Manuales de Inversión del Sector Eléctrico - Manual de Inversión en Ingles

This Electricity Investment Handbook aims at orienting investors on the most relevant legal obligations that they should take into account when analyzing and deciding to make an investment in Peru’s electricity sector.

The eight (8) Chapters that make up this handbook describe the main legal aspects that regulate the development of an electricity project from the moment the project’s start is decided, continuing with the pre-operative and operative stages.

The handbook addresses different subjects, with an independent approach in each of the Chapters:

1. General Aspects2. Concessions and Authorizations 3. Electricity Sector Price Regime4. Committee for the Economic Operation of the Interconnected Systems (COES)5. Use of Public and Third Party Assets6. Investment Guarantees and Tax Issues7. Environmental Aspects Applicable to Electrical Activities8. Public Sector Authorities

In addition, the handbook also includes an Appendix with a Glossary of Terms and a list of the main legal regulations that were covered in preparing this handbook.

The information presented herein is based on the current law governing the various matters, and are therefore reliable and accurate. However, the SNMPE and its promoters are exempt from all liability.

Nor are the SNMPE and its promoters liable for any direct, indirect, consequential, compensatory or incidental damage that could be caused by decisions made on the basis of the information provided by this Handbook. This information does not replace any legal, accounting, financial, tax or similar advice, or the company’s own management system within its operations; it only seeks to supplement them.

This document is for orientation purposes only, and addresses the most relevant legal aspects regulating investments in the Electricity Sector that were in force as of February 28th, 2011

All the information presented in the eight (8) Chapters and the Appendix of the Electricity Investment Handbook is copyrighted by the Sociedad Nacional de Minería, Petróleo y Energía – SNMPE, and cannot be reproduced, copied, sold or otherwise restructured without the express prior consent of the SNMPE. All rights reserved.

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GENERAL ASPECTS

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1.GENERAL PROVISIONS

Peru’s Electricity Sector reform began in 1993, when the Electricity Concessions Law, Decree Law N° 25844, went into effect. According to the provisions of such law, the Electricity Sector is comprised of electric power generation, transmission, distribution and commercialization activities.

It was established that such activities could be carried out by domestic or foreign individuals or legal entities, but in the case of legal entities, they must be incorporated in accordance with the Peruvian Law.

The foregoing must comply with the provision of article 60 of the Political Constitution of Peru, which establishes that private or public entrepreneurial activity will receive the same legal treatment.

ELECTRICITY GENERATION

This activity is carried out under free competition; therefore, generating companies compete against each other to supply the electricity market.

ELECTRICITY TRANSMISSION

Transmission is an activity carried out under a natural monopoly; therefore, it is a regulated activity.

The Transmission System of the National Electric Power Grid (SEIN) is composed of 4 types of facilities:

a) Guaranteed Transmission System (SGT). b) Supplementary Transmission System (SCT). c) Main Transmission System (SPT).d) Secondary Transmission System (SST).

The SGT and SCT are made up of facilities that started commercial operations after July 2006 (promulgation

of the Electricity Concessions Law that started commercial operations before Law N° 28832 was promulgated.

ELECTRICITY DISTRIBUTION

This activity is subject to regulation. Distribution companies have a monopoly over the sale of electricity to Regulated Users in their concession areas. This monopoly is not applicable to Free Users located in the distributor’s concession area; they can freely contract any generator or distributor.

GENERALASPECTS

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2. ELECTRICITY PUBLIC SERVICE

The law determines the following activities as part of the Electricity Public Service:

a) Regular supply of electric power for collective use or destined to collective use, within the

According to these regulatory provisions, the power limits are:

Regulated Users.

right to choose between being a Regulated User or a Free User.

b) Electricity transmission and distribution.

3. SUPPLY TO FREE USERS

Free Users contract the power and energy they require under an open price regime from either generating companies or distribution companies.

choose between being a Regulated User or a Free User. Therefore, they can choose whether to buy at a regulated price or at an open price.

(Electricity Free Users Regulations - DS 022-2009-EM)

4. GENERATION WITH RENEWABLE ENERGY RESOURCES (RER)

In 2008, Legislative Decree N° 1002 (a regulation with force of law) was issued in order to promote the use of RERs. The development of power generation through RERs was therefore declared of national interest and public necessity.

