Project Finance - Jeantet.fr

®Project Financein 38 jurisdictions worldwideContributing editors: E Waide Warner Jr and Gavin R Skene2010Published byGetting The Deal Throughin association with:Achour Law FirmAddleshaw Goddard LLPÆ´LEXAequitas Law FirmAl Busaidy, Mansoor Jamal & CoAl-Jadaan & Partners Law Firm (in cooperation with CliffordChance LLP)Anzola Robles & AssociatesBoden Law OfficeCardenas & Cardenas AbogadosCárdenas, Di Ció, Romero, Tarsitano & LuceroClarus Law AssociatesĆurković Ćurić, Janušić & Banić Law FirmDavis Polk & Wardwell LLPDFDL MekongEversheds Ots & CoFasken Martineau DuMoulin LLPGorrissen FederspielGrischenko and Partners Law and Patent OfficesIMMMA AdvocatesJeantetAssociésKelemenis & CoLema, Solari & Santivañez AbogadosLex CaribbeanLópez Velarde, Heftye y SoriaMallesons Stephen JaquesMochtar Karuwin KomarMyanmar Thanlwin Legal Services Ltd (in association withDFDL Mekong)Nagy és Trócsányi Ügyvédi IrodaNörr Stiefenhofer Lutz OOOOrrick Hölters & ElsingPeliFilipPuno & PunoRodriguez & MendozaShearman & Sterling LLPSouza Cescon Barrieu & Flesch AdvogadosStaiger, Schwald & Partner

contents®Project Finance2010Contributing editor: E WaideWarner Jr and Gavin R Skene,Davis Polk & Wardwell LLPBusiness development managerJoseph SamuelMarketing managersAlan LeeDan BrennanGeorge IngledewEdward PerugiaRobyn HetheringtonDan WhiteTamzin MahmoudEllie NotleySubscriptions managerNadine RadcliffeSubscriptions@GettingTheDealThrough.comAssistant editorAdam MyersEditorial assistantNick Drummond-RoeSenior production editorJonathan CowieChief subeditorJonathan AllenSenior subeditorKathryn SmulandSubeditorsLaura ZúñigaAriana FramptonSarah DookhunEditor-in-chiefCallum CampbellPublisherRichard DaveyProject Finance 2010Published byLaw Business Research Ltd87 Lancaster RoadLondon, W11 1QQ, UKTel: +44 20 7908 1188Fax: +44 20 7229 6910© Law Business Research Ltd2009No photocopying: copyrightlicences do not apply.ISSN 1755-974XThe information provided in thispublication is general and may notapply in a specific situation. Legaladvice should always be soughtbefore taking any legal action basedon the information provided. Thisinformation is not intended to create,nor does receipt of it constitute,a lawyer–client relationship. Thepublishers and authors acceptno responsibility for any acts oromissions contained herein. Althoughthe information provided is accurateas of September 2009, be advisedthat this is a developing area.Printed and distributed byEncompass Print SolutionsTel: 0870 897 3239LawBusinessResearchGlobal Overview E Waide Warner, Jr and Gavin R Skene Davis Polk & Wardwell LLP 3Argentina Luis E Lucero Cárdenas, Di Ció, Romero, Tarsitano & Lucero 5Australia John Naughton, Nicole Ho, Amelia Fitzhardinge Mallesons Stephen Jaques 11Barbados Diana Wilson Patrick and Alana Goodman Lex Caribbean 19Brazil Roberto Lima and Fernanda Ribeiro Souza Cescon Barrieu & Flesch Advogados 25Cambodia Martin Desautels and Sambo Ly DFDL Mekong 33Canada W Thomas Barlow Fasken Martineau DuMoulin LLP 38Colombia Bernardo P Cárdenas M, Camilo Cortés and Alejandra PazosCardenas & Cardenas Abogados 44Croatia Danijel Antun Banić and Ana Ćurković ĆurićĆurković Ćurić, Janušić & Banić Law Firm 50Denmark Michael Steen Jensen Gorrissen Federspiel 56England & Wales Andrew Petry Addleshaw Goddard LLP 61Estonia Raiko Lipstok and Lauri Liivat Eversheds Ots & Co 67France Jean-François Adelle JeantetAssociés 73Germany Christoph F Wetzler and Wolfram Krohn Orrick Hölters & Elsing 80Greece Tom Kyriakopoulos and Margarita Matsi Kelemenis & Co 86Hungary Zoltán Varga and Tamás Pásztor Nagy és Trócsányi Ügyvédi Iroda 93India Piyush Joshi and Anuradha R V Clarus Law Associates 100Indonesia Emir Kusumaatmadja, Justin M Patrick and Mohammad Farhan Mochtar Karuwin Komar 107Kazakhstan T Suleyeva, S Issyk and V Shaikenov Aequitas Law Firm 113Laos Walter Heiser DFDL Mekong 119Mexico Rogelio López-Velarde and Amanda Valdez López Velarde, Heftye y Soria 125Myanmar James Finch, U Soe Phone Myint and Saw Yu Win Myanmar Thanlwin Legal Services Ltd(in association with DFDL Mekong) 132Nigeria L Fubara Anga and Chinyere Nwanya Æ´LEX 139Oman Marcus Pery Al Busaidy, Mansoor Jamal & Co 145Panama Erika Villarreal Zorita and Nadia de Halman Anzola Robles & Associates 151Peru Eduardo Quintana Sanchez and Alfred Kossuth Wieland Lema, Solari & Santivañez Abogados 158Philippines Roderico V Puno and Jonathan P Serrano Puno & Puno 165Romania Alexandru Birsan, Carmen Peli and Alina Stancu PeliFilip 172Russia Elena Frolovskaya, Ilja Ratschkov and Stefan W Weber Nörr Stiefenhofer Lutz OOO 178Saudi Arabia Abdulaziz Al Abduljabbar and Mohamed Hamra-Krouha Al-Jadaan & Partners Law Firm(in cooperation with Clifford Chance LLP) 185Switzerland Mark-Oliver Baumgarten Staiger, Schwald & Partner 192Tanzania Sadock Dotto Magai IMMMA Advocates 197Thailand Paniti Junhasavasdikul and Bundit Attakor DFDL Mekong 202Tunisia Achour Abdelmonêm Achour Law Firm 209Turkey Değer Boden Akalın Boden Law Office 215Ukraine Oleg Vysochinsky, Oleksandr Shvaiun and Sava Poliakov Grischenko and Partners Lawand Patent Offices 222United States Cynthia Urda Kassis, Abigail J Berry and Robert N Freedman Shearman & Sterling LLP 228Venezuela Reinaldo Hellmund Rodriguez & Mendoza 236Vietnam Thierry Gougy, Hoang Phong Anh and Oanh Nguyen DFDL Mekong 243www.gettingthedealthrough.com

JeantetAssociésfranceFranceJean-François AdelleJeantetAssociés1 CollateralWhat types of collateral are available?Most types of collateral used in secured financings are also availablein project financings. These include security on property (land,buildings, rights of way and easements) and moveables (business,equipment, intellectual property rights, shares and other types ofsecurities, bank accounts and receivables). Subject to statutory provisions,contracts cannot be pledged but may be assigned with thecontractor’s consent.As project financings are usually carried out on a none-recoursebasis, financiers will generally carefully look at the ability of theproject to generate income, the quality of the project company’s contractualdocumentation with landowners, EPC contractors, operationsand maintenance providers, and the collateral package availableor transferable to them, which are all essential to make the project‘bankable’. Equity providers are normally