Algeria: publication of the decree setting out the framework for tenders for renewable energies IPPs

Algerian authorities have issued the Decree applicable to RfPs for the development of renewable energy projects. Key aspects include:

• Separate types of RfPs for larger and smaller projects
• Larger projects must include an industrial aspect which can be waived by the Government
• No express provision to invite bidders to submit comments on the project document as part of their bid
• Each RfP to address key components and terms thereby allowing for some flexibility

Following the various announcements made by Algerian authorities regarding the need to develop the country’s renewable energy production capacity, the general legal framework applicable to requests for proposals for the development of renewable energy projects (“RfP”) was published in the Official Journal of 5 March 2017 under Executive Decree no. 17-98 of 26 February 2017 (the “Decree”). The Decree is likely to apply to the much anticipated 4,000 MW solar energy project.

The Decree sets out two types of RfPs: (i) “requests for proposals to investors” (appels d’offres à investisseurs) to be issued by the Ministry of Energy and (ii) “requests for proposals by auction” (appels d’offres aux enchères) to be issued by the Electricity and Gas Commission.

As the latter regime seems to have been designed for smaller renewables and cogeneration projects and given the international interest regarding the larger 4,000 MW solar project, this note focuses on the “request for proposals to investors”. However, the “request for proposals by auction” regime is also more briefly addressed below.

Request for proposals for investors (appel d’offres à investisseurs)

Whilst the Decree leaves a lot to each specific RfP, it provides the following general principles:

• Relevant authority: The RfP process is to be conducted by the Minister of Energy who may delegate the process to a public body or a State-owned company. It is currently thought that the 4,000 MW solar project is likely to be entrusted to the Engineering Company of Electricity and Gas (CEEG), a subsidiary of Sonelgaz.
• Scope and parties: The RfP's scope is very broad. It includes the design and supply of equipment, the construction and operation of generation facilities and the sale of the electricity generated by these facilities. Potential investors may be private or State-owned companies but the Minister of Energy, with the Minister of Industry for the industrial component (if any), nominates the State-owned companies that are to take part alone or as part of a consortium, in the construction and operation of the generation facilities and industrial component.
• Industrial component: As expected, potential bidders are required to develop an “industrial project” in Algeria. Industrial project is defined as “an investment project for manufacturing equipment used in the generation of renewable energy sourced electricity and/or the supply of services”. Bidders not willing to invest in the industrial project must include in their offer a bid by one or more industrial investors. There is no clear indication regarding the allocation of possible warranties or liabilities between the generation and industrial investors. However, and this was unexpected, the Decree provides that the Minister of Energy and the Minister of Industry jointly may waive the requirement for an industrial project. Considering some of the uncertainties and complexities already identified regarding the 4,000 MW project, such flexibility is likely to be welcomed by potential investors. It remains to be seen however whether the Algerian authorities will be willing to waive this requirement with respect to the 4,000 MW project in view of the heavy PR campaign that has surrounded it. Given the considerable size of this project, various scenarios could be envisaged such as for instance waiving this requirement for some of the sites or giving various options to potential bidders.
• One shot submission: Contrary to the expectations of a number of investors, the Decree provides that submitting a bid is a one shot process with the delivery of a technical and commercial offer, the commercial offer being opened only if the technical offer is deemed compliant. The Decree does not expressly address the possibility of a dialogue between the Algerian authorities and potential bidders before the submission of final bids. However its wording appears sufficiently broad to allow particular RfPs to provide some flexibility so as to reflect what we have already seen happening in practice on other tenders in Algeria.
• Contents of RfPs, offers and bonds: Each RfP is to set out the expected capacity, availability, efficiency and production time table, the possible annual production and operation regimes, the financial and economic terms for the sale of electricity – which may not exceed 25 years for a given generation facility – as well as the financial guarantees to be issued by the investor including the bidders’ bid bonds and selected bidder’s performance bond. The submissions must include a technical offer and a financial and commercial offer indicating the price of kWh and price adjustment mechanism and all capex, opex and maintenance costs (including for the interconnections which are to be paid by the sponsors), together with, if an industrial project is required, such project’s proposed financial and commercial terms (including all capex, opex and maintenance costs) and the price of components and any price adjustment terms.
• Selection of Preferred Bidder: A special committee of the Ministry of Energy is to review the bids, rank the compliant bids based on the kWh price (if only one bid is compliant no preferred bidder will be declared) and report to the Minister of Energy. The Minister is to obtain the advice of the Gas and Electricity Regulatory Commission on the price and notifies the preferred bidder unless the Commission has declared the price to be too high in which case investors can be asked to rebid. Whilst this is not absolutely clear, it seems that the negotiation (if any) of the project documents contemplated by the RfP, including the PPA, would start upon selection of the preferred bidder. This could mean that, the bidders would not be required or invited to submit comments on the RfP’s project documents or at least that their comments will not necessarily be taken into account in the bid evaluation process. However the wording of the Decree is sufficiently broad for the RfP to offer the opportunity for the bidders to mark up the proposed project documents, including the PPA, before submitting their offer or a final decision is made as to the winning bidder.

Request for proposals by auction (appel d’offres aux enchères)

The “request for proposals by auction” regime differs from the above “request for proposals to investors” regime on few key aspects:

• Relevant authority:The RfP process is to be conducted by the Gas and Electricity Regulatory Commission.
• Scope and parties: The RfP’s scope includes (i) the construction and operation of renewable energies facilities generating 10GWh to 20GWh and the sale of the electricity generated by these facilities and (ii) the sale of annual quantities of energy generated by cogeneration facilities with a nominal capacity not exceeding 12MW.
• Location determined by the bidder: Unlike the “request for proposals to investors” regime where the projects’ sites are determined by the Minister of Energy based on a Gas and Electricity Regulatory Commission proposal, the sites, under the “request for proposals by auction” regime, are determined by the bidder subject to the grid connection technical conditions provided in the RfP.
• Selection of Preferred Bidder: A special committee of the Gas and Electricity Regulatory Commission is to review the technical bids based on RfP’s criteria and rank the commercial bids based on the kWh price. Quantities of renewable energies must be granted to the bidder with the lowest kWh price. Remaining quantities (if any) may be granted to the following-ranked bidders until full allocation of the quantities and providing the same kWh price applies.

Our Algerian experience

Our team has considerable experience advising sponsors, development and state owned entities on IPPs, IWPPs and IWPs in Africa and this experience is possibly unmatched as regards Algeria. Christophe Asselineau drafted and negotiated on behalf of the international investors the suite of documents that was used for the development and financing of the first Algerian IWPP. These documents were subsequently used by the Algerian authorities to develop all IPPs and IWPPs in Algeria as well as some other industrial projects. Christophe advised the international sponsors on four subsequent Algerian IWPPs as well as key Algerian players on other industrial and utilities related projects. Our team also advised the sponsors on the successful development and financing of the last Algerian IPP project initiated by the Algerian authorities at Hadjret Ennous (1,200MW gas-fired plant) and we are currently acting on various industrial transactions in Algeria on behalf of various international investors.