in 45 jurisdictions worldwide
Contributing editor: Phillip Fletcher
Published by Getting the Deal Through in association with:
Al Busaidy Mansoor Jamal & Co (Barristers and Legal Consultants)
Ali Sharif Zu’bi Advocates & Legal Consultants CPSC Amarchand & Mangaldas & Suresh A Shroff & Co
Anzola Robles & Associates Arbe Abogados Corporativos Financieros
Arzinger Baker & McKenzie (Gaikokuho Joint Enterprise)
Baker Botts LLP Bingham McCutchen LLP Cárdenas & Cárdenas Abogados Cassels Brock & Blackwell LLP Chibesakunda & Co Advocates
Colibri Law Firm Debevoise & Plimpton LLP
Emery Mukendi Wafwana & Associates
ENSafrica Fernanda Lopes & Associados
G Elias & Co Guzmán Ariza Hamzi Law Firm
Haynes and Boone LLP Hunton & Williams LLP Jeantet Associés AARPI
LLS Lungerich Lenz Schuhmacher Lobo & de Rizzo Advogados López Velarde, Heftye y Soria SC Mehmet Gün & Partners
Milbank, Tweed, Hadley & McCloy LLP Miranda Correia Amendoeira & Associados
Mkono & Co Advocates Nagy és Trócsányi Norton Rose Fulbright
PeliFilip Rodríguez & Mendoza Shearman & Sterling LLP Simmons & Simmons LLP
Skadden, Arps, Slate, Meagher & Flom
Soemadipradja & Taher Staiger, Schwald & Partner Taxgroup pravno svetovanje d.o.o.
Vandenbulke Žuri´c i Partneri Law Firm
“Reproduced with permission from Law Business Research Ltd. This article was first published in Getting the Deal Through – Project Finance 2015, (published in August 2014; contributing editor: Phillip Fletcher, Milbank, Tweed, Hadley & McCloy LLP) For further information please visit www.GettingTheDealThrough.com.”
Project Finance 2015
Milbank, Tweed, Hadley & McCloy LLP
Getting the Deal Through is delighted to publish the the fully revised and updated eighth edition of Project Finance, a volume in our series of annual reports, which provide international analysis in key areas of law and policy for corporate counsel, cross- border legal practitioners and business people.
Following the format adopted throughout the series, the same key questions are answered by leading practitioners in each of the 45 jurisdictions featured. New jurisdictions this year include include Canada, China, the Dominican Republic, Greece and India. This year the publication again includes quick reference tables, focusing on public-private partnerships in US states.
Every effort has been made to ensure that matters of concern to readers are covered. However, specific legal advice should always be sought from experienced local advisers. Getting the Deal Through publications are updated annually in print.
Please ensure you are referring to the latest print edition or to the online version at www. gettingthedealthrough.com.
Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We would also like to extend special thanks to contributing editor Phillip Fletcher of
Milbank, Tweed, Hadley & McCloy LLP for his continued assistance with this volume.
Getting the Deal Through
London August 2014
Sophie Pallier firstname.lastname@example.org
Alan Lee email@example.com
Dan White firstname.lastname@example.org
Law Business Research Ltd
87 Lancaster Road London, W11 1QQ, UK Tel: +44 20 7908 1188
Fax: +44 20 7229 6910
© Law Business Research Ltd 2014
No photocopying: copyright licences do not apply. First published 2007
Eighth edition ISSN 1755-974X
The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer– client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of August 2014, be advised that this is a developing area.
Printed and distributed by Encompass Print Solutions Tel: 0844 2480 112
Getting the Deal Through – Project Finance 2015
Alina Stancu Bîrsan and Oana Ba˘da˘ra˘u
Creating collateral security packages
is gained starting with the moment of registration with the Electronic
Archive (even if, at that stage, the asset has not yet been acquired by
- What types of collateral are available?
The collateral package for a Romanian project is relatively similar to global project finance practice and includes security on the assets and rights of the project company as well as its shares. Specific pledges on accounts are possible and typically used as a means of securing the project revenue flow. Contractual rights, which are often some of the most important assets of a project company, can also be pledged specifically, or, alternatively, contracts can be assigned for the pur- poses of security. The asset security package will typically include a pledge on the universality of moveable assets, which has the effect of a pledge on the entire business of the company with the exception of real estate properties (which are subject to separate mortgage agree- ments). The security package will also typically cover future rights and assets as a straightforward pledge: from 1 October 2011, under the provisions of the new Romanian Civil Code and related legisla- tion issued for its application (together, the New Civil Code), this also includes future constructions whereas, previously, mortgages over future assets were not allowed. Corporate guarantees are also available as a means to supplement the security arrangements.
There are, however, limits as to what can be included in the security package and especially as to what assets can be enforced against. Thus, typically concession agreements cannot be assigned and therefore they cannot be enforced against. Similarly, a large number of licences and authorisations cannot be assigned other than with the consent of the granting authority. In some cases, the change in control over the project company is also subject to approval by a regulatory authority. Public assets (owned by the Romanian state or various public authorities) cannot be transferred or charged in any way. These restrictions may be relevant depending on the sector and, therefore, the security package will vary significantly depending on the nature of the project.
the pledgor). A fully perfected security interest is opposable to the other creditors of the pledgor and to the persons that subsequently acquire rights over the secured asset. A perfected security interest is always preferred (it ranks higher) to a security interest that has not been perfected.
The registration with the Electronic Archive takes approximately one day to complete, is valid for five years and may be renewed. The registration of the moveable security is subject to a fixed fee of approximately E30, irrespective of the secured amount.
In addition to the Electronic Archive, security over intellec- tual property rights should also be registered with the Romanian Trademark and Patent Office and security over shares must be regis- tered with the shareholders’ register of the respective company.
