Project Finance

2022

Contributing editor
Aled Davies

© Law Business Research 2021

Publisher
Tom Barnes

Project Finance
[email protected]

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2022
[email protected]

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Adam Sargent
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Published by
Law Business Research Ltd Contributing editor
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© Law Business Research 2021
 Contents

Global overview 3 Japan73

Aled Davis Naoaki Eguchi, Pierre Chiasson and Kosuke Suzuki
Milbank LLP Baker McKenzie

Covid-19: force majeure provisions in project contracts 6 Myanmar81

Aled Davies and Justen Fleming Khin Cho Kyi, Takeshi Mukawa and Nirmalan Amirthanesan
Milbank LLP Myanmar Legal MHM Limited

Angola9 Nepal89
Irina Neves Ferreira, João Francisco Cunha and Anjan Neupane
Frederico de Távora Pedro Neupane Law Associates
ALC Advogados
Portugal96
Australia17 Teresa Empis Falcão and Ana Luís de Sousa
Ben Farnsworth and Michael Ryan VdA
Allens
South Korea 103
China25 Michael Chang, Sang-Hyun Lee, Na Yu and Christina Gee
Charles Wu Shin & Kim
Gao Kai Law Firm
Switzerland112
Cyprus35 Thiemo Sturny and Roger Ammann
Stella Strati and Stylianos Trillides Walder Wyss Ltd
Patrikios Pavlou & Associates LLC
Taiwan119
Dominican Republic 42 James C C Huang, Maggie Huang and Colin C L Wu
Fabio J Guzmán Saladín, Alfredo A Guzmán Saladín Lee and Li Attorneys at Law
and Alberto Reyes Báez
Guzmán Ariza Thailand126
Jessada Sawatdipong, Sarunporn Chaianant and
India51 Suphachok Saengarun
Santosh Janakiram and Ruchira Shroff Chandler MHM Limited
Cyril Amarchand Mangaldas
United Kingdom 136
Indonesia59 Mark Richards, Tom Eldridge and Alexander Hadrill
Emir Nurmansyah, Ammalia P Putri and Serafina Muryanti Hayu P Bryan Cave Leighton Paisner LLP
ABNR
United States 152
Italy66 Armando Rivera Jacobo
Giovanni Scirocco White & Case LLP
Legance - Avvocati Associati

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South Korea
Michael Chang, Sang-Hyun Lee, Na Yu and Christina Gee
Shin & Kim

CREATING COLLATERAL SECURITY PACKAGES equivalent to the Registry Office’s keeping of the registry. The lenders
are able to establish a keun-mortgage on the concession right and the
Types of collateral keun-mortgage is registered with the government’s register.
1 What types of collateral and security interests are available?
Keun-mortgage on factory assets
The types of collateral and security interests are as follows: Various assets, including real estate, movables, lease rights and intel-
• keun-mortgage on real property; lectual property rights, among other rights, may be attached together
• keun-mortgage on concession rights; as a collective ‘factory asset’, and a new ownership right can be initially
• keun-mortgage on factory assets; established in relation to the factory asset (registration of the owner-
• real estate mortgage trust; ship right of the factory asset) and, thereafter, a keun-mortgage can
• yangdo-dambo in relation to movables; be established on this ownership right. Various assets can be jointly
• keun-pledge over shares; mortgaged and, as such, creditors may find this convenient.
• keun-pledge over bank accounts; Power plants, terminals and waste management facilities are also
• keun-pledge over insurances; and recognised as factories and the concept of the factory asset may also
• assignment of contractual rights (yangdo-dambo). be used in such projects. To preserve the ownership right, registra-
tion is required in advance with respect to a factory asset. In relation
In a keun-mortgage any existing lien would have a significant impact on to a registration officer’s acceptance of the application for registra-
the value of the security interest over the same collateral. In practice, tion for preservation of ownership right, a public notice that requests
it is unlikely that any existing lien would remain undiscovered during a a person entitled to the movables constituting the factory asset or a
due diligence exercise on the project which would be complete prior to creditor under attachment or injunction procedure such as provisional
execution of the relevant finance agreements. attachment to report its rights, must be published in the Official Gazette.
The reporting period is generally between one and three months (two
Collateral perfecting months on average). The public notice is required since a new owner-
2 How is a security interest in each type of collateral perfected ship right (the ownership right over the factory asset) is being created
and how is its priority established? Are any fees, taxes or by attaching various assets.
other charges payable to perfect a security interest and, Once the ownership right over the factory asset is created, a keun-
if so, are there lawful techniques to minimise them? May mortgage on the factory asset may be registered with the Registry
a corporate entity, in the capacity of agent or trustee, hold Office of the Supreme Court of Korea.
collateral on behalf of the project lenders as the secured
party? Is it necessary for the security agent and trustee to Real estate mortgage trust
hold any licences to hold or enforce such security? The ownership right is registered under the name of the trustee for the
purpose of entrustment of the collateral.
Keun-mortgage on real property The original trust agreement is filed with the registry and, as such,
A keun-mortgage is registered with the relevant Registry Office of the the lenders are listed in the registry as preferred security holders.
Supreme Court of Korea.
Yangdo-dambo in relation to movables
Keun-mortgage on concession right A transfer of possession is required to establish a security (in the form
In relation to a private investment project under the Act on Public- of a pledge) with respect to a movable. However, no physical delivery
Private Partnerships in Infrastructure (the PPP Act), by way of execution is necessary if a yangdo-dambo is being established on a movable. For
of a concession agreement between the government and the conces- example, the yangdo-dambo method is used with respect to a movable
sionaire, the concessionaire completes construction of the facilities and property, such as a wind turbine, which is not recognised as a building.
transfers its ownership to the government, and the concessionaire is Accordingly, a keun-mortgage cannot be established over a wind turbine
granted the concession right. as it is not real property. However, the yangdo-dambo method is useful
As the government retains the ownership, lenders cannot estab- in this context as the borrower must continue to operate it and, accord-
lish a mortgage on the relevant properties and this is an obstacle to ingly, the lender cannot take its possession.
obtaining successful project financing. To prevent this, the concession- To establish a yangdo-dambo over a movable, the disclosure proce-
aire is granted a concession right. The PPP Act treats the concession dure known as a ‘recognition method’ must be used to notify the public
right as a real property right under the Civil Act, and the govern- that a yangdo-dambo has been established. In practice, this notice is
ment maintains a register for the concession right granted, which is printed, laminated and attached to the movable.

