Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Joint Ventures

CHINESE UPDATE – The Future of Automotive JVs under the New Policy of Opening Up the Automotive Industry in China

Contributed by: Adam Li (Li Qi), Jun He Law Offices (Shanghai)

Editors’ Note: Contributed by Adam Li, a partner at JunHe and a member of XBMA’s Legal Roundtable. Mr. Li is a leading expert in international mergers & acquisitions, capital markets and international financial transactions involving Chinese companies. This article was authored by Mr. Michael Weng, and Mr. Daniel He, both partners at JunHe. Mr. Weng has broad experience dealing with complicated foreign direct investment and cross-border M&A transactions, and Mr. He is specialized in merger and acquisition projects, joint venture transactions, and strategic investment projects in various industries.


There are numerous examples of Automotive JVs that have been operating successfully and profitably in China for more than a decade. With the imminent removal of the shareholding cap on foreign investment in automotive manufacturing, there will be opportunities for Chinese and foreign parties to alter their equity holdings, including being able to buy out the JV partner or exit in part or completely. It is our assessment that Chinese and foreign parties are unlikely to immediately implement any major changes. Rather, we expect them to maintain the status quo for a considerable period of time, until larger commercial incentives trigger a withdrawal of one of the joint venture partners.


Main Article

At the recent Boao Forum for Asia Annual Conference 2018, the Chinese President Mr. Xi Jinping announced that “China will remain unchanged in its adherence to reforming and opening up, and will continue to launch new major measures to pursue further opening up.”  Since then, both the National Development and Reform Commission (“NDRC”) and the Ministry of Industry and Information Technology in their respective Answers to Reporters’ Questions have committed to gradually opening up automotive manufacturing to foreign investment before 2022 by removing the shareholding limit for foreign investors and also the restriction on foreign investors being allowed to invest in no more than two automotive joint ventures. The reforms and their implications for the future are of great relevance to the many long-standing, active Sino-foreign automotive joint ventures (“Automotive JVs”). In this article, we will discuss several possible development paths for Automotive JVs, and some of the issues arising from the reforms.


I.       Possible Development Paths for Automotive JVs


1.   Chinese Partner Acquires All or Part of the Equity Held by Foreign Investor

Thanks to the massive growth in demand in the Chinese automotive market, many of the Automotive JVs have been highly profitable. The Chinese partners of those Automotive JVs have primarily been very large central or local state-owned enterprises (“SOEs”) with solid foundations and extensive connections, enabling them to make a vital contribution to Automotive JVs’ swift localization and expansion within the Chinese market. It may be that these Chinese partners will hope to acquire the equity interest held by their Automotive JV foreign partners in order to further strengthen their control within the Automotive JV and to improve their profit earnings. However, Automotive JVs are still largely reliant upon their foreign partners for business resources including branding, new ideas, technology and equipment, and the auto groups to which the foreign partners belong are unlikely to willingly give up the substantial revenue and profits generated by the Automotive JVs. Hence, it will likely prove difficult, at least in the short run, for the Chinese partners of any successful Automotive JV to disrupt the structural balance by acquiring all or part of their foreign partner’s equity.

However, for an Automotive JV that is struggling and not profitable, it is possible that the Chinese partner may be able to acquire their foreign partner’s equity. Indeed, it may well be that a foreign partner in such unsuccessful Automotive JV has already been contemplating an exit. The gradual removal of restrictions on foreign investment in automotive manufacturing presents the opportunity for foreign partners to leave an unsuccessful Automotive JV and set up their own entity. However, before making such a decision, a foreign partner should first make a full assessment of its ability to operate the business independently.  Success in the Chinese market requires not only branding, technology and management expertise, but also access to and control of sales channels and an in-depth understanding of local consumers and markets.


2.  Foreign Partner Acquires All or Part of the Equity Held by Chinese Partner

Removing the shareholding cap of foreign investments in automotive manufacturing has eliminated the legal barrier preventing foreign partners from acquiring the equity held by their Chinese partners, but is of course dependent upon the willingness of both sides to pursue this option. It seems highly unlikely that a Chinese partner would be inclined to relinquish its equity interest in a profitable Automotive JV. Moreover, from a strategic perspective, a Chinese partner aiming to build up its own brands may use the leverage of its involvement in an Automotive JV, which brings with it indirect support in the expansion and influence of the Chinese partner’s own independent brands, by having access to the Automotive JV’s upgraded products and technologies, and skills development. In addition, with only very limited licenses to manufacture traditional fuel vehicles, it is highly unlikely that any newly established automotive manufacturer would be able to attain the necessary regulatory approval. Ultimately, the Chinese partner is highly unlikely to hand over control of the Automotive JV with the required manufacturing license. For an under-performing Automotive JV, while the acquisition of a Chinese partner’s equity may not bring immediate financial benefits, the foreign partner could use the existing manufacturing approval, production lines and personnel to start production right away. Provided the acquisition price of the Chinese partner’s equity is reasonable, this could be an effective shortcut for a foreign brand seeking to obtain production capacity and operate independently.


