Project Finance

in 23 jurisdictions worldwide
Contributing editor: E Waide Warner Jr

2008
Published by Getting the Deal Through in association with: LEX Al Alawi Mansoor Jamal & Co Arsov Natchev Ganeva Baltmane & Bitans Binder Grsswang Rechtsanwlte OEG Crdenas, Di Ci, Romero & Tarsitano Curkovic Janusic & Banic Davis Polk & Wardwell Deneys Reitz Estudios Palacios Lleras SA Gmez-Acebo & Pombo Gorrissen Federspiel Kierkegaard Kelemenis & Co Khaitan & Co King & Spalding LLP Kves Clifford Chance Law Office Ots & Co Lema Solari & Santivaez Lpez Velarde Heftye y Soria SC NBODEN ZTEKI Pellerano & Herrera Saladius & Partners Souza Cescon Avedissian Barrieu e Flesch Advogados Staiger Schwald & Partners

Estudios Palacios Lleras SA

colombia

Colombia
Gilberto Sanclemente, Oscar Gutirrez and Natalia Abello Estudios Palacios Lleras SA
Collateral 1 What types of collateral are available? Collateral available in Colombiaincludes mortgages over real property and vessels, pledges with or without tenancy over any chattel (including receivables, cash flows, shares or quotas, bank accounts, contractual rights, concessions, licences, commercial establishments, securities and proceeds from the collateral), sureties, performance bonds, stand-by letters of credit and guarantee trusts. A pledge without tenancy over the commercial establishment of a company is an all-inclusive pledge that covers all the assets of the company that are necessary to run its business subject to specified exceptions to be agreed upon by the parties. Borrowers usually grant step-in rights to the lenders where, upon the occurrence of certain triggering events, the lenders may choose to replace the debtor on the contractual position of the project that is being financed. In project finance transactions involving contracts with governmental entities like concessions and licences, the lenders step-in rights are generally limited to the right to designate another qualified project developer, subject to the prior approval of the governmental entity. Guarantee trusts are usually used to transfer certain assets to an autonomous patrimony, instructing the trustee to transfer the assets to the creditor upon the occurrence of certain events. The trustee must be a financial institution supervised by the Colombian Financial Superintendency. Perfection and priority 2 How is a security interest in each such type of collateral perfected and
how is its priority established? Are any fees or taxes payable to perfect a security interest?

Existing liens 3 How can a creditor assure itself as to the absence of liens with priority to the
creditors lien?

For collateral that is subject to registration, by requesting a recent certificate of pledges from the corresponding chamber of commerce or a real estate certificate from the real estate registry in the case of mortgages. For collateral that is not subject to registration like guarantee trusts, by reviewing the notes to the financial statements and including adequate representations from the debtor in the agreements. For pledges over shares or quotas, by requesting a certificate of liens from the legal representative of the company. Foreign exchange 4 What are the restrictions, controls, fees and taxes on foreign currency
exchange?

Most pledges are perfected upon the transfer of the pledged assets, and mortgages, upon the registration in the real estate public registry. If shares or quotas are being pledged, the lien would be perfected by the registration on the shareholders registry. Pledges without tenancy over the commercial establishment of a company are perfected upon the execution of a deed, details of which are regulated by law, which must be registered with the mercantile registry to be effective against third parties. When there are several pledges over the same assets, and the debtor retains the tenancy over the assets, the priority over the collateral is based on the date of registration of the lien. Mortgages and pledges without tenancy are exempted from the stamp tax. However, a tax and a registration fee apply to all liens that are recorded in a public registry such as the real estate registry and the mercantile registry of the chambers of commerce. The tax and registration fee are based on the value of the collateral and are not the same for each jurisdiction. Getting the Deal Through project finance 2008