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Keun-pledge in relation to the shares Formalities

Possession of the shares is transferred to the lenders. In practice, the A keun-mortgage that is established is registered in the register main-
security agent retains the share certificates. tained by the Registry of the Supreme Court of Korea and the registration
The name of each pledgee (as opposed to the security agent) is expense includes registration and licence tax, municipal education tax
recorded on the back of the share certificate. and the purchase of national housing bonds. Such expense is determined
The pledgee’s name and address are recorded in the shareholders’ based on the maximum amount of the secured obligation. The registra-
registry maintained by the issuer of the shares. tion expense cannot be deferred or reduced. However, national housing
The Act on Electronic Registration of Stocks, Bonds, Etc (the bonds are generally purchased and immediately sold off at a discount.
Electronic Registration Act) has been in effect since September 2019. If the maximum amount of the secured obligation is large, a real estate
Under the Electronic Registration Act, a keun-pledge can be created mortgage trust is often used. However, it should be noted that the trust
over electronically registered stock by registering the establishment of scheme still incurs fees for the trustee, though it is generally cheaper
that keun-pledge and the pledgee’s name in the pledgor’s electronic than the costs involved in establishing a keun-mortgage. Generally
registration account, pursuant to an application by the pledgor. While speaking, lenders prefer a keun-mortgage over a trust scheme.
the Electronic Registration Act requires certain securities, including A keun-pledge created over electronically registered stock will be
listed stock and the stock of Investment Companies (as defined under registered in the pledgor’s electronic registration account.
the Financial Investment Services and Capital Market Act), to be regis- Assignments of contractual rights (yangdo-dambo) and keun-
tered electronically, project companies that are established to develop a pledges are not registered and do not incur any expenses.
project seldom register their stock electronically in practice.
How is its priority established?
Keun-pledge in relation to a bank account A subordinated lender may have a subordinated security right (eg, a
Establishment of a keun-pledge on the account is notified to the account second priority keun-mortgage). A real estate mortgage trust may also
bank and the account bank must provide its consent with a fixed have such subordinated security right (eg, a second priority beneficial
date stamp. interest). A second priority keun-pledge may be established in favour of
The account passbook is retained by the lenders. In practice, the a subordinated lender over the borrower’s right to request the return
account passbook is held by the security agent. of share certificates, deposit certificate (passbook) or insurance policy.
In the case of yangdo-dambo, a second priority security right can be
Keun-pledge in relation to insurance established so that a security manager treats a senior lender and a
Establishment of a keun-pledge on the insurance is notified to the insur- subordinated lender with a different level of priority.
ance company and the insurance company must provide its consent Subordination by contract is a frequently used mechanism. If there
affixed with a fixed date stamp. is a senior loan and a subordinated loan, a separate intercreditor agree-
The insurance policy is retained by the lenders. In practice, the ment may be executed or creditors make an agreement on common
insurance policy is held by the security agent. terms. This intercreditor agreement or agreement on common terms
It is recorded in the insurance policy that a keun-pledge has been is honoured by a rehabilitation or bankruptcy court under the Debtor
established on the insurance and the name of each pledgee (as opposed Rehabilitation and Bankruptcy Act.
to the security agent) is also recorded. One of the major issues relating to an intercreditor agreement is
whether subordinated creditors would be permitted to participate in the
Assignment of contractual right (yangdo-dambo) decision-making process of creditors. The creditors’ agreement also
Assignment of contractual right must be notified to the counterparty to includes provisions relating to:
the contract (eg, a construction company under an engineering, procure- • the order of application of amounts repaid by borrower or proceeds
ment and construction (EPC) contract or a government authority under from foreclosure or insurance;
a concession agreement) and the other party must provide consent • declaration of acceleration by a subordinated creditor; and
affixed with a fixed date stamp. • conditions on amending a subordinated loan agreement, etc.
The counterparty will consent to the lenders replacing the role of
the borrower if a default is triggered and the lenders have enforced the Structural subordination is a frequently used M&A financing transaction
assignment of contractual right. On an additional note, the consenting in Korea, although it is not used often in project financing transac-
party may defer its exercise of termination right after an event of default tions. In most Korean project financing transactions, the borrower is
has been triggered to allow the lenders to cure the default. In particular, the project company, and does not comprise numerous entities. That
if a cause of termination set forth in the relevant contract subject to the said, a structural subordination is possible for project financing and can
assignment of contractual right (eg, EPC contract) has been triggered, be enforced by a court. For instance, if a lender provided a loan to a
the consenting party may notify the security agent that a cause of termi- parent company and another lender provided a loan to a subsidiary of
nation has been triggered, but nevertheless refrain from terminating the parent company, a creditor of the subsidiary would have priority
the contract for, say, three months, and allow the lenders a remedy over any of its shareholders (ie, the parent company) with respect to
period of three months. In this instance, the lenders will pledge that the operating income of the subsidiary. Therefore, the parent company
they will jointly undertake the project company’s obligations. would be subordinated to the creditor of the subsidiary with respect
With respect to the consent noted above, if the counterparty to the operating income of the subsidiary, meaning that the rights of
refuses to provide such consent despite the borrower making reason- the lender of the parent company would be structurally subordinated to
able efforts to obtain consent (for example, if Korea Gas Corporation those of the lender of the subsidiary.
(KOGAS) is the off-taker under a gas purchase agreement for a liquified One of the principles underlining the Civil Act is that of ‘subordinate
natural gas (LNG)-fired power plant, KOGAS often declines to provide nature’. According to this principle, a security right may only exist subject
such consent), if the underlying contract does not have any restriction to the existence of the relevant secured obligations, and a creditor must
on the granting of a security or assignment, in practice only notice of the be the secured party; any creation of a security right in favour of a third
creation of the assignment over contractual rights needs to be provided. party that is not a creditor is invalid. Accordingly, it is not permissible to
create a security right in favour of an agent or trustee that is not a lender.

