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Conditions precedent

17 May 2019

The standard carbon abatement contract includes the capacity for a “conditions precedent”. Conditions precedent are events or circumstances that must occur before the delivery and payment obligations of the contract come into force.

Conditions precedent can be used to give you time to establish third party agreements (including agreements to sell part of the projects’ abatement), obtain regulatory approv​als, or meet other conditions that are required to establish your project.

The Clean Energy Regulator can also use conditions precedent to assure itself that the project that supports the contract is established, genuine, and capable of generating the contracted abatement.

Conditions precedent must:

  • specify an event or contingency outside the direct control of the applicant that must be satisfied or completed before the project is able to start to deliver abatement
  • be measurable, including specific details that will clearly determine that the condition has been fulfilled, and
  • be met within a maximum of 18 months of the contract date (5 business days after the auction).

The Clean Energy Regulator will not ​​accept a condition that:

  • relies on project funding, or authorisation by a company board or other internal executive personnel or body, (however, we may accept a conditions precedent that relates to third party finance) or
  • is reliant on internal controls, internal assessment, or feasibility report that the project will produce the contracted abatement.

Conditions precedent can be proposed by you or the Clean Energy Regulator but must be agreed to by both parties for you to be eligible to qualify to participate in an auction.

Types of conditions precedent

Column A conditions precedent

Column A conditions precedent are for the sole benefit of, and may only be waived or deferred by, the Clean Energy Regulator.

If you have not started your project, you will be required to have a Column A condition precedent stating that the project has begun to be implemented. This is to ensure the contracted project is established and will be used for the delivery of abatement. The following condition must be added:

Each project specified in Item 2 of these Commercial Terms must have begun to be implemented.

Column B conditions precedent

Column B conditions precedent are for the sole benefit of you, the seller and may only be waived by you. A Column B condition precedent can be used to manage the start date of your deliveries so that you are able to maximise the amount of abatement that can be delivered. This should only be used if there are no other conditions precedent, or if you want the commencement date to be after the date you expect any other conditions to have been met. Example wording for this condition is:

The date __ / __ / ____ has occurred.

If your project is conditionally declared, then the Clean Energy Regulator will require the following condition be included:

Each condition (if any) specified under section 28(2) or 28A(2) of the Carbon Credits (Carbon Farming initiative) Act 2011 (Cth) (the CFI Act) in each declaration made under section 27 of the CFI Act in relation to each projects specified in Item 2 of these Commercial Terms, has been removed from the relevant declaration.

You can also propose Column B conditions that relate to regulatory approvals or third party agreements that are required for your project to proceed. You should only propose these if they are in addition to the conditions of your project declaration. Column B conditions precedent include:

​provision of funding from a recognised financial institution
  • The Clean Energy Regulator will require evidence of in principle approval from a financial institution to fund your project subject to the outcome of the auction. This can include a letter of interest from the financial institution and should specify the purpose of the funding.
  • entering into a further contract with a third party to sell part of the abatement generated by the project
    • ​​​The Clean Energy Regulator will ensure the Agreed Quantity is less than the abatement generated by the project.
  • ​​finalisation of power (or other essential infrastructure) connection, supply or purchase agreements
    • ​​​The Clean Energy Regulator will require details on the type of agreement and the name of the counterparty(ies) to be specified
  • ​​​​​​finalisation of formal accreditation, generally from state, territory or Australian Government authorities, regarding recognition as an official utility supplier (eg electricity)
    • The Clean Energy Regulator will require details of the type of accreditation and authority providing it to be specified in the condition precedent
  • finalisation of agreements or contracts for project construction, operations and maintenance
    • The Clean Energy Regulator will require a description of each agreement and the name of the counterparty(ies), or
  • receiving confirmation that the selected site is suitable for the project to proceed
    • This would only be applicable where the site possesses attributes that are not obvious without significant investigation. The Clean Energy Regulator will require the attributes to be measurable and the criteria that demonstrates the project’s suitability to be specified.

The Column B conditions you propose must be measurable, and include specific details that clearly determine the basis of their fulfilment. Examples include:

  • ​The seller has entered into security and finance agreements with [specific name of financial institution] in relation to the project.
  • That the seller must have entered into a written contract, in form and substance acceptable to the seller, for the sale by the seller and the purchase of ACCUs by a party other than the buyer. ​
  • Variation to the [eg Mining Operations Plan] agreed by [specific name of state government department or authority] to allow the installation of [type of specific equipment or material].
  • Development approval by [specific name of authority, eg Shire Council] in relation to the project.
  • [Type of agreement, eg power purchase agreement] agreed with [name of entity].

​​If you are unsure of the wording of the condition you wish to propose then please contact the Clean Energy Regulator prior to submitting your auction qualification.

Column C conditions precedent

Column C conditions precedent are for the benefit of the Clean Energy Regulator and the seller and may only be waived or deferred with the consent of both.

If any of the project(s) included in the offer are:

  • subject to a declaration that has a condition specified under section 28(2) or 28A(2) of the CFI Act
  • subject to other third party agreements, approvals, consents, licences, clearances, permissions or other authorisations, or
  • part of an aggregation, such that not all intended sites or land areas have been included in the project area at the time this offer is made,

then the Clean Energy Regulator will require the following condition precedent to be included in the offer:

That the Buyer and the Seller are each satisfied, each acting in its sole discretion and based on evidence provided to the Buyer by the Seller by no later than seven business days prior to the Conditions Precedent Expiry Date, that the Seller is likely to meet its obligation under the Contract to Deliver the Agreed Quantity of Contract Units in accordance with the Delivery Schedule. Capitalised terms used in this condition precedent have the meanings given to them in the documentasset::Code of Common Terms of the Contract to which this condition precedent pertains.

Conditions precedent expiry date

The conditions precedent expiry date is the final date that all conditions precedent must be fulfilled or waived. The contract will automatically lapse if all conditions precedent are not fulfilled or waived by the conditions precedent expiry date.

The conditions precedent expiry date should provide a reasonable period of time for the condition(s) to be met, allowing for potential delays. The Clean Energy Regulator will not accept a conditions precedent expiry date that is greater than 18 months from the contract date (five business days after the auction).

The delivery period (for example, seven years) of your contract will normally commence on the conditions precedent expiry date or an earlier date as nominated by you if all conditions are fulfilled earlier. To further understand the conditions precedent expiry date and how it influences the delivery schedule and the amount of abatement that can be delivered refer to the delivery schedule calculator.​​

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