Project Finance 2024 Comparisons

Traditionally, development banks, such as the World Bank, Inter-American Development Bank, and the Development Bank of Latin America, act as lenders for large projects that involve public–private partnerships (PPPs), oriented to the procurement of public infrastructure. In the past the authors assisted in the structuring of bank syndicates sponsored by local or international banks for large privately owned and operated projects. Meanwhile, small and mid-size projects of all kinds (eg, managing public assets) are typically funded through private capital, local banks or through the Bolivian stock market.

The central level of the Bolivian government has also established development funds allowing it to act as a lender for local governments, permitting a wider variety of infrastructure projects for the autonomous regions, and ensuring the payment to private contractors.

Broadly speaking, public–private partnerships transactions are subject to the limits and restrictions listed in Law No 466 of Public Corporations (and the regulations that derive from it), if they involve a state-owned and/or controlled corporation. Also, public procurement in general is regulated by Law No 1178 of Government Management and Control.

Notwithstanding the above, public–private transactions that involve certain sectors and/or industries are subject to specific regulations. For instance, transactions related to the production of oil and gas are bound by the limits set by Law No 3058 of Hydrocarbons. By the same token, projects somewhat associated to the generation and/or transmission of electricity are governed by Law No 1604 of Electricity.

The Bolivian Constitution specifically prohibits the granting of any form of guarantee or mortgage over natural resources that belong to the state. Further a mortgage over rural land is also restricted by Bolivian law. As a result, structuring an enforceable security package is somewhat more challenging.

Typically, a variety of public institutions, PPPs and special purpose vehicles (SPVs) will be analysed to choose which entities will act as signatories and/or guarantors. Prior to contract drafting and negotiation, the parties typically sign a preliminary agreement, such as a term sheet or memorandum of understanding, and initiate a due diligence process reviewing the corporate documentation of the parties.

As the reader will observe in this chapter, one of the main issues that lenders encounter when dealing with Bolivian entities is the choice of collateral since, stemming from the Constitution, Bolivian law is very protective of public assets and funds. For this reason, selection of collateral is a main concern when structuring financing deals.

There have been major M&A transactions associated with the oil and gas industry and the agricultural business in Bolivia (eg, the sale of Pluspetrol’s Bolivian SPV and the sale of Alicorp’s interests in the soybean and sunflower crushing business). Furthermore, the Bolivian government is heavily invested in exploiting the country’s natural lithium reserves.

Perhaps the above-mentioned trend could be somewhat attributed to the shortage of US dollars that Bolivia is currently facing. Indeed, the selling of commodities on the foreign market is one of the major sources of US dollars for Bolivia and, for this reason, the government has shown signs of its intent to deregulate the associated industries (eg, agriculture), with the aim of making these more attractive to investors from overseas.

Collateral varies from tangible assets such as real state and vehicles, to securities and trusts. Perfection of collateral varies depending on the kind of collateral, since many assets can be encumbered with their mere individualisation within the contract, while real state and heavy machinery require the lien to be inscribed in the pertaining public registries.

Other kinds of assets, such as securities, may only require notarisation before a Notary Public, or even the mere signature of the debtor or endorsement of the creditor. For example, letters of credit and promissory notes are so easily enforceable that they are oftentimes kept by escrow agents that deliver these securities to the creditors when the debtor defaults.

Under syndicated loan structures it is customary that a local bank will be used as the security agent or lender of record. This is particularly the case as there may be limitations as to registering certain real estate securities to foreign non-registered entities and in order to facilitate the enforcement of guarantees.

In Bolivia, any debt implies a universal guarantee over all present and future assets of the debtor. It is not necessary to specify this kind of guarantee within the agreement that regulates the credit, but it is commonplace to mention it after the individualisation of all the other specific guarantees that are provided to the lender.

The laws for payment priority provide that creditors with a registered lien will be paid with the encumbered asset in the order of its registry, and that all other creditors will be paid with the totality of the present and future assets of the debtor.

