On August 3rd, 2021, the Secretary of Energy issued Resolution No. 742/2021 (“Resolution 742”), which partially amended Resolution No. 285/2018 of the former Ministry of Energy and Mining (“Resolution 285”).
1. Main outlines of Resolution 285
Resolution 285, now modified by Resolution 742, allowed generators under RenovAr 1, 1.5 and 2 to defer Commercial Operation Date (“COD”) under their Power Purchase Agreement (“PPA”) for up to 180 days.
In addition, Resolution 285 also allowed generators to pay penalties for late COD in 12 or 48 monthly installments.
2. Context in which Resolutions 285 and 742 are enacted
Resolution 742 continues the path lay out by Resolution 285 as it is issued to allow the execution and operation of projects under RenovAr 1, 1.5, 2, 3, and Resolution No. 202/2016 of the former Ministry of Energy and Mining which have suffered delays in achieving COD.
Accordingly, Resolution 742 purported purpose is to enhance further investment in the renewable sector by providing certain relief to the projects comprised in said resolution.
Furthermore, both resolutions are issued under the scope of the Laws No. 26,191 and 27,191. Such laws aim to increase to twenty percent (20%) by 2025 the total domestic demand of renewable energy, by mandating that a portion of the country’s electricity consumption must be sourced from renewable energy.
3. Resolution 742 key takeaways
Key takeaways of Resolution 742 are:
- Option to extend the additional term provided by Resolution 285 to achieve COD in 360 days.
- Right to adhere to the terms of Resolution 285 (as amended by Resolution 742) at generator’s option.
- Reduction of penalties fines based on the progress of the project’s works or, in the case of projects that have already achieved COD, with a delay greater than 180 days, such reduction is of 70%.
- CAP to the penalties which may be offset from the PPA, amount which shall not exceed 40% of the monthly revenues.
Below is a comparison between the most significant aspects of Resolution 285 and Resolution 742.
Also, we detail certain maters introduced by the Resolution 742 which were not foreseen in Resolution 285.
Finally, we single out certain aspects of Resolution 742 which should be further clarified.
| Issue | Resolution 285 | Resolution 742 |
|---|---|---|
| Payment of penalties | Penalties payable in 12 or up to 48 equal, consecutive, monthly installments. In the latter, an annual interest rate of 1.7% is applied. | Penalties still can be paid in 12 or up to 48 equal, consecutive, monthly installments. However, in the latter, Resolution 742 caps the monthly penalty in an amount no greater than 40% of the monthly revenue under the PPA. The unpaid balance will be offset until the total is completed, under this methodology. The purpose of this clause is to ensure generation plants maintenance and to avoid a penalty deduction greater than the monthly remuneration. |
| Extension of COD | COD extension up to 180 days. | COD extension up to 360 days, if the following criteria is met: (i) evidences that the Project has been executed in a percentage equal or greater to seventy percent (70%) an increase of the Contract Performance Guarantee; or (ii) the compliance bond has been increased or is increased in 30%. |
| Additional changes | Resolution 285 provided that for the application of a daily penalty a rate of US$1,388/MW. Nonetheless, this fine could be reduced evidencing certain progress of the project. | Article 3 bis is incorporated, which establishes: (a) Projects that have achieved COD: Those that (x) reached COD, (y) with a delay of more than 180 days, and (z) that have not requested the application of Resolution 285, may postpone COD in 360 days. In this case, a reduction of penalties in 70% is foreseen. (b) Projects that have not reached COD: Those that (x) have not reached COD, (y) did not requested the application of Resolution 285, and (z) adhere to Resolution 742; must replace the compliance bond with a bank guarantee, payable upon demand, which shall also contemplate any prior increase which may be due. In this case, it is provided that, during the additional 360 days extension period of COD, the daily fine will be equivalent to the daily fine established in Clause 13.2. (a) or 13.1, accordingly. Such fine may be reduced based on the progress of the project. |
4. Other relevant matters
Generators adhering to Resolution 742 are required to waive any prior or future administrative, judicial, administrative, or arbitral claims against the National Government, the Secretary of Energy or CAMMESA in the Argentine Republic, whether in Argentina or abroad.
If adhering to Resolution 742, generators shall manifest so in writing to CAMMESA and submit such waiver within 30 business days.
5. Matters which should be further clarified
The following matters are singled out which, from our perspective, are not entirely clear and should be further clarified.
Resolution 742 does not state whether the eventual reduction of the penalties fines up to 70% is for the entire fine accrued, or for the balance not yet accrued or unpaid.
Resolution 742 does not indicate whether the replacement of the compliance bond for a bank guarantee is for the projects covered by article 3 bis, second paragraph solely (projects without COD, which have not yet adhered to Resolution 285) or for all projects comprehended by Resolution 742.
Finally, in relation to the compliance bond increase, required by articles 3 a) (ii) and 3 b) to admit the extension of the COD, is not specified whether such increase should be for the original guarantee or for the replaced guarantee (bank guarantee).
For further information, please contact either Nicolás Eliaschev, Javier Constanzó, or Daiana Perrone.