Draft of: 01 November 2010 _________________________________________________________________ Concession Agreement between The State of Montenegro acting through the Ministry of Economy and [Sponsor] Dated [•] 2011 _________________________________________________________________ Table of Contents Article 1 Definitions; Interpretation ............................................................................................2 1.1 Definitions ...................................................................................................................2 1.2 Interpretation ...............................................................................................................2 Article 2 Effective Date ..................................................................................................................3 2.1 Effectiveness ................................................................................................................3 Article 3 Grant of Concession Rights and Implementation of the Project ...............................4 3.1 Formation of the Company ..........................................................................................4 3.2 Novation of the Concession Agreement ......................................................................4 3.3 Grant of Concession Rights .........................................................................................4 3.4 No Discrimination; No Expropriation .........................................................................4 3.5 Financing .....................................................................................................................5 3.6 Obligation to Achieve Financial Closing; Notice of Delay .........................................6 3.7 Liquidated Damages for Delay or Failure to Achieve Financial Closing; Notice of Delay ..........................................................................................................................6 3.8 Land and Land Rights..................................................................................................7 3.9 Separate Accounting ....................................................................................................8 3.10 Negative Undertakings ................................................................................................8 3.11 Transactions with Affiliates .........................................................................................9 3.12 Capital Structure of the Company ...............................................................................9 3.13 Realization of Revenue ................................................................................................9 3.14 Transfer of Morača Transmission Lines ......................................................................9 3.15 Road Relocation and Construction ............................................................................10 3.16 Participation of the Grantor .......................................................................................10 3.17 Appointment of the Independent Engineer ................................................................11 3.18 Compensation of EPCG for EPCG Technical Documentation .................................11 3.19 Exploration works upon Execution Date ...................................................................12 Article 4 Consents ........................................................................................................................13 4.1 Applications by the Concessionaire for Consents .....................................................13 4.2 Status of Consent Applications..................................................................................13 4.3 The Grantor Support to Obtain Consents ..................................................................14 4.4 Conditions to Consents ..............................................................................................14 Article 5 Appointment and Use of Contractors ........................................................................15 5.1 Appointment and Use of Contractors ........................................................................15 Article 6 Construction of the Project .........................................................................................16 6.1 Construction of the Project Facilities ........................................................................16 6.2 Obligation to Achieve Contract Capacities ...............................................................18 6.3 Liquidated Damages for Failure to Achieve Contract Capacities .............................18 6.4 Duties of the Independent Engineer ..........................................................................18 6.5 Liquidated Damages for Delay in Achieving Commercial Operations Date; Notice of Delay ........................................................................................................................19 6.6 Submission of Reports and Information ....................................................................19 6.7 The Grantor Observation Visits .................................................................................21 Article 7 Commissioning; Commercial Operations Date .........................................................21 7.1 Pre-Synchronization, Post-Synchronization, and Commissioning Tests ..................21 7.2 Notice of and Compliance with Testing Procedures .................................................25 7.3 Copies of Test Results ...............................................................................................25 7.4 Testing Disputes ........................................................................................................25 Article 8 Operation, Maintenance, and Staffing .......................................................................26 8.1 Operation and Maintenance of the Morača HPPs .....................................................26 8.2 Employment of Qualified Personnel .........................................................................26 8.3 Maintenance of Operating Records ...........................................................................27 8.4 Free of Encumbrances ...............................................................................................27 8.5 The Grantor‟s Inspection Rights During Commercial Operation..............................27 