The financing of Belgrade-based Energy Financing Teams
(EFT) 550m thermal power plant in Bosnia and Herzegovina
is the countrys first project financing and also the
first to be led by a
But it required
key amendments to the countrys legal regime in order to
be implemented, the lead counsel on the deal have
The 300MW mine mouth coal-fired power plant in Bosnia and
Herzegovinas Republic of Srpska was funded
via a 350 million loan provided by China Development Bank
(CDB). It is
the first project to be incorporated into a dedicated China
for infrastructure projects in central sand aastern
The landmark transaction also represents the first large-scale
power project to be constructed by Chinese contractors in
Europe, the biggest foreign direct investment ever in Bosnia
and one of the largest independent power projects to-date in
However, lawyers on the deal had to work with local regulators
to amend three aspects of Bosnian legislation before the deal
Linklaters partner James Douglass, who co-led the team
advising CDB with fellow partner Thomas Ng, told IFLR
constraints within the Bosnian legal framework had previously
prevented implementation of a project financing structure in
Regulations needed to be amended to ensure it was possible for
security to be granted over receivables in favour of a foreign
lender, and for a direct agreement structure to be put in place
to allow lenders to step into the project if necessary. Theses
were changes which needed to be introduced to enable CDB to
lead the financing, he said.
The ability for a bank to step in and take over the
project to keep it alive, the key feature of a direct agreement
structure, simply wasnt envisaged by the local legal
system, he said.
Additionally, changes to regulations were required to allow for
the establishment, of overseas bank accounts by the
Linklaters managing associate Jimmy Chua said such
features normally came as standard in project finance deals. In
this instance, however, a significant amount of time had to be
invested in order to get a developing local market, and the
relevant regulatory bodies, comfortable with project finance
concepts as well as to actually implement the necessary
It took a year and a half of talks with the government
and discussions with local lawyers, he said.
Bosnian regulators have been heavily involved throughout
the project as the legal amendments have been key to making the
structure of the financing workable.
Norton Rose partner Nigel Ward, who led a team advising EFT,
said there were issues too with out-of-date domestic land laws.
We needed precise data to determine who owned land
required for the development of the mine, he said.
As Bosnian land registries are not up-to-date, this
wasnt readily available.
This transaction put to the test a lot of legal factors
that might be taken for granted in more developed legal
jurisdictions, he said. The domestic regulation
regime lacked the modern techniques needed for a huge project
such as this.
That EFT and CDB had managed to get the deal signed, Chua said,
was testament to their determination. There are a lot of
well-connected well-funded businesses in the region that have
tried and failed to make similar transactions work in the
past, he said. EFT and CDB went knocking on enough
of the right doors for long enough to make this
Copycat deals will follow
Douglass said the deal reflected Chinas increasing
interest in investment opportunities in the region, and in
particular in supporting Chinese power contractors in
Chua said the transaction would likely be viewed by Chinese
lenders as a template for future deals in the region. Ward
believed the deal would also come to be seen as a test case by
Chinese state-owned companies not only in terms of utilising
Chinese financial backing for European project financing but
also for using Chinese equipment in the region.
Eastern European countries need more power plants. Douglass
said, their location close to European markets also created
opportunities to trade power into the region.
Whats more most of the region has signed up to the
unified energy laws imposed by the EU, he said.
The deal therefore sets an important precedent for similar
transactions in the region in the future. Deals are
already being discussed right now in former Yugoslavia,
involving Chinese lenders and Chinese contractors, he
Ward expected more Chinese investment in Hungary and Poland as
China is looking to become more involved in
infrastructure projects throughout Europe, he
The deal gained a lot of traction in China, he
acts as a show piece for Chinas technological and civil
And as it is located on the doorstep of Europe, it helps
to demonstrate to Europe that Chinese contractors are capable
of building a power plant which is complaint with European
regulations, he said.
There was a lot of economic interest and political
motivation from both the Bosnian and Chinese sides for the
project to proceed relatively quickly, he
Beijing is particularly interested in countries where
there is both public support for projects and less regulatory
hurdles to entry. Non-EU countries such as those in eastern
Europe fit the bill well, he added.
Douglass said dastern European parties were also very receptive
to Chinese funding because of lack of funding coming from
within Europe. There are a lot of forces currently at
play, pushing deals like this to happen, he
Ward was hopeful the deal would encourage renewed interest in
European banks are generally shy of financing coal,
he said. But the set back of nuclear power makes it more
possible people might be less opposed for this kind of power
project going forward.
Chinese developer Dongfang Electric Corporation will construct the power
plant, which is
scheduled to be operational in 2016 and will rely on lignite from nearby
mines run by EFT.