8.1 Introduction to Project Finance

Provide an introduction to project finance in your jurisdiction today, its recent history and an overview of the legal framework.

Over the past several years, and especially since the entry into force of the European Fund for Strategic Investment (EFSI) and the publication by Eurostat of its Guide to the Statistical Treatment of public-private partnerships (PPP) in September 2016, a number of major projects have successfully reached financial close, following several years in which a number of projects were delayed because of discussions on the off-balance sheet treatment of Belgian projects. This has led Belgium to become a completely mature market for both private and public project finance which is being used across a variety of sectors and projects such as transport infrastructure, energy and social infrastructure.

Large projects in Belgium are realised in majority through the classic procurement model where an employer contracts with a consortium for the design, construction, maintenance and financing of the asset. The use of integrated contracts and sub-contracts such as design-build contracts, engineering, procurement and construction contracts and operation and maintenance contracts is common practice.

8.2 Overview of Public-private Partnership Transactions

Provide an overview of public-private partnership transactions in your jurisdiction, outlining the details of any relevant legislation, legal restrictions and other obstacles?

In Belgium, public authorities on all levels have been entering into PPPs as such partnerships offer an attractive solution to realise much-needed projects in public infrastructure such as roads, rail, schools and hospitals, while allowing for an off-balance sheet treatment of the project debt. The off-balance sheet treatment of the project debt, which is an important element in the success of the use of PPPs in Belgium, is duly scrutinized by Eurostat to ensure that the project structure complies with the criteria of the Europe System of Accounts rules of 2010 (ESA2010). In the past this scrutiny has led to a number of projects to be re-qualified or aborted as they did no longer qualify for an off-balance sheet treatment. Following the legal certainty offered by the Eurostat guidelines on statistical analysis, the Belgian PPP market has seen new a rise in PPP projects, including the retender in 2017 of the Liège tram project which had previously been aborted due to an unfavourable Eurostat ruling in 2015. The Liège tramway project, which reached financial close in early 2019, was the first major PPP project procured by the Walloon region and was shortly followed by the Walloon motorway lighting project which reached financial close one month later.

Typically, a PPP involves a selection phase followed by one or more offer phases which are basically rounds of negotiations which lead to subsequent offers and culminate in a ‘best and final offer’. Occasionally, Belgian tendering authorities have used the competitive dialogue procedure to tender projects. The preferred bidder is selected based on its best and final offer and will be able to conduct final negotiations. However, any decision by a public authority in relation to PPP may be brought before the courts for suspension or annulment actions.

In addition to the Belgian procurement rules, an important point of attention in Belgian project finance (both public and private) is permit risk. Belgium has an extremely broad and detailed legislation regarding urban development, environmental issues and sustainability. The procedure for obtaining the necessary environmental and building permits for large projects is rigid, long and complex. Although in PPPs it is often the public authority which will apply for the necessary permits, third parties have an easy access to challenge such permits which in some occasions forces the public authority to postpone the projects for long periods given the slow resolution of such challenges.

8.3 Government Approvals, Taxes, Fees or Other Charges

Specify whether, for a project finance transaction, it is necessary to obtain any government approvals or pay any taxes, fees or other charges. Do the transaction documents need to be registered or filed with any governmental body and what is the usual governing law for these documents?

The transaction documentation in a Belgian project finance transaction will most often be governed by Belgian law. Typically, no special government approvals are required for private projects. Safe for a documentary duty per original of any credit agreement entered into with a bank in Belgium, no special taxes, fees or other charges will be specifically payable under a typical project financing.

8.4 The Responsible Government Body

With respect to the oil and gas, power and mining sectors, identify the responsible government body and the primary laws and regulations.

8.4.1 Oil

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

• Federal: Ministry of Energy, the advisory committee, the National Oil Office, FAPETRO and APETRA;
• Flemish region: Ministry of Energy;
• Walloon region: Ministry of Energy.

The primary laws and regulations (irrespective of any applicable European legislation) are the following:

• Federal: Act of 13 June 1969 on the exploration and exploitation of non-living resources of the territorial sea and the continental shelf;
• Federal: Royal Decree of 30 October 1997 on the granting of exclusive licences for the exploration and exploitation of hydrocarbons on the continental shelf and in the territorial sea;
• Federal: Act of 26 January 2006 on the stockholding of a mandatory stock of petroleum and petroleum products and the establishment of an agency to manage part of this stock and amending the Act of 10 June 1997 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products;
• Flemish region: Decree of 8 May 2009 on the deep subsoil;
• Flemish Region: Decree of the Flemish Government of 15 July 2011 implementing the decree of 8 May 2009 on the deep subsoil and amending various decrees;

8.4.2 Gas

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

• Federal: Ministry of Energy and CREG;
• Flemish region: Ministry of Energy and VREG;
• Walloon region: Ministry of Energy and CWaPE;
• Brussels region: Ministry of Energy and BRUGEL.