In 1990, the Colombian government initiated a policy of gradual currency liberalisation. Foreign exchange holdings abroad were permitted and, in a series of decrees, direct control of the exchange rate was shifted from the Colombian Central Bank (Banco de la Repblica) to the commercial exchange market (mercado cambiario) and the exchange rate became freely determined, subject only to indirect intervention from the Central Bank. The commercial exchange market is currently the principal Colombian foreign exchange market because most trade and financial transactions are mandatorily carried out through it. The other market for foreign exchange operations is the free market (mercado libre) on which all remaining operations that are not mandatorily traded on the commercial exchange market are carried out. Colombian residents are entitled to maintain foreign currency accounts abroad (cuentas de compensacin) that can be used for income obtained and expenses incurred in foreign currency operations. Payments in foreign currency between Colombian residents and foreign residents must by law be conducted through the commercial exchange market. Transactions conducted through the commercial exchange market are made at market rates freely negotiated with authorised intermediaries (banks, financial corporations and others). Except for payments between certain persons (eg, companies engaged in the petroleum and natural gas business), Colombian residents cannot use foreign currency to pay obligations between them. Colombian law provides that the Colombian Central Bank may intervene in the foreign exchange market. The Colombian Central Bank may also limit the remittance of dividends and/or investments of foreign currency received by Colombian residents whenever the international reserves fall below an amount equal to three months of imports. Since the creation of the current foreign

Estudios Palacios Lleras SA

exchange regime in 1991, such action has not been taken. In May 2007, the Colombian Central Bank issued a resolution imposing a deposit requirement with respect to the disbursement of debt obligations acquired by Colombian residents from non Colombian resident lenders. The amount of the deposit is equal to 40 per cent of the amount disbursed under the foreign indebtedness and must be maintained with the Central Bank in Colombian pesos for six months in a non-interest-bearing account. Remittances 5 What are the restrictions, controls, fees and taxes on remittances of investment
returns or loan payments to parties in other jurisdictions?

colombia
 companies that have been awarded a concession to broadcast television (which cannot have a foreign investment in excess of 40 per cent of their equity interest). Except for special regimes (like the financial and insurance sector, petroleum and broadcast television) no authorization is needed to make the foreign investment, provided that such investment is registered with the Colombian Central Bank. The registration of the foreign investment with the Colombian Central Bank allows the foreign investor to remit profits periodically as well as the proceeds from the sale of the investment, and to recapitalise profits or dividends. The Colombian Constitution and the foreign investment laws provide that foreign investors cannot be discriminated against and are entitled to the same treatment as Colombian nationals. Therefore, the tax regime is built mainly on the concept of residence and does not differentiate between national and foreign taxpayers. Government approvals 9 What government approvals are required for typical project finance
transactions? What fees and taxes apply?

Since 2007 there is no remittance tax in Colombia. However, as a general rule, and as a part of the income tax regime, foreign payments are subject to a withholding tax. The rate for the most common payments (legal fees, services, interests, royalties or payments to fiscal heavens) is 34 per cent for 2007 and 33 per cent for 2008 and subsequent years. The general withholding rate is 14 per cent, but lower rates are available in certain cases, like construction contracts (1 per cent), equipment leases (2 per cent) and maritime or air transportation (3 per cent). There is no double taxation in Colombia, so the Colombian or foreign shareholders or partners of a company do not pay income tax on distributions with respect to which the Company already paid income tax. Any distribution made by the company to its shareholders or partners with respect to which the company did not pay income tax, is subject to a withholding tax, that in the case of remittances abroad is 34 per cent for 2007 and 33 per cent commencing in 2008. Repatriation 6 Must project companies repatriate foreign earnings? If so, must they be
converted to local currency and what further restrictions exist over their use?

Generally, foreign investments are not subject to prior approval from any governmental agency. Questions 5, 6 and 8 address the foreign investment regime, taxes and remittances. The foreign exchange rules on foreign loans are described in question 4. Infrastructure projects generally require environmental licences from the Ministry of the Environment, Housing and Development (the Ministry of the Environment) or the autonomous regional corporations (CARs), and by urban environmental authorities for cities of more than 1 million inhabitants. These licences can be global or sole licences and include all permits and environmental authorisations needed to develop a project. Foreign insurance 10 What restrictions, fees and taxes exist on insurance policies over project assets
provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

Colombian project companies could but are not obliged to repatriate foreign earnings. Such earnings should be channeled through the commercial foreign exchange market and be converted to Colombian pesos (see question 4). Colombian capital investments abroad must be registered with the Colombian Central Bank. Colombian companies must pay income tax on all income (Colombian and foreign-sourced), but the income tax paid abroad can be deducted on the Colombian tax returns. Offshore and foreign currency accounts 7 May project companies establish and maintain foreign currency accounts in
other jurisdictions and locally?

