Legal Review CONTENTS. November Issue 277. Introduction 44. Tables 45. Project list 48. Americas 50. Asia Pacific 53 EMEA 56

Transcription

1 Legal Review November Issue 277 CONTENTS Introduction 44 Tables 45 Project list 48 Americas 50 Asia Pacific 53 EMEA 56

2 Legal Review Introduction Clifford Clifford Chance has knocked Allen & Overy off its perch at the top of the annual Project Finance International (PFI) survey of international project law firms. Activity in the Americas market has tailed off as steps up expected, Asia has been fairly buoyant while the EMEA is picking up. By Rod Morrison. I t s strictly business for Clifford Chance with no husband and wife team ruling the roost.the global projects team is headed by Rodney Short who is based in Frankfurt and he is supported in the leadership team by Peter Blake in London and Hugh Jenkins in Hong Kong. The team puts its success down to its strong global network.the UK mega projects market has died for the time being along with the UK power market, apart from the larger private finance initiative (PFI) projects market. In its stead Clifford has been active across EMEA in Italy, Spain and the Middle East.The firm remains strong in Asia and has a presence in the Americas, mainly serving the multilaterals in Washington. However, Jeremy Connick is moving back from Washington to London. Going forward, the firm sees the Middle East as the most active project finance market right now, akin to the UK a few years ago and is positioning accordingly. Rodney Short is moving to Dubai.The roving global head has been in Frankfurt for a couple of years and before that led the team from Washington and before that London. Now he is moving to the centre of the Middle East market.the size of the opportunity is huge. Qatar on its own is said to be looking at raising US$30bn plus of debt to fund its ambitions in the next 2 to 3 years.to back Short up Blake, former Mr Power, is remodelling himself (if those are the right words) to become Mr LNG having started his career in oil and gas. Clifford Chance has secured a role advising Qatargas on the Qatargas 2 scheme, the monster US$10bn scheme to ship LNG from Qatar to UK.The lead sponsor role is held by White & Case and debt lawyers are expected to be appointed soon. Clifford Chance believes the UK market will come back but the real opportunity currently lies in the Middle East.And the firm is, of course, well represented in the UK and Europe PFI arena by the construction related PPP team headed by Tim Steadman. Indeed the firm was involved in many of the US$500m plus infrastructure deals in UK, Spain and Italy. The Project Finance International law survey is now in its fifth year. It specifically measures internationally sized deals by setting a minimum project size for inclusion in the table at US$500m. Only the lead roles, funders and sponsors counsel on the deals listed in the following pages are included in the tables. Other roles are noted. Once again the PFI table is noteworthy for its consistency. No surprise results based on dubious project inclusions. The success of Clifford Chance is perhaps the most noteworthy feature this year but it is not a big surprise. After all, over the last five years they are second to A&O with the two of them some way ahead of the US firms Shearman & Sterling, Latham & Watkins and Milbank Tweed. This year Latham had a good year in closing big deals, despite the drop-off in the US power market.the firm had an unexpected success in Asia Pacific where it topped the tables.this was due to success on a range of deals, including Chinese petrochemicals, Japanese telecoms, a Thai power station and restructuring work on Indonesia.The Aussie law firms once again scored strongly in the Asia Pacific tables, due to the strength of the Australian project market.this year, however, the Allen name, once again, was pegged back with Allens Arthur Robinson scoring the same as Freehills and Mallesons. Chadbourne & Parke and Milbank Tweed topped a somewhat lacklustre Americas table.the low numbers were hardly surprising given the amount of corporate energy restructuring work the New York firms were engaged in this year. Fees were therefore presumably not down, just reallocated to a different account, away from new deals.the PFI table does include project restructuring but in the US it has mainly been done at the corporate level. Dewey Ballantine dropped backed this year after a strong 2002, as did Freshfields in the UK. Perhaps this is unfair on as it did play central role on the two monster LU PPP deals. Clifford,A&O and Linklaters head the EMEA table as expected, particularly given their reputations in the London market.the table is notable, however, for just how many Italian and Spanish firms are included in the list.this obviously reflects strong local project finance markets and the fact these deals need local and international counsel. The big London and New York firms did buy up many European firms during the boom years but local sponsors still seem to want local counsel involved, not just locally based international counsel.we review these markets in the EMEA law piece accompanying this survey. 44 Issue 277 Project Finance International November

3 Tables Legal Review Global - September 2002 to September 2003 Funders Sponsors Total Clifford Chance Allen & Overy Latham & Watkins Linklaters Milbank Tweed Shearman & Sterling Allens Arthur Robinson Baker & McKenzie Cameron McKenna Chiomenti Freehills Mallesons Stephen Jacques Norton Rose Skadden Arps Uria y Menendez White & Case Ashurst Morris Crisp Bonelli Erede & Pappalardo Chadbourne & Parke Freshfields Giliberti Garrigues Jingtian & Gongcheng Sullivan & Cromwell Al Jaddaan Balsh Bingham Blake Dawson & Waldron Chandler & Thong Cleary Gottlieb Commerce & Finance Law Offices Debevoise & Plimpton Dewey Ballantine Dr Majahid Asawwaf Epstein Becker Green Gianni Origoni Lippo & Partners Gomez Acebo y Pombo Jones Day Kim & Chang Lee & Li Lee & Ko Llinks Lovells McCarthy Tetrault McGuire Woods Mori Hamada & Matsumoto Nishimura & Partners Paul Weiss Rifkind Wharton & Garrison O Melveny Myers November Issue