Exceptionally, for certain moveable assets perfection formali- ties are different, requiring the transfer or endorsement of the title instrument, in the case of moveable security created over certain types of assets such as monies, treasury certificates or registration in special registries, in the case of security created over ships and aircraft or over securities.
For real estate assets security is taken through mortgage agree- ments entered into under authentic form and perfection requires registration with the Land Book. In the case of a mortgage over a universality of immoveable assets, the mortgage must be registered with the Land Book Office of each immoveable asset part of the uni- versality. Registration usually takes a few business days to complete. Prior to the entry into force of the New Civil Code, the pur- pose of the registration of the mortgage with the Land Book was to ensure opposability towards third parties. Following the entry into force of the New Civil Code, the purpose of the Land Book registra- tion changes so that the registration is needed for validity purposes. This change applies, however, only to the extent the cadastral reg- istration works have been finalised for the relevant administrative unit (eg, city or village). Until completion of cadastral works, the
- How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other
charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party?
Security interests over moveable assets and assignments of receiva- bles are created through simple written agreements and usually perfected through registration with the Electronic Archive for Moveable Security (the Electronic Archive), with the exception of security interests over future assets or securing future obligations with respect to which perfection occurs (subject always to registra- tion) only when the pledgor has acquired the respective asset or respectively, the future obligation is born and thus, becomes actual. This additional perfection requirement for future assets or future obligations does not affect the ranking of the security interest, which
Land Book registration continues to be performed for opposabil- ity purposes only. Completion of cadastral registration works at the level of administrative units is rare and needs to be checked on a case-by-case basis by creditors; consequently, the registration may have opposability or a validity effect depending on completion of such works at the location of the mortgaged asset at the time the mortgage agreement is entered into.
The execution and registration of mortgages is subject to both notary and registration fees, which depend on the value of the secured amount and, for larger transactions, can be approximated to cumulatively reach 0.2 per cent of the secured amount.
Priority is typically given by the time of registration (with the Electronic Archive, the Land Book or other applicable registries), subject to perfection formalities also being fulfilled at the time when priority is being assessed (eg, for pledges over future rights and moveable assets, perfection occurs at the time these are created or acquired).
Security agent structures are commonly used, with the market moving from parallel debt structures towards ‘straight’ security agent models due to a change in legislation under the New Civil Code, which regulates such structures for the first time.
The new legal provisions in Romania allow simultaneous regis- tration, with the same rank, of a moveable security interest in favour of several beneficiaries. The beneficiaries may also appoint a security agent, who is entitled to exercise all rights of the secured creditors who have appointed it and to ensure by itself the perfection of the security interest and the continued validity and amendment of the registration of the security interest.
In an alternative to this concept, the security interest can be cre- ated directly in favour of a party designated by the secured creditors and such a party will be entitled to exercise the rights of the secured creditors and will be bound by their obligations. In this version, the security agent is more than a regular agent, it is actually the holder of the security interest.
The new provisions offer significant advantages over the paral- lel debt structure that was previously used to deal with the issue of multiple secured creditors sharing one security interest. However, this structure is expressly regulated only with respect to security interests over moveable assets (and not in relation to mortgages over immoveable assets). For immoveable assets, security can be regis- tered for all creditors directly or in the name of the security agent, via parallel debt structure.
Security trustees are generally not used as the implementation of trust-like structures under the New Civil Code is highly formalistic and cumbersome.
- For collaterals that require registration for perfection, a search of the relevant registries or the Land Book, as the case may be, should be conducted. Where, exceptionally, charges are not perfected by regis- tration, they are perfected by the transfer or endorsement of a title and this is also easy to discern for a creditor seeking to take security on the same asset.How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien?
- Under Romanian law, the foreclosure procedures differ depending on the type of secured asset being enforced against and the proce- dure chosen by the creditor.Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral?
Foreclosure can be done either by the project lender (for tangible moveable assets and provided the debtor is not resisting enforce- ment) or by enforcement officers. The ability to enforce depends upon the existence of an enforceable title and of a determined, liquid and outstanding receivable held by the project lender against the pledgor as resulting from the title. Duly concluded mortgage agree- ments for both immoveable and moveable assets are enforceable titles subject to certain conditions set out by law.
For tangible moveable assets, in order to initiate one of the enforcement routes detailed below, the creditor can take possession of the secured asset, provided that the appropriate self-help clause has been inserted in the security agreement. The creditor may obtain the support of enforcement officers if the debtor resists the enforce- ment. Once the moveable asset is in its possession, the secured credi- tor may choose one of the following enforcement routes, each of which is subject to specific notification and registration formalities:
- sale of the secured asset, which must be approved by the courts of law and carried out in a commercially reasonable manner with regard to the method, time, place and other terms and con- ditions of the The sale can be made by public auction or direct negotiation. The secured creditor is entitled to acquire the
asset at the auction in all instances or through direct purchase only in the case of assets usually traded on regulated markets; the creditor may pay the price by using its receivable;
- taking possession of the asset for management purposes, until the secured receivable is This enforcement route is only available in relation to mortgaged assets belonging to an under- taking. The assets can be taken into management either by the creditor itself or by a person appointed by the creditor or by the court; and
- taking ownership of the secured asset on account of its receiv- able, provided that, after the default under the loan agreement, the pledgor agrees with this enforcement method and the other interested parties (eg, guarantors, joint debtors, other secured creditors) do not object to
If direct creditor enforcement routes are not available (eg, for real estate assets and intangible moveable assets) or not preferred by the creditor, the enforcement can be performed based on a different pro- cedure led by an enforcement officer, under the supervision of the courts of law. The initiation of this type of enforcement must be approved by the courts of law in an emergency procedure at the enforcement officer’s request. The enforcement officer must first for- mally ask the debtor to pay the due amounts within a certain period from the date of the notice before being entitled to initiate the public sale. In the case of real estate assets, after receiving the enforcement officer’s notice, the debtor has the right to ask the court to grant an extension of the term for payment for the entire due amount that would be paid within a six-month period, from revenues generated by the mortgaged asset or other revenues available to the debtor. If the debtor has not paid the debt within 15 days from the formal notice, in the case of immoveable property, respectively, one day fol- lowing the formal notice in the case of moveable property, and has not obtained court approval for phased repayment, the enforcement procedure will continue.
