Navigating the Legal Landscape: Mergers and Acquisitions in the EV Charging Industry
Energy, Utilities, Mining and COP28
M&A transactions involving EV charging stations present significant opportunities and challenges for the parties involved and for the development and transformation of the transport and energy sectors in the UAE.
Law Update: Issue 363 - Energy, Utilities, Mining and COP28
Suhail MirzaPartner,Corporate Commercial
Yanal Abul FailatSenior Associate,Corporate Commercial
Despite a commonly held perception that the UAE market may not have sufficient appetite for electric vehicles (“EVs), interest and investment in the electric vehicle sector are growing in the United Arab Emirates (“UAE”). This is partly aided by the popularity of EV design (including the entrance of some notable Chinese manufacturers to the market), but it is also stimulated in large part by the country’s efforts to diversify its energy sources, reduce carbon emissions and increase competitiveness in the global green mobility market segment.
This article examines key legal considerations and some of the issues that may arise in merger and acquisition (“M&A”) transactions for EV charging stations, which are necessary to support greater adoption of EVs in the UAE regulatory and policy framework, due diligence, transaction policies and documents, and other transaction considerations.
There is no unified government (or federal level) regulation for EV charging stations in the UAE. Instead, each Emirate has a relative degree of autonomy to make policies and implement initiatives to encourage and regulate the development and operation of EV charging infrastructure. Two Emirates at the forefront of this are Dubai and Abu Dhabi. These Emirates have provided their own guidelines, standards, and incentives for EV charging stations in line with their respective energy and environmental policies. However, investment activity is also emerging in the Northern Emirates, where government involvement in this market sector is increasing.
Dubai has been a pioneer in the UAE in supporting the adoption of EVs and the expansion of EV charging stations. In 2015, the Dubai Supreme Council of Energy launched the Dubai Green Mobility Initiative to promote sustainable transport solutions such as EVs to reduce road transport emissions within the Emirate. In 2017, the Dubai Supreme Council of Energy issued Directive No. 1 of 2017 on the establishment and installation of EV charging stations in Dubai. This directive mandates that all organisations and developers, whether public or private, must secure approvals from the Dubai Electricity and Water Authority (“DEWA”) prior to initiating the establishment, installation, operation, or maintenance of any EV charging facility. The directive was implemented to continue the ongoing commitment to the Dubai Clean Energy Strategy 2050, which aims to ensure Dubai has the lowest carbon footprint in the world.
DEWA launched the EV Green Charger Initiative to open up EV charging stations to the public and provide free charging for non-commercial EV users until the end of 2021. Under this initiative, customers registered as commercial entities, including both governmental and semi-governmental organisations, are charged 29 fils per kilowatt-hour. In addition to this, the Roads and Transport Authority (“RTA”) offers a range of incentives to electric vehicle owners, such as complimentary parking, discounted registration fees for electric vehicles, and a waiver of the Salik (Dubai’s road toll system) tag fee. As of December 2020, DEWA had installed 240 charging stations across Dubai and plans to increase this number to 300 by the end of 2021. DEWA also partnered with several entities, such as Dubai Airports, Dubai Municipality, Dubai Police, and Emirates Transport, to provide EV charging stations at their premises. Moreover, as part of the Dubai Building Code, the Emirate provides guidelines and requirements for EV charging points in Dubai.
Abu Dhabi has also taken significant steps to foster the growth of the EV sector and the deployment of EV charging stations. In 2018, the Abu Dhabi Department of Energy (“ADDoE”) issued the Regulatory Policy for Electric Vehicle Charging Infrastructure in Abu Dhabi, which explains and defines the regulatory principles for EV charging infrastructure in the Emirate. The policy aims to achieve the following objectives:
To ensure EV charging infrastructure in public and private parking areas is available, monitored, affordable, safe to use and accessible by all end customers.
To identify and integrate roles and responsibilities of key stakeholders concerning EV charging infrastructure in public and private parking areas.
To enhance the preparedness of the electrical distribution system in line with EV uptake and urban planning.
To define relevant licensing requirements, connection and tariff applications to EV charging stations and principles of EV charging services.