4 Legal Review Tables Global - September 2002 to September 2003 continued Funders Sponsors Total Orrick Harrington Simmons & Simmons Simpson Thacher Strikeman Elliott Thelen Reid Trowers & Hamlins Troutman Sanders Wilke Farr & Gallager White & Case Zheng Liu Yuan & Zhou Global Top to 2003 Funders Sponsors Total Allen & Overy Clifford Chance Shearman & Sterling Latham & Watkins Milbank Tweed Linklaters Skadden Arps Allens Arthur Robinson Sullivan & Cromwell White & Case Americas - September 2002 to September 2003 Funders Sponsors Total Chadbourne & Parke Milbank Tweed Sullivan & Cromwell White & Case Balsh Bingham Cleary Gottlieb Clifford Chance Debevoise & Plimpton Dewey Ballantine Epstein Becker Green Jones Day Latham & Watkins McCarthy Tetrault McGuire Woods O Melveny Myers Orrick Harrington Shearman & Sterling Simpson Thacher Strikeman Elliott Thelen Reid Troutman Sanders Wilke Farr & Gallager Issue 277 Project Finance International November

5 Tables Legal Review Asia Pacific - September 2002 to September 2003 Funders Sponsors Total Latham & Watkins Allens Arthur Robinson Allen & Overy Freehills Mallesons Stephen Jacques Clifford Chance Baker & McKenzie Jingtian & Gongcheng Shearman & Sterling Blake Dawson & Waldron Chandler & Thong Commerce & Finance Law Offices Freshfields Kim & Chang Lee & Li Lee & Ko Linklaters Llinks Mori Hamada & Matsumoto Nishimura & Partners Paul Weiss Rifkind Wharton & GarrisonSkadden Arps Zheng Liu Yuan & Zhou EMEA - September 2002 to September 2003 Funders Sponsors Total Clifford Chance Allen & Overy Linklaters Cameron McKenna Chiomenti Norton Rose Uria y Menendez Ashurst Morris Crisp Bonelli Erede & Pappalardo Giliberti Milbank Tweed Shearman & Sterling Slaughter & May Skadden Arps Garrigues Al Jaddaan Baker & McKenzie Dr Majahid Asawwaf Freshfields Gianni Origoni Lippo & Partners Gomez Acebo y Pombo Latham & Watkins Lovells Simmons & Simmons Trowers & Hamlins White & Case November Issue

6 Legal Review Project list Project Country Size (US$m) Sector Metronet UK 4,500 Infrastructure Lenders Ashurst Morris Crisp, Sponsors Cameron McKenna, Slaughter & May acted for Bombardier. Freshfields acted for LUL CSPC Nanhai China 4,460 Petrochemicals Lenders Allen & Overy/Jingtian & Gongcheng, Sponsors Latham & Watkins/Commerce & Finance Law Offices, Freshfields acted for the ECAs Pemex Master Funding Mexico 4,100 Oil & Gas Lenders Sullivan & Cromwell, Sponsors Cleary Gottlieb Hutchison 3G UK 3,850 Telecoms Lenders Allen & Overy, Sponsors, Freshfields, Baker & McKenzie acted for Hutchison. Clifford Chance advised suppliers Siemens and Ericcson and KfW Nanjing China 3,000 Petrochemicals Lenders Clifford Chance/Zheng Liu Yuan & Zhou, Sponsors Shearman & Sterling/Jingtian & Gongcheng Tubelines UK 2,700 Infrastructure Lenders Norton Rose, Sponsors Lovells, Shearman & Sterling acted for Bechtel and the EIB. Allen & Overy acted for the monoline insurers. Freshfields acted for LUL Eurogen Italy 2,601 Power Lenders Clifford Chance, Sponsors Chiomenti/Giliberti/Allen & Overy, Linklaters acted for a bank on equity participation Edipower Italy 2,600 Power Lenders Clifford Chance, Sponsors Chiomenti/Allen & Overy Jupiter Japan 2,416 Telecoms LendersClifford Chance/Mori Hamada & Matsumoto, Sponsors Latham & Watkins/Nishimura & Partners Shearwater Australia 2,250 Power Lenders Freehills, Sponsors Mallesons Stephen Jacques, Allens Arthur Robinson acted for the vendor., subordinated financiers and underwriters of hybrid equity issue ENA Spain 1,915 Infrastructure Lenders Garrigues, Sponsors Gomez Acebo y Pombo Paiton Energy restructuring Indonesia 1,800 Power Lenders Skadden Arps, Sponsors Latham & Watkins, Milbank Tweed acted for JBIC. Mayer Brown & Rowe acted for US Exim. Umm al Nar UAE 1,777 Power Lenders Milbank Tweed, Sponsors Trowers & Hamlins/Simmons & Simmons, Allen & Overy acted for the Islamic lenders. White & Case acted for ADWEA Autostrade Italy 1,722 Infrastructure Lenders Linklaters/Gianni Origoni Grippo & Partners, Sponsors Bonelli Erede & Pappalardo/Latham & Watkins Tanjung Jati Indonesia 1,517 Power Lenders Latham & Watkins, Sponsors Paul Weiss Rifkind Wharton & Garrison Edison Italy 1,436 Power Lenders Clifford Chance, Sponsors Chiomenti/Allen & Overy Jawa Power restructuring Indonesia 1,365 Power Lenders Allen & Overy, Sponsors Freshfields Alba Bahrain 1,350 Industry Lenders Baker & McKenzie, Sponsors Norton Rose Pusan South Korea 1,200 Infrastructure Lenders Linklaters/Lee & Ko, Sponsors Allen & Overy/Kim & Chang BLCP Thailand 1,130 Power Lenders Latham & Watkins/Chandler & Thong, Sponsors Baker & McKenzie Shanghai BASF China 1,120 Petrochemicals Lenders Llinks, Sponsors Shearman & Sterling Orion USA 1,049 Power Lenders McGuire Woods, Sponsors Thelen Reid Thor USA 1,030 Power Lenders Shearman & Sterling, Sponsors Chadbourne & Parke Sydney Airport refi Australia 1,059 Infrastructure Lenders Freehills, Sponsors Blake Dawson Waldron, Allens Arthur Robinson acted for MBIA Qatar GTL Qatar 1,000 Oil & Gas Lenders Skadden Arps, Sponsors Linklaters NLNG Nigeria 1,000 Oil & Gas Lenders White & Case, Sponsors Allen & Overy, Clifford Chance acted for four ECAs and ADB. Norton Rose acted for the shareholders Malhas Brazil 1000 Oil & Gas Lenders Sullivan & Cromwell, Sponsors Clifford Chance/Debevoise & Plimpton 48 Issue 277 Project Finance International November

