Iraq and SARS ensured that very few prospective project financings matured in 2003. But not to be discouraged, practitioners are looking forward to a brighter future. Stephen Mulrenan reports

There can be no doubt that the    double blow of the war in   Iraq and SARS took its toll   on the  project finance marketplace in 2003. But it's not all bad news, as the continuing growth in the Asian energy market, fuelled in particular by China's rapid economic development and urbanisation, shows.
 
Energetic investment
One of the world's leading coal producers, China historically has relied on high-sulphur, so-called 'dirty coal', widely blamed for the country's high pollution rates. But all this is changing. Environmental concerns and market forces have led to the exploration of other fuel sources, particularly the cleaner alternative of natural gas. China has the fastest growing liquefied natural gas (LNG) market this decade - it will provide 8% of China's energy needs by 2010 -and it is expected to double again between 2010 and 2020.

As a result the battle to secure China's first LNG supply contract, worth US$14bn (A$25bn) in export income over the 25-year supply period, was hard fought. Six firms - from Australia, Indonesia, Malaysia, Qatar, Russia and Yemen - entered the bidding race in November 2001, but by the start of 2002 only Australia, Indonesia and Qatar remained.

Eventually, it was Australia that won the contract for the US$600m Guangdong LNG Terminal and Trunkline Project, which it will supply from the North West Shelf gas project. Trumpeting Australia's largest-ever single export deal, prime minister John Howard praised the "fantastic team effort" of all involved. And the LNG project qualified as one of ALB's '2002 Deals of the Year'.

Hong Kong and New York listed oil company China National Offshore Oil Corporation (CNOOC) acquired a 25% interest in the company, after initially paying US$320m to purchase a 5% stake.

And CNOOC's involvement in this project was not its only dalliance with LNG-related developments. In Indonesia (where the LNG sector accounts for about 13.7% of the country's GNP), it has acquired nine companies owning working interests in five oil and gas properties from Spanish oil company Repsol-YPF group for approximately US$585m, as well as making a US$275m acquisition of a 12.5% interest in the Tangguh LNG Project.

Just a few weeks ago, on 1 September, CNOOC also announced it was in talks to invest in a US$7.23bn Australian natural gas project, the Gorgon project. It also said it would explore opportunities to market gas in China from the project - one of Australia's largest untapped gas deposits with certified proven reserves of 11 trillion cubic feet - and aims to produce its first LNG in 2008.

While CNOOC has been the most aggressive overseas player among China's big three state-run oil firms, there is no pressing need for it to make such acquisitions as it has 15 projects under development and plenty of offshore China reserves. Rather, say project finance practitioners, CNOOC's interest illustrates recognition of the growing importance and growth potential of LNG-related projects.

In a statement announcing the letter of agreement with the Gorgon partners, CNOOC chairman and chief executive Wei Liucheng said: "LNG will play an increasingly important role in meeting China's growing energy demand."

Hong Kong-based Mallesons Stephen Jaques international managing partner Robert Milliner agrees. He says: "The undoubted boom sector in the China and Korean markets is everything associated with energy, particularly in terms of LNG. There is a huge amount of activity about putting in place large LNG export contracts to supply LNG to China."

Milbank Tweed Hadley & McCloy is one firm hoping to get involved in some of the Asia-based LNG deals. The US firm has accrued substantial experience - particularly in the Middle East - and has an impressive curriculum vitae of LNG and LNG-related projects.

Singapore-based regional practice head Gary Wigmore says: "There are huge investment opportunities along the 'LNG chain', which includes gas development, liquefaction plants, LNG tanker facilities, regasification plants and end user facilities such as pipelines and power plants. A major trend is one emerging market, such as Indonesia, selling LNG to another emerging market, such as China. These projects present challenging development and financing dynamics for limited recourse deals."

Citing both the Gorgon and North West Shelf projects, among others, Wigmore adds: "LNG in Asia is a targeted growth area for us. We have had discussions with the various sponsors of those projects as well as many of the potential lenders who are likely to be involved in financing them."

Annus horribilis
With so many project finance banks and project finance lawyers watching the LNG market so closely it is very much a buyer's market right now. There are even fears about global oversupply. But in a year that has witnessed few classic project financing deals, any signs of growth are welcome.

"There are very few countries where you'll find a lot of projects going on at one time," says Milliner.

