High stakes in a global game

Only a handful of law firms have the ability and resources to chase international project business reports Mary Heaney

Only a small number of top international law firms are in the running for the major international project finance projects which are appearing across the globe.

The firms which feature in most of the major financings include Linklaters & Paines, Clifford Chance, Allen & Overy, Herbert Smith and Freshfields. The list also includes US firms Milbank Tweed, Hadley & McCloy, Skadden Arps Slate Meagher & Flom and White & Case.

French firm Moque Borde and Canadian firms Stikeman Elliot and McCarthy Tetrault are also mentioned on the international project finance arena. International firm Baker & McKenzie is also active.

Says one project finance lawyer: “At the minute, everyone professes to have a project finance team. However, the competition for the big projects is between a narrow band of firms, although there are quite a lot of contenders for the smaller jobs.”

In the UK, Linklaters & Paines has a substantial team, the major part of which focuses on international work although it also has a domestic practice. Linklaters partner Terry Skeat says the major trend the firm has encountered in the past three years is a change in the nature of their clients. “We are finding clients are becoming increasingly multinational.”

Companies such as Power Gen, National Power and a number of the UK regional electricity companies are actively looking to become involved in other markets, particularly emerging markets.

India is currently flavour of the month, with power projects at the top of its agenda. There is also a proposal for a light railway system to New Delhi and some assorted roads projects.

Firms such as Linklaters, Ashurst Morris Crisp and McKenna & Co and US firms Milbank, Tweed, Hadley & McCloy and White & Case are increasingly active in India.

Power projects in particular have attracted great attention from foreign law firms with 75 power projects already sanctioned and more in the pipeline.

Linklaters is involved in a number of projects. It is acting for the project sponsors of the Dabhol Power station, a 1,920MW gas-fired powered station to be constructed near Bombay worth US$2.5 billion. It is also advising the sponsor group majority shareholder on the Nippon Denro Ispat project on commercial and construction matters relating to a 1,000MW coal-fired power station to be constructed near Nagpur worth one billion US dollars.

Ashursts is so far the only UK firm to be licensed in India, with an office in New Delhi. Senior partner Andrew Soundy says the firm is involved in a number of projects including the Shivasamundrum Hydro project and the Rosa project. But he expects more transport, and telecomms work.

McKenna & Co is assisting negotiations for power purchasing agreements in the first independent power project in the state of Orisso.

The firm is working with a consortium which includes KPMG, to advise the state government on the reorganisation of electricity supply, unbundling various parts of the industry such as generating capacity, the transmission system and the distribution system. “This involves looking at the regulatory framework and advice on the legislation,” says partner Robert Phillips.

Elsewhere, parts of South East Asia are seeing similar projects as multinational utility companies increasingly target these emerging markets.

Law firms are seeing increased demand for their services on projects in Indonesia. The government recently launched a programme allowing privately owned generating companies to sell electricity to the state electricity company, using modern project financing techniques to allocate the risks.

It is not the first time this has been done in Indonesia – a number of oil and gas processing plants have been developed with the assistance of project finance.

The power programme will be implemented through 'build, own and operate' structures.

The major deal in Indonesia at the moment is the first power purchase agreement with an independent power producer for a power plant at the Peiton station. The project is sponsored by Mission Energy Company, General Electric Company of the US and Mitsui of Japan.

Pakistan has also thrown up some major power deals, the best known being the Hub River Power Station project worth around $2.5 billion. The project for the construction of a 1,292MW oil-powered station, incorporated multilateral co-financing, World Bank expanded co-financing, export credit and commercial bank funding as well as local Islamic funding and private placement of equity. Linklaters acted for the sponsors.

China tends to be more problematic however. According to Phil Fletcher of Milbank Tweed Hadley & McCloy, there are less financings as there are limitations on the rates of return.