For this reason, this general guarantee (garantía quirografaria) is synonymous with an unsecured credit when no other specified guarantees are determined and duly registered.

A specific lien over future assets is not permitted as the assets must exist in order for the lien to be constituted.

When the encumbrance needs to be recorded with a public registry, the registry cost will vary substantially depending on the type of lien and the requisite registry. As a result a lien on machinery and equipment, for instance, is usually registered before the Registry of Commerce and only a small administrative fee is due for such registration. Notwithstanding, the registration of a mortgage over real state has a registry cost of 0.4% of the value of the lien. This may be substantial if the loan amount is very large.

It is important to individually specify any asset that will be granted as collateral for registry and enforcement purposes.

Public registries will request a notarised copy of the contract or document that constitutes the guarantee in order to verify its validity and will require that this contract or document determines all the pertaining identifying data to allow them to register the encumbrance.

For enforcement purposes, judicial authorities can only proceed to auction any particular asset if it is duly individualised and identifiable.

Aside from the limitations to grant guarantees over natural resources and rural land already mentioned in 2.1 Assets Available as Collateral to Lenders, assets of public institutions and state-owned corporations can neither be legally seized nor subject to any court order, by virtue of the Bolivian Constitution. Even for private corporations that provide a public service or serve a strategic interest to the Bolivian population and government, assets that are linked to the provision of this service cannot be granted as collateral.

For this reason, the legal due diligence process must recommend what kinds of assets can be offered as collateral, depending on the nature of the borrower and its activities.

For liens that require a registration, the debtor must provide valid proof that the asset does not have any prior encumbrances. This will be provided by the relevant registry, such as the Real Estate Registry for the relevant locality or the Registry of Commerce. Unfortunately, there is no unified or centralised system. Most of the registries have public access, however, in some cases public servants will not provide general information regarding all liens over a certain debtor to third parties that do not sufficiently demonstrate a legitimate interest in the property of the asset.

Security interests are released with the same process that they are created; this means they typically require the filing of a notarised document and the payment of administrative fees.

Most security interests, with the exception of special documents such as promissory notes or letters of credit, require the initiation of a judicial process in order to request the enforcement. The main concern regarding enforcement that lenders should consider is the type of judicial process that will allow for the execution of the guarantees.

The Bolivian Civil and Commercial jurisdiction has three main types of judicial proceedings that lenders should be aware of; these will vary in length and subject matter:

• ordinary procedures;
• executive procedures; and
• enforcement procedures.

Ordinary procedures are long trials that require the presentation of a claim, a response, production of proof, and several hearings in order to obtain a ruling. Executive procedures are faster proceedings that initiate with a ruling that the debtor may contest with very specific recourses. Finally, enforcement procedures are proceedings that are only concerned with the enforcement of an obligation that has already been proven to be valid and binding, and entail diligences such as the auction of real state.

Lenders should structure their agreements and securities in such a way that they avoid the initiation of an ordinary procedure in the case of default, by duly notarising their agreement and adding security clauses that will allow for the initiation of an executive procedure, or by only initiating an enforcement procedure once the merits have been proven and all that is left is the enforcement of the guarantees.

For financing agreements, choice of law and jurisdiction should be upheld without any major issues. However, for the project agreement itself, it is very likely that submission to a foreign law and jurisdiction will not be considered, especially if it concerns strategic resources such as oil and gas.

The rulings of foreign courts are enforceable following the figure of the exequatur and the principle of reciprocity in public international law. The issues that can arise from the enforcement of these rulings are mostly bureaucratic in nature, since Bolivian authorities require excessive formalities to recognise foreign documents and take a very long time in order to process these kinds of requests.

For foreign arbitral awards the situation is a bit different, since Bolivian law determines that foreign awards will not be enforced if they follow any annulment provision that is determined in the Bolivian Arbitration Law. In other words, the debtor has a chance to argue before the Bolivian Supreme Tribunal that the award violates a Bolivian annulment provision (such as not following due process of law) in order to avoid the enforcement.