7 Project list Legal Review Project Country Size (US$m) Sector Interpower Italy 953 Power Lenders Clifford Chance, Sponsors Milbank Tweed/Bonelli Erede & Pappalardo Inalta Spain 914 Power Lenders Clifford Chance, Sponsors Slaughter & May/Uria y Menendez/Garrigues, Allen & Overy acted for Iberdrola, the seller Aluminere Alouette Canada 880 Industry Lenders Epstein Becker Green/Strikeman Elliott, Sponsors Chadbourne & Parke/McCarthy Tetrault Kern River USA 836 Oil & Gas Lenders Latham & Watkins, Sponsors Wilke Farr & Gallager Snowy Hydro Australia 800 Power Lenders Freehills, Sponsors Allens Arthur Robinson Maritza East III Bulgaria 763 Bulgaria Lenders Linklaters, Sponsors Skadden Arps, Norton Rose acted NEK R-III/V Radial Spain 753 Infrastructure Lenders Clifford Chance, Sponsors Internal counsel Cartagena Spain 750 Power Lenders Allen & Overy, Sponsors Norton Rose/Uria y Menendez Western Sydney Orbital Australia 744 Infrastructure Lenders Mallesons Stephen Jacques, Sponsors Allens Arthur Robinson, Freehills acted for a shareholder. Allens Arthur Robinson acted for a shareholder s financier. Clayton Utz acted for the government Macae Brazil 740 Power Lenders White & Case, Sponsors Chadbourne & Parke Amorebieta Spain 739 Power Lenders Linklaters, Sponsors Shearman & Sterling/Uria y Menendez, Clifford Chance acted for ESB on the tolling agreements RIV Radial Spain 678 Infrastructure Lenders Clifford Chance, Sponsors Internal counsel Derby Hospital UK 650 Infrastructure Lenders Ashurst Morris Crisp, Sponsors Clifford Chance Sadaf refi Saudi Arabia 650 Petrochemicals Lenders Clifford Chance/Al Jaddaan, Sponsors Slaughter & May/Dr Majahid Asawwaf Southern Power USA 650 Power Lenders Dewey Ballantine, Sponsors Balsh Bingham Rijnmond Netherlands 628 Power Lenders Clifford Chance, Sponsors Shearman & Sterling Tuxpan III & IV Mexico 616 Power Lenders White & Case, Sponsors Jones Day, Shearman & Sterling acted for the onshore collateral agent. Morrison & Foerster acted for JBIC and Nexi. ITC USA 610 Power Lenders Troutman Sanders, Sponsors Milbank Tweed/Simpson Thacher Walsgrave UK 600 Infrastructure Lenders Clifford Chance, Sponsors Cameron McKenna Kaohsiung Taiwan 566 Infrastructure Lenders Baker & McKenzie, Sponsors Lee & Li Cross City Australia 565 Infrastructure Lenders Allens Arthur Robinson, Sponsors Mallesons Stephen Jacques, Clayton Utz acted for the government. Freehills acted for CKI. National Air Traffic UK 541 Infrastructure Lenders Allen & Overy, Sponsors Cameron McKenna, Slaughter & May acted for the government. Norton Rose acted for a shareholder SR125 USA 540 Infrastructure Lenders Orrick Harrington, Sponsors Milbank Tweed Aeroport di Roma Italy 527 Infrastructure Lenders Clifford Chance, Sponsors Giliberti & Associati Corporacion Digitel Venezuela 515 Telecoms Lenders Milbank Tweed, Sponsors O Melveny & Myers November Issue

