Introduction

With the loss of capability of investment by the public sector, there was a global tendency in 80’s and 90’s to diminish the role of the State, with the privatization and concession of public services to the private sector. In Brazil, The Brazilian Privatization Program – PND, was instituted under the Law No. 8,031, of 04/12/1990, when the concept of privatization became an integral part of the economic reforms initiated by the Federal Government. At that time, all effort was concentrated on the sale of productive state owned companies, tied to strategic sectors, which allowed the inclusion of steel manufacturers, petrochemical and fertilizer companies in the PND.

Between 1990 and 1994, the Federal Government privatized 33 companies, 18 of which were controlled companies and 15 minority shareholder participations of Petroquisa and Petrofertil. Other eight auctions of minority shareholdings were held under Decree No. 1,068. Through these operations the Government obtained receipts of US$ 8.6 billion that, along with the US$ 3.3 billion in debt transferred to the private sector, brought the total to US$ 11.9 billion.

Due to the large amount of funds needed for the viability of infrastructure projects, private companies were incapable of compromising their budgets during the long course of maturation of such projects. The transfer of part of the infrastructure to private initiative, demanding substantial investments in its planning, development and operation, began to be financed by other agents and other sources, due to the integration of the partners in the respective projects.

Commercial banks, multilateral agencies, export credit institutions, pension funds, insurance companies and participants in international capital markets became important financiers of infrastructure projects in Brazil through Project Finance. As a financial model which adapts itself to the need of funds for projects developed by the private sector, Project Finance represents an important instrument to make investments in infrastructure viable in developing countries viable.

The Practical Use and Importance of Project Finance

Project Finance is usually defined as the financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project. In this context, it represents a financing technique which generally allows a company to raise funds to set up a project based on the feasibility of such a project and its ability to generate revenues at a level sufficient to cover construction and operational costs, as well as debt service and a return for the investor (cf. FINNERTY, John D. Project Financing: Asset-Based Financial Engineering. London: John Wiley and Sons, 2007, p. 4).

Projects like power plants, toll roads or airports share a number of characteristics that make their financing particularly challenging. Large-scale projects might be too big for any single company to finance on its own. On the other hand, widely fragmented equity or debt financing in the capital markets would help to diversify risks among a larger investors’ base, but might make it difficult to control managerial discretion in the allocation of free cash flows, avoiding wasteful expenditures. Project Finance is than used to strike a balance between the need for sharing the risk of sizeable investments among multiple investors and, at the same time, the importance of effectively monitoring managerial actions and ensuring a coordinated effort by all project-related parties.

Project Finance transactions require joint efforts from lenders, investors, suppliers, off takers and sponsors of the project in order to make feasible the implementation of a project, dealing with special challenges, such as:

(1) They require large indivisible investments in a single-purpose asset: Project Finance than deals have contemplated the creation of a special purpose vehicle with bankruptcy remoteness features, as a ring fencing technique, which usually results in credit enhancement for financiers and cost reductions for sponsors, although the creation of a project company is not necessarily a rule inherent to project finance;

(2) Projects usually undergo two main phases (construction and operation) characterised by quite different risks and cash flow patterns: Construction primarily involves technological and environmental risks, whereas operation is exposed to market risk (fluctuations in the prices of inputs or outputs) and political risk, among other factors. Most of the capital expenditures are concentrated in the initial construction phase, with revenues instead starting to accrue only after the project has begun operation; and

(3) The success of large projects depends on the joint effort of several related parties so that coordination failures, conflicts of interest and free-riding of any project participant can have significant costs: From the construction company to the input supplier, from the host government to the off-taker, all parties have substantial discretion in allocating the usually large free cash flows generated by the project operation, which can potentially lead to opportunistic behaviour and inefficient investments.

Trends of Project Finance Structures in Brazil

A. Detailed Financial Structure

In project finance, several long-term contracts such as construction, supply, off-take and concession agreements, along with a variety of joint-ownership structures, are used to align incentives and deter opportunistic behaviour by any party involved in the project. The definition of the advantages and limits of a Project Finance structure requires a detailed analysis of the various aspects must be made by those interested, involving, amongst others:

(1) A study of the structure that comprises Project Finance, detailing the advantages, the disadvantages and limits of each model;

(2) The criteria of evaluation and requirements established by the agents in charge of classification of credit and the respective impact on the composition of the interest rate of the financing;

(3) Identification, allocation and development and implementation of the criteria and methods to manage the risks involved;

(4) Formulation of an accurate economic-finance model to obtain the resources on the international market;

(5) Techniques and implications of the necessary due diligence; and

(6) Monitoring the project during its building and operational phases and respective management of financial documents, also contemplating the securitization of the receivables.