The policy also outlines the requirements and procedures for planning, installing, connecting, metering, and operating EV charging stations in public and private parking areas and for self-provisioning charging. The policy stipulates that the ADDoE requires no operational licence or permit to own, operate, and/or provide EV charging services in public and private parking areas and for self-provision charging. However, EV charging station owners in private parking areas or their appointed charge point operators (“CPOs”) must obtain a commercial licence from the Department of Economic Development (“DED”) to undertake the EV charging services activity and obtain prior approval by the distribution company for connecting the EV charging station. The policy also allows EV charging station owners or CPOs in public and private parking areas to determine the adequate service level and price required for the EV charging services in compliance with all existing regulatory requirements for commercial activities as decided by the DED and the Competitiveness Office of Abu Dhabi, and any contractual arrangements agreed upon between the different parties. The policy also mandates using an open payment framework in line with ISO 15118, where applicable.
The policy is supported by several incentives and initiatives by the Abu Dhabi government and other entities to encourage the adoption of EVs and the installation of EV charging stations. For instance, the Abu Dhabi government offers incentives for companies investing in green technology, including tax benefits and subsidies. The Abu Dhabi Distribution Company (ADDC) and Al Ain Distribution Company (AADC) provide free installation and connection of EV charging stations for residential customers. ADNOC Distribution and TAQA have created a joint venture, EG20, to build and operate EV charging stations in Abu Dhabi, including a network of fast chargers at critical locations.
The regulatory framework for EV charging stations in the UAE creates a favourable environment for the growth and consolidation of the EV charging market. It may attract potential investors and acquirers interested in entering or expanding their presence in this emerging sector. However, they also entail certain legal implications and risks that must be carefully assessed and addressed in any M&A transaction involving EV charging stations.
As with other infrastructure initiatives in the UAE, the Government plays a pivotal role in developing and expanding EV charging infrastructure. This often includes providing valuable land assets and streamlining the licensing and regulatory framework necessary for the construction and operation of EV charging stations. Typically, a specific department or agency within the Government acts as a key investor in these projects, frequently inviting private sector participation through joint ventures.
Such partnerships enable the Government to leverage private enterprises’ technical expertise and commercial acumen, thereby ensuring a more effective and profitable implementation. Given that land is usually under the government’s direct ownership, these assets are not uncommon to be contributed to the joint venture as an in-kind equity investment, subject to independent valuation. Private sector partners, in turn, participate based on an agreed valuation of their equity contributions.
For the deployment and management of EV charging infrastructure, consortiums or incorporated joint ventures are often established. These groups bid for contracts and serve as joint venture partners to the Government. This collaborative approach attracts infrastructure investors and opens up opportunities for stakeholders to get involved in various aspects of the project, ranging from technology supply to operational management. Such structures offer a comprehensive, multi-stakeholder approach to expanding the UAE’s EV charging infrastructure, aligning with the country’s sustainability goals and providing avenues for diversified investment.
Preliminary Regulatory Considerations The UAE’s Federal Decree Law No. (32) of 2021 on Commercial Companies now allows 100% foreign ownership in selected sectors, including electric vehicles charging stations and systems. This change eliminates the need for majority local ownership, boosting the appeal of M&A transactions in the UAE.
The new law permits full foreign ownership for most mainland LLCs and all free-zone LLCs, with no minimum capital requirement and limited shareholder liability.
In the UAE, mergers and acquisitions that meet certain market share thresholds or affect competition in the UAE market must be notified to the Competition Department at the Ministry of Economy before completion. The Competition Department has the power to approve, oppose or impose conditions on the proposed transactions, and failure to notify can result in significant fines or other sanctions.
Due DiligenceDue diligence is a crucial step in any M&A transaction, as it allows the parties to identify and evaluate the assets, liabilities, risks and opportunities associated with the target business. In the context of EV charging stations, due diligence may cover various aspects, such as:
The ownership and operation of the charging stations and the contractual arrangements with the landowners, electricity suppliers, network operators, service providers and customers. The parties should verify the legal title and rights of the target business to own, operate, or provide EV charging services and the terms and conditions of the contracts with the relevant stakeholders.
Assessing the performance and compliance of the target business with its contractual obligations and the potential liabilities and disputes that may arise from any breach or termination of the contracts. Particular attention should be given to developing and installing EV charging infrastructure contracts, service level agreements, land lease contracts, supply chain contracts, and power purchase agreements.
The compliance with the applicable laws and regulations, including those relating to planning and building permits, environmental and safety standards, consumer protection and data privacy, and licensing and reporting requirements. The parties should ensure that the target business has obtained all the necessary approvals and authorisations from the relevant authorities to establish, install, operate and maintain the charging stations and that it has complied with all the applicable laws and regulations in the UAE. The parties should also identify and evaluate the potential risks and costs of any non-compliance or violation of the laws and regulations and the measures and remedies available to address them.