8 Legal Review Americas New sectors emerge It was the year of new sectors for Americas project finance law, with wind power, transmission and road deals in the US, and an emphasis on educating the market about LNG in both North and South America. By Alison Healey and Nicole Gelinas. NORTH AMERICA White & Case represented Credit Suisse First Boston as the lead purchaser of US$380m of 20-year senior secured bonds issued by FPL Energy American Wind. The deal was a landmark transaction because it was the first capital markets financing of a wind power portfolio in the United States.The bonds will finance a portfolio of seven wind-powered electricity generating facilities in California, New Mexico, Texas, Iowa,Wisconsin and Minnesota. A number of other wind deals have come to market following the success of FPL Energy s deal, as part of the rush to take advantage of production tax credits (PTCs) a subject that project finance lawyers continue to work on prior to the expiration of the benefits at the end of It is likely that legislation will be signed to extend production tax credits and a three-year extension of the PTC is included in both the House and Senate versions of the energy bill.the American Wind Energy Association (AWEA) reported in August that the US is likely to install 1,400-1,600MW of new wind power this year. LNG was also huge this year for US project finance, with firms like Chadbourne & Parke working hard to prepare the market for the realities of large-scale LNG project development and figure out what the rush to be the first mover in this industry means in terms of necessary regulatory reforms. One issue hindering the progress of the US LNG market is the disconnect between the heating value of LNG and the much cooler Gulf of Mexico gas end users expect.the issue is becoming a major sticking point as projects head toward the financing stage, and debates continue over who should pay to correct the problem, in particular with regard to the Elba Island and Cove Point facilities. Another issue now being looked at is the lack of force majeure clauses. The biggest legal development for LNG this year was the Federal Energy Regulatory Commission (FERC) s decision to grant final approval to Sempra Energy s plan to build the first US liquefied natural gas terminal in almost 25 years.the FERC not only cleared the way for the US$700m facility in Cameron parish, Louisiana, about 230 miles west of New Orleans to be built, but in its decision it indicated its willingness to alter old regulations to facilitate the needed development push in the US. Chadbourne has been advising Tractebel as it puts the first US LNG financing out to market; the deal has been watched closely.the US$360m refinancing of the company s Everett terminal includes contracts, a working capital facility and is partially collateralised by the tanker Mmatthew.The key to the deal is how much market risk the banks are prepared to take. A second LNG project financing, the US$300m Freeport LNG project, was recently mandated to CSFB. Cheniere Energy and investor Michael Smith are developing it. There are five terminals proposed on the East Coast, including one in Fall River, Massachusetts, one in New Brunswick, Canada and three in the Bahamas. A total of nine have been proposed in the Gulf of Mexico, in Tampa, Florida, Hackberry and Cameron, Louisiana, offshore Louisiana, and Sabine Pass, Freeport, Corpus Christi, and Brownsville,Texas. On the West Coast, import terminals have been proposed in Los Angeles harbour, Orchard Park, Humbodlt Bay, Camp Pendleton and offshore Santa Barbara, California; six have been proposed in Baja California. SR-125 was another unique type of transaction to hit the US market. Orrick Harrington acted as lenders counsel and Milbank Tweed acted as sponsors counsel on the financing for the US$635m SR125 South toll road in San Diego, California, which reached financial close in May.The project is owned by Macquarie Infrastructure Group (MIG) and was the first to use bank debt in combination with a loan from the Transportation Infrastructure Financing Innovation Act (TIFIA) programme. Transmission deals also started coming to market, with Troutman Sanders acting for the lenders and Milbank Tweed and Simpson Thatcher on the sponsors side for International Transmission Company (ITC) a Term B deal to finance KKR and Trimaran Capital Partners acquisition of transmission assets from DTE Energy. CIBC and SG led the deal. 50 Issue 277 Project Finance International November

9 Americas Legal Review Lawyers are already looking ahead to next year s hoped-for crop of deals in oil & gas, LNG, power and infrastructure in a few healthy countries. Experience with multilateral lenders and new types of political risk coverage will be a plus. US project finance law firms spent a great deal of time on restructurings as well, with deals from Orion Power and Reliant Resources getting done after several months of negotiations, while talks continue on Edison Mission Energy and InterGen. The restructuring of the Department of Water Resources (DWR) contracts occupied project finance lawyers as well and became a source of deal flow with the GWF, Sunrise, Gilroy, and Power Receivable Finance (PRF) deals coming out in the second half of the year. Bankruptcies also continued to dominate, as Mirant and NRG Energy were added to the list. But despite the turmoil of the past few years in the energy sector, a few of the large deals done this year were refinancings, which took advantage of two of the few bright spots Kern River Funding Corporation and Southern Power. Latham & Watkins represented lenders and Wilke, Farr and Gallagher represented sponsors on the US$836m refinancing of the Kern River pipeline. Dewey Ballantine was lenders counsel on Southern Power a US$650m bond deal to refinance a loan for a portfolio of projects. Balsh Bingham acted as sponsor s counsel. LATIN AMERICA Law firms found slim pickings this year in Mexico and Latin America as far as new projects went. But lawyers are already looking ahead to next year s hoped-for crop of deals in oil/gas, LNG, power and infrastructure in a few healthy countries. Experience with multilateral lenders and new types of political risk coverage will be a plus, as large-scale deals next year may require collaborative lending from commercial, government and ECA sources. Two of 2003 s top LatAm deals were in Mexico this year:the US$616m financing package structured for the 1,000MW Tuxpan III and IV gas-fired independent power project, sponsored by Union Fenosa Internacional; and a US$4.1bn multi-tranche deal for Pemex s Project Finance Master Trust. The Tuxpan deal was a challenge for attorneys, at Mexico s Comision Federal de Electricidad (CFE), the offtaker and fuel supplier to the project via separate subsidiaries, wanted to depart from previous Mexican independent power projects (IPPs) and offload some of the fuel supply risk on to the power project s sponsor. Attorneys for Union Fenosa and for the lenders side of the table successfully negotiated with CFE for the government offtaker to resume the fuel supply risk at the IPP.Attorneys are now gratified to see, after a long negotiation process on Tuxpan, that CFE has again incorporated a pledge to take fuel supply risk in its documentation for some upcoming power projects. Jones Day represented Union Fenosa on the Tuxpan deal, out of the firm s Madrid, New York,Tokyo and Houston offices. Morrison & Foerster represented the Japanese Bank for International Co-operation (JBIC), while White & Case represented the commercial lenders. Shearman & Sterling acted for the onshore collateral agent on the deal. Sponsors consider Jones Day and White & Case to be veteran players in the region, by virtue of their strong relationships with multilateral lenders like the Inter- American Development Bank (IDB) and International Finance Corp (IFC). But Morrison & Foerster is also considered to be a formidable new competitor in Mexican project finance, due to the firm s strong relationship with JBIC. MoFo s project finance and infrastructure group out of New York has already been mandated to serve on the opposite side of the table as counsel to sponsors Calpine and Mitsui on the recently awarded Viadola III power project in Mexico, on the Yucatan peninsula. Sponsors have learned to rely on JBIC for hundreds of millions in financing for difficult oil/gas-related projects throughout Latin America. November Issue

