COVID-19 and the energy sector (2020) · Energy Sector in Italy, Spain, France, Germany and the United Kingdom 4 5 6. 04/06/2020 3 LexisNexis® Confidential 7 Index Introduction:

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COVID-19 and the energy sector

(2020)10 June 2020

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LexisNexis® Confidential 2

The law as stated during this webinar is

up to date as of 3 June 2020

COVID-19 and the energy sector

(2020)


Introductions

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Partner (Italy)

Herbert Smith Freehills

Partner (UK)


Silke Goldberg

Lorenzo Parola

Partner (Germany)


Marius Boewe


Partner (France)


Partner (Spain)


Ignacio Paz

Mathias Dantin


The Impact of Covid-19 on the

Energy Sector in Italy, Spain,

France, Germany and the United

Kingdom

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Index

Introduction: general context

Consumers: main measures

Generation: impact on renewable projects

Contractors and Offtakers: hardship, force majeure and change in law clauses

Investors: new foreign investments regime


Introduction: general context


Introduction : Impact on electricity and gas sectors – France

Decrease of consumption and prices of electricity and gas

Electricity

Sources: RTEand France Stratégie

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Introduction : Impact on Electricity and gas sectors – France cont.

Decrease of consumption and prices of electricity and gas

Gas

• At the beginning of February, gas prices in Europe and the United States fellby 18%.

• North West European gas demand has fallen 40% since start of April amidstcontinued lockdown and warmer weather.

• Engie's regulated gas sales tariffs have fallen by 2.8% as of 1st June 2020 incomparison to its 1st of May tariffs, but since 1st January 2019, Engie’s tariffshave fallen by 25.3 %

• Slight decline because Engie’s regulated gas sales tariffs are no longer indexedon the oil price.

Sources: CRE ; l’Energie Tout compris and Aurora


Introduction: Impact on Electricity and Gas Sectors - Italy

• Stark decrease in consumptions during lock-down

o Power: minus 17% in April

o Gas: minus ca. 30% in April

• Major impact on power prices (last week of May 10€/MWh)

• In April 48.3% of the Italian power demand was covered by renewables


Introduction: general context - Spain

• In general terms: government support packages with new measures in severalareas (employment, financial, insolvency, competition, litigation, insurancenew FDI, etc.

• Energy: several measures and the announcement of the new Climate Changeand Energy Transition Act – Spain.

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Introduction: general context – Germany

Government support packages

• The German Federal Government has announced several measures to helpbusinesses:

o Financial help for small businesses (including freelancers and self employed)

o Further liquidity support for businesses through special loans, facilitated by the German Bank for Reconstruction (Kreditanstalt für Wiederaufbau, KfW) (for all businesses)

o Setting up of an Economic Stabilisation Fund (ESF)(Wirtschaftsstabilisierungsfond) (for larger companies)

o This fund was set up under an Act on the Establishment of an Economic Stabilisation Fund (Gesetz zur Errichtung eines

Wirtschaftsstabilisierungsfond)(WStFG), entered into force on 28 March 2020

• These measures are not sector specific and are mainly focused on providingstability to the wider economy


Introduction: general context – Germany cont.

Additional support packages

• The COVID-19 Insolvency Suspension Act (COVInsAG, CIS Act):

o Came into force with retrospective applicability as of 1 March 2020

o Suspends the obligation to file for insolvency (until 30 September 2020)

• Termination rights for non-payment of rent have been suspended

• Provides restructuring loans and protection from insolvency claw-back

• Simplifies the making of corporate resolutions

• Provides additional support measures for small businesses and consumers

• In addition, enforcement measures regarding tax issues have beensuspended

• There is no date for the end of small business support/further liquiditymeasures, though the ESF programme is due to end on 31 December 2021

• An agreement between the Federal Govt. and credit insurers has securedsupply chains in the German Economy, with an additional guarantee beingprovided by the Government


Introduction: general context – United Kingdom

Government support packages

• The Government has a business support finder tool, with wide rangingsupport measures in place:

o The Coronavirus job retention scheme (furloughment).

o Coronavirus Large Business Interruption Loan Scheme (CLBILS).

o Coronavirus Business Interruption Loan Scheme (CBILS).

o COVID Corporate Financing Facility (CCFF, alongside the Bank ofEngland)

• There are no private sectors excluded from the schemes, but support isgenerally not available for public sector organisations.