3.  Maintain the Status Quo

After the NDRC released its information on easing restrictions on foreign investment in automotive manufacturing, some of the foreign partners of existing Automotive JVs were quick to confirm their intention to continue to support the development of their respective current joint ventures in China. It is our assessment that both the Chinese and foreign parties should take a pragmatic approach to the new policy and, at least in the short-term, focus on maintaining the current structure. It seems unlikely — at least until the expiry of the operation term of the existing joint venture contract — that the Chinese and foreign parties of most of Automotive JVs automakers will initiate a change in the balance of ownership by seeking to acquire all or part of the equity held by their partner.


II.      Key Factors Influencing the Possible Development Path

Once the shareholding limits for foreign investors in automotive manufacturing have been phased out, a variety of factors will determine whether foreign automakers choose to remain with their Chinese partners or to make their own way. Some of the key factors for consideration are listed below.


1.  Continuing Product Upgrade

At present, many of the Automotive JVs’ products are based upon foreign brands’ original overseas car models. The production of core components, such as vehicle engines and gearboxes, is primarily based upon foreign partner’s technology. Therefore, the prosperity of the Chinese automobile market driven by the Automotive JVs is essentially attributable to foreign automakers’ products. The continuing survival and success of Automotive JVs is at least in part dependent upon foreign partners providing access to upgraded products and technologies. The growing sophistication of Chinese consumers and the emergence of local automotive brands builders means that Automotive JVs are facing an ever more demanding and competitive market. Only those Automotive JVs that continuously innovate will survive. The removal of the shareholder cap means that a foreign automaker with strong product R&D and upgrade capabilities and whose Chinese partners lack product input capabilities may be able to use their relative strength to persuade their Chinese partner to transfer some of their equity. If a foreign automaker is able to obtain continuing regulatory approval to manufacture on their own (as mentioned above, the possibility of obtaining new licenses is very slim), it may be possible for the foreign automaker to set aside the existing Automotive JV in order to establish a separate company, manufacturing and selling their own automobiles in a wholly-owned company.


2.  The Trend toward New Energy Vehicles

The growth in purchases of traditional fuel vehicles has slowed down in recent years. In the meantime, sales of new energy vehicles are increasing, attributable at least to some extent to Chinese government efforts to promote these upgraded, clean energy automobiles. Nowadays the vast majority of Automotive JVs’ production is traditional fuel vehicles. However, this is likely to change, with declined growth in demand for fuel vehicles, the implementation of government policy incentives for new energy vehicles, and preemptive dominance of the new energy car market by the Chinese traditional and new automakers. Given that the first shareholding cap to be eliminated will be on new energy car manufacturers, in 2018, foreign automakers will need to decide how they intend to manufacture new energy vehicles in China, whether by taking advantage of a current Automotive JV to apply for cross-category production of new energy vehicles, or by establishing a new wholly-owned subsidiary to undertake this task. The Measures for the Parallel Administration of the Average Fuel Consumption and New Energy Vehicle Points of Passenger Vehicle Enterprises (“Points Administration Policy”) that have been implemented since April 1, 2018, require foreign automakers to take into account the impact on the production of fuel vehicles by the existing JV automaker in their overall production plans. Starting from 2019, according to the Points Administration Policy, there will be a points system under which Automotive JVs will be subject to production limits for fuel vehicles. When this limit is reached, they will be required to produce a certain proportion of new energy vehicles in order to be permitted to continue the production of fuel vehicles. Points will be accrued for the manufacture of new energy vehicles by Automotive JVs and additionally will be available for purchase, through an official platform, from third parties with surplus points. As it stands, the simplest way for foreign automakers to satisfy the new energy vehicle points requirements and to continue production of fuel vehicles is to maintain their current Automotive JV, while introducing new energy vehicle models.


Influences of the Tariff Cut

On May 22, 2018, the Customs Tariff Commission of the State Council issued an announcement stating that, effective from July 1, 2018, there will be a reduction of tariffs on imported vehicles and car parts. Tariff rates on vehicles will be reduced from their current levels of 20% and 25%, down to 15%. Even after the adjustment, tariffs will remain higher than in developed countries such as Europe, the United States and Japan. Moreover, the final price of imported cars will also be subject to VAT, consumption tax, dealer profits, and other factors. While the tariff cuts may initially have a short-term stimulating effect on sales of imported vehicles, their impact is not forecasted to be significant in the long run. In an environment where foreign investment restrictions are gradually being lifted, foreign automakers seeking to become more competitive will need to take into consideration the relative costs and factors – economic and non-economic – of establishing or acquiring a wholly-owned local automaker compared with the option of exporting vehicles to China under a lower tariff regime.