This decree stipulated that the following energy resources will be considered as RER: biomass, wind, sun, geothermic, tidal power, and hydropower, only when the latter’s installed capacity does not

In accordance with said regulation, every 5 years the Ministry of Energy and Mines will establish the target percentage of electricity (regarding national electricity consumption) in which RER-generated electricity must participate. It was also established that hydroelectric power stations will not be

will be up to 5% for each of these years.

OSINERGMIN is in charge of the auction of premium allocation for each project using RER generation.

premium that ensures the price obtained in the auctions carried out by OSINERGMIN, and (iii)

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5. CONTROL OF CONCENTRATIONS

In compliance with the Anti-monopoly and Anti-oligopoly Law of the Electricity Sector – Law N° 26876, horizontal or vertical concentrations produced in electric power generation, transmission or distribution will be subject to a prior authorization process before the National Institute for the Defense of

place or have any legal effect.

This prior authorization will depend on the acts of concentration that directly or indirectly involve companies that pursue electric power generation, transmission or distribution activities that jointly or separately hold, before or after the act which caused the request for authorization, a market share equal to or greater than 15% in acts of horizontal concentration and 5% of any of the markets involved, in acts of vertical concentration.

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CONCESSIONS ANDAUTHORIZATIONS

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The Electricity Concessions Law establishes the following as electricity rights: (i) temporary concession,

1. TEMPORARY CONCESSION

Regarding temporary concessions related to generation, the only temporary concession applications

2. DEFINITIVE CONCESSION

CONCESSIONS ANDAUTHORIZATIONS

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3. AUTHORIZATION

4. ACTIVITIES THAT DO NOT REQUIRE CONCESSION OR AUTHORIZATION

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PRICE REGIME IN THE ELECTRICITY SECTOR

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The Electricity Concessions Law establishes an open price regime when the supply can be procured under competitive conditions, and a regulated price regime when the nature of the supply so requires.

1. ACTIVITIES SUBJECT TO PRICE REGULATION

The following operations are subject to price regulation:

a) Transfer of power and energy between generators. In these cases the costs will be determined by COES.

b) Withdrawal of power and energy in COES carried out by Distributors and Free Users.

c) Transmission and Distribution System fees and compensation

d) Energy sales from Generators to Electricity Public Service Distributors; except when a Tender has been carried out especially for that service.

e) Sales to Electricity Public Service users.

2. CONTRACTS UNDER OPEN PRICE REGIME

Generators and Distributors may sell power and energy to Free Users. Regarding distributors, they must also have a supply contract with a generator company.

Likewise, the law establishes that Generators are not allowed to sign contracts with Free Users and

parties.

3. CONTRACTS UNDER REGULATED PRICE REGIME

Electricity sales (power and energy) from Generator to Distributor, destined for Electricity Public Service, are carried out in two ways:

a) Contracts with no tender processes:In this type of contract, the prices will not exceed the Bar Prices calculated by OSINERMING

b) Contracts resulting from tender processes:In this type of contract, the prices will be the result of the competition between generator companies that participate in the tender process called by the distributor companies.

In these cases, OSINERMING’s intervention is reduced to approval of the tender documents

is not covered.

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4. TENDERS UNDER LAW Nº 28832

market must be ensured through the tenders called by the Distributors. These tenders will result in

Regulated Users. Tenders can also include the portion corresponding to its Free Users as part of the demand to be offered in the tender.

Tenders must be carried out with the necessary advance notice, so as to facilitate and promote the development of new generation investments, make use of economies of scale, promote competition and ensure supply for the regulated market.

Each Distributor has the authority to establish its power and energy purchase modes and requirements, as well as the contractual terms to be offered in the tender process.

Contracts with terms under 5 years may not cover requirements greater than 25% of the Distributor’s Regulated Users’ total demand.

Groups or consortia of Free Users may call for Tenders to cover their current and future demands.

4.1. Long-term tender process

Distributors are obliged to start a tender process with a minimum advance notice of 3 years, in order to prevent Regulated Users’ demand from being left without contract coverage.

