are responsible for the supply of electricity only up to the point of delivery, located on the limit of the public road with the property. This determination is described in article 9 of ANEEL Resolution 456/2000, and is intended to prevent the

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ALBRAE – ALIANÇA BRASILEIRA DE ADVOCACIA EMPRESARIAL BALMS GROUP INTERNATIONAL

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BOLIVIA 1. Electricity act 1.1. Introduction to the legal framework of the electricity market Since the enactment of the Electricity Law (Law 1604) on 21st December 1994, regulations, explanatory and complementary standards have been passed to improve the efficient operation of the electricity industry in its activities of generation, transmission and distribution, with the aim of improving the protection of consumer rights, since this protection was previously dispersed over several different laws. The objectives of the Law on Electricity were to improve the efficiency in the sector, promote competition and encourage investment.

Electricity Law No. 1604 regulates the activities of the electricity industry, establishing the principles governing the operation of the sector, its institutional organisation, the structure of the industry, the system of granting of rights for the exercise of the power industry, the principles for pricing and tariffs, the system of violations and sanctions and other provisions regarding specific topics.

Operating Standards that are developed by the National Load Dispatch Committee and approved by the Superintendency of Electricity with the aim of setting out detailed procedures for the coordination and administration of the electricity market, which currently is called the Authority for Taxation and Social Control of Electricity

2. Land conservation 2.1. Property requirements for renewable energy projects?

The use of energy must be multiple, rational, integral and sustainable, subject to the legislation relating to the environment which is applicable to the sector.

The regulations of Law 1604 establish the obligation for environmental impact assessment studies to be performed for any

It contains twelve regulations that complement the regulations established in the same: Regulations on Electricity Market Operations; Regulations on Prices and Rates; Regulations on Concessions, Licences and Provisional Licences, Regulations on the Use of Public Property and Constitution of Easements; Regulations on Air Quality; Regulations on Distribution Quality; Regulations on Rural Electricity Supply; Regulations on International Marketing and Interconnections of Electricity; Regulations on Public Service Electricity Supply; Regulations on Violations and Sanctions; and Regulations on Article 15 of the Electricity Law.

1.2. State Regulation of the Electricity Market The legal framework of the activities of the electricity industry in the Plurinational State of Bolivia includes the following laws: The New Bolivian Constitution, since it is the supreme law of the Social Unitary State of Plurinational Communitarian Law, is to be applied in preference to any existing regulations in the country, in this case concerning Electricity.

Electricity Law No. 1604 of 21st December 1994, which defines the principles, institutional organisation, operational structure and economic model of the Bolivian electricity sector Regulations which sets out in expanded form as a complement to the Electricity Law, the operational and economic treatment of the electricity market

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electrical project, except for small-scale transmission, pollutantfree or directly environmental projects (Supreme Decree 27173, of 15th September 2003).

On the expiry of the period of validity of the first environmental licences (10 years), by means of Supreme Decree 28592, of 17th January 2006, additional rules were adopted that updated the institutional framework and established the procedure for the updating of environmental permits.

2.2. Property Rights in Renewable Energy Projects The right to property consists of being able to use, enjoy and dispose of the land; on issues of electrical regulation, the owner has the right to use, free of charge, the surface, subsurface and air space in the public domain that is required exclusively for the object of the Concession or Licence. (Art 36 of Law No. 1604) The current standard does not provide economic incentives for generation from renewable sources at a domestic level but the company HidroelÊctrica Boliviana has qualified for access to carbon credits for four consecutive years. There are companies on the way to following this initiative and a planned project for the installation of 14 wind turbines of 1.5 megawatts of electricity each presented to Tarija as a commission from the People’s Republic of China, as stated by Luis Paz, alternative energy consultant of the Government.

This project would be the first of its kind nationally and would position the department as a pioneer in alternative energy in Bolivia, to which end, he said, work is being done on making two 70 to 80 metre high wind measurement towers.

2.3. Types of Legal Agreements Easement: gives the holder the right to use the land necessary for works, dams, landfills, sedimentation tanks, water accumulation tanks, pressure chambers, pipes, pipelines, hydroelectric, geothermal and thermal plants with outbuildings, access roads and, in general, all the works required for hydropower, geothermal, wind power plants and the right to water discharge and the use of materials from the surrounding area.

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3. Permits and licences 3.1. Permits for land use Granted by the Authority for the Taxation and Social Control of Forest and Lands (ABT) which has the following among its functions: to establish a register of permits and authorisations for the use and exploitation of forest and soil resources, as well as a public record of the authorisation of permits for the use of forest and soil resources and all the users thereof.

3.2. Operating permits for renewable energy projects Granted by the Vice-Ministry of Environment, there is no specific regulation about it.

3.3. Environmental permits Environmental Impact Statement: This is a document authorising, from the environmental standpoint, the operation of a project or a new activity.

Environmental Licence: the authorisation granted by the competent environmental authority for the execution of a works project or activity, subject to compliance by the licensee with the requirements that are established therein with regard to the prevention, mitigation, correction, compensation and management of the environmental effects of the authorised work or activity.

They are also granted for short periods and are of a special nature.

They are granted for the generation, disposal, treatment, discharge and final disposal of hazardous substances, solid waste, and/or contaminants.

3.4. Other Permits Environmental Manifesto: This is the document that informs the Competent Environmental Authority on the environmental status of an operation.

Certificate of Dispensation Category 4 (CD-C4) and Certificate of Dispensation Category 3 (CD-C3):

Corporation:

Granted in particular for mining activities.

There is no joint and several liability.

Liability is based on the amount of shares they hold.

Simple Limited Partnership:

4. Choice of Business Enterprise 4.1. Choosing a Business Structure: Introduction to the problems that affect the choice of business enterprise Bolivian law states that different types of partnerships or companies can be constituted, whether domestic or foreign.

The Law on Investment in force gives foreign investors the same duties, rights and guarantees as Bolivian investors.

Company formed by one or more partners who are only liable for the capital they are obliged to contribute, and by one or more partners who respond to the company’s obligations in a joint, several and unlimited manner, whether or not they make contributions to the company equity.

Limited Partnership By Shares: Company formed by two or more people called “partners�.

Its partners are responsible for the social obligations of a company in a subsidiary, joint, several and unlimited manner, based on the number of shares that each one holds.

Consequently, to form a company with foreign capital in Bolivia, no prior authorisation is required and once formed the company must obtain legal status, thus being subject to the laws of the Plurinational State of Bolivia.

Only the contributions of limited partners are represented by shares.

However, when starting a business legally in Bolivia, the main problem is the bureaucracy, since several procedures must be carried out before FUNDEMPRESA (Concessionaire of the Commercial Registry), the National Tax Service and the municipal councils of each municipality.

Unlimited joint and several liability.

4.1.1. Personal liability of owners Responsibility varies depending on the type of company which is formed; below is a list of the types of companies and the form of liability of the partners: Partnership: The partners answer jointly, severally and without limits.

Accidental Company:

4.1.2. Tax Assessment Methods All taxes are to be paid that are imposed in accordance with Law 843 based on the main activity carried out by the company, but always paying the following: Value Added Tax (VAT), VAT Supplementary Regime (RC-IVA) (The company merely acts as a withholding agent), Transaction Tax (IT) and Company Income Tax (UIE).

In the event that the company has assets it must also pay the Tax on Real Estate Property, Motor Vehicles (IPBIVA).

Limited Liability Company:

The first four are paid to the National Tax Service and the last to the Municipal Council of each municipality.

Liability is based on their shares in the equity of the company.

4.1.3. Complexity in training and operational requirements

There is no joint and several liability.

All commercial companies are constituted by means of a constitutional contract which specifies the number of partners, type of

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company, company share capital, duration of the company and the purpose of its establishment, and this contract is registered by a Notary Public along with the general power-of-attorney that is granted to the legal representative, after which the necessary arrangements are made to register the company before FUNDEMPRESA (Concessionaire of the Commercial Registry), the National Tax Service and the Municipal Council.

Concessions and licences can be obtained in the electricity sector, depending on the activity that is to be performed, giving the following requirements: The identification of the Owner; Description of the use and exploitation of natural resources, where appropriate; the Basic Specification and drawings of the project; the Schedule of Works; Project Budget, Specification of the Required Easements; Delineation of the area of the public service concession and the area for the development and use of natural resources for the Licence, as appropriate; the Environmental Impact Study and Guarantees, as established by the regulations.

4.1.4. Impact of Incentives and other restrictions Bolivia is rich in hydrocarbons and hydroelectric potential.

Investment in the electricity sector in its generation, transmission and distribution has ensured that Bolivia has a modern and reliable electricity sector.

Foreign investors have the same rights, duties and guarantees as domestic investors, as well as having the right to own property, being guaranteed a regime of free foreign exchange, with no restrictions on the entry and exit of capital, nor for the sending abroad of dividends, interest and royalties due to technology transfer and/or other business concepts, as well as freedom of production, marketing, import and export of goods and services, and free determination of pricing.

Exporters of goods and services receive a refund of excise taxes and duties paid on inputs and capital goods incorporated into merchandise for export.

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Bolivia has an attractive and uncomplicated tax system.

Under reciprocal international agreements with many countries, the payment of taxes on profits in Bolivia avoids double taxation overseas.

As regards electricity, the current standard does not provide economic incentives for energy generation from renewable sources at a domestic level, but establishes as a sole restriction the failure to comply with existing environmental regulations.

4.2. Types of business enterprises Sole Proprietorship Company: This is a company in which one person is the owner and is responsible for the company liabilities generated thereby.

The size of the company is determined by the contributions which are made.

Limited Liability Company (SRL): A company formed by two or more people called “partners”, in which the partners are responsible for the company’s obligations in line with the amount of their capital contributions to the company.

The pool is divided into shares of capital in cash. This type of company may not have more than twenty-five partners.

General Partnership (SC): A company whose constitution is equal to that of an SRL but with the difference that its partners are liable for the company’s obligations in a subsidiary, joint, several and unlimited form based on the amount of their contribution.

Simple Limited Partnership: Company formed by one or more partners who are only liable for the capital they are obliged to contribute, and by one or more partners who respond to the company’s obligations in a joint, several and unlimited manner, whether or not they make contributions to the company equity.

Corporation (SA):

5.4. Operation and maintenance

A company formed by two or more people called “partners”.

The operation is carried out through concessions (distribution and isolated systems) and licences (generation, transmission and generation transmission).

The capital of this company is represented by shares and the liabilities of its partners are limited to the number of shares that each one holds.

Only the contributions of the limited partners are represented by shares.

The distributor has the obligation to maintain connections and meters on his/her property, if the deterioration or partial destruction of connections and meters owned by the distributor occurs and it is the responsibility of the regulated consumer, the latter shall pay the cost of repair and/or replacement thereof, in turn the regulated consumer is required to carry out the maintenance of medium voltage connections and meters owned by the regulated consumer and to change them when necessary, with the involvement of the distributor.

Accidental or Joint Accounts Association:

(Art 23 of the Regulations on Public Service Electricity Supply)

Limited Partnership By Shares (SCA): Company formed by two or more people called “partners”.

Its partners are responsible for the social obligations of a company in a subsidiary, joint, several and unlimited manner, based on the number of shares that each one holds.

Characterised by the accidental or joint account partnership agreement, in which two or more people take an interest in one or more specific or temporary operations, to be fulfilled by means of common contributions, with the operations being carried out by one, two, three or up to all partners, as agreed in the contract, or by the partners responsible for operations, acting on their own behalf.

Third parties acquire rights and assume obligations only in respect of these partners and their liability is joint and unlimited.

6. Funding of renewable energy projects 6.1. Funding large-scale projects Regarding electricity, the current standard does not provide economic incentives for energy generation from renewable sources at

Partners who are not liable for the operation do not have the right to take direct action against third parties.

On energy issues, companies may be involved in Generation, Transmission and Distribution and may be dedicated to only one of these activities

5. Purchase of equipment and facilities 5.1. Taxation and customs implications A purchase is generated, which creates a tax credit for the taxpayer equal to the total amount of the invoice (13%), and this tax credit is offset by sales made by the taxpayer, in the next fiscal year.

5.2 Possible limitations in the supply It is possible that consumers of humble origin who live in remote areas may not be able to meet the requirements of Articles 6 (valid ID document, being in possession of the property and having no electricity debts) and 7 (having a connection, meter, test report and certification of calibration and enough physical space in which to install the equipment) from the Regulations on Public Electricity.

Performing the maintenance of connections and meters in remote areas can be difficult.

5.3 Safety requirements The requirements must be met of ISO 9001:2001, NC 14001:2004 and Industrial Safety regulations and labour laws in force.

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the domestic level, however funding can be sought from international organisations for the financing of large-scale renewable energy projects, in addition to making the necessary arrangements with the Ministry of Environment and Water, which is the body of the Director which is in charge of these efforts.

6.2. Negotiating agreements with lenders and capital investors This needs to be done following the guidelines established in the Civil Code (interest must not exceed 3% per month, unless the lender is a bank which regulates its interest in accordance with the Law on Banks and Financial Institutions).

7. Connecting to the grid, transmitting and selling energy

provision of service, the service connection mechanism and all the points relating to the subject indicated above.

7.2. Transmission and sale of power: implementation of power purchase agreements with service The Regulations on Public Service Electricity Supply state in Article 28 that measurement must first be performed every 30 days of consumption, following the rules laid down in Article 30 of the same, then to proceed to the billing of the service, which must be paid according to the parameters laid down in Articles 34, 35, 36, 37, 38 and 39 of the Regulations.

Importantly, there is an electricity supply contract governed by Articles 11 to 14 of the Regulations.

8. Liability in the development of renewable energy

7.1.1 Government regulation on connections This is regulated in Article 15 of Law No. 1604, which provides that Utility Companies in the National Grid must be disaggregated into Generation, Transmission and Distribution Companies and dedicated to only one of these activities and in Supreme Decree No. 24651 of 13th June 1997, which regulates Article 15 of the Electricity Law.

7.1.2. Mandatory Connection under Public Utilities: Connection procedures and agreements There are Regulations on Public Service Electricity Supply which establish the requirements for access to service, service contracts, the content of the electricity supply contract, the conclusion of the

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8.1 Liability for negligence Supreme Decree No. 24043, of 28th June 1995, contains the Regulations on Violations and Sanctions, which establish sanctions both for service providers and consumers.

8.1.1. Liability for negligence as Owner/Operator of a Renewable Energy Project There are no specific regulations in this regard, however the provisions can be applied of Article 23 of the Regulations on Violations and Sanctions from Supreme Decree No. 24043, of 28th June 1995.

8.1.2. Liability for negligence as owner of the land used for a Renewable Energy Project According to the Bolivian Constitution, the use is to be made in accordance with its capacity for the greatest use, organisation and occupation of the space, considering its biophysical, socioeconomic, cultural and political-institutional characteristics (Art. 380, II).

The conversion of forest land use will only be possible on legally allocated spaces.

The Environment Act refers to soil resources, aimed at the proper management and conservation of the resource, as provided in the previous case although the provisions may apply of Article 23 of the Regulations on Violations and Sanctions of Supreme Decree No. 24043, of 28th June 1995, in the absence of specific legislation thereon.

8.2. Liability for nuisance In the absence of regulations the provisions are applied of Articles 117 and 118 of the Bolivian Civil Code, which provide as follows: The owner must avoid penetrations of odours, smoke, soot, heat, neon lights, tremors or other unwanted noise emissions to the surroundings when they exceed the obligations of ordinary neighbourhood.

The nature of the places and the status and fate of the property shall be taken into account, in all cases reconciling property rights with the needs of development.

Similarly, the owner of an estate is not permitted to dig or create pits which are likely to cause ruin or collapse in adjoining heritage buildings or to harm the plantations existing on them, and may be required to keep the distance necessary for the safety of the neighbour, in addition to repairing the damage.

8.2.4. Obstruction of views In the absence of regulations the provisions are applied of Articles 124 and 125 of the Bolivian Civil Code, which provide as follows:

8.2.1. Personal injury or property damage

It is not permitted to have windows or openings with views or balconies or other similar projections over the neighbouring estate, closed or unclosed, nor over its roof, if there is less than two metres between the wall where they are made and said estate.

Damage caused must be compensated, in accordance with the provisions of Articles 344 and following of the Civil Code.

Neither can be there oblique views over the neighbouring estate at less than sixty centimetres away.

8.2.2. Noise The Regulations on Atmospheric Pollution establish the legal technical regulatory framework of the Law on the Environment, concerning the quality and prevention of pollution.

It establishes the systems and means of control of the different sources of pollution, as well as setting the permissible limits of substances generally present in the different emission processes.

The permissible limit for stationary sources of noise is 68 dBA from 6 am to 10 pm and 65 dBA from 10 pm to 6 am, in the environs of the property.

The distances referred to in the preceding article are measured in direct view from the outside line of the wall where they are located or from the overhangs, where appropriate, and in the oblique views, from the separation line between the two estates to the side closest to the window or opening.

8.2.5. Protection of wildlife Bolivia has no laws in reference to the protection of wild flora and fauna, since legislation has been passed regarding the protection of wild fauna, with regulations dating from 1832 to 1964.

8.2.3. Signal interference

Thus more than seven laws are known, without numbering, which for various periods prohibit hunting of the chinchilla, whose habitat is the Andes mountain range, and the vicuna, which still runs free in the Sajama National Park, to name but two species of animals.

Supreme Decree No. 24711, of 17th July 1997, contains the Regulations on Transmission Quality, which contain specific rules with regard to this matter.

A clear example is Supreme Decree 6883 of 1964, which prohibits the hunting or capture of several species of mammals, birds and reptiles for a period of three years in the departments of Chuquisaca, Tarija, Beni, Pando and mountain province of Santa Cruz.

In the event of the source being located near hospitals, schools or nursing homes, the limit shall be 55 dBA.

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RATIO LEGIS.S.C. BALMS GROUP INTERNATIONAL

We are a group of independent professionals, who offer our clients a high quality law and legal service. We believe in our vocation, quality effective and efficient service. We have built a relationship of loyalty and trust with our clients.

Under the supervision of experts in the various fields of law and arbitration, this consulting is structured in different work teams, with an effective communication between the different teams, which allows us to offer timely, comprehensive and appropriate services to the needs of each customer.

Our areas of expertise are: Intellectual Property, Commercial, Recruitment, Labor and Social Security, Constitutional Law and International Law, Market and Competition, Real estate, Litigation and Arbitration, Commercial and Financial Committee, Tax, Civil and Criminal Law.

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AREAS OF EXPERTISE ■ Intellectual property.(Registration and protection of trademarks, patents, etc.)

■ Commercial. (Constitution and dissolution of companies, subsidiaries, franchises, etc.)

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PARTNERS Miguel Ignacio Mardoñez Barreros

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BULGARIA 1. Law of Electricity 1.1. Introduction to the legal framework of the electricity market The Bulgarian energy law regulates social relations associated with the activities of production, import and export, transmission, transit, transfer and distribution of electricity, heat and gas; transport of oil by pipeline; trading electricity, heat and gas; and also the jurisdiction of the government bodies in formulating energy policy, regulation and control.

The regulation of activities in the energy sector is carried out by the State Commission for Energy and Water Regulation (SCEWR).

The production, transmission, distribution and sale of electricity; the organising of the electricity market; the management of the electrical grid; and the public supply of electricity are subject to licensing under the Bulgarian energy law.

The Council of Ministers determines the government policy in the field of energy production. The Council of Ministers adopts the Energy Strategy of the Republic of Bulgaria on proposal by the Minister of Economy, Energy and Tourism. Said proposal sets out the basic objectives, stages, tools and methods for energy production.

The Energy policy of the country is managed by the Minister of Economy, Energy and Tourism.

National Action Plan for Energy from Renewable Sources One of the important documents introduced by the Agency for Electricity from Renewable Sources (AERS) is the National Action Plan for Energy from Renewable Sources (NAPERS) which must be accepted by the Council of Ministers. SCEWR determines the preferential prices for purchase of energy from renewable sources and the annual power capacity which can be connected to the grid.

NAPERS covers the period 2010-2020 and gives a prognosis for the total energy consumption for that period. The Minister of Economy, Energy and Tourism provides the European Commission a report every 2 years regarding the execution of the actions listed in the NAPERS. The report is public.

AERS sets the basic rules for connection of the producers of energy from renewable sources to the grid.

1.2. State regulation of the electricity market All energy projects throughout the country are connected and operate in a unified electrical grid with a common mode and a continuous process of production, transformation, transmission,

distribution and consumption of electricity. Electricity production can be carried out by energy companies, licensed to produce electricity.

The transmission of electricity is carried out by a transmission company/owner of the transmission network, licensed for electricity transmission. The licensee may award a contract for the operation and maintenance of the transmission network only to the electrical grid operator, having a licence to manage the electrical grid.

The Electrical Grid Operator provides: A. Operation of the electrical grid and proper functioning of the transmission network; B. Transit of electricity over the transmission network; C. Maintenance of facilities and equipment of the transmission network in accordance with technical requirements and safety at work. D. Maintenance and development of auxiliary networks.

