Julio Martinez, Head of the Legal Affairs Office at the Central American Bank for Economic Integration (CABEI) speaks to Michael Washburn about encouraging recent developments on the renewable front in Central America as well as the persistent challenges of fostering programs and projects throughout the region.
Let’s talk about CABEI’s strategy in 2015
CABEI is a regional bank and its main objective is to promote the economic integration and the balanced economic and social development of the founding countries of the Central American region.
Through the Institutional Strategy 2015-2019: Integrating Sustainable Development and Competitiveness, CABEI strengthens its commitment to increase the contribution to the social and economic development, improve its operational efficiency and maintain its institutional relevance.
Pursuant to CABEI’s mission to promote regional integration, the Bank supports infrastructure initiatives, such as a road network, as well as ports and airports, all of which contributes to regional connectivity. It also finances energy generation to take better advantage of the common energy market and supports financial intermediation to further intraregional production and trade, both agricultural and non-agricultural. To that end, the guidelines of the axis of regional integration are: contribute to strengthening intra and extraregional trade, promote the region’s physical integration and support efforts to foster regional institutionality.
The search for environmental sustainability and reduction of vulnerability to natural disasters associated with climate change are fundamental for guaranteeing that the Bank’s efforts focusing on social development, competitiveness and regional integration are environmentally viable on the medium and long term. In this sense, the Bank has established the axis of environmental sustainability as collateral for all its operations, and it has established a group of guidelines aimed at contributing to environmental sustainability in line with CABEI’s Environmental and Social Policy; it is also implementing institutional responsibility plans.
As it pertains to energy, CABEI has and it will continue to support initiatives focusing on sustainable energy generation, transmission and distribution in order to strengthen regional energy quality and coverage. The Institution has been involved throughout the region in wind, solar, hydro, geothermal and biomass projects. From my standpoint the region is enthusiastic about renewable energy, mostly about green projects. I believe that all countries in the region have started taking positive steps in order to balance their energy matrix which have led them to promote the development of projects based on renewable energy.
You do a fair amount of work alongside international bodies, such as the IFC and the IDB, to get projects off the ground. The Penonome II wind farm in Panama, which has a 215 MW capacity – Central America’s biggest wind farm – is a recent example
Yes, indeed, we have worked with our multilateral peers in quite a few transactions, involving different sectors, exchanging among other things, our expertise, lessons learned and deep local knowledge. In regards to that particular transaction, we joined the IFC as lead arranger of the transaction. The expanded wind farm will contribute to reduce carbon emissions as well as diversify Panama s energy matrix, taking into consideration these positive effects we believe that it will meet with a good reception from the Panamanian people.
What plans to do you have for expansion in the region?
Basically, we want to continue to expand our portfolio with respect to green projects. Renewable energy is one of the main focuses in our strategy. We have been very active in that field and we have carried out projects involving all – currently known – technologies: wind, solar, hydro, geothermal, and biomass. Throughout our history, we have been very active in renewable energy throughout the region.
Do you see resistance to renewable energy projects anywhere in the region?
Not at all, on the contrary we have recently seen that countries have enacted or started their respective internal processes to enact laws in order to promote renewable energy projects. We have seen tax incentives – being the most relevant – as well as steps to encourage investors and sponsors to come to the Central American region and invest in renewable energy. So we can say that, in general, the climate for doing business throughout the region has been stable and all the countries have taken positive steps to show that they all have sound legal systems and clear rules so as to bring foreign capital to the region.
You don’t see any exceptions?
I don’t think that any particular country in the region is not interested in renewable energy, and particularly on solar projects. My sense is that all countries are comfortable with, and will give a warm welcome to, more renewable energy projects. I believe that solar is a source that will be there very much in times to come.
Still, regulatory reform is always possible. Would any changes be helpful at this juncture?
Specific regulations could be enacted in order to encourage companies, sponsors and developers to invest in or to carry out projects that involve new forms of energy.
From my standpoint, I don’t think that there are any specific regulations that need to be abolished, but in general, I believe that countries should work in order to improve regulations, in furtherance of the local markets to better understand or be more suited to renewable energy.
Renewable energy brings challenges to all the law systems in the region, and, accordingly, I believe that all countries must work with the laws in their respective legal systems and enact new laws to better respond to all the good that renewable energy brings – new technologies, new mechanisms and new resources. I believe that the whole region has to start to work in our new frontier and laws have to better comprehend – and in a more coherent way understand – renewable energy.
How far are we from having a sound regulatory framework in the region for renewable projects?