After the value of the mortgaged property is determined either by the enforcement officer or by an independent expert, the enforce- ment officer must organise a public auction sale. The auction can be repeated if, upon the first attempt, a minimum price (determined by reference to the independent valuation) is not offered by any of the bidders. At the second auction for moveable assets, respectively at the third auction for immoveable assets, the relevant assets may be sold to the highest bidder without the obligation to observe a minimum price. The creditor may also bid, but it cannot acquire the asset for a price less than 75 per cent of the independent valuation. The independent valuation and the bids are generally made in euros, but, where the enforced pledgor and the buyer are both Romanian residents, the actual payment of the price must be made in local currency.
- Generally, legal entities relevant to project finance transactions would be subject to insolvency proceedings. Exemptions include non-profit entities (such as associations and foundations) or enti- ties governed by public law (at least in part), although local public entities can be subject to insolvency proceedings. There are no dif- ferences as to the treatment of creditors on grounds of nationality.How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors’ rights (eg, tax debts, employees’ claims) with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement?
Insolvency is designed as a collective procedure, involving the participation of all known creditors and the supervision of the courts of law. As a rule, once insolvency proceedings are initiated, individual enforcement proceedings are suspended and proparal- lel routes for the enforcement of receivables against the debtor are prohibited. By way of exception, a secured creditor may obtain the court’s approval to enforce its mortgage or pledge outside the insol- vency collective proceedings, in certain conditions provided by law, for example, if the protection of the secured receivable is weakened by, inter alia, a devaluation of the secured asset or the risk of a major depreciation or by the lack of insurance against loss or damages of the assett.
At the request of certain interested parties, the courts of law can decide the annulment of ‘fraudulent transactions’ concluded by the debtor in the three years preceding the opening of the insolvency proceedings. The insolvency legislation provides a list of specific operations presumed to be concluded by the debtor in defrauding its creditors, such as transactions where the consideration received by the debtor is considerably less than the value of what it has trans- ferred, the creation of security in favour of an unsecured creditor in the 120 days prior to the opening of the procedure or transactions with affiliates, which are ‘damaging’ to the creditors.
Insolvency proceedings consist of two different procedures or phases, which can be successively or separately pursued: judicial reorganisation and bankruptcy. Judicial reorganisation implies the implementation of a financial or corporate reorganisation plan, or both, voted by the creditors and approved by the court of law. The receivables and security interests of the project lender may be reduced or even completely erased on the basis of a duly approved reorganisation plan. Unless they agree otherwise, after judicial reor- ganisation, secured creditors cannot obtain less than they would have obtained in the case of liquidation of the debtor’s assets under bankruptcy proceedings.
Bankruptcy proceedings, pursued directly or as a result of the reorganisation’s failure, consist in the liquidation of all the debtor’s assets in order to cover its liabilities, which is followed by the debt- or’s deregistration from the Trade Registry. Secured project lenders will have priority over other creditors (eg, unsecured creditors, debt- or’s employees and tax authorities) at the distribution of proceeds resulted from the enforcement of the assets securing their receivable. If the amount obtained following enforcement against the charged asset does not cover the receivable, the project lender becomes an unsecured creditor for the balance of the receivable and will be ranked lower in the distribution order than other creditors (eg, debt- or’s employees, tax authorities and financial banking institutions).
In October 2013, a new insolvency code was approved by the Romanian government, which was supposed to replace the exist- ing insolvency legislation. Only a few days after its entry into force, it was declared unconstitutional by the Romanian Constitutional Court and is, therefore, no longer applicable. In 2014 the Romanian Parliament adopted a new draft insolvency law, that passed the con- stitutionality control and was consequently enacted by the President on 24 June 2014. The Law will enter into force three days after its publication in the Official Gazette. The position of secured credi- tors within insolvency proceedings remains substantially unchanged under the proposed new insolvency law. However, there are some amendments that directly affect the rights of creditors, such as the fact that secured creditors will benefit from priority at the distri- bution of proceeds resulted from the liquidation of the mortgaged assets not only within bankruptcy proceedings, but also within judi- cial reorganisation. In addition, banks are no longer preferred to certain other unsecured creditors, such as bond holders.
Foreign exchange issues
- Generally, there are no exchange controls or restrictions or taxes imposed on foreign currency exchange.What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange?
In exceptional circumstances seriously affecting the currency market, the National Bank of Romania may take safeguard measures with respect to certain foreign capital operations such as short-term loans or credits, current account or deposit operations and physical import or export of financial assets. The safeguard measures could consist in additional notification obligations or stricter monitoring, but also in establishing thresholds or other limits on certain types of transactions. As a rule, the measures can be applied for a period of maximum six months and must be replaced, amended or ceased at the request of the European Commission.
- There are no restrictions or controls on remittances of investment returns or loan payments to parties in other jurisdictions. Payments of interests (including on bonds), dividends and royalties from Romania to non-residents may be subject to withholding tax to the extent a favourable double taxation treaty does not grant an exemption and other exceptions are not applicable. The general withholding tax rate is, at present, 16 per cent. However, from June 2013 there is a 50 per cent withholding tax applicable to non- residents in Romania, for incomes resulting from ‘artificial transac- tions’ (ie, those that do not have real economic purpose, being con- cluded solely for avoiding taxation or obtaining tax advantages that would not have been granted otherwise) paid in a state that is not a party to an exchange information agreement with Romania.What are the restrictions, controls, fees and taxes on remittances of investment returns or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?