3.  Difficulties in Going Solo

One of the Chinese government’s original intentions in formulating the automotive joint venture policy was a “market-for-technology” strategy. In return for providing their technology, foreign automakers have gained Chinese market share through their partnerships with China’s central and local SOEs and large-scale private enterprises. In addition, the foreign automakers have obtained special support and benefits in aspects such as regulatory approvals, land acquisition and factory construction, fiscal subsidy and tax preferential treatment, and so on, without which their foreign automotive products might not even have been brought into China. If, after removal of the foreign shareholding cap, a foreign automaker chooses to operate completely independently and without the support of Chinese partners, there is no certainty that they will continue to enjoy such special benefits. Specifically, approvals for new energy vehicle manufacturing are currently on hold and there are unlikely to be many more licenses issued to manufacture traditional fuel vehicles. While it is anticipated that the approval process for new energy vehicles will recommence soon, it seems likely that entry thresholds will rise substantially. Against this background, it may be unwise for foreign automakers to abandon their current joint ventures and start over on their own. Building an automobile sales and after-sales network is a costly and time-consuming process, further complicated by the range of differing local business environments around China. Without Chinese partners to help navigate local markets, foreign automakers will likely face barriers to a quick set-up and roll out of sales and after-sales networks, particularly on dealing with the existing dealers of the JV Automakers and balancing their relationships and interests.


*     *     *     *     *


In the decades since Automotive JVs were first established, there have been numerous reforms to the legal environment as well as changes in the range of products offered, fluctuating market conditions, the introduction of new domestic brands, increases in labor and other production costs, a shifting international business environment, and the emergence of new energy cars. As is so often the case in China, the only constant is change itself.


The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.


RUSSIAN UPDATE – Strategic Crisis Management for Russian Deals

Editors’ Note: This paper was co-authored by Goltsblat BLP (the Russian practice of Berwin Leighton Paisner) partners Ian Ivory, Head of English Law – Corporate Finance, and Simon Allan, Head of Banking and Finance. They often represent international companies in connection with their investments in Russia.

Executive Summary:  From time to time all businesses experience unforeseen legal issues and disputes which may quickly escalate into a crisis if not dealt with properly and in good time.  This article suggests eight points to consider when developing a strategy to deal with a potential crisis, and may be particularly useful for foreign investors in Russian joint ventures and other corporate transactions.

Click here to see the full article

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

MEXICAN UPDATE – Public Private Partnerships Act

Editors’ Note:   Contributed by Manuel Galicia Romero, a founding partner of Galicia Abogados and a member of XBMA’s Legal Roundtable. Mr. Galicia, who was involved in the negotiation of the North American Free Trade Agreement (NAFTA), is a leading expert in international transactions in Mexico. Authored by Juan Pablo Cervantes, a member of Galicia Abogados and an international business lawyer actively involved in the promotion of trade and investment between Mexico and numerous countries, particularly from Asia.


  • On January 16, 2012, the Public Private Partnerships Act (“PPP Act”) was published and amendments were made to several related laws (the Law of Acquisitions, Law of Public Works, Expropriation Law, and National Assets Law) with the intention to consolidate a market practice that has been carried out without a clear legal framework.
  • The PPP Act intends to provide the Federal Public Administration and the private sector with a new framework for the development of long term infrastructure projects that have a high social impact, in which the infrastructure is provided, in whole or in part, by the private sector.
  • As a general rule, PPP projects are awarded to whoever presents the best proposal in technical and financial terms in the corresponding public bid.
  • The PPP Act does not establish limitations related to the nationality of the bidders, allowing the specific laws that govern the subject matter of the project in question to establish the applicable restrictions for foreigners.


This last January 16, 2012, President Calderón published in the Federal Official Gazette (“DOF”) the Public Private Partnerships Act (“PPP Act”) and amended several provisions of the Law of Acquisitions, Leases, and Services for the Public Sector (“Law of Acquisitions”), the Public Works and Related Services Law (“Law of Public Works”), the Expropriation Law, and the General Law of National Assets (“National Assets Law”).

The PPP Act (along with the amendments made on the previously mentioned laws) consolidates a market practice that has been carried out without a clear legal framework. Prior to the PPP Act, projects that involved the construction of infrastructure and the provision of services between the Public Administration and the private sector were regulated, due to the absence of a specific law, by the Law of Acquisitions, the Law of Public Works, and the Federal Budget and Fiscal Responsibility Law, amongst others.

In general terms, the PPP Act intends to provide the Federal Public Administration and the private sector with a new framework for the development of long term infrastructure projects that have a high social impact, in which the infrastructure is provided, in whole or in part, by the private sector.

The following is a summary of the most relevant aspects of the PPP Act.

  1. Scope of application

The PPP Act is a public interest law applicable to Public Private Partnerships (“PPPs”) entered into by: (i) the Federal Public Administration, (ii) federal public trusts not considered government owned or controlled, (iii) entities governed by federal public law with constitutional autonomy, and (iv) the federal states of Mexico, municipalities, and the public entities of any the aforementioned which use federal resources for the development of projects (each of them, a “Contracting Entity”). PPP projects must be executed by companies incorporated with the exclusive corporate purpose of executing the respective project, in the understanding that these projects may be awarded to an individual or company (individually, or by means of a consortium), either national or foreign, which in turn shall create the special purpose company or trust for the development of the project with the corporate statutory limitations established in the bid documents of each project of the applicable project or public bid.

The PPP framework is optional and may be used in activities in which the specific legislation allows the free participation of the private sector through permits, authorizations, or concessions. This framework may not be used in activities related to the exploration, exploitation, refining, transportation, storage, or distribution of oil, gas and its derivatives.