subordinated to debt providers.However certain cash sweeps of projects resources may betransferable to sponsors before final repayment of debt providersprovided that the project company has met its expenditures.Banks will generally require the assignment of main projectcontracts that create revenues streams, the assignment or pledge ofcertain project receivables, insurance policies or termination indemnities,liens on essential property interest for the development of theproject, and a pledge of the project company’s shares. Equity providersmay also be asked to deliver a letter of intent with respect to theircommitment to complete the project and secure their commitment torelease the share capital.The project company will give also special attention to the bondsit provides and will attempt to subordinate recourses against it to thefinal repayment of the project debt.2 Perfection and priorityHow is a security interest in each type of collateral perfected and howis its priority established? Are any fees, taxes or other charges payableto perfect a security interest and, if so, are there lawful techniquesto minimise them? May a corporate entity, in the capacity of agent ortrustee, hold collateral on behalf of the project lenders as the securedparty?French laws and regulations provide for a broad range of in personamand in rem security interests. French security law went through asignificant overhaul in 2006, which homogenised the regime of collateral,strengthened the attachment of future assets, simplified theirperfection and reinforced creditors’ rights in enforcement. This wascompleted in 2007 by the introduction into French law of fiducie,a civil law trust mechanism, which gives French law a competingstructure with the Anglo-Saxon trust.There are two types of charges available on real property: mortgageand antichresis. A mortgage does not give the mortgagee possessionof the property. Instead, it gives the mortgagee the right tohave the property sold upon default of the mortgagor, so as to bepaid on the sale price. Antichresis gives the creditor possession ofthe real property of his or her debtor, as well as the right to receivethe revenues of the property. These revenues can be offered againstinterest and the principal payable to the secured creditor. In case ofdefault, the antichresis creditor can have the property sold. Becauseof this dispossession requirement of the antichresis, it is used muchmore rarely than mortgages. However, the contract can provide thepledgor with a right to use the property. Furthermore, the antichresisconveys to the secured creditor a retention right that enables it toavoid any priming liens as long as it retains its charge.A mortgage can be granted on a building under construction, orthat is merely planned to be constructed if the future owner alreadyhas an actual right to build on another person’s land. A contractualmortgage or an antichresis on real property located in France mustbe incorporated into a notarial deed prepared by a French notary inorder to be valid. Mortgages and antichreses must be registered withthe mortgage registry of the place where the property is located inorder to be enforceable against third parties.The registration date determines the rank of the beneficiary onthe property. Fees and costs are between 0.825 per cent and 5 per centof the amount of the security. If the property is leased to the projectcompany under a long-term lease conveying title on constructions tothe lessee for the duration of the lease (emphyteotic lease) the lesseecan grant a mortgage, but the latter will be discharged in the event oftermination of the lease.In security interest in personal property, parties are free to choosea foreign law to govern the security instrument, provided there is across border element in the transaction and that they elected a legalinstrument that has an equivalent in French law (for instance, a floatingcharge would not be recognised). Notwithstanding the foregoing,French law will apply to formalities for the opposability vis-à-visthird parties, and the order of priority rights in enforcement.Although French law does not offer a creditor the ability to obtaina blanket lien over all of a debtor’s assets, the pledge of a going concernenables a creditor to obtain a lien on a number of assets of thebusiness of the project company as they fluctuate until enforcement:shop sign, commercial name, rights to the lease clientele and goodwill,commercial furniture and equipment used in the operation of the business,and all intellectual property rights attached to the going concern.The pledge of the going concern does not result in a lien on inventoryand accounts receivable, certain contractual rights and real estate. It isregistered with the trade and companies registry for a fixed symbolicfee. The scope of the pledge of going concern is not as broad as that ofthe UK law floating charge, but it offers a better protection to securedcreditors as it does not have priority rights limitations against specificcharges, and can easily be completed by a charge on property andreceivables. The existence of substantial elements of the going concernis a condition of validity of the pledge; therefore in the case of aproject it is not available until exploitation licences have been grantedand there is a clientele, or at least a guarantee has been provided inconnection with the purchase of the output.www.gettingthedealthrough.com 73