4.2. Short-term tender process

Distributors may start tender process with less than 3 years of advance notice for no more than 10% of its Regulated Users’ total demand in order to cover the deviations produced in their demand projections. In these cases, OSINERMING will approve the contractual terms that correspond to the Distributor’s proposal.

4.3. Tender Documents

The Distributor is responsible for carrying out the tender process and preparing the draft tender documents.

OSINERMING is responsible for approving the tender documents, model contracts, terms and

is also responsible for preventing free competition from being affected during the entire tender

Hydroelectric projects that participate in tender processes will have a discount factor, which will be established in each tender process, allowing a better economic proposal in comparison to projects using other technologies.

4.4. Maximum tender price

OSINERGMIN is in charge of establishing the maximum price for the awarding of the respective

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the tender process, and will be made public only if there were not enough proposals to cover the total demand at a price lower than or equal to the maximum price.

In cases where, as a result of the tender, there were not enough supply proposals at prices lower than or equal to the maximum price to cover the demand offered in the tender, the services from the successful bidders that supply the demand of Regulated Users will be prioritized. In these cases, a new call for tenders will be made within a maximum term of 30 business days.

4.5. Conditions of the contracts from a tender process

Contracts signed as a result of a tender process must have the same terms as the corresponding successful bids, subject to the following conditions:

of the parties throughout the effective term of the contract unless OSINERMING has given prior authorization. Regarding price reductions during the contracts’ effective terms, Distributors must pass on 50% of such reductions to consumers 50% of such reductions.

b) Power price equal to Power Basic Price in effect on the date of the tender, which will be considered

d) Supply guarantee for its own energy, energy contracted from third parties or through aninvestment program that increase generation supply.

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COMMITTEE FOR THE ECONOMIC OPERATION OF THE

INTERCONNECTED SYSTEMS COES

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1. COES’ FUNCTIONS

1.1. Public interest functions

1.2. Operative functions

COMMITTEE FOR THE ECONOMIC OPERATION OF THEINTERCONNECTED SYSTEMS COES

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USE OF PUBLIC AND THIRD PARTY ASSETS

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1. USE OF PUBLIC ASSETS

Generator, transmission and distribution companies are authorized to, following compliance with the corresponding legal requirements:

a) Use, without consideration, the soil, subsoil and air over public roads, streets, squares and other assets belonging to the State or municipality, as well as to cross rivers, bridges, railroads, electric and communication lines.

b) Cut down trees or branches that are near air conduits and could cause harm to facilities, after authorization from the competent authority.

c) Place supports or anchors in buildings facades and the posts in front of them.

2. EASEMENTS

Easements for the use of public and private assets will be constituted in accordance with the provisions of the Electricity Concessions Law.

2.1. There may be easements over:

a) Aqueducts, dams and other hydroelectric works.

b) Electric conduits to establish the transformation substation, transmission lines and distribution.

c) Use of private assets that are essential for the installation of distribution substations to render Electricity Public Services and for the development of power generation activities with Renewable Energy Resources.

d) Telecommunication systems.

e) Path, to construct access roads.

f) Transit, for safekeeping, preservation and repair of works and installations.

The right to establish an easement requires compensation for any harm it may cause and payment for the use of the taxable asset.

2.2. Scope of electric conduits easement

Electric conduit easements imposed for overhead or underground transmission and distribution systems include:

a) Use of the soil’s surface, subsoil or its air rights needed for the installation of transformation substations.

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b) Use of the soil’s surface, subsoil and/or its air rights needed for the installation of supportstructures for power lines.

The owner of the subservient estate may not build anything in the imposed easement strip whichwill be used for underground electric conduits, carry out any kind of works or keep a plantation that

Electric conduit and telecommunication facilities easements will be granted from the project stageand include the company’s right to lay out lines using posts, the towers of underground pipelines inState, municipal or third party properties and occupy the land necessary to install transformationsubstations and related civil works.

The Ministry of Energy and Mines may impose, in favor of concessionary companies at their request,temporary occupancy easements over land that belongs to the State, municipalities, entities ownedby the State or private parties, intended for storage, material deposits, pole line placement or anyother service necessary to build the works.