In Project Finance equity is held by a small number of sponsors and debt is usually provided by a syndicate of a limited number of banks. Concentrated debt and equity ownership enhances project monitoring by capital providers and makes it easier to enforce project specific governance rules for the purpose of avoiding conflicts of interest or suboptimal investments. The use of non-recourse debt in project finance further contributes to limiting managerial discretion by tying project revenues to large debt repayments, which reduces the amount of free cash flows. Moreover, non-recourse debt and separate incorporation of the project company make it possible to achieve much higher leverage ratios than sponsors could otherwise sustain on their own balance sheets.

Nonrecourse debt can generally be deconsolidated, and therefore does not increase the sponsors’ on-balance sheet leverage or cost of funding. From the perspective of the sponsors, non-recourse debt can also reduce the potential for risk contamination. In fact, even if the project were to fail, this would not jeopardise the financial integrity of the sponsors’ core businesses. One drawback of non-recourse debt, however, is that it exposes lenders to project-specific risks that are difficult to diversify. In order to cope with the asset specificity of credit risk in project finance, lenders are making increasing use of innovative risk-sharing structures, alternative sources of credit protection and new capital market instruments to broaden the investors’ base.

Hybrid structures between project and corporate finance are being developed, where lenders do not have recourse to the sponsors, but the idiosyncratic risks specific to individual projects are diversified away by financing a portfolio of assets as opposed to single ventures. Public-private partnerships are becoming more and more common as hybrid structures, with private financiers taking on construction and operating risks while host governments cover market risks.

There is also increasing interest in various forms of credit protection. These include explicit or implicit political risk guarantees, credit derivatives and new insurance products against macroeconomic risks such as currency devaluations. Likewise, the use of real options in project finance has been growing across various industries. Examples include: refineries changing the mix of outputs among heating oil, diesel, unleaded gasoline and petrochemicals depending on their individual sale prices; real estate developers focusing on multipurpose buildings that can be easily reconfigured to benefit from changes in real estate prices.

Finally, in order to share the risk of project financing among a larger pool of participants, banks have recently started to securitize project loans, thereby creating a new asset class for institutional investors. Collateralised debt obligations as well as open-ended funds have been launched to attract higher liquidity to project finance.

B. Partnering Construction Contractual Structure

Within time and the more use of Project Finance structures, parties have evolved to the use of Engineering Procurement Construction (EPC) – the favourite contract model for the lenders – and Engineering Procurement Construction Management (EPCM). Nevertheless, because the EPC contract approach shifts all the risk of project completion cost and performance onto the contractor’s shoulders, it tends to trigger an adversarial project team relationship, potentially leading to a breeding ground for conflict, contractual disputes and major claims that undermine the project’s financials and its ultimate successful outcome. Therefore, the challenge in Project Finance has been the adoption of the Alliance contracting as a viable, proven alternative to adversarial business-as-usual contracts.

Alliance contracting offers a unique system of project delivery whereby risks are shared between owner and contractor. They are incentive-based relationship contracts in which the parties agree to work together as one integrated team in a relationship that is based on the principles of equity trust, respect, openness, no dispute and no blame. Alliance contracting can relieve the pressure of the short-term demands on the industry and set the foundation for longer term structural improvement in the way the industry works. Also, significantly reduces, the risk of claims and disputation between the parties through the use of inclusive and collaborative legal and commercial arrangements. These arrangements enable the parties to work together in an open and generative manner and to strive to achieve the business goals of everyone in the relationship and can provide a bankable project delivery method even for project financing.

C. Submission to the Equator Principles

Project Finance transactions may encounter social and environmental issues that are both complex and challenging, particularly with respect to projects in the emerging markets. Large industrial and infrastructure projects, such as for power generation, are becoming increasingly conditioned to social and environmental risk assessments in order to be approved. In this context, Brazil is following the international trend to adopt the Equator Principles for Project Finance transactions.

Equator Principles represent a set of socioenvironmental guidelines adopted by 61 banks worldwide for financing projects amounting to US$10 million or more and are intended to serve as a common baseline and framework for the implementation by each lender of its own internal social and environmental policies, procedures and standards related to its project financing activities.

Today, 7 banks are signatories of the Equator Principles in Brazil. They work to ensure that the projects they finance are developed in a manner that is socially responsible and reflect sound environmental management practices. By doing so, negative impact on project-affected eco-systems and communities should be avoided where possible, and if this impact is unavoidable, it should be reduced, mitigated or compensated for, or both, appropriately.

Conclusion

The success in the financing of an infrastructure project, by means of Project Finance, depends on all the parties involved satisfactorily complying with their various contractual obligations under the Project Finance Documentation. Lenders, as well as the other participants, in accordance with the level of risk being assumed and in proportion to the benefits received from the implementation of the project, will undertake the due diligence needed to adequately measure the risks involved.

