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13 January 2014
International Power has spent the past year rebuilding its in-house legal team, which all but expired when National Power demerged and the company offices moved from Swindon to London. But in that time, the energy giant has not only replenished its dwindling numbers, it has also taken steps to cut its external legal spend, bring more work in-house and reduce the number of external advisers it uses. This cannot have been an easy task, but International Power's general counsel Rosemary Cook has managed the whole shebang.
There are now five lawyers in London, one in Melbourne and one in Tokyo. US work is serviced separately from Houston, where there is a general counsel and two lawyers. It is lucky that recruitment was quick and easy, because the past 12 months have not been quiet. In March, International Power financed a 280 megawatt (MW) project in Oman, including a $33m (£22.8m) equity investment, and in July it acquired a 1,000MW coal-fired station from TXU. Most of the work was done in-house, although in both cases Clifford Chance picked up various aspects of the transactions.
Probably the company's most interesting deal last year was the $1.6bn (£1.1bn) project financing of the Shuweihat power generation and water desalination plant in Abu Dhabi, United Arab Emirates, where it acted as joint developer with CMS Energy. The deal was unusual because it is the first transaction of its size to include Islamic funding. Shuweihat, which will produce 1,500MW of power and 100 million gallons of water a day, is Abu Dhabi's largest privatisation to date, and impressively, International Power did most of the work in-house.
Because the deal was the third in a series of three privatisations, the documentation was pretty clearly defined. It was ready for signing within a month and was done and dusted by the end of August. This meant that the financing was well underway by 11 September, when everything changed.
The common perception was that Abu Dhabi was close to the hot spots and, before long, the banks gave in to nerves and began to reassess the terms of the deal. With the 15 December deadline drawing closer, the project still required $250m (£173.5m) funding and $100m (£69.4m) for a bridge loan. It was then that the Islamic banks became involved and the deal grew more interesting.
The arrival of Abu Dhabi Islamic Bank, Dubai Islamic Bank and Kuwait Finance introduced a whole host of legal intricacies. It meant that the documentation now had to comply with Shari'ah law and International Power lawyer David Wadham, who was on the deal full-time, found himself working round the clock.
"The conventional banks didn't want the their risk profile changed, and clearly there was more risk in the Islamic documentation because it had to be compliant with Shari'ah law," Wadham explains. "In the Islamic deal, you can't have interest, but you can profit from a genuine commercial transaction. So although you can't have a conventional loan agreement with principle and interest, you can have a contract for works and then a sale-and-lease-back agreement. Obviously, the conventional banks are aware of this structure, but it was a challenge to get the two structures to sit alongside one another."
In the end, Wadham managed to pull off the Islamic financing tranche in six weeks. Trowers & Hamlins advised on local law in Abu Dhabi, but the rest of the work was done in-house. And although there was a total of five lawyers at International Power involved in the deal, only Wadham worked on it full time.
According to Cook, Wadham was absolutely exhausted. "It was a lot to ask of a single lawyer. We survived the experience, but it was a real stretch in terms of resources," she admits.
There have been only three privatisations in Abu Dhabi and International Power put in bids for all of them. Shuweihat was its first win. Wadham says there are advantages and disadvantages to bringing work in-house. On the positive side, it allows the company to be more competitive; but on the negative side, it puts a burden on the rest of the department and on the resources for other projects.
Cook is recruiting another lawyer. She is looking for someone with expertise in the UK electricity market who is also willing to take on responsibility for European Commission regulations and competition matters. However, beyond this she has no plans for further increases.
She has formalised a panel for external advice, though, and the successful firms are Linklaters, Freshfields Bruckhaus Deringer, Clifford Chance, Allen & Overy, White & Case and Milbank Tweed Hadley & McCloy.
None of these names will come as a surprise, she rightly asserts. But apparently the choice is a tribute to the strength of the in-house team. "These firms bring the cutting-edge knowledge and the latest thinking on doing deals. We know the nuts and the bolts, but they have exposure to the latest deals," she says.
However, a number of firms that were shortlisted for project finance work have been left off the panel, including Shearman & Sterling and Ashurst Morris Crisp. "We couldn't have everyone," explains Cook.
Domestic work continues to be done by firms not on the panel, including Morgan Cole and Burges Salmon in the UK, Skadden Arps Slate Meagher & Flom and Andrews & Kurth in the US, and Mallesons Stephen Jaques in Australia.
But with so much work being done in-house, when are external firms used? "We recently used Clifford Chance to help us on a tolling contract because it's a new and very sophisticated structure. In this respect, we used the firm in a consultancy role," Cook says.
Tolling arrangements mitigate the risk of investing in a merchant plant where there are no contracts to buy all the power and there are therefore a lot of uncertainties concerning pricing. "These are not standard contracts and we'll continue to need external counsel to advise," she adds.
However, the plan is to continue building up expertise and to bring more work in-house wherever possible. As long as it does not overstretch the department, Cook says that there is little incentive to outsource.
Of course, it would be an advantage to decrease the external legal spend but, realistically, Cook is sceptical. At the moment, the legal spend is about £4m. "It could be reduced a bit," she concedes.
But the primary objective is to train up the team. "I want all the lawyers to get a mix of work so that they can pick up anything that crosses our desks, including construction contracts, acquisitions and disposals," Cook explains.
Cook has yet to announce who she is recruiting and from where, but there can't be any shortage of good energy lawyers in the market, given the number of Enron lawyers currently looking for jobs. The question is, will one be enough?
|FTSE 100 ranking||98|
|Company secretary||Stephen Ramsey|
|Global Counsel||Rosemary Cook|
|Reporting to||Chief operating officer David Crane|
|Main location for lawyers||London|
|Panel law firms||Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters, Milbank Tweed Hadley & McCloy and White & Case|