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INVESTMENT GUARANTEES AND TAX ISSUES

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1. FOREIGN INVESTMENT GUARANTEES

Foreign investors, and the companies where they participate, have the same rights and obligations as domestic investors and companies. Under no circumstance will the national legal system make any distinction between foreign or domestic investors or companies.

Foreign and domestic investors have the same rights regarding the properties they purchase in national territory. However, the Political Constitution (article 71) establishes that foreign investors cannot directly or indirectly acquire, or own any title, mines, lands, forests, water, fuels, or energy sources within 50 km of borders, excluding particular cases expressly authorized through Supreme Decree approved by the Council of Ministers.

In the case of foreign investments, the national legal framework stipulates that they are automatically authorized and that, once they have been carried out, they must be registered (mostly for statistics purposes) with the Private Investment Promotion Agency (PROINVERSIÓN).

At the same time, foreign investors are guaranteed the right to transfer abroad (after paying their taxes) in freely convertible currencies using the most favorable exchange rate at the time of transfer, without prior authorization from any authority or public entity, the following: (i) all the

investments.

Art. 2 to 5 and 7 of Legislative Decree 662Art. 71 of Peru’s Political Constitution

2. LEGAL STABILITY AGREEMENTS

Legal Stability Agreements grant certain guarantees for domestic and foreign investors that want to carry out economic activities related to any sector in order to provide a stability regime.

These agreements are signed by PROINVERSIÓN or the ministry of the corresponding sector, acting on behalf of the Peruvian State.

A Legal Stability Agreement may be signed prior to or within the following 12 months after obtaining an operating permit. It guarantees the holder the stability of the regimes and rights mentioned in subsection 2.1 and 2.2 below, for a 10-year term, counted from its signing. Regarding the agreements signed under the Single Uniform Text of the Regulations with Force of Law governing the Concession of Public Infrastructure and Utilities Public Works to the Private Sector, approved through D.S Nº 059-96-PCM, and its in-force status will be applied throughout the concession term.

Domestic and foreign investors and the companies that receive such investments, may adhere to the legal stability regime, provided that they commit to the following, at a minimum within a term no longer than 2 years counted from the Agreement’s signing date, or from the Operating Permit date: (i) providing monetary contributions, through the National Financial System, to the capital of an established company or a company to be established; or (ii) making risk investments with third parties for an amount of no less than US$ 5 million (Law 27342).

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These Agreements grant the following guarantees:

2.1. To foreign investors

a) Stability of the Income Tax regime in force as of the date of signing the Agreement, in such a way that the amounts corresponding to investors will not be affected by a greater tax burden (investment stability regarding dividends).

b) Stability of the regime for the free availability of currency.

revenue.d) Stability of the right to use the most favorable exchange rate available in the market.e) Stability of the right to non-discriminatory treatment between foreign and domestic

investors.

2.2. To Peruvian companies that are investment recipients

a) Stability of the Income Tax regime in force as of the date of signing the Agreement, in such a way that it will not be affected by amendments approved subsequently.

b) Stability of exports promotion regimes. c) Stability of worker hiring regimes under any modality.

Arts. 10 and 12 of Legislative Decree N° 662Art. 2 of Law N° 27342Arts. 14, 15, 19, 23 and 25 of the Regulations of Private Investment Guarantee Regimes (DS Nº 162-92-EF)

3. INCOME TAX - IT

Resident in the country1, regardless of the nationality of individuals, place of company incorporation or location of the income-generating source. Moreover, the tax is applicable to taxpayers that qualify

coming from a “Peruvian source”. This tax is settled paid annually, although there is an obligation to make monthly advance payments.

Capital-based Income

a) First: Income produced by leasing, subleasing and transfer of assets.b) Second: Income from other capitals.

Business Income

c) Third: Income from trade, industry and others expressly included by law. All income generated by companies belongs to this category.

1 Those residing in this Country are:a) Individuals: (i) Of Peruvian nationality, domiciled in the country, (ii) foreigners who have resided or stayed in the country for more than one hundred and eighty-three (183) calendar days during any twelve- (12) month period and, (iii) those who perform

b) Legal Entities: (i) Incorporated in the country, (ii) branches, agencies or other permanent establishments in Peru of non-resident individuals or legal entities, (iii) successions when the testator, on the date of death, had resident status, (iv) multinational banks, regarding income from their operations in the domestic market; and, (v) sole proprietorships, de facto partnerships and other institutions incorporated or established in the country.