The viability of the Project Finance model, in short, is based on the consistency and efficiency of its network of agreements. Such documents must be structured and negotiated in a consistent manner with the respective legislation applicable in the jurisdictions involved, and be constructed in such a way as to allow full implementation of their respective terms and conditions, notwithstanding the natural complexity of the same, in a form which will satisfactorily identify, mitigate, allocate and allow the adequate management of the various risks involved in the Project Finance.

The UAE construction sector is a continually developing market with complex transactions becoming increasingly prevalent. The evolution of the construction sector has highlighted the need for more robust construction contracts that deal with all the relevant risk issues for a project.

Presently, many companies in the UAE rely heavily on the use of standard form construction contracts (”SFCCs”) as a basis for their contractual obligations, as opposed to using bespoke construction contracts drafted for each project.

There are various types of SFCCs which have been developed by different entities in different regions. Some examples of SFCCs include the Fédération International des Ingénieurs-Conseils or International Federation of Consulting Engineers (”FIDIC”) construction contracts, the Joint Contractors Tribunal (”JCT”) construction contracts, the Australian Standards construction contracts and the list continues.

The FIDIC Red Book 1987 and 1999 editions (which are construct only contracts) are the most commonly used SFCCs in the UAE.

The FIDIC 1987 Red Book is a more employer friendly contract, whereas the newer FIDIC 1999 Red Book is a more balanced contract. As the 1987 edition is an employer friendly contract, it is still used by many companies in the UAE.

Design and build (”D&B”) contracts and engineer, procure and construct (”EPC”) contracts have traditionally been used sparingly in the UAE. However, with the increase in the number of experienced contractors in the region over the past few years and the wide variety of expertise that is now offered by construction contractors, D&B and EPC contracts are finding their way into the market.

SFCCs are very useful instruments for parties seeking to enter into a contract for the performance of construction work. They generally address a majority of the issues which should be considered when entering into a construction contract and are particularly useful where the works to be performed are relatively simple. There are a variety of advantages with using SFCCs, which include the following:

• The terms of SFCCs have an element of certainty to them as they have been tried and tested and many of the provisions have been the subject of litigation in various jurisdictions. Therefore, the parties can ascertain how certain clauses have been interpreted in the past and will generally have familiarity as to their meaning and intent.

• SFCCs are relatively quick to procure (assuming they are not heavily amended) and parties are generally willing to accept the clauses in SFCCs as they are regularly used in the industry.

• The use of SFCCs generally results in reduced legal costs as a party may choose to use a SFCC that has only minor amendments. Furthermore, it is quicker to amend a SFCC rather than draft a bespoke construction contract.

• SFCCs generally cover most of the issues which need to be considered when entering into relatively simple or common construction contracts. Therefore, the parties can be less concerned that key issues are not addressed or considered by the parties when entering into a contract.

Despite being widely used and tried and tested, SFCCs are not appropriate to use for all projects. Parties need to carefully consider the terms of the SFCC and assess whether such a contract is appropriate in the circumstances. Some of the inherent risks with the use of SFCCs include the following:

• SFCCs are generic documents that must be amended to reflect the actual intent of the parties. The key risk areas for each project must be considered and the SFCC should be amended accordingly. Parties often make the error of relying on unamended (or inadequately amended) SFCCs which will not always address the unique risk issues in a project and may result in disputes arising as the contract does not adequately allocate risk.

• SFCCs are not always amended correctly, which can lead to uncertainty when clauses are interpreted. For example, if a party is filling in the blank for interest to be paid on outstanding invoices, the mere insertion of a figure will not be appropriate. Care needs to be taken to specify whether interest is calculated yearly, monthly or daily. This is an example of a very simple error to make, but it is surprising how frequent these errors occur when SFCCs are utilised.

• When amending SFCCs it is important to take care to ensure that the amendments flow through the whole contract and that all related clauses are amended. It is frequently the case that a party will amend a clause, which also affects the operation/interpretation of another clause, which in turn causes an inconsistency in the contract and leads to confusion.

• Certain clauses in SFCCs may be inconsistent with the applicable local law. It is important that parties consider this issue carefully, otherwise the situation may arise where a party is relying on a right in a contract which is not enforceable in a particular jurisdiction. For example, the enforcement of termination for convenience clauses in the UAE is questionable and a party seeking to rely on this right may find that they have no entitlement to do so. The same applies with respect to the applicability of time bar clauses. Therefore, it is important to consider whether the terms of a SFCC are purporting to introduce legal concepts which do not fit within the bounds of the local law.