Project companies are able to maintain foreign currency accounts abroad, but not locally as a general rule. A more detailed explanation of the foreign exchange regime is found in question 4. Foreign investment and ownership restrictions 8 What restrictions, fees and taxes exist on foreign investment in or ownership of
project and related companies? Would such activities require registration with any governmental authority?

Under the Colombian Constitution, the insurance activity is of public interest and can only be carried out in Colombia pursuant to a governmental authorisation. As a general rule, foreign insurance companies cannot operate or issue insurance policies directly in Colombia, unless the insurance company obtains an authorisation from the Colombian Financial Superintendency. Residents cannot obtain policies to cover vessels, vehicles or assets located in Colombia if the policy is being issued by a foreign insurance company. However, the Financial Superintendency may authorise the issuance of such policies on a case by case basis, on grounds of public interest. If the issuance of insurance policies by foreign insurance companies is authorised, a withholding tax will be applicable to the payments under the policies. Foreign employee restrictions 11 What restrictions exist on bringing in foreign workers, technicians or executives
to work on a project?

Foreign investment is permitted in Colombia in all sectors of the economy, except for defence and national security;  processing, management and disposition of toxic materials not produced in Colombia; and

Colombian law provides that for companies that employ more than 10 persons at least 90 per cent of the so-called non-qualified workers, and 80 per cent of the qualified workers, must be Colombian nationals. However, the Ministry of Social Protection Getting the Deal Through project finance 2008

Estudios Palacios Lleras SA

can authorise the hiring of additional foreign workers in special circumstances and for a limited period (ie, authorising the hiring of foreign workers to train Colombian workers). This restriction applies to foreign workers hired under an employment agreement. The number of foreign persons hired to perform technical or consultancy services and specific tasks under non-employment agreements is not limited, provided that the conditions for an employment agreement are not met (subordination, personal performance and salary). Foreign workers require a temporary work visa to be issued by the Ministry of Foreign Affairs for no more than two years. The work visa will be issued at the request of the project company. Equipment import restrictions 12 What restrictions exist on the importation of project equipment? The importation of project equipment requires an import declaration and the payment of the corresponding tariff payment (including the VAT). As a general rule, the importation of goods or equipment does not require prior authorisations. However, some goods or equipment can only be imported upon satisfaction of special requirements, depending on the applicable importation regime (ie, gas and hydrocarbons, health products, products subject to phytosanitary permits, and products subject to environmental requirements). When the value of the imported goods exceeds US$1,000, the importation must be made through a customs agent (Sociedad de Intermediacin Aduanera, SIA). The payments of the purchase price of imported equipment must be channeled through the commercial foreign exchange market described in question 4. The importation of certain equipment is exempt from valued added tax (VAT). The exempted equipment includes (i) equipment not produced in Colombia necessary for the transformation of raw materials; and (ii) the temporary importation of heavy machinery for basic industries such as mining, hydrocarbon, chemistry, and steel industries. Project companies usually import machinery on a temporary basis either because such machinery would be re-exported after the completion of certain works or to postpone the payment of the VAT. Unless the Colombian Tax and Customs Authority (DIAN) authorises a longer period of time for a temporary import, the equipment must be re-exported or be subject to an ordinary import (and to the payment of VAT on the CIF value of the equipment) prior to the fifth anniversary of the initial importation date. Nationalisation and expropriation 13 What laws exist regarding the nationalisation or expropriation of project
companies and assets? Are any forms of incorporation or investment specially protected?