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While security agents are always involved in project finance trans- Keun-pledge interests over deposits and yangdo-dambo over
actions in Korea, the security agent does not become a secured party agreements are not separately disclosed. However, as noted above,
because of the above principles, and secured parties are always the in completing the perfection steps, although any existing lien would
same as the lenders. For example, for the creation of a keun-mortgage, have a significant impact on the value of the security interest over the
if there are 10 lenders, all of the 10 lenders must be registered as same collateral, in practice, it is unlikely that any existing lien would
creditors and secured parties in the keun-mortgage register. The secu- remain undiscovered during a due diligence exercise on the project,
rity agent conducts only administrative tasks, etc, relating to security which would be complete prior to execution of the relevant finance
management, execution of security and the distribution of the proceeds agreements.
acquired through the enforcement of security.
For a real estate mortgage trust, the ownership of the mortgaged Enforcing collateral rights
property will be transferred to the trustee for the purpose of establishing 4 Outside the context of a bankruptcy proceeding, what steps
the security interest, and a lender will become a beneficiary of the mort- should a project lender take to enforce its rights as a secured
gage trust. In the mortgage register, the trustee will be described as the party over the collateral?
owner of the mortgaged property and a lender will not be described as
a creditor or a secured party in the register, although it will be specified If a default under a loan agreement has been triggered, a lender may
as a preferred beneficiary as the trust ledger for the mortgage trust is enforce its security interest. The lender may apply to the court for a
described together in the register. Importantly, as the real estate mort- voluntary auction based on the security documents and the process
gage trust is not registered as a right granted by way of security but as a may take one to six months depending upon the bidder’s status and
transfer of ownership, the ‘principle of subordinate nature’ is irrelevant. bidding price. There is no need to obtain a court’s judgment or order as
However, because the trust ledger for a mortgage trust must be specified the application for a voluntary auction to the court is based on the secu-
in the mortgage register, registration of a modification is required each rity documents. However, in practice, application for a voluntary auction
time a preferred beneficiary is changed, meaning that it is difficult to enjoy to the court is uncommon. A lender generally forecloses or appropriates
the benefit of parallel debts. This is another reason why in practice lenders the relevant asset. In other words, the lender will acquire or sell the
prefer a traditional keun-mortgage over a real estate mortgage trust. assets to a third party.
In the event:
• a security agent becomes a creditor owing to an assignment of Enforcing collateral rights following bankruptcy
receivables by a lender to the security agent and a security right is 5 How does a bankruptcy proceeding in respect of the project
established in favour of the security agent; company affect the ability of a project lender to enforce its
• an acceleration event occurs; and rights as a secured party over the collateral? Are there any
• the security agent enforces the security right and distributes the preference periods, clawback rights or other preferential
proceeds to the lenders, benefits similar to that of a parallel debt creditors’ rights with respect to the collateral? What entities
structure can be enjoyed. are excluded from bankruptcy proceedings and what
legislation applies to them? What processes other than court
In such instance, the lenders would only have rights to receivables proceedings are available to seize the assets of the project
against the security agent without any security rights. Accordingly, company in an enforcement?
lenders rarely adopt the aforementioned parallel debt structure through
the creation of rights to receivables against a security agent. In the event that a bankruptcy procedure or a rehabilitation procedure
has been commenced, a lender may not directly exercise its rights and
Assuring absence of liens should file its outstanding claim to the bankruptcy court or the reha-
3 How can a creditor assure itself as to the absence of liens bilitation court and comply with the court’s procedure. However, any
with priority to the creditor’s lien? secured claims and status of claims with senior priority under an inter-
creditor arrangement is recognised by the court.
There are liens that exist under law that may have priority (eg, worker’s Any expenses related to the implementation of a bankruptcy or
lien or lien for unpaid employee severances, etc). These are similar to rehabilitation procedure, fees for the receiver or bankruptcy admin-
those found in many jurisdictions. The following is subject to these liens. istrator, certain taxes, wages, severance pay and compensation for
In the case of a security that requires registration such as a keun- industrial accidents are given preferential treatment by the court.
mortgage and a real estate mortgage trust, the list of security interests A foreign person or entity will have identical rights to those of a
created on the secured asset is specified in the security register. domestic person or entity in a bankruptcy procedure.
As a share, a keun-pledge is created by delivering share certificates,
and the creditor is able to confirm that there is no other senior keun- FOREIGN EXCHANGE AND WITHHOLDING TAX ISSUES
pledge over the pledged shares by receiving and reviewing the relevant
share certificates. That confirmation can be made more conveniently by Restrictions, controls, fees and taxes
reviewing the relevant electronic registration account in respect of a 6 What are the restrictions, controls, fees, taxes or other
keun-pledge created over electronically registered stock. charges on foreign currency exchange?
In the case of a keun-pledge of insurance, the list of keun-pledge
interests created over the insurance policies is specified on the rele- If a foreign person or entity acquires 10 per cent or more of the shares
vant insurance policy in practice, meaning that the establishment of or equity in a domestic project company by investing 100 million won
any other senior keun-pledge over the relevant insurance policy can be or greater, such foreign person or entity must comply with the relevant
confirmed by reviewing it. foreign investment reporting and registration requirements under the
In the case of a yangdo-dambo in relation to movables, the practice Foreign Investment Promotions Act (FIPA). Separately, if a domestic
is to publish the establishment of a security interest by the disclosure project company loans any amount from or provides any collateral to
procedure known as a ‘recognition method’, although it is not as binding an offshore lender, the project company must comply with the reporting
as registration. requirements in respect of the relevant foreign exchange transaction.