From the above it can be seen that there are both advantages and disadvantages with using SFCCs. The key is for parties to consider the convenience and cost effectiveness of SFCCs in light of the need to have a more tailored contract which specifically addresses all the pertinent risk issues. Furthermore it is particularly important to assess whether the provisions of the SFCC are consistent with the local laws which govern the contract.

Care needs to be taken when using SFCCs. In an attempt to cut legal costs many companies use SFCCs without appropriate legal advice. Consequently, a SFCC which may appear to be your friend at the outset may well end up being your foe in the long run.

By Sachin Kerur and George Varma

First for the “Lean” – the Singapore International Arbitration Centre (SIAC) Rules 2010 came into effect on 1 July 2010.

This third edition replaces the SIAC Rules 2007 and is part of SIAC’s efforts to stay lean and effective as it keeps apace with the rapid growth of international arbitration.

Key updates include an expedited arbitration procedure for claim amounts less than S$5 m or in cases of exceptional urgency. The expedited process requires an award to be issued within six months from the tribunal being constituted and the reasons for the award may be in “summary form” under the expedited procedure.

Also new to the Rules are the inclusion of a new rule on interim and emergency relief through an Emergency Arbitrator prior to the constitution of tribunal.

The Rules also establish an SIAC committee to decide on jurisdictional challenges to the arbitrator when the other party does not agree to a challenge to the arbitrator and the arbitrator being challenged does not withdraw voluntarily within 7 days of notice of challenge.

Added teeth have been added to provide additional protection of confidentiality as the tribunal may impose sanctions for breach of confidentiality obligations.

A key change to the 2007 Rules was the introduction of a Memorandum of Issues to be drawn up between the parties. This has now been removed in the new 2010 Rules.

With the growing popularity of international arbitration as a dispute resolution option, the robustness and flexibility of the amended SIAC Rules have offered a timely change when choosing SIAC as the administrating body for arbitration in Singapore.

The “greening” of equatorial Singapore sounds a bit odd until you realise that it refers to the Garden City’s buildings. Singapore has emerged as one of the more aggressive governments within the Asia-Pacific region in its pursuit of a green building program.

The Building Construction Authority (BCA) Green Mark certification scheme introduced in 2005 allowed developers till 2008 for the mandatory Green Mark scoring as part of Building Plan submissions and applications for Temporary Occupation Permits.

The certification comes with financial incentives as the BCA awards higher Gross Floor Area values for higher-tier Green Mark ratings.

Amongst the checklist items are efficient design for natural ventilation and lighting. Interestingly, points are also given for adjusting mechanical ventilation requirements in car-parks vis a vis CO sensors.

Heat transmitted from the roof is taken into account. Aesthetically, this has not been a bad thing with the creative use of roof gardens by developers. Even water efficiency toes the “green” line with rainwater diverted to landscape irrigation and bonus points given for using renewable energy from solar power or wind.

It’s been a testament to the BCA’s efforts that by May 2010, there are now 450 green buildings in Singapore with a total floor area of 16 million square meters or 8 percent of Singapore’s Gross Floor Area.

Other initiatives include a CleanTech Park (CTP) to be developed from July this year. The “green” themed business Park is expected to complete in 2030 with 20,000 people in 30 “living laboratory” buildings. These include “clean-tech” companies to commercialise green urban solutions for Singapore and the Asia-Pacific, along the same lines as Masdar City in the UAE.

The legal services landscape in Singapore is changing as well with the introduction of a new Joint Law Venture on the scene in the form of Pinsent Masons MPillay LLP, granted a JLV license in July this year by the Attorney-General’s Chambers.

Thomas Edison once said “Everything comes to him who hustles while he waits” – It’s an apt description of the association between Pinsent Masons and MPillay as the two entities patiently operated closely with each other for three years, by way of a formal association, from 2007 before obtaining their JLV license.

The pairing of the two entities through the JLV will allow a full range of service offerings as a “one-stop shop” option for clients, combining Pinsent Masons’ widely acknowledged international expertise with MPillay’s award winning in-depth local knowledge and experience.

As the sixth JLV in Singapore, it won’t be the first JLV but it will certainly be unique in its dedicated focus on the construction, engineering and energy sectors.

So some interesting and I believe positive developments for the Singapore legal environment in signing off this “Lean Green Venture” story.

Mohan R Pillay
Managing Partner, MPillay
Chartered Arbitrator
Adj. Assoc. Prof., Faculty of Law, Nat. Univ. of Singapore
Visiting Professor, Centre of Construction Law, King’s College London
16 Collyer Quay #22-02
Singapore 049318
E: mohan.pillay@mpillay.com

By Gauthier Vannieuwenhuyse for Salans

Since 2002, France has been developing a well-thought-out national strategy on sustainable development that gathers the State, local representatives, eco-defending associations, private companies and civil society. In 2007, the “Grenelle de l’Environnement” project was launched in order to fight against climate changes by putting energy needs under control, protecting biodiversity and natural resources, creating a health-friendly environment, setting up sustainable production and consumption habits, and promoting ecological development strategies that foster both employment and competitiveness. It is a two-step program that, in 2009, led to the adoption of the first law commonly referred to as “Grenelle I” that delineates the leading areas submitted to new regulations. The second law (“Grenelle II”) that was voted on May 11, 2010 will carry out the implementation of the “Grenelle” project and the “Grenelle I” law.