Accounting for more than 80% of total foreign direct investment (FDI) to the region, China is by far the most active jurisdiction, with a number of limited recourse project financings coming to the market. There are four multi-billion dollar financings in the petrochemical sector alone, including the Shell/CNOOC Nanhai project,
the BP Ethylene project, the BASF project and the Exxon Aramco
Fujian project.

Elsewhere, with much less FDI, the flow of future deals is less clear. Electricity privatisation is offering opportunities in Korea, Singapore and the Philippines, while there has been high profile activity in Indonesia (with Pertamina's Blue Sky project and the Tanjung Jati B power plant) and Thailand (with the Phu My 3 project).

Adding to the general malaise in the global economy at the beginning of 2003 were events such as the Iraq war and, perhaps of greater concern in Asia, SARS.

Says Milliner: "Most people would say to you that Iraq had a very significant impact."

In Korea, for example, the government had long planned to privatise its electricity industry, the first step of which was made when state-based electricity generator, distributor and retailer, Korea Electric Power Corporation (KEPCO), spun off its capacity into six wholly owned generation subsidiaries - each with its own management, assets and liabilities - in April 2001.

"A proposal to privatise earlier this year a number of KEPCO generation plants was shelved around the time of Iraq and that was part of a progressive bad story at that time," says Milliner.

This was then compounded by SARS in Asia, with the major impact a restriction of travel in the region and thus a delaying of deals.
"Most project finance work gets done by investment and commercial banks getting out there and marketing regionally, and there was a two-to-four-month period when people were just not travelling, let alone meeting," says Milliner.

"It was very hard to do face-to-face business and this type of work is very much face-to-face type work. Any energy being created and any deals being proposed were just slowed down. And it's really only now that you're starting to see the pick-up from that effect."

Grant Fuzi, who left Allen & Overy in Hong Kong at the end of July to rejoin Clayton Utz in Sydney as project finance head, insisted SARS had nothing to do with his move. He says: "When SARS initially broke, there was doom and gloom and it has forced people to leave Hong Kong. But nobody's worried about SARS in Hong Kong any more."

Ironically, says Wigmore, the departure from the region of a number of US investment banks could well be a blessing in disguise. "There will continue to be acquisition, divestiture and consolidation opportunities as sponsors and developers from North America and Europe reduce their investments or exit the Asian market," he says.

Broader the better
A lot of the deals to make the headlines in 2003 have been restructuring transactions rather than greenfield project financings.
In Indonesia, for example, Milbank recently represented the Japan Bank for International Cooperation (JBIC) in the debt restructuring of the 1200MW US$1.5bn Paiton Energy Power Project.

Support by JBIC, as the largest creditor of the project, combined with US support through US-Exim and OPIC, was key to the successful restructuring of this high-profile financing.

Wigmore says: "In the old days, restructuring was a word that some people thought meant the end of a project. But in Asia, restructuring projects appears to be just another phase in the lifecycle as countries and companies adjust to changing economic conditions. At the end of the day, many good projects are being restructured and it does not mean the projects have failed. They're just adapting to situations and Indonesia is a classic example of this.

"But once these projects are restructured," he adds, "they continue to be useful assets for the next 20 to 30 years and are expected to provide respectable returns for investors."

Milbank refers to its project finance practice as "Project Plus", reflecting the fact that it spends a lot of its time - in addition to advising on greenfield developments - on project restructurings, project acquisitions and divestitures, as well as private equity invested in a project.

"With the changes in capital flows and the power industry generally," says Wigmore, "we have found ourselves serving our clients in related areas of workouts and restructurings as a result of the Enron meltdown, and mergers and acquisitions and private equity as a result of the collapse of the merchant power market. Our project finance practice has therefore broadened to become our Project Plus practice."

He adds: "On the whole we've actually been as busy or more so this year as we were the year before and I attribute that to the diversity and breadth of our practice."

Given the alignment with banking law, the major UK-based firms continue to dominate project finance work in the region and house very strong projects teams. But these teams comprise very specialised lawyers - such as project developer counsel, project banking counsel, and construction counsel - and have, in some cases, paid the price of the shortfall in greenfield activity across the region, says Wigmore.

"Some UK and US firms have had to lay off lawyers, but we're a lot smaller and a lot leaner."

