Developing Renewable Energy Projects

Developing renewable
energy projects
A guide to achieving success
in the Middle East
May 2013
With input from:

Contents Foreword
Foreword 1 Welcome to this guide on developing renewable energy projects

in the Middle East.
Chapter 1: Jordan 3
We decided to produce a guide after many of our clients in the clean energy
Chapter 2: Kuwait 17 sector began asking some quite straightforward questions for which there
was not always a straightforward answer.
Chapter 3: Qatar 29
We thought it would be helpful to provide an overview of the key areas
Chapter 4: Saudi Arabia 43 which need to be understood when embarking on the development of,
or bidding for, a renewable energy project in the Middle East.
Chapter 5: United Arab Emirates 57
This guide does not include all jurisdictions, but instead focuses on those
Appendix 1: Sukuk financing 75 in which our clients and contacts have expressed most interest. The ordering
of the sections is purely alphabetical and does not imply any priority for
investment purposes.
Without a doubt, the Middle East has the potential to become a significant
market in the renewable energy sector and our objective is that our clients
For further information please contact: and those with whom we work are able to be part of this.
Michelle T Davies Jo Rowbotham We would like to thank the Emirates Solar Industry Association for its
Global Head of Clean Energy Power & Utilities Advisory Lead contribution to some of the information we have used. We would also like
Eversheds LLP Middle East & North Africa to thank ASAR – Al Ruwayeh & Partners and in particular, Rob Little and
Tel: +44 29 2047 7553 Ernst & Young
Akusa Batwala, for their contribution to the legal items within the chapter
Mob: +44 7785 973936 Tel: +973 1751 4936
[email protected] Mob: +973 3838 5825 on Kuwait.
[email protected]
Our contact details are listed opposite. Please feel free to contact us if you

have any questions or would like further information.
Faisal Tabbaa Nimer AbuAli
Partner MENA Cleantech Lead
Al Dhabaan & Partners in Ernst & Young
association with Eversheds Tel: +971 2417 4566
Tel: +962 6566 0511 [email protected] Michelle T Davies
[email protected]
Global Head of Clean Energy, Eversheds LLP
Disclaimer
The information contained in this document is intended as a guide only. Whilst the information it contains
is believed to be correct as at the date of publication, it is not a substitute for appropriate legal and financial
advice, detailed research or the exercise of professional judgement. No author or contributor can take
responsibility for the information contained in this document.
1
Chapter 1:
Jordan
Key bodies referred to:

DLS Department of Lands and Survey
ERC Electricity Regulation Commission
JEA Jordan Electricity Authority
JLGC Jordan Loan and Guarantee Corporation
MEMR Ministry of Energy and Mineral Resources
MoE Ministry of Environment
NEPCO National Electric Power Company
Key terms used:

EIA Environmental impact assessment
EPC Engineering, procurement and construction
Fund Renewable Energy and Efficiency Fund
IPP Independent power producer
O&M Operation and maintenance
PPA Power purchase agreement
3
Jordan
1 Key drivers for renewable energy The Fund’s main objective is to facilitate the investment process in renewable
energy projects in Jordan by:
Jordan is almost completely reliant on foreign imports for oil and natural gas,
• providing grants to finance feasibility audits of proposed small and
which consumes a significant amount of Jordan’s gross domestic product.
medium-scale renewable energy projects in Jordan
The Arab Gas Pipeline from Egypt supplies about 88% of the country’s • aiding renewable energy investors in attaining favourable interest rates
generation needs. However, supply has been disrupted numerous times.
• guaranteeing investors’ funding requirements.
This has led to Jordan’s power plants being forced to run on diesel and heavy
fuel oil, pushing the national energy bill to record highs. This inconsistent The Fund is expected to sign a memorandum of understanding with the
supply has also led to blackouts in Jordan. JLGC to facilitate project funding from commercial banks. The Fund has not
currently finalised the main eligibility criteria for potential investors.
The renewable energy targets in Jordan are 7% and 10% of the primary
energy mix by 2015 and 2020 respectively. Jordan also expects to achieve To further stimulate investments in renewable energy projects in Jordan, the
energy savings of 20% by 2020 through demand side management. Agence Francaise de Development has signed a financing agreement with two
The renewable energy capacity additions include: local commercial banks in Jordan to finance renewable energy projects within
• 600–1,200 MW from wind energy the Kingdom, post MEMR approval.
• 300–600 MW from solar energy The International Financial Corporation is also interested in funding renewable
• 30–50 MW from waste to energy. energy projects in Jordan. However, the funding offered depends on a variety
of factors relative to each case.
There are various key initiatives in place, including the Renewable Energy and
Energy Efficiency Fund set up in February 2013 by the MEMR. It is financed by
the Government’s budget allocations (JOD 1m to JOD 1.5m pa) and foreign 2 Key projects
donations, including a USD 300m donation from the GCC in early 2013. There
The Shams Ma’an, a 100 MW photovoltaic power plant in the Ma’an
are ongoing negotiations between the Fund and the United States Agency for
Development Area industrial park, has been launched. The 100 MW JOAN
International Development to guarantee loans for several renewable energy
1 concentrated solar thermal power project is also in development. The
projects by private investors in the near future. The Fund is expected to be
Jordanian Government has also received expressions of interest to build
fully operational by June 2013.
a 75 MW solar plant at Quwaira.
4 Developing renewable energy projects: A guide to achieving success in the Middle East 5
Jordan
3 Setting up a business 4 Tax structuring

There are certain limitations on foreign ownership in Jordan. Whilst ownership
4.1 Corporate income tax
of solar generation projects by foreign persons is unlimited, engineering and
construction services are limited to 50% foreign ownership, and the retail and Corporate income tax is levied on the profits of corporate entities and foreign
sale of any product is limited to 50% foreign ownership. branches that arise in Jordan. Rates vary from 14% to 30% depending on the
type of activity:
There are essentially three main options available for a foreign entity wishing
to do business in Jordan:
Banking 30%
Maximum Minimum Insurance, telecommunications, stockbrokers, finance companies, 24%

Type of currency exchange companies and leasing companies
foreign capital Requirements
business
shareholding requirements All other 14%
Branch of 100% – • Need to appoint a
foreign representative who is
company resident in Jordan 4.2 Capital gains
• Limited term, for Capital gains are usually exempt aside from income derived from current and
performance of specific depreciable assets which is taxable as ordinary income.
contract unless granted
a specific licence from
government authorities 4.3 Dividends
Limited 100% JOD 50,000 • Minimum of two Dividends are generally exempt from tax.
liability (50%)* per non- shareholders, unless
company Jordanian exemption granted 4.4 Interest
shareholder • May only use specified
memorandum and articles Interest paid by banks to depositors is generally subject to a 5%
of association withholding tax.
Private 100% JOD 50,000 • Minimum of two

shareholding (50%)* per non- shareholders, unless 4.5 Withholding tax
company Jordanian exemption granted Withholding tax is considered to be a payment on account for companies and
shareholder • Flexibility in terms of a final tax for individuals.
memorandum and articles
of association
4.6 Foreign tax relief
• Allows issue of different
classes of share Foreign tax relief is granted in accordance with tax treaties signed with
certain other countries.
*50% shareholding requirement if undertaking engineering and construction or retail
and sale of any product
Jordan
5 Renewable policy and regulatory framework 6 The IPP process

Jordan has a target of achieving 10% of its needs from renewable energy Jordan has been restructuring its electricity sector since 1996, including the
sources by 2020. It has passed the Renewable Energy and Efficiency Law which transformation of the JEA and the establishment of the ERC in 2001.
determines how electricity from renewable sources will be procured. Jordan is
unique in the Middle East due to the fact that there is a policy in place which A key component in the restructuring has been the role of the private sector
requires the Government to cover the cost of grid connection for developers. in providing generation capacity. Jordan follows a single buyer model for the
procurement of capacity through the IPP programme and has successfully
Jordan’s 2007–2020 Energy Strategy aims to increase the proportion of procured three IPPs which were funded through external debt against the
solar and wind energy contributions from 1% to 10% by 2020. The strategy project agreements. NEPCO has been the single buyer for the IPPs and
recommendations include: has entered into a PPA with the project company for 25 years. Projects are
structured on a build-own-operate basis.
• renewable energy laws to stimulate private sector investments
• implementation of wind energy projects with at least 600 MW capacity Importantly, Jordanian law provides for a “Direct Proposal” option allowing
by 2020 renewable energy developers to submit their proposals directly to the
Government. It also requires the NEPCO to purchase all electricity produced
• enhanced research and studies on renewable energy sources
from a renewable source and to cover the cost of grid connection, along with
• establishing a renewable energy and energy efficiency fund. a fund open to applications from both international and domestic developers.
Jordan’s almost complete dependence on imported fossil fuels has significantly

altered the discourse on renewable energy. In many cases, the relatively high 7 Ability to develop own sites
cost of renewable energy is lower than that for energy from fossil fuels, and
thus the Government is willing to pay for feasible projects at a price almost Renewable power projects can currently be developed either in response
up to their avoided cost. New regulations and the lower inherent risk in solar to Government tenders or through the Direct Proposal option.
projects could lead to more investor confidence and raise the “bankability”
of projects. 7.1 Tender process
The Government has received strong interest from developers regarding Under the tender process, a site will be specified and pre-packaged.
the Direct Proposal option (see the section on the IPP process below for an The tenders issued to date have been for EPC and operations services only
explanation of this option). In May 2011, it issued a request for expressions where the Government has owned the project. The developer has simply
of interest for the 300–600 MW of power generation capacity outlined in built and operated.
its energy strategy, in order to create some structure to the Direct Proposal
option. The Government is now working on detailed project proposals.
In addition, the ERC announced in December 2012 the introduction of a