The vast majority of project finance is conducted through the use of fiscally advantageous structures that eliminate or reduce with- holding tax by recourse to special purpose vehicles established in relevant jurisdictions.
- Romanian companies may (but need not) repatriate foreign earn- ings. In principle, no restrictions apply to the use of such earnings, collections, transfers and any other such operation resulting from sale of goods or performance of services, irrespective of their legal regime, except that, as a rule, payments between residents must be made in Romanian currency, with certain exceptions strictly pro- vided by law.Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?
Subject to political sanctions and anti-terrorism and money-launder- ing restrictions, project companies are allowed to open and maintain foreign currency accounts in Romania and in other jurisdictions.9 May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?
Foreign investment issues
any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?10 What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there
Romanian and foreign investors are treated equally as a matter of law and their investments and properties are protected by the Romanian Constitution and applicable international conventions.
Certain restrictions apply as regards ownership of land by non- residents. However, non-residents who are citizens of an EU member state and non-resident legal entities incorporated in accordance with the legislation of an EU member state have been able to acquire, from 1 January 2012, ownership over land for a secondary resi- dence or headquarters and, from 1 January 2014, ownership over agricultural or forestry land. Non-EU citizens and legal entities may only acquire ownership rights over land to the extent mutually rec- ognised under the international treaties to which Romania and their respective states of residence are parties. There are no treaties at this date that would grant such mutual rights.
The restriction is typically bypassed in practice by the use of Romanian project companies, as these can freely own land, regard- less of the nationality of their shareholders.
Further, the restriction is particular to land; buildings may be owned by both Romanian and foreign entities. Mortgage enforce- ment by foreign creditors is only limited by their inability to act as buyers of land being sold, but they can freely enjoy the proceeds of the enforcement.
- There are no specific restrictions or taxes on insurance policies provided or guaranteed by foreign insurance companies. However, the provision of insurance and reinsurance services is a regulated activity in Romania. Insurance may be provided by authorised local insurers, by EEA insurers having a branch in Romania or notified to the Insurance Supervisory Commission (ISC) as providing services on a cross-border basis, or by insurers from non-EEA states based on the authorisation of their branches with the ISC. Cut-through clauses are not regulated as such under Romanian law, but if, prop- erly drafted, their effects can be replicated in Romania as well.What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?
There is no restriction on making the policies payable to foreign secured creditors and this is typically done through the assignment of the benefit of insurance policies.
- The immigration compliancy processes for Romania are complex and depend, first, on the citizenship of the applicant and, second, on the purpose of the stay in Romania (eg, business, work, study, com- mercial activities, etc).What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?
As Romania joined the European Union in January 2007, the immigration regulations are more favourable for EU, EEA and Swiss Confederation citizens (EU/EEA/Swiss citizens) than they are for people coming from outside the aforementioned areas (foreign citizens).
EU/EEA/Swiss citizens are not required to obtain a work author- isation or permit to work in Romania and they and their family members, regardless of nationality, may reside in Romania for a period of three (consecutive) months without any formality being required. Similarly, EU/EEA/Swiss citizens who enter Romania seek- ing a job may reside in Romania for a period of up to six months, without any formality being required.
EU/EEA/Swiss citizens and their family members may reside in Romania for longer than three months (consecutive) provided they fall into one of the specific categories provided by law (eg, they carry out dependent or independent activities or they have suffi- cient means of living for themselves and their family members, as well as health insurance). In these cases, the EU/EEA/Swiss citizens must register with the Romanian Office for Immigration prior to the expiry of the three months. The Romanian Office for Immigration will issue a registration certificate for EU/EEA/Swiss citizens or a residency card for their family members, if applicable, both having a renewable expiry period of five years, except for when they have requested a shorter residence term.
The EU/EEA/Swiss citizens and their family members having or not EU, EEA or Swiss Confederation citizenship and who have a continued and legal residence in Romania for at least five years, gain the right of permanent residence. This right can be gained after shorter periods of time in certain specific cases set out by law (eg, three years of residency for EU/EEA/Swiss citizens who carry out dependent or independent activities in another EU, EEA and Swiss Confederation state and who return daily or at least once a week to Romania).
If an employment agreement is about to be signed between a foreign citizen and a Romanian company, the foreign citizen who is going to work in Romania must obtain, in advance, both a work per- mit from the Romanian Immigration Office and a long-stay visa for work from the diplomatic missions or consulate offices. In the case of secondment, foreign citizens need to obtain both a long-stay visa for secondment from the diplomatic missions or consulate offices and a secondment work permit from the Romanian Immigration Office prior to starting to work in Romania. The maximum second- ment period is of one year within a five-year period.
Foreign citizens can also benefit from exemptions from the requirement to obtain a work authorisation to the extent they fall under one of the following categories:
- foreign citizens having a permanent residence in Romania;
- foreign citizens who benefit from exemptions under bilateral agreements and conventions concluded between Romania and other states;
- foreign citizens who were granted a form of protection in Romania;
- foreign citizens who perform temporary teaching, scientific or other temporary specific activities in specialised institutions per- manently or temporarily accredited in Romania, based on bilat- eral agreements or as holder of a right of residence to conduct scientific research and high staff qualified based on the order of the Minister of Education and research and foreign citizens who perform arts in cultural institutions in Romania, based on the order of the Minister of Culture;
- foreign citizens who are to perform temporary activities in Romania requested by ministries or other central or local admin- istration bodies or independent administrative authorities;
- foreign citizens who are the heads of branches, representative offices or subsidiaries of foreign companies in Romania;
- foreign citizens who are family members of Romanian citizens;
- foreign citizens legally employed by an EU or EEA member state or by a Swiss Confederation-based company and seconded to Romania, provided the individuals have valid work or residency permits in that specific EU or EEA member state or in the Swiss Confederation, etc;
- asylum requestors, after expiry of a one-year period from the date of submitting the asylum application during the procedure of determination of a protection manner on Romanian territory; and
- tolerated foreign citizens, during the period their stay is tolerated on the Romanian
To the extent foreign employees would, through their work in Romania, come into contact with classified information, they will need to be formally cleared for access to this type of information.