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If a domestic person or entity acquires 10 per cent or more of the FOREIGN INVESTMENT ISSUES
shares or equity in a foreign project company (or acquires less than
10 per cent of the shares or equity in a foreign project company but Investment restrictions
enters into a construction or equipment building agreement or sends 10 What restrictions, fees and taxes exist on foreign investment
an executive on secondment to the foreign project company), such in or ownership of a project and related companies? Do the
domestic person or entity must comply with the relevant reporting restrictions also apply to foreign investors or creditors in the
requirements under the Foreign Exchange Transaction Law. Separately, event of foreclosure on the project and related companies?
if a domestic parent company guarantees its foreign subsidiary project Are there any bilateral investment treaties with key nation
company’s loan or provides collateral to a lender in respect of the loan, states or other international treaties that may afford relief
the domestic parent company must comply with the reporting require- from such restrictions? Would such activities require
ments in respect of such foreign exchange transaction. registration with any government authority?
Currency exchange fees may differ depending on the relevant
foreign exchange bank’s policy. There is no fee or tax imposed on foreign investment.
There are no special treaties only applicable to project finance.
Investment returns However, if a free trade treaty has been executed between Korea and
7 What are the restrictions, controls, fees and taxes on a specific country (eg, Chile, Peru, the United States and the member
remittances of investment returns (dividends and capital) states of the EU), a large project must involve an international bidding
or payments of principal, interest or premiums on loans or process and the bidding must be implemented in a fair manner to the
bonds to parties in other jurisdictions? international bid participants.

The FIPA guarantees remittance of income, proceeds, principal, interest, Insurance restrictions
fees and consideration by foreign investors to foreign countries as long 11 What restrictions, fees and taxes exist on insurance policies
as it is in accordance with the investment agreement between the parties over project assets provided or guaranteed by foreign
and the report filed with the Ministry of Trade, Industry and Energy by insurance companies? May such policies be payable to
the foreign investor for its foreign direct investment. For remittance, foreign secured creditors?
prior verification by a foreign exchange bank is required.
Foreign direct investment made pursuant to the FIPA is not Under the Insurance Business Act, an insurance business licence
subject to possible suspension of foreign exchange transactions that must first be obtained to sell insurance policies in Korea and, as such,
may be taken by the Ministry of Economy and Finance pursuant to the a foreign insurer without a Korean insurance business licence cannot
Foreign Exchange Transactions Law in case of wars, natural calamities, sell insurance policies in Korea. Generally, the process used is where
conflict of arms or critical and sudden changes in domestic or interna- a Korean insurance company that has obtained an insurance business
tional economic circumstances. Foreign investors and foreign-invested licence in Korea sells insurance products to the project company and
companies are treated equally as Korean citizens or Korean companies the Korean insurance company buys reinsurance from a foreign insur-
with respect to their business operations. ance company. In fact, Korean insurance companies sell insurance
products in Korea by using the terms of the insurance policies of foreign
Foreign earnings insurance companies as they are.
8 Must project companies repatriate foreign earnings? If so, There is no discrimination per se in relation to a foreign lender
must they be converted to local currency and what further being paid with insurance proceeds. There is no restriction on overseas
restrictions exist over their use? remittance of insurance proceeds. However, this may be subject to a
prior foreign exchange report being filed with the relevant authorities.
In principle, foreign earnings generated from any dividend payout or
liquidation of a foreign project company must be repatriated. If, however, Worker restrictions
the residual assets or funds are used for capital transactions recog- 12 What restrictions exist on bringing in foreign workers,
nised under the Regulations on Foreign Exchange Transactions, the technicians or executives to work on a project?
domestic project company may operate such assets or funds overseas
without having them returned to Korea after completing the reporting of A foreign worker coming to Korea must obtain a residence visa under
the relevant capital transactions. Any returned amount is not required the Immigration Control Act. A foreign investor or foreign workers of an
to be in Korean won. invested company (officer, senior manager, specialist, etc) may obtain
a company investment visa. A company investment visa may be issued
9 May project companies establish and maintain foreign to specialised foreign workers who intend to work in management,
currency accounts in other jurisdictions and locally? administration, manufacturing, technology or R&D of a foreign-invested
company. A foreigner may reside in Korea to the extent permitted under
Project companies can establish: the relevant visa. A person who wishes to stay 91 or more days in Korea
• local foreign currency accounts with local foreign exchange banks must be registered as a foreigner, which requires submission of an
and deposit foreign currency subject to completion of the relevant application for registration together with other requisite documents
foreign exchange reporting requirements; and to the head of the Immigration Office or a branch having jurisdiction
• foreign currency accounts offshore subject to completion of the over the foreigner’s residence within 90 days from his or her entry into
relevant foreign currency transaction reporting requirements with Korea. Any change in the foreigner’s registered information, visa status
the designated foreign exchange banks or the Bank of Korea. or period, workplace or residential location must also be reported under
the Immigration Control Act.