franceJeantetAssociésThe pledge of negotiable shares of joint-stock companies aswell as other types of financial instruments requires their transferto a financial instruments account which is the subject matter of thepledge. This structure allows the pledge to be automatically incrementedby newly issued shares or revenues related to the originalshares. The pledge is perfected by a declaration of pledge signed bythe pledgor, and gives rise to a certificate of pledge issued by theholder of the financial instruments account (either the issuing companyor a credit institution in France).The declaration and the certificate of pledge are neither registered,nor published. The pledge of non-negotiable shares (civil companies,partnerships, limited liability commercial companies) mustbe registered with the trade and companies registry of the issuingcompany’s registered office.Several techniques are available to create security over receivables,none of which gives rise to filing or registration. Delegationis a simplified debt settlement mechanism among three parties inwhich the delegor delegates its account debtor (delegee) to pay itsown creditor, the delegate, the sums owed to it in satisfaction of bothclaims. It is in fact used as security. Delegation can be either with orwithout recourse from the bank against the delegor, in the event ofnon payment of the delegee.Under a specific statute known as Loi Dailly, professional receivables(ie, receivables owed to private or public law entities or privatepersons in the course of professional activities) can be assigned orpledged as security to the financiers granting a loan to the projectcompany, through execution of a simple form that is sufficient totransfer title and can be notified by simple letter, irrespective of thelaw applicable to the assigned or pledged debt. Contingent or futuredebts can be assigned or pledged provided that the debt can be sufficientlyidentified. It is generally considered that the Dailly assignmentor pledge may be used only in favour of credit institutions from theEuropean Economic Area. Receivables can also be pledged under ageneral civil law security regime that also covers future streams ofreceivables. The pledge of bank accounts allows the creditor to attachthe balance standing to the credit of the account at crystallisation.Intellectual property rights can be pledged separately from thegoing concern. Intellectual property rights are subject to registrationwith the Intellectual Property Rights Office for a fixed fee. Certaintypes of assets are such as aircraft are subject to specific regimes ofcollateral that are not described here.French law does not provide for the pledge or assignment assecurity of contracts (with the exception of the pledge of procurementcontract), because liabilities cannot be transferred without thedebtor’s consent. The collateral can be taken on the project’s company’sreceivables under a specific contract. In project financings, banksgenerally require a substitution right in concession contracts in theevent of a default by the contractors that receives prior approval ofthe beneficiary of the project subject to the assignee being technicallyand financially qualified. This right entitles the banks to substitutethemselves or a third party appointed by them to receive all or partof the rights and obligations of the contractors which benefited fromthe financing. This mechanism will generally provide a more flexiblesecurity than collateral on fixed assets or moveables, in particularat the building stage where revenues do not exist and the assets aredifficult to liquidate.Fiducie arrangements require execution that must be registered.Fiducie can be used either as an assignment as security of all typesof assets or vehicle of collateral, managed by the fiduciary agent(generally a bank). It is particularly useful in non-recourse projectfinancings, as the fiduciary assets are insulated from any recoursefrom creditors of the settlor and the rule according to which lenders’rights are exercised on the project company without recourse.The exception from that rule in case the fiduciary patrimony is notsufficient to satisfy all their claims may be derogated from by theagreement of the parties.Assignment of title provides lenders with stronger rights than apledge in a French bankruptcy. It may be enforced notwithstandinginsolvency except when the settlor has received the use of the fiduciarycollateral assets. Furthermore, it is not affected by priming liens.Pledges are primed by certain privileges, mostly the tax authoritiesand employees’ preferred claims, as well as post-bankruptcy claims.Rules for prioritisation of competing security interests are based onthe perfection date of formalities required for the opposability visà-visthird parties.Guarantees and collateral must meet corporate benefit tests andreceive prior approval by the company’s board, under the pain ofnullity.3 Existing liensHow can a creditor assure itself as to the absence of liens with priorityto the creditor’s lien?For collateral that requires registration for perfection, a search canbe carried out on each relevant registry, such as the Land Registryfor immoveable property, or the Trademark and Patent Office forintellectual property rights. A lien search certificate delivered by thetribunal of commerce of which jurisdiction depends the registeredoffice of the company provides information on all prior charges andliens subject to registration at the Trade and Commerce Registry.For collateral that does not require entry into a public registry,in particular non-negotiable shares, shares of financial instruments,or receivables, the only assurance available to a creditor regardingthe absence of liens can be in the form of contractual warranties andrepresentations by the debtor, or third parties such as the issuingcompany, a depositary or a custodian.4 Foreclosure on and sale of collateralWhat steps must a project lender take to foreclose on and sellcollateral in your jurisdiction?Subject to bankruptcy procedures, enforcement of collateral iscarried out by way of an auction sale, judicial attribution to thesecured lender or private attribution, provided that, for assets thatare not quoted on a regulated market, an independent expert hasbeen appointed in order to determine a price. The project lender mayparticipate in the sale except for going concerns. Auction sales takeplace in euros, but a private sale can be in a foreign currency, butmust specify its equivalent in euros for tax purposes.In order to foreclose on and sell collateral, a creditor must obtainan enforceable decision stating that its debt is liquid and payable.5 Foreign exchangeWhat are the restrictions, controls, fees, taxes or other charges onforeign currency exchange?The general principle of exchange control regulation in France is thatof freedom of financial relationships between France and foreigncountries. However, in order to protect national interests, decreesmay be enacted from time to time in order to submit certain exchangetransactions, capital movements and payment of any nature betweenFrance and a foreign country to a declaration, a prior authorisationor a control by the French administration.Money transfers over a certain amount must be reported to theBanque de France for statistical purposes, and certain direct foreigninvestments made in France must be declared to the French Ministryof the Economy. Furthermore, capital movements with a fewcountries are forbidden or subject to prior authorisation. No chargeapplies to foreign currency movements.74 Getting the Deal Through – Project Finance 2010

