The Establishment Authorization
Daniel Vlasceanu – Partner at Vlasceanu & Partners
MANDATORY DOCUMENT FOR REACHING THE RTB STATUS
Most of the development contracts currently concluded within the Romanian wind/ solar realm, refer to the ANRE establishment authorization (the “Establishment Authorization”) as one of the two key elements (the other one being the building permit) required for the start of the construction works. While some beneficiaries acquire the special purpose vehicle (created solely for the purpose of the development of the respective project) long before the application by the developer of the ANRE Establishment Authorization (sometimes at the very start of the project), others impose on the developer the obligation to complete all formalities (except proof of funds) for the issuance of the Establishment Authorization and only once all such formalities are fulfilled, the SPV is transferred from the developer to the investor. Irrespective of the selected contractual set up, most of the development contracts link a portion of the price/ development services to the issuance of the Establishment Authorization. As such, within the current context of rising investors’ interest in developing renewable facilities and the numerous projects currently in different stages of development, we thought it may be useful to present several considerations on the main steps and implications of the procedure for the issuance of the Establishment Authorization.
Following the last wave of renewable projects (suddenly stopped by the removal of the green certificates subsidies back in 2013), a new order was issued by ANRE (i.e., Order no 12/2015 - the “Regulation”) regulating the framework for granting licenses and authorizations in the electricity field (which replaced the former ANRE Order 48/2013). However, even if there is a new normative act currently in place, the complexity of the procedure has not been radically modified. As such, with ANRE being the only national entity having the authority to issue such Establishment Authorization, one may argue that the current procedure is quite well known by the market stakeholders and ANRE and, as such, if the applicant robustly prepares his “homework” in advance, surprises should not happen.
It is important to highlight from the beginning that the Establishment Authorization regulates the electrical aspects of the electricity production facility, while the building permit regulates the urbanistic aspects. As such, the regulatory development of a renewable facility always entails two streams of permitting activities: (i) the “ANRE stream” entailing – as main steps – preparation of a solution study, the issuance of an ATR, execution of a connection to the grid contract and would complete with the issuance of the Establishment Authorization and (ii) another stream of activities on the urbanistic side ending with the building permit. The two streams are now less interconnected (compared to the prior-2013 period) and there are rarely situations when one could hold back the other; as such, RTB status must carefully consider completion of both streams dealing with different technical aspects related to said facility.
The Establishment Authorization is defined as the administrative deed granting the permission to establish or re-technologize facilities for electricity production issued by ANRE [as per Article 5 para. (2) letter a) of the Regulation].
Only facilities exceeding 1 MW are subject to the Establishment Authorization; for clarity, it is to be obtained also if, following the re-technologization, a facility’s installed capacity would exceed 1 MW.
The duration of the Establishment Authorization is set depending on the applicant’s request, but also considering the duration required to install and put into function the respective facility (ies). In any case, the validity of the Establishment Authorization cannot be less than one year (Article 8 of the Regulation).
The application file
When filling for the Establishment Authorization, the applicant must simultaneously observe the conditions under the Regulation and also the Law no 123/2012 for electricity and natural gas (the “Energy Law”); said conditions relate both to the applicant/its shareholders¹ and also to the envisaged facility.
Among the most important specific documents that must be provided, one should mention:
- proof of secured land [even though not specified how such land may be secured, this condition is to be corroborated with the fact that a building permit may be issued only on the basis of a right in rem (e.g., ownership right, superficies right etc.)]; It must be highlighted that Article 41 para 3 of the Regulation allows for the suspension of the Establishment Authorization issued on the basis of wrongful land title only on the basis of a final court decision²;
- technical connection endorsement (ATR) and the connection agreement (should the latter was concluded; there is a one-year deadline as of the issuance of the ATR when the connection agreement may be concluded);
- environmental agreement or scoping decision (Romanian: decizia privind incadrarea proiectului) related to the construction of the facility;
- presentation of the technical and economic parameters of the facility;
- description of the works to be performed (including timing of different milestones, if the case);
- statement regarding observance of safety distances towards other permitted facilities (even if such neighboring facilities are only in the process of being built);
- proof of available financial resources (for building the project).
Proof of funds
Let us detail the aspect of available financial resources [as imposed under Article 19 para 1 letter h) under the Regulation]. To our knowledge, all developers (even the very large and financially solid ones) do not assume, by themselves, the fulfillment of this condition. General practice shows that the investor (that will eventually build the project) is to provide proof of funds for construction. This raises a number of contractual complications as the investor would like to acquire the project with the corresponding Establishment Authorization already issued and such authorization is not issued as long as ANRE is not presented with satisfactory proof of available construction funds… In most cases, various legal solutions are created in order to enable the beneficiary to take over control over the project’s special purpose vehicle before the issuance of the Establishment Authorization and create the necessary comfort for the said beneficiary that the project will finally obtain the Establishment Authorization.
It worth highlighting that the Regulation (with the exception of applicant’s own resources) does not mandatorily impose supplying said proof by the applicant itself/its shareholders/its affiliates: The Regulation allows for bank credit lines/ comfort letters/other instruments to be accepted, shares public offerings, loans granted by third parties/other means enabling available funding for the project etc. As it is only normal to be like that since there are numerous other fields where the third-party supporter concept is implemented in the Romanian legal framework (such as public procurement) and in line with the practical nowadays requirements of the economic environment. As such, it should be accepted that if the beneficiary that entered into a binding development contract or a sale purchase agreement of the SPV with the project’s developer could provide such proof of available financial resources (again, provided clear contractual arrangements are put in place). Such a solution could remove practical (and justified!) concerns on the beneficiary’s side in relation to the acquisition of a SPV (i.e., to be read: the project) at a time when the Establishment Authorization is not formally issued.
Timing of the procedure
Upon receipt of an application, of course, ANRE is entitled to ask for clarifications (and, if deemed necessary, perform site visits). Once the application file is considered completed, the issuance term of 60 days starts being computed. In case of renewable facilities, the issuance term is reduced to 30 days (As per Article 27 para. (6) of the Regulation). It is important to mention that if the file is not completed within 6 months as of its registration, the application is automatically closed.
The Establishment Authorization closes the loop on the ANRE regulatory stream of permitting for renewable facilities. Its issuance procedure allows for a broad review by ANRE of all aspects of the investment (i.e., technical, financial, organizational etc.). While the number of documents and aspects analyzed by ANRE are quite large (and potential clarifications requested by ANRE may delay the issuance moment), one may state that the room for interpretation is relatively restricted as compared to other procedures and, as such, the outcome should be rather clear (provided all documents are in good order): i.e. proof of funds/organizational resources should be straightforward, technical parameters – the same, existence of ATR/ connection agreement/environmental agreement should not pose interpretation problems etc. Moreover, as it is the only issuing authority and since the relevant legal framework was relatively stable for a long period, ANRE created a rather stable practice which should provide additional comfort to the investor that once ANRE is satisfied with all required conditions, the Establishment Authorization will eventually be issued.
¹E.g., the controlling shareholders or administrators should not have acted before within/ for other titleholders not having honored their payment obligations under energy transactions.
²Yet considering the duration of a court case in Romania (i.e., potentially several years), one could hardly produce such final court decision before end of the construction.