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Equipment restrictions Renewable Energy, the Petroleum and Alternative Fuel Business Act,
13 What restrictions exist on the importation of project the Urban Gas Business Act, the Wastes Control Act, etc) is custom-
equipment? arily observed for such businesses. In Korea, businesses subject to the
PPP Act, in practice, are called PPP businesses, infra-businesses or SOC
There is no special restriction related to the import of equipment. businesses, and businesses subject to specific legislation are referred
to by reference to the specific type of business, such as power business,
Nationalisation laws energy business or waste treatment business. Effectively, however, such
14 What laws exist regarding the nationalisation or terminologies are not definite and can be used interchangeably. The
expropriation of project companies and assets? Are any forms Private Investment Policy Department of the Ministry of Economy and
of investment specially protected (from nationalisation or Finance is the competent authority for the PPP Act and its Enforcement
expropriation)? Decree. The Public and Private Infrastructure Investment Management
Center of the Korea Development Institute supports PPP businesses
In the absence of extreme circumstances (eg, war), there is no law that conducted by the government (the Ministry of Land, Infrastructure and
provides for any forcible nationalisation or expropriation of business Transport, the Ministry of Oceans and Fisheries, etc) and municipalities
facilities. by conducting research and advising on their projects.
Obviously, if a concession agreement is terminated, the agreement The Basic Plans and Detailed Methods are, from a legal perspec-
may require the concessionaire to return its concession rights to the tive, an internal document of the relevant government agency. However,
government. in practice, they carry similar weight to the law.
The Ministry of Trade, Industry and Energy is responsible for power
FISCAL TREATMENT OF FOREIGN INVESTMENT and energy projects, whereas the Ministry of Environment is respon-
sible for waste treatment projects.
Incentives However, the government is not involved in setting the terms
15 What tax incentives or other incentives are provided and conditions of project financing deals, nor is there a requirement to
preferentially to foreign investors or creditors? What taxes report project financing deals to the government or obtain its consent
apply to foreign investments, loans, mortgages or other or approval.
security documents, either for the purposes of effectiveness For PPP projects, the government is able to affect the terms of
or registration? project financing through the concession agreement it enters into with
a concessionaire.
Interest on foreign investment in a local company is exempt from indi- As for power, energy or waste treatment projects, the terms and
vidual income tax and corporate income tax pursuant to the Special Tax conditions of the relevant project financing would be affected by the
Treatment Control Law (the STTCL), provided that the foreign invest- relevant permits and licences, the priority of funding, the power price,
ment is ‘foreign currency denominated bonds issued outside of Korea’ REC terms, the level of monopoly over gas revenues, etc.
under the STTCL. If not exempt under the STTCL, the rate of individual
income tax rate or the corporate tax rate applicable to interest is REGULATION OF NATURAL RESOURCES
currently 15.4 per cent (Korean won-denominated bond) or 22 per cent
(loan), which is inclusive of local income tax. However, the withholding Titles
tax rate applicable to the interest (15.4 per cent or 22 per cent) may be 17 Who has title to natural resources? What rights may private
reduced or exempted by an applicable tax treaty between Korea and the parties acquire to these resources and what obligations does
country of residence of the beneficial owner of the interest. To obtain a the holder have? May foreign parties acquire such rights?
reduced tax rate or a tax exemption under the applicable tax treaty, a
beneficial owner of interest should submit an application for entitlement Under the Constitution and the Mining Industry Act, no individual may
to a preferential tax rate or an application for exemption to the party excavate and own any unexcavated minerals (including oil and natural
liable for the withholding. gas) without first being granted a mining right from the government.
As such, a private person or a corporation, regardless of nationality
GOVERNMENT AUTHORITIES (including the rightful owner of the respective land where the minerals
are located), is prohibited from excavating and owning the minerals in
Relevant authorities the absence of a mining right.
16 What are the relevant government agencies or departments A foreigner may be issued with a mining right if any of the condi-
with authority over projects in the typical project sectors? tions below have been met under the Mining Industry Act:
What is the nature and extent of their authority? What is the • where the home jurisdiction of a foreigner allows the Korean
history of state ownership in these sectors? national to have the right to mine, under the same conditions as
the national of the foreigner’s home jurisdiction;
In relation to project financing involving businesses relating to roads, • where Korea allows a foreigner to have the right to mine, and the
bridges, tunnels, railways (including subways and light rails), harbours, home jurisdiction of the foreigner allows the Korean national to
airports, schools, boarding houses and sewage facilities, it is estab- have the right to mine under the same condition as the national of
lished practice to implement projects according to the PPP Act. the foreigner’s home jurisdiction; or
On the other hand, private capital raising for power plants (coal, • where the right to mine is permitted by a treaty or its equivalent.
LNG, combined heat and power, wind, solar, fuel cells, biomass, etc),
oil terminals, LNG terminals and waste treatment facilities is not, in Under the Mining Industry Act, the government of Korea has exclu-
practice, conducted in accordance with the PPP Act. Instead, legislation sive mining rights in relation to oil and natural gas and therefore no
applicable to a particular sector of business (the Electric Power Source foreigner can be granted mining rights for oil and natural gas.
Development Promotion Act, the Integrated Energy Supply Act, the Act
on the Promotion of the Development, Use and Diffusion of New and