JeantetAssociésfrance6 RemittancesWhat are the restrictions, controls, fees and taxes on remittances ofinvestment returns or loan payments to parties in other jurisdictions?Investment returns may take the form of distribution of net profits,interests on loans and advances granted by a foreign parent company.If the parent company is located in a country that does not have atax treaty with France, the withholding tax rates are as follows: 25per cent on dividends, branch profits and royalties, or 18 per cent oninterest payments. The same withholding tax note applies to interestpaid by a French debtor to a person that does not have its taxdomicile or its head office in France or where the interest is paidoutside of France.Tax treaties might reduce withholding tax rates. Furthermore,a specific exemption from the withholding tax can be granted oninterest related to the proceeds of loans made outside of France. TheFrench tax authorities make the benefit of the exemption conditionalupon the fact that the original lender or lenders be all domiciledoutside of France, at least in respect of all tranches made availableto a French borrower. However, interest paid to foreign branches ofFrench banks may also benefit from the exemption. Interest paid by aFrench company to a legal entity domiciled or established in a countryor territory with a privileged tax system will not be allowed fordeduction from the French corporation tax unless it comes forwardwith the proof that the transaction was real and entered into bonafide and that the amount of interest is not exaggerated.7 RepatriationMust project companies repatriate foreign earnings? If so, must theybe converted to local currency and what further restrictions exist overtheir use?There is no legal obligation that French project companies repatriateforeign earnings. Nor is there any restriction over their use.8 Offshore and foreign currency accountsMay project companies establish and maintain foreign currencyaccounts in other jurisdictions and locally?Subject to limitations imposed by trade sanctions, the opening of anyforeign currency account in other jurisdictions must be reported tothe French tax authorities.9 Foreign investment and ownership restrictionsWhat restrictions, fees and taxes exist on foreign investment in orownership of a project and related companies? Do the restrictionsalso apply to foreign investors or creditors in the event of foreclosureon the project and related companies? Are there any bilateralinvestment treaties with key nation states or other internationaltreaties that may afford relief from such restrictions? Would suchactivities require registration with any government authority?French policy on foreign direct investment is based on nondiscriminationbetween foreign and local investors, with the exceptionof certain sectors of economy that are considered sensitive,essentially activities likely to jeopardise public order, public safety ornational defence interests, such as trade in weapons, or equipmentused in warfare, or business under contract to supply research orequipment to the Ministry of Defence. These activities are subject toprior approval from the minister for the economy.10 Documentation formalitiesMust any of the financing or project documents be registered orfiled with any government authority or otherwise comply with legalformalities to be valid or enforceable?Contracts are required to be in French under a law of 4 August 1994,when they are entered into by public or private entities commissionedto execute a public service mission, unless such contracts are fullyperformed outside of French territory. However, it is generally admittedthat financing contracts do not fall under the prohibition becausethe object of the financing does not directly and specifically relate tothe mission. The law does not apply to documents that are receivedfrom, and thus executed, outside of France, that involve foreigners,or that concern the international activities of a company.Independently from the Toubon Act, French is mandatory for allcontracts that are notarial (mortgages, antichresis and all other guaranteesif the parties opt for a notarised deed). Certain security documentsalso require the use of the French language, either by virtue ofFrench statute (eg, pledge of financial securities account, Dailly) oras a result of filing requirements (eg, pledge of going concern). Lastly,all documents submitted to a court of justice which are drawn up ina language other then French require a sworn translation in French.Legal formalities will be required either as a matter of validityor for enforceability purposes vis-à-vis third parties. Mortgagedeeds need to be notarised and attract publicity formalities and dutiesbased on the value of the secured claim. Pledges of going concerns,non-negotiable shares, intellectual property rights, collateral fiduciemust be registered and or filed with specific registries, for a fixed fee(see question 1).Optional registration of project documents (accompanied by atranslation thereof into the French language certified by a sworntranslator, with the local tax authorities in the jurisdiction in whichone of the parties thereto has its registered office in France, wouldconfer a ‘date certaine’ upon such project documents preventing anychallenge as to the date thereof in the absence of fraud.France is a signatory to the 1961 Hague Convention abolishingthe requirement of legalisation for foreign public and comprising anofficial declaration such as registration or signature’s certificationwill be binding in France if the security is certified by an apostillein the jurisdiction in which the security was executed. The serviceis normally very simple and will normally only cost a modest fee ifanything at all. The security is subsequently not subject to any furthercertification or authentication in France.11 Government approvalsWhat