- The Integrated Tariff of the European Union (TARIC) is a database comprising various matters regarding import and export of goods to and from the EU, including all limits and restrictions relating to EU customs operations, such as: goods prohibited for import and export, quantitative limits and various ways of controlling import and export of certain categories of goods.What restrictions exist on the importation of project equipment?
As each member state is allowed to further add to the list of limits and restrictions on import and export for national purposes, Romania has created TARIC-RO, which contains limitations and restriction for import or export of goods to or from Romania.
Import prohibitions in the EU are regulated for equipment such
- freezing equipment;
- traffic signalling equipment;
- containers with an anti-radiation lead covering;
- electric vehicles specially designed for the transport of highly radioactive materials;
- electric and diesel/electric locomotives; and
- machinery for liquefying air or other gases,
Further, any imported equipment will need to be compliant with European harmonised or Romanian quality and security stand- ards. Equipment used in certain industries may be subject to addi- tional requirements (such as the obligation to notify the National Regulatory Authority for Communications and Information Technology on the import of certain types of radio equipment).
Custom tariffs are still applicable on imports from non-EU states, depending on the type of equipment and trade conventions or treaties to which Romania is a party. Intra-EU trade is only subject to certain reporting formalities.
- Private property is guaranteed under the Romanian Constitution and expropriation is permitted exclusively on grounds of public util- ity subject to the prior payment of a fair compensation amount.What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected?
Expropriation may only be carried out on a non-discriminatory basis and in accordance with the specific legal procedure, which allows the opportunity of judicial control. Special procedures, quicker and less complex (but still in line with the constitutional principles) are provided by Romanian law in view of development of certain types of public utility projects (eg, mining, national roads or motorways).
Fiscal treatment of foreign investment
- Romania promotes the principle of equality of treatment between domestic and foreign investors. Other than as provided in various treaties and conventions on double taxation or mutual promotion and protection of investments, which need to be analysed on a case by case basis, there are no specific incentives for foreign investors, nor are there specific taxes applicable to foreign investments, loans, mortgages or other security documents.What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?
electricity, heating and gas: the National Energy Regulatory Authority (ANRE) is the main regulatory authority; it grants licences and permits and sets regulated tariffs. In the heating sector, the National Communal Services Authority shares these powers with ANRE. Moreover, electrical or gas distribution con- cession agreements are entered into by the Ministry of Economy (the Department of Energy), while heating concessions are entered into by local authorities. The National Commission for Controlling Nuclear Activities is the nuclear regulator and issues licences and supervises nuclear activity;Government authorities
- water treatment: the Ministry of Environment and Climate Change – Water Department is responsible for the national strategies and policies and administers and exploits the National System of Water Management with the assistance of the National Administration of Romanian Waters, which is com- petent to issue permits for the administration of water resources and to endorse other activities performed on or near water;
- transport and ports: the Ministry of Transport is competent to establish the development strategy for transport and infrastruc- ture, approves the fees due for the issuing of authorisations and licences and acts as regulator in these fields assisted by:
- the Department of Infrastructure Projects, Foreign Investments, Public-Private Partnership and Exports Support, which deals with promoting and implementing of infrastructure projects of national interest, as well as foreign investments and public-private partnership;
- the National Company of Romanian Highways and Roads, which administers and manages the highways and national roads and is responsible with the construction on new pub- lic roads;
- the Romanian Rail Authority, which manages technical and safety standards, and licences and certifies rail personnel and products;
- the Romanian Naval Authority, which is responsible for surveillance of the navigation in Romanian waters, certifies maritime and inland water ships, offshore drilling units fly- ing the Romanian flag and naval equipment and registers ships under the Romanian flag;
- the National Company Maritime Ports Administration SA Constanta, which is the port authority for the Black Sea ports; it develops the transport infrastructure and imposes security, safety and environmental port conditions;
- the National Company Administration of the Navigable Canals, which is responsible for the maintenance, devel- opment and modernisation of the naval transport infra- structure, and issues permits and authorisations for naval transport;
- the River Administration of the Lower Danube, which is responsible for ensuring navigation conditions on the Danube by means of dredging works, surveys, coast and floating signalisation, internal and international tugging etc; and
- the Romanian Civil Aeronautical Authority, which is the regulatory authority for air traffic management and ensures licensing of aeronautical personnel; and
- telecommunications: the National Authority for Management
- What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?
The main government authorities competent to regulate specific pro- jects within different sectors are:
- oil, chemical refining and mineral resources: the National Agency for Mineral Resources, which administers natural resources, grants and issues exploration and exploitation licences and per- mits and approves fees and royalties;
and Regulatory of Communications is the main regulatory body and issues licences and permits.
All these sectors have a history of state ownership, but a large part of the relevant state interests have been disposed of via privatisation. Moreover, virtually all new developments are made with private par- ticipation (either in full or in part) and state majority participation is the exception rather than the norm.
Regulation of natural resources
- Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?
Under the Romanian Constitution, underground resources of any nature (including oil, gas and other mineral resources), the airspace, waters with hydropower potential, and those that can be used for the public interest, beaches, territorial waters, natural resources of the economic zone and the continental shelf, as well as other goods, which by law or by their nature are of public use or interest are pub- lic property. They belong to the state, counties, cities or communes, but are sometimes administered by other state bodies.