Article 9 Rehabilitation ...............................................................................................................28 9.1 Rehabilitation.............................................................................................................28 Article 10 30 Transfer Following Expiration of the Concession Period ........................................................30 Article 11 Concession Fee and Revenue Sharing Fee ...............................................................31 11.1 Quarterly Payment of Concession Fee and Revenue Sharing Fee ............................31 11.2 Annual Reconciliation Process ..................................................................................32 11.3 Refinancing of the Project .........................................................................................33 Article 12 Transfer of Funds .......................................................................................................34 12.1 Transfer of Funds.......................................................................................................34 12.2 Maintenance of Accounts ..........................................................................................34 Article 13 Environmental Protection, Health, and Safety; Emission reduction ....................35 13.1 Environmental Protection, Health and Safety ...........................................................35 13.2 Environmental Impact Assessment ...........................................................................35 13.3 Concessionaire‟s exclusive right to Emission Reduction ..........................................35 13.4 Emission reduction revenues .....................................................................................36 - ii - Article 14 Financing Support ......................................................................................................36 14.1 Consent to Concessionaire‟s Grant of Security Interest ............................................36 Article 15 Taxes and Import Controls .......................................................................................37 15.1 Taxes Applicable to the Concessionaire ....................................................................37 15.2 Taxes Applicable to the Sponsor and the Company ..................................................37 15.3 Right to Import; Customs Duties ...............................................................................37 Article 16 Immigration Controls ................................................................................................37 16.1 Immigration Controls ................................................................................................37 Article 17 Employment, Training, and Montenegrin Resources .............................................38 17.1 Training and Employment of the citizens of Montenegro .........................................38 17.2 Training .....................................................................................................................38 17.3 Montenegrin Resources .............................................................................................38 Article 18 Insurance .....................................................................................................................39 18.1 Maintenance of Insurance Policies ............................................................................39 18.2 Event of Loss .............................................................................................................41 18.3 Certificates and other Evidence of Insurance ............................................................41 18.4 Insurance Reports ......................................................................................................42 18.5 Impact of Political Force Majeure Event ...................................................................42 18.6 Miscellaneous ............................................................................................................42 Article 19 Representations and Warranties ..............................................................................42 19.1 Representations and Warranties of the Concessionaire ............................................42 19.2 Representations and Warranties of the Grantor .........................................................43 Article 20 Limitation of Liability................................................................................................44 20.1 Limitation of Liability ...............................................................................................44 Article 21 Default; Termination .................................................................................................44 21.1 Concessionaire Events of Default ..............................................................................44 21.2 Grantor Events of Default..........................................................................................46 21.3 Termination Notice ....................................................................................................48 21.4 Termination Due to Political Force Majeure Events .................................................48 21.5 Termination Due to Other Force Majeure Event .......................................................48 21.6 Obligations Following Disputed Termination Notice ...............................................49 21.7 Other Remedies .........................................................................................................49 Article 22 Rights and Obligations Upon Termination; Compensation...................................49 - iii - 22.1 Termination Following a Concessionaire Event of Default ......................................49 22.2 Termination Following a Grantor Event of Default ..................................................50 22.3 Termination Following a Political Force Majeure Event ..........................................50 22.4 Termination Following an Other Force Majeure Event ............................................50 22.5 Expiration of Buy-Out Option ...................................................................................50 22.6 Obligations Following Issuance of a Buy-Out Notice...............................................50 Article 23 Force Majeure ............................................................................................................51 23.1 Definition ...................................................................................................................51 23.2 Notification Obligations ............................................................................................52 23.3 Duty to Mitigate.........................................................................................................53 23.4 Delays Caused by Force Majeure ..............................................................................53 Article 24 Dispute Resolution .....................................................................................................54 24.1 Notice of Dispute .......................................................................................................54 24.2 Dispute Resolution Procedures ..................................................................................54 24.3 Technical Disputes ....................................................................................................55 24.4 Arbitration .................................................................................................................57 24.5 Related Disputes ........................................................................................................58 24.6 Obligations Continue .................................................................................................59 24.7 Sovereign Immunity; Jurisdiction .............................................................................59 Article 25 Miscellaneous ..............................................................................................................60 25.1 Notices .......................................................................................................................60 25.2 Amendment ...............................................................................................................61 25.3 Survival ......................................................................................................................61 25.4 Third Party Beneficiaries ...........................................................................................62 25.5 No Waiver ..................................................................................................................62 25.6 Relationship of the Parties .........................................................................................62 25.7 Expenses of the Parties ..............................................................................................62 25.8 Consent ......................................................................................................................63 25.9 Language ...................................................................................................................63 25.10 Governing Law ..........................................................................................................63 25.11 Entirety ......................................................................................................................63 25.12 Assignment ................................................................................................................63 25.13 Contracting ................................................................................................................64 25.14 Confidentiality ...........................................................................................................64 25.15 No Liability for Review .............................................................................................65 25.16 Specific Performance .................................................................................................65 25.17 Affirmation ................................................................................................................65 25.18 Counterparts...............................................................................................................66 25.19 Further Assurances ....................................................................................................66 25.20 Severability ................................................................................................................66 25.21 Partial Invalidity ........................................................................................................66 - iv - Schedules 1 Definitions 2 Buy-Out Compensation Amounts 3 Buy-Out Arrangements 4 Form of Novation Agreement 5 Insurance 6 Description of the Project Sites, Inundated Areas, and Staging Areas 7 Error! Reference source not found. 1 Project Development Plan - v - THIS CONCESSION AGREEMENT (this “Agreement”) is made as of the [•] day of [•] [2011] (the “Execution Date”) in [•], based on decision on granting the concession [•] issued by the Parliament of Montenegro no. [•] dated [•], by and between: (1) The State of Montenegro represented by the Ministry of Economy (the “Grantor”); and (2) [Sponsor] (the “Concessionaire”, as defined in the Schedule 1), a [•] organized under the laws of [•], with its principal office at [•], as the grantee. Each of the Grantor and the Concessionaire is hereinafter referred to individually as a “Party” and, collectively, as the “Parties.” RECITALS A. The State of Montenegro intends as a matter of policy to involve the private sector in a project of constructing hydropower plants for the purpose of exploitation of hydro- energetic potential of the Morača River, that includes: (i) the design, research, engineering, financing, construction, operation, maintenance, and rehabilitation of hydropower plants on the Morača River by the Concessionaire and the transfer of such hydropower plants to the Grantor following the expiration of the Concession Period (as hereinafter defined); (ii) the design, research, engineering, financing, and construction of the transmission lines necessary to connect those hydropower plants to PRENOS‟s (as hereinafter defined) transmission network by the Concessionaire, and the transfer of such transmission lines to PRENOS in accordance with the Agreement on Operation and Maintenance of the Transmission Network (as hereinafter defined); (iii) the design, research, engineering, financing, and construction of any roads that are required to be relocated or any new roads that are necessary to replace any roads that are rendered unusable by