The distribution of electricity and the operation of distribution networks are carried out by distribution companies/owners of distribution networks within a specified area, licensed for distribution of electricity to the corresponding area.�

2. Securing the land Land Conservation When the construction or expansion of energy facilities shall be made on private state property or private municipal property, the competent state or municipal authorities establish in favour of the person who will operate the energy facility, a real right to build on the land without auction or tender.

When the construction or expansion of energy facilities shall be made on private property, the energy company is obliged to acquire ownership of or right to build on the land.

If the land on which the project shall be built is agricultural, the designation of the land must be changed. Under Bulgarian law, any project to build on agricultural land shall be made possible only after the municipality has approved a Detailed Development Plan (DDP) / Plan for Regulation and Construction (PRC) in regard to the change in this land designation, that determines the new land designation as other than farming and after this approval the DDP for this specific land property shall take effect.

If any easements arise while expanding existing and building new overhead and underground power lines, ground and underground hydro technical engineering facilities for the production of electricity, heat, gas, petroleum and petroleum products in favour of energy companies, the easements shall be recorded in the cadastre.

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The easements are: 1. right of crossing of people and equipment in favour of energy companies; 2. right of building overhead and underground power lines, of ground and underground facilities for producing hydro technical facilities for production of electricity, heat, gas, petroleum and petroleum products in favour of energy companies; 3. reduction in the use of land adjacent to the energy sites and facilities.

In exercising the easements, energy companies acquire the right to: a) build overhead and underground electricity power lines, heat and gas pipelines, petroleum and petroleum transit pipelines; b) representatives can enter and pass through the serving estate and carry out activities thereon, when linked to the operation of energy facilities, including the right of passage of machinery through the serving land for the construction and maintenance of overhead and underground lines.�

3. Permits and Licenses Licences and permits related to renewable energy projects are issued to a legal entity registered under the Commercial Law, which: 1. Have technical and financial capabilities, material and human resources and organisational structure for meeting the regulatory requirements for the implementation of activities under the licence; 2. Enjoy real rights over energy facilities through which the activity takes place; 3. Present evidence that the energy facilities, which will operate under the licence, comply with regulatory requirements for safe operation and environmental protection.

Land Use Permits The construction of power plants is permitted if the land used is categorised as category 4 at the most. The land used for energy projects could be the property of the owner of the energy project

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or state or municipality property where the state gives to the owner of the energy project real rights to build on such land.

The area required for construction of energy projects for electricity and heat is determined by specific technical studies. The area required for the construction of electrical substations is: 1.0 ha with a voltage of 110 kV, up to 15.0 ha with a voltage of 220 kV and up to 25.0 ha with a voltage of 400 kV. The area shall be determined upon an approved project.

Operating Permits In the following table are listed the permits and licences needed for developing a renewable energy project in Bulgaria.

1. Agreement for using the land 2. Statement from the Regional Inspectorate for Environment and Waters 3. Statement for grid connection 4. Health impact assessment approved by the Ministry of Health 5. Statement from regional Fire Department and Civil Defence 6. Statement from the Ministry of Defence 7. Statement from the State Agency for Information Technologies and Communications 8. Statement from the Civil Aviation Department 9. Statement from the Cultural heritage department 10. Statement from the Road Infrastructure Agency 11. Statement from the Regional Water Supply 12. Statement from NGO associations (hunting, tourism, local ecological groups, agriculture, etc.)

13. Statement on the risk of landslides 14. Statement for permits for searching and exploring underground resources from the Bulgarian Ministry of Environment and Water 15. Statement with a map with environmental information including Natura 2000 areas, nature reserves and wildlife habitats from the Bulgarian Ministry of Environment and Water

16. Project geodetic survey 17. Approved project for “Building site” from the Ministry of Agriculture 18. Approved project for “Change of master plan” 19. Approved project for “Detailed urban plan” 20. Agriculture change of land use designation 21. Geodetic survey for external cable routing 22. Project and approval for external cable routing from the Ministry of Agriculture 23. Project and approved change of master plan 24. Geodetic survey for internal cable routing 25. Project and approval for internal cable routing from the Ministry of Agriculture 26. Project and approval for change of master plan 27. Project and approval for internal road construction from the Ministry of Agriculture 28. Project and approval for change of master plan 29. Permission for starting an industrial design 30. Preliminary contract for grid connection 31. Power production licence from the State Committee for Energy and Water Regulation

Environmental Permits Usually, Bulgarian law imposes a requirement for an environmental impact assessment of a renewable energy project, if its construction could affect the prevention, limitation and control of the pollution of the different components of the environment.

In other cases, permits are required with the aim of ensuring the effective and sustainable use of respective natural resources. The main environmental permits, as required by the effective Bulgarian legislation, include a permit for greenhouse gas emissions. As of October 2005, the building and the operation of new and existing facilities, as listed in the Environmental protection Agency (EPA) (such as combustion thermal power plants with an installed capacity from 20 to 50 MW; crude oil refineries, etc.) are admissible after the issuance of the above permit. A regulation issued under the EPA sets the procedure on the issuance of the permit.”

4. Choosing a Business Structure 4.1. Choosing a Business Enterprise: Introduction to the problems that affect the choice of business enterprise Even though, the most common form of organisation is that of limited liability company (OOD) or single limited liability company (EOOD), there is no requirement under law for the type of the legal entity that may be an energy enterprise. It should be a legal entity and therefore it may not be in the form of a personal company (ET), which is a natural person/merchant. The requirements are that the legal entity be registered in Bulgaria and that it has the possibilities and organisation to meet the requirements for the implementation of the activity for which it is licensed.

The answers to all points below depend on the type of the established legal entity.

4.1.1. Personal Liability of Owners: 1. Is restricted to the participation in the capital of the company (in case the legal entity is in the form of a limited liability partnership (KD), limited liability partnership with shares (KDA), OOD, joint-stock company (AD), EOOD or single joint stock company (EAD); 2. Is not restricted (in case the legal entity is in the form of a unlimited liability partnership (SD), KD or KDA).

4.1.2. Tax Assessment Methods: the company must be registered in Bulgaria, must be a legal Bulgarian entity and is taxed for all its incomes from Bulgaria and abroad. Taxes in Bulgaria are assessed, depending on the type of tax, as follows: VAT (20 %) – on the respective deal;

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Corporate tax (10 %) – on accounting profits; Withholding tax (10 % or 5 %) – on the paid amount.

4.1.3. Complexity in Training and Operational Requirements: Complexity in training increases in the following order, starting from the least complex – SD, KD, EOOD, OOD, EAD, KDA, AD.

4.1.4.

Type of Business Entity does not affect the legal requirements linked to the construction or use of the renewable energy plant.

4.2. The types of business enterprises in Bulgaria are: ■ ■ ■ ■

unlimited liability partnership (SD) limited liability partnership (KD) limited liability partnership with shares (KDA) limited liability company (OOD) and single limited liability company (EOOD) ■ joint-stock company (AD) and single joint-stock company (EAD).””

5. Equipment Purchase and Installation The Purchase of Equipment and Facilities

components are imported. If the equipment comes from a member of the European Union, no VAT taxation or customs taxes shall be applied. If the components are imported from a non European country, the owner of the renewable energy project shall pay taxes in accordance with Bulgarian legislation.

The most convenient way for a foreign investor to operate a renewable energy project in Bulgaria is to create a Bulgarian entity in order to avoid double taxation.

Safety requirements The safe functioning of the equipment shall be controlled and monitored. The most important requirement of the system is to ensure the safety of the components of renewable energy power plants, in conditions of strong winds, turbulence or negative effects of the grid, which can lead to their rapid deterioration or damage.

There are specific types of control of the equipment, such as pitch control, etc., that guarantee the proper functioning of the plant.

During the operation, the control system records all parameters and compares them with the specifications set for each stage.

When abnormal adjustments occur and if the system cannot correct the deviation alone, it generates an error message and sends it to the operator on duty. If damage or deviation from standard operating conditions compromises the security of the generator, the system suspends all activity.

Tax and Customs Implications

In turn, the operator analyses the data and, if necessary, changes the settings or takes other actions.

The tax and customs implications on the equipment used in the renewable energy projects depend on the country from where the

Safety requirements are imposed with the certificates, permits and licences, issued before and during the construction of the renewable energy plant.

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Compliance with safety requirements is ensured through the work of the construction inspection companies and by performing tests on the operation of the renewable energy plant or 72 hours after its complete construction.

Maintenance There are no specific legal requirements concerning the operation and maintenance of the renewable energy plant. The general terms and provisions for maintenance are applicable.”

6. Financing a Green Energy Project The production of electricity from renewable energy sources in Bulgaria is promoted by: 1. Providing guaranteed access of electricity produced from renewable sources to the transmission and distribution electrical grids; 2. Guaranteeing the transmission and distribution of electricity produced from renewable sources; 3. Ensuring the construction of the necessary infrastructure and electricity capacities for the purposes of regulating the electrical grid; 4. Setting as a priority the dispatching of electricity produced from renewable sources; 5. Purchasing of electricity produced from renewable sources for a fixed period of time; 6. Determining preferential prices for the purchase of electricity produced from renewable sources.

The activities related to renewable energy source are subject to financing through the financial resources of the “Energy Efficiency and Renewable Sources Fund” (EERSF). EERSF finances investment projects for energy efficiency and supports the development of the market for energy efficiency projects in Bulgaria.

EERSF has the functions of a funding institution providing credits and credit guarantees, as well as a consultation centre. EERSF assists Bulgarian companies, municipal entities and private persons in preparation of investment projects for energy efficiency. The fund provides financing, co-financing or guarantees against other financial institutions. The main principle in the management of EERSF is the public-private partnership. The fund follows orders and rules, developed by the technical assistance, provided by the World Bank and approved by the Bulgarian Government.

The Energy Efficiency and Renewable Sources Fund (EERSF) was established through the Energy Efficiency Act adopted by the Bulgarian Parliament in November 2008. All energy efficiency projects approved and supported by the Bulgarian Energy Efficiency and Renewable Sources Fund (EERSF) should meet the following eligibility criteria: The project should involve the application of well-proven technology; the project cost should range between BGN 30,000 and BGN 3,000,000 although exceptions are possible if strongly justified; at least 10% of the capital contributed should be from a “EERSF-commercial bank” co-financing scheme and 25% from EERSF stand-alone financing; The project must have a payback period of up to five years.

EU programmes also ensure financing for RES activities through different operational programmes.

The Bulgarian Investment Promotion Act introduces a system of investment promotion measures, in compliance with Commission Regulation (EC) No. 1628/2006 on the application of Articles

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87 and 88 of the Treaty to national regional investment aid. Depending on the amount, investments are divided into two classes, with different threshold amounts. The threshold amounts are as follows: Class A: BGN 32 million (€16.3 million) and Class B: BGN 16 million (€8.2 million). According to the procedure established by the Investment Promotion Act, the key promotion measures are as follows: Faster administrative services: Class A and Class B; Personalised administrative services for implementation of the investment project: Class A; Sale or establishing against consideration of limited real rights on private, state or municipal property, without a tender or an auction on market or lower than market prices: Class A and Class B; Sale or establishing against consideration of limited real rights on plots with constructed physical infrastructure, state property, up to the borders of the site, without a tender or an auction on market or lower than market prices; Financial aid for construction of physical infrastructure elements: Class A; Financial aid for staff training in order to attain professional qualification: Class A and Class B; Opportunities for other forms of state aid, institutional support, public-private partnerships or joint-ventures for investment projects of high priority; Different types of transactions between the investor and a legal entity established for the purposes of construction and development of industrial zones.

Eligibility criteria under the Investment Promotion Act (IPA) The investment must be related to the setting-up of a new company, extension of an existing company or activity, diversification of the output of a company or activity with new additional products or to a fundamental change in the overall production process of an existing company or activity.

The following business sectors are eligible: 1. Industry: manufacture and production of electricity from renewable energy sources; 2. Services: activities in the field of computer technologies, scientific research and development, as well as education and human healthcare.

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At least 80 per cent of the future total revenue of the company benefiting from the investment incentive should come from the eligible investment project.

The period for investment implementation shall not exceed three years from the date of commencement of work under the project until the date of project completion.

The total investment in one project should not be lower than the minimum thresholds specified in the Act, with the exception of: 1.

Up to three times lower for economically disadvantaged regions, provided that the investment is implemented entirely within the administrative boundaries of such a region; 2. Up to three times lower for investments in certain high-technology activities of the industrial sector of the economy, as specified in the Regulations for Application of the Investment Incentives Act; 3. Up to five times lower for certain investments in high technology activities of the services sector, as specified in the Regulations for Application of the Investment Incentives Act. At least 40 per cent of the eligible costs of the investment must be financed by the investor’s own or borrowed resources, excluding any form of public support.

The investor must create and maintain employment which fulfils cumulatively the following conditions: 1. the employment shall be directly related to the implementation of the investment project; 2. the investment project shall lead to a net increase in the number of employees in the establishment/organisation concerned, compared with the average number of employees over the previous 12 months; 3. the employment created shall be maintained during a minimum period of five years in the case of large enterprises and a minimum period of three years in the case of SMEs. The investment shall be maintained for a period of at least five years or for three years in the case of SMEs, effective from the date of its completion.

The tangible and intangible fixed assets acquired shall be new and purchased on an arm’s length basis from parties not related to the investor.

The investment must meet all other criteria as set out in Chapter One and the special provisions of Chapter Two of Regulation (EC) No 800/2008.

Negotiating Agreements There are no specific requirements in the Bulgarian energy legislation concerning the negotiation process.�

7. Interconnection, Transmission and Selling Power Producer, the connecting highor medium-voltage transmission power lines should be built by the transmission or distribution company, respectively, and it is the company’s property.

Grid connection procedure: The submission of grid connection applications must be in compliance with the information for annual power capacity, regions and voltage level. Applications shall be examined in the order of their submissions.

Within 14 days the operator shall resolve the admissibility of the application and if positive, the operator researches the possibilities and provides its standpoint; Any applications submitted after the annual power capacity has been reached in the respective region shall be rejected.

The investor shall pay a guarantee in the amount of BGN 5,000 per MW at the moment of submission of the grid connection application. The guarantee is refundable in case the application is not admissible or rejected.

The investor shall submit a request for a preliminary grid connection contract within 6 months as from when the standpoint is determined. If the investor does not observe the term, if it withdraws its application or if the preliminary contract is declared unreasonable, the investor will lose the guarantee paid.

The investor shall make an advance payment of (i) BGN 25,000 per MW for projects with an installed capacity of 5 MW or less each; or (ii) BGN 50,000 per MW for projects with an installed capacity of more than 5 MW each. The advance payment is due at the moment of executing the preliminary grid connection contract.

The term of the preliminary grid connection contract is not more than 1 year. This is the term for written request for conclusion of final grid connection contract.

The term of final grid connection contract is not more than 2 years if the project shall be put into operation in one stage.

B. Mandatory connection According to the Law on energy from renewable sources, stricter requirements are being introduced for transmitting and/or distributing companies when joining an electrical grid.

Transmitting/distributing companies are required to give priority to producers of RES electrical power wishing to be connected to the grid and which meet the specific conditions for joining the grid, as set out in the Regulation on connecting producers and consumers of electrical power to the electrical grid.

The producer of RES electrical power has to file a motion to the relevant transmitting or distributing company to get information about the conditions and the way to connect the energy plant to the grid. This information has to be provided within 90 days. Both parties may then enter into a preliminary contract of grid connection. The term for the connection is determined by a contract and must be no longer than what the producer has indicated as a time limit for the implementation of the project.

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RES power producers may be connected to the grid using the location closest to the location of the RES power site. In the terms and conditions for connection, the transmitting/distributing company is obliged to provide a connection scheme in which they anticipate that the connection should be done using the closest possible point, as well as a preliminary amount of connection.

The distributing company is obliged to provide an option for businesses to join the facilities of those RES producers who have already been connected, or are in the process of being connected.

The RES producer has to bear the connection costs to the point of ownership of the electrical facilities, whereas the grid company bears all other costs including building new and repairing old cables. The producer has to pay a connection fee, which only includes direct overheads that the distributing company has incurred, in relation to the connection. Those direct overheads are defined by the Regulation on the adjustment of the prices for electrical power. The overheads incurred during the expansion and/or the reconstruction of the electrical grid, in relation to the connection of the energy site of the producer, are to be covered by the transmitting/distributing company and are not included in the fee.

According to Article 25 of the Regulation on the adjustment of the prices for electrical power, the connection fees for producers are individual and include actual expenditures for building the facilities to join the relevant grid. If the connection of a producer requires expansion or reconstruction of the transmitting/distributing grid, the joining fee includes the expenditure required for this expansion/reconstruction.

II. Transmitting and Selling Power The transmission of electricity is carried out by a transmission company/owner of the transmission network, licensed for electricity transmission. The licensee may award a contract for the operation and maintenance of the transmission network only to the Electrical Grid Operator, issued a licence to manage the electrical grid.

The preferential price fixed shall be applicable for the entire term of the energy purchase agreement. After expiration of the term the preferential prices are not applicable.

General terms for energy purchase agreements are 12 years for wind projects or 20 years for solar projects, as from the date of putting into operation. This is not valid for projects which are put into operation after the 31st of December 2015.�

8. Liability Concerns for Green Energy Development Liability for Negligence 1. The Liability for Negligence, as an energy project owner, is engaged only for his actions or failure to act. There are however, specific cases of liability, provided in the Bulgarian energy legislation for the energy project owner: A project owner or legal entity that operates under the Energy Law without a licence, when such is required, shall be fined from BGN 100,000 to BGN 150,000.

An energy company that violates the conditions of the issued licence is subject to property penalty ranging from BGN 20,000 to BGN 1,000,000.

2. The Liability for Negligence as a landlord, in the event he is not the owner of the renewable energy project (rights), is limited to the general Liability for Negligence, according to Bulgarian legislation. This general liability is engaged only for actions or failure to act on behalf of the owner of the land himself.

Liability for Nuisance In case of personal injury or property damage the offender is subject to penal and/or civil liability.

Preferential prices

According to the Bulgarian Environment Protection Act, Renewable Energy Projects need a prior environmental impact assessment, issued and approved by the Minister of Environment and Waters. The environmental impact assessment report stipulates the terms regarding the parameters of noise, view obstruction, wildlife protection, etc. with which the renewable energy project owner must comply during the construction and operation of the renewable energy power plant. Once approved, these parameters shall be strictly monitored and complied with while the renewable energy power plant is running.

Preferential prices will be determined by EWRSC until the 30th of June each year.

Renewable energy projects must have a detailed investigation on signal interference.

The preferential energy purchase price for the respective project shall be fixed as the preferential price valid at the moment of construction completion proved by the issuance of Act No. 15. If the project is planned to be put into operation in one stage and this is not completed within 2 years as from the execution of the final grid connection contract, the preferential price shall be fixed as the preferential price valid at the moment the project is put into operation.

The cases where liability is sought for noise, signal interference, view obstruction and/or wildlife protection, the renewable energy project owner may be held accountable where:

The tariff price for public/end suppliers is formed on the basis of the confirmed forecasted required annual income, in accordance with article 10 of the Regulation on adjustment of the prices for electrical power and the confirmed forecasted quantity of electrical power for sale. It is up to each of the energy businesses to determine at what price they sell the electrical power for a defined period of time. The business must request the Commission of Water and Energy Regulation’s approval of the required income and prices for the relevant period.

1. he has not complied with the provisions governing the issued environmental impact assessment report and the certificate from air traffic authorities; 2. he has violated the terms of the issued environmental impact assessment report and the certificate for signal interference.

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BALMS ABOGADOS BULGARIA BALMS GROUP INTERNATIONAL

Set up in January 2006, Balms Abogados Bulgaria LLC is a Bulgarian law firm and a member of Balms Group International. Balms Abogados Bulgaria is currently also a member of the Bulgarian-Spanish Business Council, Bulgarian-British Chamber of Commerce and American Chamber of Commerce and since 2010, a founder of the Bulgarian-Chinese Chamber of Commerce.

Balms Abogados Bulgaria offers its clients a wide range of top-quality legal services, tailored to satisfy their needs and expectations. We are best known for our profound knowledge and expertise and the bridge we provide between the local environment and the international business community. Balms Abogados Bulgaria also acts as a tax representative for our clients and their companies, offering tax, fiscal and legal advice, not to mention the elaboration of documents and agreements and fiscal representation. Furthermore, we have a Litigation Law Department that investigates and provides solutions whithin all types of judicial procedures.

Balms Abogados Bulgaria offers the presentation of public bids for infrastucture projects using European funds.

The professionals who work for the firm are renowned for their familiarity with Bulgarian legislation, local culture and traditions. The expertise of the team members allows us to find the best legal solution in accordance with the proposals and objectives expressed by the client.

The main offices at Balms Abogados Bulgaria are located in the key downtown area of Bulgaria’s capital city, Sofia, close to the courts, government offices and other public authorities. We also have a second office in the city of Burgas, one of the largest and most important ports in the country.