feed-in tariff system which is designed to reduce energy demand and will
allow the sale of surplus energy generated back to the national grid.
Jordan
7.2 Direct Proposal process We set out below some structures which may be utilised to secure land rights
or exclusivity prior to a formal land arrangement being entered into:
Under the Direct Proposal process, a developer is able to source its own
site for development. Whilst the developer would own the project under
Options for lease • Not commonly used
a Direct Proposal, the developer would be responsible for obtaining the
or sale • Not a registrable interest
development assets itself. The Government (or the counterparty to the PPA
(the “Transmission Licensee”)) would have the right to purchase the facility Break clause in lease • Termination provision exercisable after pre-determined
at the end of the PPA term. As part of the PPA, the developer would also period
enter into a connection agreement with the Transmission Licensee to allow
Memorandum of • More common form of exclusivity agreement
for connection to the grid. To date, the Direct Proposal process has only seen
understanding • Deposit payable to landowner, with requirement to
projects connected to the Transmission Licensee’s grid. However, in future
sell/lease by a certain date
it may extend to projects that can be connected directly to the distribution
companies’ grids. • Only valid for a defined term
• Not a registrable interest
• No specific performance, only damages
8 How to secure development assets
Irrevocable power • Granted by landowner in favour of developer’s agent to
8.1 Real estate of attorney transfer land when development assets secured/project
awarded
Both foreign-owned Jordanian companies and branches of foreign companies • Only legally valid for one year
can own and lease Jordanian land but only for the purposes of their business. • Jordanian law prohibits grant to developer directly
Where land is purchased, the project must be completed within three years of • Used to avoid payment of transfer taxes (10%, currently
reduced to 5%)
the relevant purchase, with a possible extension of a further three years. If the
project is not completed within this period, the project company will be liable • Only usually granted on payment equal to full value
of land, but can be used in conjunction with escrow
to pay 5% of the land’s market value to the DLS each year, for ten years, after
agreement to avoid payment of full consideration at
which the land must be sold. outset
It is not possible to apply to the Government for approval of a project until the Escrow agreement • Purchase/lease amount held in escrow
necessary land rights have been actually granted, or the land owner approves • Released to landowner when conditions fulfilled
the application (notwithstanding that the land rights for the project have not
• Released to developer if conditions not fulfilled
been granted at this stage). In the case of pre-packaged land, the process is
much simpler and less timely as much of the “upfront” work should have been
completed.
Jordan
8.2 Security It is likely that an EIA would have to be submitted to the MoE for approval
because power plants are listed as projects that require a comprehensive
Land owned by a project company can be mortgaged and leases can be
EIA. Obtaining an EIA usually takes three to four months, but there are no
assigned as security to a bank. Mortgages must be registered at the DLS to
significant Government fees or costs associated with obtaining approval,
be validated. A lease will normally contain terms which require the landlord
only those associated with preparing the EIA.
to enter into an “assignment agreement” and “notice of assignment” either
when requested by the developer, or at the time the lease is entered into An application for the generation licence is made to the ERC, which usually
but can remain undated until the actual assignment takes place and the takes approximately two months. Annual fees are payable under the licence
documents are duly dated. at a rate of JOD 0.000006 per kilowatt sold by the facility.
8.3 Payment structure Other permits required to construct and operate the facility include a
construction permit, which can only be obtained after the detailed drawings
It is unusual to transfer title of land in Jordan until the entire price for the land of the plant are approved by the relevant municipality. The time required to
is paid. If payment is deferred, the seller would probably require that the land obtain such permits will vary, but is unlikely to take less than two months.
is mortgaged in its favour. Please see the solutions suggested above regarding Government costs associated with this permit are not significant.
irrevocable powers of attorney and escrow arrangements.
In lease agreements, payments can be deferred or linked to milestones. 8.5 Grid connection
In practice, landlords are used to fixed annual lease payments. Connection to the grid will be provided for in the PPA and a connection
agreement will be entered into with the grid operator. No specific grid
8.4 Consents, licences and permits connection consent or permit is required, other than the connection
agreement which will be entered into simultaneously with the PPA.
In both the tender and the Direct Proposal processes, the developer must apply
for and obtain the necessary licences and permits after its bid or proposal has
been accepted, even if the site has been acquired on a pre-packaged basis.
The PPA will provide the developer with a specified period of time to obtain all
required licences and permits. The main licences a developer must obtain are
a generation licence from the ERC and an environmental permit.
Jordan
9 Counterparties and governing law 10 Employment law overview

A number of contracts will have to be entered into by the developer with Every employer who employs ten or more employees must have internal
various parties in order to develop a renewable energy project in Jordan. regulations setting out hours of work, daily and weekly rest periods, work
Below we set out the counterparty to each of the key contracts: offences and any other relevant further details.
Contracts should be in writing and in Arabic.

Contract Counterparties Governing law
Jordan has a minimum wage which is currently JOD 190 (USD 135) per month.
Real estate contract Selling landowner/landlord Jordan
Grid connection NEPCO/distribution companies Jordan Foreign employees can only be hired after obtaining the approval of the
agreement and PPA Minister of Labour where the work requires experience and skills not available
among the Jordanian workforce, or where the number of available qualified
EPC contract Third party contractor Negotiable
Jordanians is not enough. Priority is given to Arab employees in such situations.
O&M contract Third party contractor Negotiable All foreign employees must obtain a one year work permit, which is renewable.
Employers will also have to pay social security contributions on behalf of their
Finance documents are usually governed by English law if finance is obtained employees at 11% of their monthly salary.
from outside Jordan, which is permitted. Jordan allows both Islamic and
non-Islamic financing. Many previous conventional IPPs in Jordan have been
financed by foreign banks and lenders. The Government has previously 11 Sukuk financing overview
accepted that IPPs can enter into direct agreements with banks funding IPP
Please see Appendix 1 for an overview of Sukuk financing in the Middle East.
projects to grant assignment and step in rights.
Chapter 2:
Kuwait

DIT Department of Inspections and Tax Claims
EPA Environmental Protection Authority
KFIB Kuwait Foreign Investment Bureau
KM Kuwait Municipality
KISR Kuwait Institute for Scientific Research
MCI Ministry of Commerce and Industry
MEW Ministry of Electricity and Water
MoJ Ministry of Justice
PAI Public Authority for Industry
PTB Partnerships Technical Bureau
The legal aspects of this section have

Key terms used:
been contributed by: EPC Engineering, procurement and construction
IWPP Independent water and power producers
Rob Little KSC Kuwaiti Joint Stock Company
Partner KSE Kuwait Stock Exchange
ASAR – Al Ruwayeh & Partners O&M Operation and maintenance
Tel: +965 2292 2700 PPP Public-private partnership
[email protected] WLL Kuwaiti Limited Liability Company
17
Kuwait
1 Key drivers for renewable energy Maximum

Type of business foreign Requirements
Kuwait is a leading exporter of oil given its significant oil reserves. Over 70% of shareholding
its electricity generation comes from oil-fired technology. Kuwait also has large
natural gas reserves. Kuwait’s electricity consumption is increasing year on Limited Liability 49% • Must specify object as “equipment
Company (“WLL”) for generating alternative power and
year. To maximise export capacity and reduce its dependency on oil, Kuwait
energy” and obtain approval from a
recognises that it needs to diversify its energy mix. In his statement at COP18 special committee at the Ministry of
in December 2012, the Emir of Kuwait, H.H. Sabah IV Al-Ahmad Al-Jaber Al- Commerce and Industry
Sabah, stated that Kuwait would produce 1% of its energy consumption from
wind and solar by 2015 and up to 15% by 2030. However, the MEW in Kuwait Joint Stock 49%* • Minimum of five shareholders
Company (“KSC”) • Activities more regulated than WLLs
has not yet confirmed these targets.
• Subject to local taxes on net
2 Key projects *This can be increased up to a 100% shareholding if the developer is successful in an
application to the KFIB, whereby it must prove that the business will provide some sort
Kuwait does not currently have any operational, utility-scale renewable energy of benefit to the Kuwaiti people, through, for example, a transfer of technology or skills.
facilities. It is expected that a tender will be issued soon for the construction of Solar power may be a sufficient type of business to obtain such a licence.
a 280 MW power station, 60 MW of which will be solar power. Kuwait is also
planning a 70 MW solar and wind plant which will be a joint venture between
the MEW and the KISR.
4 Tax structuring
4.1 Corporate taxes

3 Setting up a business
The current Kuwaiti tax code became effective for fiscal periods commencing
As a general rule, foreign entities cannot do business in Kuwait directly but after 3 February 2008.
must work through an agent or through a Kuwaiti “partner” (generally
facilitated through the establishment of a Kuwaiti company with Kuwaiti 4.2 Corporate income tax
participants – with the Kuwaiti participants owning at least 51% of the capital
Foreign entities are subject to tax in Kuwait if they carry on a trade or business,
of such company).
either directly or through an agent.
Kuwaiti companies (even those with foreign ownership) and companies

incorporated in GCC countries that are wholly owned by GCC citizens are not
subject to income tax. Only the foreign shareholders in such companies would
be subject to tax.
Kuwait
4.3 Tax rates The business case for solar power in Kuwait remains strong. Its electricity
demand is growing rapidly and so is the volume of expensive oil and diesel
Since 2008, the rate of corporate income tax has been 15%.
that it burns every year to meet the demand. It may only be a question of time
before Kuwait adopts the regulatory policies needed to make solar power
4.4 Withholding taxes a viable component of its ballooning energy mix.
All Government departments, along with all privately owned and Government-
owned companies, are required to retain 5% from each payment to any 6 The IPP process
foreign incorporated body until such entities present a tax clearance from
the DIT. Kuwait embarked upon private sector participation in infrastructure
development relatively recently. Under Kuwaiti laws governing IWPPs, Kuwaiti
4.5 Zakat public joint stock companies specifically incorporated for the purpose can
build and operate electric power and water desalination stations in Kuwait,
Public and closed KSCs are subject to Zakat on the basis of 1% of gross income
where the electric power and water desalination is in excess of 500 MW and
of operations of the company after deduction of costs incurred.
the project is implemented under PPP laws.
There are two critical stakeholders in Kuwait – the PTB and the MEW. The PTB
5 Renewable policy and regulatory framework
is responsible for the financial, commercial and technical evaluation of PPP
Kuwait’s solar energy industry dates back to the 1970s with the launch of the projects. The MEW owns and operates all existing power and water production
KISR. With the backdrop of rising oil prices, KISR began to conduct research on facilities, transmission networks and distribution systems in Kuwait, and sells
solar power. electricity and water to serve the demand of industrial, commercial and
domestic consumers.
Kuwait’s MEW has not produced any official documents outlining what its solar
targets are and how it plans to achieve them. The IWPP procurement process is designed to identify the entity that will
hold at least a 26% stake in the project company. Under Kuwaiti law, up to
In 2008, the PTB was established to facilitate partnerships between the 50% is held by Kuwaiti citizens (though a public offering) and a nominated
private and public sectors. The PTB now oversees the procurement of all PPP Government entity holds the remaining stake of no more that 24%. The
large-scale power generation projects. The PTB has recently started to accept procurement is based on two stages – prequalification and submission of
unsolicited proposals from the private sector for large-scale solar power technical/financial proposals. All Kuwaiti joint stock companies listed on the
projects. The PTB is expected to be involved in any proposed solar projects KSE are prequalified to participate in the project tender process. International
(as it is for the Al Abdaliyah ISCC), especially if the project takes the form of developers need to submit their qualifications to meet the criteria. The
a PPP. This could increase investor confidence and increase the attractiveness prequalified bidders are expected to submit technical/financial proposals
of the project for institutions providing debt financing. that support the financing, design, procurement, construction, operation
and maintenance requirements of the project.
Kuwait
The MEW will enter into a 40 year concession agreement with the project 8 How to secure development assets
company, under which the MEW will purchase power and water. The
successful bidder and the public entity or entities will enter into a shareholders’ 8.1 Real estate
agreement to govern the relationship between the shareholders. In addition,
a land lease agreement will be provided to the project company. 8.1.1 Freehold ownership
The Al Abdaliyah ISCC (Integrated Solar Combined Cycle) of around 280 MW As a general premise, non-Kuwaitis may not own real estate in Kuwait, except
is one of the early renewable energy projects in the pipeline. Kuwait is also in limited circumstances. With certain exceptions, freehold ownership of real
planning to build the first renewable project comprising 10 MW of wind, estate is generally limited to Kuwait nationals or corporate entities wholly
10 MW of PV and 50 MW of CSP. owned by them.
8.1.2 Leasehold ownership

