Introduction
So far, the international convention on the international investment is basically about procedural rules, such as investment dispute settlement, investment guarantee for international investment rules lack of unified substantive problems, and thus solve the problem of international investment law conflict solution to still need to use made by law. International investment with foreign investors, foreign investment, and many other foreign element, the contact law in different countries, how to solve the problem of the applicable law is related to the stability of the international investment relationship and the protection of international investment and management (Stephen, 2005), therefore, it is necessary to discuss. This article through to "Mr Haks’ investment" case analysis, to reveal the legal issues involved in the cross-border m&a, at the same time warning entrepreneurs in the problems that should be paid attention to in cross-border m&a.
Background of electric power investment
Before analysis the case, first of all to understand the background of electric power investment. Electric power project investment, operation cycle is long, the political risk tends to become the biggest risk to the electric power enterprise overseas investment. Such as southeast Asia countries political instability, frequent change of government, under the influence of domestic political strength, have occurred this government decided not approved for the previous government ; The collection of foreign investment projects in some countries as state-owned, foreign no compensation or give little compensation, caused huge losses to foreign investors. In the 1990s , the Indonesian government will western businesses in the country more than 10 plants, all of the construction of the western countries enterprise loss serious; In addition, war, terrorism and political violence events such as the production run of overseas projects and personnel security caused serious influence, Myanmar's Karachi state local armed conflict with government forces in 2011 business investment leads to a power station were forced to shut down, causing huge economic losses(Zuzana Irsova, 2011).
In order to protect their own interests, the greater Mekong subversion governments by adjusting the tax and fee increases, even a law, to squeeze the foreign capital enterprise profit space; To protect the rights and interests of their citizens, Laos, Myanmar and other countries have regulations, foreign companies in the country is to develop the local electric power project, must be to hire a certain percentage of local employees, Vietnam also have to employ a foreign employee, must be in accordance with the provisions of a certain proportion to hire several Vietnamese workers; Kazakhstan's foreign employees have strict rules in the work for a long time, in addition to a shortage of some technical professional, many foreign workers is difficult to achieve long-term work visa; While the developed countries such as the United States and Australia is through investment restrictions will be shut out of foreign policy, chinchilla's Rio failure, Lanzhou buying Australian coal assets failed is an example.
Overseas power project investment risk refers to the external environment and their own reasons caused power project investment effects and benefits such as the possibility of deviating from the expected effect. Investment risks mainly exist in the development period and construction period of the project.
The investment risk in the development period mainly investment decision-making risk(Slaughter And May, 2012). Because investors to the project host country's political, economic, legal, cultural, taxes and other know clearly than domestic investment environment, conditions for the construction of the project itself such as geology, meteorology, deep understanding of the transport conditions, and most of the domestic design institute all have the urge to expand their business, to project, and by domestic electric power design technology, business thinking inertia influence, make the project reconnaissance design is rational, can lead to technical scheme is not reasonable, the project investment estimate charging thoughtless, appear less quantity, underestimate the engineering unit price, financial evaluation of project cost, expenses, taxes and other assumption and the actual situation serious deviation, make the important basis of project investment decision-making - the project feasibility study report do not tally with the actual situation, lead to project investment decision-making errors.
Investment risk in construction mainly is risk. First of all, outside the power project construction period is longer than the domestic general, in the process of engineering construction, is likely to occur when building materials costs more, the price of lead to rising cost of project construction. Secondly, as a result of foreign electric power project is located in the remote, some southeast Asian countries undeveloped infrastructure, project geological condition may occur in the process of the construction of major change, need to increase the quantities, lead to rising cost of project construction and installation engineering. Third, since most current power projects overseas equipment, international multimedia transport distance is far, and poor transport conditions in underdeveloped countries, may result in construction transportation cost increase(Gabriella Chiesa, 2008). Fourth, as a result of, may lead to the construction labor increase. Fifth, outside the accidental factors on power project is more, improper use plan investment funds, fund and the progress of the mismatch, may lead to idle capital, the construction period of increased interest payments. Sixth, because of the less developed countries power project construction equipment, construction and other important contracts are signed with the domestic suppliers, how to pricing in RMB, and the foreign currency is likely to be foreign currency of project financing, and project engineering spending currency mismatch, when the RMB to foreign currency appreciation, pay more foreign currency, can lead to independent reserve funds overruns, under the status of the yuan, the risk deserves special attention. Also may cause the project construction investment beyond the budget execution, local labor costs and most overseas power projects with host governments signed the concession agreement (CA) , budget execution stipulated in the agreement, super may lead to breach of contract damages. Investment exceeds the probable risks of financial consequences is the project investment cost, project economic efficiency drops, shall bear the liability for compensation.
