A. OVERALL STAFFING OF AN INTERNATIONAL PROJECT
Since a multidisciplinary approach is required if major projects are to be successfully structured and implemented, project finance lawyers need to work in close coordination with experts from a range of other disciplines. The exact size and composition of the project team is determined by the nature of the project, but in most cases the core group should include members with engineering, financial, and legal expertise. This core team would need to have ready access to specialized expertise in insurance, procurement, transport and logistics, project management, accounting, labor relations and personnel matters, and environmental, community relations and other social issues. The complexity and other characteristics of an international project financing make it essential for all participants to devote adequate staff and resources to the project. It is especially important for the two key decision makers—the host government and the sponsor—to have independent, adequately funded, multidisciplinary teams to provide disinterested advice to senior government or corporate management officials at all stages of a project.
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B. GENERAL ROLE OF LAWYERS
The nature and intensity of a lawyer’s work varies depending on the project phase and the participant that is being represented. However, in all major international project financings lawyers play a critical role. By virtue of the fact that they help negotiate and draft all key documents related to the project, they are ex officio automatically involved in all key aspects of the project. This gives them a unique role and enables them to perform a coordinating and facilitating role in moving a project forward in addition to providing substantive legal input.
It should be kept in mind that no single attorney has the depth or breadth of expertise needed to provide adequate legal service to all aspects of a project financing. As will become apparent in the discussion in subsequent chapters, very specialized expertise is required to deal with such diverse areas as tax law, procurement law, construction law, loan agreement negotiation, and advice on dispute settlement. It is, therefore, not surprising that the bulk of the legal work in connection with major project financings is provided by large international law firms that have the range of expertise required.
C. LEGAL WORK BY PHASES OF THE PROJECT
Although the nature of the lawyer’s role varies with the phase of the project, each
project is unique; and the work of the lawyer is not always neatly divided into sequential phases. Therefore, while the
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following outline of the work in each phase given below is typical, there are bound to be exceptions from these descriptions.
1. PRE-FEASIBILITY AND FEASIBILITY PHASES
The legal work in the pre-feasibility and feasibility stages is normally relatively limited and often related to preparing general assessments of the host country’s investment climate, tax laws, and overall legal and judicial systems. In addition, the lawyer might be asked for a preliminary assessment of the laws relating to the sector in which the project might be undertaken and the regulatory agencies and rules that might impact the project.
The objective of this analysis would be to identify any fundamental legal issue that might influence the decision of the sponsor to proceed with the project.
2. PREPARATION AND PROCUREMENT PHASE
Once the project moves to the preparatory phase, the lawyer’s work expands dramatically. Lawyers play a key role in:
• the bidding and procurement process;
• structuring the SPV and designing the overall legal structure of the project;
• conducting due diligence;
• obtaining needed permits and licenses;
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• coordinating the acquisition of the project site and any needed rights of way;
• the drafting of all of the shareholder and sponsor agreements, the concession, the construction contract and other project documents;
• preparing drafts of information memoranda and offering circulars, loan agreements and other finance documents; and
• coordinating financial closings.
Any one of these tasks in a major undertaking in itself and together they require a huge allocation of legal resources.
3. CONSTRUCTION PHASE
The construction phase generally requires somewhat less intensive work from lawyers
who will normally be using this stage to finalize any documents not previously completed and documenting and closing permanent finance if not already done in the preparatory phase. In addition, there are frequently contract issues that arise during construction which require legal attention. Finally, to the extent that a dispute review board is unable to resolve construction related disputes to the satisfaction of the parties, lawyers may need to become involved if the issue moves to another phase of the dispute resolution process.
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4. COMPLETION TESTING/START-UP PHASE
The lawyer’s role in this phase is generally minimal as most of the work is technical in nature. However, because project completion is a critical date for the cessation and commencement of various legal obligations, lawyers may sometimes need to review the concession, the construction contract, and other relevant documents to ensure that the all of terms and conditions in these documents dealing with completion have been fulfilled.
In addition, the lawyer must ensure that all operating and other permits needed for operation of the project have been obtained and supported by an opinion from local counsel.
5. OPERATING PHASE
If all goes smoothly in the operating phase, the lawyer’s role may be limited to what is basically a monitoring function. It should prepare a Monitoring Memo for its client containing a list of all reporting requirements and a summary of all loan agreement covenants that need to be complied with to avoid loan default. Unfortunately, operations do not always go smoothly; and the lawyers will often find themselves involved in a various ongoing legal issues. These include: dealing with events of default under loan agreements; inter-creditor issues that arise among the various lenders; and agent bank requests for guidance in carrying out their responsibilities.
In addition, because of their length, many projects require renegotiation or restructuring at some
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stage; and lawyers become involved in renegotiating loan agreements and other documents. Finally, differences among the parties are bound to arise over the life of a major project; and lawyers will be involved in helping resolve disputes whether by negotiation, meditation, arbitration, or court proceedings.
D. “PROJECT SIDE” AND “FINANCE SIDE” LEGAL WORK
There are two distinct, but interrelated, substantive parts to the legal work for every project financing—the “project” side and the “finance” side. The project side involves representation of sponsors, the SPV, contractors, offtakers, and other parties to project agreements and focuses on (1) structuring the sponsor’s interest in the project and the overall contractual framework of the project and (2) the drafting and negotiation of the project documents. The finance side involves (1) conducting due diligence on behalf of the lenders and (2) negotiating and documenting the funding, credit support, hedging, security, and inter-creditor arrangements. The two areas are interrelated and equally important in that the legal work on the project side forms the foundation for a bankable project which makes it possible to raise finance.
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PART II