UAE Law and Practice Contributed by: Brendan Hundt, Dan Feldman, Sam Anastasiou and Saiesh Kamath, King & Spalding LLP
Protections and Incentives Foreign investors in power projects benefit from the same general guarantees that apply to all market participants including protection of private property, freedom to repatriate profits and capital, access to the courts, the UAE’s extensive bilateral investment treaty (BIT) network, and the availability of international arbi- tration with reliable award enforcement. Foreign investors may agree to arbitration in project and finance documents, and UAE Federal Law No 6 of 2018 governs arbitrations seated in the UAE and cer- tain international commercial arbitrations where the parties choose that law. The UAE is also a signatory to the New York Convention, which facilitates enforce- ment of arbitral awards. When applicable, investors can also consider protections under investor-state dispute settlement systems through UAE’s BITs and UAE’s accession to the ICSID regime. For utility-scale procured projects, investors usually focus on including key protections at the contractual level in the relevant parts of the Power Purchase Agree- ment (PPA) or offtake arrangements (generally entered into with sole procurers like EWEC and DEWA) such as compensation for change-in-law treatment, termi- nation in various situations, lender step-in rights or, in some cases, government-backed credit support to projects. It is also worth noting that the project model in the UAE jurisdictions is well-established (in the case of Abu Dhabi, for example, the fundamentals of the model have been in place for almost 30 years) and the underlying risk allocation is considered “bankable” by both local and international lenders. The principal commercial attraction is the UAE’s con- tinuing requirement for capital, technology and deliv- ery capability to implement clean-energy, nuclear, grid and storage objectives under national and emirate- level energy strategies. Key incentives include: • free zones, which offer 100% foreign owner- ship plus a 0% corporate tax rate on “qualifying income” for a Qualifying Free Zone Person (against the 9% mainland rate above UAE Dirhams (AED) 375,000) and faster set-up;
• residency incentives, including long-term “golden visas”, relaxed visa rules and land-ownership rights to attract skilled investors; and • treaty and enforcement protections set out above. 1.4 Sale of Power Industry Assets Restrictions and Consents There are no expressly stated minimum requirements that prospective purchasers of assets or businesses in the power sector must satisfy, but in practice, sales of power assets, project-company shares and other regulated businesses are governed by a combination of sector licences (which require regulatory consent to transfer), transfer restrictions in project documents and land arrangements, and competition law. As in other jurisdictions, project and finance docu- ments typically play a key role in how assets and stakes in project companies may be dealt with, and a review of the contractual mechanisms in these docu- ments should be the first port of call for an entity seek- ing to acquire power assets or a stake in an electricity project company. Transactions affecting licensed power-sector entities or activities are also subject to regulatory scrutiny. In Abu Dhabi, they are assessed against the Depart- ment of Energy’s licensing and compliance framework and may require approval, non-objection or licence updates depending on the exact nature of the entity, asset and licence terms. Similarly, in Dubai, transfers of stake in licensed electricity or water production pro- jects are assessed under the applicable DEWA and RSB framework. Where the transaction involves a public utility asset, the consent analysis is more inten- sive to ensure that any concerns about operational continuity, grid security, licence compliance and pub- lic-service obligations are appropriately addressed. Foreign entities looking to acquire power industry assets or businesses must also respect the ownership ceiling applicable to the utilities/strategic sector, sub- ject to any free-zone exceptions. Foreign-ownership exemptions can be granted, but typically come with conditions such as a minimum share-capital contribu- tion, technology transfer and requirements to provide employment/training opportunities for UAE nationals.
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