Case analysis
Mr Haks has a proven track record in building and operating electricity generating facilities. Mr Haks company and B the governments and power holding company (EPHC) the same negotiations. At the same time, the two sides also discuss power purchase agreement (PPA). After about six months of negotiations, A power station agreement (PSA) for the two sides agreed to all three parties signed the PSA and concessions in 30 years was awarded Mr Haks. According to the PPA , EPHC will be a power, pick the receiver station began to produce. PPA is 20 years, and ten years at the discretion of the Mr Haks options. The PPA contains offer arbitration to settle the terms of trade law committee,
Mr Haks team, therefore, not only have experience, technology, capital, technology and experience and project design, construction, financing, and operation. Due to the project company need to undertake the design, construction, financing, and operation and so on almost all of the work, an experienced, skilled, money in the consortium is not only easy to pass through the qualification examination of the government, also easy to win the franchise, in agreement bidding procurement procedures, even more so.
Each project has risks, the key is how to share the risk. The project company, the smaller the risk, the easier it is to attract the creditor's rights investment. Through turn-key contract, give construction group, the design and construction risk transfer and the performance guarantee to guarantee them. Through coal supply contract, the fuel supply risk borne by the supplier. Through the power purchase contracts, most business risks (such as electricity demand, currency fluctuations and inflation) by Mr Haks. And the supplier is responsible for the obligations by country B and B countries to support the letter way to guarantee. The operation of the power plant maintenance is by running the service contract by Mr Haks company, its performance by Mr Haks guarantee responsibility.
Through their assets, Mr Haks company obtain investment income 1.7 billion yuan, in view of the electric power industry investment, long construction period, investment time stable characteristics, Mr Haks company submitted to the ministry of finance approval, 1.7 billion yuan investment income amortized according to not more than five years, according to this, Mr Haks company transfer shidongkou no.2 factory produced in 1997 fiscal year investment returns, according to the annual the proceeds as generated from the power plant under normal operation conditions very running project income adjustment shall be the basis of the calculation.
Mr Haks acquisition features:
1. The acquirers have strategic vision, strong, with solid strength to achieve its strategic objective.
2. In the same horizontal acquisition.
Mr Haks company as old company, which is considerable strength and background, should belong to the showdown between the horizontal acquisition in the same industry.
3. The purchase amount is large, purchase behavior.
Officially signed a purchase agreement from both sides, program specification, but in the acquisition, both sides agreed to their own purposes, can say, this is a "no losers acquisition" or a "win-win".
5. Supported by the government
Tell it like it is, the government also plays a great role in economic activity. As in the above materials described in the background of Mr Haks company and B government to negotiate to get this project. However, it must be noted that the acquisition from beginning to end is a market-oriented assets reorganization. Government departments of the fuzzy function of intervention is to not any administrative orders, only to coordinate all aspects of the relationship, promote restructuring work effectively in a relatively short time. From market forces pushed the assets reorganization to land a leading role, is expected to pass the micro level on the optimal allocation of resources to implement the macro level of optimal allocation of resources. But if the two do not match the target leading, asset restructuring is dominated by the government should give way to market-based assets reorganization.
International investment law conflict
International investment law conflict refers to the same international investment relationship or investment disputes due to the relevant legal provisions of the state involved, from the conflict and the applicable law. The method in the field of international investment law are rather complicated, but in summary there are two broad categories, namely because of investment contract between the parties and the conflict of laws and investment contracts outside of the conflict of laws. Because of the investment contract between the parties and the conflict of laws including around the issue of conflict of laws and the contract of effectiveness on the issue of conflict of laws(Borovkova Svetlana, 2006). The former main parties contracting ability of conflict of laws, contract effectiveness form of conflict of laws, combined with the essence of the effectiveness of the conflict of laws, the contract of the time and place of conflict of laws, etc. The latter such as capital output and capital importers laws often on the consequences of the contract fails to perform the debt contract, to eliminate conditions, the relationship between the rights and obligations of the parties and invalid contract, have different rules of conflict of laws. In addition, the interpretation of the contract, together with the modification, suspension, and the abolition of, is in essence belongs to the work force of the contract, the relevant legal provisions of the state is not the same, the conflict of laws in the hard to avoid.
And investment compared to the applicable law of contract, the contract of controversial debate more intense of applicable law, mainly includes the following situations:
(1) treatment of foreign investors. Demand in some developed countries, the so-called "international standards", "international standard", while developing countries general requirements, in accordance with the law or the provisions of the international treaties concluded or acceded to.
(2) caused by non-commercial risk for client. Usually includes because of nationalist, foreign currency against the ban, war and unrest caused by the dispute. Nationalization of compensation, for example, developed countries are usually established a "full, timely and effective" standard, developing countries generally master to give proper compensation.
