Project practices power through the downturn

Energy and infrastructure teams have lined up some strong bids for The Lawyer Awards 2011, says James Swift

Kieron Dwyer
Kieron Dwyer

In spite of disasters in the Gulf of Mexico and Japan, depressed markets and a squeeze on ­spending in the UK, submissions from law firms’ energy and ­infrastructure teams for The Lawyer Awards 2011 are strong.

In terms of sheer scale and impact, Clifford Chance’s role in ­helping to create the world’s largest global energy company is tough to top. The firm advised on GDF Suez’s £17.1bn investment in International Power, which closed on 3 February and created a company with an estimated turnover of £70bn.

Clifford Chance, led by London partners David Pudge, Brendan Moylan, Kathy Honeywood and Andrew Grenville, advised longtime client International Power. ­Linklaters, along with Bredin Prat and Ogier, advised GDF, which transferred its international energy division to International Power in return for a 70 per cent stake in the company. Carey Olsen provided Jersey counsel for International Power.

“It creates a player of a scale we haven’t seen before in the pure IPP [independent power producer] markets,” says Grenville, who adds that 2010 as a whole brought more action in energy and infrastructure that his team could have hoped for.

“In terms of the general market, it’s been a very busy year for us,” he says. “We weren’t that optimistic that things would recover quite so quickly, but we had a good year.”

The rebound in the infrastructure project finance market is ­testament that recovery was not limited to Clifford Chance. ­Infrastructure Journal’s global league tables showed the combined value of project financings across the world in 2010 stood at $243bn (£149bn), a 38 per cent rise on the 2009 total of $176bn.

Alex Carver
Alex Carver

Linklaters’ work on the $14.2bn Jubail export refinery and petrochemical project in Saudi Arabia encapsulated the reinvigorated appetite for projects in the Middle East. Linklaters, led by London partner Manzer Ijaz, advised the commercial lenders, export credit agencies, Islamic finance institutions, sukuk holders, 144A bondholders and the public investment fund of Saudi Arabia on the deal.

Allen & Overy, led by finance ­partner Bimal Desai alongside construction partner Nigel Pritchard, advised Satorp, owned by Saudi Aramco and oil giant Total, as sponsor.

Africa also proved fertile ground for energy projects. Shearman & Sterling reaped the benefit with its work on the $3.5bn development and financing of the Egyptian Refining Company project. The firm, led by project finance and development partner Tim Pick, advised the project sponsor, Egypt-listed private equity firm Citadel, and project organisation Egyptian Refining Company.

Eversheds was the only shortlisted firm to submit a clean energy deal for the awards. The firm advised three of the nine winning bidders for contracts in round three of the UK’s wind farm programme, which is hoped will meet 25 per cent of the UK’s electricity demand by 2020. Norton Rose, along with Hunton & Williams, advised the Crown Estate in awarding the contracts, which are worth a combined £50bn.

Michelle Thomas, head of Eversheds’ clean energy and sustainability group, led on the deal. The Forewind Consortium, comprising Statoil, RWE, SSE and Statkraft, was one of the three winning ­bidders represented by Eversheds. Forewind scooped the largest ­contract awarded by the Crown Estate, the Dogger Bank zone off the east coast of Yorkshire, which is worth between £30bn and £40bn.

“Acting for a consortium meant we had to manage relationships within the consortium as well as the relationship between the ­consortium and the Crown Estate,” says Thomas. “Also, it was important to remember that we were in a competitive bid process, as our clients couldn’t know for certain if they were over the line until the very end because the Crown Estate kept bidders in reserve. We had to help our clients maintain a ­competitive bid while protecting their long-term interests, given the significant capital investment being committed over a long ­period of time.”

The deal took place against the backdrop of rapid reform in regulation and a decline in private investment in clean energy, which fell from $11bn in 2009 to $3.3bn in 2010, according to a report by Pew Environmental Group.

Andrew Grenville
Andrew Grenville

“The debt capital markets will no doubt play a more significant role in the renewables market as institutional investors gain greater confidence in the underlying assets,” says Thomas. “Traditional capital’s being limited at a time when need is significant.”

But while this deal is still most definitely an outlier in terms of wind energy projects, it signifies a step up in the clean energy market, which has caused the magic circle to pay more attention.

“There’s a degree of focus now from the magic circle,” confirms one lawyer. “Now that we’re seeing clean energy deals worth hundreds of millions and even billions, we’re starting to see more magic ­circle firms on the other side.”

Clifford Chance’s Grenville agrees. “The offshore UK wind sector’s changed from a niche practice to being right at the heart of large-scale and complex financings,” he affirms. “It’s changed gear now and involves a different kind of skill set.”

But while renewable energy deals are getting bigger and more advanced, few expect the ­technologies to develop quickly enough to plug the shortfalls ­facing supply in Europe, or ­anywhere else, anytime soon.