■ Foreign Investments ■ Real Estate, constructions developments, urban and Planning Law ■ Corporate Law (company formation and administration) ■ Merge in and Acquisition Law ■ Public procedures ■ Concessions ■ Taxations ■ Contracts Law ■ Banking and Insurance Law ■ Competition Law ■ Employment Law ■ Registration and protection of trademarks, patents, designs and copyright ■ Receivership and insolvency procedures ■ Civil and commercial, litigation and arbitration, dispute resolution ■ Business representation ■ Legislation regarding renewable energy

BALMS ABOGADOS BULGARIA SOFIA

PARTNERS Juan Luis Balmaseda de Ahumada y Díez

Óscar Gómez Monasterio

Julio Aguado Arrabé

Jorge Martín Losa

Katja Blackmer

MANAGER Delian Grivichki

ASSOCIATES

2ª, Gen. Totleben Blvd.

Fl. 4, ap. 10 1606 Sofia, Bulgaria Tel: 00 359 2 411 0004 Fax: 00 359 2 411 0005 Móvil: 00 359 879 008 721 00 359 889 677 633 balms@balmsbulgaria.com

BURGAS

Yovka Dimitrova Ivanova

Maria Kirilova Pironkova

Orlin Stefanov Denkov

Galia Stefanova Grivichki

Katerina Dimitrova Ivanova

AREAS OF EXPERTISE

37 A, “Aleksander Veliki” Str., ap. 9 8000 Burgas, Bulgaria Tel: 00 359 56 84 11 50 Fax: 00 359 56 84 11 71 burgas.balms@balmsbulgaria.com www.balmsbulgaria.com

ENGLAND 1. Law of Electricity 1.1. Introduction to the Legal Framework of the Electric Industry The Utilities Act 2000 reformed the regulation of the electricity industry and the legislative parameters dictating the structure of the Industry. These changes were made to the Electricity Act 1989 which remains the centre-piece legislation governing the industry. The framework governs generation, transmission, distribution and supply of electricity to customers.

1.2. State Regulation of the Electric Industry The supply market in the UK was opened up to private competition at the end of the 1990’s. The State regulates the distribution of electricity by introducing a statutory requirement for distribution to become a separately licensable activity. The government also has a role together with the independent regulator in determining the terms of the electricity trading arrangements. The government Renewables Obligation requires all electricity supplies licensed under the Electricity Act 1989 to produce reports to the Regulator (Ofgem) that they have supplied customers in Great Britain with a certain amount of electricity generated from renewable sources.

2. Securising the land The Renewable Energy Directive 2009 applies to large scale renewable energy projects and also residential and commercial construction projects where micro-regeneration or distributed energy is likely to be useful. The Directive is changing the way buildings are designed and in time will change construction and engineering methods in the UK. The Joint Contracts Tribunal introduces sustainability provisions into its standard forms of contract in 2009.

3. Permits and Licenses The current energy policy of the United Kingdom is set out in the Energy White Paper of May 2007 and the Low Carbon Transition Plan of July 2009. The current focus of policy are on reforming the electricity market, rolling out smart meters and improving the energy efficiency of the UK building stock through the Green Deal. The UK Planning and Environmental Laws remain in force and formal planning applications are required for all energy related projects

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4. Choosing a Business Structure 4.1. Choice of Business Entity: General Overview of Issues Affecting Entity Choice The primary business entities will be either private limited companies, limited liability partnerships or public private partnerships depending on the mix of private or public funding.

4.1.1. Personal Liability of Owners With limited liability companies and limited liability partnerships, stakeholders liability is limited to the amount contributed to capital.

4.1.2. How Taxes Are Assessed Taxes will be imposed at the new corporation tax rate for private limited companies.

4.1.3. Complexity of Formation and Operation Requirements Other than private public partnerships, private limited company and limited liability partnerships are capable of being incorporated quickly with low capital injection requirements.

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5. Equipment Purchase and Installation The Health and Safety laws in the UK relating to renewable energy equipment is extensive. The Building Regulation 2000 are split into 14 parts and set a number of safety rules and regulations that will need to be followed. In addition to the above the Health and Safety Act 2012 will apply. Please note that various trade associations have added their own consumer codes. The Renewable Energy Association has its own Consumer Code dealing with safety and consumer regulation.

6. Financing a Green Energy Project These are exciting times for renewables in the UK. The introduction of the Feed-In-Tariffs last year and the Renewable Heat Incentive this year has made a difference but borrowing money for renewable projects is not straight forward. The process of getting renewable finances in the UK is the same as any other corporate or project finance. Banks need to be convinced by all the bells and whistles of a full business plan, information memorandum, financial models, due diligence and bespoke legal contracts.

7. Interconnection, Transmission and Selling Power

In the UK Power Purchase Agreements (PPA) are legal contracts between the electricity generators and a power purchaser (typically a utility). Contractual terms may last anywhere between 5 and 20 years. Typical agreements require the generator to warrant compliance with the Renewables Obligation Order 2009 and the Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulation S1 2003/2562 (REGO) which governs the Sources of Supply rules.

8. Liability Concerns for Green Energy Development The Environmental Liability Directive (ELD) came into force in 2004 and is aimed at the prevention of environmental damage. It is based on the “polluter-pays� principle. Operators will be strictly liable for environmental damage caused to species and habitats, water and land where there is significant risk of adverse effects to human health. Operators are required, if in breach, to carry out immediate remedial action. This supports existing UK environmental and negligence laws.

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CORREN TROEN BALMS GROUP INTERNATIONAL

Corren Troen are an English law firm based in London with specialist knowledge of the Nordic and International Markets.

Founded in 2002 by Paul Corren and Per Troen, we have grown into a strong team of over 20 people offering a full range of legal services to our many United Kingdom, Nordic and intenational clients.

Our aim is to provide our clients with a tailored service that meets both their personal and business legal needs, meaning they are always at the centre of our business. We provide clear legal advice to resolve our client’s situation with the least amount of fuss and stress. Our focus is not just on the deal, we are also keen to build long term relationships with our clients.

For our Private clients we act for a number of successful families and high net worth individuals based in the United Kingdom, the Nordic countries and Europe. This allows us to excel at working with both, United Kingdom and foreign domiciles and deal with different legal systems and cross border tax issues. We also act for a high number of wide ranging Business clients, from start-ups, to large listed companies. We pride ourselves on delivering tailor made solutions, whatever the size of the business and wherever it is located.

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Employment Company Purchases Company Sales Property Litigation Brand Management Clean Teach Charity Tax Wills & Probate Trust Management Family & Divorce

CORREN TROEN PARTNERS Paul Corren Per Troen Neil Abbott Mads Birkeland Nicola Woolf Elizabeth Jones

35 Catherine Place SW1E 6DY London, United Kingdom Tel: 00 44 207 592 8900 Fax: 00 44 207 592 8901 reception@correntroen.com www.correntroen.com

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FRANCE 1. Electricity Act 1.1. Introduction to the legal Framework of the Electricity Market In France electricity was mainly supplied by EDF, which, as a public body, had a monopoly.

Two European Union directives opening up the electricity market to competition were transposed by law no. 2000-108 of 10 February 2000 and law no. 2004-80 of 9 August 2004, amended by law no. 2003-8 of 3 January 2009 and law no. 2006-1537 of 7 December 2006.

As such, since 1July 2007, the whole electricity market has been open to competition.

This is also when France began its work on ecological and sustainable development through a major national debate known as the “Grenelle de l’environnement”.

Among its goals is for renewable energies to reach 23% of total energy consumption.

1.2. State Regulation of the Electricity Market There are many state regulations concerning Renewable Energy including, for example, the following: French programme law no. 2005-781 of 13 July 2005, establishing energy policy guidelines, implements Directive 2001/77/EC of 27 September 2001 on the promotion of electricity from renewable energy sources in the domestic electricity market. France committed to a target of 21% of gross domestic energy consumption from renewable energies by 2010.

This target was then revised upwards by article 2 of the planning law of 3 August 2009 on the implementation of the “Grenelle de l’environnement” under the terms of which France committed to bringing the proportion of renewable energies to at least 23% of its final energy consumption in accordance with the targets of Directive 2009/28/EC of 23 April 2009.

Moreover, article 10 of law no. 2000-108 of 10 February 2000 includes the obligation to purchase electricity from all renewable means of generation and, in particular, the photovoltaic, wind and biomass industries so as to boost their growth.

2. Conserving land 2.1. Property Requirements for Renewable Energy Projects In France, the development of renewable energies is subject to the environmental restrictions stipulated in the Urban Planning Code and the Environmental Code related to: ■ the impact on the landscape with the regulations governing the location of wind farms and photovoltaic power stations with a view to integrating them into the landscape; ■ the architectural impact according to the specific characteristics of each building; ■ the impact on the soil, particularly with regards to the setting up of wind farms and photovoltaic power stations on agricultural land.

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2.2. Property Rights in Renewable Energy Projects

2.3. Types of Legal Agreements

Aside from the administrative authorisations that are required in accordance with chapter 3 of the Environmental Code, it is recommended that operators own the site on which the photovoltaic or wind power station, for example, will be set up.

As it is important for the developer to maintain ownership of the completed facility, they should favour long-term consecutive tenancy agreements with rights in rem.

If the developer does not own the land, they must enter into an agreement with the owner, whether public or private, for a minimum term of 20 years, corresponding to the term of the electricity standing offer agreement entered into with EDF or a non-nationalised distributor.

â–

The legal nature of the site (private or public property)

â–

The physical characteristics of the site and its use (vacant land, roofing)

â–

The consequences of the legal agreement for the parties.

The choice of legal agreement will depend on:

When projects are set up in the public domain, agreements made should be compatible with the state ownership regime (long-term lease, temporary occupancy authorisation, tenancy at will).

In cases where there is no state ownership, the preferred arrangements are the long-term lease or the building lease.

3. Permits and Licences 3.1. Land use Permits First of all, the developer of a renewable energy project must study the local urban planning rules applicable on the site on which they are planning to undertake the project, and particularly, the rules governing whether the construction and occupancy are authorised or prohibited.

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Power stations on the ground come clearly under the scope of the building permit.

Rules on urban planning or other more specific laws such as Mountain law no. 85-30 of 9 January 1985 or Coastal law no. 86-2 of 3 February 1986.

Projects that are set up in buildings will, in principle, require prior authorisation particularly based on the criteria of how well they will fit into the landscape.

3.2. Operating Permits for Renewable Energy Projects According to law no. 2000-108 of 10 February 2000 on the modernisation and development of the public electricity service, any new plans to generate electricity whether from renewable energy sources or not, must be subject to an operating licence granted by the energy minister.

Power stations where the installed capacity per production site is less than or equal to 45 MW are deemed to be authorised when a declaration has been sent to the energy minister who then checks its compliance.

Power stations with a capacity of less than or equal to 250Â kW will not be subject to any formalities.

3.3. Environmental Permits Article L.122-1 of the Environmental Code stipulates that any surveys conducted prior to constructing or improving power stations

which require official authorisation (building permit, scheme for power stations that are listed for environmental protection, for example) and which, due to their size or their impact on the natural habitat, may be damaging to their surroundings, must include an environmental impact assessment (impact on the landscape, sound, air quality, fauna and flora).

According to article L414-4 of the Environmental Code, the same is true of the impact that such a project might have on Natura 2000 sites (network of natural sites aimed at conserving endangered species and habitats in Europe) and the impact on water under law no. 92-3 of 3 January 1992.

3.4. Other permiting issues The power station must be connected to the public electrical grid in order to distribute the electricity generated by the station. Connection works, carried out by the system operator, must be preceded by a connection request and a connection agreement with the system operator. The connection request is the key stage of this process in that it makes it possible to join the connection queue provided that the project is at an advanced stage in its development.

The conditions and practicalities of this type of connection stipulated by the decree of 23Â April 2008 on general technical instructions for designing and carrying out the connection of generation stations to the public electricity grids and other decrees of the same date.

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4. Choosing a Business Structure 4.1. Choosing a Business Enterprise: Introduction to the problems that affect the choice of business enterprise

For income tax due on the sale of goods, under this regime the tax owed is calculated on 71% of the turnover, except in the specific case of tax exemptions related to the income from photovoltaic energy production under article 35 ter of the General Tax Code.

4.1.2. Tax Assessment Methods

For organisations or individuals that cannot or do not wish to opt for the micro-enterprise regime, the regime based on actuals applies. The project sponsor will then be able to choose between corporation tax and income tax depending on whether they are planning to operate as a company or not according to the usual criteria.

For the tax authorities, producing electricity for resale is a commercial activity which, for tax purposes, is considered profit-making.

With regard to other tax, articles 1380 and 1381.1° of the General Tax Code introduce the principle of Real estate tax for buildings and facilities that are comparable to buildings because they are made up of masonry work which takes the form of real buildings.

4.1.1. Personal Liability of Owners This point is covered in detail in chapter 8.

It is of little importance whether the electricity producer is a company or individual (who is a company for the purposes of taxation).

From a legal point of view, this output, even if it is for a single client, is considered to be commercial in nature under article 1101 of the Commercial Code.

Nonetheless, in relation to the production of renewable energies by means of photovoltaic power stations, the doctrine states that individuals who sell all or part of their output are not conducting a business activity under 1° bis of I of article 156 of the General Tax Code.

As such, unless they opt for the regime based on actuals, individuals with earnings of under 81,500 euros before tax are subject to the micro-enterprise tax regime under article 50-0 of the General Taxation Code.

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This is the case, in particular, for wind turbines as masonry works.

Nevertheless, article 1382.12° of the General Tax Code specifies that capital assets for the production of electricity from a photovoltaic source are exempt from real estate tax.

As for VAT, the general regime will be applied, with the exception of individuals who produce energy and the delivery of heat produced mainly from biomass, ground-source energy, waste or recovery where a reduced rate of 5.5%. is applied.

4.1.3. Complexity in Training and Operational Requirements Law no. 2000-877 of 10 February 2000 introduced various legal tools allowing new generation facilities to be installed by anyone with the necessary technical, economic and financial capabilities.

Article 311-5 of the Energy Code, based on Decree no. 2011-504 of 9 May 2011 amending article 6 of the aforementioned law, stipulates that any new electricity generation operations, whether they use renewable energies or not, must have a licence.

Similarly, there is a specific regime for issuing licences under the regulations on facilities that are listed for environmental protection (IPCE) or water regulations.

4.1.4. Impact on incentives and other regulatory restrictions In addition to the incentives already set out under 5.1, 5.2, 6.1 and 7.2, other more specific subsidies have been put in place to boost the production of renewable energies: ■ The Heat Fund, launched in 2008, under article 19§1 of First Grenelle Act no. 2005-781 of 13 July 2005 to support the production of heat from renewable sources and energy recovery.

■ Specific subsidies to improve the heat efficiency of old buildings occupied by low-income families implemented by the National Housing Agency.

■ The interest-free green-loan makes it possible to improve the return of projects that reduce energy consumption or incorporate measures for generating renewable energy and was introduced in the 2009 budget. It applies to owner/occupants, tenants, companies that are not subject to corporation tax and of which at least one of the associates is an individual.

■ White Certificates (CEE) introduced by law no. 2005-781 of 13 July 2005, are based on the requirement for retailers of electricity, gas, domestic fuel, liquefied petroleum gas and heating and cooling networks to make energy savings.

4.2. Types of Business Enterprises As seen previously under point 4.1.2, the activity of producing energy for resale is a commercial activity and therefore only commercial companies will be eligible, the main types being: ■ ■ ■ ■ ■ ■

Ordinary trading partnership Limited partnership Private limited company Public limited company Partnership limited by shares Simplified joint stock company

5. The Purchase of Equipment and Facilities 5.1. Tax and customs implications In France, certain types of work to improve energy performance and energy generation facilities benefit from a reduced rate of VAT at 5.5% instead of 19.6%.

This measure applies to all individuals or organisations.

The tax brief of 8 December 2006 and ruling no. RES 2007-50 of 4 December 2007 stipulate that the reduced VAT rate applies for photovoltaic power stations where the installed capacity is less than 3kWp. Above this capacity, the normal VAT rate of 19.6% applies.

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Moreover, articles 39AA and 39AB of the General Tax Code stipulate that facilities for renewable energy production may be subject to accelerated or exceptional depreciation over 12 months.

5.2. Possible supply limitations The various tax cuts and exemptions given for investing in equipment and electricity generation facilities using renewable energies, are revised regularly to take into account the evolution of the market and methods.

A standardised list of equipment and apparatus is set out under article 18 bis of annex IV of the General Tax Code.

It has been amended successively by several decrees including, most recently, a decree of 30 December 2011 which amends the performance criteria applicable to certain heat pumps that are eligible for tax credits, for example.

5.3. Safety requirements Texts imposing safety restrictions are few and they are scattered between different sources.

As such we can highlight decree no. 2010-301 of 22 March 2010 amending decree no. 72-1120 of 14 December 1972 pertaining to the control and certification of the conformity of interior electrical installations with safety regulations and standards in force, or the specific employment law provisions relating to the employer’s obligations in terms of employee safety or provisions that require project managers undertaking the construction or improvement of buildings that are to house workers who design and build electrical installations.

5.4. Operations and Maintenance In addition to the draconian standards that are imposed on equipment or apparatus before it is marketed, France has specific labels created to meet the requirements of the European directive on the certification of installers. (Article 14, paragraph 3, of directive 2009/28/EC).

This is the case for Qualit’EnR under which installers of renewable energy systems agree to comply with a quality charter, a QUALIBAT certificate and a Qualiforage certificate for geothermal drilling.

Similarly, the Finance Law of 2005 created a tax credit granted to individuals who are tax-residents in France and who invest in equipment to boost energy savings and sustainable development in their main home or, since 1 January 2009, in unfurnished property that is older than two years that they are renting out or commit to rent out as a primary residence (article 200 quater of the General Tax Code).

In addition to this tax credit, the following may also benefit from a tax break and specific reductions: ■ owners of photovoltaic power stations with a capacity of less than 3kW (exempt from tax measures linked to the resale of electricity generated), ■ farmers (tax breaks on the income from the resale of electricity generated by a photovoltaic power station or a biomass power station).

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6. Financing Renewable Energy Projects 6.1. Financing large projects Other than the domestic tax on the consumption of oil products which is based on Council Directive 2003/96/EC of 27 October amended by agricultural framework law no. 2006-11 of 5 January 2006, incentives have been implemented to encourage funding for renewable energies. This funding varies according to the industry in which businesses wish to operate.

Indeed, the incentives implemented by the administration take into account the technical and economic variations in the different industries.

Thus, for photovoltaic generation, the purpose of financial support is to reduce initial investment while ensuring the equipment

is integrated well, particularly where it is incorporated into an existing building (for green-loan and tax credit see elsewhere).

For industries such as wind and hydraulics, purchase prices are adequate and should protect investors from risks due to fluctuations in electricity prices and to ensure a return on investment (for purchase obligation see 7.2).

However, tenders are preferred where there are particular technical and environmental criteria such as for the off-shore wind or biomass industries.

Other financial support, as seen in 5.1, can provide incentives for renewable energies.

6.2. Negotiating agreements with lenders and capital investors See 2.2. and 2.3.

7. Connecting to the Grid, Transmitting and Selling Power 7.1 Connecting to the Grid

connection procedures and agreements Article 71 of Second Grenelle Law no. 2010-788 of 12 July 2010 stipulates that for ten years, renewable energy sources will be connected to the electricity transmission system by way of priority, with the creation of regional connection systems.

Moreover, it provides for the introduction of a measure to pool costs allowing new producers to bear only part of the cost of network works.

The rules for sharing connection costs between producers and system operators come under articles 4, 14, 18 and 23-1 of the law of 10 February 2000 and decree no. 2007-1280 of 28 August 2007 on work to connect and extend connections to public electrical grids.

The regulations stipulate that, within three months, the transmission system operator must provide a technical and financial proposal for connecting to the grid which includes the specific costs and deadlines.

For connection costs, refer to the estimate drawn up by the transmission system operator.

However, small-scale producers (up to 12 kVA per phase) are subject to simplified payment according to the scale approved by the energy regulation commission.

7.1.1. Government Regulation of Connections Law no. 2000-108 of 10 February 2000 on the modernisation and development of the public electricity service provides all producers with a guaranteed right to access the distribution system.

Access may only be refused on the grounds of operational constraints relating to public service delivery and for technical reasons related to the security and safety of systems.

7.2. Transmitting and Selling Power: performance of energy purchase agreements with public utilities An obligation to purchase the product of renewable energies is stipulated under article 10 of the law of 10 February 2000.

EDF and local non-nationalised distribution companies are thus required to purchase electricity generated by producers using renewable energies.

7.1.2. Mandatory Connections under Public Utilities:

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Any production of renewable energies is therefore deemed to have been sold, transmitted and distributed, unless this undermines the safety and security of the network.

This purchase obligation allows producers to not be dependent on market fluctuations.

8. Liability in the Development of Renewable Energy

tion facilities whether from renewable energy sources or not, without authorisation (see 4.1.3) is punishable by a one-year prison sentence and 150,000 euros.

In addition, obstructing the work of public servants and designated agents in recording violations relating to the production of electricity is punishable under articles L142-38 of the energy code et. seq. by a 6-month prison sentence and a fine of 7,500 euros whether it is an operator who does not own the land or the owner itself.

8.1. Liability for Negligence

The same sanctions come under articles L135-14 et. seq. of the energy code relating to checks conducted by the energy regulation committee.