Public property can be leased or granted into concession, on the basis of public competitive processes. Generally, a concession or licence to exploit natural resources will allow the holder to extract and sell such resources, subject to compliance with legal obliga- tions and the payment of a royalty or licence fee. Mining operations require a Romanian subsidiary and oil and gas exploitation require either a branch or a subsidiary to be established in Romania.
Other assets can be freely owned by any person, regardless of nationality, subject to those set out in question 14.
- What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?
Royalties are revenue-based and do not vary according to the nationality of the licence holder.
For oil and natural gas, the following royalties are applicable:
- between 5 per cent and 13.5 per cent of the value of the gross extracted production;
Legal issues of general application
- Depending on, inter alia, the nature, location, size and sector of the project, various approvals or permits may be required for any given project. Most large-scale projects will require amendments to zoning and land-use regimes, a building permit and environmental approval for construction works, as well as an environmental authorisation for the operation phase. In addition, a large number of sector-spe- cific or permits will be required, as most projects do not have a fully integrated permitting process, which means each type of permit has to be dealt with separately.What government approvals are required for typical project finance transactions? What fees and other charges apply?
The permits and authorisations are issued by bodies at various local or central levels or, exceptionally, directly by the government. Typically, the fees and charges applicable for the issuance and main- tenance of permits and authorisations are relatively minor when compared to total project costs, although there are exceptions, such as telecommunications or nuclear licences, when the cost of licences can be material. The value of the fee payable for the issuance of the building permit usually depends on the value of the construction.
Lending (on a professional basis) is a regulated activity that can be carried out only by banks or non-banking financial institu- tions authorised (or passported) in Romania in accordance with the requirements of the applicable legislation. As professional lending is not clearly defined by legislation and the National Bank of Romania is the only entity entitled to decide whether a certain activity may be qualified as such, foreign lenders that are not authorised or pass- ported in Romania should refrain from granting loans in Romania (except occasionally).
- 10 per cent of the value of the gross income obtained from oil
transport and transit operations; and
- 3 per cent of the value of the gross income obtained from under- ground storage of natural
For mining, the following amounts are due:
- a fixed annual fee per square kilometre of approximately €70 for prospecting, €290 for exploration (which doubles after two years and becomes five times higher after four years) and €7,230 for exploitation; and
- a mining royalty, which varies depending on the type of resource being mined; it is 5 per cent for most resources, but in some cases it is between €0.50 and €3.75 per mining production
Starting in February 2013, a tax of 0.5 per cent has been set for incomes resulting from the exploitation of natural resources, other than natural gas (including mining and crude oil exploitation).
In 2013, a new tax was introduced in relation to ‘exceptional revenues’ of companies carrying out both gas extraction and trading activities. The tax is 60 per cent, which is applied to certain surplus revenues, and aims at reducing the benefits of the relevant entities derived solely from the deregulation of the natural gas prices due to the natural gas market liberalisation.
19 What restrictions, fees or taxes exist on the export of natural resources?
One of the main rights of the beneficiaries of concession agreements regarding mineral resources is to dispose of the agreed quantity of natural resources, including through export. Although permitted at present, the export of certain resources, such as natural gas is still limited, due to insufficient technical capacity of existing networks and regulatory restrictions such as the ones regarding the obligation of Romanian gas producers to sell part of their production on the Romanian market in order to cover the consumption on the regu- lated market.
- Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?
The agreements regarding rights in rem over immoveable property (such as the land sale-purchase agreements, mortgage agreements etc) must be concluded in authentic form to be valid, namely they must be signed by the parties in front of a notary public. Further, to be enforceable against third parties, security interests are subject to the perfection steps outlined in the answer to question 2. As men- tioned under question 2, after completion of cadastral works for each administrative unit, the effects of Land Book registration will change and registration will be a condition for the validity of the relevant rights in rem.
Leases over real estate property should be registered with the Land Book for enforceability against third parties, both under the present legal regime and under the new rules, which will become applicable after completion of the cadastral works for the relevant administrative unit.
For the same reason of enforceability against third parties, the main provisions of any shareholder agreement should be reflected in the constitutive act of the project company and filed with the Commercial Registry. In principle, there are no language restrictions, but agreements that need to be authenticated or filed in original with state bodies are entered into additionally in Romanian.
Loan agreements granted by non-residents for a period exceed- ing one year must be notified to the National Bank of Romania. The notification is made solely for statistical purposes and does not affect the validity or enforceability of the loan agreement.
Financing or project documents can constitute enforcement titles (enabling usage of the procedures described in question 4) if they meet certain conditions, for example, authentication of documents by a notary public, attesting determined, liquid and outstanding receivables and loan agreements having the execution date certified by a lawyer or a public officer.
- How are international arbitration contractual provisions and
awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?
Romania has ratified various international conventions on arbi- tration such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards from 1958, the Geneva European Convention on International Commercial Arbitration from 1961 and the ICSID Convention on the Settlement of Investment Disputes between States and Nationals of Other States from 1965.
Romanian courts recognise international arbitration clauses and therefore decline jurisdiction if, under Romanian law, the dispute may be settled in arbitration. All disputes regarding patrimonial rights are eligible for arbitration, except for those regarding matters that may not be subject to settlement (ie, rights that the parties can- not dispose of) under Romanian law and for those that are subject
24 Is a submission to a foreign jurisdiction and a waiver of immunity
effective and enforceable?
A Romanian private entity may subject itself to the jurisdiction of foreign courts for commercial matters. The submission to the juris- diction of foreign courts is valid and enforceable under Romanian law and would be recognised by a Romanian court according to and subject to the provisions of applicable internal and EU legislation. If referred with a dispute submitted by the parties to a foreign juris- diction, Romanian courts will decline jurisdiction, unless they have exclusive jurisdiction on those matters (eg, in disputes regarding the personal status of natural persons or certain patrimonial disputes such as those regarding immoveable assets located in Romania).