colombia
property (taking of property as retaliation for political reasons) but allows the extinction of property acquired by illegal means that is (i) detrimental to the public treasury, or (ii) seriously harmful to social morality. This extinction of ownership requires a judicial decision but it does not require any compensation to the owner. Several laws have developed the constitutional principles on expropriation. The Colombian constitutional rules on expropriation are compatible with widely accepted international standards on the subject, and therefore Colombia is a party to several international treaties that protect foreign investment against arbitrary or uncompensated expropriation. These treaties do not prohibit expropriation by the Colombian government but require the expropriation to (i) be based on public interest, (ii) not be discriminatory and (iii) provide prompt and just compensation to the private owner. Under Colombian constitutional law expropriation means the transfer of title from a private owner to a governmental entity. The concept of indirect or creeping expropriation that appears in some international treaties is dealt with, in Colombia, through other legal theories such as special damage, or undue use of the power the government has to intervene in the economy. There are no special forms of incorporation that would increase the protection against expropriation or nationalisation. Fiscal treatment of foreign investment 14 What tax or other incentives are provided preferentially to foreign investors or
creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

As a general rule, the taxes that apply to foreign investments, loans, mortgages or other security documents, are the same taxes that apply to resident investors and to local transactions. The following tax incentives benefit foreign investments or foreign indebtedness:  Foreign companies with business operations in Colombia pay Colombian income tax on the income from Colombian sources, not on the income from foreign sources. Colombian companies should pay income tax for both, though they are allowed to deduct income tax paid abroad.  As a general rule (and subject to certain requirements) foreign indebtedness is considered as not held in Colombia by the lender. Therefore, payment of principal and interest on such debt is not subject to Colombian income tax.  Foreign investment capital funds are not considered Colombian taxpayers, so their income is not subject any taxes. These funds do not have to file tax returns. Relevant government authorities 15 What are the relevant government agencies or departments with authority
over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?

The Colombian Constitution allows the expropriation of private property in cases of public necessity or social interest, as defined by law. As a general rule, transfer of title to a governmental entity requires a judicial decision and can only be made with prior indemnification to the owner. The Colombian Constitution provides that administrative expropriation, whereby transfer of title occurs pursuant to a final administrative decision, can only occur in events defined by law. This decision, and the amount of the compensation paid, is subject then to judicial review. Several laws relating to transportation or city developments allow administrative expropriation to take place. The Colombian Constitution prohibits the confiscation of Getting the Deal Through project finance 2008

In general terms, at the national level several ministries oversee and supervise directly or through agencies under its control the implementation of policies regarding infrastructure projects. The majority of the projects involving mining, oil, ports, transportation and telecommunications require concessions or licences from the government. Most projects require environmental licences from the Ministry of the Environment (supreme authority on environmental matters) or the CARs.

Estudios Palacios Lleras SA

The most relevant authorities for typical project sectors, besides the environmental agencies cited above, are: The Ministry of Mines and Energy, is the ministry responsible for the overall policy-making and supervision of the mining, oil and electricity sectors. The Energy and Gas Regulation Commission (CREG), a special independent administrative body in charge of regulating the companies engaged in the provision of the public utilities of electricity and gas (generation, transmission and transportation). Its main objective is to ensure competition within these sectors or, absent adequate competition, preventing abuse of dominant position in them. There are similar regulatory commissions for the regulation of telecommunications (other than TV services) and water and sewage services. The National Hydrocarbons Agency (ANH), the agency created in 2003 to manage Colombias hydrocarbon reserves and implement the oil and gas exploration and exploitation policies, usually trough concession agreements with private companies. Colombian Institute of Geology and Mineralogy (Ingeominas), the agency in charge of managing Colombias mineral reserves and implement their exploration and exploitation policies, usually trough concession agreements with private companies. The Superintendency of Domiciliary Public Services, the agency created to supervise that all companies engaged in the provision of public utilities (power generation, transmission and distribution, water and sewage companies, and telecommunication companies) comply with their legal duties and contracts with customers. The Ministry of Transportation is the ministry responsible for the overall policy-making and supervision of the transportation sector, including roads, maritime ports, airports and railroads. The Ministry contracts public works and, some times, through another agency called the Institute of National Concessions, grants concession agreements to private companies. The Civil Aviation Authority (Aerocivil) is the agency in charge of supervising and controlling all agents participating in the airline industry and of designing and contracting the development of new airports or upgrading existing ones. Some times it grants concession agreements to private companies. The Superintendency of Ports and Transportation is the agency in charge of supervising that all companies engaged in the transportation industry, including the operation of maritime ports and related services comply with their legal duties. The Ministry of Communications is the ministry responsible for the overall policy-making and supervision of the telecommunications sector. For many years the companies engaged in typical project sectors like oil and mining, public utilities, transportation, ports and telecommunications were totally owned, or controlled, by the government. During the 1990s, new legislation was enacted to permit the opening of most industries to private sector participation and competition, which fostered significant direct foreign investment. Later, the government commenced the privatisation of several state-owned companies, including public utilities and financial institutions. International arbitration 16 How are international arbitration contractual provisions and awards recognised
by local courts? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?