• No specific legislation aimed at the energy sector has been released as yet.

• Ofgem has prioritised the protection of vulnerable consumers and issuedguidance for energy licensees – all regulatory obligations remain in place.

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Consumers: main measures


Consumers: main measures adopted – France

Guaranteed supply of energy and

gas to vulnerable consumers

Through the extension of the

winter truce (extension from the

31 March 2020 to the 10 July

2020) suppliers of electricity, heat

and gas may not interrupt energy

supplies to persons or families in a

principal residence, including by

termination of contract, for non-

payment of bills

Protection of micro-businesses

• prohibition of the interruption or

suspension of the supply of

electricity, gas and water in the

premises; and

• companies may request the

staggering of the payment of the

corresponding invoices due over

the same period, without any

penalty, from energy suppliers.


Consumers: main measures adopted – Italy

Guaranteed supply of

energy and gas to

vulnerable consumers

Supply of power to all power

customers in low voltage and

all gas customers with an

annual consumption of

natural gas less than 200,000

cm cannot be interrupted

even if they do not comply

with their payment

obligations)

Relief for retailers

All payments already due to

DSOs as of 2 April 2020 are

extended by 15 working days.

DSOs cannot terminate the

agreement nor enforce the

guarantees posted by retailers

if at least 70% (power) or 80%

(gas) of the invoices due by 30

April is paid

Suspension of power and

gas bills

The obligation to pay power

and gas bills has been

suspended to all

end/consumers in the

so/called “red zone”

Reduction of general system

charges

� Law-Decree 19 May 2020, No. 34 specifically sets out a reduction of general system

charges in respect of the invoices relating to May, June

and July 2020 to be implemented by ARERA for

low-voltage connected users other than domestic users.

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Consumers: main measures adopted - Spain

Guaranteed supply of

energy and water to


The supply to consumers in

their habitual residence of

energy and water, among

others, may not be suspended.

Electricity discount

(“bono social”)

The group of potential

beneficiaries has been

temporally extended.

Flexibility in electricity

and natural gas supply

contracts for the self-

employed and

businesses

Self-employed persons and

companies may request the

suspension or modification of

their supply contracts among

others.

Suspension of

electricity, natural gas

and oil product bills

for businesses and the

self-employed

The obligation to pay electricity and

gas bills, among others, has been

suspended.


Consumers: main measures adopted - Germany

Impact of the CIS Act

The Act allows consumers and

small businesses (balance sheet

p.a. <€2m) to defer or

temporarily suspend payments to

energy suppliers, if they

experience difficulties in making

payments.

No shut-offs

Almost all utility providers who

are members of the VKU

association have agreed that

they will not cut off defaulting

customers’ electricity if they

miss payments.

Tax deferrals

Consumers can ask for some

taxes to be deferred if the

taxpayer is directly affected by

COVID-19, and if their

collection would lead to

significant hardship – includes

VAT


Consumers: main measures adopted – United Kingdom

All regulatory obligations

remain in place (Ofgem)

The regulator is taking a

pragmatic approach,

particularly where


may be harmed.

Emergency package for

consumers struggling to

pay energy bills

Consumers can review

payment plans; take

breaks or reductions; and

may access hardship

funds. No meters will be

disconnected.

Relief for retailers

Government grants are

available to support

businesses struggling to pay

bills, though these are not

specifically energy linked –

((CBILS) and other schemes

e.g. business rates holidays).

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Generation: impact on

renewable projects


Generation: impact on renewable projects – France

Adjusted timetables for renewables call for tenders (awarding subsidies)

• 19 March 2020 – Directorate General for Energy and Climate (DGEC)

o Extension periods will be granted to producers penalised by delays and the impossibility ofensuring deliveries of key equipment, particularly photovoltaic modules.

