Solar act could spark lawsuits

A slew of lawsuits could be in the pipeline if lawmakers pass an amendment to the Renewable Energy Act that would significantly clamp down on the solar industry by introducing retroactive taxes.

The amendment was passed by default in the Senate Dec. 12, and President Václav Klaus said he would allow the amendment go through, as well. All that remains for the amendment to be final is a meeting before the end of the year to set renewable-energy fees included in consumer electricity prices, said Pavel Vlček, a spokesman for the Industry and Trade Ministry.

Investors in the solar industry have been preparing for this change since the tax was first added to the amendment in early October.

"We are leaving the Czech Republic and are going to another country," said Christian Liebel, a fund manager of Danish company Green Power Partners, which was originally scheduled to invest 35 million ($46.2 million/878.9 million Kč) to 40 million euros in renewable energy projects, but pulled out before those projects could be realized once the legislation started to change. "We spent three-fourths of a year and a lot of manpower and money in terms of legal and technical consultants. ... It was all lined up and ready for a signature."

But many others have decided to stick around and fight it - if not to challenge the law, to make up for money they say they are losing on their investment. Forty of those investors attended a meeting at law firm CMS Cameron McKenna's branch in Prague, where lawyers made a presentation about international and domestic legal options.

"From the point of view of investors we've spoken to, there is a strong sentiment to take action," said Guy Pendell, a partner focused on international arbitration at CMS Cameron McKenna's London branch who attended the Prague meeting. Investors may take a coordinated action that could cost the Czech government "tens, if not hundreds, of millions of euros," he said, and that legal notices to the state about investors pursuing international arbitration could start coming in as early as the beginning of next year.

Officials acknowledged the amendment will result in arbitration, said Neela Winkelmann-Heyrovská, an environmental advocate who organized a Senate hearing in late November where investors voiced their concerns. She said though the amendment floated through by default, five resolutions in support of the amendment failed to pass.

"They're scared; the pressure is immense," she said, adding that the Senate never proposed a resolution to not pass the amendment. "They know it's a scandal and an improper piece of legislation breaching international law, but they are afraid to show it by a clear vote."

Vlček countered that the government's legal analysis of the amendment proved it was not in violation of any "superordinate regulations," and that "adjusting conscription is solely within the nation state's authority."

"The government has had to abide to what is in the best interest of the Czech Republic. Had the government done nothing, electricity prices would rise dramatically," Vlček said, adding that the price hike would have caused increased unemployment, which would result in further burden on the state from paying unemployment benefits, and that tax revenues would fall. "All this in a time of austerity - the government had to step in."

The amendment currently on the table, which would take effect early next year if passed, would charge a three-year levy on feed-in tariff (FIT) revenues paid to solar investors who commissioned solar plants with a capacity of more than 30 kilowatt hours in 2009 and 2010. The tax would be 26 percent for FIT from selling power to the grid and 28 percent for green bonus revenues for electricity consumed where it is produced, as opposed to being sold to the grid. In addition, ground-based solar installations will no longer be supported, and solar plants that produce energy but are not connected to the grid will lose state support. Tax holidays for solar plant operators will also end.

Much of the changes in the amendment are retroactive, investors said, because they tax FITs and green bonuses and pull benefits that were guaranteed for 15 years under the original legislation. Because of that, investors said they violate trade laws and agreements by changing guaranteed conditions, reducing the value of their investment.

"The adoption of this amendment ... is a creeping expropriation of investment, very much like the communists' repossession of private investment in the 1950s," said Pavel Šich, chairman of the board at Vavřinec Energy. He said his company had invested around 540 million Kč in the Czech solar industry and would lose around 67 million Kč in profits if the amendment was passed. "Because our state representatives are acting unconstitutionally, we will no longer continue to invest in the Czech Republic. ... We will try to get the amendment to be reconsidered before the Constitutional Court and obtain justice in the Czech Republic."

The possibilities for legal action are numerous and complicated, lawyers told investors at the Prague conference, and vary based on whether a company is made up of only Czech investors or whether there are foreign investors involved, and also whether the three-year levy can be considered a tax.

Domestic investors would have to pursue legal actions that would eventually allow them to challenge the amendment in the Constitutional Court or in the European Court of Human Rights for property protection, which could mean years of appeals.

Foreign investors who want to challenge the amendment need to decide what international treaty applies to them, CMS Cameron McKenna lawyers said, and decide whether they want to pursue a joint suit with other investors.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com