Even though the principle of freedom of contract is recognised under Bolivian law, and there should be no limitation regarding the use of foreign and/or atypical contractual instruments, many Bolivian authorities are not sufficiently prepared to analyse and decide upon contractual figures that they are not familiar with and are likely to apply similar concepts under Bolivian law in order to solve a claim. For this reason, it is important to analyse any foreign figure with Bolivian counsel in order to avoid any potential confusion from Bolivian authorities during the enforcement.

There are no restrictions on foreign lenders granting loans in Bolivia. Nevertheless, foreign investments are subject to registration, as per Bolivian law. Indeed, companies with foreign capital must submit the Registration of Foreign Investments in Bolivia and Financial Operations Abroad (RIOF) form quarterly, before the Bolivian Central Bank.

In that regard, it should be noted that the legal representative of each local company is responsible for the above-mentioned filing and that, upon registration, the Bolivian Central Bank issues a certificate detailing the investment’s origin, amount, and mechanisms, as well as any distributions, capital repayments, and payments to creditors or service providers.

There are no restrictions on the granting of security or guarantees to foreign lenders, as per Bolivia law. Nevertheless, the bylaws of the debtor might contain constraints in that regard. Accordingly, the authors usually recommend foreign lenders to closely review these documents to identify if a provision contained therein hinders, in one way or another, the debtor’s ability to pledge a specific security or guarantee.

According to Law No 516 for the Promotion of investments, foreign investment is permissible through contracts and other instruments, private and/or public entities, and through corporations funded by private and public capitals (as long as public participants hold a majority interest). However, it should that foreign investment oriented to the acquisition of property within 50km of Bolivia’s international borders is not permitted.

Broadly speaking, foreign investors may apply for general and specific incentives, which can provide benefits in customs, taxation, and production for periods ranging from one to 20 years. Remittance of royalties, returns, and dividends is allowed, subject to a 12.5% withholding tax.

It is worth mentioning that, as per Bolivian law, investments in the petroleum and electricity sectors cannot be settled through international arbitration, though midstream and downstream activities might be exempt. Expropriation of assets is allowed only when there is a declared public necessity, and it must be accompanied by fair compensation beforehand.

In principle, there no restrictions on payments abroad or repatriation of capital by foreign investors, beyond the applicable tariffs and commissions imposed by the bank that processes the transaction. However, it should be noted that, due to the shortage of US dollars that Bolivia is currently facing, transfers outside the jurisdiction in US dollars might imply de facto fees up to 70% on the transfer.

Project companies are allowed to maintain offshore foreign currency accounts, as long as its by-laws do not prohibit it. Nevertheless, it is worth highlighting that state-owned or controlled companies must report its account balances associated to offshore foreign currency accounts, to the Bolivian Central Bank, on monthly basis. Likewise, according to regulation “Carta Circular/ASFI/DSV/CC-7297/2024”, companies with publicly placed financial instruments must submit information regarding the balances its offshore accounts, on a monthly basis until the end of 2024.

Agreements that compromise future state income should be approved via law, complying with the complete legislative procedure dictated by the Constitution. As a general rule, other kinds of agreements are binding by the mere will of the parties, without the requirement of any other formality.

However, from a practical standpoint, it is recommended that the agreement be registered before a Notary, which can be a Notary Public or a Government Notary depending on the nature of the signatories (because Government Notaries are required when the executive branch of the government directly or indirectly participates in the transaction).

More than a mere formality, it is recommended to extensively check that the officer of any private party has sufficient power of attorney to enter into the agreement, and that any public server has the legal faculty to enter into the agreement or is duly authorised by a superior officer with sufficient faculties to do so.

According to the Bolivian Constitution, natural resources are of property of the Bolivian people, and the state will be responsible for their administration. Given this scenario, certain sectors are heavily regulated and require special forms of agreements or licences. Regulated sectors include energy (oil, gas and electricity), mining (particularly of strategic minerals), telecommunications, and financial services. Outside those specifically regulated sectors you typically do not need a licence to undertake ownership or operation of land.