7 Ability to develop own sites
All nationalities may enjoy the benefit of a lease. If a lease is for a term
Whilst the Government will retain control of the project process (through the of more than 10 years, it may be registered at the Land Register at the
requirement of approvals and licences) and regulation of the development of Ministry of Justice.
renewable projects, it will not automatically have to own the project or invest
in it. Projects may be developed privately but developers would have to seek Leases granted by the State for industrial development are managed and
the approval of the relevant Government authorities and would have to sell its signed by the PAI.
power to the MEW. Depending on the size and the importance of the project,
Freehold land rights are evidenced by a land title, while leasehold rights
it may further require the approval of the Council of Ministers.
are evidenced by a lease contract.
Alternatively, the developer could propose the project as an unsolicited
proposal to the PTB. If approved and adopted by the MEW and the PTB, 8.2 Security
it could be procured by the Government as a PPP project.
It is possible to have a mortgage over freehold land (private land). Mortgages
are not typically permitted over Government owned land but the developer
may be permitted to mortgage buildings or structures on the land. All
mortgages of real property must be registered with the Real Estate Registration
and Authentication Department at the MoJ.
Kuwait
8.3 Payment structure 8.4.1 Planning consent
The payment terms for a land purchase or land lease agreement are The KM is the authority that will approve a project as part of its role as Master
commercial terms and may be negotiated by the parties. However, title of the Planner for Kuwait generally. While the permission granted is not called a
land will not pass until the purchase price has been paid in full thereby making planning permission, the KM is in charge of the Master Plan of Kuwait and
deferred payments complicated to structure. therefore has the authority to determine the location and approval of projects
in general.
With Government leases however, payment of rent is typically a lump sum
annual payment made in advance. KM approval will be granted in conjunction with the MEW and the PAI (if the
project is going to be located on state owned industrial land). In such case, the
8.4 Consents, licences and permits developer is required to provide a project feasibility study which should include
land use, technology details, an environment study, utility requirements and
As mentioned above, the project has to be approved by a number road access requirements to allow the MEW, PAI and Municipality to study the
of Government authorities including: application and decide on whether it can be approved or not.
• the Council of Ministers
There is no definitive timescale for the approval of a project of this nature, but
• the MEW provided the project meets with the relevant regulations, the same should be
• the MCI approved. The cost involved will depend on various factors including the size
of the project, the technology to be used and the utility requirements.
• the KM
• the EPA. If a project is approved, there will be accompanying conditions provided by
the various authorities involved in the approval process.
For the above, there are no specific timescales as each Government authority
has its own internal processes that must be complied with prior to the grant 8.5 Grid connection
of an approval. Costs associated with obtaining approvals are dependent on
various factors including the proposed site of the project, its size and utility Only the MEW has authority to grant a grid connection and regulates the
requirements. process, however there is no definitive timescale for this process. The MEW
provides guidelines that should be followed by a developer in order to
If the project is approved, the developer will be licenced to establish a connect renewable power to the MEW grid. These guidelines include various
company that may develop the renewable energy power project. The stipulations as to relevant experience, design requirements, safety features,
developer may then connect to the MEW grid and sell power to the MEW. responsibilities and procedural requirements.
Rights of appeal against decisions depend on which entity has rejected the
application for approval of the project. The law clearly provides a right of
appeal if the application for an industry licence is rejected. However, with
respect to the other authorities, the law is not as clear.
Kuwait
9 Counterparties and governing law 10 Employment law overview

The key legal requirements in relation to employment are that all non-Kuwaiti/
Contract Counterparties Governing law non-GCC expatriate workers have to be sponsored by a Kuwaiti entity/
national. All employment contracts for employees engaged in the private
Real estate Selling landowner/landlord Kuwait
sector must comply with the Private Sector Labour Law.
contract
Grid connection MEW Kuwait There is currently no minimum wage for private sector employees.
agreement
Planning KM Kuwait 11 Sukuk financing overview

contracts
PPA MEW Kuwait
O&M contract Third party contractor Negotiable
Finance Bank/finance provider Negotiable, but likely to

documents be Kuwait if a local bank
Under Kuwaiti law, parties are free to choose a foreign law to apply/govern the
contract between them provided the governing law does not violate Kuwaiti
public policy. In practice, however, it is highly unlikely the Government or
Government entity would agree to be subject to foreign law.
There is no statutory requirement for financing to be provided by local banks,

nor are there any restrictions requiring the use of Islamic finance only. If
security is granted over the project or project assets, the security documents
would typically be governed by local law.
Provided the contracts are concluded in compliance with the local laws and
regulations, and that the same do not contravene public policy, they should
be enforceable.
Chapter 3:
Qatar

KAHRAMAA Qatar General Electricity & Water Corporation
MBT Ministry of Business and Trade
MEF Ministry of Economy and Finance
MEI Ministry of Energy and Industry
MMAA Ministry of Municipal Affairs and Agriculture
MMUP Ministry of Municipality and Urban Planning
MoE Ministry of Environment
MoJ Ministry of Justice
QEWC Qatar Electric and Water Company
QP Qatar Petroleum
QTSP Qatar Science and Technology Park
SCENR Supreme Council of Environment and Natural Resources
Key terms used:

BOO Build-own-operate
BOOT Build-own-operate and transfer
IWPP Independent water and power producer
O&M Operation and management
PWPA Power and water purchase agreement
QNFSP Qatar National Food and Security Programme
29
Qatar
1 Key drivers for renewable energy 2 Key projects

Qatar is the largest supplier of liquefied natural gas globally and also a major Qatar has not procured any renewable capacity as yet. However, a tender
oil supplier. has been proposed for a 200 MW solar energy project by the end of 2013.
In addition, a pilot project of approximately 10 MW is expected to be
The State’s overall energy demand is experiencing rapid growth and over the launched by early 2014.
next few years will be among the highest in the world.
Qatar has also publicly stated that the 2022 World Cup hosted by Qatar will
Qatar has announced that it aims to meet 20% of its electricity demand from be the first carbon neutral World Cup in history and will use solar powered
renewable sources (largely solar) by 2030. cooling systems in stadiums. However, this solar project has recently been
placed on hold until after 2015.
In Qatar, there are various key initiatives in place. One of the major renewable
energy initiatives is a solar park which is expected to produce sufficient energy Fahad Bin Mohammed al-Attiya, chairman of the Qatari organisers of COP18
for water desalination needs as set out by the QNFSP. This large-scale initiative announced that, in 2014, Qatar will seek tenders for an 1,800 MW solar
of the QNFSP is financed by the Government of Qatar. Private participants are energy plant which will be used to fuel desalination plants catering for 80%
expected to invest once the project becomes operational. Expected to be of the country’s water desalination needs.
located in the south of Qatar, the solar park will allocate several plots of land
for international companies to establish different solar technologies which will QSTP, Chevron Qatar Limited and Greengulf Inc announced in December
generate electrical power which the QNFSP will then purchase. It is expected 2012 plans for a large-scale solar testing facility which will be used to test
that the Government may also fund other projects with direct strategic emerging solar technologies around the world to determine those best suited
implications. to the climate of the Gulf region. The facility will investigate the effects of
heat, humidity and dust on the performance of solar equipment and will also
A number of international companies are involved in research and address challenges such as the efficient use of water in cleaning solar systems.
development in the solar sector in Qatar. Apart from Chevron, other The 35,000 square metre facility is expected to be concluded by 2015.
international firms investing in solar research in Qatar include General Electric,
Shell and ConocoPhillips. The Doha campus of Texas A&M University is A planned USD 1.1bn, 8,000 metric-ton facility, is being built by QEWC and
working on a project that uses solar energy to break down natural gas into Qatar Solar Technologies. The financing of this plant is being provided by
carbon and hydrogen for industrial uses. the local Islamic bank, Masraf Al Rayan. The plant will initially produce
8,000 metric tons of polysilicon a year, enough to make solar cells to power
240,000 homes.
Qatar
3 Setting up a business * A foreign shareholding of up to 100% is available if an exemption from the MBT has been
obtained, which can be a lengthy process. This is only available for certain sectors, but the
Generally, foreign participation in business activities in Qatar is allowed in list includes energy and the development of natural resources.
all sectors of the national economy except in banking and insurance (to the ** Can be increased by consent of the Council of Ministers.
extent excluded by a Decision of the Cabinet of Ministers), commercial agency *** Investment free zones are still in the development stage and aside from the QTSP
and real estate trading sectors. none are operational in Qatar. It is not clear what rules and regulations will apply to the
establishment of companies in these investment free zones or indeed when it will be possible
There are various corporate entities that may be applicable to a developer to establish companies in them.
setting up a presence in Qatar. The most commonly used forms are limited
liability companies and branch offices, but there are also other options which
have certain advantages and could be reviewed in further detail at the time 4 Tax structuring
of any investment decision.
4.1 Corporate income tax
Maximum Minimum Foreign companies doing business in Qatar are subject to tax. Tax is imposed
Type of
foreign capital Requirements on foreign entities operating in Qatar, regardless of whether they operate
business
shareholding requirements
through a branch or in a joint venture with a locally registered company.
Branch of 100% – • Generally linked to carrying
foreign out a specific Government/ 4.2 Rates of corporate income tax
company quasi government contract
Corporate income is generally subject to tax at a standard rate of 10%.
Limited 49%* QAR 200,000
liability
company 4.3 Withholding taxes
Article 68 49%** – • Can be used for joint ventures Withholding taxes were introduced from 1 January 2010:
company where the Government is a
joint venture partner
Asset group Rate %
• High level of freedom in
respect of its articles of Royalties and technical fees (ie computer services, engineering services, 5
association designs, maintenance, consulting, legal, auditing and training in any these)
Qatar 100% – • Tax advantages Interest payments, directors’ fees brokerage, commission and payments 7
Foundation • Must have commitment to for any other services performed wholly or partly in Qatar (ie advertising,
Science and research and development intermediary services, recruitment, land transportation, customs clearance
Technology services, cleaning, event organisation and administration services)
• Probably not suitable for a
Company
transmission company
Free zone 100% – • Tax advantages

company*** • Limited to certain sectors
Qatar
4.4 Capital gains 5 Renewable policy and regulatory framework