Matters have been complicated by the Fukushima power plant ­disaster in March, which many believe is making developers and investors wince at the prospect of nuclear energy and divert their attention to other forms of energy, for the time being at least.

“My view is that there’ll be a slight delay in the timetable for new nuclear projects because of what happened in Fukushima and the report by [HM chief inspector of nuclear installations] Mike Weightman, but new build ­projects won’t be derailed ­completely,” asserts Grenville. “Either the projects get abandoned or the UK’s commitment to carbon reduction does, and I don’t think the latter will happen.”

A number of energy partners believe they are now seeing more interest in gas projects.

“After what happened in Fukushima, interest that was in nuclear has gone elsewhere,” says one partner at a US firm. “Renewable energy is not developed enough to fill the gap, so now gas is back in demand across the EU and Russia.”

Jason Kerr
Jason Kerr

The renewed focus on gas gives more resonance to White & Case’s award submission. The firm, led by partner Jason Kerr, advised joint venture Nord Stream as well as the sponsors on the financing and construction of two 1,220km undersea offshore gas pipelines that will cross the Baltic Sea to link Russia and Europe.

The cost of commissioning the two projects was more than e7bn (£6.3bn). Clifford Chance advised the export credit agency (ECA) and commercial bank lenders.

Phase one was completed in March 2010, with many banks still in a state of paralysis after the global crash, and raised e3.9bn, while phase two closed this March, raising e2.5bn.

“What was novel about the deal was the whole EU regulatory ­environment that surrounded the permitting,” says Kerr, who had been working on the deal since December 2006. “The pipeline will cross the territorial waters of five countries, one being Russia and the other four being in the EU. So we had all the legal issues dealing not only with Russia but also the EU states because the EU is heavily regulated from the energy perspective.

“I think this deal could be the first of many. We’re facing a 50 per cent shortfall of gas in Europe in the next 25 years, along with issues relating to the security of the supply of gas into Europe. All you have to do is look at the Nabuko and South Stream projects to see how important the supply of gas to Europe is.

“The Nord Stream deal has set the benchmark and showed that these projects can succeed. Also, it was another successful project finance for Gazprom, and the more they deals they can get over the line the more attractive Russian ­projects become.”

Freshfields Bruckhaus Deringer’s submissions for the awards also featured a Russian deal that could set a template for lawyers dealing with that challenging market. Freshfields, led by partner Alex Carver in London and corporate partner Innokenty Ivanov in Moscow, advised Northern Capital Gateway (NCG), the sponsor of St Petersburg’s e1.1bn Pulkovo ­Airport PPP scheme. The firm advised NCG on the contracts for the construction, operation and financing for the redevelopment of the airport, with the agreement for the e716m debt financing from a club of multilateral development banks closing in April 2010. ­Clifford Chance advised a ­consortium of lenders.

The deal is one of only a few in Russia to close without the benefit of state guarantees, which it was made clear would not be available, so it provided a good template for what multilateral and commercial lenders in the Russian PPP market would accept before committing to financing a project. This could be vital for firms as the squeeze in the UK PPP market forces them to look overseas for opportunities.

“I do see the overseas markets as being much hotter at the moment and Russia’s a great example of this,” says Carver. “We also closed the Moscow to St Petersburg road project within days of closing the Pulkovo project.

“As well as Russia, there’s ­definitely a degree of interest in going east. There’s a big deal going on in Mongolia at the moment
and we’re starting to see things ­happening in Kazakhstan.

“To be honest, we’ve kind of moved away from the UK volume market. We still get involved with projects here, but it’s mostly bespoke or high-end deals. ­Obviously we couldn’t see into the future, but we had the feeling that the Building Schools for the Future work was largely going to be ­commoditised.

“We were involved in Crossrail and a number of infrastructure M&A deals such as Gatwick. We’ll be getting involved in Mersey Gateway. In general we concentrate on high-profile, high-value, complex deals, whether in the UK or elsewhere.”

Despite the constraints now ­facing UK PFI, one banner deal still got through. Wragge & Co advised public services provider Amey on a £2.7bn, 25-year PFI contract with Birmingham City Council to maintain highways and related infrastructure.

And although the firm ­maintains that it has a strong pipeline of PFI deals still to come through, banking partner Kieron Dwyer says the firm is keen to tap into the increasingly important emerging markets.

“We’ve established a dedicated energy and infrastructure finance team and are beginning to be mandated on roles for lenders such as BNP Paribas,” says Dwyer. “While we’re continuing to ­consolidate and grow the domestic infrastructure finance work that’s underpinned our practice to date, we believe it’s also prudent to expand our horizons and are advising on a number of international energy and infrastructure transactions,particularly in the oil and gas sector in Africa.”