• 23 March 2020 – DGEC

o Adjustment of the next calls for various renewable energy tenders in France (see adjustedschedule in the next slide):

o extension by two months of the submission date for the bids;

o split of the scheduled batches of tender for the onshore wind and ground-based solarsessions.

Consideration of delays due to the Covid-19 crisis

• 3 April 2020 – Announcement of the Ministry of Ecological and Inclusive Transition

o Additional delays granted for the commissioning of the biogas production facilities that areunder construction in order not to penalize projects that have been delayed due to the healthcrisis;

o A temporary suspension of the biogas purchase contract for production plants experiencingoperational difficulties for various reasons, such as lack of inputs.

• 21 April 2020 – DGEC

o Biomass, biogas cogeneration and waste incineration units will benefit from neutralisation ofdowntime or reduced operation periods in the calculation of their availability or energyefficiency.


Generation: impact on renewable projects – France cont.

New schedule of the call for tenders by technology

Sectors Date of submission of bids

Old date New date

Solar PV Sol 3 July 20201/3:

3 July 2020

2/3:

3 November 2020

Solar PV Fessenheim 31 July 2020 30 September 2020

Wind 1 July 20201/3:

1 July 2020

2/3:

1 November 2020

Solar PV Building 6 July 2020 6 September 2020

Solar PV Innovative 3 April 2020 3 June 2020

Solar PV ZNI 12 June 2020 12 August 2020

Self-consumption 18 May 2020 18 July 2020

Small hydro 31 March 2020 30 May 2020

Sectors Date of submission of bids

Old date New date

Solar PV Sol 3 July 20201/3:

3 July 2020

2/3:

3 November

2020

Solar PV Fessenheim 31 July 2020 30 September 2020

Wind 1 July 20201/3:

1 July 2020

2/3:

1 November

2020

Solar PV Building 6 July 2020 6 September 2020

Solar PV Innovative 3 April 2020 3 June 2020

Solar PV ZNI 12 June 2020 12 August 2020

Self-consumption 18 May 2020 18 July 2020

Small hydro 31 March 2020 30 May 2020

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Generation: engagements towards a decarbonised economy –France

10 April 2020 – Support to the Green Deal

• French Minister for the Ecological and Inclusive Transition signed an open letterstating Green deal as a roadmap to overcome the economic crisis.

27 April 2018 - Letter from the French authorities to the other European countriesregarding decarbonised economy

• A collective reflection should be initiated at the European level to secure thefinancing of decarbonised electricity production tools (i.e. including nuclear powerplants).

• The cost of fossil energies should be proportionate to their true environmentalimpact in order to avoid burdening energy transition policies with anyunnecessary risks.

• France's call for a carbon price floor.

• The current crisis show the relevance of a transition towards a more resilientelectricity production system. This should be achieved by developing both:

o a diversified decarbonised electricity mix; and

o a strong supply chain of critical components in Europe.


Generation: engagements towards a decarbonised economy –France cont.

Adoption of the Multiannual Energy Program (PPE) and the Low Carbon National Strategy (SNBC)

Decree of 21 April 2020

• Adoption of the Multiannual Energy Program (PPE) and the Low Carbon National Strategy (SNBC)

• Elaboration process started in 2017: public consultation from 20 January to 20 February 2020 but no change in measures followed the public consultation.

• PPE objectives compared to the 2012 consumption:

o By 2023: final energy consumption decreased by 7,5%;

o By 2028: final energy consumption decreased by 16,5%.

Source: decree n°2020-456 of the 21 avril 2020

regarding the multiannual energy program


Generation: impact on renewable projects – Italy

• Suspension until 15 May 2020 of all terms relating to permitting proceedings ongoing as of 23 February 2020 and extension until 15 June of the validity of any certificate, permit, concession, authorization expiring between 31 January 2020 and 15 April 2020.

• GSE (the Italian renewables agency):

o Suspended until 30 April 2020 all terms of proceedings related to renewables and energy efficiency, in particular:

o Suspension of all terms of inspection proceedings related to renewables and energy efficiency.

o Extension of all terms relating to requests of documentary integration

o Extended a series of deadlines (originally expiring in the forthcoming days) relating to renewables and energy efficiency.