Capital gains are aggregated with other income and are subject to tax at the Qatar currently does not have a formal renewable energy policy framework,
regular corporate income tax rate. However, capital gains on the disposal but the State has a long history of successful financing of conventional power
of real estate and securities that do not form part of the assets of a taxable projects, particularly in the oil and gas sector. As with any other jurisdiction,
activity and are derived by natural persons shall be tax-exempt. concrete projects with defined payment terms and ones that operate within
a clear and transparent regulatory framework should be able to access a
4.5 Dividends multitude of financing sources. KAHRAMAA’s stated goal of being a leading
global utility in the next few years also bodes well for creating an environment
Dividends are generally not taxed. Tax is assessed on the share of profits
for investment in the sector that is lower in risk.
applicable to foreign shareholders according to the financial statements of
a company, as adjusted for tax purposes. Income distributed from profits Qatar is expected to play an active role in the roof-top sector. Although there
that have already been subject to Qatar taxation will not be subject to is no formal Government policy on solar rooftop systems, we expect to see
double taxation in the hands of the recipient where these are included in the many showcase real estate projects adopt a solar component as we have seen
investment income of a taxpayer. Dividends paid by an entity that has a tax in several cases including the Qatar National Convention Centre and the QSTP.
exemption are tax-exempt in the hands of the recipient.
4.6 Supply and installation contracts 6 The IPP process

Profits from “supply only” contracts whereby the supply activity is performed IWPP projects are an established mechanism for adding power and water
from outside Qatar are exempt from tax because the supplier trades “with” capacity within Qatar. The IWPP programme began in the late 1990s and
but not “in” Qatar. most of the new capacity in the country, approximately 6.2 GW and
160 MIGD, has been added through the four projects procured under
Performing construction works with EPC contracts in Qatar may render the the IWPP programme.
revenues arising outside Qatar taxable unless the contract clearly includes
a split of revenue between work done inside and outside of Qatar. KAHRAMAA was established in 2000 as an integrated utility covering
generation, transmission and distribution functions.
4.7 Retention of final payments
Qatar has adopted the single buyer model for the IWPP/IPP programme,
All ministries, Government departments, public and semi-public establishments where KAHRAMAA is the single buyer and offtaker for all generation capacity
and companies are required to retain a final payment of 3% of the contract procured through the IWPP/IPP programme. Under the single buyer model,
value until a tax clearance from the tax administration is presented. the offtaker assumes the demand risk in the market and the project company
undertakes to provide 100% of the generating capacity and energy produced
Retention shall apply on payments made to Qatar temporary branches to the offtaker under a 25 year long-term contract. Another distinguishing
(ie branches whose registration is valid only for the duration of a particular feature of the model in Qatar is that it is typically based on a BOOT model,
contract) with a valid commercial registration and tax card in Qatar for a specific unlike the more prevalent BOO model in the region. The BOOT model means
project or contract. Non-resident entities with no commercial registration and that the project will be transferred to KAHRAMAA at the end of the PPA/PWPA
tax card in Qatar, shall be subject to withholding tax instead of retention. (ie 25 years).
Qatar
KAHRAMAA undertakes the competition process to select the private developer 8 How to secure development assets
consortium. International developers are invited to tender for the post of foreign
partner on new IWPPs, with the winning bidding consortium normally taking 8.1 Real estate
a 40% stake in a project company. The 60% stake in the project company is
generally granted to QEWC and QP. The selection of the developer is based There are significant restrictions on the ownership of land in Qatar by foreign
upon the proposal submitted reflecting their capability to finance, design, entities. Unless the project company is 100% Qatari owned, the company will
procure, construct, operate and maintain the power (and water) project. not be able to own land unless the land is granted to that company through
a specific order issued by His Highness the Emir through an “Emiri decree”.
KAHRAMAA has not procured any additional generating capacity beyond Even where an Emiri decree is granted, the right granted is likely to be a
Ras Laffan C in 2008 (which commenced commercial operations in 2011) usufruct right (a right to use a property and to enjoy the benefits of it) rather
although is expected to commence a tender for additional capacity in 2014. than a freehold right. A foreign entity can, however, take the benefit of a lease
although there are limitations on the length of term.
7 Ability to develop own sites Although foreign developers can take leases of property, leases are not
registrable at the MoJ (where the register of title is held). Leases are sometimes
Currently there are no formal rules or regulations that expressly apply to the
registrable with the authorities responsible for the area where industrial projects
manner in which a renewable energy project would be procured in Qatar.
are located.
Although some solar projects are being planned, no public confirmation has
been given as to how these will be procured and we have assumed that the A number of power and water projects in Qatar have been concluded on the
procurement will be carried out by KAHRAMAA. basis of the grant of an Emiri decree to the project company giving the project
company the right to use the site for the purposes of the project. We would
Unless specific rules and regulations are introduced to deal specifically
anticipate that renewable power would be treated in a similar way. Lenders
with the procurement of renewable energy projects, we anticipate that
may prefer the grant of an Emiri decree giving a usufruct right because this
the procurement process will be run on a similar basis to a power and
right is registrable on the title of the land.
water project or a water project. These are procured by KAHRAMAA
using a procurement strategy that complies with both the tender law and The land structure is an important part of the bankability aspects of the
KAHRAMAA’s internal tender regulations. For a substantial solar project, we project and, as such, would need to be established early on in the procurement
would anticipate a procurement being conducted on an open, international process. As a general rule, the procuring authority will have identified the site
basis and that project would be structured on a BOO or BOOT basis. where the project is to be constructed. The developer will need to carry out
due diligence over the proposed site in the usual way and should seek the
We anticipate that the land to be utilised in the project would be identified by
assistance of the procuring authority in understanding who owns the land that
KAHRAMAA and details of the site would be included in the documentation
has been allocated to the project and what the intended method of granting
issued as part of the tender process. Land used in a solar project would need
the land rights to the project company will be. Obtaining an Emiri decree
to be land zoned by the MMUP for industrial use. It is likely that any such land
can be a lengthy process and, if one is required, the developer should seek
would be owned by the Government or by a Government entity.
assurances from the procuring authority that the process has been commenced
as soon as is appropriate.
Qatar
8.2 Consents, licences and permits 9 Counterparties and governing law

KAHRAMAA has the sole right to carry out: The developer will have to enter into a number of contracts in order
• works for the connection of electric current and water to buildings to develop a renewable energy project in Qatar. Below we set out the
and facilities counterparty to each of the key contracts:
• any additions, amendments or alterations thereto

• all works for the connection or disconnection to the public network.
Real estate contract Selling landowner/landlord Qatar
We interpret the laws in this area to cover all power plants, including
Joint venture agreement QEWC/QP Qatar
renewable energy projects, given they would be connected to the Qatari
national electricity grid. PPA Likely to be KAHRAMAA Qatar
KAHRAMAA may license third parties to carry out any of the works listed EPC contract Third party contractor Negotiable
above, in accordance with the Electricity and Water Law, KAHRAMAA’s internal O&M contract Third party contractor Negotiable
regulations, and in compliance with the terms and conditions specified in the
licence itself. In short, a developer would require, at the very least, a licence to Finance documents Bank/finance provider Negotiable
set up and operate from KAHRAMAA under this law. This includes connections
to the grid. It is usual practice in Qatar for the main project documents to be governed by
the law of the State of Qatar. However, funding agreements often adopt English
Any industrial project in the GCC, including Qatar, requires a licence from the law although there is no reason why this should be the case where the project
MEI in the relevant country. Whilst there are no particular regulations applying is funded by Qatari banks and the funding is secured against assets in Qatar.
specifically to solar energy in Qatar, it is likely that an industrial licence will be There is no requirement in Qatar to use either conventional or Islamic funding
required for setting up a renewable energy power plant. structures and it is not usual to see funding structures that combine both.
These types of projects also usually require prior approval from the SCENR Under Qatari law, the agreement struck between the parties to a contract is
in Qatar. binding on them unless the subject matter is illegal or some other mandatory
provision of Qatari law applies. Therefore, the choice of law made by the parties
In addition, a building permit issued by the Planning Department of the
to a contract should be enforceable under Qatari law. However, the courts in
MMAA may be needed and an environmental approval (or letter of no
Qatar have wide discretion and power and may take jurisdiction over a dispute
objection) may be required from the MoE.
or apply Qatari law even though that runs contrary to the position agreed in
the contract.
The State of Qatar currently has an AA rating from Standard & Poor’s and the
Government of the State of Qatar has made its intention to secure an AAA rating
publicly known. In other power and water projects more generally, the MEF has
backed specific projects with a Government guarantee (guaranteeing liabilities
Qatar
under the PPA or equivalent agreement), ensuring their bankability. 11 Sukuk financing overview
We anticipate that a similar approach may be taken for large scale
renewable energy projects. Please see Appendix 1 for an overview of Sukuk financing in the Middle East.
10 Employment law overview