But Fuzi, who was lead partner of the A&O team advising the Beijing Municipal Development and Planning Commission on the building of the six key facilities for the 2008 Olympics and who also led the team advising the sponsors on the Phu My 2, Phase 2 power project - Vietnam's first build-operate-transfer (BOT) project financed on a limited recourse basis and one of ALB's Top 10 Deals of 2002 - disagrees.

"The last calendar year was as busy a year as I've ever had. Price competition was hotter but nobody was slitting their wrists."
With project finance techniques being used in a much broader sense than they were traditionally established for, firms are having to review their strategies.

Milliner says: "Project finance was established in the 1970s when people were trying to do major resource development and needed financing support but the sponsors didn't want to guarantee or underwrite that. So, at the time, techniques were developed to have limited non-recourse financing. This has now cropped up a lot in M&A transactions relating to privatisations."

Trends
On 29 May, a loan facility agreement for the financing of Korea's Pusan Northern Container Port project was signed.

The US$1bn financing for the construction of a new terminal at the world's busiest container port in Pusan, Korea, has set a number of firsts in the Korean project finance market.

It marked the first time foreign banks and a foreign sponsor have been involved in financing a Korean infrastructure project; it was the first large-scale container terminal project; and it was one of the largest projects to date under Korea's Private Participation in Infrastructure Act.

Given its confidence that the demand for port usage in Pusan will continue to outstrip supply, the project company - Pusan Newport - obtained approval to dispense with the minimum revenue guarantee from the Government.

This meant that the deal was the first limited recourse project financing whereby the sponsors and lenders have assumed and are exposed to full market risk in exchange for a greater potential return.

With a total project cost of US$1bn, the financing included an offshore loan facility of US$276m - arranged by Banca Intesa, Bank of Tokyo-Mitsubishi, Credit Lyonnais, DZ bank and Bayerische Hypo-und Vereinsbank - and an onshore facility of W245bn (US$204m) - arranged by Kookmin Bank and Samsung Life Insurance Co.

The main sponsors were lead local sponsor Samsung Group and CSX World Terminals of the US, with a group of local companies - including Hyundai, Hanjin and Daewoo - providing the remaining equity.

Milliner says: "The Pusan development project is a good example of a project needing the international banks. What the international banks bring is the expertise on these types of deals. They also have the depth and capacity to underwrite the amount of debt involved."

The Hong Kong operations of Mallesons, he says, primarily focuses on the northern Asian jurisdictions.

"But what we're seeing in the north Asian market - in countries like Taiwan, for example - is the emergence of local banks, as it is a better way of dealing with a number of the risks."

He adds: "The local banks are prepared to take a different risk profile than the international banks ... so the domestic markets are developing."

In Japan, some of the regional players - such as the gas and electric utilities - have been forced to seek opportunities outside of Japan as the Japanese economy deregulates and look to invest regionally.

And in China last year, Allen & Overy advised the lead arrangers on a PRC deal that was heralded as a milestone in the development of the Chinese lending markets.

The US$2.7bn PRC ethylene cracker deal was the first PRC financing where domestic lenders comprised a majority on the US dollar side.
Asian projects group head Mitchell Silk told ALB: "Five years ago, the thought of PRC banks taking the majority US dollar commitment would have been almost unthinkable."

The current liquidity in China's banking system has meant that many of the projects can be and are being financed with substantially all Renminbi debt.

"There are two interesting trends coming out of China," says Wigmore. "The first is the investment in Asia by Chinese oil and gas and other companies and the second is the tapping of funds from Chinese banks to fund infrastructure outside of Asia. The equity investment has already happened and the Chinese lending is being structured now by creative and innovative financial advisers."

Evidence of this, he says, are the rumours suggesting Chinese banks will finance some of the LNG facilities being built around the world that will ultimately deliver LNG to China.

"China is changing with respect to its own internal infrastructure needs. As it adapts to global standards, it is becoming more localised. In structuring deals in China, the main impulse will be to tap the liquidity in the Chinese banking system and to use Renminbi financing, reducing the need for cross border debt financing from international banks," he says.

"Another development in Asia is the return of the project bond market for projects and portfolios of projects. This is still in an embryonic stage. This year however we saw the bond market provide refinancing for AES China and project developers were seeking bond funding for projects in the Philippines. At some point in the near future, the bond market will be tapped again for infrastructure projects."