• The Ministry of Economic Development stated that power plants carry out a public

service and must implement all measures to ensure full operation of the plants.

• (i) Supply and distribution of power, gas, steam and air conditioned (ii) installation

of electrical systems (iii) private security services are excluded from the lock-down

obligation. Also those activities which are "functional" to insure the continuity of

the supply chain of essential activities and public services (e.g. O&M) are excluded.

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Generation: impact on renewable projects – Spain

• Biomass and Wind Power Plants awarded specific remuneration comply with

requirements established before 28 March 2020. The deadline is suspended

until the 4 June 2020, when the suspension is lifted.

• Extension of the term to obtain definitive start up certificate of under-

construction plants that obtained access and connection permits before Law

24/2013 will expire if the definitive start-up certificate is not obtained within

two months of the end of the state of alarm.

That is, the limitation period which was set 31 March 2020 for access and

connection permits is extended until two months after the end of the state of

alarm


Generation: impact on renewable projects – Germany

• Normally, renewable plants, onshore wind and solar power plants over 750kW, and biomass plants over 150kW awarded under tender procedures must be implemented within a certain time period

• If not, they are subject to fines (after 18 months).

• Contracts may also be forfeited completely (if deadlines are missed after 24 months)

• Currently, the Federal Network Agency decided to conduct the tender process as requested by law.

• However, the results will not be published, which will postpone the beginning of the deadlines mentioned above.

• Future obligations:

o Germany targets a 65% renewable energy mix by 2030, however this was

already falling behind due to other factors

o The German energy association Bundesverband der Energie und

Wasserwirtschaft (BDEW) has urged Germany not to forget its climate

change obligations during the oubreak


Generation: impact on renewable projects – United Kingdom

• A review of Ofgem’s overall processes is ongoing, covering how consultations canbe run over the next year.

• RIIO-2 hearings have been postponed until further notice.

• Reviewed plans are to be published in due course.

• The Crown Estate has extended the timetable for Round 4 of its offshore windprojects tender:

o Submission window increased from 7 to 10 weeks.

• The Low Carbon Contracts Company (LCCC) manages the administration of CfD

payments:

o A drop in electricity demand has led to a shortfall in supplier

contributions.

o The LCCC will receive a government loan, amount to be determined.

o The Supplier Obligation Interim Levy Rate may have to be increased to

cover June’s payments.

o BEIS may conduct a consultation on the reduction of liabilities for CfD

payments

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Contractors and Offtakers:

hardships, force majeure and

change in law clauses


Contractors and offtakers: force majeure - France

Force Majeure provisions

• Since 2016, force majeure is governed by Article 1218 of the French Civil Code which

specifically provides a statutory regime for force majeure in contracts governed by French

law, even where the contract does not contain a force majeure provision.

• Article 1218 provides that a party can invoke force majeure to excuse its failure to perform

its contractual obligations if: (i) the event was beyond the control of the non-performing

party; (ii) the event was not reasonably foreseeable at the time of entering into the

contract; and (iii) the non-performing party could not have avoided the effects of the alleged

force majeure event with appropriate measures and is therefore unable to perform its

contractual obligations.

• The statutory regime is not mandatory, however, and parties can opt out of it completely or

vary it by including force majeure clauses in their contracts, in which case the points

identified above with respect to contractual force majeure apply

• Successfully invoking FM is notoriously difficult under French law.

• On a side note, on February 29th, the French Minister of Finance Bruno Le Maire said that

the COVID-19 epidemic would qualify as a "force majeure” event for companies with

government. In a letter also dated 29 February to the Mayors of France, the Minister also

suggested they could be lenient in applying liquidated damages. However, the order No.

2020-319 of 25 March 2020 does not contain any presumption of force majeure and the

note of the legal service of the Minister of Economy (i.e., DAJ) on this order recalled that

force majeure can only be assessed on a case-by-case basis.