Labour laws in Qatar set out certain minimum requirements and standards
that cannot be waived or reduced by the employer and/or the employee.
Any provision which violates the law will be considered void – unless it is
better for the employee.
Employment contracts should be in Arabic and must include certain

specific elements.
There is no general minimum wage in Qatar although there are some

agreements at a Governmental level between the State of Qatar and other
Governments setting some recommended minimum wages for low paid
workers from those countries.
An employee cannot be dismissed part way through a fixed term contract

unless the employer pays him for the remainder of the contract. During an
indefinite term contract, an employee can be dismissed at any time. No reason
for termination is required but the termination must not be arbitrary. Qatari
law also provides for summary dismissal for gross misconduct.
There are no official quotas for the numbers of Qatari nationals employed by
private companies however the accepted “guideline” is that the private sector
should employ at least 10–15% Qatari nationals in a push for Qatarisation.
Of course, this depends on the ability to find appropriately qualified individuals
and many smaller private organisations operate with much smaller quantities
of Qatari employees.
Non-Qatari employees generally require sponsorship by their employers and it

is usual that employees can only work for their sponsoring employer. Likewise,
employees require the permission of their sponsor to exit the country, which
take the form of “exit permits”. Annual exit permits allowing for unlimited
exits can be arranged but are not common.
Chapter 4:
Saudi Arabia
ECRA Electricity and Co-generation Regulatory Authority
K.A.CARE King Abdullah City for Atomic and Renewable Energy
LMA Local Municipality Authority of the relevant Municipality
MCI Ministry of Commerce and Industry
MoA Ministry of Agriculture
MoI Ministry of Interior
MoL Ministry of Labour
MOMRA Ministry of Municipal and Rural Affairs
MOPM Ministry of Petroleum and Mineral Resources
MoT Ministry of Transportation
MWE Ministry of Water and Electricity
NGSA National Grid Saudi Arabia
NWC National Water Company
PME Presidency of Meteorology and Environment
SAGIA Saudi Arabian General Investment Authority
Saudi Aramco Saudi Arabian Oil Company
SEC Saudi Electricity Company
SEPC Sustainable Energy Procurement Company
Key terms used:

GIS Grid impact study
White Paper K.A.CARE draft white paper entitled: ‘Proposed Competitive
Procurement Process for the Renewable Energy Programme’
43
Saudi Arabia
1 Key drivers for renewable energy 3 Setting up a business

Globally, Saudi Arabia has the largest oil reserves and the fourth largest Set out below is a brief description of the types of legal structures available
natural gas reserves. Over 80% of the Government’s revenue is dependent on to a foreign company setting up business in Saudi Arabia:
oil revenues. As Saudi Arabia’s domestic consumption continues to rise, the
amount available for export will continue to reduce which could have a direct Maximum
Type of Minimum capital
and significant impact on Government revenues. foreign Requirements
business requirements
shareholding
Saudi Arabia has mandated K.A.CARE to deploy nuclear power and renewable
Branch of 100% SAR 500,000 • Set up for a specified number
energy in the Kingdom. K.A.CARE has recently unveiled ambitious plans to
foreign of years
develop 54 GW of renewable energy by 2032. A key focus of the plan is to
company • Scope limited to activities
develop local expertise and a local supply chain in renewable energy which
undertaken by parent
will create employment opportunities for its young and growing population.
company
In February 2013, K.A.CARE published its draft White Paper entitled ‘Proposed • Investment licence for
foreign shareholder
Competitive Procurement Process for the Renewable Energy Programme’.
The White Paper sets out in more detail the Kingdom’s renewable energy plans • Commercial registration
certificate
and the procurement process that will be implemented.
Limited 100% SAR 500,000 • Set up for a specified number
liability (75%**) (SAR of years
2 Key projects company* 20,000,000**) • Minimum of two
shareholders
The city of Mecca received bids earlier this year for a utility-scale plant with a
100 MW capacity. The King Abdullah Petroleum Studies and Research Center, • Investment licence for
foreign shareholder
built by Saudi Aramco, includes solar panels with a capacity of 3.5 MW.
Additionally, the solar facility at the King Abdullah University of Science and • Commercial registration
certificate
Technology has a capacity of 2 MW.
• “Industrial licence” required
from Saudi Arabian General
Investment Authority for
renewable projects
* Before incorporating a company in the Kingdom, the Foreign shareholder(s) must obtain
an investment licence from SAGIA and a commercial registration certificate from the MCI.
** Where the company undertakes trading activities, the maximum permitted shareholding
is 75% and the initial capital requirement is SAR 20,000,000.
Saudi Arabia
4 Tax structuring 4.4 Withholding tax

A Saudi resident entity or a permanent establishment of a non-resident are
4.1 Corporate income tax required to withhold tax from payments made to non-residents (including
Generally, companies are taxed at 20%. non-resident GCC nationals and entities) that do not have a legal registration
or a permanent establishment in Saudi Arabia. Tax is withheld at the
It is worth noting that non-Saudi partners in companies are subject to tax following rates:
rather than the actual companies themselves. For corporate income tax
purposes, non-Saudis do not include GCC citizens. Asset group Rate %
The share of profits attributable to interests owned by GCC nationals are Rent, payments made for technical and consulting services, payments 5
subject to Zakat (further explained below). The share of profits attributable for air tickets, payments for freight or marine shipping, payments for
to interests owned by non-GCC nationals and non-GCC entities in a company international telecommunications, dividends, interest and insurance or
or partnership are subject to income tax. reinsurance premiums
Remittance of post-tax profits of a branch office and undistributed profits 5

4.2 Capital gains attributable to an outgoing shareholder
In general, capital gains are treated as ordinary income and taxed at the Royalties and payments made to head office or an affiliated company 15
regular corporate tax rate. Capital gains tax is not applicable to a resident for services
Saudi shareholder. Management fees payments 15
For other services 15

4.3 Supply and installation contracts
Profits from “supply only” operations by non-residents to the Kingdom are
exempt from income tax because the non-resident supplier trades “with” 4.5 Zakat
but not “in” the Kingdom. The provision of associated services, such as Zakat is a religious levy on Saudis and companies that are wholly or partially
maintenance or training, would not be exempt. owned by Saudi or GCC nationals. It is levied at a flat rate of 2.5%, and is
chargeable on the total of the taxpayer’s capital resources and income that
are not invested in fixed assets. Complex rules apply to the calculation of
Zakat liabilities.
Saudi Arabia
5 Renewable policy and regulatory framework During the procurement process, SEC provides detailed instructions in terms
of financing of the project. Requirements as to the source of senior debt, the
By 2020, Saudi Arabia will become the largest solar market in the Middle East, minimum debt component of the project cost, the composition of committed
if not larger than all Middle Eastern markets combined. Many of the details facilities, the number of Saudi financing parties and the requirements under
related to K.A.CARE’s regulatory framework, as outlined in the White Paper, bond financing are detailed in the request for proposal along with clear
have yet to be fleshed out. The next step involves collecting feedback from instructions on what can constitute a non-compliant proposal.
hundreds of stakeholders and then unveiling an updated policy framework.
Although Saudi’s energy generation mix is almost wholly dominated by SEC and
fossil fuels, the Saudi market is still seen as having the potential to attract Expression RFP sent to developer
pre-qualified establish share of
investments in clean energy. The country hosts several major IPPs and IWPPs of interest
developers project company
delivered under long-term PPAs that are proven to be bankable and have
(usually 50%
already attracted billions of dollars of domestic and international investment. apiece)
The Kingdom’s recently announced target for renewable energy and the Request for Shortlisting
seeking of almost USD 109bn of investment to build a solar industry is one qualifications based on
(technical and levelised cost of
of the most expansive and ambitious plans in the world. electricity and
financial capabilities)
issued to interested RFP criteria
developers
6 The IPP process
In 2000, the Kingdom restructured the power sector through the
establishment of SEC whereby all the regional electricity companies were
brought together as a single entity, although there are plans to unbundle the As mentioned at the start of this chapter, K.A.CARE is in the process of
sector in the near future. A regulatory body, ECRA, was established along with finalising a programme for procuring up to 54 GW of renewable energy
other measures for improving the investment environment in order to attract over multiple competitive rounds. It is envisaged that an SEPC, a separate
private capital into IPP projects. standalone Government-guaranteed entity, will be responsible for
administering the procurement and executing and managing the power
The Kingdom commenced an IPP programme in 2007 to meet the huge purchase agreements. The proposal evaluation criteria will include price and
growth in demand from both the residential and industrial sectors and has non-price factors.
successfully procured a number of plants since that date.
SEC runs the procurement process to identify a developer which will typically
hold around 50% of shares in the project company, with SEC owning the
remainder. The developer’s responsibility includes the design, financing,
construction, commissioning, testing, ownership, operation and maintenance
of the IPP.
Saudi Arabia
7 Ability to develop own sites Once an appropriate portion of land has been identified, the developer must
thereafter ascertain who the owner of the land is, obtain approval of the land
The White Paper sets out the procurement process that will be implemented in owner and, where land belongs to the Government, prior consents of the
order to diversify the Kingdom’s energy mix and introduce renewable energy relevant authorities. This must be undertaken for all access rights necessary
as a major component of that energy mix. The White Paper provides details for to develop, construct and operate the project.
the first three procurement rounds, being an introductory round of 500–800
MW, a first round of 2,000–3,000 MW and a second round of 3,000–4,000 Provided that the requirements have been adhered to, there are four principal
MW. Further rounds will be announced thereafter. ways in which a foreign developer may try and secure their rights to land:
The Introductory Round will consists of five to seven projects at pre-packaged Conditional purchase • Full purchase price only paid after specific time period
sites identified by K.A.CARE that can be easily connected to the grid. It is
• Developer required to pay a non-refundable deposit
understood that these pre-packaged sites will be supplied with the required
• Termination/break clause
real estate rights needed by a project, along with the consents and permits
• Payment of full purchase price if land is adequate
required to build and operate and a grid connection.
• Landowner not able to negotiate or contract with any
Following the introductory round, developers will be permitted to source their third party
own sites, in which event they will be responsible for obtaining their own Conditional lease • Lease of land, including during due diligence period
development assets.
• Termination provisions (period of advance notice)
Unlike in other jurisdictions, the renewable energy projects envisaged by • Clause preventing landlord from terminating contract
the White Paper will be developed on a build-own-operate model by the • Landowner not able to negotiate or contract with any
developer, who will enter into a 20 year PPA with the SEPC. third party
Outright purchase • No option in place