(3) foreign investment protection. Developing countries advocate a host country, only in the host country local save depleted, can use other means; And now also appeared under the condition of parties concerned, direct way resort to international arbitration of the dispute solves.
(4) the subordination. subordination can be divided into big weave the convention according to the international convention for the parties of the subordination and capital to lose government agencies to go abroad for the host country of subordination, the former such as the multilateral investment guarantee agency subordination of parties, the latter such as America's overseas private investment guarantee institutions to seek reimbursement from the host country for investors. Comprehensive relevant provisions(Tomas Handbrake & Zuzana Irsova, 2011), apply to the international investment law have the host country, the most closely linked laws, the parties, the choice of law, international law, general principles of law, contract law, etc.
Shall be governed by the laws of the host country
First of all, it is suitable for the host country law is the basic requirement of territorial priority. In the field of any sovereign nation to its people, things and events shall have the right to be carried out in accordance with the national law and policy tube. As the slaughter sent points out: "once in the country, foreigners and foreign property right to belong to the state of the highest branch as soon as."
Territorial priority is the most important content, the principle of national sovereignty is the host country to invest in international relations and its disputes have legislative jurisdiction and shall be governed by the laws of their most basic legal basis.
Second, the international investment relationship has substantial most closely linked with the host country. This contact is mainly displays in:
(1) according to the regulation of many countries have issued by the foreign investment law, foreign investment in general must be approved by the host country of the relevant government departments, investment project or enterprise must be registered with the competent authorities of the host country.
(2) direct international investment is to put the capital in the host country's production, circulation, or service areas, that is to say, the host country is mainly engaged in home countries.
(3) the establishment of corporate citizenship whether according to the established principles, or root, according to the principle of principal place of business or business center principle, use of foreign direct investment enterprise legal person or legal person should belong to the host country.
(4) many direct investment project period is long, the amount is large, some on the host country's social and economic development planning, and project can fully perform, seriously impact on the host country is the largest.
Again, as investors in the fact that the host country investment, investors generally presumed has agreed to accept the host country's laws. This is developing countries argued presumption "agree" (Presumed consent of the investor). Investors in the host country itself usually has an implied in agreed to related matters including investment dispute should apply the law of the host country. As the ink zinger said, investors made by economic franchise agreements voluntarily choose the same country, and as for the agreement of party, unless specifically prescribed in the agreement shall be governed by the laws of other, presumption should voluntarily accept the jurisdiction of the host country law, contract dispute should obey the law, produced by the conclusion of this is, of course.
Principle, finally, according to the exhaustion of local remands international investment relationship and dispute should also apply the laws of the host country. The principle of exhaustion of local remedies is an ancient custom rules of international law. According to the former, the interests of foreign investors when the violation occurs for discussion by the host country, foreign investors before seeking their diplomatic protection, first seek help, and exhaustion of local remands both his rights, is also its obligation. In addition, shall be governed by the laws of the host country also received national practice, the principle of international jurisprudence, international organizations and civil XueShuTuan Hugh's Ken and popular support. Therefore, it should be to solve the principles of international investment law conflicts.
The applicable scope of the host country legal principles
To explore the scope of legal principles for the host country, can see further this principle as the root of resolving conflict in international investment law the principle of universal applicability .
1, shall be governed by the laws of the host country and the contract is formed.
(1) the contracting ability should be the applicable law, the parties are generally in accordance with the party is one method to solve(Thorp, Edward , 2010). To obtain commercial legal relationship, however, security and stability, and protect their people or behavior to countries where the lawful rights and interests of the parties, business shall apply to the parties to a contract behavior ability belongs to the people outside the law, can also be controlled by the method of behavior to. From the point of international investment contract, the foreign investors to invest in the host country, in the host country to perform the contract implementation investment purposes, contact with the host country has the closest cut, therefore, applicable international investment behavior to the host countries laws are reasonable.
(2) contracts effectiveness should be the applicable law, this law by national governments are generally argued that the form of a contract shall comply with the behavior method to pray, and that place governs behavior rules are mandatory. International investment in the host country contract, and in accordance with the law in many countries, investment contract must be approved by the relevant government agencies to take effect, therefore, the international investment contract to accord with the requirement of the host country law in the form.
(3) The essence of the contract effectiveness should be the applicable law, although the continental law and common law have different understanding, but, because of the international investment in the host country legal contract, in the performance of the host country, is east road, a component of the social and economic development, therefore, the criterion for testing investment contract law or not should be the laws of the host country.
(4) Contract of the applicable law of the time and place, to this comfortable with the contracting law or contract law or the parties of the law is not to, not fair, such as contract disputes in different places, if suitable with the contracting it is likely to lead to apply the law of different countries and conflicting decisions. Are generally the applicable law of the contract shall also apply to solve, but the problem to be solved is the contract has not been set up, how to use must according to the method to solve the problem of the contract. General approach is to assume that, with effective was established, and then apply the contract law to make a sentence, and the applicable law is generally of the host country in the international investment law.
