ppa – Duane Morris Vietnam

May 5, 2020May 5, 2020 by Dr. Oliver Massmann

VIETNAM – SOLAR POWER – MOIT PUBLISHES DRAFT CIRCULAR ON PROJECT DEVELOPMENT AND STANDARDIZED POWER PURCHASE AGREEMENTS FOR SOLAR POWER PROJECTS

The Ministry of Industry and Trade recently published a Draft Circular on Project Development and Standardized Power Purchase Agreement for both grid-connected and rooftop solar power projects (“the Draft”). After publishing new solar power purchase prices under Decision 13/2020/QD-TTg (“Decision 13”), the Draft is another move of MOIT to replace Circular 16 that failed to address necessary changes in PPA terms. The Draft is anticipated to takes effect in June 2020, but note that there’s not yet any official announcement on this. Also, with Decision 13’s price being effective until 31 December 2020 only, this raised questions on the effectiveness of laws and regulations in Vietnam on in the long run.

Notable provisions of the Draft Circular:

v Upon specific conditions and technical requirements of each individual rooftop solar power system, the Seller and the Buyer shall decide the chronology of items and tasks implementation sequence.

v Beside the contents stipulated in the standardized PPA, the Seller and the Buyer are only allowed to supplement contents for clarification of responsibilities and power of each party. Supplementary contents must be consistent with contents of the standardized PPA.

v If grid-connected solar power projects and rooftop solar power systems have commercial operation date between, and including, 1 July 2019 and the effective date of the Draft, the Seller and the Buyer are allowed to revise and sign the PPA based on the new standardized PPA in the Draft.

v Operational plan

a) Before or on the date of performance of the PPA for grid-connected projects, the Seller provides the Buyer with the chart of annual power generation capacity at the connection point by months in line with the appraised design;

b) Before every November 30th, the Seller provides the Buyer with the power generation plan of the following year, including:

_ Monthly operational plan in the year (power output and available capacity);
_The monthly plant repair and maintenance schedule in the year (if any).

Overall, the new standardized PPA for grid-connected solar power projects does not mitigate the problems already existed in the current template under Circular 16, namely:

v The PPA does not impose a clear “take or pay” obligation on Buyer and so does not assure Seller a guaranteed revenue stream and adequate return. Buyer has the right not to purchase power in certain circumstances (Seller is in breach of the Agreement, Buyer is instructed by the regulator not to purchase power, force majeure). We note that this is not realistic in practice and note that the main issue here is curtailment, which mostly occurred due to overload of grid. Thus to alleviate this problem, Buyer and Seller need to undertake thorough grid studies to ensure the effectiveness of the project in the future.

v Electricity purchase price is the one outlined in Article 5 of Decision 13/2020/QD-CP, which is applicable to projects that obtained Decision on Investment Policy before 23 November 2019 and have COD between 1 July 2019 and 31 December 2020. With the deadline approaching by the end of this year, investors have been hurry to finalize every steps of the project as per the approved schedule with EVN, and the attractive FiT rate also attracts foreign investors to invest in Vietnam fast. However, in the past few months, regions where there’s high level of concentration of solar power projects, have experienced problems of grid-overcapacity is anticipated to be solved by 2021. This issue leads to the question whether the signing of PPA with developers at this point is beneficial if due to grid-overload, power plants will not be able to operate at full capacity which will lead to machine erosion/breakdown and financial loss to investors?

v The PPA provides simple provisions relating to Force Majeure Event and does not distinguish natural force majeure event (Non-Governmental Force Majeure Event), and force majeure event due to political issues (Governmental Force Majeure Event). As EVN is a State-owned company, there may be possibility that EVN relies on Government Event to repudiate its obligation under the PPA, especially payment obligations. Accordingly, it is recommended to distinguish these two types of force majeure events with a view to ensuring that Governmental Force Majeure Event – including change in law or tax regimes – will not be used by EVN as an excuse to its obligations.

v Regarding compensation of damages, the violating party must demonstrate damages and consequential loss, which is quiet difficult as these will mostly based on estimation. As a result, it may be preferable not to terminate the PPA in case of breach by the Buyer and instead continue to insist upon performance without triggering this cap on compensation. In that case, the Buyer would be obliged pursuant to general Vietnam law principles to compensate Seller for damages directly caused by the breach (including loss of profits). In this case, there is no specific cap and the obligation would be to compensate for actual direct losses caused. However, this obligation is not expressed in the PPA as an “indemnity” obligation, but rather a general Vietnam law obligation to compensate following breach of contract. The party claiming the breach would be obliged to prove the losses and also to mitigate losses.

v There is currently no precedent of Buyer being sued for damages under the standard form PPA. The dispute resolution terms of the PPA expressly provide for local dispute resolution and, as a matter of practice, this makes it very challenging to claim against Buyer.