Sovereign immunity only applies to the Romanian state and its bodies. However, sovereign immunity is not applicable in rela- tion to disputes regarding commercial agreements concluded by the Romanian authorities with private parties, unless accepted by them.
Environmental, health and safety laws
to the exclusive jurisdiction of ordinary courts under lex fori of the
arbitration. Romanian law excludes from arbitration, inter alia, cor- porate disputes and insolvency claims.
Romanian courts will recognise a foreign arbitral award, pro- vided that the following conditions are met:
- the dispute can be subject to arbitration in Romania;
- the award does not infringe the Romanian public policy on pri- vate international law;
- the parties to arbitration were in full capacity of entering into the arbitral agreement;
- the arbitration agreement is valid;
- the party against which the award is invoked was made aware of the arbitral procedure and had the possibility to prepare a proper defence;
- the constitution of the arbitral tribunal and the arbitral pro- ceedings were performed with the observance of the arbitration agreement or, in the absence of contractual provisions, of the applicable law;
- the award is limited to matters and terms included in the arbitra- tion agreement; and
- the award is mandatory for the parties and it was not annulled or
Under Romanian law, no disputes are subject to mandatory arbitra- tion, except in very limited areas (eg, disputes between lawyers in relation to their practice).
The typical law of the project agreements depends on the type of agreement (eg, concession agreements are governed by Romanian law) and especially on whether or not certain bodies of the Romanian state are parties – in which case Romanian law will almost always be selected. Financing agreements are typically entered into under the law chosen by the lender, with English law being the almost- universal choice. Security documents referring to assets located in Romania are entered under Romanian law.23 Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?
Regardless of the choice of law, many issues will remain in prin- ciple governed by Romanian law. These include tax, enforcement, labour, bankruptcy, all matters that are governed by administrative or regulatory provisions, corporate law applicable to the project company (if Romanian) and other matters mandatory under EU or Romanian law.
25 What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?
Romanian legislation has closely implemented the EU directives in the field of environment. The main relevant enactments are:
- Government Emergency Ordinance 195/2005 regarding environmental protection;
- Government Emergency Ordinance 68/2007 regarding environmental liability and the prevention and remedy of envi- ronmental damages;
- Law No. 278/2013 regarding industrial emissions;
- Government Emergency Ordinance 57/2007 regarding the regime of natural protected areas, the conservation of natural habitats and wild flora and fauna;
- Law No. 107/1996 regarding water;
- Ministry of Waters and Environmental Protection Order No. 135/2010 for the approval of the methodology of application of the environmental impact assessment for public and private projects;
- Ministry of Waters and Environmental Protection Order No. 863/2002 for the approval of the methodology guides applicable to the stages of environmental impact assessment procedure;
- Government Decision 1076/2004 establishing the proce- dure of environmental assessment over plans and programmes;
- Order 19/2010 regarding the approval of the methodologi- cal guide for the adequate evaluation of the potential effects of plans and programmes over the natural protected areas of com- munity interest; and
- Government Decision 445/2009 regarding the environmen- tal impact assessment for certain public and private projects.
The main bodies in charge of the issuance of the environmental reg- ulatory acts and control of environmental laws and regulations are the Ministry of Environment and Climate Change, the national and territorial environmental protection agencies and the Environmental Guard.
Health and safety legislation is also harmonised with EU direc- tives. The general legal framework regarding health and safety in Romania is set out under the Romanian Labour Code, Law No. 319/2006 on work safety and health at work and their methodologi- cal norms. In addition to the general health and safety norms there are also specific minimum safety and health requirements approved for certain activities such as the ones that concern working with cer- tain equipment, working in environments in which the employees are exposed to risks like vibration, electromagnetic fields or biologi- cal compounds and activities specific to certain industries, such as drilling or extraction.
There are several authorities with competencies in health and safety matters depending on the type of project, for example, the Territorial Labour Inspectorate, the National House of Pensions and Other Social Rights, the Emergency Situations Inspectorate, the Health District Authority, etc.
- The project companies are usually set up as limited liability compa- nies or joint-stock companies, depending on the type of project, the number of shareholders and the intended financing structure (lim- ited liability companies cannot issue bonds, nor can they list shares). In June 2010, the Company Law was amended and the transfer of shares in limited liability companies from current shareholders to third parties was made more complicated. Thus, the shareholders’ resolution approving the transfer must be published in the Official Gazette and third party creditors of the company have the right to oppose the transfer within 30 days of such publication. Although it appears that the opposition cannot ultimately prevent the transfer, the creditors can claim indemnification for any damages resulting from the transfer. The transfer becomes effective only after the expiry of the term in which third-party creditors can raise the objections or after their objection is rejected, as the case may be. Therefore, a joint- stock company (in which the shares are transferred as a rule upon registration in the shareholders’ registry) may have become more attractive as business structure than a limited liability company.What are the principal business structures of project companies? What are the principal sources of financing available to project companies?
In practice, the principal sources of financing available to pro- ject companies (other than shareholder finance) are loans granted by Romanian and foreign financial institutions, usually in a syn- dicate for larger projects. The domestic capital market has not, so far, proved to be a constant viable alternative for financing, and although the legal basis for these types of financing is generally in place, there have been some recent precedents and there seems to be growing interest in the market.
Public-private partnership legislation
- A legal framework applicable to PPPs has been in force for a few years (namely, 2002 to 2006). Until 2010, PPPs (although not too many) were implemented on the basis of concession structures or based on public procurement legislation.Has PPP enabling legislation been enacted and, if so, at what level of government and is the legislation industry-specific?
