OMG partner Leonel Melo Guerrero speaks with Rani Mehta about advising on the San Pedro 30MW biomass power plant in Dominican Republic and the country’s energy and infrastructure markets
How did your firm get involved in the project?
OMG has been providing assistance to INICIA, an asset management firm managing assets in various industries in the Dominican Republic and other countries in Latin America for more than 10 years to this date. Due to this longstanding relationship, when approached by other stakeholders of the project, INICIA reached out to OMG for assistance.
What was your role in the project?
Being involved from the conception of the project, we were able to make important contributions to the strategic planning of the project, assisting with the research (from a legal standpoint) and the viability. Once go-ahead of the project was received, we designed the legal structure, assisted with regulatory work and got involved in the legal structure for the financing. Additionally, we worked on the design of the contractual structure required for the project. Issues with contractors have risen; therefore OMG´s conflict management team has also been involved. Currently, an arbitration process is underway, while negotiations are happening, trying to achieve a solution.
What was the most challenging aspect of this transaction?
This is a renewable energy project- biomass. Even though the renewable energy law was enacted in 1997, biomass is latest to the battle. Wind and solar energy projects are by far more developed in the Dominican Republic than biomass. This project was the first significant biomass project in the Dominican Republic, posing challenges for the regulatory agency.
Is the country amenable to developing renewable energy projects?
Yes. The Dominican Republic is the fastest growing economy in the region. Historically it has had energy issues, which is recently no longer the case. Now we have the capacity, but there are certain inefficiencies in the system that have created difficulties, including prices of energy compared to other countries’ prices, which affect our competitiveness. So there has been an important discussion as to how the DR can become more competitive in energy, and renewable energy is clearly the solution to that. The Dominican Republic has important renewable energy projects, and we could expect capacity to double in a few years.
Are there any laws in the works that affect the energy and infrastructure sectors?
We have a renewable energy law and we have a general electricity law. Currently, the private and public sectors are negotiating an Electrical Pact, pursuant to the National Development and Strategy Law enacted in 2012. The Electrical Pact should result in a reform of the electrical sector in the Dominican Republic (including legislation as well as guidelines regarding infrastructure requirements). If there was piece one piece of legislation you could change or amend (related to the energy and infrastructure sectors), what would it be? We are in need of a Public Private Partnership (PPP) law. Energy and infrastructure projects, by definition, almost imply or presuppose an involvement of both government and the private sector. We have a good history of PPPs in the DR. Two main generation projects in the country result from a previous privatization process in the late 90s. But in order to reach the next level, we need a comprehensive law. In addition to the more traditional forms, there are many other forms PPPs can take.
What trends have you noticed in the legal market? Will we see any local firms try to open foreign offices? Or global or regional firms come to the country?
I do envision that firms like ours will continue to grow. As stated, the economy in the Dominican Republic continues to grow. As for foreign firms, my answer would be yes, I do expect global and regional firms to come to the country. As for local firms opening offices abroad, I do know this is our plan. Our clients are becoming more international. They are going abroad themselves, they do more transactions in the region outside the DR, and we want to accompany them.
FURTHER INFORMATION
San Pedro 30MW biomass power plant
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