10 Legal Review Americas MoFo attorneys may be well positioned to land some work with sponsors and lenders on largescale LNG projects planned for Mexico s West Coast next year as well. If LNG project sponsors decide to go after project finance (and some large sponsors, such as Shell, are reportedly against project financing for their Mexico LNG proposals), the deals are certain to consume funds from multilaterals and ECAs, including JBIC, as well as from commercial banks. Lawyers also have an eye on Pemex s upcoming multiple service contract (MSC) deals, set to comprise a good chunk of project finance business in the region next year. Pemex awarded the first two of seven private-sector contracts for its Pideregas gas infrastructure development programme last month, in what is expected to be a seven-deal development and exploitation rollout worth about $6bn to international sponsors. The first two contracts were awarded to Spain s Repsol-YPF and a consortium made up of Brazil s Petrobras, Japan s Teikoku Oil and Mexico s Diavaz. The MSCs will present a challenge to lawyers, as Pemex and the Mexican government developed the private-public structure last year to encourage investment in the oil sector without relinquishing any state ownership of oil/gas blocks. King & Spalding is already making a name for itself in the MSC sector, having written extensively on the Mexican government s process and intent in structuring the contracts. Some project finance lawyers don t see a lot of potential for project-finance structuring on the MSCs; the deals may offer more in the line of corporate advisory to assess the legality of the contracts. Attorneys see more potential for new IPPs and infrastructure development, as well as future issuances under the Pemex Master Trust, than they do for new upstream project finance transactions. Sullivan & Cromwell most recently advised the lenders to this year s Pemex Master Funding deal. Sullivan has a long relationship with Pemex and its international lenders and can be expected to stay in the market as Pemex continues to find success in the international capital markets. Cleary Gottlieb advised Pemex. In Brazil, Clifford Chance and Debevoise & Plimpton represented sponsor Petrobras on the US$1bn Malhas pipeline project this year, while Sullivan & Cromwell represented the lenders. Clifford Chance has a track record with Petrobras `and its lenders, having represented the sponsor project company on 2002 s US$1bn-plus Rio Polimeros petrochem deal as well. While Brazil s private power sector has dried up, more Petrobras-led pipeline extension deals, upstream development projects and offshore oil/gas deals are in the works for next year. Clifford and Sullivan should both be in the running for counsel positions to the Brazilian oil/gas giant. Region-wide, Jones Day has a good track record on preparing documentation for LatAm infrastructure deals outside of the power sector certain to be a plus for the firm, as Brazil and Chile kick off separate multibillion-dollar infrastructure investment programmes next year. In Peru, Sullivan continues to advise the sponsor group on the massive Camisea gas development and transportation deal, having achieved a measure of success this past summer when the IDB approved a debt package for the project. In Venezuela, Milbank Tweed made an appearance in what was a quiet country for project financing early this year, with its representation of the commercial lenders on Corporacion Digitel s US$515m telecommunications rollout. O Melveny & Myers represented the sponsor. While firms found slim pickings in Hugo Chavez territory in 2003, Chadbourne & Parke is already positioning itself to be a player in the sector for new deals next year. The firm recently held a New York seminar on investment in Venezuela for analysts and potential clients to showcase the firm s knowledge of the political, fiscal and economic situations in the country. Upcoming deals in Venezuela include the Shell/Mitsubishi/PDVSA-sponsored Mariscal Sucre gas project. Mariscal s sponsors recently mandated Societe Generale as financial adviser and appointed Sullivan & Cromwell as counsel. Chadbourne, of course, is always a name to be reckoned with in the region, by virtue of the firm s reputation of expertise with multilateral lenders and political risk insurance products. Since new infrastructure projects in Latin America will most likely require the participation of Western ECAs, lenders and sponsors will no doubt turn to Chadbourne for its attorneys knowledge of the ECA and PRI arenas. 52 Issue 277 Project Finance International November

11 Asia Pacific Legal Review Asian firms entrenched International law firms have been busy this year, and some say that it was better than last year. Furthermore, law firms are attempting to entrenched themselves well into mature markets like Australia and Japan, and into relatively new ones like China. Minerva Lau and Sharon Klyne report. AUSTRALIA CROWNS SOLID YEAR Australian lawyers have had a solid year, with the project finance market growing evenly rather than by leaps and bounds. Phillip Cornwell, partner of Allens Arthur Robinson, who heads up the firm s project finance practice commented, The year has been quite good, with steady rather than spectacular growth. Last year s performance was slightly distorted with the large Sydney Airport acquisition. Indeed the Australian firms have continued to do very well. Both Allens Arthur Robinson and Mallesons Stephen Jacques have secured four lead roles each. Freehills also had a good year with lead roles in the financing of the Sydney Airport refinancing and Project Shearwater. The results clearly show how entrenched the three top Australian firms Allens Arthur Robinson, Mallesons and Freehills are in the project finance market. Indeed, the upcoming Mitcham Frankston toll road typifies this entrenchment. Mallesons is acting for the ConnectEast consortium comprising Macquarie Bank, Commonwealth Bank of Australia and Thiess. Freehills is acting for the competing consortium of Transurban, Leighton Contractors, Deutsche Asset Management and AbiGroup. Allens is acting for the lenders of both consortia with Chinese walls in place. The second tier firms of Blake Dawson Waldron, Clayton Utz and Minter Ellison have some way to go to capture market share. Peter Doyle, project finance partner and PF team leader at Mallesons noted that the entrenchment was simply a recognition by the market that these three firms stand out as having the depth of partner and lawyer talent and breadth of technical skills experience to manage and deliver large scale infrastructure projects under tight time constraints. Among the second tier firms only Blake Dawson Waldron secured a role in the deals over US$500m when it acted for the borrower in the refinancing of Sydney Airport. Firms such as Clayton Utz and Minters are largely perceived as government lawyers. Clayton Utz has represented the New South Wales Roads and Traffic Authority on all the toll roads in New South Wales, including the Lane Cove tunnel deal that will be reaching financial close by the end of the year. Its toll road expertise in NSW has led it to clinching the government role in Victoria with Minters for the Mitcham Frankston toll road.the firm lost a number of its rainmakers three years ago, including Grant Fuzi and Andrew Trahair, who left for Allen & Overy in Hong Kong and Singapore respectively, as well as Patrick St John who headed to Freehills. But the firm s profile has been given a fillip with the return of Fuzi from A&O two months ago.the firm has also made other recruitments in the last two years including partner Janet Firkin from Sherman & Sterling in London, Geoffrey Grice from Cable and Wireless in Hong Kong and Bradley Vann, who has returned to the project finance practice full time after a three-year stint in management. The firm has secured a number of private sector roles including acting for Australia Railway Group in its refinancing, the lenders in the restructuring of Australia Japan Cable and Austar, as well as acting for the existing lenders to Epic Energy s pipeline assets. Fuzi remarked, We are committed to growing our market share in this market.we have recently won a number of major private sector appointments, including acting for a consortium bidding for a new PPP project. Another high profile return of sorts is Nick Grambas quick return to Freehills this August, after a very short stint at Mallesons. Much has been speculated about his brief tenure at Mallesons, though it is safe to say he was welcomed back with open arms at Freehills. SMALLER AND TRICKIER Aside from the large deals, there have been some smaller sponsor-driven deals that reached financial close this year. These include Pacific Hydro s Challicum Hills wind farm, BRW and ANZ Infrastructure Services US$66m Esperance power project and small deals in the mining sector. Some believe this is a push on the market place by banks trying to find a new market. However, these deals invariably take a long time to reach financial close. John Curtis, partner and head of Freehill s projects group said: There is an aggressiveness among, November Issue