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Work Income

d) Fourth: Income from independent capital. e) Fifth: Income as an employee and other income from independent activities expressly

3.1. Determination of third category income tax

- Resident Parties

For Third Category Income (companies), the tax on resident parties is applied on the Net Income obtained by the company during the tax year. In order to establish Net Income, the following will be deducted from the Gross Income (total taxable revenues obtained during the

as long as the deduction is not forbidden by law; and, (ii) total net losses from previous tax years2.

The tax payable by resident companies will be determined using 30% rate on the Net Income.

It is worth mentioning that, pursuant to the Law that promotes Regional and Local Public Investment with the Participation of the Private Sector, the Ministry of Economy and Finance

aim at recognizing the amount that private companies invest in the execution of certain public investment projects in infrastructure, roads, bridges, schools, among others. CIPRL have an effective term of 10 years counted as from their issuance and the amounts recognized by them may be applied by the private companies against third category Income Tax payments under their responsibility, up to 50% of the Income Tax amount determined in the previous

Resident or non-resident individuals and non-resident companies that receive dividends and

through withholding on the payer’s side.

- Non-resident parties

In this case, IT is determined through the application of different rates (depending on the type of operation or activity that generated the income: interest from foreign loans, royalties, technical assistance and other income, among others) over the total revenues paid or credited,

the Income Tax Law.

TUO of Income Tax Law (DS 179-2004-EF)Regulations of the Income Tax Law (DS 122-94-EF)Law that promotes Regional and Local Public Investment with participation of the Private Sector (Law 29230)

2 Taxpayers residing in this country may offset their Peruvian-source third category loss for a tax year, in accordance with any of the following systems:

a) Offsetting the total net loss recorded in a tax year, carrying it forward each year until the amount is exhausted, to the net income obtained in the immediately subsequent (4) years. Any balance that is not offset within this term will be lost.

of net income obtained in immediately subsequent years.

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3.2. Agreements to prevent double taxation

To determine the Income Tax to be paid and its economic impact on foreign investments, it is necessary to take into consideration the agreements to prevent double taxation signed between Peru and several countries.

Agreements currently in force are those signed with: (i) the Andean Community (Peru, Colombia, Ecuador and Venezuela), (ii) Chile; (iii) Canada and (iv) Brazil. In addition, an agreement has

countries.

Likewise, agreements are being negotiated with Sweden, France, Italy, the United Kingdom, Switzerland and Thailand.

3.3. Accelerated Depreciation Regime for electricity generation

Legislative Decree Nº 1058 dated June 28, 2008, established incentives and other measures to promote investment in electricity generation through the use of renewable energy sources.

This device establishes that the generation of electric power based on water resources or other renewable resources, such as wind, solar, geothermal, biomass or tidal power, will be entitled to the accelerated depreciation regime for Income Tax purposes.

This regime is applicable to power stations that start commercial operations on or after June 29, 2008.

Accelerated depreciation will be applicable to machinery, equipment and other civil works necessary for installation and operation of the power station that are purchased or built after the regulation’s effective date.

For this purpose, the annual depreciation rate will be less or equal to 20% as an overall annual rate.

4. VALUE-ADDED TAX (VAT)

VAT is a tax on consumption, paid monthly, which levies the value added of each transaction in the different stages of the economic cycle through a debit and credit scheme. This tax operates as follows: the tax payable is determined on a monthly basis by deducting the Fiscal Credit (VAT paid on all the purchases of goods and services rendered) from the Gross Tax (amount resulting from applying the tax rate on the taxable base3), in such a way that only the difference between these amounts is actually paid to the Public Treasury.

3 Taxable base is comprised of:a) Sale of goods: Sale price.b) Rendering or use of services: Total compensation paid.c) Construction contracts: Construction value.d) Sale of real estate: Revenues earned.e) Imports: Customs price plus the corresponding duties and taxes.