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Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

Posted on November 5, 2018November 5, 2018 by Dr. Oliver Massmann
Lawyer in Vietnam Dr. Oliver Massmann – RENEWABLE ENERGY AND FEED IN TARIFFS – QUO VADIS – INTERVIEW WITH MERGERMARKET

1. Dear Dr. Massmann, a government official recently stated that the MoIT probably had enough solar projects in the pipeline, explaining for that fact that such new FIT will be much more lower than the current one (as quoted by Mr. Nguyen Ninh Hai, Deputy Director of New and Renewable Energy Department, MOIT), do you agree with this statement and why? Is there any other reason that you think make sense for planning a new upcoming FiT for solar?

OM: The number of approved solar projects has gone far beyond the target capacity in the National Power Master Plan VII (as amended). The Government has to issue a new national power master plan (PDP VIII) to reflect the new target following the market status. In addition, the grid does not have enough capacity to absorb all output from solar projects at the moment and has to be upgraded. This process should take around 1-5 years. The current FiT is also very attractive to foreign investors and high compared to some other countries. For these reasons, the Government has to issue a new FIT to slow down the development of solar projects, thus having time to improve the grid and complete the legal framework.

2. With the market now anticipating the new FiT for solar, which is underway, what is the current situation of those solar projects seeking to be the last one to enjoy the 9.35 US cents feed in tariff? Do you think the anticipation for the new FiT has triggered/ or will trigger a rise in deal value for renewables in Vietnam in the meantime? Perhaps in Ninh Thuan province? If so, by roughly how much %?

OM: Solar projects seeking to be the last one to enjoy the current FIT now have to accelerate their development process so that they will come into commercial operation by 30 June 2019. If they cannot (and this is the current situation of many solar projects), the investors tend to delay the construction and wait to see what will happen after 30 June. I am aware that the new FIT is only one of the options, besides auction or a hybrid option. The Government has not yet decided on the final model. Ninh Thuan is already overloaded and investors should look for opportunities in other provinces.

3. Besides the new FiT, what changes would you like to see in the new PPA for projects coming into operation after 30 June 2019? Can you rank these changes from most needed, needed to have, and good to have for the long-term outlook of M&A deals in renewables? Can you briefly explain the reasons for the ranking as well?

OM: The bankability of the PPA is of utmost importance. Without this, the investors find it very hard obtaining financing for their projects. Another change I expect is a clear indication of whether the PPA is a take-or-pay agreement. This will help investors secure and ensure the profits and revenue of their projects. The last change but also of not less importance is a dispute resolution clause which provides international arbitration to be an option to resolve the dispute. This could be a great concern for foreign investors, especially those of large utility scale projects.

4. From talking to a market source, the current FiT rate for wind energy projects is profitable enough for investors and he himself as an investor doesn’t want the FiT rate for wind energy projects to go up any more. What would be your argument for the hike in wind FiT and how would it benefit the long-term outlook of M&A deals in wind energy projects?

OM: I believe the reason for a recent increase in the wind FiT is to improve profitability of the projects, help investors to recover the investment capital more quickly and arrange a better financing deal with the banks. I note that the PPA is only for 20 years, so if it takes too long to recover the capital, together with the high maintenance cost after that, the investors will no longer be interested in keeping the projects. The new wind FIT will make wind projects more attractive to investors for acquisitions as there is still room for further development after the projects have recovered their investment capital.

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any lawyers in our office listing if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Posted on December 8, 2017 by Dr. Oliver Massmann
Rechtsanwalt in Vietnam Dr. Oliver Massmann Solarstrom läuft an – große PPA Neuigkeiten – Der Text des PPA ist veröffentlicht – Wie man damit arbeitet:

Nach Entscheidung Nr. 11/2017/QD-TTg des Premierministers über die Mechanismen fuer die Förderung der Entwicklung des Solarstroms in Vietnam (Decision 11) vom 12. September 2017, hat das Ministerium fuer Industrie und Handel offiziell das Rundschreiben Nr. 16/2017/TT-BCT (Circular 16) für die Ausführung der Entscheidung herausgebracht. Circular 16 zielt auf das zur Verfügung stellen von Regulierungen fuer Formulierung, Genehmigung und Anpassung des nationalen, sowie provinziellen Strom Master Plans ab. Zudem wird der Solarstrom Kaufvertrag (Solar PPA) in Circular 16 zur verpflichtenden Vorlage für zukünftige Stromnetz -und Dachzellensolarprojekte und damit von grossem Interesse für ausländische Investoren. Ferner wird erwartet, dass nur kleine Änderungen während der Vertragsverhandlungen zugelassen werden.

