[vc_row][vc_column][vc_column_text]
Corporate Due Diligence in Electric Power Projects
[/vc_column_text][us_separator][vc_column_text]Due Diligences are legal audits that allow partners, shareholders, and interested third parties to study the current status of a business company and/or a specific project. The objective of due diligence is to understand the actual situation of a business company and/or project in order to identify and mitigate the risks that generally arise within the framework of a financial or corporate transaction, such as, for example, a purchase and sale action or rights transaction. Before acquiring a business company, either through a merger or acquisition (M&A's), or before acquiring a project, it is essential to carry out due diligence for the success of the transaction, and it is a task that must be carried out with the utmost care, always taking into account the particularities of the company and/or project that is the object of the due diligence. It is important to keep in mind that the scope of a due diligence will depend on the transaction under which it is being conducted. For this case, we will focus on corporate due diligence for electric power projects. Consequently, it is generally recommended to begin with a review of the legal constitution of the commercial company that owns the project, thereby corroborating the company's shareholding and governing bodies. For these purposes, we must analyze the company's public instruments of incorporation and subsequent amendments duly registered with the Commercial Registry, as well as the corporate share book duly authorized by the Municipal Mayor's Office. Likewise, it is necessary to review all agreements made by the corporate governing bodies that led to the acquisition of the project for which the due diligence is being conducted. For these purposes, it is necessary to review the corporate minutes books of both the Board of Directors and those of partners or shareholders authorized by the Municipal Mayor's Office. Once the legal constitution of the company has been verified, it is essential to review the legal validity of the company's acquisition of the project. In the case of electricity supply in Honduras, outside the opportunity market, a Power Purchase Agreement (PPA) is generally required. This agreement could also be a Build, Operate, and Transfer (BOT) contract, which is signed between the electricity generator and the National Electric Power Company. During due diligence, we must ensure that the contract complies with all legal formalities, including approval by the National Congress and subsequent publication in the Official Gazette (La Gaceta). Once published, we must ensure that all the necessary requirements for proper project execution are met between publication and the entry into commercial operation of the energy project. The main requirements are: environmental permits and licenses; construction permits; Fire Department authorizations; project socialization through an open town hall meeting where its approval is recorded in the minutes of the municipal corporation; project financing (equity/loan); transmission line construction; Acquisition of real estate necessary for project development; acquisition of energy generators depending on the generation method (renewable or thermal); social projects through agreements signed with the boards of trustees in the areas surrounding the project; and guarantees. It is important to keep in mind that, in addition to reviewing the aforementioned aspects, to ensure the project is bankable (i.e., viable for obtaining financing from the national or international financial system, or private capital), it is also necessary to continue due diligence with an analysis of financial, regulatory, labor, tax, fiscal, procedural, and municipal aspects. If significant risks are detected, they will need to be mitigated beforehand or in the financing or share purchase agreement itself, as the case may be. For example, we must identify how far along the company is in each of the aspects mentioned above in favor of the project; review the existence of guarantees; and restrictions on obtaining new financing for project development. Furthermore, as part of corporate due diligence in electric power projects, the company's main contracts must be reviewed and analyzed, including PPAs or BOTs; and all project-related contracts, such as: labor, commercial, and business contracts; water contracts; leases; philanthropic social contracts with local boards; and other necessary contracts. These contracts must be reviewed for risk mitigation in the event of unilateral termination; renewal or non-renewal of contracts that are about to expire; the possibility of assignment of rights and/or contractual position; validity; and arbitrary clauses that could cause harm if the project is acquired. Finally, it is important for due diligence to review the company's main movable and immovable assets, as well as those owned by third parties that the company uses within the framework of its commercial activities, especially for the development of the project that is the subject of the due diligence. Lexincorp Central American Law Firm is a leading expert in corporate due diligence for electric power projects in the region. For comprehensive advice on this matter, please contact us at the following email address: dgranada@lexincorp.com. *Legal Notice: The general information contained in this document is provided for informational purposes only and should not be construed as legal advice on any of the topics discussed. You should not act or refrain from acting based on any content included in this document without seeking legal or professional advice. We disclaim any liability for any actions you take or refrain from taking based on any content in this communication.
Written by:
[/vc_column_text][us_person image=”8932″ name=”Diego Granada” role=”Asociado” link=”url:http%3A%2F%2Flexincorp.com%2Fequipo_honduras%2Fdiego-granada%2F|title:Diego%20Granada||” layout=”cards” img_size=”full”][/us_person][/vc_column][/vc_row]