the Morača HPPs (as hereinafter defined), the Morača Transmission Lines (as hereinafter defined), or the inundation of the Inundated Areas (as hereinafter defined) by the Concessionaire, and the transfer of such roads to the Grantor; (iv) the expropriation by the Grantor of all lands required in connection with the development of the Morača HPPs, the Morača Transmission Lines, or the Project Roads (as hereinafter defined) or with the inundation of the Inundated Areas; and (v) preservation by the Grantor of the site of the Morača Monastery, (the “Project”); B. Simultaneously with the entry by the Grantor and the Sponsor as Concessionaire into this Agreement, the Sponsor is entering into the Sponsor Support Agreement with the Grantor C. The Sponsor will form a wholly-owned special purpose business organization under the Laws of Montenegro (as hereinafter defined), and thereafter novate this Agreement to the Company (as hereinafter defined), following which the Company in the capacity of the Concessionaire will undertake the Project; and D. The Grantor is entering into this Agreement to encourage private investment in the electric power sector in Montenegro and to provide certain support and incentives to the Concessionaire in connection with the development of the Project. NOW, THEREFORE, Parties hereby agree as follows: Article 1 Definitions; Interpretation 1.1 Definitions In this Agreement, unless the context otherwise requires, capitalized terms shall have the meanings given to them in Schedule 1. 1.2 Interpretation (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number, and vice versa; (ii) reference to any Person includes such Person‟s successors and assigns but, if applicable, only if such successors and assigns are not prohibited by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement, document, or instrument means such agreement, document, or instrument as amended or modified and in effect from time to time in accordance with the terms thereof; (v) references to any legislation or legislative provision include references to any statutory modification or re-enactment of such legislation or legislative provision and any legislative provision substituted for that legislation or legislative provision; (vi) “hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section, Schedule, or other provision hereof; - 2 - (vii) “including” (and with correlative meaning “include” or “includes”) means including without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, “from” means “from and including” and “to” means “to but excluding”; and (ix) references to documents, instruments, or agreements shall be deemed to refer as well to all addenda, exhibits, schedules, or amendments thereto. (b) Captions and headings in this Agreement are for reference only and do not constitute a part of the substance of this Agreement and shall not be considered in construing this Agreement. (c) References in the body of this Agreement to Articles, Sections, and Schedules (and Annexes thereof) are to Articles and Sections of and Schedules (and Annexes thereof) to this Agreement, unless stated otherwise. References in any Schedule to Articles, Sections, and Annexes are references to Articles, Sections, and Annexes of that Schedule, unless stated otherwise. References in any Schedule (or Annex thereto) to Articles and Sections of the Agreement are references to the body of this Agreement, unless stated otherwise. (d) In carrying out its obligations and duties, and in providing estimates under this Agreement, each Party shall have an implied obligation of good faith. (e) Except as otherwise indicated in this Agreement, references to time are references to Central European Standard Time or Central European Summer Time, as then applicable. (f) This Agreement was negotiated by the Parties with the benefit of legal representation, and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party shall not apply to any construction or interpretation hereof. (g) To the extent there exists a conflict between any provisions of this Agreement and any Schedule or Annex, the provisions of this Agreement shall prevail. Article 2 Effective Date 2.1 Effectiveness This Agreement shall commence and become effective on the Execution Date. This Agreement shall, unless otherwise terminated, terminate upon the expiration of the Concession Period ( the “Term”). - 3 - Article 3 Grant of Concession Rights and Implementation of the Project 3.1 Formation of the Company The Sponsor shall form a business organization pursuant to the Laws of Montenegro for the purpose of undertaking the Project (the “Company”) not later than sixty (60) Days following the Execution Date. 3.2 Novation of the Concession Agreement Not later than ten (10) Days following the formation of the Company pursuant to Section 3.1, the Grantor, the Sponsor, and the Company shall execute a novation agreement, substantially with the content attached as Schedule 4 (the “Novation Agreement”), for the purposes of novating this Agreement from the Sponsor to the Company. 3.3 Grant of Concession Rights The Grantor hereby grants the Concessionaire the right to: (a) design, research, engineer, finance, construct, operate, maintain, undertake the Rehabilitation of, and (upon the expiration of the Concession Period) transfer the Morača HPPs to the Grantor; (b) design, research, engineer, finance, and construct the Morača Transmission Lines, and until the transfer of the Morača Transmission Lines to PRENOS in accordance with Section 3.14; and (c) sell the capacity of, the net electrical output of, the ancillary and system services generated by, and any Emission Reductions from, the Morača HPPs to any purchaser thereof during the Concession Period, in each case in accordance with the Laws of Montenegro, the Environmental Standards, the Consents, this Agreement, and the other Project Agreements (such rights collectively, the “Concession Rights”). 3.4 No Discrimination; No Expropriation (a) The Grantor shall not, and shall ensure that no Public Authority shall, take any action that would materially and adversely affect the Concessionaire or its ability to fulfill its obligations under this Agreement or the Project Agreements based upon reasons of foreign ownership or control of the Concessionaire, and the Grantor shall, and shall ensure that other Public Authorities shall, treat the Concessionaire no less favorably than it treats any other entity doing similar - 4 -