The PPP Act is not an exception to public bids, but an additional set of legal provisions that apply in addition to the acquisition requisites applicable to each project and sector. Likewise, the PPP Act is not an exception for obtaining authorizations, permits or concessions that are required in the project at hand.

  1. Authorizations for commencement of projects

The PPP Act establishes that PPP projects are subject to several analyses and governmental authorizations, such as:

(i) Feasibility Analysis. A previous analysis in order to confirm (a) the technical and legal feasibility of the projects, (b) the convenience of carrying them out under the PPP framework, (c)  the public benefit of the project, (d) its environmental impact, and (e) the satisfactory results of a cost-benefit analysis, among others (the “Feasibility Analysis”). The Contracting Entities will be able to contract from third parties the execution of the Feasibility Analysis, without such contracting being a cause of disqualification for participating in the public bid;

(ii) Finance Ministry Registration. The registration for statistical purposes of the information regarding the PPP projects by the Ministry of Finance and Public Credit (the “Finance Ministry”);

(iii) Finance Ministry Reports. The report of the Finance Ministry in its Quarterly Reports about the Economical Situation, the Public Finances and the Public Debt, that are presented to Federal Congress, where the projects are to be described, and which will include information regarding the amounts disbursed by them, their financial projections and corresponding estimations, advances in their execution, calendar and amount of the compromised payments;

(iv) Budget. The forecast made by the Finance Ministry in the draft of the Federal Expense Budget of the multiannual expense commitments that are to be expected from the PPP projects for the approval of the corresponding expenditures, and

(v) Intersecretarial Commission. The aforementioned also includes the analysis and authorization by the Intersecretarial Commission of Public Expenditure, Financing and Divestment of the relevant PPP projects for purposes of prioritization and inclusion of these in the draft of Federal Expenses Budget, as well as its order of execution.

  1. Unsolicited proposals

It is important to highlight that the PPP Act establishes a new legal concept. Those interested in developing a new project under the PPP framework now have the right to propose such project to the Contracting Entity without excluding itself from participating in the bidding process in case the entity decides to issue such public bid based on the proposed project. Furthermore, the Contracting Entities are even allowed to determine the types of projects, sectors, geographical scopes and other elements that they are willing to analyze.

On this regard, the interested party must submit to the Contracting Entity a preliminary feasibility study (practically in the same terms as the Feasibility Analysis), for its evaluation. The Contracting Entity will have a term of three months, renewable for the same term, to issue its opinion about the feasibility of the project and its admissibility.

If the proposal of the PPP project is admissible, the Contracting Entity shall issue summons for the respective public bid and will reimburse the proposing party for incurred and justified expenses related to the preliminary studies it executed in case such proposing party is not granted the award. All rights related to the studies presented to the Contracting Entity (including, without limitation, copyrights and industrial property rights) will be transferred to the Contracting Entity.

Under no circumstance may an unsolicited proposal be awarded through a direct award; these are always to be awarded by means of a public, competitive bidding. The proposing party will always have a bonus in the evaluation of its proposal in the public bid that shall not exceed the equivalent to 10% of the applicable criteria for the awarding of the project. However, if only the proposing party participates in the public bid, the project may be awarded to it.

If the public bid is considered vacant and the Contracting Entity decides not to acquire the rights over the feasibility studies, the expenses incurred by the proposing party will not be reimbursed and its studies shall be returned. However, if the project was admitted but the Contracting Entity did not carry out the public bid, the Contracting Entity may acquire the studies once it has reimbursed the expenses incurred by the proposing party.

  1. Awarding of theprojects

As a general rule, PPP projects are awarded to whoever presents the best proposal in technical and financial terms in the corresponding public bid.

In order to incentivize the participation in public bids, the PPP Act does not establish limitations related to the nationality of the bidders, allowing the specific laws that govern the subject matter of the project in question to establish the applicable restrictions for foreigners.

Once the evaluation of the proposals is made, the project will be awarded to the bidder that presented the most solvent proposal from a legal, technical and financing standpoint, according to the requirements in observance of the bid documents. In case of a tie between two bidders, the award will be given to the party that presents the proposal with the best financial terms, and if the tie persists, the award will be granted to the party that offers more employment as well as utilization of national goods and services.[1]

As an exception, PPP projects may be awarded through a bidding process in which at least three parties are invited or by direct award (which will not be valid in the case of unsolicited proposals).

  1. Acquisition and expropriation of assets necessary for the development of the project

The responsibility to obtain the property, assets and necessary rights for the execution of PPP projects may lie on the Contracting Entity, the private party, or both, as stated under the relevant agreement.

If this responsibility corresponds to the Contracting Entity, it may acquire the property, rights and other assets through conventional means or by expropriation, with the limitations established in the PPP Act.

If the responsibility to obtain the real estate, assets and necessary rights for the development of the project falls upon the private party, obtaining them will be left to the negotiation of all relevant parties. On such scenario and for the purposes of calculating the amounts invested in the project, the acquisitions will be ruled by the terms and conditions agreed upon in the PPP contract, regardless of the amounts that the private party has disbursed in order to obtain the real estate, assets and necessary rights for the development of the project.

As for the expropriation, the PPP Act grants the status of public interest to the acquisition of real estate, assets and rights for the development of the PPP project. For such purposes, the opinion of the Contracting Entity regarding the technical feasibility and social benefit of the respective project will be sufficient.