8.1.1. Liability for Negligence as a Renewable Energy Project Owner/Operator

Finally, article L343-5 of the energy code stipulates that building or commissioning a direct line without authorisation is punishable by a one-year prison sentence and a 150,000 euros fine.

a. There are no specific legal provisions covering the civil liability of the facility operator or the owner of the land on which such a facility is located.

The usual law governing liability applies:

c. Moreover, under the provisions of articles L222-1 et. seq. of the energy code, the energy minister may order financial sanctions for failures to meet obligations under the provisions relating to the energy-saving certificates (see 4.1.4).

â– Liability for negligence (article 1382 of the Civil Code) â– Liability for the actions of people or their things (article 1384 and 1385 of the Civil Code). b. With regard to criminal liability, articles L311-14 et. seq. of the Energy Code stipulate that operating electricity genera-

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8.1.2. Liable for Negligence as a Landlord in a Renewable Energy Project See 8.1.1

8.2. Liability for Nuisance 8.2.1. Personal injury or property damage There are no specific regulations relating to renewable energies so, in the event of an accident at a renewable energy generation facility, it is the usual criminal liability regime that would apply.

Thus, it would seem to be a legal framework under which, under certain circumstances, people living near wind turbine parks, photovoltaic panels or any other renewable energy facilities producing disturbances particularly of an economic (loss of operations or fall in value) or aesthetic nature would have recourse.

For civil liability, see 8.1.1.a

With regards criminal liability, article R. 623-2 of the Criminal Code punishes abusive or nocturnal noises or disturbances that disturb the peace with ‘third category’ fines.

Concerning criminal liability, unintentionally causing injury through negligence, lack of care, inattention or failure to meet a safety obligation comes either under the délit or contraventionnel legal regime. (articles 222-19 to 222-21 of the Criminal Code).

However according to current jurisprudence these provisions are not applicable to noise made at night in practising a profession (Paris Appeal Court, 16 May 1970), unless the noise is particularly severe (Criminal Court, 15 January 1974).

Mens rea is established in the event of negligence, lack of care, inattention or failure to meet an obligation of safety or care required by law or regulations.

8.2.3. Signal interference

8.2.2. Noise

8.2.4. View obstruction

Once again, no specific regulations relating to renewable energies are applicable in this case.

See the theory of abnormal disturbances in the vicinity developed in point 8.2.2.

See 7.1.2.

Nevertheless, it would seem that from the point of view of civil liability, the theory of abnormal disturbances in the vicinity of a power station which has undergone remarkable growth over the last few years, still falls under its scope.

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AVENS LEHMAN & ASSOCIÉS BALMS GROUP INTERNATIONAL

YOUR BUSINESS IS UNIQUE Since 1989, our lawyers have been assisting our clients on the basis of this shared viewpoint: What makes a company unique is its history, its managers, its know-how and its ambitions.

Knowing the assets, the strengths and the originality of the company help our lawyers to clarify their analysis and the legal solutions they offer.

OUR COMMITMENT Avens is a law-firm on a human scale, acknowledged by the clients as being concerned about offering efficient and high quality services, in all areas of business law. Our commitment can be stated as follows: Understanding: Structural operations, legal proceedings and consultations always take place within a context. Our lawyers endeavour to understand the company: its market, its history, its economic environment as well as the manager’s targets and expectations.

Deciding: Law is a strategic tool. We always put our clients’ requests in the context of their strategy perspective, of their ambitions and of their means. With them, we define the legal or judicial strategy and giving further thought to the problems, we polish up arguments and demonstrations. Advice or litigations: our lawyers’ recommendations help the managers to make enlightened decisions.

Doing: Guided by the quality requirements we have set ourselves, we put our teams to work on the cases we are entrusted with as efficiently as possible: with regard to relevancy, presentation, deadline and costs.

Our partnerships in France and abroad help us to support the company in its development.

PARTNERS Hervé Lehman Christine Sarazin Hortense de Saint Remy Fabrice de Korodi Katona

AVENS LEHMAN & ASSOCIÉS

MANAGEMENT

67 Bd Haussmann 75008 Paris France

Yves Repussard

LAWYERS Claudia Massa

Aurélie Boulet

Sabine Alix

Delphine Cuenot

Matthieu Mazo

Alexis Sobol

Morgane Brunaud

Tel: 00 33 1 40 67 87 67 Fax: 00 33 1 40 67 97 16 contact@avens.fr www.avens.fr

AREAS OF EXPERTISE ■ Economic Law: Distribution / marketing, competition, economic violation (national, community) public law, public procurement, criminal business law.

■ Corporate and Tax Law: Setting-up and legal follow up, operations on capital, mergers and acquisitions, transfers, executives’ status, franchise network, managers’ taxation, VAT litigation, relations with the administration.

■ Commercial Law: Agreements (drawing-up, negotiation support, audits), actions of contract, actions relating to liability, debt collection, emergency measures, ailing firms, insolvency proceedings.

■ Intellectual property and Communications: Trademarks, press law, publishing law, adverti¬sing law, audio-visual law, computer law, internet law, e-business law.

■ Human Resources: Individual and collective employment law. Drawing up of agreements, specific status, representative and control systems, employment litigations.

■ Real Estate and Construction: Property management. Selling, rental.

Construction. Building sites. Civil engineering. Subcontracting.

■ Bank and Insurance: Relations between banks and financial companies, insurance companies and provident societies with their environment: clients, consumer organisations, administrative regulation and competition authorities.

Florian Saguez

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GERMANY 1. Electricity Act 1.1. Introduction to the Legal Framework of the Electricity Market The Electricity Act comprises a multitude of regulations, which are stated in different sources of federal and state law. It can be seen as the sum of all the regulations, which deal with the supply of electricity (i. e. production, distribution, trade, sales). These regulations can either belong to public or to private law. So the Electricity Act is not a homogeneous, closed field of law.

With regard to German federal law, the Bundesimmissionsschutzgesetz (BlmSchG) and the Atomgesetz (AtG) should be mentioned as they deal mainly with the licensing of power plants. The Energiewirtschaftsgesetz (EnWG) contains handicaps regarding the assessment of plans and licences. Furthermore the regulations of the Baurecht (building law) as well as the Umweltvertr채glichkeitsrecht (UVPG) must be adhered to. The building of power plants must be approved in accordance with German regulations (land and water conservation laws and regulations).

There are no special regulations for renewable energy power plants. In Germany the use of renewable energies was supported very early on by obligating electricity producers to supply their (integrated) grid system with the electricity from renewable energies. Producers also received a minimum of compensation.

1.2. State Regulation of the Electricity Market By using the EnWG to implement the European Union Electricity Directive, the policies fostered more competition on the energy market. Within the scope of the EnWG, the Federal Network Agency (Bundesnetzagentur) in Bonn was appointed as the new controlling office for the German electricity and gas market in 2006. Its main function is the control and approval of charges and procedures of access to the electricity and gas markets.

The Bundesnetzagentur is responsible for companies that supply more than 100,000 clients, the rest of them are to be controlled by the states and their authorities.

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2. Main Renewable Energy Legal Matters: Solar, Wind & Hydro. Conserving land Property Requirements for Renewable Energy Projects and Property Rights in Renewable Energy Projects The requirements for renewable energy projects vary greatly with relation to the type of power plant being built. Therefore large plants like wind parks or hydro power stations not only have to go through a planning approval process but through the subjectspecific authorisation procedure. Small parks like solar cells on the roof of a house only need, if they have to be approved at all, an installation licence according to, for example, the building law.

States which fall within development planning and federal state planning (land-use planning) must draw up a major plan with the applications for the construction of plants according to the location, the type, extent and scale of development. They must state in the plan the blueprints for transmission lines and energy routes.

Regional and local authorities designate in which areas power plants can be built.

Types of Legal Agreements Federal and State authorities must issue a licence permitting the operation of a power plant. A contractual regulation between the

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operator of the power plant and the authority is neither necessary nor common.

The rights and obligations of the power plant operator and the authority are laid down in the plant approval/licence.

3. Permits and Licences 3.1. Land Use Permits and Operating Permits for Renewable Energy Projects In Germany there is no standardised approval procedure for the construction and operation of renewable energy power plants.

The scope and extent of the approval are determined by the type, location and size of the plant.

As nearly all local authorities and cities in Germany have declared areas for the construction of power plants, an approval procedure is in most of the cases not necessary. Only the subject-specific approval for the plant is necessary according to the BlmSchG or the BauGB. It is the responsibility of the federal and regional authorities. Small plants like the solar cells on buildings don’t need to be approved at all.

But there is a special regulation for off-shore wind parks. In this case they enjoy an accelerated approval process, as stated in the Seeanlagenverordnung. The responsible authority is the federal office for maritime shipping and hydrography (BundesamtfĂźrSchifffahrt).

3.2. Environmental Permits and Other Permits

4.1.1. Personal Liability of Owners

As local authorities have designated areas in the regional planning procedure on which power plants may be built, power plants are authorised only within these areas. They only have to undergo the subject-specific authorisation procedure according to BlmSchG or the BauGB.

Normally the owners of a power plant choose the legal structure with a limitation of liability, i.e. a public or private limited company. Therefore the personal liability of the owners is limited.

The construction and operation of power plants is determined under the Umweltvertr채glichkeitspr체fung (UVPG) if there are no designated areas, i.e. when local and public interests are not provided for in BlmSchG, BauGB and BNatG.

For the operation of a power plant, private investors generally choose a legal structure that not only has the benefit of a limitation of liability, but also benefits from tax regulations. As federal and regional authorities or communities operate power plants and are economically active, taxation with the aim of making a profit is not the main focus.

4. Choosing a Business Structure

4.1.2. Tax Assessment Methods

4.1.3. Complexity in Training and Operational Requirements

4.1. Choosing a Business Enterprise: Introduction to the problems that affect the choice of business enterprise Normally the structure of power plant operator or the energy supplier is a public limited company (AG) or a private limited company (GmbH), irrespectively of whether it is a privatelyor publicly-financed project.

In order to ensure the supply of electricity under the obligation of providing services of general interest, federal and local authorities have founded private companies or are the majority shareholder of such companies. In rural areas some plants (Biogasanlage) have the legal structure of a registered cooperative.

Anyone that produces electricity has the possibility to sell it to the local network operator. A complex grid for the transfer of energy was set up in order to ensure that the balance of use and production of electricity remains stable. The distribution of electricity throughout Germany and partly in Europe is ensured by large electricity suppliers. The highest federal authority is the Bundesnetzagentur. The approval for the construction and operation of a power plant is conditioned on the removal of energy and for the compensation which is to be paid.

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4.1.4. Impact on Incentives and Other Regulatory Restrictions The EEG (Erneuerbare-Energien-Gesetz) not only requires large electricity producers to be connected to the grid, but also a purchase guarantee with a guaranteed minimum tariff according to the kind of energy production for a certain fixed period of time (usually 20 years). As politicians can change the terms for the minimum tariff, they have the means to control, evaluate and

support the production of energy according to the type or origin of the renewable energy.

4.2. Types of Business Entities There are no regulations regarding the legal structure of a power plant. Normally the structure of the owner of a power plant is a public or a private limited company.

5. The Purchase of Equipment and Facilities 5.1. Tax and customs implications and possible supply limitations The production of electricity is financed by loans with low interest rates for the construction of plants or by the regulation of minimum compensation or tariffs for electricity producers.

The consumption of electricity is regulated by the electricity tax (Stromsteuer), which was introduced on 1st April 1999 as part of the ecological reform. From the very beginning it was not only introduced to gain higher revenues from taxation but also as a guiding instrument for policies.

The higher price for electricity due to taxation is an incentive, in private households as well as in the industrial sector, to use less electricity and to produce fewer harmful greenhouse gases (CO2), if the electricity was produced with fossil energy sources. Electricity which was produced with renewable energies is not taxed.

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5.2. Safety requirements, Operations and Maintenance Power plant producers and operators and grid operators have to adhere to valid regulations for state-of-the-art and current technical standards.

6. Financing Renewable Energy Projects

6.2. Negotiating Agreements with Lenders and Capital Investors The contractual obligations between the creditor and the private investor are laid down in the financing contract. As the private investor collects money from private individuals, the obligations of the investor and of the private individuals are shared, i.e. in the form of shareholdings or in accordance with the financing terms and conditions.

6.1. Financing large Projects Large power plants are financed by different major investors or through private placement financing in the form of funds. Private investors have the possibility to buy the whole power plant or to buy a share in different energy projects. But there are other ways of financing.

There are different institutions offering financial aid programmes for financing power plants in the form of subsidies, loans with low interest rates (for instance by the KfW banking group) or through tax privileges (tax write-offs, investment aid).

Major projects are normally financed by the European Investment Bank, the KfW-Bank or the regional banks (Landesbanken) of the lands of Germany.

7. Connecting to the Grid, Transmitting and Selling Power 7.1. Connecting to the Grid Government Regulation of Connections and Mandatory Connections under Public Utilities: Connection Procedures and Agreements In Germany the electrical grid is run by four large energy companies, which are responsible for the running of the electricity supply system and which have to ensure the distribution of electricity all over the country.

They are obliged to offer their electricity supply system to the providers against payment.

German legislature has declared that the grid operator and the supplier are completely separate legal personalities and entities.

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7.2. Transmitting and Selling Power: Performance of Energy Purchase Agreements with Public Utilities The EEG determines that grid operators have to integrate new producers feeding electricity from renewable energy sources into the grid.

They have to pay a guaranteed minimum price, which is determined for at least 10 to 20 years.

8. Liability in the Development of Renewable Energy 8.1. Liability for Negligence 8.1.1. Liability for Negligence as a Renewable Energy Project Owner/Operator There are no special regulations regarding the liability of operators of renewable energy power plants. For power plant operators the common regulations regarding liability are valid. According to this regulation it depends on the responsibility, i.e. the operator only has to pay compensation if the damage occurred because the operator acted negligent or deliberate. For power plant operators,

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the principles of strict liability are also valid. According to this regulation the person who is doing a dangerous activity or operates a dangerous machine or plant is liable for any damage suffered.

In the special laws the liability is limited or mostly excluded, if the damage occurred through force-majeure. The risk is also limited by a maximum sum for which the operator is liable.

8.1.2. Liability for Negligence as a Landlord in a Renewable Energy Project Normally farmers use renewable energies in form of plants for organic substances or in form of wind parks. According to the Bundes-Immissionsschutzgesetz (BlmSchG), regarding the approval procedure of the plant, all relevant details of the plant which have an impact on the environment will be examined and judged.

If the licence is granted and the technical standards and regulations are adhered to while the plant is in operation, the principles of strict liability are valid.

8.2. Liability for Nuisance As aforementioned, any damages caused by emissions to a natural medium like the ground, water and air, whether they are caused to persons or property, are regulated in special laws regarding liability (UmweltHG, BImSchG, AtomG, GenTG a. s. o.).

In this regulation only the responsibility in civil law for damages to the environment is regulated. However, anyone that causes damages to the environment will be sanctioned.

8.2.1. Personal Injury or Property Damage The liability standards which are fixed in special laws regulate the liability of the plant producer because of a product defect under the principle of product liability law (ProdHG). The owner and operator of a plant is liable according to the Umwelthaftungsgesetz or the BImSchG for death, bodily harm, health risks or property damage, which occurred due to any impact said plant may have had on the environment.

8.2.2. Noise, Signal Interference, View Obstruction, Wildlife Protection Depending on the type of power plants, different environmental repercussions can arise. In the case of wind plants the repercussions are noises, sound and shadow; in the case of bioenergy plants, the repercussions are smell and pollution of the ground and the water; and in the case of the solar cells the repercussions are radiation and reflection of light.

All laws and regulations establish maximum values for these repercussions, so that in the case that any of them crosses the limit, the owner or operator could be liable for any damages which may occur as a result.

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DR. PRYMUSALA ATTORNEYS-AT-LAW BALMS GROUP INTERNATIONAL

We became a member of Balms Group International, BGI, in August 2000. The terms “merger” and “globalisation” nowadays influence all business life in Germany, as well as the practice of German law. Thus, the keywords of the German legal world are, nowadays, manpower, specialization, know-how management, extension of cross-border activities, international offices and extension of fields of work and of legal services.

A growing demand for national and international legal assistance exists because of considerable competition in the areas of industry and services. A number of businesses, including small companies, have established offices worldwide and cooperate with international partners in order to increase sales. Furthermore, a considerable number of Germans invest in real estate for private reasons. In Spain alone about 500,000 properties are owned by Germans, because they long for sun and the Mediterranean countryside.

The demand is growing and an internationally active network is important in order to cater for the financial and private needs of many clients. Germany is also still an industrial country which welcomes foreign investment. In this respect, we are glad to be a member of Balms Group International, which enables us to provide our German and international clients with German and international legal advice.

MUNICH (MAIN OFFICE) The firm, Dr. Prymusala & Colleagues, was founded in Munich in 1989. Our modern office is situated in the center of Munich in the district of Neuhausen-Nymphenburg, near the U 1 subway. Thus, we can offer easy access to our clients. Furthermore, all the important courts are located close to the office. Our clients include members of medium-sized industry, service providers, associations and individuals.

OFFICE IN AU I.D. HALLERTAU

AREAS OF EXPERTISE The areas of work in which we are specialized are among other things: ■ Civil Law (national and international) ■ Compensation for damage ■ Contract Law ■ Employment Law ■ Inheritance Law ■ Law of Associations, including Sports Law ■ Compensation claims In the area of taxation we have been working, for a number of years, alongside tax consultants in Munich. In cooperation with two experienced notaries in Munich, we draft and implement all types of deeds and documents that require notarization, for example: real estate transactions and matters relating to Corporate Law.

DR. PRYMUSALA ATTORNEYS-AT-LAW MUNICH

In July 2003 the law firm Dr. Prymusala & Colleagues of Munich open a new office in the town of Au i.d. Hallertau to meet the request of a number of people, including local tradesmen, who wanted to be able to obtain legal advice without having to travel long distances. In Au i.d. Hallertau and the surrounding area, industry is growing fast, especially medium-sized and family-run companies. There are still tracts of undeveloped land available (perhaps an opportunity for a foreign investor) only a short distance from Munich Airport.

Nymphenburger Straße 148, 80634 Munich Germany

PARTNERS

Mainburger Straße 1, 84072 Au i.d. Hallertau Germany

AU I.D. HALLERTAU

Dr. Manfred Prymusala Joachim Leitl

MANAGEMENT Yvonne Dörre

Tel: 00 49 89 13 27 23 Fax: 00 49 89 13 27 43 kanzlei@prymusala.de www.prymusala.de

ITALY 1. Electricity legislation 1.1. Introduction to the legal framework of the electricity market The legal framework governing the Italian electricity sector is dispersed and a substantial number of different legal regulations apply. The Testo Integrato della disciplina del mercato elettrico, approved by Ministerial Decree of 01-04-2011, comprises the most comprehensive body of legislation in so far as regulation of the electricity market is concerned. Work has yet to be carried out to consolidate the texts of legislation governing electricity production from renewable sources and one therefore has to refer to a number of different regulations and laws.

Specifically, paragraph 1, article 2 of Legislative Decree 387/2003 identifies the various sources deemed in law to form part of the judicial regime governing renewable energies.

Thus, nationally, Italy has the PAN or Piano d’Azione per le energie rinnovabili (action plan for renewable energies) which serves as a guide for compliance with the so-called 20-20-20 objectives.

1.2. State regulation of the electricity market The most important legislation regarding the electricity sector (relating to renewable energies).

Market deregulation legislation: ■ Act 09-01-1991 No. 9: deregulation of electricity production from renewable and similar sources.

■ Directive 96/92/EC and Legislative Decree 16-03-1999 No. 79 (Decreto Bersani): deregulation of the electricity market.

Relevant national legislation, relating to renewable energies: ■ Ministerial Decree 01-04-2011, Testo Integrato della disciplina del Mercato Elettrico.

■ Legislative Decree 03-03-2011 “Decreto Rinnovabili”, bringing into law Directive 2009/28/EC for promoting the use of energy from renewable sources, duly amending and revoking directives 2001/77/EC and 2003/30/EC. ■ Decree 10-09-2010, implementing Legislative Decree 29-122003 No. 387, guideline for authorisation of facilities.

■ Law 23-07-2009 No. 99 (articles 27 and 31), comprising provisions governing the development and globalisation of companies also relating to energy matters.

■ Legislative Decree 29-12-2003 No. 387, bringing into law Directive EC/2001/77 regarding the promotion of electricity from renewable energy sources within the domestic electricity market. Legislation set out within this Legislative Decree comprises the minimum common denominator with regard to

a legal structure that has become fragmented both regionally and locally.

■ Legislative Decree 29-08-2003 No. 239 converted to Law 2710-2003 No. 290 (article 1-sexies), regarding urgent measures governing safety and development of the National electricity industry and electricity recovery.

■ Legislative Decree 16 March 1999, No. 79, bringing into law Directive 96/92/EC regarding common regulations governing the domestic electricity market.

2. Land conservation 2.1. Property requirements for renewable energy projects The provisions of Part IV of Ministerial Decree 10-09-10 as provided under article 16, regarding suitable areas for installation, must be adhered to when introducing electrical facilities into the countryside and geographical area, together with aspects taken into account by local authorities when granting permits. Compliance with just one of the requirements listed under the aforesaid legal principle is sufficient to obtain a positive evaluation.