He adds: "Another trend is the development of the local bond financing market. We will begin to see local currency bonds being used to finance infrastructure and there are a number of institutions that are committed to supporting this trend, including the ADB, JBIC, and OPIC and other multilaterals.

"That will be a very important tool because once you have that market developed you can issue long-term bonds against long-term assets in local currency to finance a significant proportion of projects. This will reduce or substantially eliminate the currency risk so often present in infrastructure projects in emerging markets."

DIY
Allen & Overy recently advised project company, CNOOC and
Shell Petrochemicals Company Ltd, as sponsors on the US$4.3bn CSPC Nanhai Petrochemicals Project in China.

The project was a landmark financing in that it was the largest Sino-foreign joint venture project financing and the largest private sector project financing in Asia.

Simon Black was one of the firm's lead partners on the deal and at the time told ALB: "Closing a complex project financing in the PRC requires equal measures of patience, innovation, commitment and humour."

Firms are certainly having to incorporate all of these virtues at the moment, particularly as the golden carrot for many - the 2008 Beijing Olympics - has not produced as much infrastructure investment to date as people had hoped.

Says Wigmore: "In China, advisers and investors need to take a long-term view and have great patience to get projects done. China will continue to be a growing market but it is a tough market because of its developing legal rules and regulations. Notwithstanding the fact that you design into the project all the financial and legal bells and whistles, there are things outside of everyone's control that can disrupt a project during development, financing, construction and operations."

Milliner agrees. "The added disadvantages in China are very much driven around the language issue - there is a very high first language preference in China - and the lack of clarity on the law."

Adds Wigmore: "One has to learn to manage the risks and navigate the bumps in the road."

But jurisdictions can help themselves and will need to if they wish to attract world-class sponsors.

Delayed by the Iraq war, SARS, and an accident at the plant, and
after more than five years of planning and implementation, the project financing for the US$412m Phu My 3 power project in Vietnam was signed on 12 June.

With completion expected by February next year, the first foreign-built BOT project will be the first independent power project to reach commercial operation in Vietnam and represents the largest foreign investment to date in that country.

The development of the Phu My 3 power project is critically important to Vietnam. It not only forms an essential part of the country's power grid and provides a much needed power service to the Vietnamese, but will also boost investor confidence in Vietnam and the South East Asia region as a whole.

Wigmore and Ken Hawkes led the Milbank team that structured and negotiated the complex project financing arrangements for project sponsors BP (UK), SembCorp Utilities (Singapore), Kyushu Electric Power and Nissho Iwai (Japan).

Wigmore says: "That was a great success and a great testament to the sponsors and lenders who continued to develop and finance the project through a very bad period in Asia, which encompassed an economic downturn, SARS and the Iraq war. At the end of the day, the international reputations and experience of the sponsors gave the creditors the comfort that the project will be successful in the long run."

He adds: "Vietnam has been willing to provide the legal and regulatory framework necessary to support a limited recourse project financing. The Vietnamese government did not waiver from their commitment to the project and they stepped up to the plate to make sure the deal got done."

Describing the transaction as a major milestone for Vietnam, Wigmore says: "It is an example of the continuing usefulness of project finance in Asia. What it demonstrates is that classic project finance using multiple tranches of financial institutions and political risk insurers can be used successfully in emerging markets."

The year ahead
The latest tables release by Dealogic, which assess deal activity across the region for the first nine months of the year, confirmed that the bulk of the work came from power project financings.

Accounting for 32.75% of the market with 15 deals worth US$6.69bn, the largest power projects were the US$1.73bn Paiton I Debt Restructuring in Indonesia, the US$1.4bn Map Ta Phut facility
in Thailand and the US$1.36bn Paiton II Debt Restructuring, also in Indonesia.

Practitioners agree the sector will continue to provide opportunities in 2004. Says Milliner: "The power industry will continue to be an important issue right throughout this region, simply because it is a growing region and it has got barely sufficient infrastructure to support that growth."

With electricity one of those requirements, the KEPCO privatisation should finally go ahead in Korea, while there are likely to be continued privatisations in the Philippines and to a lesser extent in Thailand.
Additional developments are also anticipated in Thailand (as some of the coal plants are converted to gas plants and those go forward and get to finance), Vietnam (where a number of projects are in the planning stage and are likely to go forward in the next year or so), and Indonesia (where developers, lenders and others are looking at how to either expand existing capacity or build new capacity).