8 How to secure development assets • Landowner free to contract with any third party during
due diligence period
8.1 Real estate Lease with right to • Lease for specific period of time
purchase • Right to purchase exercisable after a certain period
In order for a foreign developer to be able to secure land (whether through
the purchase or lease of the land), it must establish a legal business presence
in Saudi Arabia, adhere to certain requirements, then identify appropriate land
for the proposed project. Saudi land is zoned according to permissible uses.
One key challenge is the fact that it is very difficult to obtain approval from
the relevant LMA to change the permitted use of zoned land which has been
allocated for a different use.
Saudi Arabia
8.2 Security • PME
A bank interest can be: • NWC
• stated in writing on the title deed • LMA
• recorded in the contract • Saudi Aramco/MOPM (for land located in the Eastern Province
of Saudi Arabia).
• registered on the land itself in the name of bank as title holder until all
repayments have been made. Obtaining all of the required permits can be expected to take at least two to
four calendar months and it is recommended that the approvals are sought
8.3 Payment structure early in the development process.
It is possible to structure payments so that these are triggered by certain

8.5 Grid connection
milestones, or to otherwise defer part of the total payment until financial close.
Deferring the entire payment until financial close may not be enforceable Under the Saudi Grid Code, potential users must submit a request for
under Sharia law. interconnection to the transmission system provider, requesting it to perform
what is known as a GIS. This is required in respect of new grid connection or
8.4 Consents, licences and permits for the modification of an existing grid connection. The main Government
authority, which oversees all applications for interconnection and which grants
Developers who wish to construct and operate a self-sourced renewable grid connections in Saudi Arabia, is the NGSA. Developers will usually not
energy generating facility will require a number of approvals and consents. be able to formally apply for interconnection until they have been able to
It is understood that, once established, the SEPC website will provide a list successfully secure a PPA. This clearly will have to change for self-sourced sites.
of the main consents and approvals that will be required. However, some
of the key approvals will need to be obtained from the following: Following the acceptance of the interconnection offer, certain interconnection
costs will have to be incurred by the developer in order to ensure
• K.A.CARE
interconnection of the proposed project facility to the grid. There are
• Landowner for the lease or purchase essentially two categories of costs in respect of interconnection:
• MOMRA (i) the cost of the interconnecting facilities that physically connect the
• MoA proposed project site to the existing network
• MoT (ii) the cost of what are known as beyond the meter upgrades. These are
• ECRA upgrades to the existing transmission network that may be required as a
result of the proposed construction of the energy generating facility and
• Civil Defense Directorate of the MoI would not be borne by the developer.
• Saudi Telecom Company
• MWE
Saudi Arabia
9 Counterparties and governing law • All employees must be registered with the General Organisation for Social
Insurance and a contribution must be made in respect of each employee
A number of contracts will have to be entered into by the developer with (as a percentage of their salary).
various parties in order to develop a renewable energy project in the Kingdom.
• All employees are entitled to a period of not less than 21 days’ annual
Below we set out the counterparty to each of the key contracts:
leave, increased to not less than 30 days’ annual leave (not including
religious or other public holidays) after five consecutive years’ service.
Recently, the MoL introduced a minimum wage for Saudi employees of not
Real estate contract Selling landowner/landlord KSA
less than SAR 3,000 per calendar month. This is required to be paid to all Saudi
Grid connection agreement National Grid Saudi Arabia KSA national employees in order for the employer to be able to consider the Saudi
employee as a full Saudi employee for the purposes of the Nitaqat Saudisation
PPA SEPC KSA
programme. There is no minimum Saudi wage in respect of non-Saudi nationals.
Shareholders agreement SEPC/Public Investment Fund KSA
The White Paper sets out the proposed consequences of a successful bidder
employing fewer Saudi nationals than (i) stated in its bid and (ii) the industry
O&M contract Third party contractor Negotiable average.
Finance documents Bank/finance provider Negotiable, but

likely to be KSA if 11 Sukuk financing overview
a local bank
10 Employment law overview

There are certain key requirements with respect to the employment
of individuals in Saudi Arabia, as summarised below:
• All businesses must employ a specific minimum number of Saudi nationals.
The exact number is dependent upon the sector and the total number
of employees.
• Foreign nationals can only be employed if they have a residency permit
(known as an iqama) and a work permit.
• Foreign nationals must be employed under limited term contracts, whereas
Saudi nationals can be employed under either limited term or indefinite
term contracts.
Chapter 5:
United Arab
Emirates

ADRSB Regulatory and Supervision Bureau of Abu Dhabi
ADWEA Abu Dhabi Water and Electricity Authority
ADWEC Abu Dhabi Water and Electricity Corporation
DEWA Dubai Electricity and Water Authority
DSCE Dubai Supreme Council for Energy
DRSB Regulatory and Supervision Bureau of Dubai
Masdar Abu Dhabi Future Energy Company PJSC
MoL Ministry of Labour
TAQA Abu Dhabi National Energy Company PJSC
TRANSCO Abu Dhabi Transmission & Dispatch Company
UAE United Arab Emirates
Key terms used:

BOO Build-own-operate
IWPP Independent water and power producer
RFP Request for proposal
57
United Arab Emirates
1 Key drivers for renewable energy Dubai

The UAE is a federation of seven Emirates with the seventh largest oil and Dubai only has about 4% of the UAE’s fossil fuel reserves. It relies on imports
gas resources in the world. Despite this, it is also reliant upon imported gas of gas from Abu Dhabi and Qatar.
for the production of some of its electricity. Electricity demand in the UAE is
Under the Dubai Integrated Energy Strategy 2030, Dubai has announced plans
expected to grow at over 10% annually in the foreseeable future. This guide
to generate 1% of its total power supply from solar by 2020 and 5% by 2030.
focuses only on the Emirates of Abu Dhabi and Dubai given that these two
Emirates represent the majority of the land mass, population and ambitions for There are also several key initiatives in Dubai. The DSCE is considering options
renewable energy generation within the UAE. for project funding such as developing a clean energy fund. Dubai is also
considering the introduction of a feed-in tariff to drive investment in the
Abu Dhabi solar sector.
Approximately 94% of the UAE’s oil and natural gas reserves are situated in the
Emirate of Abu Dhabi. Electricity production comes predominantly from natural 2 Key projects
gas, some of which is imported from Qatar via Dolphin Energy’s pipeline.
Abu Dhabi
Much of the gas currently produced in the UAE is associated gas and therefore
linked to oil production. Another factor affecting gas production in Abu Dhabi To date, the development of solar projects has been driven by Masdar,
is that much of the non-associated gas is ‘sour’ or has a high sulphur content, a government owned entity responsible for advancing the development,
which requires increased extraction and processing costs. It is estimated that commercialisation and deployment of renewable energy solutions and
currently about a third of the gas produced in Abu Dhabi is also used to clean technologies. In the Emirate of Abu Dhabi, Masdar has developed its
enhance oil extraction. own 10 MW PV farm to provide electricity to Masdar City and has recently
commissioned the Shams 1 solar power project. This is a 100 MW CSP
Abu Dhabi is reconsidering its energy strategy and energy mix. The Abu Dhabi project based on the BOO model similar to that used by the Emirate in the
Government has announced its intention to generate 7% of its electricity from conventional power sector. The project company, which is 60% owned by
renewable sources by 2020, approximately 1.6 GW of renewable energy. Much Masdar, will sell energy to ADWEC under a long-term PPA. The project has
of this will come through competitive tenders, predominantly in the solar sector. received support from external lenders with a USD 600m loan for 22 years.
Dubai There are essentially four main options available for a foreign entity wishing
to do business in the UAE as per the table below.
As with Abu Dhabi, significant developments to date have been driven by the
state sector. DEWA has started construction on the Mohammed bin Rashid Al
Maximum
Maktoum solar park, which is expected to play a very significant role in the
Type of business foreign Requirements
introduction of solar-generated electricity in the Emirate. The park occupies shareholding
a site with the potential for 1 GW of solar generation. The park is expected
to reach a capacity of 1 GW by 2030, with both CSP and PV technologies Branch of foreign 100% • Must appoint UAE service agent
company • Conduct of business is limited to that of
expected to be used. The road map for achieving this target is to be developed
and feed-in tariffs are a possible consideration. Currently a 13 MW solar PV the parent and subject to authorisation
from relevant Emirate
plant funded by the DSCE is underway with operation scheduled in 2013.
Limited Liability 49% • Simplest form of corporate entity.
Company Capital not divided into shares
3 Setting up a business • Two partners. At least one manager must
be appointed
Companies are primarily governed by UAE federal law, although separate
regulations apply on an Emirate by Emirate basis and there are certain • No minimum capital threshold stipulated
exceptions for free zone and power producing companies. In particular, Joint Stock 49% • May be public or private
UAE federal law requires that at least 51% of a company must be owned by Company • Capital divided into shares. At least three
Emirati nationals. Whilst there has been much debate about relaxing this shareholders required
requirement it is unclear when or if this may happen. Under Abu Dhabi’s • Majority of the board and the Chairman
IWPP program, joint ventures are formed between foreign private companies must be UAE nationals
and the Abu Dhabi Government. 60% of the project company is owned by • Minimum capital AED 2 million (private)
the Government, although this is not a legal requirement. The privately- and AED 10 million (public joint stock
owned 40% will be subject to the mandatory 51% UAE-owned requirement. company)
In Dubai it was proposed that DEWA would own 51% of project companies
Free zone 100% • Subject to special legislation in the
participating in generation with the balance held by the private sector. It is company specific free zone, but forms of entity
unlikely that a foreign entity would be permitted to set up a company which available generally similar to those
is not compliant with UAE federal law on foreign ownership except in the mentioned above
context of a government-sponsored project for which a bespoke structure • Limited to activities within the free zone
is deemed necessary.
4 Tax structuring 4.2 Other taxes
4.1 Corporate income tax Tax Current position
Taxation is regulated at an Emirate level. Within Abu Dhabi and Dubai, in Withholding tax None
principle, all corporate entities carrying out trade or business in that Emirate Personal income tax None
are technically subject to tax. However in practice, corporate income tax
is only levied on the oil and gas and banking sectors. There are no general Capital gains Currently none, although for tax-paying entities capital
gains are taxed as part of business profits
exemptions in the law; this is merely how practice has evolved. As such, the
risk is always present that tax laws may be applied more generally. VAT Currently none, however this is currently subject to
discussions at a federal and GCC level
Companies and branches carrying on a trade or business in either Emirate shall
Social security None imposed on expatriates, but UAE/GCC nationals
be subject to income tax on such trade or business carried out in that Emirate
contribute to retirement/pension funds
as follows:
Property leasing Annual municipal fees may apply which may be passed
on to tenant
Taxable Income (AED) Rate %
Property sales In Dubai both the buyer and seller must each pay a
Lower boundary: Not exceeding:
registration fee of 1% of the value of the land. Only UAE
0 1,000,000 0 nationals have the right to buy in Abu Dhabi
1,000,000 2,000,000 10
2,000,000 3,000,000 20 5 Renewable policy and regulatory framework

