Certain Power Purchase Agreements Can Now Be Terminated or Readjusted

On December 29, 2021, Resolution No. 1260 of the Ministry of Energy (“Resolution 1260”) was published in the Official Gazette allowing the holders of certain power purchase agreements (“PPA”) to request their termination or readjustment. Affected PPAs are those subscribed with the Wholesale Energy Market Administrator (“CAMMESA,” after its acronym in Spanish) within the framework of the different rounds of the RenovAr Program and Resolution No. 202/2016 of the former Ministry of Energy and Mining (“Resolution 202”).

The most relevant aspects of Resolution 1260 are the following:

1.       Background and Current Context

Current macroeconomic turbulences in Argentina, particularly as of the first quarter of 2018, which were aggravated by the health emergency, caused the PPAs awarded within the framework of the RenovAr Program to face, among other issues, serious difficulties in obtaining the necessary financing for the development of the projects. Not all the awarded projects were able to successfully overcome these difficulties.

Against this backdrop, the Recitals of Resolution 1260 indicate that a significant delay has been detected in the fulfillment of PPA contract milestones “motivated by different factors that affect the development of projects.” Thus, it is necessary to “recover the transport capacity of the nodes of the power grid committed to the projects that are not commercially authorized and that pose difficulties when being carried out.”

It has been estimated that the transport capacity committed to PPAs awarded within the framework of the RenovAr Program and Resolution 202 whose construction is currently paralyzed amounts to approximately 1600 MW.

2.       Alternatives Proposed in Resolution 1260

 

1.       Contract Termination

PPA holders may request the termination of their contracts if the following requirements are met:

1. Payment of a fine equivalent to: (x) USD 17,500/MW for wind and solar projects; and (z) USD 12,500/MW for small hydroelectric, bioenergy, biogas or biomass projects.
2. Submission of a waiver by the company that owns the PPA to all administrative, judicial, extrajudicial or arbitration rights, actions or claims, together with an indemnity in favor of the Argentine State from any action or administrative, judicial, extrajudicial or arbitral claim from its shareholders or controlling, controlled or related companies.
3. Submission of an affidavit with the waiver of tax benefits due to the PPA.

 

2.       Contract Readjustment by Extension

PPA holders may request an extension of up to 365 calendar days for the Scheduled Commercial Operation Date (term defined in the PPAs) by signing an addendum to their PPA with CAMMESA.

The extension request is subject to the following requirements:

1. Acceptance of a reduction in PPA term, equivalent to 2 times the number of calendar days elapsed between the original Scheduled Commercial Operation Date (considering the applicable extensions and suspensions) and the Commercial Operation Date, as defined in the PPA.
2. Acceptance of a reduction in the PPA price pursuant to the adjustment formula in Resolution 1260.
3. Increase in the Performance Bond of the PPA by 30% of its original amount.

Projects awarded in Rounds 1, 1.5 and 2 of the RenovAr Program must:

4. Demonstrate a minimum Declared National Component (“CND”) of 30% in the electromechanical facilities of the project.
5. Increase the CND by at least 5%, when the project has committed a percentage lower than 30%.

 

3.       Contract Readjustment Due to the Reduction of the Contracted Capacity

PPA holders of Rounds 1, 1.5 and 2 of the RenovAr Program or who have requested their incorporation under Resolution 202 may request a reduction in the contracted capacity.

The new capacity resulting from the Commercial Operation Date may cover a single section for a fraction of the Contracted Capacity, maintaining the price, PPA effective period, and established guarantees.

Resolution 1260 establishes that the request for termination or contract readjustment must be submitted to CAMMESA within no more than 30 business days from December 29, 2021 (i.e., before January 28, 2022).