Having completed over half a dozen large power projects in Indochina (Vietnam and Thailand), Milbank is hoping very much to land a role as counsel for some of the lenders on one of the largest power projects set for 2004 - the Nam Theun 2 hydro project in Laos.

"Now that the PPA has been signed, EdF is back in the project and the World Bank, the ADB and other lenders remain interested in financing the project, we expect this project to be successfully financed near the end of 2004 or early 2005," says Wigmore.

Although the Philippines is going through a very difficult time, there will still be projects in Indonesia and things are happening in Vietnam and Cambodia. In addition to the power sector, Milliner says there will be further growth opportunities in the petrochemical and resources (principally gas) industries.

"It really just depends on the economy continuing to hold up. If we see a strengthening of the Asian economy, then you'll see a lot of projects in those areas in the next 12 to 24 months."

First nine months of 2003

• Westpac Banking Corp, Citigroup and Industrial & Commercial Bank of China were the top three mandated arrangers in Asia-Pacific (this includes Asia, Australasia and the Indian subcontinent) in the first nine months of 2003, with a combined share of 23.62%.
• The volume of deals in the first nine months of 2003 increased by 8% from 44 deals worth US$18.95bn in the same period of 2002 to 50 deals worth US$20.44bn.
• Asia accounted for 76% of volume in Asia-Pacific with 25 deals worth US$15.58bn - China was the best performing country in this region with two deals worth US$4.56bn. Australasia accounted for 24% of volume with 25 deals worth US$4.86bn - Australia was the best performing country in this region with 24 deals worth US$4.77bn.
• Banca Intesa was the top financial adviser in the first nine months of 2003 because of the work it carried out on the US$4.3bn Nanhai Petrochemical Project in China. Macquarie topped the table during the same period in 2002.
• Latham & Watkins was the top legal adviser in Asia-Pacific having worked on the Paiton, Blue Sky, Jupiter Telecom, Nanhai Petrochemical plant and Map Ta Phut Power plant projects. Allen & Overy was in second place in Asia Pacific with six deals.
  Source: Dealogic ProjectWare

Volume and sectors

• Power topped the sector tables in the first nine months of 2003 in Asia-Pacific, accounting for 32.75% of the market with 15 deals worth US$6.69bn. The largest power projects were the US$1.73bn Paiton I Debt Restructuring in Indonesia, the US$1.4bn Map Ta Phut facility in Thailand and the US$1.36bn Paiton II Debt Restructuring, also in Indonesia.
• Petrochemicals was second accounting for 22.2% of the market in Asia-Pacific in the first nine months of 2003 with three deals worth US$4.54m 32%. The largest deal was the US$4.3bn Nanhai Petrochemical project in China.
• Infrastructure was third accounting for 21.3% of activity in Asia-Pacific with 16 deals worth US$4.35bn. The largest deals were the US$1.32bn Wester Sydney Orbital Road in Australia and the US$1bn Pusan Sea Port Extension project in South Kora.
• Volume in Asia-Pacific in the first nine months of each year has increased successively over the last three years from US$17.9bn in 2001 to US$18.95bn in 2002 to US$20.44bn in 2003.

Source: Dealogic ProjectWare

The 2003 ALB Awards - Project Finance

Clifford Chance partner Arthur McInnis (left) accepted the 'Miele Project Finance Law Firm of the Year Award' from Miele's Carmen Ho at the recent 2003 ALB Awards ceremony in Hong Kong. Winning the award for the second year in a row,  Clifford Chance confirmed its leading position in the region's project finance work.

Hew Jenkins - head of the firm's Asia finance practice - said: "We're delighted to be named Project Finance Law Firm of the Year. Having also won the award last year, it's truly testament to the continued strength of our Asian practice."

Like in banking law, the major UK-based firms continue to dominate project finance work and house very strong projects teams. Few, therefore, were surprised to see Allen & Overy, Clifford Chance, Freshfields and Linklaters repeating their achievement of last year by being shortlisted.

Rounding off the quintet of shortlisted nominees this year was the only non-UK firm to be heavily nominated - Latham & Watkins. "It's been a good year for us," said Hong Kong managing partner Mitchell Stocks. "If you count the restructuring of a project, we've effectively done five projects that have closed in the last four to six months."

