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Conditions precedent

04 August 2020

The Fixed Delivery 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.

Optional Delivery contracts cannot be subject to Conditions precedent.

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 approvals, 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.

All reasonable endeavours must be used to fulfil conditions precedents as soon as possible. Both parties must notify each other as soon as they become aware of a fulfilment or waiver of conditions precedent.

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:

'The Seller has notified the Buyer in writing on or before the Conditions Precedent Expiry Date and has provided the Buyer on or before the Conditions Precedent Expiry Date with documentary evidence that is satisfactory to the Buyer acting reasonably to the effect, that each Project specified in Item 2 of these Commercial Terms has 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 application.

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 parties.

If your offer relates to a project that is registered under the Carbon Credits (Carbon Farming Initiative–Emissions Abatement through Savanna Fire Management) Methodology Determination 2015 and the intention is to change it to the new Carbon Credits (Carbon Farming Initiative–Savanna Fire Management–Sequestration and Emissions Avoidance) Methodology Determination 2018, then the Clean Energy Regulator will require the following condition precedent to be included in the offer:

That;

  1. each project area for the project(s) has become a project area of project(s) whose applicable methodology determination (within the meaning of the term in the CFI Act) is the Carbon Credits (Carbon Farming Initiative-Savanna Fire Management-Sequestration and Emissions Avoidance) Methodology Determination 2018 (the 2018 savanna sequestration method) pursuant to section 30A of the Carbon Credits (Carbon Farming Initiative) Rule 2015 and such project(s) have become the Project(s); or
  2. the 2018 savanna sequestration method has become the applicable methodology determination for the Project(s) pursuant to section 130 of the CFI Act.

Conditions precedent expiry date

The conditions precedent expiry date is the final date that all conditions precedent must be fulfilled or waived.

All reasonable endeavours must be used to fulfil conditions precedents as soon as possible. Both parties must notify each other as soon as they become aware of a fulfilment or waiver of conditions precedent.

If a conditions precedent is not met by the conditions precedent expiry date, the contract may terminate.

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.

If you hold a contract subject to conditions precedent and are concerned about fulfilling the conditions precedent before the expiry date please contact the Clean Energy Regulator to discuss the matter.

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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