Im Kern ist der Solar PPA fast vollstaendig dem momentanen PPAs fuer Projekte erneuerbarer Energien gleichend. Das laesst Probleme fuer die Bankfaehigkeit von Solarprojekten entstehen und ist ein Hindernis fuer Investoren in der Planung einer Investition in diesem Sektor.

Feed-in-Tariff (FIT)

Circular 16 wiederholt den Solar FIT für die Stromproduktion eines Stromnetzprojekts und für überschüssige Stromproduktion von Dachzellenprojekten. Dieser soll laut Decision 11 bei 2086 VND/kWh oder bei 9,35 US cents/kWh liegen. Dieser Tarif wird nur bei Stromnetzprojekten und Dachzellenprojekten angewendet, deren kommerzielle Nutzung vor dem 30. Juni 2019 beginnt. Der Tarif gilt fuer 20 Jahre ab dem Beginn der kommerziellen Stromerzeugung. Wir heben hervor, dass der FIT für die Stromproduktion von Stromnetzprojekten nach dem Wechselkurs zwischen VND/USD angepasst wird, dies aber nicht für die Dachzellenprojekte gilt. Stattdessen bleibt der FIT fuer überschüssige Stromproduktion von Dachzellenprojekten im ersten Jahr gleich und der neue FIT des nächsten Jahres wird basierend auf dem Wechselkurs von VND/USD des letzten Arbeitstages des Vorjahres, angepasst.

EVNs Rechte und Pflichten als einziger Stromabnehmer

EVN ist nach den Bedingungen und Regelungen des Solar PPA für 20 Jahre verpflichtet, den gesamten produzierten Strom zu kaufen, der von Solarstromprojekten erzeugt wird. Es ist erwähnenswert, dass Circular 16 und der Solar PPA die Kaufpflicht EVNs unter bestimmten Umständen aufhebt, wie zB:

Wenn EVN Ausrüstung installiert, Reparaturen durchführt, Komponenten ersetzt oder bei Inspektion und Prüfung der Netzverbindung vom Kraftwerk des Verkäufers.

Wenn die Stromtransmission oder Verteilung zu EVNs Netz ein Problem hat oder bei direkter Verbindung mit EVNs Netz oder dem Verteilungsnetz und dort ein Problem auftritt; und

Wenn EVNs Netz Unterstützung bei der Wiederherstellung nach einem Vorfall benötigt, gemäß den Bestimmungen ueber die Operation des Nationalen Stromsystems -und Standards und gemäß den technischen Regulierungen der Elektro-Industrie.

Leider enthält der Solar PPA keine Vorkehrungen zum Schutz der Interessen des Stromverkaeufers in den oben genannten Fällen. Fuer den Stromerzeuger ist es sehr riskant, wenn der Strom bereit steht, aber die Netzverbindung für die Verteilung nicht verfügbar ist. In Abwesenheit einer klaren Bestimmung des Solar PPA ein ,,take or pay“ Abkommen zu sein, werden es Investoren schwer finden die Gewinne und Umsätze ihrer Projekte zu sichern und zu gewährleisten.

Streitschlichtung

Der Solar PPA erlaubt es jeder Vertragspartei den Streit zu einem lokalen Gericht oder einer anderen energiebezogenen staatlichen Koerperschaft Vietnams (Generaldirektorat fuer Energie und die Elektrizitaets Regulierungsbehoerde von Vietnam) fuer dessen Vermittlung oder Lösung zu tragen. Der Solar PPA gewährt keine internationale Schiedsgerichtsbarkeit fuer eine Streitresolution. Das könnte eine grosse Sorge für ausländische Investoren darstellen, vor allem solche von Grossversorgungsprojekten.

Andere Schluesselprobleme als Grund zur Sorge

Keine Regierungsgarantie für die Verbesserung des Ansehens von EVN als einzigen Stromabnehmer;

Keine Regulierung greift das Risiko für Gesetzesaenderungen des anwendbaren Rechts auf; und

Der Solar PPA muss einer bestimmten Vorlage folgen, die nicht bankfaehig ist.