The PPP Act (as well as the amendments to the Expropriation Law and the National Assets Law) introduces some new innovative aspects regarding expropriations and conventional acquisitions, such as the following:

(i)                  The compensation amount is allowed to be determined not only by the Institute for the Administration and Appraisal of National Assets, but in addition, by credit institutions, commercial notaries or authorized professionals. Likewise, the corresponding appraisal can take into account the future value of the real estate that results from the development of the project in the relevant area;

(ii)                During the negotiations, the relevant authority may advance, against the possession of the real estate, asset or right it requires, payments up to an amount of 50% of the price and once in possession, will be able to cover additional advanced payments with charge to the price;

(iii)              When only part of a real estate is expropriated and the remaining surface is no longer financially feasible for the owner, the owner may request the relevant authority to acquire such additional surface;

(iv)              If the real estate that is expropriated has a lien, the corresponding entity may consign before the relevant authority the required compensation in order to have the authority determine the amounts that correspond to the owners of such affected rights, i.e., the amount for paying the corresponding lien will be deducted from the owner’s compensation, and

(v)                These measures will not have to be formalized in a public instrument.

  1. Authorizations for the execution of the project

In the context of a PPP project, if the private party requires authorizations, permits or concessions in order to provide services or use public assets, such requests shall be granted in observance of the relevant provisions that regulate them but with the following restrictions:

(i) They will be granted through the same bidding process in which the respective contract was awarded;

(ii) The term of the authorizations will be (a) if the maximum initial term established by the specific law is equal to or less than 40 years, this last term shall apply, (b) if the maximum initial term in observance to the specific law is more than 40 years, the longer term shall apply, and (c) in any case, the maximum term, including extensions, cannot exceed the maximum term established by the applicable law;

(iii) Regarding federal authorizations (except for the ones foreseen in the General Law of Ecological Equilibrium and Protection of the Environment), if the competent authority does not answer the request within 60 days term starting from the day of its filing, it will be understood that the authorization has been granted (afirmativa ficta), and

(iv) Public agencies and entities of the Federal Public Administration will give priority in the evaluation and processing of authorizations in environmental matters, human settlements, urban development, construction, land use and other applicable matters subject to federal jurisdiction.

Another relevant characteristic of the PPP Act is that in case the rights of the developer under the respective contract are assigned, given as collateral or affected in any way, the developer has the right to assign, give as collateral or affect its rights under the applicable governmental authorization, prior approval from the authority that granted them.

  1. PPP contracts

The following are some relevant aspects of the PPP contracts under the PPP Act:

(i)                  Unlike the concessions in which the private party obtains the benefits directly from the final user, the PPP contracts establish that the Contracting Entity must pay a periodical consideration in favor of the developer for the execution of the project;

(ii)                By virtue of these agreements, the developer is obliged to provide determined services and in due case, the construction of the necessary infrastructure to provide them;

(iii)              The respective contracts must establish the system for the distribution of technical, execution, and financial risks to force majeure risks and of any other nature between the parties;

(iv)              The characteristics, specifications, technical standards, performance and quality levels for the construction as well as the services of the project must be defined;

(v)                The term of the contracts, including extensions, shall not exceed a period of 40 years (unless the applicable law to the required governmental authorizations under the project establish a longer initial period);

(vi)              The contracts must specify the resources for the execution of the works and the rendering of services to be provided by the developer (although depending on the case, the government may contribute resources to the project);

(vii)            The PPP contracts must establish the terms and conditions under which the private party will be able to agree with its lenders that in case of default in accordance to the respective contracts, the lenders will be able to execute temporary step-in rights, prior authorization from the Contracting Entity;

(viii)          Prior authorization of the Contracting Entity, the developer will have the right to subcontract the execution of works or the provision of services. However, the developer will be the only responsible party before the Contracting Entity;

(ix)              The developer’s rights derived from the PPP contracts may be transferred or granted as collateral with the prior authorization from the Contracting Entity;

(x)                The developer’s equity interests may also be transferred or granted as collateral with prior authorization from the Contracting Entity;

(xi)                  The infrastructure works may include facilities for the execution of complementary or commercial activities different from the principal service, i.e., the construction of commercial premises that can be leased in addition to the main project;

(xii)            In case that the developer transferred, granted as collateral, or in any way affected its rights derived from the PPP agreement and its lenders foreclose such collateral, the lenders will only have rights regarding the financial revenues generated by the project. Likewise, it is anticipated that the holders of collateral or encumbrances, prior authorization from the Contracting Entity, may hire by themselves a supervisor for the execution of the works or provision of the services, and

(xiii)          The developer may request the extension of the term of the contract and indemnification payments when its performance has been delayed by causes attributable to the Contracting Entity.

  1. Step-in rights of the project

In accordance to the PPP Act, the Contracting Entity is allowed to intervene at any stage of the development of the project when it considers that the developer is in default, for causes attributable to it, and adversely jeopardizes the development of the project.