Stocks led the Lathams team that advised the commercial lenders on the US$4.3bn Nanhai Petrochemicals Project in China. The US firm acted for China Development Bank, the Bank of China, and Industrial Commercial Bank of China on the renminbi side; and ANZ banking Group, Bank of Tokyo-Mitsubishi, Crédit Agricole Indosuez, Mizuho Corporate Bank, HSBC, IntesaBci, Sumitomo Mitsui Banking Corporation and WestLB on the US dollar side.

Also to Lathams' credit was an advisory role to JBIC, NEXI, the lenders and security agent, on the Tanjung Jati B Project. The restructuring of the Tanjung Jati B power project finally closed on 31 July bringing good news to power-starved Indonesia. The construction of the 1330MW coal-fired plant - as well as two other major independent power projects (Paiton I and Paiton II) - had been suspended in 1998 when the Asian financial crisis hit Indonesia.
"So I would mention those deals - in terms of prestige and dollar value - as examples of us as having good fortune in the last four to six months," added Stocks.

Oz project financing powering ahead

Freehills and Mallesons Stephen Jaques continue to dominate project finance work in Australia, both acting on the largest number of Asia-Pacific deals in the first nine months of 2003.

League table group Dealogic's project finance review lists Freehills as advising on 14 project financings worth US$1425.91m, while Mallesons was involved in 13 deals - but with a greater combined value of US$1593.24m.

Although the most active firms in terms of deal volumes, the two firms came in behind US firm Latham & Watkins and UK firm Allen & Overy on overall deal values, with Lathams advising on five deals worth US$2741.32m and A&O acting on six deals worth US$1670.50m.
Allens Arthur Robinson was the only other Australian firm to make the top 10 legal adviser table, advising on seven deals worth US$766,55m.

Project financings in the power and petrochemical industries have dominated the first three quarters of 2003, accounting for 32.75% (15 deals worth US$6.69bn) and 22.2% (three deals at US$4.54m) of the market respectively. These results are largely due to four major projects - the Paiton 1 and Paiton II Debt Restructurings in Indonesia (worth a combined US$3.09bn), the US$1.4bn Map Ta Phut facility in Thailand, and China's US$4.3bn Nanhai Petrochemical project.

Hong Kong based Mallesons partner Robert Milliner said while the Australian market for project financing had been "strong", activity was low in other regions. "There's not a lot of greenfield projects at the moment," he said.

He described the market in general as "lumpy". "It's not uncommon for projects which are economic at one stage to become uneconomic with the passing of time as a result of changes in raw materials and commodities markets or changes in production costs." He cited Methanex's withdrawal from its proposed methanol project on the Burrup Peninsula in Western Australia, on which Mallesons was the project sponsor, as an example. "The economics of that project changed over a two-year period." Mallesons also advised the joint lead arrangers on financing for the A$1.7bn (US$1.21bn) Stanwell Magnesium Plant in Queensland, which was shelved earlier this year.

Milliner said activity in Australia was largely being driven by PPP (private public partnerships) infrastructure projects - including the Spencer Street Station redevelopment in Melbourne, and tollroad projects in NSW such as the Western Sydney Orbital and Eastern Distributor.

Freehills partner Patrick St John agreed that PPPs had contributed to deal volumes, as had the continued sale of power and gas assets. "It's been a pretty good nine months and I would expect the activity to continue," he said. "There are a number of deals in the pipeline and it's looking good into next year in terms of deals coming to market." These included the Exim pipeline sale in Western Australia.

Some sectors, such as resources, have experienced less activity. "Because we've had so much consolidation in [the resources] sector, the large corporates now tend to finance their projects on balance sheet," said St John. "We're still seeing a number of deals at what I'd call the smaller end of the market - not the really huge resource projects, but the A$20-30m (US$14-21m) smaller mines."

firm profile
Deacons - facing new challenges

"Despite the global economic slowdown, more investment is pouring into energy and infrastructure projects in Asia than ever before," says Joseph Lam, partner and head of the Energy and Infrastructure Practice Group at regional law firm Deacons. "Both driven by government spending and overseas direct investment, the sector is currently experiencing an unprecedented investment surge in the region."  