The energy sector in Bolivia, for instance, is under full control of the state, through:

• the Ministry of Hydrocarbons and Energy (MHE for its acronym in Spanish), also called the Competent Authority of hydrocarbons and electricity sector;
• the National Petroleum Authority (ANH for its acronym in Spanish) is a public entity in charge of regulating, supervising, controlling and scrutinising all petroleum activities;
• Bolivian state-owned oilfields (YPFB for its acronym in Spanish), which main role is to act as the operational arm of the Bolivian state in all petroleum activities conducted within Bolivia and abroad;
• National Electricity Company (ENDE for its acronym in Spanish) which main objective and strategic role is to prominently participate in the electricity chain production and import and export activities in a sustainable way;
• Electricity and Nuclear Technology Supervisory Authority (AETN for its acronym in Spanish), which is the competent authority that grants electricity administrative rights; and
• National Cargo Clearance Committee (CNCD for its acronym in Spanish) a public company responsible for the technical operation and administration of the electricity market.

Under the regime of Bolivia’s Constitution, the People of Bolivia hold exclusive ownership over all natural resources, and YPFB, for petroleum, and ENDE for electricity, are the only entities authorised to conduct and control petroleum activities (upstream, midstream, downstream and commercialisation) and electricity activities (generation, distribution, and transmission) in Bolivia.

Therefore, private investors (either local or foreign) are considered mere services providers, conducting petroleum and electricity activities on behalf of YPFB and ENDE, and will only participate in the chain production under services agreements with YPFB/ENDE or create a joint company with one of these public entities.

The concept of agent is recognised under Bolivian law; however, it is important to be careful with the terminology that is applied to agent and principal relationships, as this can change the figure that is used under Bolivian law, along with the provisions that regulate the relationship.

As a general rule, agent and principal relationships are regulated under civil and commercial law under the figure of the “mandato”, where a party performs one or more acts on behalf of another. However, Bolivian commercial law recognises other figures such as “agencies” and “commissions”, which entail the application of specific legal provisions (for example, “agency” relationships can only be governed under Bolivian law, and Bolivian law recognises any foreign law clause as void for these kinds of relationships). For this reason, it is important to word agreements diligently in order to avoid problems.

The concept of trust is recognised under Bolivian law and is used within the banking sector, as commercial law only allows banks to become trustees.

In Bolivia, the general rule concerning priority in security interests is the date of registry. Creditors have priority over other creditors if they have registered the encumbrance before them, even if the date of the contract itself differs from this. In other words, it is possible that a debtor pledges the same asset to many creditors in different dates, but the creditor who will hold priority over the asset will be the first one to register it, even if it was the last one to contract with the debtor.

For this reason, it is very important to make sure that no other creditors hold security interests over a particular asset that is offered as collateral, or that the asset is so valuable that it will be able to pay all the previous registered creditors along with the newly constituted debt. The parties cannot contractually overcome the rules provided by law for the order of privileges, as any judicial authority will follow the registry order in the case of enforcement.

The only exception to the above is the result of a legal subrogation, whereby the creditor can pay the creditors that are ahead of themselves in the line of priority and as a result receive the benefit of the priority that such creditors had.

Although there are no general requirements regarding the legal form a company must take in order to participate in projects, most state sponsored tender process will specify the legal forms that are required to undertake the assignment, ranging from accepting the participation of companies that are not incorporated in the country, to requiring the incorporation of a new entity within the country as a special purpose vehicle. The most typical legal form for a project company is a Bolivian limited liability partnership (SRL) as it is very easy to set up and maintain in Bolivia.

As per Bolivian law, reorganisation procedures in Bolivia might take the form of dissolution, liquidation, transformation (into another societal type), spin-off or merger. Depending on the specifics of the procedure, the legal requirements might vary widely. However, it seems clear that for a Sociedad Anónima (a corporate form akin to a corporation, constituted by shareholders) reorganisation procedures require, at least, an extraordinary shareholders meeting, where at least two thirds of the shares are present, and more than half of the assisting shares approve the reorganisation. Similarly, for a Sociedad de Responsabilidad Limitada (a corporate form akin to an LLC, constituted by partners), a partner’s assembly is required, where more than two thirds of the total membership interests approve the reorganisation.