The intellectual property rights and technology used in the charging stations and the protection and transfer of such rights and technology. The parties should identify and verify the ownership and validity of the intellectual property rights and technology used in the charging stations, such as patents, trademarks, copyrights, trade secrets, software licenses, and know-how. The parties should also assess the value and importance of such rights and technology for the target business and the potential threats and challenges to their protection and enforcement. The parties should also ensure that the transaction does not infringe or violate any third-party intellectual property rights or technology and that the transfer or assignment of such rights and technology is properly documented and executed.
The financial performance and projections of the target business and the potential synergies and efficiencies that can be achieved through the transaction. The parties should analyse the financial statements and records of the target business and evaluate its profitability, liquidity, solvency, and growth potential. The parties should also identify and quantify the potential synergies and efficiencies that can be achieved through the transaction, such as cost savings, revenue enhancement, market expansion, and operational improvement. The parties should also consider the impact of the transaction on the valuation and financing of the target business and the allocation and mitigation of financial risks and uncertainties.
The market conditions and competition in the EV charging sector and the potential opportunities and challenges for the future growth and development of the target business. The parties should conduct a comprehensive market analysis and research and understand the demand and supply dynamics, the customer preferences and behaviour, the regulatory trends and developments, and the competitive landscape and positioning of the target business in the EV charging sector. The parties should also identify and evaluate the potential opportunities and challenges for the future growth and development of the target business, such as new technologies, innovations, partnerships, regulations, and competitors.
The structure and documentation of an M&A transaction involving EV charging stations may vary depending on the nature, scope and objectives of the transaction and the preferences and expectations of the parties. However, some of the common issues and considerations that may arise in this context include:
The choice of the most suitable transaction structure, such as a share purchase, an asset purchase, a merger, a joint venture or a strategic alliance, and the tax and accounting implications of such choice. The parties should consider the advantages and disadvantages of each transaction structure and select the one that best suits their commercial objectives and interests and minimises their legal risks and liabilities.
The allocation of the risks and liabilities associated with the charging stations and the provision of appropriate representations, warranties, indemnities and covenants by the parties. The parties should negotiate and agree on allocating the risks and liabilities associated with the charging stations, such as those relating to the ownership, operation, compliance, performance, and maintenance of the charging stations.
The identification and protection of the key assets and rights of the target business, such as the charging stations, the land leases, the electricity supply contracts, the customer agreements, the intellectual property and the technology. The parties should identify and protect the key assets and rights of the target business and ensure that they are adequately transferred or assigned to the acquirer or the merged entity or shared or licensed to the joint venture or the strategic partner, as the case may be. The parties should also ensure that the transfer or assignment of such assets and rights does not affect their validity, enforceability, or value and are not subject to any encumbrances, restrictions, or claims by any third parties. The parties should also consider the potential opportunities and challenges for the future development and improvement of the intellectual property rights and technology used in the charging stations, such as new inventions, innovations, partnerships, regulations, and competitors. The parties should also consider the strategies and measures to foster and support the research and development and protect and exploit such rights and technology.
The obtaining of the necessary consents and approvals from the relevant authorities and third parties, such as the landowners, the electricity suppliers, the network operators, the regulators and the lenders. The parties should obtain the necessary consent and approvals from the relevant authorities and third parties for the transaction and comply with any conditions or requirements imposed by them. The parties should also consider the timing and costs of obtaining such consents and approvals and the potential risks and consequences of any delay or denial of such consents and approvals.
The management of the post-closing integration and transition of the target business and the implementation of the agreed business plan and strategy. The parties should manage the post-closing integration and transition of the target business and ensure that the operations, systems, processes, and personnel of the target business are aligned and integrated with those of the acquirer or the merged entity or coordinated and harmonised with those of the joint venture or the strategic partner, as the case may be. The parties should also implement the agreed business plan and strategy for the target business and monitor and evaluate the performance and results of the transaction.
M&A transactions involving EV charging stations present significant opportunities and challenges for the parties involved and for the development and transformation of the transport and energy sectors in the UAE. The parties should be aware of the legal considerations and issues that may arise in such transactions and seek appropriate legal advice and assistance to ensure a successful outcome. M&A transactions are more than mere financial transactions; they are strategic moves that require meticulous legal planning and execution to be fruitful.
For further information,please contact Suhail Mirza and Yanal Abul Failat .
Published in November 2023