Contractors and offtakers: Hardship - France

Hardship provisions

• Parties to a contract governed by French law and entered into after 1 October 2016 may seek to rely on the doctrine of hardship (imprévision) codified at article 1195 of the French Civil Code to try to renegotiate their contract when an unforeseeable change of circumstances makes performance excessively burdensome for a party that had not agreed to assume such a risk. If the parties cannot reach an agreement on renegotiation of the contract, either party may apply to the courts for the contract to be amended or terminated

• However parties can also exclude article 1195 of the Civil Code, or make adjustments to the conditions under which it applies, especially as concerns renegotiation or recourse to the courts

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Contractors and offtakers – ARENH Litigations – France

Force majeure and ARENH contract

• Majority of alternative suppliers have requested volumes under the ARENH mechanism in2018-2020 as the price (fixed by legislation at 42 €/MWh) was more advantageous thanmarket prices.

o For the year 2020, CRE has received a total of 147.0 TWh of electricity requests forARENH mechanism while the quantity of electricity allocated to alternative suppliers iscapped at 100 TWh by law.

o CRE renewed its recommendation to increase the volume limit of the ARENH, which isno longer adapted to the current situation on the French electricity market.

• Due to the COVID-19 crisis, market prices dropped to 20 €/MWh.

• Exceptional measures - due to the COVID crisis, the CRE has adopted the followingmeasures:

o suppression of CP2 penalties for the year 2020;

o the CRE encourages amicable agreements in case of dispute arising between EDF andthe alternative suppliers; and

o alternative suppliers will be able to obtain payment delays on ARENH’s invoices.

• Reshape of the ARENH - The French Ministry for the Ecological and Inclusive Transition haslaunched, on 10 April 2020, a tender process to obtain assistance and legal advicealongside the Directorate General for Energy and Climate (DGEC) in order to support theState in the development and implementation of new methods of market regulationelectricity.


Contractors and offtakers – ARENH Litigations – France cont.

Force majeure and ARENH contract

• Alternative suppliers have requested:o the activation of the force majeure clause in the ARENH contract to suspend the contract

and to purchase electricity on the market; ando the transmission to RTE of the evolution of the ARENH volumes delivered by EDF to the

alternative suppliers concerned to activate the force majeure clause.

• EDF refused to activate the force majeure clause and the CRE rejected the alternativesuppliers’ requests by a deliberation dated 26 March 2020.

• On 17 April 2020, the Conseil d’Etat rejected an interim proceeding introduced by twoFrench associations representing alternative suppliers (ANODE and AFIEG) requesting thesuspension of the CRE’s deliberation.

• On 20 May 2020, the Paris Commercial Court issued an interim order in favour of TotalDirect Energie ruling that:o conditions of the force majeure, as defined in the contract with EDF, are met;o Total Direct Energie could invoke the force majeure clause in the contract signed with

EDF; ando the Paris Commercial Court ordered EDF to suspend the contract.

• EDF has announced its intention to appeal the Paris Commercial Court interim order. Notethat other alternative suppliers have also introduced a similar interim order request beforethe Commercial Court.


Contractors and offtakers: force majeure – Italy

Relevant provisions under Italian civil code: articles 1218, 1256, 1463, 1464 and 1467:

• O&M, EPC, PPA and Asset Management agreements include clauses similar to usual common

law contracts. Detailed force majeure provisions are often included.

• Case by case analysis of the project contracts, with particular reference to the exhaustive or

non-exhaustive lists of force majeure events.

• Impossibile to claim force majeure for events foreseeable and non-avoidable.

• In case of absence of detailed force majeure provisions an evaluation of certain elements must

be carried out (inter alia, facts proving the delay in the fulfilment of certain obligations, impact

of such facts on the scope of the contract, absence – or extreme hardship – of alternative

solutions).

• Subcontractors’ force majeure.

• O&M contracts, scheduled maintenance does not need to be suspended as it is aimed at

ensuring generation continuity, unscheduled maintenance may not be suspended if necessary

to allow the proper operation of the plants. It is possible to draw a distinction between (i)

activities to be carried out on site by contractor’s employees – which may not be suspended,

without prejudice to H&S – and (ii) supply of main components, which may – upon certain

conditions – trigger force majeure.

• Obligations: mitigation, communication of the event, prompt resumption of the relevant

obligations at the end of the force majeure event.

• Right to withdraw of either party for prolonged FM.

