Build Transfer Agreements

The rules on tax shareholdings are complex and are often contrary to the other objectives of the distribution undertaking, so it is necessary to ensure that tax requirements (including standardisation rules and rules prohibiting losses for certain sales with related parties) and other regulatory requirements are met. For example, some structures may involve federal or state rules for transactions between regulated utilities and their related companies. In addition, an authorisation from the Federal Energy Regulatory Commission may be required, together with the accompanying verification of market power, if a project is to be transferred to the grid after the start of electricity supply. Examples of countries using BOT are Pakistan,[1] Thailand, Turkey, Taiwan, Bahrain, Saudi Arabia,[2] Israel, India, Iran, Croatia, Japan, China, Vietnam, Malaysia, Philippines, Egypt, Myanmar, and some U.S. states (California, Florida, Indiana, Texas, and Virginia). However, in some countries such as Canada, Australia, New Zealand and Nepal[3], the term “Build-Own-Operate Transfer” (BOOT) is used. The first BOT was built in 1979 by the Hong Kong-listed conglomerate Hopewell Holdings Ltd (controlled by Sir Gordon Wu). Construction transfer transactions create new opportunities for the development and construction of renewable energy projects. As a hybrid between an acquisition contract and a construction contract, BTAs allow direct ownership of a new renewable energy project as an alternative to Power Purchase Agreements (PPAs) and incentivize service or business owners and potential investors to participate in tax participation. In the past, electricity suppliers in the United States were buyers and sellers, but not producers of renewable energy.

Due in part to fiscal and accounting constraints, vertically integrated and regulated distribution companies have traditionally entered into Power Purchase Agreements (PPAs) to source solar, wind and other renewable energy from independent power producers (IPPs) instead of building such projects and including them in their tariff base. For many distribution companies, this seemed like a missed opportunity, as they typically get a return on equity invested in power plants, transmission and distribution lines, but not on electricity purchased by others. Build-Operate (BOT) or Build-Own-Operate (BOOT) transfer is a form of project management method, typically for large infrastructure projects, in which a private body receives a concession from the public sector (or, in rare cases, the private sector) to finance, design, build, own and operate a facility specified in the concession contract. This allows the project promoter to cover its investment, operation and maintenance costs in the project. Parties to this type of transaction structure must take into account the characteristics of M&A sales and sales contracts and EPC agreements. Legal assistance must accurately negotiate and adapt essential elements such as development and construction agreements, completion conditions, guarantees, limitations of liability and project supervision. Listen to how our panel discusses structuring techniques for the development of renewable energy projects using BTAs, risk reduction provisions, the impact on construction financing, the potential benefits of tax equity investment and the removal of regulatory barriers to construction transfer operations. Under a construction transfer agreement, a third party develops and builds a renewable energy project and, once concluded, transferred to the distribution company, provided that the authorities` approval and other customary closing conditions of the transaction are transferred. The developer secures the land rights, authorizations, project contracts and other rights necessary for the construction of the project for the distribution company. The distribution company then takes over the ownership in accordance with the conditions of the BTA.

A BOT project is typically used to develop a discrete asset and not an entire network, and is usually completely new or in the green meadow (although a renovation may be required). In the context of a BOT project, the project company or operator typically generates its revenue through a royalty charged to the supplier/government, not through rates charged to consumers. . . .

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