For such purposes, the Contracting Entity shall notify the developer the cause that leads to the intervention and state a cure period. If the default persists after the cure period, the Contracting Entity will proceed to execute its step-in rights, or if applicable, depending on the respective contract, to the early termination of the contract.

The intervention will have the duration that the Contracting Entity determines, but it may not exceed, including extensions, a period of three years. If the intervention term has ended and the developer is not in conditions to continue with its obligations under the contract, the Contracting Entity will proceed to the rescission of the contract and the revocation of authorizations for the development of the project.

  1. Amendment of PPP contracts

The PPP Act establishes limited provisions under which the amendment of the contracts is permitted. The contracts can only be amended under the following circumstances: (i) improve the characteristics of the infrastructure, which may include additional works, (ii) increase the services or their level of execution, (iii) attend to certain aspects regarding the protection of the environment, (iv) adjust the scope of the projects for unforeseeable causes at the time the project was awarded, and (v) restore the financial equilibrium of the project.

However, for the purposes of the provisions mentioned in (i), (ii), and (iv) above, if the amendments do not require additional compensation, nor they imply a decrease in the developer’s obligations, such changes can be agreed upon at any time. However, if the amendments do require an additional compensation or imply a decrease in the developer’s obligations, the following conditions must be complied with: (a) have the opinion of independent experts that certify the necessity and benefit of such amendments, (b) that during the first two years the equivalent amount of the overall amendments must not exceed 20% of the cost that was agreed upon for the infrastructure and the payment for services during the first year, (c) after the first two years, if the amount of the overall amendments exceeds 20% of the agreed cost for the infrastructure and the payment for services during the first year, such amendments must be expressly approved in writing by the chairperson of the Contracting Entity.

  1. Early termination of PPP contracts

In addition to the termination causes stated under PPP contracts, the PPP Act establishes the following causes: (i) cancelation, abandonment or delay in the execution of the works, (ii) the lack of provision of the contracted services, the provision of the services in terms different to the ones agreed upon or the suspension of the services for more than 7 days, and (iii) the revocation of required authorizations for execution of the project.

Therefore, the PPP Act differs from the Law of Acquisitions; the PPP Act does not allow the Contracting Entity to unilaterally terminate the PPP contract due to reasons of public interest or due to the lack of need of such service, therefore effectively mitigating the risk for the developer of early termination of the agreement due to causes unrelated to its performance.

In case of early termination of the respective contract, the Contracting Entity shall have the option to purchase the assets owned by the private party which were used for the provision of the contracted services, in the understanding that public assets and those necessary for the provision of the services shall be transferred to the control and administration of the Federation.

  1. Dispute resolution

In observance of the PPP Act, the differences between parties of technical or financial nature will first settled by mutual consent.  If the dispute persists, an expert committee of three members shall be appointed, where each party shall appoint one expert and these in turn shall choose a third one.

Regarding disputes over the PPP contracts, the parties may agree to submit themselves to a conciliation process before the Ministry of Civil Service or agree upon arbitral proceedings.

[1] In the evaluation of an unrequested project proposal, the proposing party will have a bonus. Please refer to Section 3 above.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

RUSSIAN/UK UPDATE – Adverse impact of the UK Bribery Act 2010 on Cross-Border Corporate Transactions in Russia

Editors’ Note: This paper was authored by Andrey Goltsblat and Ian Ivory, an English Law partner at Goltsblat BLP in Moscow.  Mr. Goltsblat is a member of the XBMA Legal Roundtable and a leading expert on Russian M&A, having completed more than US$25 billion of transactions in the last two years. The paper focuses on the ramifications of the new UK Bribery Act for Russian deals, but may have broader applicability as the ripple effects of the UK Act are felt in other jurisdictions as well.

Executive Summary/Highlights:

  • The UK Bribery Act 2010 has far reaching territorial application and can even apply to Russian companies.
  • Affected companies must now have in place adequate internal anti-bribery procedures and ensure the same compliance of any of its associated persons. Strong contractual protections may prove necessary to limit exposure to prosecution under the Act.
  • The increased scrutiny may lead to fewer deals being concluded successfully and a short-term decrease in foreign investment in Russia.


The UK Bribery Act 2010 (the Bribery Act) came into force on 1 July 2011, with implications reaching far beyond the United Kingdom. This article provides a brief analysis of how the Bribery Act is likely to affect deals and investment in Russia.

The Act

The Bribery Act aims to combat corruption, for example by requiring companies to put in place proper procedures preventing bribes being paid or taken.

Broadly, the Bribery Act creates four offences:

  1. Offence 1: bribing another person
  2. Offence 2: being bribed
  3. Offence 3: bribing a foreign public official
  4. Offence 4: failing to prevent bribery

Offences 1, 2 and 3 can be committed by both individuals and companies. Senior company directors may be concerned to know that they could be prosecuted personally for Offences 1, 2 or 3 where it can be shown that the company committed one of those offences with the director’s “consent or connivance”. Whilst “consent” is a concept that is readily understood, “connivance” is broader and there is no official guidance on exactly what that means. It is likely to include indirect encouragement or tolerance of a bribery offence.

Offence 4 applies to a company where a person “associated” with the company has committed  Offence 1, 2 or 3. The wide drafting aims to bring as many companies as possible into the realm of the Bribery Act. Foreign companies and individuals “associated” with an English company or doing business in the UK are likely to fall within the Bribery Act.