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4.1. VAT determination

st

4.2 VAT Refund

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ENVIRONMENTAL ASPECTS APPLICABLE TO

ELECTRIC ACTIVITIES

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Pursuant to the Law on Electric Concessions, the State contemplates conservation of the environment and the Cultural Heritage of the Nation, as well as the rational use of natural resources in the development of activities related to generation, transmission and distribution of electric power.

1. ENVIRONMENT PROTECTION REGULATIONS IN ELECTRIC ACTIVITIES - DS 029-94-EM

the corresponding Environmental Impact Assessment.

In turn, authorization requests must include a sworn statement on compliance with environment preservation regulations or, for thermoelectric power generation with installed capacity over 20 MW,

1.2. Obligations of concession and authorization holders

responsible for controlling and protecting the environment in aspects related to such activities.

control, who will be in charge of identifying existing problems, foreseeing those that may arise

permanence of environmental programs.

In the case of individuals or legal entities where no concession or authorization is required to perform electric activities, they must adopt the measures necessary to mitigate the impact of their activities on the environment, complying with the Maximum Permissible Limits.

before March 31 of the following year, signed by an Environmental Auditor registered with the Ministry of Energy and Mines, reporting on compliance with current environmental regulations, recommendations from the Environmental Impact Assessment, if any, and previously approved Environmental Adjustment and Management Plans (PAMA), as well as a consolidated report of the controls performed on their emissions and waste discharges.

1.3. Competent authority on environmental matters

Mines is the technical regulatory body in charge of proposing and evaluating policy, proposing and issuing the necessary regulations and promoting the execution of activities aimed at environmental conservation and protection for the sustainable development of energy-related activities.

before the Ministry of Energy and Mines referring to the Energy Sector.

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1.4. Environmental Impact Assessment (EIA)

The EIA demanded for electric activities must contain the following:

a) A Baseline study to determine the environmental situation and the pollution level of the area where electric activities will be performed, including a description of existing natural resources, geographical aspects, and also social, economic and cultural aspects of populations

b) A detailed description of the proposed project.

physical, biological, socio-economic and cultural environment, of the different alternatives in each stage of the project.

d) A detailed Environmental Management Program that includes the necessary actions to prevent,

impacts.f) A contingency plan and an area abandonment plan.

negative social, cultural, economic and health impact on the population.

The performance of electric activities within protected natural areas must be carried out in coordination with the competent authorities, pursuant to legal devices in force for these cases.

An electricity system in operation must present an EIA when considering an expansion of its facilities of over 50% of its installed capacity or a 25% increase in its current emissions level or one that involves using new areas.

2. GUIDELINES FOR CITIZEN PARTICIPATION IN ELECTRIC ACTIVITIES – RM 223-2010-MEM

These guidelines explain the consultation procedures and citizen participation mechanisms applicable during proceedings for awarding electricity rights, during the preparation and evaluation of environmental assessments, and during follow-up and control of environmental aspects of electric

in independent countries and other regulations.

Application Scope

The consultation and citizen participation process for electricity activities runs from the awarding of temporary concessions, the preparation and approval of environmental assessments, as well as the

The application of guidelines includes procedures for granting authorizations for the development of

include authorizations, as may correspond.

Consultation and Citizen Participation process

application of several mechanisms, aims at offering timely and adequate information about the projected Electric Activities or those in execution the involved population; promoting dialogue and consensus building; and learning and channeling opinions, positions, viewpoints, observations or

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procedures under its charge.

Stages of the Consultation and Citizen Participation process

- 1st Stage, before the award of Temporary Concessions related to the electric power generation activity.- 2nd Stage, before and during the preparation and evaluation of Environmental Assessments. - 3rd Stage, after the approval of Environmental Assessments.

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PUBLIC SECTOR AUTHORITIES

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Public sector institutions closely related to the electricity sector include the following:

1. MINISTRY OF ENERGY AND MINES – MINEM

The MINEM, as governing body of the energy and mines sector, aims at formulating and evaluating national policies on sustainable development in energy and mining activities.

Among its main functions are:

a) Promoting investment in the sector.b) Stipulating general regulations on matters under its jurisdiction.c) Granting, on behalf of the State, concessions and entering into contracts, as the case may

be, for the development of energy activities.d) Being the competent environmental authority for energy activities.e) Promoting development of competitiveness in energy activities.