2, contract effectiveness of applicable law and shall be governed by the laws of the host country. Applicable law of contract effectiveness have two opposing points of view, but in view of the actual conditions of international investment, the applicable law to international investment contract effectiveness, in general, should not be chosen by party people agreement, and shall apply to the investment contract is most closely connected the laws of the host country. And because the international investment contract has an interest for the host country, host country laws often applicable to this type of the effectiveness of the contract specify the laws of the host country, and has a strong system of this kind of regulation, cannot be ruled out by the party autonomy. The interpretation of the contract belongs to contract effectiveness, on the basis of international investment contract interpretation should be according to the applicable law.
3, the host country law optimum use of investment contract disputes.
(1) treatment of foreign investors standard question, in accordance with the generally recognized principles of international law, in the foreigner's status as a civil rights prescribed by the domestic law and international convention. Standard treatment of foreign investors should be according to according to the host country domestic law and international treaty concluded or acceded to shall execute the country. In private international law on the dependency of the priority principle of foreigners in the country should obey the law of the country, according to the law of all countries and host country citizens enjoy equal treatment and protection, bear the same obligations and responsibilities, not require more than enjoy the rights of all citizens of the republic of China, more can't in a privileged position.
(2) The applicable law of foreign investment protection means. How to foreign investment, except as otherwise provided in the host country the international treaties concluded or acceded to, often should apply the law of the host country, it is the request of territorial priority, mandatory provisions of the law is usually the host country. Shall be governed by the laws of the host country, therefore, is not only suitable for the conflict of laws because of the investment contract, the parties and is also suitable for investment outside the settlement of disputes of contract so as to further developing and the principle to solve the essence of fundamental principles of international investment law conflict.
Management risk
Management risk refers to the overseas electric power project in the process of production and operation, such as supply, production, sales link uncertainty factors decrease project benefit, cost increase, capital movement hysteresis, reduce the possibility of project value. Operating risk mainly exist in the operation period of the project.
Operational risks in the operation period is main power, electricity price risk, and the rising cost of risk.
Power risk of five aspects: one is the project host country economic situation changes, power demand is reduced, resulting in a decline in power projects unit using the hour and the Internet slack; it is outside the local power grid is weak or power grid failure led to the decrease of the electric power project using hours, the Internet slack; Three is due to the local power grid dispatching institutions not scheduling project Internet generation and led to the decrease of the online power; Four is due to the unplanned maintenance of electric power project, equipment failures lead to unit cannot be carried out in accordance with the expected scheduling plan, Internet slack; Five more or less the same due to the water to reduce the influence of hydrophone project is led to the decrease of the Internet charge. Charge the financial consequences of risk is falling project electricity sales, selling electricity less income.
Electricity price risk refers to the environmental impact due to the market or economy, make the power project feed-in tariff to relative fall in project to reduce the risk of electricity income. In southeast Asia, Africa, central Asia, some countries of demonetization of electric power industry has not yet, mainly adopts the model of BOT, BOO, electricity price often in electric agreement agreed before production, electricity price risk is mainly from three aspects, one is because of the project-host country inflation rate increases, the price level increase, lead to power projects production operating costs increase, and electricity price can't adjust, squeeze the project profit space; The second is caused by the coal price and electricity price cannot adjust market price is relatively lower; 3 it is caused by the currency or electricity price settlement currency devaluation project-host country project electricity price is relatively lower. In Europe and the United States some of the power market mechanism more perfect in developed countries, as defined by the market bidding mechanism feed-in tariff, electricity price risk mainly changes of supply and demand, market volatility or improper competitive strategy to lower feed-in tariff. Electricity the financial consequences of risk is to reduce cause a feed-in tariff of the project, to sell less income.
Rising costs, on the one hand, is due to the increasing inflation project-host country, rising raw materials, labor costs, increase production and operation cost of the project; After the project operation, on the other hand, due to coal prices rising fuel costs increase. The rising cost of the financial consequences of risk is it increases production cost of the project, reduce profits.
Conclusion
In the final conclusion can be concluded that when the company needs to invest across the need to consider many factors, the fainest is seeking equity and debt financing channels in host country. Doing this can benefit the host country of the relevant departments, and make the host country government is reluctant to act against the company, because the host country on foreign company's intervention will make the host country government or its financial institutions suffered economic losses. Fourth, the localization of employees. Every country and region has its own cultural features, make the best use of local staff and improve the local staff to managers can better make the company to respect the local customs, into the local social life. When enterprise by political risk, is likely to cause local employees lose their jobs, this could force the local Labor organization with government, local government have to reconsider their own policy.
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