3,000,000 4,000,000 30 From a renewable energy regulatory point of view, it is important to look at
each Emirate separately. Each Emirate has its own set of renewable energy
4,000,000 5,000,000 40
policies and challenges which need to be studied individually.
5,000,000 – 55
5.1 Abu Dhabi

In Abu Dhabi, the highly-publicised 7% renewable energy target by 2020
remains in place. However, how that 7% target, equivalent to 1,500 MW
of clean energy, will be achieved is not yet clear. Initially, it was understood
that Masdar would drive the entire procurement process. However, it is now
believed that the procurement of renewable energy will primarily fall under the
remit of ADWEA (with ADWEC as offtaker).
How ADWEA will proceed with its procurement strategy has not yet been 6 The IPP process
decided, but it is known that regulatory policies are currently being finalised.
As such, it is unlikely that new projects will be implemented until such policies 6.1 Abu Dhabi
are in place. For example, whilst Shams 1 has recently commenced operations,
the 100 MW Noor 1 PV project, initially tendered by Masdar in 2011, has Abu Dhabi has had a successful IWPP programme for the procurement of
been delayed due to debate as to the requirement to use a new PV technology conventional plants in place for a number of years. In 1998, ADWEA was
for 50% of the panels. At the time of publication the project still has not established with the authority (amongst other matters) to engage with the
been awarded. private sector for the production of power and water in the Emirate. Its
subsidiaries include ADWEC, which is responsible for the purchase and sale
5.2 Dubai of water and electricity and acts as the government offtaker for IWPPs, and
TRANSCO which transmits water and electricity from ADWEC to distribution
In January 2012, the Government of Dubai announced the launch of the companies. Since the IWPP programme commenced in Abu Dhabi, nine
Sheikh Mohammed Bin Rashid Solar Park. This initiative will see Dubai shift 5% transactions have been successfully completed with a cumulative power
of its electricity generation capacity to solar power by the year 2030. DEWA capacity creation of around 14 GW.
has already launched the first phase of this programme through the award of
a 13 MW ground-mounted PV system in October 2012 under an EPC model. Abu Dhabi follows a “single buyer model”, ie:
Subsequent rounds are expected to be larger in scale and procured under (a) the offtaker assumes the demand risk in the market; the project company
the IPP model. As with the first phase, DEWA will manage and govern the undertakes to provide 100% of the generating capacity and energy
entire process. produced to the offtaker under a long-term PPA
DEWA is known to be developing an ambitious rooftop policy and has indicated (b) the offtaker and the project company’s revenue streams are not directly
that a feed-in tariff model will be introduced, although the details have not linked to customer bill payments or subsidies
yet been finalised. The rooftop policy framework is expected to be launched (c) lenders look to the credit worthiness of the offtaker (as a single entity).
sometime in 2014. Once that happens, Dubai will become one of the most
active and dynamic solar rooftop markets in the Middle East. The sector is unbundled into functional entities which are regulated by an
independent regulator in Abu Dhabi, the ADRSB. All these entities remain
under Government control at this time. ADWEC, a regulated entity, has
the responsibility for developing forecasts of demand and also planning for
capacities that are required for meeting the demand.
The selection of the developer, typically as a consortium, is undertaken by 6.2 Dubai

ADWEA. ADWEA releases an RFP to the market which contains the relevant draft
Dubai has established the DSCE to provide direction to the energy sector,
project agreements in addition to functional specifications and instructions to
which has representation from various stakeholders involved in the energy
bidders. The selection process is designed to be a two stage process:
sector. The DSCE has pledged funding to renewable energy development
alongside public-private partnerships.
STAGE 1: Qualification • Fulfilment of minimum financial and capability criteria
DEWA is responsible for the supply of electricity within Dubai and hence would
STAGE 2: Technical • Compliant solutions to RFP requirements
be the offtaker in this Emirate. DEWA is based on an integrated utility model
• Operation and maintenance plans
with ownership of generation, transmission and distribution assets.
Financial • Cost basis of certain operating profiles
• Finance plan with commitment letters from lenders As with Abu Dhabi, an electricity and water sector regulator, the DRSB, has
also been established and is responsible for the development of an effective,
independent and transparent regulatory regime within the Emirate.
Following submission of proposals, the general stages of the process are:
To date, the Emirate of Dubai has procured its power and water plants on a
ADWEA/TAQA traditional basis (eg EPC) although in 2011, DEWA was given the authority to
Proposals Project company engage with the private sector for the development of IWPPs through joint
Negotiations
ADWEA
evaluated funders enter ventures. Dubai commenced an IWPP programme in 2010 with the 1500 MW
with preferred
under RFP into shareholder Hassayan IPP however, due to a negation of the need for additional capacity,
bidder
criteria agreement
this project was deferred by DEWA although the model is intended to be
utilised in the future.
PPA (or power

Preferred
ADWEC
ADWEA
and water
bidder
purchase
selected
agreement)
The project company must also secure a licence to operate from the ADRSB
and maintain this during the tenure of the PPA or power and water purchase
agreement. It is therefore a regulated entity throughout its operation.
The successful procurement of the Shams 1 project through the conventional

IWPP model lends itself to be repeated for other large scale renewable energy
projects in Abu Dhabi.
7 Ability to develop own sites 8 How to secure development assets

In Dubai, foreigners or foreign owned companies can only own land in certain
8.1 Securing land rights
designated areas, such areas being predominantly residential. Dubai has an
established system of title registration for completed properties and an interim In light of the above issues a lease is likely to be the most common means of
property register where off-plan sale contracts must be registered. Almost all securing land. We set out below some structures which are commonly utilised
property in Dubai now has a registered title. Citizens of other GCC member to secure land rights or exclusivity prior to a formal land arrangement being
states have land ownership rights akin to those of UAE nationals. entered into, and their potential application in the UAE:
For corporate entities, 100% local or GCC ownership composition is required

Options for lease • Not commonly used
for ownership of land outside of those areas in which foreign ownership is or sale • Not a registrable interest
permitted.
Break clause in lease • Termination provision exercisable after pre-determined
In Abu Dhabi, UAE nationals and companies wholly owned by UAE nationals period
may freely buy and sell residential, commercial, investment, and agricultural
land and buildings. Foreigners (non-UAE nationals and non-GCC nationals) are Memorandum of • More common form of exclusivity agreement
understanding • Deposit payable to landowner, with requirement to
given the right to own buildings in investment zones, but non-GCC nationals
may not own the underlying plots of land. Non-GCC nationals are allowed to sell/lease by a certain date
enjoy usufruct rights over the underlying land pursuant to agreements of up • Only valid for a defined term
to 99 years and musataha rights pursuant to agreements of up to 50 years. • Not a registrable interest
• No specific performance, only damages
Real estate transactions in Abu Dhabi must be registered in the Land Register
if they concern the creation, transfer or relinquishment of real or derivative Irrevocable power • Not valid in the UAE
of attorney
property rights. Failure to register renders the disposition void. This provision
also applies to lease agreements in excess of four years. In practice, few Escrow agreement • Purchase/lease amount held in escrow
registrations have been made in Abu Dhabi either inside or outside of the • Release to landowner when conditions fulfilled
investment areas. This is the same for long leases including musataha and • Release to developer if conditions not fulfilled
usufruct. In Abu Dhabi, there is no interim register for off-plan properties
as in Dubai. Checklist for entering • That the person purporting to lease the land owns title
into lease • Whether the lease can be registered
• That the purported use of the land is permitted and
appropriate approvals have been obtained
• Whether access to or easements in respect of the leased
and adjacent property are present, required or available
8.2 Security 8.4.2 Dubai
In Dubai, the holder of a usufruct or lease of between 10 and 99 years may DEWA has competence to own and operate power generating plants and to
mortgage the interest in the property for the term of the usufruct or lease. implement power generation projects in Dubai.
Only registered mortgages are recognised and mortgages can only be granted
There is not currently any precedent for private sector involvement in power
in respect of property interest that are capable of registration.
production in Dubai and the requirements for solar will become more certain
There is no specific mortgage law in Abu Dhabi, but mortgages are freely once the underlying regulations are issued.
available. Due to the paucity of registration of property interests both inside
and outside of the investment zones, registered mortgages tend to relate 8.4.3 Permits
to registered freehold titles owned by UAE nationals outside the investment
The schedule below sets out the key permits that are likely to be required for a
areas, although this is changing as more foreigners purchase property. An
renewable energy project and the entities responsible based on our experience
unregistered mortgage will not be enforceable as against the property or give
of the conventional power sector:
rise to any priority but will remain a mere contractual right.
Permit/Appeal Abu Dhabi Dubai

8.3 Payment structure
Transfer of title to land in the UAE will only take place once the entire price Commercial licence Department of Economic Department of Economic
Development or Free Zone Development or Free Zone
for the land is paid. Lease payments are typically made annually in advance.
Authority and others Authority and others
8.4 Consents, licences and permits Power generation ADEWA DEWA/DRSB

approval
8.4.1 Abu Dhabi
Power generation ADRSB DRSB
Upon registration of a branch office of a foreign entity, LLC or any other type licence
of entity, application must be submitted by the entity which will conduct the Environmental Environment Agency or Free Environment Department
activity (eg the foreign entity itself if using a branch). permit Zone Authority of the Dubai Municipality
or Free Zone Authority
Please note that the local authorities may require that the licenced entity take
a certain legal form/minimum capital. It may therefore be a requirement of Building permit Various Various
the Abu Dhabi authorities that the legal entity be a locally incorporated entity, Industrial licence Various and dependent on Various and dependent on
rather than a branch office. This would need to be investigated further in technology technology
specific cases. In the conventional power sector, joint venture companies have
taken the form of private joint stock companies.
At present the only entity with a licence to generate electricity by means of

