By Swann Bigot, legal expert and consultant, for Eurasia Network – June 16, 2020
The Moscow City business district, Moscow, October 2017 – Photo credits : S.B.
The daily Kommersant reported in May 2020 that investors in the Russian renewable energy industry sent out notices of force majeure because of the COVID-19 pandemic, which disrupts the supply chains and breaks the deadlines set in ongoing contracts. Such use of force majeure can save the companies from fines for delays in launching power plants, by suspending their obligations, the time of the coronavirus outbreak.
More than 1 GW of new renewable energy capacities is scheduled to be launched in Russia by the end of 2020. Fines for delays in delivery might reach 10 billion rubles (EUR 127 167 000), reported journalists. The scale of this heath crisis and the exceptional restrictive measures taken by the states prevent companies to perform their construction works. Therefore, several companies involved in renewable energy projects have used notices of force majeure.
Among the reasons of notices of force majeure are the restrictive measures taken in China, where components for wind turbine generators are manufactured. Several wind power projects now under construction will be impacted. The scheduled achievements of construction works will have to be postponed. Amid coronavirus outbreak worldwide, the supply chains of wind power projects are impacted.
Nonetheless, major investors in the construction of solar power plants may be less impacted by the coronavirus outbreak. Several solar farms must be launched in Russia by the companies Hevel and Solar Systems. Solar power plants need less equipment than large wind farms.
The renewable energy facilities are now built in Russia under capacity supply agreements, which guarantee payments for the generated electricity. More than 1 GW of new renewable energy capacities is scheduled to be launched in Russia by the end of 2020. Any delay in the achievement of construction works could cause billions rubles of fines, if the regime of force majeure cannot be used.
However, sending a notice of force majeure in construction contracts does not guarantee the protection against fines. Notifications of force majeure do not automatically cancel fines. The situation must match with the force majeure criterias.
Indeed, the company willing to use this regime must establish a causal relationship between the declared force majeure and its inability to fulfil contractual obligations.
Companies will have to demonstrate that the coronavirus pandemic and the resulting restrictive measures disrupting the supply chains prevent them from fulfilling their contractual obligations. Local lawyers will counsel them about what decision to make.
Usually, the regime of force majeure is characterized by three cumulative criteria :
- exteriority: the event is beyond the control of the party bound by a contract ;
- unpredictability: the situation could not have been reasonably foreseen at the time the contract was concluded ;
- irresistibility: the effects of the situation cannot be avoided by appropriate measures.
A solution would be a governmental decree or a legislation allowing to change the terms and conditions of renewable energy renewable energy contracts, during the time of the restrictive measures caused by the coronavirus outbreak. This solution was used by the French Government, which adopted a legislative decree, an “ordonnance”, on March 25, to adapt the legal regime of state public contracts.
Anatoly Chubais, Chairman of the Russian Association for the Development of Renewable Energy (ARVE) since December 2018, has already asked to postpone the commissioning deadlines by at least a year.
However, the current situation cannot be used to blame the COVID-19 pandemics for the mistakes and shortcomings in project management. The use of the legal regime of force majeure needs the existence of the aforementioned criteria, to suspend obligations, terminate contract or extent the commission schedule without fines.
On one side, the companies must identify the reasons for the delays and prove their connection with the coronavirus pandemics. On the other side, the state authorities must help them by granting force majeure when the situation matches. This balance of interests between energy companies and consumers should be sought in order to reduce the financial burden on both sides.
Lastly, any company aiming at using the regime of force majeure will have to notify its partners with commercial loyalty and in good faith.
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