Zusammenfassung

Trotz der oben erwähnten Probleme hinsichtlich der Bankfähigkeit des Solar PPA, die der Probleme der anderen PPAs erneuerbarer Energien gleicht, haben Wir unseren Klienten bei verschiedenen Grossstromprojekten assistieren können – dies auch im Bereich erneuerbarer Energien mit dem Gewinn der Bankfähigkeit des PPAs mit EVN. Wir glauben mit fester Überzeugung, dass unsere Erfolgsbilanz Investoren helfen und zum gleichen Ergebnis bei Projekten mit dem Solar PPA führen wird.

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Falls Sie irgendwelche Fragen haben bzw. Details erfahren wollen, zoegern Sie bitte nicht Dr. Oliver Massmann unter omassmann@duanemorris.com zu kontaktieren. Dr. Oliver Massmann ist der General Direktor von Duane Morris Vietnam LLC.

Vielen Dank!

Posted on September 18, 2017 by Dr. Oliver Massmann
VIETNAM SOLAR POWER – THE FIRST OFFICIAL PPA – VIETNAM INVESTMENT REVIEW INTERVIEWING DR. OLIVER MASSMANN

1. Could you point out for me the good point of this solar PPA?

While the previous draft solar PPA does not require the Feed-in-Tariff (FiT) conversion between USD and VND be according to the exchange rate at the time of payment, this newly issued solar PPA repeats the language in Decision No. 11/2017/QD-TTg (Decision 11) that the FiT will be adjusted according to the fluctuation in the VND/USD exchange rate. This is consistent with what is stipulated in Decision 11.
In addition, I note that while the FiT for power output from on-grid projects is adjusted according to the fluctuation in the VND/USD exchange rate, meaning at any time during the year, it is not the same for rooftop projects. Instead, the mentioned FiT for excessive power output generated from rooftop projects remains the same throughout the first year of operation, and the new FiT for the next year will be adjusted based on the announced VND/ USD exchange rate of the last working day of the previous year.

2. Are there any concerns of investors that the solar PPA has not solved?

The rights of the investors are not fully protected in the following cases:
– when EVN is in the process of installing equipment, or making repairs, replacement, inspection or examination of the grid connection of the seller’s power plant;
– when the transmission grid or the distribution grid connected to EVN’s grid has a problem or grid equipment directly connected to EVN’s transmission grid or the distribution grid has a problem; and
– when EVN’s grid needs support to recover after the incident in accordance with the provisions of operation of the national power system and the standards, technical regulations of the electric industry.
– allocation of feeding points into the grid
It is quite risky for the producer if the output is ready to be fed to the grid but the connection is not available to do so. Absent a clear indication of whether the Solar PPA is a ‘take or pay” agreement, investors will find it difficult to secure and ensure the profits and revenue of their projects.
• No international arbitration dispute resolution clause
• No Government guarantee to enhance the credit of EVN as the sole off-taker;
• No provision addressing the risks of changes in applicable laws; and
• The Solar PPA is required to follow a specific template, which is not bankable.

3. Is this PPA solar bankable or not?

This PPA is not bankable due to reasons specified in 2).

4. In your opinion, how Vietnam government should do in order to reach their target for solar power capacity in the coming to time?

There is an increasing interest of foreign investors in the sector, proven by the fact that there are many solar projects with total capacity of 10,000 MW registered with the MOIT. However, not many of them have submitted the pre-feasibility study to the MOIT for consideration. There are many reasons behind this, but the most important ones are the lack of Government guarantee of EVN’s payment obligation in the PPA and currency hedging. Thus, the Government should consider a mechanism where EVN has to fulfil its payment obligation and the investors are ensured that they will be able to remit their profits abroad in foreign currency.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Thank you!

Posted on December 2, 2016 by Dr. Oliver Massmann
Vietnam – Wind Power Breaking News – One of the first foreign financed Wind PPAs signed – Duane Morris advised on this transaction – What you must know

EAB New Energy GmbH (“EAB”), a German privately held SME with business activities around the world (Asia, Latin America, South Africa), engaged Duane Morris Vietnam LLC to advise on one of the very first privately financed Wind Energy Power Purchase Agreements for a wind power project in Vietnam – the “Mui Dinh” wind project (SPV el-wind Mui Dinh LLC) with a total investment value at final stage of about 60 Million USD.