colombia
versy that involves residents or nationals of different jurisdictions, or contracts to be performed in several jurisdictions or that are related to international trade. Colombia is a party to the New York Convention of 1958 on arbitration. International arbitration awards are recognised and enforced by the Colombian courts in the same manner as foreign judgments are recognised and enforced, though a procedural system called exequatur that takes place before the Colombian Supreme Court. Disputes regarding unilateral acts of administrative Colombian authorities, issued in relation to the special powers those authorities sometimes retain in the performance of a government contract, are not allowed to be resolved through arbitration. Colombian law does not provide for automatic domestic arbitration with respect to any types of disputes. Applicable law 17 What law typically governs project agreements? What law typically governs
financing agreements? Which matters are governed by domestic law?

As a general rule, Colombian law applies to contracts executed or to be performed in Colombia. Project agreements can be subject to foreign law, but as a matter of fact most project agreements that involve a governmental entity are subject to Colombian law. The financing agreements with foreign lenders are generally subject to the law of the State of New York or the law of another jurisdiction internationally recognised for financial transactions. The general rule under Colombian contract law is that the parties are free to agree the terms and conditions of their contracts, unless a term or condition is specifically prohibited. Colombian law permits the parties to choose a foreign law to govern the agreement. However, the performance of the agreements executed abroad and that must be performed in Colombia, shall be governed by the laws of Colombia (irrespective of contractual provisions to the contrary). Therefore, based on general contract rules, a Colombian party can execute an agreement abroad and agree that the governing law be that of a foreign country. However, if the agreement has to be performed in Colombia, such performance must be made in accordance with Colombian law. Jurisdiction and waiver of immunity 18 Is the submission to a foreign jurisdiction and the waiver of immunity of all
kinds effective and enforceable?

Colombian law (Law 315 of 1996) allows and recognises international arbitration when, as a general rule, there is a contro-

The submission to a foreign jurisdiction and the waiver of sovereign immunity are generally effective and enforceable. The courts of Colombia would give effect to and enforce a final judgment properly obtained in a foreign jurisdiction, provided such judgment has previously obtained an exequatur. The criteria for the granting of an exequatur are as follows:  the foreign judgment must not refer to in rem rights on assets which were located in Colombia at the commencement of the proceedings in the foreign court;  the foreign judgment must not conflict with public order laws of Colombia;  the foreign judgment must be final, in accordance with the laws of the country in which it was obtained, and a duly certified and authenticated copy must be submitted to the court in Colombia;  the matter adjudicated in the foreign judgment must not be a matter that is subject to the exclusive jurisdiction of the Colombian courts (ie, unilateral decisions adopted by governmental Getting the Deal Through project finance 2008