government approvals are required for typical project financetransactions? What fees and other charges apply?Local construction and sitting permits are required for constructionprojects. Environmental permits are also needed when the project islikely to affect water, air, noise, wildlife, etc. Local authorities (themayor, or in the absence of an urban plan, the prefectorate) deliverconstruction and sitting permits.The Ministry of Environment and its agencies (the RegionalDirectorate of Industry, Research and Environment (DRIRE) andthe Directorate of Regional Environment (DIREN)) deliver environmentalpermits for projects that may affect water, air, noise, wildlife,etc, or permits in the energy sector, such as for constructionof power plants. Petrochemical plants or storage facilities for toxicproducts and liquefied gas are also subject to prior approval of thestate, including a risk survey and report to identify hazards involvedin their activities.The French Financial Markets Authority and the Bank of Franceare responsible for granting certain approvals to carry out activitiesin the banking and financial sector. The Nuclear Energy Committeedelivers uranium mining permits. Mining licences are approvedby decree in Conseil d’Etat after a public audit and tender offer.www.gettingthedealthrough.com 75

franceJeantetAssociésGovernment authorisations are also required for waste recyclingactivities and maritime fishing activities.12 Foreign insuranceWhat restrictions, fees and taxes exist on insurance policiesover project assets provided or guaranteed by foreign insurancecompanies? May such policies be payable to foreign securedcreditors?There are no restrictions to policies being payable to secured foreignauditors. Insurance from an insurer from the European Union orEuropean Economic Area is required in respect of persons, propertyor responsibility situated on the French territory with the exceptionof maritime and aviation transportation insurance that can be contractedwith an insurer from a non-EU or EEA state. If no properinsurance for a specific risk can be provided by a local, EU or EEAinsurer, the Committee for Business Insurance can derogate from theabove and allow the contracting of a policy from a foreign insurancecompany. French insurance companies are required to adhere to reinsurancemechanisms. Cut through clauses may be provided.13 Foreign employee restrictionsWhat restrictions exist on bringing in foreign workers, technicians orexecutives to work on a project?EU nationals and member citizens of the EEA can be employed andmay establish themselves independently in France as of right, subjectto certain administrative formalities. For non-EU citizens, in principlea work permit is required to carry out a professional activity inFrance. Streamlined procedures apply to high-level management staffand senior executives. Some residency permits allow residency inFrance and also act as work permits. This is the case for expatriatedsalaried employees, temporary workers, those with science expertiseand skill permits. Applications are filed with the local employmentoffice and reviewed by the French Immigration Authority and the relevantforeign French consulate. Decisions are normally given withintwo months from application. France has entered bilateral agreementswith a number of countries, including the United States andCanada, which facilitate the requests for work authorisations andrights to exercise professional activities.Employees and senior executives that are assigned by a foreigncompany to a company based in France are not required to paytax on their expatriation bonus for the first year of their arrivaland the five following years. They are taxed only on French sourcerevenues.14 Equipment import restrictionsWhat restrictions exist on the importation of project equipment?Within the EU states there are no restrictions regarding the importationof project equipment, with the exception of items that mightaffect public safety, health, the protection of the environment, publicmorality, public policy or public security, or the protection of industrialand commercial property. With non-EU states, customs duties(and VAT) on equipment imports may apply, and a custom declarationis required (using the single administrative document).France is a member of the World Trade Organization and accordsmost favoured nation status to countries on a reciprocity basis.15 Nationalisation and expropriationWhat laws exist regarding the nationalisation or expropriation ofproject companies and assets? Are any forms of investment speciallyprotected?Expropriation on the French territory is regulated by the ExpropriationCode, and is restricted to circumstances where a public interestcan be demonstrated, under a procedure giving rise to an audit andrecourses. It is carried out on a non-discriminatory basis betweenFrench nationals and foreigners. Compensation is awarded coveringdirect and certain damages. Nationalisation may be carried out onlyby virtue of statute voted by the French Parliament. The French ConstitutionalCouncil has set rules for fair and prior indemnification.16 Fiscal treatment of foreign investmentWhat tax incentives or other incentives are provided preferentiallyto foreign investors or creditors? What taxes apply to foreigninvestments, loans, mortgages or other security documents, for thepurpose of effectiveness or registration?A broad and varied framework of support has been set up in Francein response to the needs of investors. This support depends on thetype of investment project (productive investment, job creation, innovation,training etc), the location of the investment project (prioritydevelopment zones or non-priority zones) and the type of company(large corporation, SME). French authorities support investmentprojects that favour:• productive investment in economically disadvantaged regionsand regions in the process of industrial redevelopment (exceptwhere this concerns the steel and synthetic fibre sectors), theseregions being specifically indicated on a map approved by theEuropean Commission (National Regional Aid map);• business research and development (R&D) projects;• professional training programmes initiated by business;• job creation for the employment of defined groups;• investment and job creation by SMEs in all parts of the