EAB, in close co-operation with its subsidiary in Vietnam – WPV Wind Power Vietnam LLC, has received the Construction Permit for the wind power plant in Ninh Thuan province and will start the wind farm construction works in due course. Duane Morris Vietnam LLC advised EAB in the negotiation of the Wind Power Purchase Agreement with the Electricity of Vietnam (“EVN”) to connect into to the national electricity and sell electricity to EVN (the “Project”). The Wind Power Purchase Agreement was signed on 01 February 2016. This is one of the first signed Wind Power PPA in Vietnam and EAB is one of the first foreign companies with this success.

Given the fact that Vietnam’s wind energy potential is highly appreciated by investors in comparison to its ASEAN neighbours, and very good for building large wind power plants, the success of this Project is considered to pave the way for development of another 40 wind power development in Vietnam, roughly 513,360 megawatts.

This is the beginning of a sizeable privately financed wind energy sector in Vietnam.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you want to know more details on the above or need our assistance in your project. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Posted on December 22, 2015April 21, 2016 by Dr. Oliver Massmann
Vietnam Wind Energy – Eurocham Legal Sector Committee – Meeting with Chairman of EVN Mr Duong Quang Thanh – Presenting Major Legal Issues for Getting Deals Done

On 18 December 2015, Mr. Oliver Massmann, the Managing Partner of Duane Morris Vietnam LLC, Chairman of the Legal Sector Committee of Eurocham, attended the conference “EVN-HCMC Dialogue with Korean, American and European enterprises” held by EVN HCMC.

Besides the presentation on how to improve the quality of power supply in Vietnam of EVN HCMC, Mr. Massmann had an opportunity to give a speech in Vietnamese and raise major issues in relation to wind power energy projects in Vietnam, including:
– The Government offers low FiT rate in comparison to the investment of the investors;
– Power Purchase Agreement (PPA) is required to follow a specific template, which is not bankable;
– The PPA template is unclear whether it is a “take or pay” agreement;
– There is no clear guidance and procedure to obtain the approval for the amendment of the PPA template.

The speech received the sympathy from many foreign investors in the conference. Mr. Duong Quang Thanh, the Chairman of the Members’ Council of EVN, well received the comments with positive feedback and personally congratulated Mr. Massmann for the successful speech after the event.

Followings are the brief analysis of the issues and the response from Mr. Thanh to each issue.
1. Low FiT rate
– Mr. Massmann raised the concern that the FiT, as regulated in Decision No. 37/2011/QD-TTg, is 7.8 cents USD/kWh, equivalent to 1,614VND/kWh, is very low compared to the investment capital of the investors in the projects. Accordingly, such purchase price cannot ensure the profits for the investors. Therefore, instead of fixing the price, the Government can regulate the ceiling price and give the parties the rights to negotiate the price. In addition, it would be appreciated if EVN can share information about the exact timeline that the new FiT would be published.
– As discussed by Mr. Thanh, EVN understood the concern of the investors on the low FiT. The Government is considering the issue. However, Mr. Thanh could not say exactly when the new FiT will be published.
2. The PPA template is not bankable
– Mr. Massmann recommended to enhance the bankability of the PPA, such as to clearly define force majeure events (Articles 5.1 and 5.3 of the template PPA) and distinguish the natural force majeure event and force majeure event due to political issue; to clearly define events of default of either Seller and Buyer (Articles 6.2 and 6.3 of the template PPA).
– In response, Mr. Thanh explained that the purpose of PPA template is to cut down the negotiation process between the parties. EVN noted the comments and will propose to amend the template.
3. The PPA template is unclear whether it is a “take or pay” agreement
– Mr. Massmann suggested that in order to secure and ensure the profits and revenue of the project, it must be clear that it is a “take or pay” agreement. Because under the current template, EVN will be released from the obligation to purchase the power in specific circumstances.
– Said by Mr. Thanh, for the time being, it is difficult to make clear that this is a “take or pay” agreement as the power generated from the wind power projects will depends on many factors, such as speed and force of the wind. However, EVN noted the comment and will consider to amend the PPA template.
4. No clear procedure to obtain approval for amendment of PPA
– Mr. Massmann addressed that in practice, the parties will need to agree on the additional agreements suitable for each project. Therefore, although the template PPA is compulsory, in case the parties are willing to amend, there must be a clear procedure to obtain the approval for the amendment of the PPA.
– On behalf of EVN, Mr. Thanh noted the comment and will consider to propose appropriate changes.

Although the issues raised by Mr. Massmann could not be addressed in details during the conference, Mr. Thanh said that EVN would do their best to cooperate and would research on the appropriate solution and propose to the Government for amendment in the future.
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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.