Estudios Palacios Lleras SA

agencies in use of special powers related to the performance of government contracts, or proceedings for collection of a money judgment by attachment or collection against any property, assets or revenues located in Colombia);  no proceedings must be pending in Colombia with respect to the same cause of action, and no final judgment has been awarded in any proceeding with respect thereto; and  in the proceedings commenced in the foreign court, the defendant must have received service of process and the opportunity to defend himself in accordance with the laws of such jurisdiction. The waiver of sovereign immunity (that would prevent a wronged party from bringing a cause of action against a government unless the government consents) by governmental entities is allowed with respect to commercial activities of such entities under the project documents, and with respect to the execution, delivery and performance by such parties of the project documents. However, certain governmental assets cannot be attached, including, among others, property of public use and property and assets dedicated to the provision of public services when the services are directly provided by the government (but in this case up to one third of the revenues generated by such public services can be attached). Any immunity from proceedings which might in the future be available under Colombian law cannot be validly waived in advance. Bankruptcy 19 What entities are excluded from bankruptcy proceedings and what legislation
applies to them? What processes are available to seize the assets of a business outside of court proceedings?

colombia
foreign law. In general terms, Colombian law does not differentiate between the claims of local and foreign creditors. Title to natural resources 20 Who has title to natural resources? What rights may private parties acquire
to these resources and what obligations does the holder have? May foreign parties acquire such rights?

Pursuant to Law 1116 of 2006, which provides a new regime for enterprises insolvency, the principal entities excluded from general bankruptcy proceedings are the following:  entities engaged in the provision of health and social security services; stock exchanges;  institutions supervised by the Colombian Financial Superintendency (eg, banks and financial corporations), insurance and re-insurance companies and their brokers, trust companies, pension funds, capitalisation companies and securitisation companies;  commercial and industrial state-owned companies, as well as companies and corporations with public and private participation;  public utilities corporations (power generation, transmission or transportation, water and sewage companies and telecommunication companies);  territorial entities (eg, municipalities) and agencies of the national or provincial level; and  savings and loans cooperatives supervised by the Cooperatives Superintendency (Superintendencia de Economa Solidaria). The above-listed entities are subject to special bankruptcy proceedings. In particular, financial institutions (eg, banks, insurance companies) are subject to an administrative bankruptcy proceeding (as oppose to a judicial proceeding). Law 1116 includes a chapter regulating cross border insolvency proceedings. Foreign creditors can participate in the local bankruptcy proceeding to enforce their rights. Assets located abroad can be seized and attached under Colombian law and Getting the Deal Through project finance 2008

The Colombian Constitution provides that the state owns the subsoil and the non-renewable natural resources, subject to rights acquired and perfected under prior laws. Private parties (foreign or national) as a general rule can use and exploit the natural resources, on a temporary and exclusive basis with respect to the specific area designated in the corresponding licence or concession. Special rules apply to the use of renewable natural resources such as water, soil, subsoil, and forests. Natural water sources (surface and groundwater) can be owned by the state or, exceptionally, by private parties. The Colombian government issues water licences and concessions for the use of public waters. The state is the owner of all resources found in public lands (either public domain lands that have never left the ownership of the government or lands acquired by the government). Private owners own the forest located within the boundaries of their land, but to engaged in the business of wood production and harvest in such lands, the private parties need a licence or a concession from the Ministry of the Environment or the CARs. Minerals found in the soil or the subsoil belong exclusively to the state, provided that mining rights acquired and perfected by private parties under laws and regulations prior to December 1969 are recognised by the Mining Code. The Mining Code provides that foreigners have the same rights as Colombian nationals and the mining or environmental authorities cannot impose additional conditions or obligation on such foreigners. The exploration or exploitation of minerals and natural resources cannot affect the cultural, economic and social values of indigenous groups living in or near the area subject to the concession. Royalties on the extraction of natural resources 21 What royalties and taxes are payable on the extraction of natural resources,
and are they revenue- or profit-based?