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Royalties and taxes • such award was finally and conclusively given by an arbitral
18 What royalties and taxes are payable on the extraction of tribunal having valid jurisdiction in accordance with Korean laws or
natural resources, and are they revenue- or profit-based? international treaties;
• the party against whom such award was rendered was served with
There are no royalties or taxes imposed on the extraction of minerals or process (other than by publication or a similar method) in sufficient
other natural resources under the Mining Industry Act. time to enable such party to prepare its defence, in conformity with
the laws of the arbitral tribunal rendered the award or responded
Export restrictions to the proceeding without being served with process;
19 What restrictions, fees or taxes exist on the export of natural • recognition of such award is not contrary to the public policy of
resources? Korea; and
• awards of the arbitral tribunal of Korea are accorded recip-
There are no restrictions, fees or taxes imposed on the export of rocal treatment under the laws of the arbitral tribunal that
minerals or natural resources. rendered such award; or
• awards of the arbitral tribunal of Korea in the country of the
LEGAL ISSUES OF GENERAL APPLICATION arbitral tribunal that rendered such award are not treated in a
manner that is highly prejudicial to their recognition and their
Government permission treatment is substantially the same as the treatment by the
20 What government approvals are required for typical project Korean court of such award in material respect.
finance transactions? What fees and other charges apply?
Law governing agreements
There is no requirement to report project financing deals to the govern- 23 Which jurisdiction’s law typically governs project agreements?
ment or to obtain its consent or approval, nor is there a requirement to Which jurisdiction’s law typically governs financing
pay certain fees to the government. agreements? Which matters are governed by domestic law?
For PPP projects, changes in investment ratios frequently occur
along with refinancing at the end of the construction phase and the For projects in Korea, the governing law for project agreements and the
start of the operation phase. It is common for the concessionaire’s financing agreements is Korean law. There are instances where there
shareholders to change at this point. In such cases, the government, may be an offshore financing component. The governing law of offshore
the concessionaire, investors and lenders must agree on the terms and financing is usually English law.
conditions of the overall restructuring. It is mandatory that the conces-
sion agreement with the government be amended to reflect the changes Submission to foreign jurisdiction
in the investment ratios, and often the government is perceived to be 24 Is a submission to a foreign jurisdiction and a waiver of
in a superior position in negotiation, as such amendment is subject immunity effective and enforceable?
to the government’s approval. This is why, in practice, the process of
obtaining the government’s consent is similar to receiving its approval Submission by the parties to the jurisdiction of the foreign court under
or a permit. a project contract or financing agreement is, as a matter of contract law,
duly recognised and enforced by Korean courts, provided that submis-
Registration of financing sion to the jurisdiction of the foreign court by the Korean party is deemed
21 Must any of the financing or project documents be registered to be valid and binding under the laws of the foreign jurisdiction.
or filed with any government authority or otherwise comply Waiver of immunity is recognised and enforceable in Korea. In other
with legal formalities to be valid or enforceable? words, a claim for immunity from the court’s jurisdiction cannot be made.

There is no such requirement, as the government is merely a party ENVIRONMENTAL, HEALTH AND SAFETY LAWS
to the concession agreement and is not directly involved with project
or finance agreements (to avoid being directly liable for the rele- Applicable regulations
vant project). 25 What laws or regulations apply to typical project sectors?
What regulatory bodies administer those laws?
Arbitration awards
22 How are international arbitration contractual provisions With respect to environmental issues, the Environmental Impact
and awards recognised by local courts? Is the jurisdiction a Assessment Act requires government agencies to assess the environ-
member of the ICSID Convention or other prominent dispute mental impact at the government development planning stage to reflect
resolution conventions? Are any types of disputes not environmental issues in their project plans, and also requires any
arbitrable? Are any types of disputes subject to automatic sponsor to conduct an environmental impact assessment. The relevant
domestic arbitration? government agency must consult with the Minister of Environment
regarding the environmental impact assessment before granting a
In the event that an arbitral award is obtained from a foreign arbitral licence or approval for the project. The Minister of Environment may
tribunal, it will be recognised by the Korean courts and enforceable also request improvements or adjustment to the environmental impact
against the Korean party in Korean courts without re-examination of assessment or the project plan.
the merits, provided that the recognition and enforcement of the award With respect to safety issues, industrial accident compensation
may be refused by a Korean court where (i) the award is governed by insurance is required for all businesses or business sites as a general
the New York Convention and does not satisfy the conditions for recog- rule in accordance with the Industrial Accident Compensation Insurance
nition and enforcement as set forth in article V, or (ii) the award is not Act, and under the industrial accident compensation insurance employers
governed by the New York Convention and does not satisfy the following must pay an insurance premium to cover their employees. If an employee
conditions: has suffered an injury, sickness, disability or dies, insurance proceeds