Installation designs drawn up pursuant to ISO quality guarantee, among others, re-use of degraded areas and evaluated possibility of replacement of fossil fuels by renewable energies. If any of the scenarios set out under Article 17 of the same body of legislation apply, however, then the property will not be positively evaluated.

2.2. Property rights in renewable energy projects Pursuant to the provisions of paragraph 1, article 12 of Legislative Decree 387/2003, any works to carry out renewable energy facilities, as well as any works having to do with infrastructure deemed indispensable for the construction and execution of such legally authorised facilities, are deemed to be public utility works for urgent construction.

Land comprises equity and is not deemed subject to degradation in that it can always be used. From an accountancy point of view, any land acquired for subsequent use under the scope of a renewable energy project would be accounted for under the land category and not subject to amortisation; it is presumed that the residual value of land is equal to the acquisition cost at the end of the concession term.

One can also possibly look at surface rights (article 952 of the Italian Civil Code) as an alternative to acquisition of land. The owner of a given land can constitute a right to set up and maintain a construction on the surface of the land in favour of a third party who acquires ownership thereof and can dispose of this separately to ownership of the land. There are therefore two aspects to

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surface area: on the one hand, property rights relating to construction and, on the other hand, ownership of the surface area.

2.3. Types of legal agreement The operator must guarantee legitimate use of the land where the facility will be installed. In the case of privately owned land, contracts will have to be negotiated guaranteeing the use of the land by setting up rights and obligations. Bearing in mind the fact that renewable energy source facilities are deemed by law to be works of public interest, it should not therefore be difficult to reach agreement with private landlords. If the land concerned, on the other hand, comprises public land then one should look at the possibility of concession. If expropriation of the land is appropriate, then the provisions of Presidential Decree 327/2001 would apply.

3. Permits and licences 3.1. Land use permits See paragraph 2.1, which refers to Ministerial Decree 10-09-10 establishing suitable areas and requirements for establishment in a specific location.

Additionally, article 12.7 of Legislative Decree 387/2003 provides that electricity facilities may be located in areas classified by town planning departments as greenbelt under current town planning regulations. Provisions with regard to agricultural sustainability must be taken into account when choosing locations and particular attention paid to local agricultural sector customs, to safeguarding biodiversity and also to cultural heritage and rural landscape.

3.2. Operating permits for renewable energy projects The sole authorisation system established under article 12 of Legislative Decree 387/2003 and further implemented under Ministerial Decree 10-09-10 combines all the permits required to construct and change electrical energy production facilities supplied

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from renewable sources under one single procedure. Said sole authorisation must be issued by particular Region or Province with jurisdiction once a Services Conference has been convened (see Law 241/1990). All parties responsible for granting authorisations take part in such Conferences.

The documents that must be attached to an application for sole authorisation are set out under article 13 of Ministerial Decree 10-09-2010. The steps for authorisation are as follows: Facilities with P < 20 kW: ■ Declaration of Commencement of Business Activity (DIA) to be filed with the competent Local Authority.

■ Notification, if the area concerned is protected on historic or landscape grounds, to the Sovritendenza dei Beni Culturali.

■ Application to the local grid administrator to install a bidirectional meter.

Facilities with P > 20 kW: ■ Works licence granted by the Local Authority.

■ Environmental Impact Study (VIA), as appropriate.

■ Report from National Park Authority, in the case of a protected area.

■ Approval from Army Authorities if the facility will be located in an area near an army base.

■ Svincolo idrogeologico.

■ Under specific authorisations according to the type of power used.

■ Connection request addressed to the Transmission Grid Administrator (GSE).

■ Permit to act as an electricity bureau issued by UTF. ■ Application to GRTN for classification as IAFR (impianto alimentato da fonti rinnovabili, i.e. facility supplied by renewable sources), compulsory requirement for Green Certificate applications.

■ Agreements set down with the Grid Manager for the electricity concession.

■ Agreement with private individuals or acquisition of land or easements (optional).

3.3. Environmental permits Environmental legislation is set out under the Environmental Regulations (Legislative Decree 3-4-2006, No. 152). Permits and costs involved in carrying out reviews must be paid for by the interested party who has to submit an application to the competent authority (see Article 7 of the aforementioned regulation).

Part 2 Environmental Regulation sets out the appropriate permits as follows: ■ VAS (valutazione ambientale strategica, i.e. strategic environmental evaluation) (articles 11 to 18). Comprising the analysis and evaluation of drawings and schedules and includes checking compliance with all regulatory requirements, drawing up an environmental review, carrying out various consultations, issuing a report stating grounds, setting out the decision and a posteriori checks.

■ VIA (valutazione impatto ambientale, i.e. environmental impact review) (articles 19 to 28). Comprising individual preventive measures with regard to the effects of a project on the environment, in order to establish the most appropriate solutions for achieving legal targets.

■ IPPC – AIA (autorizzazione ambientale integrata, i.e. comprehensive environmental authorisation) (Arts. 29-dupl. Et seq.).

The purpose of this authorisation is to prevent and reduce pollution from research and experimental business activities. Sets out measures for avoiding or reducing residual emissions to air, water and land, thereby achieving a high level of environmental protection.

3.4. Other permits Regional or local legislation must also be taken into consideration. Given the continual development of Italian legislation, it is advisable to check websites for the particular Local Authorities directly for more information with regard to the procedures adopted by different regions and provinces. These have jurisdiction to issue their own legal provisions on a range of issues, including environmental permits.

4. Choosing a business structure 4.1. Choosing a Business Enterprise: Introduction to the problems that affect the choice of business enterprise 4.1.1. Personal liability of owners Liability may be limited or unlimited according to the type of business structure chosen. See paragraph 4.2. in that regard.

4.1.2. Tax assessment The main tax paid by legal entities in Italy is the IRES (imposta sul reddito delle societá), a proportional tax at the rate of 27.5% applicable to income under the category of company revenue (see Article 83 of testo unico delle imposte sui redditi). Companies resident in Italy for tax purposes are subject in this sense to the IRES as soon as they obtain income from Italy or abroad, whereas nonresident companies are only liable to pay tax on revenue obtained in Italy.

An additional tax applies in the regions referred to as IRAP (imposta regionale sulle attivitá produttive) and comprises a local levy applied on the value of production generated in each given tax period. Companies not resident in Italy are only liable to pay IRAP for the value of production obtained by means of company facilities located in Italy.

One should point out that renewable energy works and facilities are exempt from payment of the contributo di costruzione pursuant to Article 8.1 of Ministerial Decree 10-09-2010.

It is important to bear in mind the fact that the tax regime varies according to the particular type of facility. Equally, attention must be paid to the provisions set down annually under the Finance Law (Legge Finanziaria), which can change tax rates.

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4.1.3. Complexity in training and operational requirements Requirements necessary for a company to be allowed to operate an electrical power station, as provided under Article 3 of Ministerial Decree 22-01-2008 No. 37, are as follows: a. Entry on the companies register or provincial record of traditional companies. b. That the legal representative, who must exclusively hold the one position, meets one of the requirements of Article 4 of the same cited regulation (requirements referring to academic qualifications and professional experience). c. Filing the DIA (business start-up declaration) specifying the intended business activity together with evidence of compliance with compulsory requirements in that regard.

The provisions set down under regional or local legislation must also be taken into account.

4.1.4. The impact of incentives and other restrictions The most significant incentives insofar as electricity production from renewable sources is concerned are generally set out under Article 24 of the Decreto Rinnovabili and comprise: ■ ■ ■ ■ ■

Certificati bianchi (white certificates).

Ritiro dedicato dell’energia elettrica.

Scambio sul posto (SSP).

Tariffa onnicomprensiva (TO).

Quarto conto energia.

“Certificati bianchi”: Technically referred to as Titoli di Efficienza Energetica (TEE) (Energy efficiency certificates). These are declarations of energy savings achieved and can be sold. The white certificate equates to a savings of one TeP (Equivalent Ton of Petroleum). The AEEG establishes the energy savings target on

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a yearly basis to be achieved by each distributor. If a company fails to achieve the target it can purchase said certificates from third-party companies. Sales of White Certificates can be made through bilateral agreements or within the market created for that purpose by the GME. These are provided for under Ministerial Degrees of 24 April 2001, 21 December 2007 and Legislative Decree 115/2008, of 30 May. “Ritiro dedicato”: This refers to a simpler modality of electrical power transfer or with regard to other types of grid transfers (such as bilateral agreements or direct sale on the stock market) and is generally used with regard to smalland medium-sized facilities. This modality is governed by various decisions issued by the AEEG (Italian Energy and Gas Agency).

“Scambio sul posto” (SSP): Refers to one of several “valorisation” modalities for electricity produced by renewable energy facilities (another modality is the sale of electricity produced). This service must be requested by the interested parties and is provided by the Management of Electrical Services (GSE). The SSP is governed by an agreement set down between the facility owner and the GSE, with a one-year duration that can be tacitly extended.

“Tariffa omnicomprensiva” (TO): Refers to the alternative incentive system comprising green certificates in place since the end of 2007 (this excludes photovoltaic facilities). The term “omnicomprensiva” (all-inclusive) is used due to the fact that the character value covers both the incentive component and remuneration for the sale of electricity to the electricity grid. The TO tariff applies for a period of 15 years and its value is established on the basis of the various different renewable sources according to the provisions set down under Law 244/2007, subsequently amended by Law 99/2009. After said period of 15 years has elapsed, the electricity is paid for pursuant to the financial conditions provided under Article13 of Legislative Decree 387/2003.

“Conto Energia”: This refers to the incentive mechanism for installing photovoltaic facilities authorised under the GSE. This incentive is applied pursuant to the feed-in premium modality and comprises a tariff that incentivises by paying a premium for electricity reduced by the facility over a 20 year period (applicable both to self-consumed electricity and that sold to the National Grid). The Conto Energía modality forms part of the European programme to incentivise photovoltaic solar energy established in 2005 and the current version is the IV Conto Energía.

■ Partners’ limited liability: liability is limited to the provision of each partner to the company.

■ Partners and directors have separate legal capacity, whereby a company director need not necessarily be a partner, and vice versa.

■ The legal position of a partner may be freely transferred.

4.2. Types of business entities

5.1. Taxes and Customs Implications

Italian law provides for eight types of companies under the Italian Civil Code (Articles 2247 et seq.): three of these are personalised companies (societá semplice, societá in nome collettivo and societá in accomandita semplice), another three are capital companies (societá per azioni, societá in accomandita per azioni and societá a responsabilitá limitata) and the remaining types are the societá cooperativa and the mutua assicuratrice.

Additional costs comprise those payable by the company for use of intangible assets transferred to the specific location under conditions as required for operation (excluding finance costs). This therefore concerns the following costs: capitalisation and preparation of the location, transport, installation and packaging, connection to the grid, checking the business activity is operating correctly after having deducted cash flow from the sale of any particular promotions, etc. Specifically, some of the taxes payable, as examples, are:

The characteristics of personalised companies are:

5. Purchase of equipment and facilities

■ Unlimited and joint liability of partners with regard to obligations taken on by the company, where each partner is deemed liable to meet company obligations with all their present and future assets.

■ Partners and company directors are considered to be one and the same and a partner is therefore also deemed to be a company director.

■ The legal capacity as partner may not be transferred without the agreement of the other partners.

The characteristics of capital companies are:

■ “Fabbricati”: Notary costs arising from drafting the deed of purchase; tax for register entry of said legal act; project fees; costs incurred with regard to primary and secondary urbanisation which correspond to the owner by law.

■ “Impianti e macchinaria”: Facilities and machinery costs deemed by project preparation costs, transport, duties, land installation and preparation costs, specialists fees and technical reviews, assembly and start-up costs.

■ Separate legal personality, independent from the legal personality of the partners.

None recorded.

5.2. Possible supply limitations

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5.3. Safety requirements Safety measures are established in general in Ministerial Decree 22-1-2008 No. 37, which updates Presidential Decree 6-12-1991 No. 447 and comprise the legal regulation that must be adhered to for safety and maintenance of electrical facilities. By default and specifically when electricity is being produced, general safety regulations provided as set down under Article 1 Presidential Ministerial Council Decree of 31-03-1989 and subsequent amendments apply.

In the case of EPC (engineering, procurement and construction contract) the Developer is deemed responsible for health and safety liability at work. Article 93 of the Testo Unico Sicurezza establishes that the developer may appoint a “works director” and delegate all safety related issues to that individual thereby exempting the former from all liability in that regard. Legal personality is also particularly given to “the health and safety coordinator throughout the period of the works” and also to the “health and safety coordinator during execution of the works”; such persons must therefore have the corresponding professional qualifications. The following documents must be completed with regard to safety requirements, prior to opening the location where the works are to be carried out: a) the PSC (piano di sicurezza e coordinamento), b) preliminary notice and c) the file (fascicolo in Italian). The developer is responsible with regard to the PSC and the file, whereas the appointed works manager must provide the preliminary notice. A fundamental requirement with regard to all these documents is the certain date as this is necessary in order to be able to demonstrate, with regard to any a posteriori checks, that the documents concerned were duly requested prior to commencing works.

5.4. Operation and maintenance As established under Ministerial Decree 22-01-2008 No. 37, companies must carry out construction and installation pursuant to current legislation in force (UNI, CEI and regulations set down by other EU homologation bodies) and are deemed liable with regard to correct execution of the works.

Insofar as maintenance is specifically concerned, costs are classified according to various different types: i) ordinary maintenance, comprising normal maintenance and repair of assets and ii) extraordinary maintenance, comprising improvements involving a significant increase in productivity, capacity, safety or service life of the asset.

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There is therefore scheduled or cyclic maintenance, which refers to maintenance of facilities requiring regular attention.

6. Financing renewable energy projects 6.1. Financing large projects One of the most commonly used financial instruments for carrying out (medium and large size) investments as an alternative to traditional banking debt is the so-called project finance. This represents a structured type of finance and may be reimbursed from cash-flow generated by the finance project, and is granted to a vehicle company (referred to as project company or special purpose vehicle, SPV) established for the sole purpose of said project operation. The particular project would be evaluated by institutions with financing capability and which would comprise the principle guarantee for return of the amount loaned and return on risk capital. From a legal point of view, project finance is a technical vehicle that does not fall into typical contractual categories. It essentially comprises all of the contracts involved (finance agreement, guarantee, concession document, works and service contract) comprising the structure of the project finance between them.

Specific legislation must be taken into account however with regard to each energy type, given that leasing is the preferred finance method for certain specific facilities, such as photovoltaic facilities.

6.2. Negotiating agreements with lenders and capital investors See project finance under paragraph 6.1.

7. Connecting to the grid, transmitting and selling electricity 7.1.1. Government regulations applicable to connections Legislation governing connection of facilities to the grid is very dispersed under Italian law and special attention must be given to regulations issued by the AEEG (Electricity and Gas authority).

The main legislation in this regard comprises: Law No. 481/95, which defines technical and financial conditions for access to the

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grid; Legislative Decree 387/03, setting out facilities for installation of renewable energy power stations and Law No. 244/07 which, in addition to simplifying execution of installations, defines substitute procedures to the AEEG for scenarios in which the grid management fails to respond and for any possible disputes that may arise between producers and grid management.

7.1.2. Mandatory connection under public utilities: connection procedures and agreements Law 23-07-2009, No. 99 provides under Article 32 that the Italian connection agency is the company TERNA SpA and the producer company therefore has to negotiate with the former with regard to connection to an electricity transmission and distribution grid, in that this does not come under the procedure for sole authorisation covered by Legislative Decree 387/2003. Obligations with regard to connections are established under Article 3 of Legislative Decree 16-03-1999 No. 79, pursuant to which grid management may connect any entities that so require and duly comply with requirements in that regard to the grid and the former must furthermore guarantee continuity of service for as long as technicalfinancial conditions are duly met. Connection of the facility to the grid for electricity transfer is absolutely essential for success of any given project. Times and costs involved in connection must be agreed between the parties, according to criteria and rules set down in that regard by the AEEG. In practice, as soon as an connection application is received, the grid management, following due analysis and site visits, will provide the applicant with a provisional report and whenever that report is accepted by the latter, the parties will then undertake to carry out works as necessary in the time and manner set down by said Authority for connection to the grid.

7.2. Transmitting and selling electricity: the performance of energy purchase agreements with public utilities

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Electricity production, import, export, purchase and sale activities are free in so far as public service obligations set out under legal provisions are concerned (Article 1 of Legislative Decree 79/1999). The State is responsible for transfer and supply activities and these are attributed by concession to the national grid transfer management body. Electricity distribution is carried on under the legal provisions governing concession granted by the Ministry for Industry, commerce and works.

8. Liability in the development of renewable energy 8.1. Liability for negligence 8.1.1. Liability for negligence as Owner / Operator of a Renewable Energy Project Liability with regard to negligence is governed by Article 44 of Decreto Rinnovabili, which establishes government fines to be imposed on construction and execution of unauthorised works and facilities in amounts ranging from 1000 to 150,000 euros, according to the size of the facility or works carried out. Such fine will be imposed on the facility owner, on the developer and on the works manager. Furthermore, sanctions will be imposed on the same aforementioned entities in the event of works being executed without the simplified permit procedure, or in scenarios where the declared works and actual works differ, comprising government fines in an amount of 500 to 30,000 euros.

Separate to the obligation to have the appropriate permit and to return things to their previous condition, breach of one or more requirements as set down in the simplified procedure governed

by Article 6 will give rise to a government fines equivalent to one third of the least of the aforesaid amounts and will be imposed on the facility owner, developer and the works manager.

All the aforementioned sanctions are separate to any as provided under regional or local legislation.

8.1.2. Liability for negligence as land owner of a Renewable Energy Project See paragraph 8.1.1.

8.2. Liability for nuisance 8.2.1. Personal injury or damage to property

from 516.46 to 5,164.57 euros.

■ Breach of provisions set down under regulations implementing said law or regional, provincial and local entity provisions governing noise issues: from 1,032.91 to 12,911.42 euros.

Possible closure of a facility due to excessive noise is not covered under any specific law that may be imposed by adopting the “ordinanze di necessitá”, provided for under Article 9 of the Act.

8.2.3. Signal interference

No specific regulations exist governing liability for personal injury or damage to property as arising from a renewable energy project. General hypotheses governing compensation for damages as established under Article 2043 et seq. of the Italian Civil Code would apply.

Signal interference has to do with the quality of electricity distribution and several different regulations exist. These define methods and techniques for measuring parameters with regard to the quality of electricity supplied to the grid. The CEI (Comitato Elettrotecnico italiano) legislation EN 50160 must be considered in this regard, together with regulations governing the EMC (Norme sulla compatibilitá elettromagnetica) and AEEG decisions.

8.2.2. Noise

8.2.4. Obstruction of views

No specific regulations exist to sanction disturbances from noise as arising from renewable energy projects and the stipulations of the framework law governing acoustic pollution (Law 26-101995, No. 447) would apply. Said legislation provides sanctions for breach of its provisions, separate to any possible sanctions provided for under Article 650 of the Italian Penal code.

Visual contamination is a new concept referred to nationally within Cultural Patrimony Code No. 42/2004 and this does not establish any precise liability arising from audiovisual contamination. Regional and local legislation must be reviewed in this regard i.e. these matters are more specifically dealt with under regional and local law.

Government sanctions provided for under Article 10 of the aforesaid regulation, according to each particular scenario, are as follows:

8.2.5. Protection of wildlife

■ failure to observe legal procedures provided for by the government authority with jurisdiction under Article 9: from 1,032.91 to 10,329.14 euros.

■ Sanctions for exceeding values established in Articles 2.1. e) and f) for emissions in the course of carrying on fixed or mobile sound emitting activities, in addition to those provided for under Presidential Council of Ministers Decree of 1-03-1001:

Protection of wildlife was updated under European legislation set down in Legislative Decree of 16-08-2006, No. 251, setting out urgent provisions to ensure the Italian judicial system adheres to wildlife Directive 79/409/EEC. That regulation has not however been brought into Italian law. At the present time there are therefore no national regulations in this regard and local and regional wildlife regulations apply.

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CERUTTI & PARTNERS BALMS GROUP INTERNATIONAL

Cerutti & Partners, with headquarters in Milan and offices in Madrid, is a law firm specialized in advising and consulting companies, at judicial and non judicial fields.

The firm, founded by Mr. Massimo Cerutti, features, among its staff, highly skilled professionals who exploit their experience in order to achieve a major competence within Commercial, Company, International, Bankruptcy and Labour Laws. Such professionals, who are carefully selected and addressed towards specific professional profile, operate so that client companies find in the firm an adequate consultancy and a constant and valid reference point concerning the transactions underway.

AREAS OF EXPERTISE ■ ■ ■ ■ ■

Commercial Law Company Law Bankruptcy Law EU Law-Antitrust Employment and Labour Law

Cerutti & Partners, collaborating regularly with native speaking professionals, is able to carry out the dossiers in Italian, English and Spanish.