Other than denying the accusation, the only defence for a company accused of failing to prevent bribery under Offence 4 is that “adequate procedures” to prevent bribery were in place. There is some guidance about what might make procedures “adequate”, but to a large extent this depends on each company’s specific circumstances. Top-level management should be involved in putting in place appropriate procedures which they consider adequate.

Consequences of being found guilty of an offence under the Bribery Act are severe. They can include the payment of unlimited fines, debarment from EU government contracts or even prison sentences of up to 14 years.

Effect on Russian companies

Russian companies may be subject to the Bribery Act if they are doing business in the UK (for example, through a branch in London) or if they have a business relationship with a UK company.

An affected company should take English legal advice and review the procedures which it has currently in place to prevent its employees, agents and other associated persons from committing bribery offences.

Before entering into a joint venture, companies subject to the Bribery Act should conduct thorough due diligence on a the historic conduct and internal anti-bribery procedures of the prospective joint venture partner. Joint venture partners are likely to be associated with each other and each could be prosecuted for an offence committed by the other party. A company should seek contractual protections in the shareholders’ agreement to protect itself from such liabilities. For example, it may be appropriate to ask for an undertaking from the prospective joint venture partner not to cause the company to be in breach of the Bribery Act, along the lines of the FCPA compliance undertakings that currently exist in most agreements with US investors.

Foreign investment in Russia

Local practices are one of the factors which should be taken into account when considering whether the procedures already in place are adequate. Foreign investors subject to the Bribery Act may need to review the adequacy of their internal anti-bribery procedures before making the decision to invest in Russia due to Russia’s historical track record and its current ranking in the Corruptions Perception Index.

We often see foreign investments being structured as joint ventures with Russian partners. As mentioned above, where the Bribery Act applies to the investor, thorough due diligence on a prospective Russian joint venture party must be conducted. Unsatisfactory results or a lack of transparency may require the investor to walk away from the intended investment.

Foreign companies doing business in Russia often use customs agents to help navigate the complex regulations governing cross-border trade. The conduct of such agents should be carefully monitored, as the agent will be associated with the company for the purposes of the Bribery Act. A foreign company could therefore find itself being prosecuted for failing to prevent a customs agent from paying a bribe.

Impact on deals

We expect to see investors increasing their due diligence on business partners, agents or joint venture partners following the Bribery Act.

In private M&A, a potential purchaser needs to review a target company’s anti-bribery procedures and historical conduct very carefully. Once the acquisition is completed, a buyer within the scope of the Bribery Act may end up being prosecuted for the target company’s past behaviour. Due diligence is therefore crucial.

Depending on the results of the due diligence, parties may chose to walk away from deals or seek strong contractual protections in the form of warranties and indemnities. Negotiating such protection provisions is also likely to flush out information about the prospective partner’s internal anti-bribery procedures.

In cross-border joint ventures, we expect to see an increased use of anti-bribery undertakings in shareholders’ agreements. While it is difficult to monitor the conduct of a joint venture partner, such undertakings allow a certain degree of control and, at the very least, give the right to compensation if the partner commits a bribery offence for which the company is later prosecuted.


Due to its far reaching territorial application, the Bribery Act is proving to be an unexpected contribution to President Medvedev’s anti-corruption campaign. Russian businesses with a UK branch may have been surprised to find themselves subject to what has been called the strictest anti-bribery law in the world.

However, increased levels of due diligence and heightened focus on contractual protections may mean that deals take longer to negotiate and, where such negotiations fail, that more deals are walked away from.

Foreign investors subject to the Bribery Act need to scrutinise Russian business partners and local practices before they can make any investments. While this ties in with President Medvedev’s anti-corruption agenda, it may lead to a short-term decrease of foreign investments into the Russian economy.

EU UPDATE – European Commission Considers Whether All Chinese SOEs should be Considered a Single Economic Entity for Merger Clearance Purposes

Editors’ Note:  Kees Peijster, Eric Pijnacker Hordijk and Geert Potjewijd are partners at De Brauw Blackstone Westbroek, resident in Amsterdam and Beijing, respectively, and are members of XBMA’s Legal Roundtable.  As leading Dutch M&A lawyers, they have broad expertise handling significant cross-border transactions involving China and the Netherlands, including the DSM/Sinochem transaction described below.  The issue of whether to view all Chinese SOEs as a single economic entity, and therefore to aggregate their ownership interests, could have important implications under many regulatory regimes and could prove to be rather controversial.  We invite comments and additional papers on this topic.

Executive Summary:

The European Commission recently issued clearance under the merger control rules for the proposed joint venture between DSM and Sinochem. The Commission considered the question of whether all Chinese State-Owned Enterprises (so called “SOEs”) should be considered a single economic entity, but left the question open for future determination after concluding that even if all Chinese SOEs act as one entity, in the DSM/Sinopec case the combined market share would remain moderate, and there would still be sufficient competition in the relevant market from a range of large independent competitors.  Future cases will be determined on a case by case basis, with the essential test being whether the SOE has independent commercial decision-making power.  It is noteworthy that while in prior press releases the Commission seemed to indicate that a difference exists between SOEs managed by the central SASAC and those by local SASACs, in DSM/Sinochem, the Commission did not make such a distinction but considered the market position of all Chinese SOEs active in the sector.