The “Grenelle” project’s main goal is to reduce energy consumption through the regulation of key areas such as the construction area. For instance, by 2020, the State wants to favour the development of the “positive energy building”, a building that produces at least as much energy as it consumes. It is to be noted that the construction area is responsible for 40 % of the final energy consumption and approximately one fourth of greenhouse gas emissions.

According to the “Grenelle I” law, constructors of new buildings have to comply with a thermal regulation that relies on technological and industrial updates so as to decrease greenhouse gas emissions. In this perspective, some changes have to be made regarding both the design of the buildings and their weatherstripping.

All new private buildings subjected to a building license request presented as of end 2012 will be expected to have an average primary consumption below 50 kilowatt-hour per square metre per year (KW/H/m²/year). This requirement can be adapted to specific cases where the energies used in the construction do not go beyond the greenhouse gas emissions legal threshold. Therefore, the building location, characteristics and purpose will also be taken into consideration. These criteria will also apply to adapt the buildings maximum heating threshold instated by the law. Moreover, the process described above is binding as regards to public and service sector buildings that are subjected to a building license requested as of end 2010.

All new buildings subject to a building license which has been submitted as of end 2020 will be required to show a primary consumption rate lower than the quantity of renewable energy produced by these buildings, in particular wood energy.

Since the implementation of the law, State property buildings have been undergoing auditing in order to treat their non-sustainable areas by 2012. This measure is intended to lower energy consumptions by 40% and greenhouse gas emissions by 50% in these buildings within an 8 year delay.

Indeed, the existing buildings use on average 250 KW/H/m²/year in a city like Paris and the objective is to lower the consumption by 38% until 2020. The State will therefore be completely renovating 400,000 dwellings every year as of 2013.

Moreover, up to 50 millions m² of State property buildings and 70 millions m² of public companies need refurbishment so as to comply with the “Grenelle I” rules. Article 5 allows for private-public partnerships as a mean to achieve the necessary renovation work. The State takes into account the reduction of energy consumption requirements mentioned in the paragraph above and is therefore entailed to impose a contract based on energetic performance that encompasses conception, execution and exploitation or maintenance services where the energetic efficiency provision is contractually guaranteed. In fact, imposing an energetic performance test at every stage of the project increases chances of meeting the standards established by the “Grenelle I” law.

As to the social aspect of the law, 800,000 social dwellings will be refurbished before the end of 2020 in order to reach a primary energy consumption inferior to 150 KW/H/m²/year. Nowadays, the primary energy consumption of these buildings is superior to 230 KW/H/m²/year.

The French government plans on providing green constructors with advantageous financial measures. It aims at helping them making deals with banks and insurance companies in order to foster investments financing. It will also supervise the drafting of simplified contract templates on energetic performance adapted to the different concerned areas (residential, services, industrial) so as to make them easily accessible. It will support the insurance companies in providing an appropriate coverage for refurbishment works in residential areas.

Finally, the French government will promote the research linked to the construction of new generation low-consumption buildings. This initiative will be accompanied by training sessions dedicated to professionals, which will be held several times a year. These trainings will mainly focus on refurbishment, thermal and energetic performances, noise and quality of the air inside.

As a conclusion, we can say that France is going through a green revolution that is opening a brand new flourishing market for constructors who want to build tomorrow’s eco-focused future. Between refurbishment and new buildings construction, “Grenelle I” has fairly high expectations. More is to come with “Grenelle II”, the second law of the project which will be analyzed in a next article.

Gauthier Vannieuwenhuyse and Victoria Schulsinger

The Brazilian bullet train project

On July 13th 2010 Brazilian Federal Government launched bidding documents regarding the concession regime and procedures for implementation and operation of the High-Speed Rail (TAV – Trem de Alta Velocidade) that will connect the cities of Rio de Janeiro, São Paulo and Campinas. The project, the most ambitious infrastructure project under the country’s Program to Accelerate Growth (PAC – Programa de Aceleração do Crescimento), specifies that the construction, operation, and maintenance will be granted to the consortium that provides the lowest fare for service.

The concession contract establishes the limit of six years to complete the entire stretch Campinas – São Paulo Rio de Janeiro. The final schedule calls for the railway to be completed by 2017, although the Brazilian Federal Government anticipates the line will be partially open before the 2016 Summer Olympics in Rio de Janeiro.