Foreigners pay the same royalties as Colombian nationals with respect to the exploitation of natural resources. The extraction of natural resources, such as minerals or hydrocarbons is subject to the payment of royalties based on a fixed or progressive proportion of the total production of the company. The royalty is payable in cash or in kind. The use of natural waters is subject to a fee based on the location of the water source and the authorised volume of water to be use, among other factors. For wood production and harvest, the private party must pay a fee to the corresponding regional environmental authority, based of the cost of production and maintenance of the designated area of production. Export of natural resources 22 What restrictions, fees or taxes exist on the export of natural resources? As a general rule, there is no restriction with respect to, or taxes imposed on, the export of Colombian natural resources. The

Estudios Palacios Lleras SA

Update and trends
Colombia has engaged in a series of significant projects to improve its infrastructure and meet the needs of expected increase in foreign trade. These projects include airport concessions (including the Bogot airport), toll road concessions, the development of the Cartagena refinery, maritime port concessions and the privatization of several power generation, transmission and distribution companies.

colombia
 Law 100 of 1993, regarding health, safety and pensions matters. Decree 1295 of 1994 regulates labour sicknesses and accidents. In addition, the Ministry of Social Protection has issued numerous regulations regarding occupational health and industrial safety.  Decree 1335 of 1987, issued by the Ministries of Mines, Labour and Health, is the statute of industrial safety for underground activities.  Decree 2222 of 1993 provides the hygiene and safety standards for opencast mines.  Decree 35 of 1994 relates to the hygiene and health of mining workers. Project companies 24 What are the principal business structures of project companies? What are the
principal sources of financing available to project companies?

concessions or licences for the exploitation of natural resources usually constitute the authorisation to export minerals, hydrocarbons, wood or the corresponding natural resource. However, the public utilities regulatory commissions may forbid the export of water, natural gas or energy if there are users in Colombia who could be physically and financially provided with those services but whose needs have not been satisfied at the tariffs approved by the corresponding commissions. Project companies that export goods and services are subject to the same taxes as other companies, unless the project company is located in a customs zone (zona franca), in which case the income tax rate is substantially reduced to 15 per cent. Environmental, health and safety laws 23 What laws or regulations apply to typical project sectors? What regulatory
bodies administer those laws?

The Colombian environmental, health and safety laws and regulations apply to all sectors of the economy including typical projects sectors. The Ministry of the Environment and the CARs are the relevant regulatory authorities for environmental matters. The Ministry of Social Protection is the relevant regulatory authority for health and safety matters. The principal laws or regulations regarding these matters are as follows:  Decree 2811 of 1974 (the Natural Resources Code) and Law 99 of 1993 (which created the Ministry of the Environment and regulates environmental licences). Law 865 of 2001 (the Mining Code) and Decree 1056 of 1953 (the Oil Code) also contain environmental provisions.

Under Colombias commercial law, project companies may be organised as corporations (probably the type most commonly used), general partnerships, limited partnerships, limited partnership by shares and limited liability companies. The government contracts statute allows consortiums and temporary associations to execute and perform government contracts. Consortia and temporary associations are formed by two or more individuals that jointly bid for a public contract and are jointly and severally liable for the obligations arising from it. Neither is treated as a legal entity or subject to income tax, but their members are. In many cases, project companies and their parties execute an agreement promising to constitute a project company which formation is conditioned on obtaining a concession or licence. The parties signing the promise agreement are jointly liable for the obligations arising under the bid. The principal sources of financing available for project companies in Colombia are domestic and foreign syndicated loans, the placements of bonds in the local and international capital markets, loans from multilateral organizations such as the World Bank, Inter-American Development Bank, International Finance Corporation, export development banks and, depending on the project, cash flow securitisations.

Contacts: H  ugo Palacios Luisa Fernndez Juan Carlos Bernal Jorge Pinzn Gilberto Sanclemente Calle 113 No. 7-21 Torre A, Of 506 Bogot, D.C. Colombia

e-mail: e-mail: e-mail: e-mail: e-mail:

hpalacios@palacioslleras.com lfernandez@palacioslleras.com jbernal@palacioslleras.com jpinzon@palacioslleras.com gsanclemente@palacioslleras.com

Tel: +57 1 629 1804 / 629 1828 Fax: +57 1 629 1850 Website: www.palacioslleras.com

Getting the Deal Through project finance 2008