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are paid out to such employee in the form of medical care expenses, For build-transfer-operate PPP projects, ownership of infra-
shutdown benefits, disablement allowance or benefit to the surviving structure reverts to the government once construction is complete.
next of kin. The Ministry of Employment and Labour oversees the indus- Afterwards, the government grants the concessionaire concession
trial accident compensation insurance scheme in Korea. rights. However, for BTL financing, ownership of infrastructure reverts
In addition, the draft Bill on Punishment for Serious Accidents, etc. to the government once construction is complete. In both schemes,
(the Serious Accidents Act) was passed in January 2021 and will be ownership is transferred to the government. The difference, however,
implemented in January 2022. According to the Serious Accidents Act, is that the concessionaire is first granted the management and opera-
in the event of a major industrial accident or a major civil disaster, if the tion right, and the concessionaire leases the relevant infrastructure
accident occurs because the employer and the manager in charge of to the government. After the government grants the concessionaire
management fail to fulfil their obligations to ensure health and safety, concession rights, the concessionaire leases the infrastructure to the
they may be subject to serious criminal punishment and may be liable government, which makes lease payments to the concessionaire. BTL
for punitive damages. Due to the nature of the Serious Accidents Act, financing is slightly different structurally in this regard.
it is jointly managed by several related government ministries, such
as the Ministry of Justice, the Ministry of Environment, the Ministry of PUBLIC-PRIVATE PARTNERSHIP LEGISLATION
Employment and Labor, the Ministry of Trade, Industry and Energy and
the Fair Trade Commission. Applicable legislation
27 Has PPP-enabling legislation been enacted and, if so, at what
PROJECT COMPANIES level of government and is the legislation industry-specific?

Principal business structures The central PPP enabling legislation is as follows:

26 What are the principal business structures of project • the PPP Act;
companies? What are the principal sources of financing • the Enforcement Decree on the Act on Public-Private Partnerships
available to project companies? in Infrastructure;
• Basic Plans on Public-Private Partnerships (the Basic Plans); and
Concessionaires are joint stock companies established under the • Detailed Methods on Refinancing published by the Public
Commercial Code. Under the Commercial Code, shareholders of joint Investment Management Centre of the Korea Development
stock companies have limited liability, and laws on procedures regarding Institute (the Detailed Methods).
formation, operations, corporate governance, dissolution and liquidation,
bankruptcy and rehabilitation, etc, are clearly established. There is suffi- Under the PPP Act, ‘infrastructure’ means fundamental facilities that
cient accumulation of relevant precedents, which means that parties serve as the foundation of production, increase the efficiency of such
have the advantage of managing legal relationships among themselves. facilities, and accommodate the convenience of users and the lives of
In Korea, unincorporated joint ventures are rarely used for project the public.
financing transactions. Such infrastructure is divided into three categories. One is not obli-
Project financing vehicles (PFVs) – complete paper joint stock gated to be subject to the PPP Act when conducting an infrastructure
companies that do not have employees or full-time directors and which business. However, the established customary practice when private
receive tax benefits pursuant to the Corporate Tax Act – are frequently capital is to be raised for a project involving roads, bridges, tunnels, rail-
used for project financing in real estate development projects. However, ways, harbours, airports, schools, boarding houses and sewage works
these types of PFVs are not used in PPP projects or power, energy or is to do so in accordance with the provisions of the PPP Act.
waste treatment projects, as the concessionaires involved in these There is no industry-specific legislation with respect to each type
projects are required to have full-time directors and employees. of PPP project.
Construction investors and operations investors invest by acquiring
common shares. Generally, financial investors provide capital through PPP – LIMITATIONS
a combination of acquiring preferred shares and providing mezzanine
loans. Banks, insurance companies and pension funds provide senior Legal limitations
loans as senior lenders and sometimes simultaneously participate in 28 What, if any, are the practical and legal limitations on PPP
mezzanine lending. Depending on the situation, these financial institu- transactions?
tions indirectly invest in funds as beneficiaries, and these funds are also
senior lenders, mezzanine lenders and preferred shareholders. At times, There are no special limitations on the use of a PPP scheme by the
concessionaires issue public company bonds, but such issues are not government authority.
frequent as concessionaires are typically new entities and do not have However, the PPP Act provides the eligible project types for a PPP
sufficient credit rating to back up such bonds. project, and the selection of a project company shall be made by one
For large domestic projects, the Korea Development Bank often of two procedures, depending on whether a government selects a PPP
provides financing. However, the Korea Export-Import Bank and project or a private company proposes a project to the government. With
the Korea Trade Insurance Corporation do not provide financing for respect to the former, the government makes a public announcement
domestic projects. Foreign development banks, the export credit agen- of a project plan and initiates a bidding process, receives and evalu-
cies and mandated lead arrangers rarely provide financing for domestic ates the project plan from the bidders, and selects a preferred bidder
projects in Korea. that is ultimately designated as a concessionaire by way of executing
There are cases in which lenders of the concessionaire use struc- a concession agreement. However, when a private company proposes
tured financing by securitising their loans. a draft project to the government and the government deems such a
PPP financing is as described above. Private finance initiative project appropriate, and, if the government does not select another
financing is similar to build-transfer-lease (BTL) (mainly schools, school bidder (after soliciting further bids), the private company may become
boarding houses, military residences, sewage facilities, etc) financing of a concessionaire.
PPP projects in Korea, and is the same as the above.