TAV is worth US 20 billion. The Brazilian Federal Government will invest, through a new state-run entity, US$ 1.5 billion in the project and extend loans worth 60% of the total cost by the Brazilian Development Bank (BNDES – Banco Nacional de Desenvolvimento Econômico e Social).

Potential customers in the parcels market can be classified into two main groups:

- existing logistics companies, interested in moving consolidated loads, using rail as part of the chain – principal players in this field are the Brazilian National Post Office (Correios – Empresa Brasileira de Correios e Telégrafos) and Courier Companies; and

- end users, such as businesses, or individuals.

The construction of TAV will create a very large site, which will directly require numerous professional skills and directly or indirectly generate employment upline and downline The commissioning of the railway and, in particular, the development of land traffic and associated commercial zones served by the railway will create jobs in a progressive manner during the first 10 years’ of operation.

It is estimated that the railway will generate around 30,000 jobs throughout the area affected within about 10 years after commissioning. In addition a further 30,000 jobs could be generated by around 2050 in response to more fundamental shifts in the regional economy.

The choice of consortia contractor by the end of 2010

The Brazilian Federal Government will pick the contractor for the TAV in December 2010. Competitors must submit their proposals before November 29 and the winner will be announced on December 16 at the headquarters of Sao Paulo Stock Exchange (BOVESPA – Bolsa de Valores de São Paulo). Term of the concession is 40 years.

The line will be built and run on a concession basis and the government will rank bids based on the lowest fare, with a maximum permitted price of US$ 0.28 per kilometre. That would translate into economy class ticket fares up to US$ 115.00 for the 430 kilometres (270 miles) stretch between Rio and Sao Paulo.

International interest

The bidding is open to both Brazilian and foreign firms. News report that several countries and international companies have expressed interest in participating of the project:

- Austria;

- China (China Railway Materials);

- France (Alstom);

- Germany (Siemens);

- Italy (Ansaldobreda);

- Japan (Hitachi, Kawasaki, Mitsui & Co, Mitsubishi and Toshiba);

- Spain;

- South Korea (Hyundai and Samsung); and

- United Kingdom.

A new company called ETAV

Federal Government also proposed the creation of the Company of High Speed Rail (ETAV – Empresa de Transporte Ferroviário de Alta Velocidade), With the objective of planning and promoting the development of other high-speed rail lines in the country.

ETAV will be linked to the National Agency of Terrestrial Transports (ANTT – Agência Nacional de Transportes Terrestres) and will be also responsible for managing the technology used by the contractor that wins the High Speed Rail bidding process, in addition to monitoring the project’s deadlines.

Speed, locations and planned route

TAV proposal calls for trains to run at speeds of up to 350 kph (217 mph) and the trip between São Paulo and Rio de Janeiro is expected to last 93 minutes. Seven mandatory stations are be built on the line:

- City of Rio de Janeiro downtown area;

- Rio de Janeiro International Airport;

- City of Aparecida, State of São Paulo;

- São Paulo/Guarulhos International Airport;

- City of São Paulo downtown area;

- Campinas/Viracopos International Airport; and

- City of Campinas downtown area.

The planned route will include 90.9 km tunnels and 103 km bridges and viaducts. An extension to Campinas, 70 kilometres from Sao Paulo was planned with the purpose of reaching the heartland of Brazil’s richest manufacturing and farming state.

The planned route is as follows:

By Matthias Scherer and Samuel Moss (Lalive)

An acceleration of the drilling and construction of the Gotthard Base Tunnel over the past years has left its planners faced with the unusual prospect of the project being completed a year ahead of schedule. Work on the 57 km long railway tunnel through the Swiss alps, the longest in the world, was scheduled to be completed in 2017. However, following faster than anticipated progress in the excavation and construction of the tunnel, the consortium of companies responsible for the second phase of the works, the installation of the railway infrastructure, will propose the possibility of a 2016 hand-over date.

The Gotthard Base Tunnel is part of the 20 billion Swiss Franc AlpTransit project to build a new rail link through the Alps, with the objective of creating a direct and level route for high speed passenger and freight trains. The new rail link will lead to significantly shorter travel times, for example shaving an hour off the current 3.5 hour trip from Zurich to Milan, and will partially accommodate the projected increase in passenger and freight traffic through the Alps. The project involves the boring of several tunnels, of which the Gotthard Base Tunnel will be the longest and most costly, at just under 10 billion Swiss Francs. The tunnel construction is led by Alptransit Gotthard GA, a wholly owned subsidiary of the Swiss Federal Railways.