2. SUPERVISORY BOARD FOR INVESTMENT IN ENERGY AND MINING – OSINERGMIN

This is the body that regulates, supervises and oversees the activities performed by natural and legal entities in the subsectors of electricity, hydrocarbons and mining.

Its main functions are:

a) Oversight function.b) Regulatory function: including the power to decide the fees for services under its jurisdiction.c) Rule-making function.d) Oversight and sanctioning function.e) Dispute settlement function.f) Resolution function for complaints lodged by users of the services under its oversight.

3. NATIONAL WATER AUTHORITY – ANA

Public body attached to the Ministry of Agriculture, responsible for stipulating regulations and establishing procedures for the comprehensive and sustainable management of water resources.

The electricity sector is closely related to ANA, as this institution is in charge of granting rights of use over water for energy purposes and, likewise, issuing a binding technical opinion for the approval of environmental management instruments that involve natural water sources.

4. NATIONAL INSTITUTE FOR THE DEFENSE OF FREE COMPETITION AND INTELLECTUAL PROPERTY – INDECOPI

INDECOPI and, in particular, INDECOPI’s Commission for Free Competition and Competition Defense Court, carry out concentration authorization procedures (mergers, stock purchase, joint ventures, etc.) that may be followed by companies of the electricity sector, in order to protect competition in the electricity sector.

PUBLIC SECTORAUTHORITIES

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There are two types of concentrations in the electricity sector: (i) vertical concentrations, involving two or more companies that carry out different electric activities between them (generation, transmission and distribution); and, (ii) horizontal concentrations, involving two different companies that perform the same electric activity.

5. AGENCY FOR ENVIRONMENTAL ASSESSMENT AND AUDIT – OEFA

The Agency for Environmental Assessment and Audit– OEFA is a public, technically specialized institution, under the Ministry of the Environment – MINAM. The OEFA is the head of the National Environmental Assessment and Audit System - SINEFA (according to Law N 29325).

It has the responsibility of verifying the compliance with environmental legislation. Likewise, it makes sure that environmental evaluation, supervision, control, sanctioning, and incentive functions conducted by various Government agencies are carried out independently, impartially, agile and

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APPENDIX

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I. GLOSSARY OF TERMS

1. BarA point in the electricity system prepared to deliver or withdraw electrical power.

2. COESCommittee for the Economic Operation of the Interconnected Systems.

3. CogenerationProcess for the combined production of electric energy and thermal energy, which is an integral part of a productive activity, in which electric energy is destined to self-consumption or consumption by third parties.

4. Short-Term Marginal CostCost of producing one additional unit of electricity in any bar of the generation-transportation system. It varies per bar or node.

5. DistributorHolder of a distribution concession.

6. GeneratorHolder of a generation concession or authorization. Generation includes cogeneration and distributed generation.

7. Distributed Generation

electricity distribution concessionaire.

8. Large UsersFree Users with contracted power equal to or greater than 10MW, or groups of Free Users with total contracted power of at least 10MW.

9. Distributor.Holder of a distribution concession.

10. Firm Energy

percent (95%) for hydroelectric power generation units, and unavailability, scheduled and fortuitous, for thermal generation units.

11. GeneratorHolder of a generation concession or authorization. Generation includes cogeneration and distributed generation.

12. TenderPublic tender process for the supply of electricity under competition conditions, governed by Law 28832.

APPENDIX

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13. Short-Term MarketMarket in which power and energy transfers, determined by COES, are made.

14. Non-Regulated MarketElectricity transactions for clients other than Electricity Public Service consumers, under competition

15.Referential PlanPreliminary, minimum-cost program on the generation and transmission assessments and works to cover the growth of energy demand over the medium-term.

16. Firm PowerPower that may be securely supplied by each generating unit pursuant to regulations. For hydroelec-

-

17. Typical Distribution SectorDistribution facilities with similar technical characteristics regarding geographical load arrangement, technical characteristics, as well as investment, operation and maintenance costs. A concession may be comprised of one or more Typical Distribution Sectors.

18. Complementary ServicesServices necessary to ensure electricity transportation from generation to demand under quality and reliable conditions.

