The Electric Power Generation Enterprise (“EPGE”) under the Ministry of Electricity and Energy (“MOEE”) invited tenders to develop ground-mounted solar power plants on a build-operate-own basis (“Project”) on 30 sites. The submission deadline for the tenders ended on 17 July 2020. Around 155 proposals were submitted for all 30 sites, with a few key sites receiving as many as 13 proposals. Based on publicly available information, it is expected that the names of successful bidders will be declared next week. Subsequently, the names of winning bidders (“Sponsor(s)”) based on evaluation of the price proposal will be declared in due course.
While the cumbersome task of preparing and submitting their respective proposals may have been successfully dispatched by the bidders, the Sponsors may have to face few other challenges in respect of the Project. It will be important for the Sponsors to consider these challenges and devise measures to effectively mitigate them. The tight timeframe coupled with government imposed restrictions due to the ongoing COVID-19 pandemic may significantly increase the challenges that Sponsors are likely to face. Some of the key considerations which the Sponsors must bear in mind are elaborated below.
A. Permitting/Licensing Issues with Prospective Mitigations
1. Negotiation prior to Establishment of Entity
The Myanmar Companies Law 2017 allows online incorporation of a company with the Directorate of Investment and Company Administration (“DICA”). The process involves filing all relevant forms via the Myanmar Companies Online portal and upon completion of this, it takes approximately 3-5 business days for DICA to provide the Certificate of Incorporation.
While the process of incorporating a company is comparatively easier, the negotiation of joint venture agreements (in the case of a consortium) may be time-consuming. This negotiation process should be expedited to ensure the streamlined incorporation of the project company.
2. Approach with Myanmar Investment Commission Permit
Pursuant to Myanmar law, an investment permit has to be obtained from the Myanmar Investment Commission (“MIC”) for the Project. While the law prescribes 60 days from the date of submission of an investment proposal for obtaining the MIC Permit, in practice it may take longer.
Preparation of the MIC dossier is a time-consuming process as it involves extensive documentation and preparation of statistical data. Often it requires certain amendments be carried out before final submission of the application – which adds to the estimated time. The submission of the application is followed by a Proposal Assessment Team meeting (“PAT Meeting”) where each involved ministry poses critical, detailed and probing questions to the applicant based on the investment application.
The PAT Meeting is conducted on a first-come-first-serve basis and to be at the front of the line, it is prudent to submit the investment application as soon as possible. Further, long term lease rights and tax exemptions may only be claimed after successfully receiving the MIC Permit. Thus, the final execution of the land lease agreement and claiming of tax incentives on imports (if any) would be allowed only after obtaining the MIC Permit. In this regard, the preparation of documents and statistical records should be initiated as early as possible to ensure prompt submission of the application after the declaration of the Sponsors.
3. Procurement of Import & Export License
Machinery would have to be imported into Myanmar to initiate the construction of the Project. Under the law, an export-import registration certificate followed by an import license must be obtained to import goods into Myanmar. It takes 3-7 days to secure the export-import registration certificate and another 30 days to procure the import license. Securing these certificates/licenses should be carefully considered by the Sponsors as the construction of the Project would solely depend on receiving these certificates/licenses on time.
4. Environmental Law Related Compliance
The bid documents require a description of the potential environmental and social impacts of the project and the environmental protection measures to be applied to mitigate such impacts.
Additionally, the sponsors would also be required to comply with applicable environmental laws. This includes the preparation of an Environmental Impact Assessment Report (“EIA Report”) and an Environmental Management Plan (“EMP”). The preparation of the EIA Report and EMP may be time-consuming depending on the stipulations and requirements of the Ministry of Natural Resources and Environmental Conservation. Accordingly, it is advisable to initiate this process as early as possible to ensure the smooth operation of the Project.
5. Other Licenses & Approvals
The Sponsor will have to obtain a variety of licenses/approvals/permits from the relevant government department for the construction and operation of the Project. A construction permit has to be obtained before initiating the construction of the Project. Similarly, a health and hygiene certificate has to be obtained. Electricity, generator and water supply permits would also be required during the construction phase of the Project. A fire safety and electricity safety certification has to be obtained to ensure compliance with the laws of Myanmar.