The primary laws and regulations (irrespective of any applicable European legislation) are the following:

• Federal: Act of 13 June 1969 on the exploration and exploitation of non-living resources of the territorial sea and the continental shelf;
• Federal: Royal Decree of 30 October 1997 on the granting of exclusive licences for the exploration and exploitation of hydrocarbons on the continental shelf and in the territorial sea;
• Federal: Act of 12 April 1965 on the transport of gaseous and other products by pipeline;
• Federal: Royal Decree of 12 June 2001 on the general conditions for the supply of natural gas and the conditions for granting natural gas supply permits;
• Flemish region: Decree of 8 May 2009 on the deep subsoil;
• Flemish region: Decree of the Flemish Government of 15 July 2011 implementing the decree of 8 May 2009 on the deep subsoil and amending various decrees;
• Flemish region: Decree of 8 May 2009 containing general provisions on energy policy;
• Flemish region: Decision of the Flemish Government of 19 November 2010 containing general provisions on energy policy;
• Walloon region: Decree of 19 December 2002 on the organisation of the regional gas market;
• Walloon region: Order of the Walloon Government of 16 October 2003 on the gas supply licence;
• Brussels region: Ordinance of 1 April 2004 on the organisation of the gas market in the Brussels-Capital Region, on road charges for gas and electricity and amending the Ordinance of 19 July 2001 on the organisation of the electricity market in the Brussels-Capital Region;
• Brussels region: Decree of the Government of the Brussels-Capital Region of 6 May 2004 on the criteria and procedure for granting, renewing, transferring and withdrawing a gas supply permit and amending the Decree of the Government of the Brussels-Capital Region of 18 July 2002 on the criteria and procedure for granting, renewing, transferring and withdrawing a electricity supply permit.

8.4.3 Power

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

• Federal: Ministry of Energy, CREG, Commission for Nuclear Facilities, Federal Agency for Nuclear Control;
• Flemish region: Ministry of Energy and VREG;
• Walloon region: Ministry of Energy and CWaPE;
• Brussels region: Ministry of Energy and BRUGEL.

The primary laws and regulations (irrespective of any applicable European legislation) are the following:

• Federal: Act of 19 April 1999 on the organisation of the electricity market;
• Federal: Royal Decree of 2 April 2003 on the licences for the supply of electricity by intermediaries and on the rules of conduct applicable to them;
• Federal: Act of 31 January 2003 on the gradual phasing out of nuclear energy for industrial electricity production;
• Flemish region: Decree of 8 May 2009 containing general provisions on energy policy;
• Flemish region: Decision of the Flemish Government of 19 November 2010 containing general provisions on energy policy;
• Walloon region: Decree of 12 April 2001 on the organisation of the regional electricity market;
• Walloon region: Decree of the Walloon Government of 21 March 2002 on the electricity supply licence;
• Brussels region: Ordinance of 19 July 2001 on the organisation of the electricity market in the Brussels-Capital Region;
• Brussels region: Decision of the Government of the Brussels-Capital Region of 18 July 2002 on the criteria and procedure for granting, renewing, transferring and withdrawing an electricity supply licence.

8.4.4 Mining

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

• Federal: Ministry of Energy;
• Flemish region: Ministry of Energy;
• Walloon region: Ministry of Energy;
• Brussels region: Ministry of Energy.

The primary laws and regulations (irrespective of any applicable European legislation) are the following:

• Federal: Act of 13 June 1969 on the exploration and exploitation of non-living resources of the territorial sea and the continental shelf;
• Flemish region: Decree of 8 May 2009 on the deep subsoil;
• Flemish Region: Decree of the Flemish Government of 15 July 2011 implementing the decree of 8 May 2009 on the deep subsoil and amending various decrees;
• Walloon region: Mining Decree of 7 July 1988;
• Walloon region: Royal Decree of 5 May 1919 on the general police regulations on mines, mines and underground quarries;
• Walloon region: Coordinated legislation of 15 September 1919 on mines, mines and quarries.