Against the backdrop of this Asian infrastructure boom, it is no wonder that Deacons' Energy and Infrastructure Practice Group has developed a busy practice advising clients comprising local and foreign owners, developers, lenders, equity investors and quasi-government organisations on a wide range of infrastructure projects in the region. 

"Our group was established 10 years ago to meet the growing demand for specialised legal advice regarding energy and infrastructure projects," says Lam. "Our strategic advantages are our strong local presence in key locations in Asia and our capability to bring together specialists from different fields in project task forces that can aptly address all the client's needs."

In addition to its traditional strong presence in Hong Kong, the PRC and Australia, Deacons has offices in Thailand and Vietnam, and affiliations with firms in Indonesia, Malaysia, Singapore and Taiwan. This extensive network is the basis for the group's capability to provide hands-on and localised advice in each local jurisdiction. This is, however, localised advice nurtured by international experience as the group members comprise lawyers who are qualified and have worked in many jurisdictions. They are further drawn from a wide variety of disciplines and specialise in project financing, construction law, corporate law, PRC law, etc. 

"We believe that a successful power or infrastructure project requires both vision and direction. We pride ourselves on being able to provide professional advice not only on the legal aspects of projects but also on the whole spectrum of business practices and issues in the relevant industry," says Lam.

The group's project-load over the past 10 years closely reflects investment patterns in the energy and infrastructure sector. The group has acted in numerous projects in the region and in particular has built a strong Hong Kong and China practice. Lam and his team have advised on more than 30 power projects in China, including projects in Shakou, Nanhai and Anshan. "Our advice typically covers the whole spectrum from financing to corporate documentation and operational contracts," says Lam. 

The group also worked on other infrastructure projects in the PRC, like the Guangzhou underground, the Kowloon-Guangzhou through train, port facilities, water, telecoms and toll roads. Group partner and head of Deacons' China Practice Group Franki Cheung assisted with the formation of a project management and consultancy company for urban construction projects in China. This involved the acquisition of shares in a PRC domestic company and the conversion of the domestic company into a Sino-foreign joint venture company.  This type of acquisition was among the first of its kind and foreshadowed the subsequently published national regulations governing foreign acquisitions of domestic enterprises in the PRC. 

"Our major trump card in China is our representative offices located in the major economic centres of Beijing, Shanghai and Guangzhou. Through these offices, we can provide on-site assistance to all PRC projects," says Cheung. The group members have developed excellent contacts with government authorities in the PRC which enable them to timely notify clients of developments in government policies and laws. A testament to the close links that group members have forged with PRC authorities at the national and local level is the recent appointment of Cheung as director of the China Overseas Friendship Association and vice-chairman of the Guangzhou Overseas Friendship Association. 

China will remain an important focus of the group as its WTO accession and the recent Closer Economic Partnership Arrangements concluded with Hong Kong as well as Macau provide unprecedented business opportunities to foreign investors and financiers. A case in point is the relaxation of controls on foreign participation in municipal utilities. The group is already participating in these new developments after receiving instructions to advise a global water service company on the acquisition and operation of two water treatment plants in China.

Hong Kong is the second strong pillar of the group. Group partners Glenn Haley and Geoffrey Shaw have built a strong reputation with the Hong Kong government for their thorough experience and market knowledge. The MTRC, KCRC and the Housing Authority all appear in the team's client portfolio. The group has worked on virtually every major infrastructure project in Hong Kong including the Chek Lap Kok Airport, Tsing Ma Bridge, Disneyland, East Rail and West Rail and various BOT infrastructure projects for tunnels, highways and landfills. 

To address its budgetary difficulties, the Hong Kong government is promoting the Private Sector Involvement programme which aims to deliver public services through the use of private sector investment. This Public Private Partnership (PPP) approach is used widely overseas in the construction of infrastructure facilities and the delivery of public services. "PPP will become a major way of financing infrastructure projects in Hong Kong," predicts Shaw. To retain its leading role in this new development, the group has created a specialised PPP project team.

Group partner KK Cheung demonstrates the typical strengths of the group's members in regularly advising on projects in both Hong Kong and the PRC. He has further handled construction arbitration and litigation matters related to projects in Hong Kong and PRC and has significant experience with CIETAC arbitrations.

"Deacons strongly believes that with our experienced, multidisciplinary and cross-border Energy and Infrastructure Practice Group we are well-equipped to face the new challenges in the power and infrastructure sector in the region," concludes Lam.