CERUTTI & PARTNERS PROFESSIONALS Avv. Massimo Giorgio Cerutti Avv. Gloria Bulanti Avv. Federica Cinnante Avv. Cinzia Parodi Dr.ssa Eleonora Ruggieri Ab. Carmen García Pérez

Via Durini 2 20122 – Milan Italy Tel: 00 39 02 76009493 Fax: 00 39 02 76008374 info@ceruttilex.it www.ceruttilex.it

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ROMANIA 1. Electricity act 1.1. Introduction to the legal framework of the electricity market 1.2. State regulation of the electricity market Since the adhesion to the European Union, as a member state, Romania has been compelled to enact the European directives and to establish a legal framework with regards to the electricity market.

Thus, the electricity market is mainly regulated by the ensuing laws which are complemented by other regulations such as the company law, the construction law and other specific ones: (1) Electricity Act no. 13/2007 published in part 1 of Official Gazette no. 51/23.01.2007.

(2) Law no. 220/2008 on the promotion of renewable energy production, republished in part 1 of Official Gazette no. 577 of 13 August 2010.

(3) Government Decision no. 1892/2004 on establishing a mechanism for promoting the production of electricity from E-RES, published in part 1 of Official Gazette no. 1056 of 15 November 2004.

2. Land conservation 2.1. Property Requirements for Green Energy Projects 2.2. Property Rights in Green Energy Projects 2.3. Types of Legal Agreements To construct on land in Romania, one must acquire a right to use the real property which, according to Construction Law no.

50/1991, republished in part 1 of Official Gazette no. 1066 din 17/11/2004, as further amended and supplemented, can be (i) a property right or a dismemberment of such right (superficies, usufruct, easement rights) procured typically through a notarised agreement or (ii) a concession right procured through a concession agreement.

3. Permits and licences 3.1. Land Use Permits 3.2. Operating Permits for Green Energy Projects

3.3. Environmental Permits Stages to be fulfilled to start-up an E-RES generation facility: The Urban Planning Certificate is issued at the request of any interested person by the Local Public Authorities and it is an informative document, aiming to provide a complete list of prerequisite approvals, consents, permits and authorisations for a building permit.

The following step is to obtain a Site Permit, a Feasibility Study and a Grid Connection Permit; all these documents are issued by Network Operators.

The Site Permit is required for the development of any construction and any electrical installation, if it is a requisite under the Urban Planning Certificate and if the installation will be located in the security zone of an energy facility. Thereafter, for the purpose of establishing the most advantageous connection, from economical and technical perspectives, the network operator prepares the Feasibility Study which is however paid by the developer of the E-RES generation facility. Once the connection method has been decided on, the following step is for the developer to make a general estimation of the costs of the connection which will serve as a basis for the computation of the connection tariff and to submit the documentation for the issuance of the Grid Connection Permit. The latter represents the network operatorâ&#x20AC;&#x2122;s reply to the developerâ&#x20AC;&#x2122;s application and includes data regarding the grid connection method, the approved capacity, the works to be carried out for the installation of the E-RES generation facility, the documentation to be submitted for the performance of the connection agreement, the value of the connection tariff and a number of technical specifications regarding the E-RES generation facility.

The local distribution network operator will issue the Grid Connection Permit for those projects with an installed capacity of less than 50 MW, while the Romanian electricity transmission operator will issue it for capacities greater than 50 MW. Furthermore, it is necessary to obtain the Technical Specifications issued by Local Public Authorities and containing the related drawings. The economic and technical solutions for the fulfilment of the investment should be prepared by an authorised architect and an authorised engineer. The technical specifications will contain the relevant documents and drawings required for the Building Permit.

The next step is the Environmental Agreement that includes the application for and the granting of the Environmental Agreement is mandatory for public and private projects where such projects significantly affect the environment by their nature, size or location. However, should a project not adversely impact the

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environment, the relevant environmental authority will endorse the implementation of the project without the prerequisite of Environmental Agreement and, on a case-by-case basis, provide certain terms and parameters that must be observed within the project construction and development.

Another very important document is the Building Permit, which may only be requested by the holder of a valid title upon the land.

Usually the documents requested by the Urban Planning Certificate in order to apply for the building permit are: Title deed, PAC documentation, Electrical energy connection, Telephone connection, Environmental protection, Population healthiness, Romanian Civil Aeronautic Authority, National Administration for Land Improvements, Withdrawal from agricultural circuit, PUZ (endorsed and approved), Authorisation taxes.

Subsequent to the granting of the grid connection permit and the building permit, the developer will enter into, together with the network operator, the connection agreement which will entail the payment of the connection tariff and the implementation of connection works within the terms of the agreement.

Developing of new generation facilities is subject to Establishment Authorisation from the National Energy Regulatory Authority (hereinafter â&#x20AC;&#x153;ANREâ&#x20AC;?) whereby ANRE determines the duration of the permit in accordance with the necessary period for the relevant works and commissioning thereof and in association with the terms specified in the documents submitted by the applicant.

To generate electricity and to commercially operate the generation facility, the developer should obtain from ANRE the Electricity Generation Licence following a strictly regulated procedure.

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3.4. Other Permits Furthermore there are other licences and permits that are required in the projects that involve other types of renewable energy sources. For example in the event that the project uses water as a source of renewable energy, it is necessary to obtain several approvals and permits from the Ministry of Waters and Environmental Protection.

4. Choosing a Business Structure 4.1. Choosing a Business Enterprise: Introduction to the problems that affect the choice of business enterprise 4.1.1. Personal Liability of Owners 4.1.2. Tax Assessment Methods 4.1.3. Complexity of Training and Operational Requirements 4.1.4. Impact on Incentives and Other Regulatory Restrictions

4.2. Types of Business Enterprises In order to start up an E-RES generation facility, the investor has to set up a Romanian legal entity as a special project vehicle. There are five company forms regulated by Romanian Companies Law no. 31/1990, republished in part 1 of Official Gazette no. 1066 of 17/11/2004, as further amended and supplemented, yet two of them (i.e. the joint stock company and the limited liability company) are customarily used by the majority of investors due to standard corporate governance rules.

Moreover, the most used company structure for developing such an E-RES generation facility is the limited liability company, and according to the legislation in force regulating the incorporation and development of said company states that the shareholders shall be liable towards third parties only up to the amount submitted as the share capital of the legal entity. Their liability is restricted to those contributions in money or in kind. Besides, the formation and registration of a limited liability company with the competent authorities, such as the Trade Registry where the company has located its headquarters, is not as complex and thus a limited liability company can dully function within 4 days.

The taxes to be assessed for developing an E-RES generation facility as a limited liability company are twofold: those on the income of the company following the development of the E-RES project and those on the dividends distributed to the shareholders, if appropriate.

5. The Purchase of Equipment and Facilities 5.1. Tax and Customs Implications 5.2. Possible Supply Limitations

within the EU there are no taxes; otherwise there will be tax and customs implications as per the regulations in force.

In regard to possible supply limitations, the Electricity Law permits the distribution operator to limit the energy supply in the event that it puts at risk the life or health of humans, or the integrity of materials; to prevent or limit damage to power equipment in the electricity network areas or national electricity system; or to execute operations and works that cannot be performed without interruption.

Concerning the safety requirements, Electricity Law no. 13/2007 states that in order to protect the transmission lines, individuals and legal entities are forbidden to build in the safety area of the facilities without having obtained a site permit issued by the network operator and system operator. Nor are they permitted to carry out excavations of any kind or to establish plantations in the area of transmission lines; to store materials on passageways and in the protection and safety areas without the approval of the network operator and the system operator; to damage or permit the deterioration of buildings, fences and identification and warning inscriptions related to the transmission lines; to limit or to obstruct by means of fences, buildings or by any other mode of access to the equipment of the network operator and the system operator.

5.3. Safety Requirements 5.4. Operations and Maintenance With regard to the purchase of the technical equipment required for developing an E-RES generation facility, the place of purchase must be taken into account; meaning whether or not it is acquired within the EU. Hence, if the technical equipment is acquired from

6. Financing Green Energy Projects 6.1. Financing Large Projects 6.2. Negotiating Agreements with Lenders and Capital Investors

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When it comes to financing an E-RES generation facility, there is no one-size-fits-all solution. Tailoring the right funding structure for such developments depends on where the E-RES generation facility is planned to be built, what scale of project is contemplated, and whether it’s a purely private or community endeavour.

However, the majority of Romanian financial institutions grant in most cases the needed funds for the investment in and development of E-RES generation facilities.

The Romanian legislation in force, as per Law no. 220/2008 on promotion of renewable energy production, also provides incentives for E-RES generation facilities. Energy, regardless of the source, is sold at the market price and the price is established based on market offer and demand, and agreed by the generators and suppliers/traders through Energy Purchase Agreements.

In addition to this market price, each E-RES generation facility source which qualifies for the aid receives a number of green certificates from Transelectrica. This is variable depending on the sources of energy for each MWh of green energy delivered into the national grid.

The green certificates received by the E-RES generation facilities can be traded independently of the quantity of energy they represent (i.e. 1 MWh) on the green certificates market, which is separate from the energy market (or on the centralised green certificates market). The minimum and maximum price levels for green certificates are established by law. Thus, up until 2014, the minimum price per certificate is €27, and the maximum €55.

State aid to encourage renewable energies is also available under various other schemes, one targeted specifically at renewable

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energies, others supporting investments in general. But these schemes are only available for: ■ Projects which have not been financed with any other public funds, and where the funding was sought and approved before work had begun (preliminary studies do not count); ■ Initial investments such as the acquisition of land, machines and know-how to set up a new unit or expand an existing one, or to make fundamental changes in the global production process; ■ Investment in entirely tangible assets, including land (up to 10% of eligible costs), buildings, equipment or facilities; ■ Investment in entirely intangible assets for SMEs (or up to 50% of eligible costs for large companies), such as patents, licences and know-how; ■ A mixture of tangible and intangible assets but not VAT, interest and other commissions, second-hand equipment or operational costs.

The schemes are open to companies of all sizes and sectors apart from several exemptions. Costs which are eligible under one scheme cannot be counted under another. Any costs which are wholly or partly eligible under more than one scheme will be allocated to the scheme with the higher upper limit.

Furthermore, in respect of the funds available to support the investments in the construction and modernisation of power units, Government Decision no. 750/2008 has approved a scheme of regional state aid regarding operation of E-RES generation facilities.

The scheme was elaborated in accordance with the Sector Operational Programme “Increase of Economic Competitiveness”

Priority Axis 4 “Increasing energy efficiency and security of supply, in the context of combating climate change”. The funds are available until the end of December 2013 and the estimated budget is €200 million (in lei), out of which 88% represents non-reimbursable funds from the EU and 12% from the domestic budget.

Eligible applicants are small, medium and large enterprises, to the extent that the value of the project does not exceed €50 million.

The level of financing is 40% for the enterprises located in Bucharest-Ilfov region and 50% for the other regions of development.

7. Connecting to the Grid, Transmitting and Selling Power 7.1.1. Government Regulation of Connections 7.1.2. Mandatory Connection under Public Utilities: Connection Procedures and Agreements

7.2. Transmitting and Selling Power: Performance of Energy Purchase Agreements with Public Utilities Electricity Law no. 13/2007 and Government RegulaƟon approved under Decision no. 90/2008 provide technical condiƟons for accessing the electrical grid.

To access the grid, electricity producers must apply for a technical permit issued by the grid operator. The price of the permit depends on technical variables of the electrical power facility.

The Grid Connection Permit includes data regarding the grid

connection method, the approved capacity, the works to be carried out for the installation of the E-RES generation facility, the documentation to be submitted for the performance of the connection agreement, the value of the connection tariff and a number of technical specifications regarding the E-RES generation facility. The local distribution network operator will issue the Grid Connection Permit for those projects with an installed capacity of less than 50 MW, while the Romanian electricity transmission operator will issue it for capacities greater than 50 MW. For the purpose of establishing the most advantageous connection from economical and technical perspectives, the network operator prepares the feasibility study which is however paid by the developer of the E-RES generation facility.

Subsequent to the granting of the grid connection permit, the investor will enter into, together with the network operator, the connection agreement which will entail the payment of the connection tariff and the carrying out of connection works within the terms of the agreement. However, the performance of the connection agreement is not mandatory if there is no need for new works or modifications of the exiting connection installations. Access to the public grid by investors is a right recognised under expressly stated conditions of the law and has to be observed by the network operator, as well as by the power supplier. Nevertheless, access to the grid could be restricted to the extent that the security of the National Power System is not affected.

The E-RES producer may sell the E-RES on the energy market, similar to any other electricity producer, obtaining the market price. For covering the entire generation costs and for obtaining a

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reasonable profit, the producer receives a green certificate for each MWh of electricity supplied in the electricity network. This green certificate may be traded within the legally set-up price limits.

8.2.1. Personal Injury or Property Damage

The wholesale of the E-RES on the energy market includes regulated contracts and mutually negotiated contracts between producers and suppliers, regulated contracts for covering the network losses, producer-producer and supplier-supplier bilateral negotiated contracts, as well as contracts concluded on centralised markets â&#x20AC;&#x201C; Centralised Market of Bilateral Contracts (CMBC), Centralised Market of Partially Standardised Bilateral Contracts, with continuous negotiation (CMBC-CN) and on the floor of the RCE (Romanian Commodities Exchange) regarding energy, transactions on Day-Ahead Market (DAM) and on Balancing Market (BM).

8.2.3. Signal Interference

8. Liability in the Development of Renewable Energy 8.1. Liability for Negligence 8.1.1. Liability for Negligence as a Renewable Energy Project Owner/Operator 8.1.2. Liability for Negligence as a Landlord of a Renewable Energy Project

8.2. Liability forNuisance

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8.2.2. Noise

8.2.4. View obstruction The Electricity Law no. 13/2007 states the liability of any person in regards to the noncompliance with this law.

In addition to that, licence and permit holders are liable for any damage and prejudices that they cause the land owners next to the E-RES generation facility in the circumstances of interference for the refurbishment, repair, maintenance or failure thereof.

In the event that the landlords in the vicinity of the licence and permit holders that have the easement and use rights for these lands are affected by their activity, the landlords have the right to receive compensation for the produced prejudices. The amount of these compensations is determined by the agreement of the parties or by the law. In the calculation of the amount of compensation, the following will be taken into account: the surface area affected by the performance of the works concerning the ERES generation facility, the type of crops, plantations and facilities affected by the works; as well the activities restricted by the performance of the works.

In regards to noise and signal interference, the E-RES generation facilities owner/operator is obligated to pay for any noise pollution following â&#x20AC;&#x153;the polluter paysâ&#x20AC;? principle. Noise and signal interference are considered noise pollution due to the fact that they

affect the environment and the human activity in the vicinity of the E-RES generation facility as well. As a consequence of applying this principle there are three situations as follows: the first refers to preventative actions taken by the E-RES generation facility owner/operator, the second refers to the remedies taken by the E-RES generation facility owner/operator as a result of the damage produced and the third states that if the operator does not have enough financial resources, then the countries that apply the same â&#x20AC;&#x153;the polluter paysâ&#x20AC;? principle would find a solution for that case.

Moreover, depending on the nature, size or location of the ERES generation facility to be built, the Environmental Impact Assessment procedure must be undertaken as per Romanian and EU law in force. This procedure is required in order to obtain the Environmental Authorisation and its main purpose is to identify any potential environmental problems associated with the E-RES generation facility, assessing its scale and impact and identifying, if necessary, the measures to avoid or reduce these effects.

Specific tests and subtests will be run within the Environmental Impact Assessment procedure as required for the Environmental Authorisation with regard to the impact of the E-RES generation facility on the following: protected areas and local wildlife; noise; visual obstruction; aesthetics; cultural heritance; the quality of soil, water and air; electromagnetic radiations; the flicker effect; as well as of the impact of the E-RES generation facilityâ&#x20AC;&#x2122;s decommissioning over the land (which depends of the type of the E-RES generation facility).

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BALMS & ASOCIATII BALMS GROUP INTERNATIONAL

Balms & Asociatii is a full service Romanian law firm and one of the international offices of the Spanish Group Balms Abogados. It is also part and founding member of Balms Group International, BGI, a network of independent law firms present in more than 20 countries throughout Europe, North and South America, Africa and Asia.

We offer a comprehensive, tailor-made service of the highest quality that distinguishes our firm. With over 20 years of experience in the law field, comprehensive service, personalized treatment, thorough analysis of all matters and the specialization and continuous training of our partners and professionals are the pillars on which the work of Balms & Asociatii is based, striving for excellence and the absolute satisfaction of our clients.

Balms & Asociatii offers a wide-range of quality legal services, custom-made to fulfil the expectations and needs of each of our clients in all spheres of Private and Public Law. Our advantage over other law firms in Romania is the possession of know-how and our links between the local reality and the international community. The members of our staff have deep roots into Romanian culture, its traditions and people. They always consider the best juridical solution according to the plans and objectives of the client.

Our law firm received ISO 9001 and ISO 14001 certificates which proves the high quality services that we offer to our clientele.

The collaboration among international and Romanian lawyers enables us to efficiently combine knowledge of the local reality with the know-how of professionals throughout the offices that make up the network of Balms Group.

AREAS OF EXPERTISE ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Litigation Foreign investments Banking and finance Energy Real Estate General Corporate and Company Law Mergers and acquisitions Commercial Law Competition law Copyright and Intellectual Property Law Environmental Law Employment Law and immigration Financial services Mediation and arbitration Public procurement Taxation Administrative Law

PARTNERS Juan Luis Balmaseda de Ahumada y Díez Julio Aguado Arrabé Katja Blackmer Óscar Gómez Monasterio Jorge Martín Losa Dragos Visan

ASSOCIATES Professor PhD. Florin Ciutacu Ramona Matei Maria-Cristina Mihai Camelia Ochiana Milena Barroso George Trandafir Andreea Tanase

BALMS & ASOCIATII 8-10 Anton Pann Street 3rd District 030796 Bucharest Romania Tel: 00 40 21 232 10 18 Fax: 00 40 21 233 10 18 office@balms.ro www.balmsabogados.com

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RUSSIA 1. Law of Electricity Legislative and normative base for renewable energy development in Russia is still in the initial development stage. Generally, the renewable energy industry in Russia remains largely undeveloped, hindered by low tariffs for conventionally sourced electricity and lack of clear rules for operating in the sector.

The electricity sector is governed by general and special legislation. General legislation is presented by the Constitution of the Russian Federation, nearly by all Codes – the Civil Code, the Land Code, the Tax Code, the Budget Code, the Customs Code of the Russian Federation, etc. Special legislation includes: Federal Law No. 35-FZ “On the Electric Power Sector”, Federal law N 28-FZ “On Energy Saving”, “On state regulation of prices and tariffs for electricity and thermal energy”, etc.

There is also a technical regulation and, finally, the regulation of international law in the form of international treaties. It is worth noting the Energy Strategy of Russia for the period until 2030 and the Federal Law on Energy Saving which encourage the development of alternative energy sources.

A new national energy strategy for the period untl 2030, approved by the Russian government in November 2009, aims to reduce Russia’s dependence on fossil fuels by increasing the share of renewable sources in its energy mix.

Over the last decade, significant steps have been taken to reform the Russian energy sector, including privatisation, de-monopolisation and diversification of the energy mix.

2. Securing the land The plot of land on which it is planned to arrange a system of renewable energy sources (e.g. solar power station), should be either privately owned by the entrepreneur, or can be used on the terms of land lease.

In this area, the following laws shall apply: the Land Code, the Civil Code, the Forest Code, the Water Code. There are no special rules governing the provision of ownership and lease rights to plots of land for the construction and installation of renewable energy sources in the Russian Federation.

If the land is not owned by citizens, legal persons or municipalities, it is public property, in accordance with paragraph 2 of Art. 214 of the Civil Code of the Russian Federation (hereinafter the CC), Section 1, Art. 16 of the Land Code of the Russian Federation (hereinafter the LC RF).

The ownership right in plots of land arises on the bases provided by civil and federal laws and is subject to state registration in accordance with the Federal Law “On state registration of immovable property and transactions involving such property”.

Thus, pursuant to the provisions of the CC and the LC of the RF, such grounds include the following: acts of state bodies and local authorities, which are provided as a basis for land rights, contracts and other transactions provided for by law, the purchase of a plot of land on the grounds prescribed by law (for example, in the case of transfer of land rights, buildings and structures are built on the plot during the transition of ownership); judicial decisions.

The Energy Strategy of Russia for the period until 2030 can be defined as the basic document containing a system of scientific statements about the long-term priorities of state policy and its implementation mechanisms. It identifies priorities; orientation and structural funds; regional scientific/technical, environmental and climate policy in the energy supply of the country. It also defines the means and mechanisms for implementing the provisions set forth, among which the leading role is given to the adoption of regulations that implement the main provisions of the Strategy.

The land is rarely owned. By contrast, it is more commonly used on lease agreement terms. Land lease agreements are fixed-term contracts and are subject to state registration, if their term exceeds 1 (one) year. Upon expiration of the land lease agreement, the lessee has the priority right to enter into a new land lease contract, except for certain cases.

Legal regulation of the electricity industry is exercised at the federal level. The subjects of the Russian federation and local government bodies have the right to take regional and municipal programmes in the field of energy conservation and energy efficiency, the contents of which can not contradict federal laws.