Instead of the dual-track tunnel which was initially planned, the Gotthard Base Tunnel consists of two parallel single track tunnels, allowing for faster excavation and shortening construction time by two to three years. Construction time was also shortened by digging several access tunnels, allowing for construction to be conducted on several sections simultaneously. Various consortia were assigned the construction works for different sections of the tunnel, and consist of several major international construction companies. For example, the Consorzio TAT, responsible for the Faido and Bodio sections, includes Hochtief, Implenia and Impregilo, among others. Excavation works are being conducted using four imposing tunnel boring machines, as well as by drilling and blasting. Only a small portion of the tunnel still remains to be excavated, with final break-through in one of the parallel tunnels expected to occur in the autumn of 2010, and break-through in the other expected for the beginning of 2011.

The progress of the boring and construction works has allowed for the second main phase of the project to begin at the end of June 2010: the installation of the railway infrastructure, including the railway tracks, power supply, telecommunication and safety systems. The consortium which was awarded the 1.7 billion Swiss Franc contract for installing the railway infrastructure, Transtec Gotthard, is composed of Swiss energy company Alpiq, British infrastructure company Balfour Betty, French technology company Alcatel-Lucent/Thales and Austrian construction company Alpine Bau. Transtec Gotthard expects to complete the first section of the tunnel by 2013, allowing for test runs at speeds of up to 230 km/h.

AlpTransit Gotthard SA has recognised that it would be technically possible to complete the project a year before schedule, barring any delays to the final break-through of the excavation works, which could for example be caused by cavities or water. It is uncertain however whether AlpTransit Gotthard SA and the ultimate user of the tunnel, the Swiss Federal Railways, will approve the acceleration of the works. In particular, such an acceleration would engender additional costs and would require a greater coordination of the construction works. The political overseers of the project have expressed reservations. Moreover, given that the tunnel is unlikely to be profitable, the advantages of a sooner than planned entry into service are not readily apparent. Indeed, it is uncertain whether revenues from the tunnel will even be sufficient to cover its operating and maintenance costs.

Disputes in the construction industry have historically lent themselves to the utilisation of alternative dispute resolution (ADR) processes. During the boom times of the late nineties and early noughties, parties to construction contracts focussed less on hard dollar contracts and strict legal claims, and more on relationship based contracting and dispute avoidance, such that reliance on more formal ADR fell away.

With the return of more difficult times, ADR has again come under the spotlight. It seems widely accepted that arbitration in the domestic arena in Australia has become largely undistinguishable, in terms of time and money spent resolving disputes, from litigation.

Meanwhile, international arbitration has also been under scrutiny across the globe. In 2006, UNCITRAL revisited its Model Law for arbitration and agreed revisions to the Model Law. These revisions have been accepted by the Australian federal government (as discussed below).

Although difficulties with domestic arbitration in Australia are arguably due to the way in which parties, lawyers and courts have interpreted that legislation, Australia has taken the opportunity to overhaul its domestic arbitration regime, and make it consistent with the approach taken in international arbitration.

The International approach

On the international stage, Australia is intent on becoming a hub for international arbitration. To this end, a dedicated Australian Disputes Centre opened in Sydney this year, and the Australian Government last month updated the International Arbitration Act (Cth) 1974 (IAA), to adopt the 2006 revisions to the Model Law. Australia is the fifth country to do so – following in the footsteps of Peru, Mauritius, New Zealand and Slovenia.

In the context of announcing the amendments to the IAA the Attorney-General, the Hon. Robert McClelland MP, highlighted the aim of the amendments is to

‘emphasise the importance of speed, fairness and cost-effectiveness in international arbitration, while clearly defining and limiting the role of the courts in international arbitration without compromising the important protective function they exercise’.

To achieve these aims, the amendments to the IAA focus on clarifying matters of application and judicial interpretation and incorporating the greatest possible choices for parties to resolve their dispute. In summary, the amendments to the IAA:

1. provide increased protection for foreign awards by providing that a court may only refuse to recognise and enforce an arbitral award if one or more of the specific grounds listed in the IAA is satisfied;

2. provide clarification to the courts by inserting a new objects clause (which emphasises the important role arbitration plays in facilitating international trade and commerce) and a new interpretation clause (which requires a court to consider the objects of the Act, including that awards are intended to provide certainty and finality);

3. remove the parties’ previous ability to opt out from using the Model Law;

4. include a regime for interim binding orders to protect the rights of a party and maintain the status quo, preserve assets or preserve evidence (although Australia has not adopted the Model Law to the extent it allows for applications for interim order to be brought ex parte);

5. provide the parties with more flexibility by showcasing a range of optional provisions to govern their dispute (such as seeking assistance from a court in the form of a subpoena);

6. include a framework/regime for protecting confidential information; and

7. give the arbitral tribunal greater scope to limit the costs of an arbitration.