8.5 The Main Issues When Structuring Deals

Provide an overview of the main issues that need to be considered when structuring the deal and the legal form of the project company, the laws relevant to project companies, any restrictions on foreign investment and any relevant treaties.

In Belgium, the special purpose vehicles (SPV) created for the purpose of realising the project will be either limited liability companies with limited liability for the shareholders or a partnership where the partners will themselves remain liable for the entirety of the project. Sponsors will have to choose between the limited liability offered by the limited liability company and the flexibility and absence of rigid corporate housekeeping offered by the partnership. In addition, the purpose of a partnership can easily be limited to the realisation of the project even by limiting its life span to the duration of the project.

An important point of action when structuring a deal will be the allocation and management of the different risks relating to the project. The different risks such as the risk of insolvency of the other party, the risk of a force majeure event or the risk of the loss of the infrastructure or building being constructed can be managed contractually. Liability caps and limitation of liability (to the extent permissible by law) are common.

On the funding side, lenders will often request specific step-in rights on the project allowing them to step in if the financial sustainability of the project is degrading or if the project company is underperforming. The exact conditions and timing of this step-in right will often be subject to negotiation and be part of the broader security package requested by the lenders.

The access to the Belgian market for foreign lenders, investors and contractors is open and there are no specific restrictions on foreign investments and ownership. For public projects however, foreign contractors should be able to ‘licensed to build’ or at least prove that they have the equivalent skills and experience to apply for a license.

8.6 Typical Financing Sources and Structures for Project Financings

Indicate the typical financing sources and structures for project financings, in particular the use of bank financing, export credit agency financings and project bonds.

Typically, Belgian projects will be financed through a combination of both debt and equity, with banks, funds and insurance companies offering both fixed and floating-rate facilities combined with IRS hedging. Equity is contributed through capital or subordinated shareholder loans but equity bridge facilities are a very common as well.

Performance bonds have become customary in the form of bank guarantees, sometimes in addition or in replacement to parent company guarantees.

8.7 The Acquisition and Export of Natural Resources

Provide an overview of the issues and considerations associated with the acquisition and export of natural resources in your jurisdiction.

In Belgium, the following (not however being an exhaustive list) issues and considerations with regard to the acquisition and export of natural resources can be identified:

• In order for an undertaking to perform mining activities, the necessary permits must be obtained. The required permits will depend on the natural resource in question and on the applicable legislation (federal / regional).
• Users of the gas transmission / distribution grid have certain balancing obligations.
• When trading energy derivatives, it should be assured that such trading is in accordance with MIFID II, EMIR, REMIT and SFTR. 
• It is noted that specific permits are required for working with radioactive products.
• In order to transport gas via pipelines, a permit is needed.
• It should be kept in mind that biomass will be treated differently (e.g. in respect of obtaining certain subsidies) depending on whether the biomass complies with certain sustainability criteria.

8.8 Environmental, Health and Safety Laws

What environmental, health and safety laws apply to projects and which regulatory bodies oversee these?

Various regulatory constraints apply to projects in the field of environment, health and safety.

As far as environment is concerned, constraints range from urban planning rules and permitting, potential soil obligations linked to lands, to environmental permitting. These matters are regionalised and are therefore different in each of the three Regions of Belgium. Regulatory bodies overseeing these are the following: (1) in the Brussels Region : Bruxelles Environnement and Urban.Brussels; (2) in the Walloon Region: several specific general directorates of the Walloon Region administration; (3) in the Flemish Region: the Environment, Nature and Energy Department and the Openbare Vlaamse Afvalstoffenmaatschappij.

The relevant regulations are mainly the following:

– Brussels ordinance of 5 June 1997 on environmental permits; Brussels Code of Spatial Planning and Brussels ordinance of 5 March 2009 on the management and remediation of polluted soil;

– Walloon decree of 11 March 1999 on environmental permits; Walloon Code of Territorial Development and Walloon decree of 1 March 2018 on soil management and remediation;

– Flemish decree of 25 April 2014 on environmental permits; Flemish Code of Spatial Planning and Flemish decree of 27 October 2006 on soil remediation and soil protection.

As far as health and safety are concerned, diverse constraints may apply depending on the specificities of the project. The relevant rules are still in general harmonized at the federal level. The Federal public service Health, Food chain safety and Environment is the regulatory body overseeing these rules.

The relevant regulations are mainly the following:

– Royal Decree of 21 May 2001 establishing the Federal Public Service Public Health, Food Chain Safety and Environment;

– General regulation for the protection of work;

– General regulation for electrical installations.

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