19. Economically Adapted SystemElectric system in which there is balance between energy supply and demand, pursuing the lowest cost and maintaining service quality.

20. Interconnected SystemGroup of transmission lines and electric substations interconnected between each other, as well as their corresponding load dispatch centers. This permits transfer of electric energy between two or more generation systems.

21. Supplementary Transmission SystemGroup of transmission assets or facilities that are not part of the Guaranteed Transmission System.

22. Guaranteed Transmission SystemGroup of transmission assets or facilities built as a result of the Transmission Plan.

23. Main Transmission SystemThe part of the transmission system, common to the group of generators of an Interconnected System, that permits electricity exchange and free commercialization of electric power.

24. Secondary Transmission System

from a Bar of the Main System. This system includes: facilities necessary to deliver electricity from a generation station to a Bar of the Main Transmission System.

25. Transmission TollDifference between compensation generated by the Fee Base assigned to Users and the Fee Income. Calculated per each facility.

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26. Transmission Plan

equipment requirements necessary to maintain or improve the quality, reliability, security or economy of the system for a horizon of no more than 10 years. This study produces a recommended plan for transmission works that contemplates diverse expansion scenarios for generation and future demand growth, the execution schedule and the allocation of compensation for its remuneration.

27. Firm PricesEnergy and power prices resulting from Tender processes, which are not subject to administrative

28. UsersFinal electricity consumers located in Peru.

29. Free UsersUsers not subject to price regulation for energy or power consumption.

30. Regulated UsersUsers subject to price regulation for energy or power consumption.

II. LEGAL FRAMEWORK

Political Constitution of Peru12/29/1993

Electric Concessions LawDecree Law N° 25844 as amended11/19/1992

Anti-monopoly and Anti-oligopoly Law of the Electricity SectorLaw N° 2687611/19/1997

Law regulating Legal Stability Agreements governed by Legislative Decree Nº 662 and 757Law Nº 27342 as amended09/06/2000

Law N° 28832 as amended07/23/2006

Water Resources LawLaw N° 29338 as amended03/31/2009

Legislative Decree for the Promotion of Investments to Generate Electricity Using Renewable Energies Legislative Decree N° 100205/02/2008

Legislative Decree for the promotion of investment to generate electricity using water and other renewable resourcesLegislative Decree Nº 105806/28/2008

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Single Uniformed Text of the regulations with force of Law that govern the concession of infrastructure and utilities public works to the private sectorSupreme Decree Nº 059-96-PCM12/27/1996

Single Uniformed Text of the Value-Added Tax and Excise Tax Law Supreme Decree Nº 055-99-EF as amended04/15/1999

Single Uniformed Text of the Income Tax Law Supreme Decree N° 179-2004-EF as amended12/08/2004

Regulations of the Electric Concessions LawSupreme Decree N° 009-93-EM as amended02/25/1993

Approval of the Regulations for Environment Protection in Electric ActivitiesSupreme Decree Nº 029-94-EM06/08/1994

Regulations for Free Users of Electricity Supreme Decree Nº 022-2009-EM04/16/2009

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PREPARED BY:

SOCIEDAD NACIONAL DE MINERÍA, PETRÓLEO Y ENERGÍAFrancisco Graña 671, Magdalena del Mar – Lima 17, PerúWeb: www.snmpe.org.peContacto: Manuel Holguín RojasE-mail: [email protected]. (51-1) 215-9250Fax. (51-1) 460-1616

PROMOTED BY:

MINISTRY OF ENERGY AND MINES Avenida Las Artes Sur 260, San Borja – Lima 41, Perú Web: www.minem.gob.peContacto: César Zegarra Robles E-mail: [email protected]. (51-1) 475-0065 Fax: (51-1) 475-0065

PRIVATE INVESTMENT PROMOTION AGENCY - PROINVERSIÓN Paseo de la República 3361, Piso 9, San Isidro – Lima 27, Perú Web: www.proinversion.gob.peContacto: Harry ChangE-mail: [email protected] T. (51-1) 612-1200Fax: (51-1) 221-2941

Manuales de Inversión del Sector Eléctrico - Manual de Inversión en Ingles

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