The Domestic approach

Each Australian state and territory has legislation allowing for commercial arbitration. In tandem with updating the IAA, the Standing Committee of Attorneys General have developed a ‘Model Commercial Arbitration Bill’, to bring Australia’s domestic arbitration regime in line with international expectations and law, and to achieve greater consistency between the commonwealth and state laws.

The Model Commercial Arbitration Bill largely adopts the Model Law. This acknowledges the greater success of international arbitration legislation.

If the Model Commercial Arbitration Bill is adopted throughout Australia, the business community and practitioners alike will no longer be required to have knowledge of two arbitral systems (one for domestic disputes and another for international disputes). This will assist in increasing both Australian and overseas businesses’ familiarity and confidence of Australian arbitral processes within Australia.

New South Wales has been the first to adopt the Model Commercial Arbitration Bill, by replacing its Commercial Arbitration Act (NSW) 1984 with the Commercial Arbitration Act 2010, which was passed in late June 2010. The NSW Act largely accepts the Model Bill but there are some notable differences, for example the NSW Act does not include a power to stay court proceedings. These differences make the NSW Act more consistent with international arbitration law and advance the object of arbitration.

The future

It remains to be seen whether the other states and territories will adopt the Model Commercial Arbitration Bill (and hence the Model Law), and whether or not they will make any amendments to it in doing so. Assuming the laws are adopted throughout Australia, it will be a matter of time to see whether the parties to disputes have confidence that arbitration has again been put in the position of being a viable alternative to litigation.

Editor’s note: please note that this post was written by the author before England’s rather ignominious exit from the World Cup!
It seems there is no escaping the football. I’ve come to the FIDIC International Contract Users’ Conference 2010, being held in Beijing this week, for my routine update on the federation’s standard form publishing and training efforts. Now, one might expect that given China’s national team are not a feature of a certain international football tournament taking place in South Africa, Beijing might be the place to get away from the current hysteria gripping those among the human race who are privileged enough to have access to a television that screens the football. Well, for good or ill, one would be wrong. Indeed the event is a source of attraction here that apparently there is a highly lucrative business in procuring fraudulent doctor certificates online for those employees who feel unable to front up at work owing to self-administered sleep deprivation. (I am reliably informed that many of the games being shown in East Asia take place early in the morning…)

This year’s conference again featured the regular visiting members of the FIDIC Contracts Committee, and, this time, a representative of the FIDIC Subcontractor Task Group, Ms. Siobhan Fahey. We were treated to a mixed bag of presentations aimed primarily at the casual user of FIDIC books, and some updates as to the status of the federation’s ongoing standard form revision programme. There were also a few interesting discussions and exchanges in the plenary session, and we received presentations from representatives of procuring agencies and engineering consultants from China the Indonesia. There was a very full schedule of presentations but, for me, the standout aspect of the programme was Ms. Fahey’s presentation on the Test Edition of the new Subcontract Form, which was published in December 2009 at the last FIDIC International Users’ Conference held in London.

Ms. Fahey held the interest of the audience with an explanation of the ‘grass roots’ philosophy of the Subcontract Form. She likened some of the project management provisions established in the Subcontract to a case of the ‘tail wagging the dog’, in the sense that subcontractors, big and small, young and old, are being set the challenge to come to grips with substantial requirements that in terms of complexity exceed those that many of them are used to, and indeed those stipulated for in the Conditions of Contract for Construction (1999 First Edition). This new form of subcontract contains very many substantial departures from its predecessor, the FIDIC Conditions of Subcontract 1994: for use with FIDIC Red Book 1987. Thus, for instance, the requirements concerning the Subcontract Programme involves mandatory detailed content that one won’t find in the 1999 First Edition ‘Red Book’. Does this foreshadow what is to come in the Second Edition, or will it indeed be a case of the tail wagging the dog?

European Engineer Philip Jenkinson also took an opportunity presented at the outset of Day 2 to renew the federation’s invitation to industry for comments on all the books that are currently under review, and mentioned a few noteworthy comments and suggestions received to date, including

- a perceived need for standard final commissioning and testing procedures for both the ‘Green Book’ and the 1999 First Edition ‘Red Book’

- the constraints on the freedom of origin of performance securities and insurances

- counter-measures to address the mischievous ‘go slow’ contractor

- and – if I heard him correctly – an intriguing reference to an emergent school of thought within sections of FIDIC that hankers for the return of powers and quasi-arbitral duties to the Engineer.

In time will we really see a return of the ‘quasi-arbitrator’? I would be inclined to prefer the chances of my team winning a certain golden trophy depicting two human figures holding up the Earth.

Nicolas Brown is a Partner in Pinsent Masons’ Asia Pacific Group