At the end of 2010, the Parliament approved a new law on PPPs, which was subsequently amended in 2011, 2012 and 2013. The new PPP law covers institutionalised PPPs in a general manner, without industry-specific provisions. However, following its 2011 amendments the law sets forth conditions required for activities in the fields of gas, thermal and electric energy or potable water to fall under its provisions. Further, in its present form the law also covers PPP projects concerning sectorial agreements (namely, exploitation of public transportation networks, postal, courier and logistics ser- vices), services in relation to e-mail and services provided entirely through electronic means, services in relation to the exploitation of certain resources (namely, petrol, gas, coal and other solid fuels) as well as exploitation of ports, airports and other transport terminals. Certain types of projects and operations are specifically excluded from the scope of PPP legislation, for example, PPP agree- ments entered into with the purpose of buying or leasing land or existing constructions or other immoveable assets, PPP agreements concerning research and development services other than those strictly benefiting the public partner and aimed for its own use, provided that the costs are entirely covered by such a partner, PPP agreements for works, supply and service contracts by contracting authorities or entities in the field of defence and security, PPP agree- ments resulting in the public partners’ ability to provide or exploit public telecommunication networks or supply telecommunication services to the general public and PPP agreements entered into on the basis of certain international treaties or following the appli- cation of a procedure typical for an international organisation. Due do the inefficiency of the PPP law in force, in 2012 the government initiated a project for a new PPP law (Draft PPP Law) intended to solve some of the issues at present blocking PPP pro- jects. The Draft PPP Law was repeatedly disputed on grounds of unclear provisions regarding awarding and unilateral termination rights granted to the contracting authority and had not been enacted by mid-2014.
PPP – limitations
- The novelty of the PPP legislation and the various unclear aspects related to its application (including its relatively unclear correlation with other legislation, eg, on privatisation, public procurement and concession) are often seen as obstacles to the implementation of PPP transactions in Romania. In addition, the legal framework fails to provide any solutions to common issues for PPP projects, as it does not set up any mechanism to facilitate the financing of these projects. In addition, PPPs (especially in certain industries and sectors –What, if any, are the practical and legal limitations on PPP transactions?
eg, infrastructure and energy) require a significant permitting effort and the involvement of several regulatory and public authorities. Due to the lack of centralisation in this respect, the unclear legisla- tion and the inconsistent practice, the permitting process is often unclear, convoluted and time-consuming.
However, the Draft PPP Law brings some improvements as follows:
- it attempts to clarify the terms and conditions for its applica- tion (as opposed to applying the Public Procurement Law). The Draft PPP Law (if adopted) will apply when the public partner is not able to fully finance the PPP project and cannot determine the legal or financial structure of the project and the most effi- cient technical solution for achieving the public needs targeted by the Unfortunately, these provisions are again unclear as PPP projects may also be very useful when the public partner is not in a state of being unable to fully finance, but just wants to reduce its exposure and increase efficiency by involving the private sector;
- contribution of the partners and risk allocation: under the draft
PPP – transactions
Draft PPP Law, these projects can be financed entirely through
private funds or through both private and public funds (includ- ing EU funds). The public partner may also participate with cash, not only in kind at the financing of the project. The public part- ner can be the main or sole beneficiary of the services provided by the project company. The public partner will be also able to grant certain guarantees exclusively in favour of the financers of the project (eg, credit institutions, financial institutions); and
- certain termination cases of the agreement and return of assets to the public partner: there is a slightly clearer regime on the ownership and use of the assets brought or created during the project. The assets created as well as those used during the PPP project shall be transferred to the public partner (i) for free, at the termination of the PPP due to the expiry of the term, or (ii) provided a compensation for the unamortised value of the assets is paid, in any other cases of
- What have been the most significant PPP transactions completed to date in your jurisdiction?
No major projects have been completed to date based on PPP struc- tures. The 2010 PPP legislation was passed with the main purpose of supporting such projects, although it does not provide all the relevant instruments in this respect. In April 2011 the government published a list containing 18 projects it intends to develop based on PPP structures, in various sectors, such as infrastructure, energy, environment and health care. Additional lists of projects were pub- lished in July 2013.
By mid-2014, a few of these projects have been initiated (ie, three highway projects), however, not on the basis of PPP legisla- tion, but under the general public procurement and concession legal framework. For two of these highway projects, the awarding proce- dure was completed and the winning bidders are in the process of obtaining financing.
In December 2013, the government also announced that 100 projects for research and development with an aggregate value of
€500 million will be seeking EU co-financing for implementation using PPP structures.
Annual volumes published on:
Acquisition Finance Air Transport
Anti-Corruption Regulation Anti-Money Laundering Arbitration
Asset Recovery Banking Regulation Cartel Regulation Climate Regulation Construction Copyright
Corporate Governance Corporate Immigration Data Protection & Privacy Dispute Resolution Dominance
e-Commerce Electricity Regulation
Enforcement of Foreign Judgments Environment
Foreign Investment Review Franchise
Gas Regulation Insurance & Reinsurance
Intellectual Property & Antitrust Investment Treaty Arbitration Islamic Finance & Markets Labour & Employment Licensing
Life Sciences Mediation Merger Control
Mergers & Acquisitions Mining
Oil Regulation Outsourcing Patents
Pensions & Retirement Plans Pharmaceutical Antitrust Private Antitrust Litigation Private Client
Private Equity Product Liability Product Recall Project Finance Public Procurement Real Estate
Restructuring & Insolvency Right of Publicity Securities Finance Shipbuilding
Tax on Inbound Investment Telecoms and Media
Trade & Customs Trademarks
For more information or to purchase books, please visit: www.gettingthedealthrough.com
Strategic Research Partner of the ABA Section of International Law
PROJECT FINANCE 2015 ISSN 1755-974X
Official Partner of the Latin American Corporate Counsel Association