The intended purpose of a plot of land should be taken into account. For example, construction is prohibited on agricultural lands. The LC of the RF delineates the provision of land for construction and for purposes not related to construction. Par. 4 of Art. 28 of the LC of the RF specifies that the provision of stateor municipally-owned plots of land for construction purposes can be denied only in certain cases: withdrawal from the market area, prohibition of privatisation by federal law; reservation of plots of land for the state or public needs.

The lease contract of state or municipal plots of land is based on the results of the public authorities or local self-government auction.

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3. Permits and Licenses In accordance with the principles of land law, enshrined in the Land Code of the Russian Federation, all lands are divided into categories by purpose, according to which legal regime is determined by the land and its use in accordance with the zoning of the territories and the laws.

The LC RF, which establishes the list of land categories, provides said category, like energy production. Land is used in accordance with its established intended purpose.

The type of permitted use of the available types of zoning areas are chosen independently, without additional authorisation and approval procedures.

Lands of power industry: lands that are used or intended to support the activities of organisation and operation of power plants.

In accordance with the Federal Law “On the sanitary and epidemiological welfare of the population”, the provision of land for construction is allowed with the sanitary-epidemiological ends when the intended use of land is in compliance with the sanitary regulations.

In fact, licensing and legislative regulations of the operation of power plants are under development.

There is a draft law “On renewable energy sources”, which provides for the licensing, supervision and control in the use of renewable energy sources.

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The Government Executive Order of 08.01.2009 “On main directions of state policy in the field of energy efficiency of electric power using renewable energy sources in 2020,” analyses the state of renewable energy in Russia. It also provides a plan for the implementation of measures to improve the legal regime of natural resources for construction and operation of power generating facilities using renewable energy sources.

Power plants must operate on the basis of renewable energy in order to qualify.

Information about the power plant must be provided in the Register regarding the issuance and redemption of certificates proving the amount of qualifying electric power generated on the basis of renewable energy.

The Federal Law “On Environmental Protection” sets out specific limits of permissible impact on the environment.

For exceeding the established limits of permissible impact on the environment and other subjects of economic activity, transgressors will be held responsible depending on the harm caused to the environment, in accordance with the law.

4. Choosing a Business Structure There are no legislation restrictions about choice of business structures, it can be state-owned enterprises, which are financed by government budget, or business companies and non-profit-making

organisations, which are financed by foreign and other investments.

For example, mini hydro power plants and wind power plants are usually organised as stock companies (scientific production companies). The direction of Government policy in this area of energy production is focused on the introduction of resources and powers of SMEs to construct new power plants and develop new equipment to become more independent of Europe and the USA.

companies which have a generating capacity of more than 5 MW but less than 25 MW have a choice of markets.

There are no restrictions in the Tax Code on creating and selling renewable energy, but there is Government Executive Order dated 08.01.2009 which involves the system of additional charges, which is paid over the equilibrium price of the energy wholesale market; entitlement payments from national budget, which are indemnifying the value of technical connections to the power grid for oscillating objects with a total capacity of at least or equal to 25 MW; and liabilities of transmitting and distributing companies in priority renewable-energy purchases for compensation of their own expenses in power transmitting processes. Unfortunately, as this order forms part of the administration’s Governmental Acts, for the time being this question has not been resolved by legislative authority.

2. As mentioned above, there are no restrictions on choosing a business structure. Essentially, there are stock companies and nonprofit companies in this area. Stock companies can be created as scientific production associations, inter-sector scientific/technical companies, factories, etc.

There are some administrative restrictions in market authorisation of renewable-energy companies. For example, there are restrictions on generating capacity: 1) companies which have a generating capacity of less than 5 MW are only authorised on the retail market; 2) companies which have a generating capacity of more than 25 MW must sell energy only on the wholesale market; 3)

Russian scientists call this area of energy “non-traditional” and “uncommon” and they are right, because the renewable-energy area in Russia is in the initial development stage. That is why there is not a lot of legislative acts and more administrative regulations on important matters, such as tax, duties and fees.

It is important to distinguish between companies that produce and sell energy and companies that perform maintenance services on equipment. Maintenance companies are usually organised in business companies (stock companies and LLC), which is create in development design technical offices.

5. Equipment Purchase and Installation Primarily, this question depends on oscillating equipment, because without the installation of generators certain companies have no business purpose. The capacity and technical requirements of oscillating equipment should be certified, accident-free and foolproof. The Government of Russia determines certification of oscillating equipment by its Acts.

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There is different specific equipment, such as solar batteries and collectors, photo-elements and modules for solar energy production, thermo compressors, hydro-electric sets, wind turbines for water pumping, etc.

There are a lot of equipment makers in Russia in the hydro and wind power sectors, etc. For example, the primary Russian equipment maker is INSET, a joint stock company, from Saint Petersburg, which develops a lot of new devices and machines for small hydro power plants. All equipment for geothermic stations was created by Russian specialists.

However, these advances have not helped Russia gain independence from Europe and America. That is why its governmental strategy consists of the intentions of raising the level of equipment quality, developing innovative technologies, raising the professionalism of specialists in this sphere and creating profitable work conditions.

Unfortunately, as we mentioned, the Russian Tax Code does not contain specific fees for the renewable-energy industry.

6. Financing a Green Energy Project One of the trends in improving governance (management) in the field of energy efficiency by using renewable energy sources is to provide development and implementation of measures intended to attract non-budgetary investments for construction and

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reconstruction of existing generating facilities, which operate on the basis of renewable energy.

This includes active development of international cooperation in this sphere. Foreign investors able to share their experience in this field are being attracted. Moreover the mechanism of publicprivate partnerships (the PPP) can be used (this opportunity is expressly provided for in the energy development strategy of the Russian Federation until 2030). The process of implementing public-private partnership is governed by the laws on PPP and concession agreements. Specific regulations governing PPPs in renewable energy area does not exist.

Currently, energy sector funding, including renewable energy sources funding, is carried out mainly through state (budget) funding, as well as extra-budgetary funds. The energy development strategy of the Russian Federation until 2030 contemplates an increase in: the role of government participation in the development of the Russian energy sector, including, inter alia, provision of necessary resources for construction and modernisation of energy infrastructures; in the provision of government guarantees to entities for the realisation of priority long-term investment projects; in the support of the financial-economic sustainability of energy companies.

In addition, the Government of the Russian Federation by virtue of par. 34, sub-article 1 of Art.21 of the Electricity Law must support the use of renewable energy sources and promote the use of energy efficient technologies in accordance with the budgetary legislation.

Single decrees and directives of the executive authority may provide for the allocation of funds from the federal budget aimed at the development of renewable energy sources.

In our opinion, in Russia, it is easier to develop “renewable” energy on the basis of existing power plants than starting from scratch (it is so because of administrative barriers). Electric power stations, hydroelectric power stations and other facilities that generate energy, are usually governmentally owned and are natural monopolies with dominant positions. This hinders access of investors, particularly foreign investors, to the plants. The purpose of the energy strategy is to increase the number of public utilities and increase investments in public assets of energy companies.

The provision of credit funds and the process of negotiating and entering into agreements with lenders and investors in the energy sector do not differ from the provision of credit to businesses in other spheres. There is no specific way of negotiating and providing credit to renewable energy entities under law.

However, subject to par. 5, sub-article 1 of Art. 67 of the Tax Code of the Russian Federation N 146-FZ, dated 31 July 1998, it is possible to provide an investment tax credit to an organisation investing in renewable energy projects. An investment tax credit provides the organisation with an opportunity to reduce their tax payments for a specified period and within certain limits. Investment tax credit may be granted for organisations’ income tax as well as for regional and local taxes. An investment tax credit may be granted for a period from one to five years.

7. Interconnection, Transmission and Selling Power The meaning of “electrical grid” referred to in Russian Federal Law “On the electric power industry” and other Acts of Government. Electrical Grid is a complicated term, it consists of producing and selling renewable energy companies, maintenance and technical companies, transmitting companies, etc.

The major electrical grid is the Unified Power System (UPS) of Russia, which consists of six transmission system operators, a lot of energy companies, power plants at different levels, etc. There are small hydro and wind power plants too.

Different renewable energy companies can unite in one energy concern or holding; electrical grids are not restricted. The creation of an electrical grid or the conclusion of an Agreement of adhesion is the same as for connecting companies or non-profit organisations; they are regulated by the general provisions of Civil and Contract Law in Russia.

There are two specific types of contracts between renewable energy facilities, which are regulated by the provisions of Energy and Civil Law: contracts of sale and power capacity on delivery and bilateral contracts of transmitting power capacity. The first type was created as a guarantee by investors, ensuring that their power capacity is solvent and that the Russian energy market will be able to pay for it. As mentioned above, power capacity should be defined by specifications drawn up by the government. Bilateral contracts

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are entered into by generating and consuming entities on armâ&#x20AC;&#x2122;s length terms agreed between the two parties of this contract.

8. Liability Concerns for Green Energy Development Unfortunately due to a lack of legislative regulation of the generation of renewable energy, a specific liability in this sphere is not consolidated at all. A common basis of liability is consolidated in the various codes and can be used in cases of violations in the renewable energy sphere.

Different types of liability are determined by legislation.

Administrative responsibility: executive authorities may intervene in the event of perpetrators. The main legal act is the Code of Administrative Violations.

Civil liability: arising from the breach of property and personal rights of citizens and organisations. The main legal act is the Civil Code of the Russian Federation.

Criminal liability: is used in court to face the perpetrator of a crime. The only piece of legislation which establishes criminal responsibility is the Criminal Code of the Russian Federation.

For the violation of legislation on renewable energy sources, perpetrators will be held liable in accordance with legislation.

Among the most important means of ensuring the rational use of natural resources and environmental protection, perpetrators will be held legally responsible for violations of

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environmental laws. Like any legal liability, it is a form of state coercion to comply with the law, which is expressed in the duties of the person undergoing the adverse effects of his misconduct related to the application of sanctions.

In this case we are talking about being forced to comply with environmental law, violation of which implies adverse effects in the form of sanctions as provided by law.

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SPAIN 1. Electricity act 1.1. Introduction to the legal framework of the electricity market General basic legislation: ■ Law 54/1997, dated 27 November, governing the Electricity Sector.

■ Royal Decree 2019/1997, dated 26 December, which organises and regulates the electricity production market.

■ Royal Decree 1955/2000, dated 1 December, which regulates the transmission, distribution, marketing, supply and procedures for authorisation of electricity facilities.

■ Electricity Grid Operation Procedures.

Specifically for the special regime: ■ Royal Decree 661/2007 of 25 May, which regulates electricity production under the special regime.

■ Royal Decree 1578/2008, of 26 September, governing remuneration of electricity production using photovoltaic solar technology for facilities after the final date for maintaining remuneration as laid down in Royal Decree 661/2007, of 25 May, for the aforementioned technology.

■ Royal Decree 1565/2010 of 19 November, which regulates and modifies certain aspects concerning electricity production under the special regime.

■ Royal Decree 1614/2010 of 7 November, which regulates and modifies certain aspects concerning electricity production using solar thermoelectric and wind technologies.

■ Order ITC/2452/2011, of 13 September, which reviews certain tariffs and premiums of special regime facilities.

■ Royal Decree 661/2007 of 25 May, which regulates electricity production under the special regime, and lays down a legal and economic regime for that activity. This royal decree includes facilities that are entitled to the special regime, and lays down the classification of these in accordance with: primary energy use, technology, energy performance and installed power.

1.2. State regulation of the electricity market The basic regulation of all electricity supply activities (production, transmission, distribution and marketing, is covered in Law 54/1997, of 27 November, governing the Electricity Sector. This law has a three-pronged approach: to ensure the supply, quality and cost of electricity.

Production of electricity is conducted under a system of free competition based on supply (from producers) and demand (from distributors, marketers and eligible consumers). In contrast,

transmission and distribution are activities that are regulated by the State.

Important players: ■ The Market Operator: the company in charge of economic management of the grid.

■ The System Operator: the company in charge of technical management of the grid (this is Red Eléctrica de España, which is also the sole transmission agent).

■ The National Energy Commission: an advisory body to the Administration with regard to electricity issues (it is a regulator).

Economic and technical management of the system are also regulated activities. The terms of reference are shared between the General Administration of the State and the Autonomous Regions, within the sphere of their respective statutes. There are cooperation agreements for more efficient management of administrative actions concerning electricity facilities. Electricity planning is conducted by the State together with the autonomous communities and is submitted to the Spanish House of Commons (Congreso de los Diputados). The planning is of an indicative nature except with regard to the transmission grid.

2. The land/property 2.1. Property requirements for renewable energy facilities Traditionally, typical divisions for the different kinds of ‘land’ or properties that will be affected by renewable energy facilities are: 1. For own consumption; or for production and sale (more checks, permits, authorisations, etc. are required in the event of production and sale).

2. Depending on the type of renewable energy: for statistical purposes, geothermal is irrelevant in Spain. The other three dominant types may have peculiarities: photovoltaic, wind and solar thermal.

3. Concerning the site: when photovoltaic panels are assembled on the roofs of industrial premises, there is no environmental impact on the cities or the outskirts. When a set of wind turbines are assembled on the crest of a mountain range, the environmental risk does have to be analysed (and checks need to be passed and permits obtained).

With regard to the different criteria, we will pursue the energy type: PHOTOVOLTAIC: The standard first analysis in Spain refers to the site. In percentage terms, the south of Spain is far more developed. We should point out:

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In Spain, WIND and SOLAR THERMAL energy is only available on the ground, in a rural or unpopulated area. The difference between own consumption and production and sale is statistically irrelevant because the vast majority is for production and sale.

2.2. Ownerâ&#x20AC;&#x2122;s right with regard to the project No content.

2.3. Types of legal agreements

1. On industrial premises (rarely on large roofs of buildings): in the event of own consumption, a standard works licence is required (covering the municipal area), as well as registration (communication) with the Ministry of Industry, reporting the site of this facility, its power, etc. In the event of production and sale (even if part of this is targeted at own consumption), permits and licences (depending on the watts authorised) are required in addition to the works licence.

2. For ground-based facilities, normally rural, it is also necessary to obtain a specific permit or licence because of the environmental impact (this depends on each autonomous region). We should also point out the difference between own consumption and production and sale.

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With regard to legal agreements, almost all of the possibilities laid down in our private law are acceptable: from a single owner of a large tract of land that is financially solvent, purchases the components and installs them, carries out the maintenance himself and is therefore the only party that would contract with the distributor; through to the existence of a cooperative of landowners or several combined companies (one provides the finance, another is owner of the most valuable components, another carries out the assembly, another performs maintenance, etc.); through to multiple business combinations. The most common forms are: an exclusive owner or an owner that assigns the land (either by renting it, or by assigning the surface right, or by assigning the operating rights, for example for the first 15 years, whereby the last 10 years generate wealth for the owner); or an owner that holds a stake in a company, in very different ways, in which the companies that provide the finance, that purchase, that assemble, that manage, that perform the maintenance, etc. also take part). One example of a

contract between an owner and a distributor, bearing in mind the power levels to be requested, is shown in the Official State Gazette (BOE) 19242, of 8 December 2011.

3. Permits and licences 3.1. Permits for land use In accordance with article 52.1 of the Electricity Sector Act, electricity facilities for production, transmission and distribution of electricity -for the purpose of expropriation of goods and rights required to set these up and the imposition and exercise of the easementare declared of public use. In order for certain facilities to be recognised as being of public use, it will be necessary for the interested company to apply for this, including a specific and individualised list of the assets and rights that the applicant believes need to be expropriated.

Decisions concerning applications for public use will be taken by the Regional State Offices of the Industry and Energy Agency in whose provinces the facilities are either located or pass through.

The declaration of public use brings with it the implicit need to occupy the assets or acquire the rights affected and will imply urgent occupation. Similarly, it implicitly requires authorisation for the establishment or passage of the electricity system over public domain, use or service lands. The party applying for declaration of public use may at any time reach an agreement with the owners of the required goods and rights to purchase them through mutual agreement.

3.2. Operating permits for renewable energy projects In accordance with Royal Decree 661/2007, the administrative authorisation for the construction, operation, substantial modification, transmission and closure of electricity facilities covered under the special regime and recognition of the status as a power plant covered by this regime falls to the competent bodies of the Autonomous Regions or to the State Administration, through the Directorate General of Energy Policy and Mines attached to the Ministry of Industry, Tourism and Trade. The Administration will notify the National Energy Commission, the System Operator and the Market Operator.

The procedure for granting the administrative authorisations in the aforementioned cases, when this falls to the State Administration, will be governed by the general rules governing electricity production facilities. The procedures to be followed to obtain the different administrative decisions for setting up new facilities are regulated in Title VII of Royal Decree 1955/2000, of 1 December, in Royal Decree 661/2007, of 25 May, and in applicable environmental regulations.

In all circumstances, the applications to be presented to the Regional State Office of the Industry and Energy Agency of the affected provinces are: 1. Administrative Authorisation (accompanied by the draft project and the environmental impact study).

2. Approval of the final project design (accompanied by the project design and the different parts of the project that affect other Administrations).

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3. Certificate of commissioning (once the project has been carried out, accompanied by the final works certificate).

3.3. Environmental permits

In turn, as part of the administrative authorisation procedure, both the grid access concession as well as the grid connection concession are required from the system operator and grid transmission agent or, if appropriate, from the distribution network manager.

Public and private projects that involve works, facilities or any other activity specified in the following law must be subject to an environmental impact assessment as provided for in Royal Legislative Decree 1/2008, of 11 January, which approves the consolidated text of the Law governing the Environmental Impact Assessment of projects.

Access to the transmission grid is governed, and will be subject to the technical, economic and administrative conditions set by the competent Administration. Specifically for production facilities covered by the special regime, the applicant must submit a guarantee for 2% of the set-up budget, prior to applying for access.

This guarantee will be cancelled once the applicant obtains administrative authorisation for the facility.

The aim of this law is to ensure that environmental aspects are integrated into the project by including these in the authorisation procedure of the environmental impact assessment: direct and indirect effects of the project on human beings, fauna, flora, soil, water, air, the climate, the countryside, tangible assets and cultural heritage.

Lastly, in order to supply electricity to the market operator and to sign physical bilateral contracts, the production facilities must be registered with the Administrative Record of Electricity Production Facilities (a record that divides those covered by the ordinary regime from those covered by the special regime). All electricity production facilities that are authorised to sell electricity in Spain must be entered in this register. The registration requirements and procedures for this Register are laid down in Royal Decree 1955/2000, of 1 December.

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The developer must therefore apply to the competent body of the public administration so that his project can be subject to an environmental impact assessment. Next, the environmental body determines the scope and level of detail of the environmental impact study, and the project developer prepares the corresponding environmental impact study. Once the public reporting procedures have been carried out and checks made with the public administrations affected and interested persons, the competent body issues the environmental impact declaration, which will be made public and will conclude the assessment.

The Ministry of the Environment and Rural and Marine Affairs will be the environmental body responsible for this issue.

4. Business structures 4.1. Choosing the business form: panoramic view of the relevant points in choosing the type of company.

See point 2.3.

4.1.1. Personal liability of owners See point 8.

4.1.2. Taxes Most of the incentives for the investor or producer of renewable energies in Spain referring to direct taxes (Corporate tax and Income Tax) for investments targeted at facilities that use energy from the sun to transfer this energy into heat or power have been repealed.

Companies or natural persons whose business activity is the production of solar energy connected to the grid for sale to an electricity distributor no longer have the right to the following allowances in their tax as occurred in 2007/2010 in which the tax allowance for corporate tax fell from 0.8 to 0.2.

Currently, only section 3 of article 39 on environmental allowances states that 10% of the investments made in new tangible assets targeted at using renewable energy sources and which comprise facilities and equipment targeted at any of the uses mentioned below may be deducted from the tax payable: a. Transforming energy from the sun into heat or electricity. b. Using urban solid or biomass waste from farm or forestry industry waste; from farm and forestry and energetic plant cultivation waste as a fuel for transformation into heat or electricity. c. Treating biodegradable waste from farms, wastewater treatment plants, industrial effluent or solid urban waste for transformation into biogas. d. Treatment of farm, forestry and used oil products for transformation into biofuels (bioethanol and biodiesel).

The part of the investment funded with capital grants will not be entitled to an allowance.

Logically these allowances will have to be re-established and we understand that the legislator will re-establish the allowances once the public expenditure possibilities have been looked into.

4.1.3. Operating requirements and their complexity No content. See point 3.

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4.1.4. Incentives, restrictions, etc.

See 4.1.2

4.2. Types of businesses See 2.III.

5. Purchase of components / equipment and facilities 5.1. Taxes and customs See 4.1.2. Generally speaking, there are NO significant specialities in the fiscal or customs regime for components/equipment and facilities.

5.2. Restrictions and limitations on importation/supply There are none, except for those specified in section 3 (permits and licences).

5.3. Safety/quality requirements These are also dealt with in section 3. The public administrations involved always have supervisory powers.

5.4. Operations and maintenance See section 3. The same as 5.3.

6.1. Funding large-scale projects

Emerging technologies at development or pre-commercial stage, the future development of which is subject to technological evolution and overcoming barriers (market, social aspects, administrative aspects).