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Statutory Hardship

• Right to terminate the contract.

• Has the statutory hardship provision under the Italian Civil Code been expressly waived?

• In PPAs is volatility of energy price really unforeseeable?

MAC

• Right to request other party to provide additional assurances (eg EFET contracts

General remarks

• Specific provisions aimed at regulating the impact of the Covid-19 outbreak under project contracts which are executed or amended.

• Disputes between the parties. Possibility that a party brings a claim in order to reopen agreed commercial terms.

• Cross default provisions: termination of a single contract may have a broader impact.

Contractors and offtakers: hardship and MAC – Italy


Contractors: force majeure and MAC – Spain

• Force majeure: certain obligations of the contract become impossible (circumstances that could not have been foreseen or could not have been avoided).

Under the effect of this circumstance:

o the affected party will be temporarily released from the obligations affected; and,

o neither party may claim any compensation for the non-performance of the affected obligations.

• MAC (Material Adverse Change): severe change in the circumstances of the contract that may lead to a termination of the contract obligations.

o Complex clauses.

o Restricted application.


Contractors and offtakers: force majeure – Germany

Relevant provisions under the German civil code: Sec. 206, 275, 286 et. seq., 293 et. seq., 313, 326)

• No legal definition in German law, the precise meaning depends on the legislative context but is often regarded as an external event that has no operational connection and cannot be averted even with the utmost care that can reasonably be expected � pandemics e.g. SARS-CoV have previously classified as Force Majeure in the context of travel law

• energy contracts mostly contain force majeure clauses (incl. definition of FM) releasing both contracting parties from their contractual obligations to perform for the duration of the force majeure and indemnify each other against claims for damages

o the legal and contractual situation must be examined in each individual case

o most clauses contain certain information schemes and procedure for resumption of

performance for the contracting parties, liability risk in case of non-compliance

• In the absence of Force Majeure clauses contractual and tortious liability is based on principle of fault under German Law:

o Only limited direct reference to Force Majeure (höhere Gewalt) in the German Civil Code

(e.g. Sec. 206, 703 (3) BGB)

o provisions on impossibility (Sec. 275 & Sec. 326 BGB), default (Sec. 286 et seq. & 293 et. seq.

BGB) or loss of the basis of the transaction (Sec. 313 BGB) apply in absence of FM clauses in

the contract

o In case of an epidemic there will generally be no fault, so that there will be no liability for

damages though possible liability if contracting party has failed to take appropriate measures

to mitigate harm

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Contractors and offtakers: MAC and Change in Law – Germany

• MAC-Clauses (Material Adverse Change):

o More common in Anglo-American jurisdictions

o Requirements for a valid MAC-Clause

o MAC-Clauses and COVID19

o Preexisting official legislation comparable to MAC-Clauses = Interference with the

basis of the transaction (Section 313 BGB)

o Advantages MAC-Clauses in comparison to Preexisting official legislation (Section

313 BGB)

o Possible comeback of MAC in the light of COVID 19 on the German market?

• Change in law – Clauses


Contractors and offtakers: Boilerplate clauses – United Kingdom

• Force Majeure provisions in project contracts: certain obligations of the contract

become impossible (circumstances that could not have been foreseen or could

not have been avoided).

o The Infrastructure and Projects Authority (IPA) stated that the COVID-19 crisis

is not to be regarded as an event of force majeure for PFI contract purposes.

o Contractors in such projects are to consider themselves as part of the Public

Sector Response to the emergency.

o List of circumstances constituting FM may be closed or open ended.

• MAC (Material Adverse Change): a severe change in the circumstances under which the contract was entered into may trigger termination of contractual obligations.

o Complex clauses.

o Restricted application.

• Change in law: a change to the applicable law would make performing an obligation illegal

o Check all relevant alterations to the law.


Investors: new foreign

investment regime

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Investors: new foreign investments regime - France

Strengthening of the French foreign investment control regime

New order dated 27 April 2020 and recent announcements from the French Minister of Economy

Changes in the foreign investment control concern:

• biotechnology companies, for instance those working on research for a vaccine against COVID-19, are sustainably added to the list of sensitive sectors (R&D activities relating to critical technologies).