a solar plant is Masdar, which has a self-supply licence for the development
of Masdar City and also exports excess capacity to the grid.
8.5 Grid 10 Employment law overview
As the electricity sector is regulated at the moment, grid connection is dealt UAE labour law is governed at a federal level, and has mandatory application
with in the PPA, the counterparty being ADWEC and DEWA in Abu Dhabi on any individual working within the UAE (outside of the Dubai International
and Dubai respectively. The expectation is that this will continue to be the Finance Centre). Every employee must:
mechanism for large scale projects, but for smaller developer initiated projects,
eg roof top solar, a different regulatory scheme may be established by the • be registered as an employee with the MoL (or the relevant free zone
relevant authorities. as applicable)
• hold work authorisation (labour card obtained by employer or free zone
ID card)
9 Counterparties and governing law
• have executed an employment contract in the prescribed form.
A number of contracts will have to be entered into by the developer with
various parties in order to develop a renewable energy project in the UAE. All foreign nationals (other than a national of a GCC member state) must be
Below we set out the likely counterparty to each of the key contracts based sponsored for work and residency visa purposes by the employing UAE entity.
on current regulatory framework:
Employers are under a general duty to engage a UAE national before
employing a foreign national. Certain roles are the preserve of UAE nationals
Contract Counterparties Governing law and quotas apply for certain sectors. There are also restrictions regarding the
Lease Landlord (ADWEA/DEWA) UAE termination of employment for UAE nationals.
PPA ADWEC/DEWA UAE There is currently no applicable minimum wage in the UAE. However, there
is increasing regulation with regard to promoting the employment of UAE
Shareholders Agreement Taqa/Masdar or another ADWEA UAE
controlled entity in Abu Dhabi/ nationals within the private sector and within specific sectors. In order for a
DEWA in Dubai UAE national to be counted towards the employing entity’s quota, the UAE
national must be paid a minimum salary in accordance with MoL guidance
from time to time. The regulations with regard to the employment of UAE
O&M contract Third party contractor Negotiable nationals do not apply in the free zones.
Finance documents Banks/finance provider Negotiable
11 Sukuk financing overview
Finance documents are usually governed by English law if finance is obtained Please see Appendix 1 for an overview of Sukuk financing in the Middle East.
from outside UAE, since it need not be from local banks. UAE allows both
Islamic and non-Islamic financing.
Appendix 1
Sukuk
financing
75
Appendix 1: Sukuk financing
1 Sukuk financing Sukuk are normally issued to:

• increase or diversify an investor base
1.1 Overview
• elevate credit profile in the market
Islamic finance consists of activities and practices that are consistent with the • soak up available liquidity
principles of Sharia and its practical application through the development of
Islamic economics. Adherence to Islamic law and ensuring fair play is at the • keep bank lines free to avoid tight liquidity in the future
core of Islamic finance. Sukuk are tradeable fixed income Islamic instruments, • lock in attractive credit spreads.
increasingly seen as equivalent to conventional bonds and are an integral
financing mechanism in this area. Certain considerations include:
• three years’ audited financial statements
Sukuk have not yet been used in the renewable energy market in the Middle
East, however there are precedents in the international market, such as a 250 • transparency in financial reporting
MW solar power plant under construction in Indonesia. • credit ratings (for international issuance)
Although Sukuk financing is not yet being used in the Middle East to fund • industry sector
renewable energy projects, a variety of conventional power projects in • investor demand.
the region are already being funded in this manner. Sukuk have grown in
popularity especially with the increased uncertainty in global lending markets. Sukuk provide access to a growing Islamic liquidity pool in addition to the
conventional investor base. Ijara (lease) and musharaka (partnership) structures
Regional power sector projects tend to have more stable and predictable are increasingly acceptable, both in the Middle East and other markets.
cash flows, typically coveted by Sukuk investors. More than 800 Sukuk at Conventional investors in Europe and the Far East are now more comfortable
a combined value of USD 65bn were issued between 2001 and 2012 for with Sukuk, as they consider it on a par with conventional bond issuance.
infrastructure projects, including power and utilities in Saudi Arabia and the Sukuk structures are now well established at both sovereign and supranational
United Arab Emirates. Many countries in this region are therefore studying the levels, with growing numbers of corporate issuances in the international
option of issuing Sukuk to finance renewable energy projects. Eurobond/144a market.
The Clean Energy Business Council of the Middle East and North Africa, The solar supply chain provides real opportunities for Sukuk. Different forms
the Climate Bonds Initiative and the Gulf Bond and Sukuk Association have of Sukuk could be used at specific stages in the solar project lifecycle. For
launched a Green Sukuk Working Group. This group aims to channel market example, construction could be financed by Istisna, whereby a contract is
expertise to develop leading practices and promote the issuance of Sukuk for formulated and a price is paid for goods that are manufactured later and
climate change solutions investments, such as renewable energy and clean delivered on a specified date. The relatively quick installation phase inherent in
tech projects. many solar projects, especially solar PV, means that an income stream can be
developed in a short timeframe. Once a project is completed, ijara could apply.
The World Bank is currently considering issuing its first ever “Green Sukuk”
Additionally, musharaka can be used where returns from the operation of a
to fund low-carbon development or environmental projects, with a variety
project can be distributed between the Sukuk issuer and the investors involved.
of potential issuers in the Middle East.
Appendix 1: Sukuk financing
1.2 What are the differences between Sukuk and Istisna is widely tried and tested, and often used to finance construction, so
conventional bonds? the documentation is fairly standard with general consensus among Sharia
scholars and boards. However, intricacies can exist within the scope of the
actual asset and its manufacture.
Sukuk Conventional
Sukuk imply ownership in the company The holder of any securities does not
1.3.2 Ijara
issuing the Sukuk incur damages or losses suffered by In Ijara, an SPV is formed to purchase assets from the obligor and then leased
the company. Typically, the rights of
back to the obligor against payment of rentals. Ijara can be structured as an
securities holders are not directly linked
amortising issue or as a bullet repayment at maturity.
to company assets
Each Sukuk unit represents ownership Securities represent a share in the

Ijara can only be used with fixed or real assets (such as land or office
of an underlying asset financing process buildings), and can only be used to sell existing assets. An underlying asset
pool should consist of unencumbered assets with a market value at least equal
Maturity of the Sukuk corresponds to the The term of the securities does not
to the Sukuk issue amount.
term of the underlying project or activity necessarily correspond to the term of
the underlying project Ijara Sukuk are also tried and tested, as all sovereign Sukuk issued to date
The underlying asset or project has to be The underlying asset or project can
have been based on the sale and leaseback structure. Documentation is fairly
Sharia compliant belong to any sector or industry standard with general consensus among most Sharia scholars and boards.
1.3.3 Musharaka
1.3 Key Sukuk types Musharaka offers partnerships in tangible assets (Shirkat-ul-Milk). An SPV is set
1.3.1 Istisna up which leases its share of the musharaka assets to the obliger for a period
equal to the Sukuk tenure. Return to Sukuk holders is made through periodic
With Istisna, one party promises to deliver a product according to certain rental payments. Profit sharing can be set on a pre-agreed ratio, but all losses
specifications, at an agreed time and at an agreed price. It allows for financing have to be borne on an equity participation basis. Principal redemptions can
to be paid in instalments before or after delivery of the asset as agreed be structured as either an amortising or as a bullet redemption at maturity.
between the parties. Istisna only applies to assets which are not in existence
and which need to be manufactured. The buyer can specify a maximum time Musharaka assets can be structured on existing unencumbered assets or on
period allowed after which it is not bound to accept the asset. Discounting of new assets. The proceeds of the Sukuk issue can be used to purchase new assets
an Istisna contract is not permitted, and contracts can be cancelled so long as which then form part of the musharaka asset pool. Where assets are encumbered
the manufacturing of the asset has not commenced. or charged in favour of existing financiers, the obliger has to arrange relevant
charge release documents prior to issuing the Sukuk. These remain in escrow
Applicable assets include any commodity or asset which needs to be
with legal counsel until the Sukuk are issued and proceeds are used to repay
manufactured, such as buildings, factories, aircraft or vessels. Istisna can
all existing debt.
be used to finance construction (including buildings, aircraft, and vessels),
agriculture, or capital expenditure. Musharaka are tried and tested and were widely accepted in MENA. However,
recently, scholars have increasingly viewed musharaka as equity-based structures.
With input from:
www.eversheds.com www.ey.com www.emiratessolar.org

©Eversheds LLP 2013. Eversheds LLP ©2013 EYGM Limited. All rights reserved.
is a limited liability partnership.
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Developing renewable

With input from:

Foreword 1 Welcome to this guide on developing renewable energy projects

Key bodies referred to:

Key terms used:

3 Setting up a business 4 Tax structuring

Maximum Minimum Insurance, telecommunications, stockbrokers, finance companies, 24%

Private 100% JOD 50,000 • Minimum of two

5 Renewable policy and regulatory framework 6 The IPP process

Jordan’s almost complete dependence on imported fossil fuels has significantly

In addition, the ERC announced in December 2012 the introduction of a

9 Counterparties and governing law 10 Employment law overview

Contracts should be in writing and in Arabic.

Key bodies referred to:

The legal aspects of this section have

1 Key drivers for renewable energy Maximum

4.1 Corporate taxes

Kuwaiti companies (even those with foreign ownership) and companies

8.1.2 Leasehold ownership

8.3 Payment structure 8.4.1 Planning consent

9 Counterparties and governing law 10 Employment law overview

Planning KM Kuwait 11 Sukuk financing overview

EPC contract Third party contractor Negotiable

O&M contract Third party contractor Negotiable

Finance Bank/finance provider Negotiable, but likely to

There is no statutory requirement for financing to be provided by local banks,

Key bodies referred to:

Key terms used:

1 Key drivers for renewable energy 2 Key projects

Free zone 100% – • Tax advantages

4.4 Capital gains 5 Renewable policy and regulatory framework

4.6 Supply and installation contracts 6 The IPP process

8.2 Consents, licences and permits 9 Counterparties and governing law

• any additions, amendments or alterations thereto

10 Employment law overview

Employment contracts should be in Arabic and must include certain

There is no general minimum wage in Qatar although there are some

An employee cannot be dismissed part way through a fixed term contract

Non-Qatari employees generally require sponsorship by their employers and it

Key terms used:

1 Key drivers for renewable energy 3 Setting up a business

4 Tax structuring 4.4 Withholding tax

Remittance of post-tax profits of a branch office and undistributed profits 5

For other services 15

Outright purchase • No option in place

8.2 Security • PME

A bank interest can be: • NWC

• stated in writing on the title deed • LMA

It is possible to structure payments so that these are triggered by certain

Finance documents Bank/finance provider Negotiable, but

10 Employment law overview

Key bodies referred to:

Key terms used:

1 Key drivers for renewable energy Dubai

4 Tax structuring 4.2 Other taxes

4.1 Corporate income tax Tax Current position

2,000,000 3,000,000 20 5 Renewable policy and regulatory framework

5.1 Abu Dhabi

The selection of the developer, typically as a consortium, is undertaken by 6.2 Dubai