ICO-IDAE-ESE line of credit. Sustainable investment 2011

B: Targeted at innovative technological development demo projects

6. Funding renewable energy projects

On 8 June 2011, the ICO (Official Credit Institute) and the IDAE (Institute for Energy Diversification and Saving) signed a specific line of credit as part of the “ICO-INVERSIÓN SOSTENIBLE 2011” line of credit, with the financial allocation of 600 million euros, to fund energy efficiency and renewable energy projects carried out by energy services companies (ESCOs). The IDAE has set up a fund of 30 million euros for this facility, to hedge against the financial risk.

ICO-IDEA schemes.

BIOMCASA scheme, funding for facilities that produce heat using biomass in buildings. GEOTCASA scheme, funding geothermal facilities in buildings.

SOLCASA, funding solar heating facilities in buildings.

GIT scheme, for Large Thermal Facilities.

The Renewable Energies Plan (PER) considers six lines of credit, the purpose of which is to encourage compliance with the targets laid down: A: Funding programme for technological research and development of new prototypes and innovation.

Projects at a very incipient (pre-commercial) commercial or technological demo stage.

C: Specific for projects at commercial stage, but with a certain barrier that prevents development For mature technologies which, due to a series of barriers, have not yet been able to develop their potential.

D: Programmes offered by private financial institutes to fund ESCOs that use thermal renewable energies, with the support of the IDAE The development of Energy Services Companies (ESCOs) of Thermal Renewable Energies is an immature market that is currently being driven by pilot IDEA funding schemes. It is envisaged that the scheme will succeed the pilot funding schemes (Facility F).

E: Credit facilities for electricity facilities with power of less than 10 kW for own consumption For installations subject to the net balance system.

F: Pilot schemes to fund projects and promote ESCOs that provide thermal renewable energies The current pilot schemes of the IDAE are shown below.

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The IDAE is launching the GIT scheme as an impetus to carry out large hot water and heating projects in buildings using renewable energies. The GIT scheme has a budget of €17,000,000 to fund projects submitted by ESCOs. The aim of this Scheme, together with the other schemes promoted by the IDAE for the same purpose (BIOMCASA, SOLCASA, GEOCASA), is to act as an impetus in shaping a supply of quality and one which is adapted to the needs of potential users, using renewable energies as the energy source.

The IDAE (Institute for Energy Diversification and Saving) is setting up the GIT scheme to cover the funding needs for large thermal installations in buildings, using renewable energies (both biomass as well as solar heating and geothermal energy), as published in the resolution dated 26 April 2011 of the Official State Gazette (BOE).

This new official call is targeted at those products which, because of their size and complexity, were outside the limits established in the BIOMCASA, SOLCASA and GEOTCASA schemes. It lays down a system of funding large facilities in these areas, which continues the drive for an energy services model that guarantees a quality supply that satisfies the needs of those that use hot water and heating in buildings, all in accordance with the framework of the 2005-2010 Renewable Energies Plan in Spain.

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The GIT scheme has a budget of €17,000,000 to fund projects submitted by the ESCOs (Energy Services Companies), authorised to carry out large projects that comply with the requirements of the Scheme. The capped funding limit per project will be 80% of the investment value, with an absolute funding limit per individual project of €3,000,000. In turn, the minimum funding limit per individual project is established as follows: €350,000 for BIOMCASA GIT projects €250,000 for SOLCASA GIT projects €350,000 for GEOTCASA GIT projects The renewable energy services sector itself pushed for a scheme of these characteristics with which the IDAE will undoubtedly manage to drive the renewable energy services model applied to large projects in buildings, such as district heating, hot water and heating of tourist complexes and shopping centres, etc.

6.2. Negotiating agreements with lenders and capital investors See: http://www.lamoncloa.gob.es/ConsejodeMinistros/ Referencias/_2011/refc20111111.htm#PlanEnergia

7. Connecting to the grid, transmitting and selling energy

of electricity will be the price on the organised market or the price freely negotiated by the owner or representative of the installation, plus a premium if appropriate. In any case, the option chosen will apply for a period of no less than one year.

7.1.1. Governmental regulation on connections

The facilities that have chosen option a) will sell their energy through the system of offers managed by the market operator, and they will make offers to sell energy at zero price on the daily market and, if appropriate, offers on the intraday market, pursuant to the current Market Rules. The facilities that have chosen option b) may sell their energy either directly or indirectly through representation both on the offers market as well as by signing bilateral contracts or futures trading.

(BASIS OF EVERYTHING = Electricity Sector Act) The general procedures for access and connection to the transmission grid of production, consumption or distribution facilities are given in Royal Decree 1955/2000, while specific procedures for production under the special regime are given in Royal Degree 611/2007. The technical aspects and details, including the commissioning stage, are developed in the Electricity Group operating procedures P.O. 12.1 and P.O. 12.2.

As system operator, transmission grid manager and sole transmission agent, Red ElĂŠctrica is responsible for managing the access and connection procedures for those agents who wish to connect a new facility to the transmission grid (or to the distribution grid with impact on the transmission grid or the security or quality of supply), or that may be looking to modify the conditions of an existing facility.

7.1.2. Mandatory connections under public utilities: connection procedures and agreements In order to process access and connection to the distribution grid, the applicant must engage in dialogue with the distribution network manager, who will ask Red ElĂŠctrica to make the necessary assessment of acceptability of those facilities that have a significant impact on the transmission grid.

8. Liability in the production, transmission and distribution of renewable energy 8.1. Liability for negligence In accordance with general regulations and the principles of contractual and extra-contractual liability. There is no objective liability (like in air accidents). Public liability insurance is required to operate on the market as in any other risk generating branch.

8.1.1. Liability for negligence as Owner/Operator of a Renewable Energy Project There is liability (ex. art. 1902 et seq of the Civil Code) for the owner of the land and/or the facilities where energy is produced.

Once the access and connection procedures have been carried out and the corresponding authorisations obtained, within a deadline of one month from issue of the IVCTC (Verification Report of the Technical Conditions of the Connection), a Technical Contract for Access (CTA) to the grid will be signed between the agent and the transmission manager, and Red ElĂŠctrica will be notified of this.

8.1.2. Liability for negligence as landowner in a Renewable Energy Project

Regarding special regime production facilities, the CTA will be signed between the agent, the IUN (Sole Interlocutor of the Node) and the owner of the connection point to the transmission grid, with the possibility of grouping into a single contract the different production facilities with connection to a given node and belonging to the same producer. Likewise, pursuant to that set out in Royal Decree 661/2007, regarding the signing of that CTA, the producer must provide proof of obtaining the Administrative Authorisations of the production facilities and of the connection from these to the transmission entry point. Regarding special regime production facilities, in order to be considered for definitive commissioning of service or commercial operation stage it is mandatory to have received the System Operator Report or Final IVCTC (which in turn is also a requirement for registration at the RAIPEE).

See 8.1.

7.2. Transmitting and selling energy: performance of energy purchase agreements with public utilities In order to sell their electricity production, owners of facilities subject to application of RD 661/2007 must choose between: a) assigning the electricity to the system in exchange for a regulated tariff, or b) selling it on the market, in which case the sales price

See 8.1.1

8.2. Liability for nuisance

8.2.1. Personal injury or property damages See 8.1. Normally assessed in accordance with uniform tables with legal force, the amounts of which are updated every year.

8.2.2. Noise See 8.1.

8.2.3. Signal interference See 8.1.

8.2.4. Obstruction of views See 8.1.

8.2.5. Fauna protection See 8.1. See 3.3.

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BALMS ABOGADOS ESPAÑA BALMS GROUP INTERNATIONAL

Established in 1989, Balms Abogados is a multi-disciplinary law firm specialized in Public and Private Law. Balms Abogados has offices in Marbella, Madrid, Vigo and Barcelona. Also, Balms Abogados through its international network, Balms Group International (BGI), has offices in over 20 countries providing worldwide leal services to meet each client specific needs.

Our philosophy is to promote professional training and teamwork with one goal: to achieve the highest level of excellence. We create a professional connection with the client, based on mutual trust and quality service Our nature, thoroughness and dedication marks the difference. Balms Abogados was created to ensure a comprehensive service to our customers and it is formed by a number of departments specialized in Private and Public Law, tax consultancy, accounting, human resources and document management for businesses and individuals. All these departments are certified with the System of Quality and Environmental ISO Management 9001 and ISO 1400.

In addition to our effort, we are also devoted to charity actions through our foundation “Fundación Balms para la Infancia”, a non profit organization dedicated to provide financial aid, assistance and protection to children in Peru and Colombia.

PARTNERS Juan Luis Balmaseda de Ahumada y Díez Julio Aguado Arrabé Katja Blackmer Óscar Gómez Monasterio Jorge Martín Losa Antonio Heredero González-Posada

Javier Pascual Garófano Juan Camacho Vázquez Javier Massana Gaspà Cesar Ramos Onis

BALMS ABOGADOS MARBELLA

BALMS ABOGADOS GALICIA

C/ Generalife 9 – Aloha Pueblo 29660, Nueva Andalucía Marbella, Spain Tel: 00 34 952 81 21 00 Fax: 00 34 952 81 27 67 balms.marbella@balms.com jlbalms@balms.com

C/ Reconquista 9, entresuelo 36201 Vigo, Pontevedra, Spain Tel: 00 34 986 44 31 43 Fax: 00 34 986 44 60 23 balms.vigo@balmsgalicia.com aheredero@balmsgalicia.com

BALMS ABOGADOS MADRID Pº General Martinez Campos 49, 6º 28010 Madrid, Spain Tel: 00 34 91 702 01 56 Fax: 00 34 91 702 01 57 balms.madrid@balms.com jorgeml@balms.com

BALMS ABOGADOS CATALUNYA Paseo de Gracia 116 Bis, 4ª Planta 08008 Barcelona, Spain Tel: 00 34 93 311 3999 Fax: 00 34 93 311 3862 balmsabogados@balms.com www.balmsabogados.com

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Civil Law Family Law Criminal Law Labour Law Bankrupcy and Commercial Litigation Administrative Law Zoning, City Planing and Real Estate Law International Private Law Insurance and personal injuries Debt collection Copyright Law Corporate Law Industrial and Intellectual Property Law Private placement Landlord and tenant Transfer and Acquisition of Businesses and Assets Building contracts and construction litigation and arbitration Contractual claims Protection data Projects development and finance Shareholders/Company disputes Agency and Distribution Agreements Shipping and Maritime Law Tax Law New Technologies Law EC & Competition Law Contract Law Corporate financing, disposals, parthership formation Environmental Law Telecommunications & Media Law Banking Law Litigation and arbitration

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URUGUAY 1. Law of Electricity In Uruguay, the legal framework of the Electricity Industry is regulated by the National Electricity Law (Decree Law 14694), the Law on a Regulatory Framework for the Power Sector (Law 16832) and numerous additional laws and regulatory decrees.

This framework is aimed at the development of the renewable energy sector, at providing incentives for private participation in power generation and at increasing investment in the sector.

Among the main new developments in the law the following stand out: freedom in the generation of power, enabling the entry of private parties to the same; the creation of a wholesale electricity market; the ability to associate with public companies, separating the functions of the State regulator and the entrepreneur, creating organisms with specific tasks, and a system of promotion and protection of domestic and foreign investment with significant benefits and tax exemptions. All of which means that todayâ&#x20AC;&#x2122;s electricity sector is of great interest to local and foreign investors alike. Uruguay is aiming to diversify the renewable energy matrix to meet all its national energy needs, at costs that are appropriate for all sectors of society, contributing to the countryâ&#x20AC;&#x2122;s competitiveness in a context of regional integration, with sustainable policies both in economic and environmental terms. Subsequently, energy policy is used as a tool to develop productive capacities and promote social inclusion.

2. Securing the land The requirements for the property to be used for a renewable energy project, that is, the land on which it is installed, shall emerge from the environmental conditions to be imposed for each particular project based on the source of power to be developed and the demands of Municipalities in their Land Management Plans.

The development or implementation of a renewable energy venture can be carried out on property that is acquired or leased. In some cases, such as when the input for electricity production is wind, there is a special scheme involving the imposition by the Executive Branch of onerous easements (a term of use for a fee).

If the venture is installed on government-owned land, permission must be sought. The legal agreements may relate to land purchase, lease or the price to be paid for the easements. The terms of these agreements are governed by rules of private law which enshrine freedom of contract as a principle.

3. Permits and Licenses In order to install power generation plants (from any primary source), one of the first steps is to obtain authorisation from the Executive Branch after meeting the requirements of Articles 53 and 54 of the Regulations of the Wholesale Electricity Market. If there is no resolution once the time limits have expired, authorisation shall be deemed to have been granted. Prior to this process, environmental clearance must be obtained from the Ministry of Housing, Planning and Environment on matters such as flora, fauna, visual, acoustic and soil erosion, among others. Also, if water courses in the public domain are used (being the most abundant), concession for their use must have been previously obtained from the Ministry of Transport and Public Works. In short, the permits and licences which are typical of the energy sector, based on environmental regulations regarding the use of renewable energy or resources, to which are added the safety controls exercised by special state agencies that supervise and advise on this field.

4. Choosing a Business Structure The Law on Commercial Companies of Uruguay provides for the existence of partnerships and holding companies. Among the latter are Limited Liability Companies (S.R.L. in Spanish initials) and Corporations (S.A. in Spanish initials). Both types of legal entities limit the liability of the owners (partners, shareholders) to the capital contributions made by them. However, in an S.R.L., its owners have the obligation to respond jointly with the company to work-related financial claims and are not subject to state supervision and control. Meanwhile an S.A. is subject, a circumstance which is usually taken into account by financial institutions when arranging funding. Additionally, its partners can be natural persons or legal entities, which often allows for discretion and confidentiality of the shareholders. In general they are liable for taxes on business activity (IRAE), value added tax (IVA in its Spanish initials) and the estate tax, but due to different legal rules a regulatory framework has been configured which is highly favourable for domestic and foreign investment in the sector. Law 16906 of 1998 declared the promotion and protection of domestic and foreign investment to be an issue of national interest. For investment projects in any sector of the activity being presented and promoted by the Executive Branch (as is the case with electric power generation), it is possible to calculate up to a maximum of 100% of the amount invested as partial payment of Income Tax (IRAE). The plant and equipment of the fixed asset and civil works are also exempt from wealth tax and the value added tax (VAT) is recovered from the material purchases and services used

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on them. The same Law also exempts the company from paying import taxes and charges on movable fixed assets which are declared as being non-competitive with the domestic industry. Decree 354/009 has been in force since 2009, complementing the course set down by the aforementioned law. Also in force is the Law on the Promotion of Solar Thermal Energy (18585) which declares research, development and training in the use of solar thermal energy to be of national interest, promoting the inclusion of this technology in various sectors in Uruguay. Similarly, there is Decree 173/010, which authorises the subscribers connected to the low-voltage distribution network to install generation facilities from renewable wind, solar, biomass and mini hydro sources, framing the decree within the National Energy Policy of Uruguay 2005-2030, being the pioneer country in South America in freeing up the connection of power generation from renewable sources in the public distribution network. Lastly, we should mention Law 18786, which establishes the legal regime for Public Private Participation contracts for Energy Infrastructure works, strengthening private participation and the possibility of partnerships with public companies in this area.

5. Equipment Purchase and Installation The Law on the Promotion and Protection of Domestic and Foreign Investment (16906) of 1998 allows the calculation as part of

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Income Tax (IRAE) up to a ceiling equivalent to the total investment, including equipment and facilities. Also, while these are transformed into movable goods within the fixed asset, they are exempt from wealth tax. With respect to the machinery to be used for the installation of power plants there is also a system called â&#x20AC;&#x153;Temporary Admissionâ&#x20AC;?, under which it can be used during the time entailed by its construction without having to pay the taxes levied for its importation. Possible limitations in production and consumption are linked to the rule of supply and demand and there are no supply constraints. In Uruguay there is a sustained industrialisation of the country and a government policy aimed at replacing electricity production that is based on oil and water resources. There is a detailed set of regulations that establishes requirements for the installation and operation of power plants in terms of their safety and environmental aspects, which are in line with international standards, where a major role is played by specialist state agencies with powers in this field.

6. Financing a Green Energy Project The Uruguayan financial market offers a variety of funding mechanisms; not only the more traditional forms of loans, but also other useful instruments, such as the issuance of debt securities that allow direct access to savings generators, offering recourse to the institutions that manage pensions and national savings funds.

Also, there are already government agencies and private entities of great importance in the country that allow and encourage access to project financing. Additionally, the regional and international financial circuit, including multilateral lending agencies, nonresident banking and finance institutions specifically supporting foreign trade, is made up of key agents for the development of renewable energy projects and is a key driver that includes those already operating in the country (such as the Inter-American Development Bank, the Global Environment Facility, the United Nations Development Units, among many others). Thus renewable energy projects are emerging as a prominent option, because to this favourable institutional financial environment, which ensures easy and convenient access to loans, we can also add a promotional tax framework for investment in electricity generation from renewable sources and long-term contracts with the state-owned firm that provides the transmission and distribution of electrical energy.

7. Interconnection, Transmission and Selling Power Uruguayan legislation provides for electric power generation by private individuals, when so authorised by the State. It also authorises the sale of that energy they produce to distributors and large consumers in a system which means that they do so through the “National Load Dispatch” and according to the rules of the “Wholesale Electricity Market”. This enshrines the freedom of access to the transmission networks of the National Grid and the distribution networks to end users, subject to the availability of capacity and following the payment of a toll fee. Transmission and distribution are activities which are considered to entail a public service and therefore may be granted to individuals. In Uruguay this activity is performed by a state agency called the “National Administration of Power Plants and Transmission” (UTE in its Spanish initials). Legally this Entity is authorised for the production, processing, transmission, electricity distribution so it can: a) be bound by contract with public or private, domestic or foreign entities; b) participate, with the consent of the Executive Branch, in public or private sectors joint ventures, whose main objective is to install new plants or make new transmission lines to expand

the transmission system in order to interconnect with other countries in the region.

8. Liability Concerns for Green Energy Development In Uruguayan law, the obligation is enshrined in general to repair the damages caused to people or their property. This is why today the majority doctrine terms it the right to cause damage, precisely because the damage is the reason or source of the obligation to pay compensation. In Uruguayan law, the obligation is enshrined in general to repair the damages caused to people or their property by acting negligently in activities relating to power generation.

Its regime is no different from the general regime, including the fact of whether or not one is the owner of the land on which the activity occurs. The difference between owning or being a tenant of the building in which the activity occurs only means that in the latter case another person is added to the list of potential injured parties (the owner of the property being leased) or to the list of potential responsible parties. In matters of environmental liability, the fact that in order to produce electricity prior authorisation is required from the Executive Branch and that the project complies with the standards in the field in question, does not exempt it from liability for its transgressions. Environmental protection is regulated by law but has Constitutional protection, enshrining it as being in the public interest. Protection is given to the quality of air, water, soil, landscape, conservation of biological diversity and the configuration and structure of the coast; conservation of flora and fauna; the reduction and proper management of toxic substances; the prevention, elimination, mitigation and compensation of negative environmental impacts; regional and international environmental cooperation and the implementation of national environmental policies on sustainable development. Apart from the general regime of liability, there are penalties for the violation of the rules of environmental protection, which range from simple warnings to suspensions of registrations, clearances, authorisations or permits to carry out the business activity, subject to fines for violation of other general and specific rules established in the rules of the regulatory framework.

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MM&A CORPORATE LAW BALMS GROUP INTERNATIONAL

Constant development of markets and technology, regional integration and global economy changes, pose a major challenge for the business world today. Legal frameworks that go with these changes are essential to seize new opportunities and avoid potential obstacles.

MM&A Corporate Law is a firm that focuses its practice on meeting the most demanding requirements of the modern world. MM&A Corporate Law emerged naturally from the main company, MM&A Consultants, founded nearly two decades ago.

MM&A Corportate Law business philosophy has the same basis as Balms Group International, helping BGI to expand to new frontiers in Latin America.

MM&A Corporate Law specializes in Private and Public Law and its development is based on the diversity and excellence of services, based on the talent and experience of their lawyers, whose efforts are focused on providing an appropriate service to the situation and the needs of each client.

The firm’s main office is in Montevideo (Uruguay), and the international office is located in Aguada Park, a free trade zone in Uruguay. Also, MM&A Corporate Law have local support offices in several South American countries like Brazil, Argentina, Chile or Paraguay.

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Labour Law Commercial Law Tax Law and Tax Planning Intellectual property Civil Law Administrative Law Environmental Law Notary services Private affairs Image rights Criminal Law Family Law Company Law Corporate Law Sports Law

MM&A CORPORATE LAW AGUADA PARK Paraguay 2141 Of. 1005 Montevideo Uruguay

PARTNERS

Tel: 00 598 2927 2727

Diego Martínez Bernie Agustin López Carriquiry Horacio González Mullin

CENTRO

LAWYERS Agustin López Carriquiry Horacio González Mullin Felipe Vásquez Ignacio Jiménez de Aréchaga

Carlos Peña Rachetti Claudia Amoedo María Gabriela Bove Britos

Plaza Cagancha 1356 P.7 Montevideo Uruguay info@mmaconsultants.com www.mmaconsultants.com

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