• France will lower as from the second semester and until the end of the year 2020, to 10% (against 25% currently) the threshold of control of the acquisition of stakes by non-European investors in the share capital of strategic French companies.

• Since the COVID-19 crisis, the French Ministry of Economy has already demonstrated its extensive use of FDI powers: the refusal by the Ministry of Economy of the acquisition project of the French tech company (Photonis) developing applications with military uses, by the US group Teledyne, is the 1st case of veto in France.


Duty to notify the Presidency of the Council of Ministers of:

Objective scope - transactions and corporate resolutions involving:

• strategic assets listed in the Ministerial Decree no. 85/2014 (e.g. national natural gas transmission network, related compression stations and dispatching centres, gas storage facilities, national electricity transmission grid and relevant control and dispatching facilities).

• Under the "Liquidity Decree", all energy infrastructures, real estate investments essential for the use of these infrastructures and energy supply (e.g. generation, wholesale supply, etc.). Significant extension of the notification duties:

o Including renewables? Requests for clarification will be submitted to the Government on behalf of the Italian Wind IPPs Association (ANEV).

o Risk: the government is likely to be overwhelmed with notifications.

Subjective scope - if investors are:

• Non/EU persons, or EU persons controlled by, non-EU persons, in case of acquisition of a controlling stake or (until 31 December 2020) a shareholding interest <10%, if the acquisition value exceeds Euro 1 million (as well as for acquisitions leading to a surpassing of each of15%, 20%, 25% and 50%thresholds); or

• EU persons, in case of acquisition (until 31 December 2020) of a controlling interest.

Consequences: Investments made without the required prior authorisation will be invalid and legallyvoid.

• A breach of the restrictions would lead to heavy fines (up to twice the value of the transaction and in any case not less than 1% of the cumulative turnover achieved by the companies involved).

Investors: new foreign investments regime – Italy


An authorisation from the Council of Ministers will be required:

Subjective Scope: if investors are:

• non resident in EU or EFTA; or,

• EU or EFTA residents whose beneficial owners are, or that are controlled by, non- residents.

Objective Scope: if as a result of the investment:

• the investor holds a shareholding interest =/< 10%; or,

• the investor takes part in the management or control.

Consequences

• investments made without the required prior authorisation will be invalid and legally void until they have been properly legalised.

• breach of the restrictions constitutes a very serious offence, which would lead to a fine (which could amount to the sum of the transaction)

Investors: new foreign investments regime – Spain

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Investors: new foreign investments regime - Germany

• Germany plans to further tighten its foreign investments regime:

• In 2017, Germany introduced a notification obligation for foreign acquisitions in a number of sectors, including critical infrastructure

• Currently, non-EU investment of at least 25% of the voting rights in Germancompanies may be reviewed on the grounds of national security and/or public order

• Certain sectors, including energy infrastructure, are subject to mandatory notificationif at least 10% of the voting rights are acquired by non-EU investors.

• After several iterations of tightening, the Government recently proposed new foreigninvestment rules. These go slightly further than the EU Regulation:

o If passed, standard of review will be whether a foreign investment will be “likely to affect” public order or security

o Previous standard was “endanger”

o Currently, military/defence foreign investments have a “stand still obligation” –i.e. they are paused whilst a ministerial review is carried out, and deals cannot be closed before clearance

o Additional amendment would expand the stand still obligation on foreign investments from defence sectors to other sectors – including critical infrastructure


Investors: foreign investments regime – United Kingdom

The National Security and Investment Bill (December 2019, awaiting second reading):

New notification system- businesses can flag transactions, giving rise to national security concerns:

• Likely to be on a voluntary basis.

• If a transaction may impact Government held information and nationalinfrastructure.

• Applies to acquisitions of businesses and other assets which have national security implications.

• Government will screen the transaction.

Additional risk mitigation measures- the government may, on the grounds of nationalsecurity concerns:

• Add conditions.

• Block transactions entirely (last resort); though there is a right to appeal.

Matches other jurisdictions- trend in other countries to introduce screening:

• Consistent with the EU’s new provisions.


Concluding remarks

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