country;and• protection of the environment.With the exception of support for productive investment, which isspecifically zoned, the French authorities can provide support tocompanies all over France for research and development and innovativeprojects, staff training programmes, as well as projects for theprotection of the environment. Public support may be granted by thenational government or regional and local authorities. If assistanceis received from several different sources, the total may be up to theallowed limit. Public assistance providing effective support for businessstart-ups, job creation, investment and business developmentmay come in the form of subsidies or tax exemptions. Communitylaw requires such assistance to be of the nature of an incentive, andtherefore it must be applied before the project gets underway.France’s officially recognised competitiveness clusters bringtogether business, scientific and technical institutions and public bodieswith interests in a particular sector in a given geographical area.Business participating in a competitiveness cluster and conductingan R&D project approved by the cluster may benefit from supportin the form of grants from public organisations supporting R&D.Businesses may also benefit from tax exemptions amounting to upto e200,000 per company over three years, provided they are in azoned R&D area.17 Government authoritiesWhat are the relevant government agencies or departments withauthority over projects in the typical project sectors? What is thenature and extent of their authority? What is the history of stateownership in these sectors?See question 11.Under the influence of EU liberalisation and free competitionprogrammes, France has allowed the private sector into utilitiesactivities. Although the state keeps golden shares in certain companiesconsidered essential for France’s sovereignty, it has largelyprivatised companies that are in transportation, water treatment andchemical refining. However, France has granted certain private companiespublic service delegations, which has facilitated the developmentof leaders in a number of sectors.76 Getting the Deal Through – Project Finance 2010

JeantetAssociésfrance18 International arbitrationHow are international arbitration contractual provisions and awardsrecognised by local courts? Is your jurisdiction a member of the ICSIDConvention or other prominent dispute resolution conventions? Areany types of disputes not arbitrable? Are any types of disputes subjectto automatic domestic arbitration?Arbitral awards are recognised and declared enforceable througha procedure of exequatur before the Tribunal de Grande Instance.Grounds to refuse an exequatur are limited to due process control,and the enforcement of the award not being contrary to internationalpublic policy. France is a long-time member of the Convention onthe Settlement of Investment Disputes between States and Nationalsof Other States, and of the New York Convention. Public policyexcludes arbitrability of certain matters including bankruptcy, labourand immigration law.The insolvency process opens an observation period limitedto six months that allows for an assessment of the economic andlabour situation arising from the company’s operations and allowsfor proposals for the continuation or transfer of the business. If noneof these solutions seems feasible, the Tribunal orders the company’swinding up. During the observation period, all claims (bothsecured and unsecured) are stayed, however the bankruptcy judgemay authorise the debtor or the receiver to pay debts created priorto the bankruptcy date to allow a creditor who has a right of retentionover a pledged asset to release such pledged asset. Furthermore,the bankruptcy judge may allow a provisional total or partial paymentto the pledgee, provided, however, the pledgee provides a bankguarantee. The secured creditor may enforce its security interest afterthe continuation plan or the transfer has been approved or afterthe reorganisation proceeding has been converted into a winding-upproceeding.19 Applicable lawWhich jurisdiction’s law typically governs project agreements? Whichjurisdiction’s law typically governs financing agreements? Whichmatters are governed by domestic law?The parties may freely choose the law applicable to the project, providedthat the choice is not intended to elude French public orderlaws. French law will mandatorily govern property law aspects, taxand customs duties, labour and safety law, environmental aspects,authorisations and permits delivered by the French state or local constituencies,and insolvency laws of entities having their head office ortheir main centre of interest in France. The financing documentationmay be governed by foreign law, subject to compliance with bankingmonopoly laws.French law is frequently used in project financing contractualand financing agreements having a French element, irrespective of theplace of the project or the nationality of contractors or financiers.20 Jurisdiction and waiver of immunityIs a submission to a foreign jurisdiction and a waiver of immunityeffective and enforceable?French merchant parties may submit themselves to the jurisdictionof foreign courts. The French state remains attached to preservingimmunity of jurisdiction and enforcement, but has agreed to limit itseffects depending on the nature of activities exercised and the allocationof the funds or assets affected by enforcement.22 Title to natural resourcesWho has title to natural resources? What rights may private partiesacquire to these resources and what obligations does the holderhave? May foreign parties acquire such rights?The state has the legal title on natural resources that are either minedor quarried, regardless of the ownership of the surface, which canbe held by a private person. Local or foreign entities may acquireresearch or concession permits granted by the state. Nevertheless,exploitation permits may be granted only to commercial companiesincorporated in an EU country.The permit for exploration of natural resources is granted for aminimum of five years, renewable twice at the request of the permitholder, for a duration of five years each, under the same conditions asthe previous permits (except that the surface area of research permitsfor liquid or gas hydrocarbons is