Our region is just commencing this process. Even 10-15 years ago, these types of resources had already been widely used in the First World, let’s say from the 1970s. I believe that the region should work harder in order to gain a better position as to support the enactment of laws that are totally suitable for renewable energy. We do have laws, but since we’re based on a civil law system, it requires plenty of work to change or modify a law. If we foresee that renewable energy, over the next 30 to 40 years, will be the key source of energy for the region, as the case may be, considering that the region is rich in those types of resources, then I believe that it is necessary to implement or enact laws for a better use of this source of energy.
How can the region become more attractive and appealing to outside financiers and developers?
In general terms, and not only in our region, contingencies are always a concern for developers. Throughout the region, all countries have given signs that the rules are clear, that things are stable, that the region wants investors to come on a long term and recurrent basis. Furthermore what the region has to do is to make investors and developers clear that all the rules will remain as they know it, in order to avoid contingencies. Contingencies, in projects, are the worst fears for investors, so it’s important to give them time, to give them the calm they need to invest in the region, those types of messages have to be clear.
From my perspective a sounder legal basis will help bring sophisticated investors and developers, and all countries must make them see clearly that the law systems are and will continue to be stable, that laws are clearly written, that all the legal systems are transparent, the rules will not be changed during the game – that is to say, during the project – and that concessions, permits and authorizations in general and among other things, are granted on a sounder legal basis and that the legal system in the region will support and protect the development of projects in all its stages, from construction to operation. In general, we need to make clear to investors that the region is stable and open to business.
Returning to the subject of collaboration with global agencies, how are decisions made regarding outside counsel?
With respect to choosing outside counsel, it always depends on several factors and it is a decision made on a case by case basis. Typically, we have four to six banks involved, and it’s always a decision of the syndicate. First of all, in our institution we have internal policies that need to be followed by the letter .Having said that, we have always been in favour of an open decision, we talk about it, and we see what’s best for the deal or more suitable for a specific project, in terms of experience, knowledge, quality of lawyers, and the law firm. It always has been a matter of maintaining high standards.
We typically work with New York-based lawyers, however, as I said before, it is a decision made on a case by case basis. In regards to financial development institutions with which we have collaborated, I can tell you that we have worked with our multilateral peers from all over the globe, especially from Europe, America, Asia, etc.
Roughly what is the split between your external and internal counsel?
First of all, I would like to say we have internal policies that regulates our procurement procedures. We follow these guidelines in all the services we hire. Having said that and since we are a regional bank, once we follow our internal procedures, we first seek out regional law firms. We want consistency and we want the same standards throughout the region – so if we request something in Guatemala, we expect to have the same quality of answer in Costa Rica. So one of our first priorities is to have a regional response, or a regional answer in terms of quality.
However, as you know, there are certain specific topics that require, on the one hand, local knowledge, or require certain knowledge applicable to certain countries. In general, on a case-by-case basis, we determine which will be the most suitable or appropriate law firms that can bring us the legal expertise we need. What I can tell you is that we always seek higher standards, it is our main goal to seek out the best quality lawyers.
Which law firms do you most like working with?
The ones that has global or regional presence, depending on the specifics of the transaction, however our key element is higher standards.
Do you prefer hourly or fixed rates?
In this topic, there is no such thing as a one size fits all solution, nonetheless my first approach will be a cap, but it always depends on the subject. Sometimes, it may be better to have a cap, but sometimes, due to the nature of the subject, an hourly rate works as well, thus it is matter of the specifics of the transaction you are dealing with.
You have relationships with a number of local law firms, but are there situations where you need a global firm involved?
Absolutely, you have to take into consideration the complexity and sophistication of the situation you are handling, in order to determine which will be the appropriate legal help required, as you know, for example, transactions that involves multiple jurisdictions requires plenty of coordination and in certain cases implies cultural sensibilities, therefore in order to handle efficiently costs and time, and obtain consistency with high standards, a global firm is often the answer.
Julio Eduardo Martinez Bichara
Head of the Legal Affairs Office
Central American Bank for Economic Integration (CABEI)
Tegucigalpa
Biography
Julio Eduardo Martínez Bichara has been served as Head of CABEI’s Legal Affairs Office since 2013. He received his graduate degree in law and a master’s degree in business administration from the Universidad Centro Americana José Simeón Cañas in San Salvador, El Salvador and a master’s degree in international trade law from the Universitat de Barcelona, Barcelona, Spain. Previously he served as the Syndication and Structured Finance Legal Coordinator at CABEI’s main headquarters, among others. Mr. Martínez has been involved in project finance and corporate finance transactions in every country of the Central American region. His practice also involves debt capital markets and bond issuances worldwide, as well as derivatives and structured products.