The Sponsors should ensure that application for these approvals and permits are submitted promptly as soon as the Letter of Acceptance (“LoA”) is signed. This will ensure the smooth construction of the Project. Post-construction, the Sponsor will have to obtain a building completion certificate, a business license from the relevant city/township development committee and a generation permit from the MOEE to successfully operate the Project.
B. Issues Relating to Land
The draft land lease agreement had to be submitted along with the proposal. This indicates that negotiations with the landowners has been completed. After winning the bid and on receiving the MIC Permit, the final signing of the land lease agreement should be completed.
Only commercial land may be used for the construction of the project. If the land is not fit for commercial use, the land conversion process should be initiated soon after winning the bid. The land conversion process may be time-consuming. To expedite the process, the Sponsors may consider seeking a waiver from the relevant land authorities to allow construction before the land has been successfully converted.
C. Issues Relating to Financing of the Project
The Sponsors should also start negotiation with financiers soon after the LoA is signed. To finance the Project, the Sponsors may create security over both movable and immovable properties. In general a mortgage may be created over the land while a hypothecation may be created over the equipment and machineries. A fixed and floating charge over movable property, pledge over the shares, or assignment of contractual rights may be executed to obtain financing. The financing for the Project should have a right mix of security to provide comfort to the lenders.
Approvals from the Central Bank of Myanmar (“CBM”) would be required to obtain offshore financing. The law specifies 30 days’ from the date of applying for CBM approval. However, in practice, the process may be delayed owing to complexity in the documentation. Thus, this process should also be initiated as early as possible to ensure the availability of funding for the Project.
Pursuant to restrictions under the Transfer of Immovable Property Restriction Act 1987 (“TIPRA”), no foreigner (including foreign owned companies) is entitled to own title over any immovable property in Myanmar. As an extension to this restriction, the Office of the Registration of Deeds (“ORD”) considered mortgages in favor of foreign lenders to be in violation of TIPRA. As a result ORD was reluctant to register such mortgages in favor of foreign lender. This resulted in perfection issues as the Registration Law 2018 as well as the erstwhile Registration Act 1908 required every mortgage of immovable property to be registered to evidence rights or interests in land.
In 2019, DFDL was successful in advising and assisting a project which is believed to involve the first ORD registration of mortgages in favor of foreign lenders. This has been a path-breaking event and perfection of mortgages, since the, has become achievable.
D. Issues Resulting from COVID-19 Pandemic & Possible Way-Around
The responsive bidders will have 15 days to finalize the power purchase agreement (“PPA”) with the EPGE. Given the short span of 15 days to negotiate the PPA and the ongoing travel restrictions (all inbound international flights – except relief flights and a small number of cargo flights, have been suspended until 31 August 2020) such PPA negotiations are likely to be fraught with challenges and difficulties.
Considering the tight timeframe, it is highly improbable that the EPGE will hold negotiations individually with each Sponsor. Also, given the travel restrictions, it is practically impossible to conduct in-person negotiations. The Myanmar Government has restricted gatherings of more than 15 people at a place as a preventive measure to restrict the spread of COVID-19 pandemic. This restriction will further pose difficulty in conducting physical meetings. Thus, online meetings and negotiations have to be conducted with Sponsors based outside Myanmar without local representation. This adds another layer of uncertainty relating to the receptiveness of the EPGE in terms of accepting any changes suggested by the Sponsors.
To mitigate these issues, Sponsors should identify key points in the PPA which need to be considered and negotiated as opposed to suggesting wholesome changes to and throughout the entire PPA. The Sponsors may also nominate local representatives to facilitate the negotiation process with the EPGE.
E. Conclusion
We understand that even after successfully winning the bid, the aforementioned issues may arise. In order to address those issues effectively and ensure facilitation of the Project, the Sponsors should be mindful of the logistics, timelines, and COVID-19 related restrictions.
With our comprehensive local knowledge, proven business acumen and on-the-ground experience, we stand ready, able and equipped to assist you in efficiently moving ahead with the Project. We would be happy to discuss this with you further and help you throughout this process.
The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Authors
Partner, Deputy Managing Director & Head of Banking and Finance Practice, Myanmar
Junior Legal Adviser, Myanmar
Contact
Partner & Managing Director, Myanmar/Singapore