reduced by half for the first renewal,and to a quarter for the second renewal, but not less than 175 squarekm). Such permits are renewable as of right for three years or theduration of the previous permit if less, if the permit holder providesthe same pro rata financial means according to the surface designatedfor exploration. While a research permit is valid only its holder mayobtain a concession within the surface area included in the researchpermit. Mining concessions cannot exceed 50 years, renewable forduration for a maximum of 25 years. The duration of an exploitationpermit is five years renewable twice for five years each, granted uponadvice of the General Council of Mines or of the Atomic EnergyCommittee by the ministry in charge of mines.21 BankruptcyWhat entities are excluded from bankruptcy proceedings and whatlegislation applies to them? What processes other than courtproceedings are available to seize the assets of a business?Bankruptcy applies to all companies except certain public law entities.However, specific rules apply to banks, financial institutionsand insurance companies aimed at protecting deposits and claimsthrough banking profession guarantees. Reinsurance creditors canenforce collateral and be attributed the secured assets outside of courtproceedings if the collateral agreement so allows and provides foran independent expert appraisal, except for assets that are quotedon a regulated market. Fiduciary arrangements by way of securitymay de facto allow the fiduciary to act as a receiver to enforce thecollateral.Bankruptcy laws do not discriminate against creditors based onnationality. In accordance with Regulation (EC) No. 1346/2000 of29 May 2000 on insolvency proceedings, in the event of a secondaryproceeding in France, the proceeds of realisation of French assets arepaid to the main proceeding only after all creditors with security overassets situated in France have been discharged.23 Royalties on the extraction of natural resourcesWhat royalties and taxes are payable on the extraction of naturalresources, and are they revenue- or profit-based?The holders of exploitation rights for liquid and gas hydrocarbonsmust pay the state a royalty calculated on the basis of the volume ofproduction. Royalties on mines and quarries calculated on a yearlybasis can be reduced in accordance with investments. A distinct royaltyis due from the holders of permits of exploitation to the ownersof the surface, calculated on the basis of the quantities extracted.24 Export of natural resourcesWhat restrictions, fees or taxes exist on the export of naturalresources?There are no restrictions on exports to EEA member states, and nogeneral restriction on the export of natural resources to countriesoutside the EEA, other than the applicable customs regulations.www.gettingthedealthrough.com 77

franceJeantetAssociésUpdate and trendsIn the context of private companies experiencing increasing difficultiesin accessing financing after 2008, the French government decidedto guarantee private investors’ obligations when such entities getinvolved in either the management of a delegated public serviceor in the performance of a public-private partnership for a projectclassified as having a certain ‘priority’ according to the minister incharge with the economy. On the same note, Law of 17 February 2009allows private entities to enter into a PPP and to present their finaloffers before finalising the financing plan, it being said that this is atransitory measure that shall be available only for 2009 and 2010.In addition, in order to facilitate refinancing of contractorsentitled to term payments from a public entity for their investmentassignment of receivables, which used to be restricted to 80 per centof receivables, it is now possible at 100 per cent.As part of its sustainable development policy, the Frenchgovernment encourages the financing of renewable energy projects,as well as the development of various alternative means oftransportation to air and road transportation, such as train, river andsea transportation. Law No. 2009-967 of 3 August 2009 (article 11)allows the state to subsidise the cost of fares for train, river and seatransportation to such operators that agree to undertake developmentand organisation objectives.Regarding project finance, in France, the enormous financingrequired for green energy state programmes combined with theconstraints stemming from state debt, offer PPP financings significantdevelopment opportunities. The French legislation model is actuallyalso being considered to promote programmes in emerging markets.Potential constraints in relation to accounting standards haverecently attracted the attention of professionals with a view to provideadequate and secure treatment of the accounting of the assets objectof the concession, the treatment of liabilities relating to capitalisationof financing charges, and amortisation, as in particular if the publicentity’s rights are accounted as a debt with the contractor, thisdeteriorates its indebtedness ratio. A working group attended by majorFrench contractors that recently took place has remitted a white paperto the International Accounting Standards Board.Another issue that raises attention is the increase of long-termreceivables against the French state held by PPP financiers, whichmay create the need for a structured refinancing secondary marketinvolving the assignment of debt.25 Environmental, health and safety lawsWhat laws or regulations apply to typical project sectors? Whatregulatory bodies administer those laws?Different laws apply depending on the relevant project sector. Generallythe Civil Code is applicable with respect to property andrelated securities. In the mining sector the Mining Code is applicabletogether with application decrees for the grant of permits, their durationand surveillance conditions. The public authority in charge ofmining activities is the minister in charge of mines, who takes advicefrom the General Council of Mines and Atomic Energy Committee.The Environmental Code regulates environmental matters, which aremonitored by the Ministry of Environment and its agencies (DRIREand DIREN) (see also question 11). Transportation matters fall underthe authority in charge of transportation and harbours, DGITM.26 Project companiesWhat are the