12 Legal Review Asia Pacific especially the local Australian banks, to build up a book of assets in a second class of projects and sponsors.the issue is that these deals are as much, if not more work than the big deals as the quality of sponsor or level of support is not there. LOOKING AHEAD The year ahead is likely to be dominated by a number of the large energy re-financings brought about by the secondary assets sales of Epic Energy and Duke Energy, as well as the re-financings of existing toll roads, the M5 and Eastern Distributor. The PPP market is also expected to provide some fees after months of inactivity.there are currently three hospital PPPs in the market the Victorian Royal Women s redevelopment and in New South Wales, the Mater hospital project and Long Bay forensic hospital. Victoria has also put the Melbourne showgrounds PPP out, and bidders have until November 1 to respond. In South Australia, the tender for a A$30m police stations PPP has started with the deadline for EOIs on November 24.Also the ACT government has put out the EOI for the Canberra Convention Centre, with the return date on December 18. Further down the pipeline is the Parramatta-to- Chatsworth interchange, and the NSW government is currently in the market looking for advisers.also the Brisbane City Council is looking for advisers for its A$1bn Brisbane Tunnel deal, though there is some degree of scepticism the project will use private finance. There has been some alliances among bidders such as Babcock & Brown with Multiplex Construction, which have a health-wide mandate to work together; also Ernst & Young is trying to negotiate a deal with Leighton Contractors.This strategy has been driven partly by a need to push down bid costs. According to Fuzi of Clayton Utz, there are now a significant number of deals in the 12-month pipeline. Given the generally low capital cost of the PPP projects, law firms will need to be creative as to how they mange these transactions. Close partnering with clients will be essential to ensure economies of scale achieved, he said. While this wave of PPP projects in the market will break the lethargy from months of inactivity, not many deals have closed to date.as for the ones that have closed, the going was tough.tony Holland, a partner of Mallesons in Melbourne said, The experience has not been great so far.the bid process of the Spencer Street station PPP created concerns for bidders; it ultimately went to a form of best-and-final-offer, leading to high bid costs. Consistency of government s approach to risk allocation and the level of bid costs are concerns for bidders. State governments concerns with probity issues have also added a layer of complexity in these deals. BUILDING A BRAND The three large Aussie firms - Allens, Freehills and Mallesons - have developed a different strategy in building their brand and international exposure.allens and Freehills both have several small offices in Asia and have relied on flying in partners from Australia as and when required. Freehills has got a three-partner office in Singapore, an associated office in Jakarta with two partners, and a one partner each in Hanoi and Ho Chi Minh.Allens has recently added a small Cambodian office to its international network.the firm also has a best friends relationship with Slaughter & May. Mallesons perhaps has made the most substantial commitment to the Asian region over the last few years with the transfer 18 months ago of three senior partners, Robert Milliner, Richard Mazzochi and Adrienne Showering, to its existing Hong Kong office. Robert Milliner explained: Our clients require a significant on ground presence capable of providing high levels of advice to service their diverse commercial needs in the region. Given that the start-up phase of any international practice is loss-making for several years, coupled with the downturn in the Asian project finance market, firms such as Freehills are re-thinking its international strategy. Freehills Curtis said: The Freehills Asian offices work on a certain sizing, but it does not work if it is geared up too highly.as a case in point, the Freehills office in Singapore grew as large as five partners, but has rationalised to just one partner during the height of the Asian crisis.as with all areas of our business we look regularly at our strategy. CHINA BECKONS China is one of the reasons there were activities in the legal community this year.at least three major petrochemical projects were closed and they contributed some US$8.6bn of project values this year.and there has been a growing trend of increased presence of international law firms in its key cities - Beijing and Shanghai. Most international firms in the region have regional offices in both Hong Kong and Singapore, but there is a huge sucking sound in the north, remarked a Singaporebased lawyer. Indeed, Beijing is now beginning to be a must-have-a-presence city for them, as there is an expectation of more activities and work available, 54 Issue 277 Project Finance International November