Sinochem is one of the largest Chinese SOEs and is involved in agricultural and chemical products, energy, real estate and finance. DSM is a global life sciences and materials sciences company headquartered in theNetherlands. Their joint venture will be mainly active in the field of certain antibiotics products. The Proposed Transaction was notified to the Commission on 8 April 2011.

This notification is the latest clearance granted by the European Commission (the “Commission”) involving a Chinese SOE.  Commissioner Almunia, in a recent speech at the International Competition Law Forum, also specifically mentioned two other cases: the acquisition of Elkem by China National Bluestar and the acquisition of Intergen by Huaneng.  All three cases involve a Chinese SOE and a non-Chinese company. They were all decided in 2011.

Independent commercial decision-making power test for SOEs

When dealing with SOEs (irrespective of nationality) under the EU merger control rules, the Commission will have to assess whether the SOE concerned should be viewed  as an undertaking in its own right or as part of a larger “single economic entity” including other SOEs. This is relevant both for calculating the turnover of the SOE and for assessing the substantive competition concerns that the transaction may cause: the Commission will aggregate the market shares of all SOEs forming part of the same single economic entity for the purpose of calculating the market share of the SOE.

When assessing concentration involving private parties, the Commission will typically consider the ultimate parent company of a group together with all of its subsidiaries (which are deemed to be “controlled” by the ultimate parent) to constitute a single economic entity. Since by its very nature, an SOE is controlled by the State, the usual “control” test is not appropriate in the case of SOEs. The essential test is whether the SOE has independent commercial decision-making power and if not, what other undertakings should also be included in the scope.  This principle has been set forth in the so-called Jurisdictional Notice of the Commission.

In the past, the Commission has applied the test mainly in analysing SOEs in Europe, such as in France, Spain and Italy.  Recently, the Commission also applied the test in the context of Chinese SOEs, partly as a result of their increasing outbound investment activities and increasing turnover generated outside China.  In China, SOEs are managed by the State-Owned Assets Supervision and Administration Commission (the “SASAC”).  At national level, the central SASAC is a government agency under the State Council (the central government in China).  At provincial and local level, the local SASACs are part of provincial and local governments.  Among all SOEs, more than 100 SOEs are managed by the central SASAC and the rest (more than 12,000) are managed by the local SASACs.

Is there a “China Co”?

The Commission has adopted a rather cautious approach in examining the relationship between Chinese SOEs and SASAC and also the relationship between Chinese SOEs managed by the central SASAC and those managed by local SASACs.  The Commission looked into the decision-making process, the relevant laws and regulations inChina, and the history of coordination by the State intervention.  In this connection, the Commission not only viewed possible coordination by SASAC, but also into possible coordination by other bodies of theChineseState, such as Ministries or Chambers of Commerce.

In the two earlier cases, the Commission left the question of the composition of single economy entity open, as it would not change the conclusion of lack of competition concerns in the relevant markets. In DSM/Sinochem, the Commission also did not adopt a final position as to the exact scope of the “single economy entity” involving Sinochem. The Commission adopted a cautious approach also in the light of responses from market players that expressed concerns over possible coordination between Chinese SOEs in the field of antibiotics.

For these reasons, the Commission conducted its substantive analysis based on two alternative scenarios where: (1) Sinochem is deemed as a single economic entity with independent decision-making power, and (2) all Chinese SOEs act as one entity in the sector concerned.  The Commission reached the conclusion that even if all Chinese SOEs act as one entity, in the present case the combined market share would remain moderate, and there would still be sufficient competition in the relevant market from a range of large independent competitors. Therefore, the Proposed Transaction would not lead to competition concerns.

It is noteworthy that in the press release of Bluestar/Elkem, the Commission seemed to indicate that a difference exists between SOEs managed by the central SASAC and those by local SASACs.  However, in DSM/Sinochem, the Commission did not make such a distinction but considered the market position of all Chinese SOEs active in the sector.

Future filings involving Chinese SOEs

Commissioner Almunia stated in the same speech thatEuropewill not import principles and practices from the non-market economy countries. Instead, it will apply its rules to all companies irrespective of nationality.

The Commission has thus far not provided a definite answer as to whether a Chinese SOE is a single economic entity or whether all Chinese SOEs are to be considered as one entity.  It adopts a case-by-case approach which unavoidably requires more information and data for the assessment.

Currently, there are cases still pending involving Chinese SOEs before the Commission and the parties have been required to provide a broad range of information and data, not only for the SOE concerned but also for all other SOEs active on the same market.

Companies should be prepared to devote additional time and resources in the pre-consultation period and may consider collecting a broader scope of information even before contacting the Commission. It will facilitate communication and the filing process with the Commission and thus prevent unnecessary delays.

The full text of the DSM/Sinochem decision can be found here.

The views expressed herein are solely those of the author and have not been endorsed, confirmed or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

Subscribe to Newsletter

Enter your Email

Preview Newsletter