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PPP – TRANSACTIONS

Significant transactions
29 What have been the most significant PPP transactions
completed to date in your jurisdiction?

The following transactions have been completed:

• 5.6 trillion won project financing of Gangnueung Coal Fired Power
Plant (1,040MW × 2 units);
Michael Chang
[email protected]
• 4.8 trillion won project financing of Samcheok Power Plant
(1,050MW × 2 units) to be built at the site of a retired coal mine; Sang-Hyun Lee
• 2.22 trillion won project financing of Seoul Metropolitan Area [email protected]
Express Railway A Line, which connects Paju (Gyeonggi-do Na Yu
province), Seoul Station, Samsung-dong of Seoul and Dongtan [email protected]
(Gyeonggi-do province);
Christina Gee
• 4.22 trillion won project financing of Airport Railroad Express, a
[email protected]
public-private partnership project;
• 2.4 trillion won project financing of Seoul Ring Expressway Project,
a public-private partnership project; 23rd Floor, D-Tower (D2)
• build-transfer-lease project of Seoul National University of Science 17 Jongno 3-gil, Jongno-gu
and Technology’s on-campus residence halls; Seoul 03155
• project financing of the construction of MICE-sports infrastructure Korea
Tel: +82 2 316 4114
in the Jamsil area led by the Korea International Trade Association;
Fax: +82 2 756 6226
• 5.624 trillion project financing of the Busan Circular Motorway
www.shinkim.com
(Mandeok–Centum);
• project financing of the Dongbuk Light Rail Transit; and
• project financing of phases 2–3 of the Port of Busan New Port.
providing emergency operation funds to exporters, importers and
UPDATE & TRENDS companies that operate foreign businesses, which have been impacted
by covid-19.
Key developments of the past year
30 In addition to the above, are there any emerging trends or Performance of public contracts
‘hot topics’ in project finance in your jurisdiction? The Ministry of Strategy and Finance, in its Guidelines for the
Performance of Public Contracts During the covid-19 Pandemic, released
To overcome the economic crisis brought about by covid-19 and further on 12 February 2020 to public agencies, allows agencies to temporarily
plan a new future for Korea, the government announced the Korean suspend construction or other contracted services if they determine
New Deal Comprehensive Plan in July 2020. The Korean New Deal that continuing such construction or services will place substantial
Comprehensive Plan is comprised of the Digital New Deal and the Green difficulties on the parties resulting from confirmed or possible cases of
New Deal. It plans to create 1.9 million jobs by 2025 by investing 160 tril- covid-19, while extending the contract term and increasing the contract
lion won, including 114.1 trillion won of national expenditure. The main price accordingly. Even in the case that the relevant agency does not
project of the Digital New Deal is the digitisation of SOC and the main suspend services, if delays are directly or indirectly caused by covid-19,
project of the Green New Deal is the establishment of a foundation for the agency is required to waive any liquidated damages for delay and
the widespread use of new and renewable energy. The government is proactively consider increasing the contract price.
proposing various plans to revitalise the PPP business, centring on the
Korean New Deal Comprehensive Plan. National and local tax support
The National Tax Services, through its direct authority or based on appli-
Coronavirus cations by businesses, is providing tax support for taxpayers who have
31 What emergency legislation, relief programmes and other suffered damage due to covid-19, such as confirmed patients, those in
initiatives specific to your practice area has your state quarantine, places where confirmed cases have occurred, workplaces
implemented to address the pandemic? Have any existing near returning Korean residents, and small and medium-sized enter-
government programmes, laws or regulations been amended prises trading with China, including the extension of submission or
to address these concerns? What best practices are advisable payment deadlines and deferment (or suspension) of collection, disposi-
for clients? tion on defaults and tax investigations.

The Korean government has implemented the following policies to Employment maintenance support fund
support businesses impacted by the covid-19 pandemic. The aim is to fund part of an employer’s benefit payments to employees
if the employer decides to maintain employees while suspending
Financial support to companies operations or having employees take a leave of absence, provided
The government has increased financial support to companies (in that the employer meets certain other requirements. The Ministry
particular, small to mid-sized companies) by expanding credit and of Employment and Labor announced that from 26 April 2021, it will
guarantee support, purchasing corporate bonds through the Securities increase the employment maintenance subsidy support ratio until the
Market Stabilisation Fund and providing support for the issuance end of June 2021 for business owners who take a leave of absence or
of P-CBOs in response to covid-19. In addition, the government is leave of employment in accordance with the collective restriction and

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prohibition order due to covid-19 and for business owners who operate
a business at risk.

Interpretation of force majeure provisions

The Ministry of Land, Infrastructure and Transport announced on 28
February 2020 that covid-19 constitutes an event that causes substantial
difficulty in the performance of standard public construction contracts
due to force majeure caused by a pandemic. However, whether covid-19
constitutes a force majeure event should be determined based on the
specific effect of covid-19 on each individual contract and other factors
including the parties’ efforts to mitigate the effects of covid-19.

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