Lawyer Monthly Magazine - August 2019 Edition

About Dr. Dietrich F. R. Stiller Dietrich specializes in banking law and finance with a focus on project finance and BOT structures as well as export finance and refinancing of distressed enterprises. He has a rich experience with domestic and cross-border projects involving multiple jurisdictions, including the German aspects of the NordStream I pipeline as well as projects in the airport, telecommunication, power, renewables or health care industry. SZA Schilling, Zutt & Anschütz SZA Schilling Zutt & Anschütz is one of the leading German law firms with offices in Frankfurt am Main, Mannheim, Munich and Brussels. Due to its complexity, project finance is not suitable for small projects. It is sad to see that many legitimate projects are prevented by existing sanctions, or by an unpredictable aggravation of sanctions risk. in particular, be relevant in the context of step-in rights, or if commercial terms are subject to adjustments to address changing circumstances. And budgetary rules may limit the ability of a government to issue guarantees, in particular, if the maximum liability thereunder is not clearly defined. Generally, it is key to identify all relevant project risks and, in an ideal world, to allocate such risks to that party which is in the best position to control the relevant risk. In real life, this principle is not always followed. Local law or public procurement rules, or simply the economic power of a project party may lead to different risk allocations. At the end of the day, lenders have to evaluate whether the remaining project risks are acceptable, or whether bankability standards require a higher level of recourse to the sponsors. Ultimately each project is different, and it is part of the task of the lawyers to assist their clients to find sustainable and bankable solutions that mitigate all relevant risks and provide legal certainty. Data shows that there was a massive increase in project finance loans in renewable energies that started in 2001. Why was this the case? This development is attributable to a number of reasons. Not only that technical progress and climate change call for more renewable energy projects. Their eligibility for project finance also benefited from the fact that the relevant technologies, in particular for wind parks or photovoltaic, are proven, and that these projects experienced a much higher degree of standardisation than any other type of projects. This does not only enhance bankability; it also leads to lower transaction costs than in case of infrastructure or new technology projects that require more complex and innovative solutions. Nevertheless, the landscape is different for other types of renewables such as biogas or waste-to-energy. Furthermore, the impact of subsidies or regulated feed-in tariffs remains a challenge in many markets. Another limiting factor is the available grid, in particular in relation to offshore projects. Are there other challenges that have an impact on project finance? Last but not least, it should be mentioned that infrastructure projects are exposed to political CONTACT DETAILS Dr. Dietrich F. R. Stiller Rechtsanwalt SZA Schilling, Zutt & Anschütz Rechtsanwaltsgesellschaft mbH Taunusanlage 1 D-60329 Frankfurt am Main Germany Tel: +49 69 9769601 160 Fax: +49 69 9769601 411 Email: dietrich.stiller@sza.de www.sza.de risks. This means not only classic risks like the impact of a change of administration during the lifetime of a project. Cross border projects also suffer more and more from sanctions risks. This does not only relate to existing sanctions, which may either prevent a project or allow a project if structured properly. Bearing in mind that infrastructure projects are long- term projects, there is an even worse impact of aggravation of sanctions risks that cause sponsors and lenders to shy away even from projects that are entirely legal under the current sanctions regime, but where the uncertainty about future sanctions reaches a level of risk that effectively prevents sponsors and lenders to proceed. It is sad to see that many legitimate projects are preventedbyexisting sanctions, or by an unpredictable aggravation of sanctions risk. Although there are promising efforts by the European Union or the German Government to mitigate the impact of foreign sanctions, all corporates and lenders will have to comply with the different sanction regimes applicable to their business, and to assess carefully whether a project remains viable if it is exposed to aggravation of sanctions risks. LM Completing The Deal Dr. Dietrich F. R. Stiller, SZA Schilling, Zutt & Anschütz 99 AUG 2019 | WWW.LAWYER-MONTHLY.COM