Insolvency proceedings might impact the lender’s rights in several ways, depending on the legal structure of the debtor (eg, insolvency procedures linked to regular corporations trigger rules that are completely different from the ones that would derive from an insolvency procedure associated to a financial institution). However, these procedures have a few things in common. For instance, close-out netting provisions are incompatible with the rules that govern virtually all insolvency related procedures. Therefore, in all likelihood, they will not be enforced by local courts under those circumstances.

As mentioned, rules that govern insolvency procedures vary widely depending on the legal structure of the debtor. Nevertheless, a traditional procedure (ie, one associated to a private corporation from a non-regulated sector) will, in all likelihood, cause a distinction between privileged and non-privileged creditors.

Privileged creditors are the ones who hold a specific security interest over an asset of the debtor and should be paid with said asset. Meanwhile, non-privileged creditors (ie, those who do hold a specific security interests) are all paid pro rata with the rest of the assets.

It should be noted that, if a company becomes insolvent and, in case the company’s dissolution balance sheet is enough to cover the company’s liabilities and losses during a dissolution, and money still remains as social capital, shareholders or partners have a right to receive a reimbursement for their shares, in a percentage equal to their ownership in the company.

The only exception to this rule is if a company’s by-laws specifically provide that preferred shares can receive a higher percentage than ordinary shares in case of a dissolution.

Lenders should consider that any insolvency procedure under Bolivian law will have the payment of labour and tax obligations as a first priority, since non-compliance with these types of obligations can result in prison for the legal representatives of the bankrupt corporation. These types of obligations also carry significant fines for non-compliance, and can therefore become a great financial burden for companies that do not consider them, leading them to a state of insolvency.

Therefore, it is recommended that compliance with labour and other provisions are added as covenants to the financing agreement, in order to avoid these situations.

There are no commercial entities excluded from bankruptcy proceedings in Bolivia.

Insurance policies are subject to the Bolivian value-added tax. Therefore, insurance companies include an additional charge of 13% on the insurance premium to withhold the previously mentioned tax. Further restrictions, controls and fees might apply depending on the specifics of the insurance policy.

In principle, insurance policies over project assets can be payable to foreign creditors, as long as it is clearly permissible under the rules of the corresponding insurance policy.

Payments of principal are not subject to any sort of withholding tax. Meanwhile, interest or other payments that might be considered as income, for the foreign lender (eg, additional tariffs), are subject to the Corporate Income Tax – Beneficiaries Abroad. Therefore, the local debtor is entitled to withhold 12.5% of the interest and/or applicable payments, when paying these to the foreign lender.

Nevertheless, as per Article 48 of Law No 834, interests owed to international credit organisations or foreign official institutions, whose agreements were ratified by the Bolivian congress, are exempt from the above-mentioned tax.

Taking into account that Bolivia is currently facing a shortage of US dollars, foreign lenders should bear in mind that transfers outside the jurisdiction in the aforementioned currency might apply de facto fees up to 70% on the transfer.

As per Article 409 and 410 of the Bolivian Civil Code, the amount of interest that can be charged for a loan cannot exceed 3% on the principal, per month. It is worth noting that this restriction also applies to the sum of charges, of any nature, that can be collected by the lender in relation to the loan.

Projects themselves typically follow Bolivian law, as their development will also require following all the relevant Bolivian regulations, independently from the nationality/ies of the parties.

Financing agreements are typically regulated by the lender’s law of choice, which is usually a foreign law (such as the Law of New York) and includes provisions delegating dispute resolution to foreign courts or an arbitral tribunal.

Even though it is customary to choose domestic law in project agreements for convenience, there is also a variety of legal provisions that require the application of domestic law even though the parties would prefer otherwise. Specifically, matters regarding renewable and non-renewable natural resources must follow Bolivian law.