Analysis by Dr Lorenc Gordani
Legal Advisor in Albanian Energy Market
The development of the energy sector in Albania, as referred by the latest data’s of Instat, is confirmed as strategic for the growth of the entire economy. However, despite the multi-importance for the economy, energy investments traditionally have presented complex challenges in their deployment in practice, which have requested a continued review with the aim of improving the legal framework in force.
In fact, the involvement in new generation capacity is a very complex infrastructural work in open space mostly in remote areas, as well as the beginning of production of a very sensitive commodity like is the energy. Normally these investments are built to operate above the 30-40 years, which make their profitability to be influenced by many variables. In more, to attract the necessary FDI for the most important project, them are managed in project financing in partnership among public and private.
Despite the importance of the legal and regulatory framework in a given period, the aforementioned investments are governed by long-term contracts. Framework agreements fundamentally based on accurate technical studies, to avoid problems that normally arise after a while the parties started their work in practice. In addition, their preparation in the initial phase is crucial not only to avoid all risks along with the management of the project but also to gain access to the financial system with a convenient interest rate.
To the above preparation, fundamental become the identification of different risks among parties occurring a long period of time. However, in this article, our purpose is to deal only with putting in the spot the fact that this is address through the identification of the structure of the contract, among different feature of PPPs model, with the purpose to be better distributed among the parties which can manage them with less burden and lower costs.
A structure that base to request of parties leaves open the door of renegotiation and regulate the resolution of eventually contentious in front of third parties in international level. Notwithstanding the different forms of contract used the agreements taken based to a proposed project and agreement reached with public authorities through consolidate studies that refer to the technical criteria in fulfilment of the legal framework in force.
Then, fundamental become understand of the technical studies and the criteria request? Usually, these studies require in-depth expertise and tailor-made preparation for a proposal given in the content of the announced criteria, which comes after a detailed analysis in the field. Their breadth and depth vary according to the relevance of project such maybe a project given with net scheme, authorization, direct contracting, public-private partnership, strategic investment, etc.
In any case, independently of the technology used, including HPP, solar, wind, or other, or even the form of investment as unsolicited proposal or tender for capacities, the studies should provide sufficient technical, economic and financial reliability of the project that is required to be undertaken, as well as its environmental and social impact.
Thus, in principle, the technical studies begin with the information related to the virtual building of the project and the consideration of overcoming the problems related to the technical reliability of the proposed project. Construction, which should be accompanied by the general scheme presenting the entire energy source proposed.
Thus, among others, the project is accompanied by an electrical diagram of the aggregates and the transformation block, where the point of connection to the system and the measuring point are clearly identified. To this extent, whether it is a direct contracting or partnership, it is required to provide an appropriate opinion of the TSO or OSHEE on its connection to the transmission or distribution system of electricity.
Another preliminary aspect has to do with the question of the land. Usually, a clear definition of the geographical extent of the place where the activity is to be established or developed is required, providing exact topographic references. The same, mutatis mutandis, also with respect to the trace that connects the source of generation to the transmission or distribution system. The above also became the opportunity to work on many sensitive issues, such as those relating to the ownership of those concerning environmental and social effects.
Only after the construction of the plant virtually can be processed with the simulation of economic terms, where with the support of software the study should present a business plan demonstrating the financial viability of the proposed project. The business plan should determine, at a minimum, the expected costs and incomes (per month) as well as the duration of the construction period. Costs should be divided into the relevant categories: financial costs, construction costs (including labour-related costs, machinery and network connection), operating and maintenance costs.
The above makes possible the start thinking in financial terms, presenting a plan that demonstrates the economic viability of the proposed project. The business plan must clearly and transparently determine, first, to the benefit of the investor, how he intends to finance the proposed project. It should determine, at a minimum, the amount of its own capital allocated to the required external financial resources, the specific sources of external financing and a detailed funding program. In particular, this part is further subject to a detailed study by banks or development funds.
However, regarding the relationship with the contracting authority, the investor must present the various supporting documents, which may be in the form of a letter of interest, credit agreement or any other document certifying the financial support of the project by financial institutions from domestic or foreigner banks, where the monetary values are clearly expressed in terms of financing and the financing structure (financing by own equity of investor, bank loans, donations or other financings).
In any case, to move forward without hindrance, it is necessary the think in advance in terms of the environmental and social impact of the proposed project. The developer should provide information on the positive or negative impact of the project on land use, biodiversity and landscape, the effects associated with the construction of a generating source of energy, the emission of gases in the atmosphere, soil or water, acoustic pollution, and any social impact of the project, such as those for local employment, infrastructure upgrading, etc. Environmental Impact Assessment Study, which should be based on ongoing updating legislation.
The above description has its relevant costs and requires the mastery of a complex knowledge on regulatory, legal and technical aspects to develop a successful proposal. However, it should not be thought to be made to win the race against eventual competitors or worse than simply to overcome the legal criteria (considered as obstacles!) but also need to be as much as possible consistent from the beginning with the development plan of implementation project, the obtaining fund, building and testing, as well as successful long-term management at least for about next 30 to 40 years.
Disclaimer: All opinions expressed pertain to the author. While all efforts are made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations may differ and should be discussed with an expert. For any specific technical or legal advice on the information provided and its related topics, may contact us through “firstname.lastname@example.org”.
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