13 Asia Pacific Legal Review especially once preparations for the 2008 Olympic Games is in full swing.this means that the different works available for the infrastructure and logistics involved in the games would have been awarded.with the inclusion of China in the World Trade Organisation, international players will be invited to participate. In addition, the ongoing power sector reform (including those existing PPAs that are being renegotiated) means that the law firms are kept busy. While most law firms have a presence in Hong Kong for their China coverage, having a presence in Beijing and Shanghai would make a difference. Law firms have also been hiring partners, which are understandably fluent Mandarin speakers. We boosted our presence in those cities.there is a need to have a presence in China itself, rather than just operating in Hong Kong.This is the approach being taken by most of the law firms, said one lawyer. Examples abound as we look back at this year s activities. Paul Hastings Janofsky & Walker opened a new office in Shanghai, its third in Asia, following Hong Kong and Beijing within 18 months.the team will comprise six lawyers and heading the operation is Mitch Dudek. Morrison & Foester has also opened a new office in Shanghai. Charles Comey who has relocated from Tokyo to become the managing partner of the unit heads it. Gide Loyrette Nouel of France has also opened an office in Shanghai this year, its second China office after Beijing. Gide has a 50-strong team of China specialists, managed by four resident partners. At the same time, Jones Day has also expanded its China team with the appointment of Bruce Schulberg as partner.allen and Overy has appointed Xiaowei Ye as a new partner for its China practice. O Melveny & Myers added it has also expanded its China practice by the addition of new partners in Beijing, Hong Kong and Shanghai and a senior counsel in Hong Kong. Douglas Freeman is a partner who has relocated to the firm s Hong Kong office from New York. Stella Leung has been appointed as a partner in the firm s Shanghai office this year and Howard Zhang recently joined the firm as a partner in the new Beijing office. However, what may be a minus point for the Chinese market is the continuing dominance of domestic bank lenders. International law firms will thus have to work closely with the major domestic law firms such as Llinks, Fangda & Partners and Zheng Liu Yuan and Zhou law office. JAPAN TOO ATTRACTS China is not the only place attracting the legal community. Japan, despite it not being known as a lawyer-ed society in increasingly seeing the setting up of representative offices of international law firms.the domestic PFI market is growing and Japanese corporates, along with JBIC and NEXI, continue to be major PF players in the region.and while Japanese corporates dominate the domestic market, some international sponsors may soon be joining domestic activities, such as in the power and infrastructure sectors. Ties are being formed with the domestic law practices. Denton Wilde Sapte, which has a joint venture with Kashio Law office in Tokyo, has established an association with the Chuo Law Office, which is a leading Osaka based Japanese law firm. Chuo, on the other hand, has opened its Tokyo office in premises adjacent to Denton Wilde Sapte s office.at Clifford Chance, the new addition was Gary Hand who was previously from Paul Hastings. Hand heads the real estate practice in Tokyo, which may include the growing domestic PFI market. Latham & Watkins has also expanded its practice in Tokyo with the hiring of Colin Jones, the former general counsel of Asia Global Crossing s Japanese operations. O&G IS HEAVY The oil & gas industry, including the petrochemical sector, remains the key industry keeping the market busy. Most evident are the closures of the three major petrochemical projects in China Shell s Nanhai, BASF s Nanjing and BASH/Huntsman Shanghai complexes. In addition, Pertamina has kept the law firms busy with its projects in Indonesia, starting with its innovative Blue Sky project, which had White & Case as the international legal counsel to the sponsor and Paul Weiss to the lenders. Jones Day seems to be retaining its hold on the LNG sector. It was advising the Petronas-led consortium for the stake in the TransAsia gas pipeline facility between Indonesia and Singapore, and is now the adviser to PT Transgasindo, the joint-venture company led by PT PGN. It is also the adviser to the BP s Guangdong LNG project which is targeted to be signed this year, and to Taiwan s CPC for its LNG terminal project. LNG is a huge story for us. For example, Guangdong LNG continues to be a big activity for us.we have been doing the development, as well as the financing and construction contract and others, remarked Emad Khalil of Jones Day. There is little activity on the power sector except for the structured facility for the revived US$1.8bn Tanjung Jati B power project. Latham & Watkins, which acted for the lenders, is surprisingly involved in five Asian deals completed this year, compared to none last year. It seems to be a favourite among the lenders, and except for the Jupiter Telecom deal in Japan, it acted for the lenders on the other four deals. November Issue