principal business structures of project companies?What are the principal sources of financing available to projectcompanies?Project companies are usually established as a special-purpose entitythat engages in a single project, so as to insulate the assets and revenuesoffered as security. They are generally organised as limitedliability companies but are sometimes set up as unlimited liabilitycompanies or partnerships. Within the EU, limited liability companiesmay take the form of a European company, governed by the lawof the country where its head office is located.Financings available to project companies include grants andsubsidies, public loans, international sponsors’ equity or debt andprivate bank debt. Various French law debt instruments are availableto issue subordinated, high-yield or convertible bonds. Francehas active public securities markets on which project financing debtcan be traded.27 Public-private partnership legislationHas PPP-enabling legislation been enacted and, if so, at what level ofgovernment and is the legislation industry-specific?The general regime of PPP enabling legislation was enacted by anOrdinance of 17 June 2004, regarding contracts between the state,public institutions, local authorities and private entities. It has completedand extended industry-specific PPP legislation, which coverInternal Affairs (Law of 29 August 2002), Justice (Law of 9 September2002), Defence (Law of 27 January 2003) and Health (Ordinanceof 4 September 2003).The general PPP regime has been recently reformed with a viewto increase its attractiveness by the Law of 28 July 2008, the Law of4 February 2009 (which provides that certain infrastructure projectssituated in France and considered ‘essential’ by the Support Committeefor Public-Private Partnership Contracts may benefit from thestate’s guarantee), and the Law of 17 February 2009 (which providesthat certain PPP projects are eligible for loans from the Caisse desdépôts et consignations). The general regime of PPP is now codifiedin the the French Local Government Code of Practice, at articlesL.1414-1 and following.28 PPP – limitationsWhat, if any, are the practical and legal limitations on PPPtransactions?Projects are available for PPP financing if they meet one of the alternativecriteria of urgency, complexity or cost/benefit analysis. Apublic person can only enter into a PPP with private participants if,given the complexity of the project, the public person cannot alonedefine the technical means corresponding to its needs or to carry outa financing plan, or if there is urgency to accomplishing a particularproject in the name of the public interest, or an unforeseeable situation,or the recourse to a PPP is more advantageous than other typesof public procurement contracts.The award of a PPP is made in accordance with one of the followingprocedures:• the ‘tender procedure’, available if the project is urgent;• the ‘competitive dialogue procedure’, corresponding to the existenceof ‘complexity’ criterion; and• the ‘negotiated procedure’, available if the project meets ‘balance’criterion.Other limitations restrict the availability of PPPs:• limitations on the state to incur long-term fiscal obligations:by entering into a PPP the state must not increase the publicdeficit;• limitations to divest public functions or duties to private participants:the state’s management of a public service cannot bedivested to private entities. Nevertheless, the state can divest toa private entity the maintenance, upkeep, use or management ofworks, equipment of immaterial things necessary to the publicservice. In addition, the public person cannot delegate the useof a mission related to the state’s sovereignty (such as the use ofpolice powers); and• limitations on the state to contract with private participants: certainpersons are ‘disqualified’ to enter into a PPP with a public78 Getting the Deal Through – Project Finance 2010

JeantetAssociésfranceperson, such as the persons that were found guilty of certain taxand penal offences, or subject to bankruptcy procedures.29 PPP – transactionsWhat have been the most significant PPP transactions completed todate in your jurisdiction?The most significant PPP transactions completed to date in Franceinclude the Grand Stade project in Lille, concluded on 8 December2008 and the GSM-R project, concluded on 3 March 2009.The Grand Stade project was estimated at about E282 million,which was allocated as follows: 56 per cent to the private party (Eiffage,LOSC-LM, ‘Namer’ and Grands Partenaires) and 44 per cent tothe public person (Lille Urban Community and Nord-Pas de CalaisRegion).The GSM-R (Global System for Mobile communication-Railway) project, of an estimated cost of about approximately E1billion related to the creation of a system that is part of the EuropeanSystem of Railway Traffic’s Surveillance, and constitutes theframework for communication between the trains and stations forrailway traffic. The GSM-R project was structured as a concession of15 years for the development and operation of a network, which willpermit the coverage of 14,000km out of the 32,000km of railway inFrance used by RFF. The private partner was a consortium includingTDF, Vinci Energie, Vinci Concessions, SFR and AXA InvestmentManagers Paris.Jean-François Adellejfadelle@jeantet.fr87, Avenue Kléber Tel: +33 1 4505 828075116, Paris Fax: +33 1 4704 2041Francewww.jeantet.frwww.gettingthedealthrough.com 79

®Annual volumes published on:Air TransportAnti-Corruption RegulationArbitrationBanking RegulationCartel RegulationConstructionCopyrightCorporate GovernanceDispute ResolutionDominancee-CommerceElectricity RegulationEnvironmentFranchiseGas RegulationInsurance & ReinsuranceIntellectual Property & AntitrustLabour & EmploymentLicensingMerger ControlMergers & AcquisitionsMiningOil RegulationPatentsPharmaceutical AntitrustPrivate Antitrust LitigationPrivate EquityProduct LiabilityProject FinancePublic ProcurementReal EstateRestructuring & InsolvencySecurities FinanceShippingTax on Inbound InvestmentTelecoms and MediaTrademarksVertical AgreementsFor more information or topurchase books, please visit:www.GettingTheDealThrough.comStrategic research partners ofthe ABA International sectionThe Official Research Partner ofthe International Bar AssociationProject Finance 2010 iSSN 1755-974X