Interview with Schoenherr's Alexandra Doytchinova and Stefana Tsekova on the 'CEELM Deal of the Year' in Bulgaria

CEELM: First, congratulations on winning the Deal of the Year Award in Bulgaria!

Doytchinova: Thank you! We are particularly proud because it is the third year in a row that a transaction on which Schoenherr Sofia has advised has won the CEE Legal Deal of the Year for Bulgaria.

We appreciate having been in charge of this deal which is one of the largest acquisitions in Bulgaria in 2019/20. It is also the biggest renewables deal in Bulgaria for the past decade, reaching a record value in the RES sector. The deal took almost 12 months to close due to a complex (re-)financing of the project financing. The COVID-19 pandemic struck shortly after the deal was signed, so the teams on all ends in several jurisdictions moved to home office at the peak of the project and the authorities in relevant jurisdictions were not or hardly accessible. We managed to maneuver through these challenges. The successful closing of the deal and the refinancing in this environment is an even greater success for all stakeholders and their advisors.

CEELM: Can you describe the deal for us and Schoenherr's role in making it happen?

Doytchinova: We were advising on the buy side, including the standard workflows as legal due diligence, negotiations, contract drafting, and merger clearance. What was challenging and, at the same time, exciting was the additional workstreams such as the assistance with the W&I underwriting process, obtaining certain regulatory approvals from the energy regulator, and the refinancing of ACWA's existing multi-million facilities. We teamed up with our Vienna office, set up, negotiated, and implemented a complex structure to make the acquisition of two targets and one of the first-ever commercial refinancing of facilities granted by the International Finance Corporation (IFC) and the US International Development Finance Corporation (DFC) happen simultaneously and seamlessly. 

CEELM: How did you land the mandate and what do you believe it was about your team that got it for you?

Tsekova: We have significant experience in renewables gained during the first wave of development of RES projects in Bulgaria and in the region as a whole. We have acted for all stakeholders – for developers, for investors, for the financing institutions, and even for the European Commission on reports for the status of implementation of the RES Directive into local legislation. This allowed us to get a very close view of all legal aspects of RES projects and be familiar with the potential risks and particularities of the local market. Our expertise is well-known on the market and our specific experience in RES transactions and projects definitely was a decisive factor.

Doytchinova: The Enery team also knew us from previous projects in the region. They saw the acquisition of ACWA Power CF Karad PV Park as a milestone acquisition and a cornerstone plant in Enery's portfolio. They were seeking a trusted, experienced, and dedicated advisor and knew we will tick all those boxes.

CEELM: What were the most complex aspects of the deal from a legal perspective?

Doytchinova: Certainly the simultaneous acquisition, acquisition financing, and refinancing of the existing project financing. Furthermore, there was a lot of pioneering to be done on this deal. This seems to be one of the very few refinancings of an IFC and/or DFC loan. It also seems to be the first renewable project in CEE/SEE financed by a bonds issue.

CEELM: In contrast, what, in your opinion, went particularly smoothly and what do you believe contributed to it?

Doytchinova: Our client's team was lean and committed. We had the executives on speed dial, they were reachable 24/7 and have set up internal systems to enable prompt decision making. But this deal could not have happened even within these 12 months had it not been for the reasonable and efficient collaboration among counsels. It was CMS Sofia on the other side of the table in the transaction, Wolf Theiss (Vienna and Sofia) on the financing, and Allen & Overy (New York) and Spasov & Bratanov on the refinancing. We know the local teams well, trust each other's expertise and assessment which facilitated a very structured and practical approach. All teams literally puled on the same string to close the deal with this challenging structure in this challenging environment.

CEELM: Why do you believe the judges voted for this deal over the others?
Doytchinova: I think it is less the size of the deal which is indeed significant for the Bulgarian market and the energy sector but more the complexity of the topics and the structure. I think the judges recognized that we have elaborated a structure which, while really out-of-the-box, at the end considered all parties' interests to a sufficient extent to give them comfort to proceed with the transaction.

CEELM: Can we expect more similar renewable deals in Bulgaria in the near future? Why/why not?

Tsekova: Yes. We see an increased interest and a kind of revival of RES projects in Bulgaria and in the region. We believe the second wave of RES projects is coming. Investors are interested in both greenfield and brownfield projects. Despite the fact that there is no feed-in tariff or other support mechanisms for new high-scale projects (above 500 Kilowatts) and that the long term PPA with a guaranteed premium for existing projects will expire in the next few years, the development of the technologies and the drop of the price for the equipment will make it commercially viable to develop a RES project and sell the electricity produced by the latter on a commercial basis without a support scheme.

Further, the European Green Deal and the EU policy set ambitious targets and Bulgaria, being an EU member state, will need to follow. In order to secure its contribution to the overall EU aim of 32% share of renewable energy from the gross-end consumption by 2030, Bulgaria has set a national target of 27.09%. In terms of real figures, this means that the net installed capacity of renewable energy in Bulgaria is expected to increase by more than 2,600 Megawatts between 2020 and 2030, allocated as follows: 2,174 Megawatts from solar power plants, 249 Megawatts from wind power plants, and 222 Megawatts from biomass power plants.

Although new high-scale RES projects have to be planned and developed such that their operations are economically feasible in a normal market environment without counting on any state support schemes, the Bulgarian government is considering introducing certain incentives. Currently, it is envisaged that new RES producers with energy sites commissioned after January 1, 2021, will benefit from a release from their obligation to pay the compulsory contribution to the Electricity System Security Fund. Such contributions currently amount to 5% of the annual revenues from the electricity produced by the respective energy site. Further, the production of electricity from RES will be encouraged through the unification of the guarantees of origin with the European System of Energy Certificates and the possibility for their trade on the European market. For this purpose, the Bulgarian Sustainable Energy Development Agency will join the Association of Issuing Bodies (AIB). Another new measure envisaged by the Bulgarian government is the establishment of a special administrative unit that will coordinate and assist the investors in the process of issuance of the various permits, which are required for the development, construction, and commissioning of the renewable energy site. There are also other opportunities for optimisation such as the laying of a direct connection line to a customer site and so save on certain mandatory fees otherwise due, or developing a RES project in an industrial park and providing independent supply to all facilities located in it, etc. There are a lot of opportunities to be explored in this field and we are positive that this will facilitate the revival of the sector.

authors: Alexandra Doytchinova and Stefana Tsekova
This Article was originally published in Issue 8.7 of the CEE Legal Matters Magazine.