14 Legal Review EMEA Latin civil disobedience The prevalence of the big international law firms acting for funders can blur national distinctions in the project finance legal survey. On a closer look, however, Italy and Spain have both been key markets for big-ticket deals and in both countries some top indigenous firms are prominent just behind the big boys. In both countries government is grappling with private finance initiatives in the hope of emulating the success of the model in the UK there can, however, be a marked difference in outlook between how the top Italian and the top Spanish firms view this business. By Daniel O Sullivan. E nergy deals have been large contributors to project legal business in both Italy and Spain over the last year. Nevertheless, lawyers working for the top local firms in both countries agree there is good reason to think this sector will not be as strong going forwards. So great hopes are now being held out for public infrastructure deals to plug the gap.already the other key category in both countries, as in the energy sector the last year has seen large corporate-project hybrids predominate.while these can again be seen as unlikely to be repeated in the near future, they have demonstrated the keen appetite of European funders for public infrastructure in these two markets. In Spain this is evident too, through the success of the two true road projects listed. Both national governments are now rolling out significant multi-billion euro programmes of investment in key infrastructure, to be procured on a project basis by private finance. Piquing legal interest in particular, in both countries these programmes have been accompanied by the drafting of new laws, trumpeted as the means required to lever in private sector funds. How do the local lawyers think these legal reforms have fared and how do they see the results as bearing on the prospects for their own business? A key consideration is that both Italy and Spain, in common with much of continental Europe, are civil code countries, with a body of prescriptive administrative law based on the Napoleonic system. In seeking to emulate the success of the UK PFI/PPP programme, therefore, the governments have to fit concepts structured under the terra nullius of Anglo-Saxon-type common law to a myriad of pre-existing rules and regulations. Some of these civil law strictures can potentially be in conflict with commonly held principles of project finance.these conflicts require either the government to change the laws or overrule them if it can, or lawyers to find imaginative solutions or workarounds to laws that the government itself will not or cannot change in favour of the project solution. It might be thought that this situation would automatically favour the use of local firms to thread a way through the complexities of their particular system. In reality, however, from these similar starting points Italy and Spain have ended up in quite different places and this affects the outlook from indigenous lawyers in the two jurisdictions. Italy has a reputation, deservedly or not, for a legal setup antithetical to some of the key demands of project financing, especially in regard to attempts to template the UK approach to using private finance for public infrastructure requirements. Much has been made over the past few years of central government attempts to streamline or modify laws on public sector procurement to kick-start the kind of market seem in Britain for such schemes.the most obvious of these efforts is the lege obiettivo, or target law of a couple of years ago this supposedly identifies national strategic infrastructure requirements and elevates them above the competency of their respective regional government to a national government level in terms of expedited approval powers. Following on the heels of the primary obiettivo legislation, passed at the end of 2001, came various rafts of enabling laws and modifications to the existing public infrastructure concession laws (the Merloni legislation), intended to resolve mismatches between the intentions of the new regime and existing law.these included, for example, removing the limit on the percentage of public subsidy available or the number of years for which a concession could be granted on a particular scheme. These changes were made in a flurry of headlines that anticipated a subsequent explosion in private financing of public infrastructure in the country, but this has yet to happen. Italian lawyers are not surprised and they say there are several reasons.there remain problems with the obiettivo legislation, primarily to do with the balance of power between the regions and central government.the target legislation came relatively soon after a legal devolution of powers to the regional administrations, but sought to reverse this trend by assigning the say-so on strategic projects to central government. The regions have resisted this trend, the matter went before the constitutional court and this court has now 56 Issue 277 Project Finance International November

15 EMEA Legal Review delivered its judgement.while this is praised as a masterpiece of jurisprudence, involving a deep and worthy examination of the principles and primacies of subsidiary, one thing it does not do is provide a clear answer on which party has the upper hand in deciding strategic economic development priorities for a region. While legally coherent, unfortunately the essence of the judgement is to throw the matter back to the regions and central government, telling them they must work out an accommodation themselves. Strategic infrastructure is only half the story, however across the country there is also a plethora of smaller schemes starting to move forward, with private sector parties at various stages of project promotion. But still there are considerable barriers to deals reaching close and here local lawyers identify the problem not so much in the laws governing concessions or project financing per se, but at a deeper level, in the country s administrative code, which is unlikely to be changed in the near future. Some also contend that the current trends for different parties to employ different sorts of lawyers contribute to the resultant deadlock. The basic problem is that in Italy, several key sectors remain under regulations covering public goods which mean that no third party (ie project financiers) can be given a lien over the assets themselves or cashflows arising from them.these sectors include roads and hospitals, which are arguably the two areas with the most projects currently lined up as infrastructure deal prospects - some other areas, such as water and waste, have been explicitly deregulated, and are less affected. What this means legally is that while project bankers can still exercise step-in rights with regard to how a project is actually run, they cannot take security over the assets or the actual cashflows that they throw off which service the debt in turn.this opposes customary practice in PFI/PPP deal structuring, obviously growing out of the UK project financing experience where such securities are assignable.what it means in practice is that some deals get to a certain point, then stall as lenders seek to establish the norms of Londonbased project finance, either because they are based overseas or because they hope to tap the international market rather than just the domestic. While not universal, this trend is compounded by the fact that whereas some high-profile domestic firms do get work on these large deals for example, Chiomenti, Bonelli Erede & Pappalardo, Giliberti and Gianni Origoni Lippo & Partners all feature in this year s survey this is often on the sponsor side. Italian constructors being at the core of many bidders for schemes currently presented to the market, unsurprisingly they will often choose a local firm that understands the Italian environment in the same way they do. However, due to pressures to source financing beyond the domestic market, the lenders are sometimes working from, or with a view to, the London consensus on project finance norms, and as a result they will employ a large multinational firm pre-eminent in this environment.the result is that a project can be structured from conception through to near-funding with Italian sponsors and Italian public sector authorities all using Italian law firms, only for a lending group to come in with an international law firm and then a fissure open up between the two sides in regard to expectations about what can and can t be achieved in structuring the deal. It all comes down to bankability Italian lawyers will say that despite the lack of security over the project assets themselves, lenders should be able to take comfort from a proper reading of the embedded principles of Italian public accounting law. In other words, the conventions that in effect a public authority shouldn t be able to even tender a project without already having forward-looking budget approval for payments likely to be required, and furthermore that in theory, agencies such as regional health trusts have their obligations of this sort backed by their regional administrations, which in turn are backed by the national government. Of course, this understanding doesn t seem to address what happens when a project fails legitimately to earn its payment stream, either from the public sector directly or public users of the service.this is the very point at which lenders under common law might well be looking to enforce security over the assets themselves and their cashflows. Here, however, the answer from Italian lawyers experienced in public administration law is that effectively, this situation would never arise, as it would mean that the critical infrastructure, whether it be hospital or road, would be defaulting. As a political consideration the public administration would already be doing everything it could to prevent such a default in the first place. It is easy to see how this virtuous circle might be hard to square with lenders and lawyers who feel less respect for underlying principles of law and prefer to see something harder, in writing. Of note is how the one Italian hospital deal yet completed, the Bovis-sponsored e40m Brescia scheme which was funded by Dresdner (see PFI Feb 05 03), apparently worked around these concerns.as noted, the rub with security issues comes when the regular payment stream is threatened with interruption. On Brescia, it is understood that the lenders can live with no security over the main assets because the revenue regime has been simply structured as payments that are fixed practically regardless of performance issues.this means that the lenders only have to rely on the public November Issue