Buy-Back Agreement
Introduction:
Buy-back agreement is considered as a service purchase contract. Buy-back agreement is usually known as long-term contracts. Under the Buy-back Agreement, a foreign investor as the supplier, assumes responsibility for provision of the needed equipment and funds for a project in another country. Thus, the foreign investor fulfils its contractual obligations by transferring knowledge, technology and other required infrastructures in order to initiate, develop, complete or renovate a project in cooperation with another party to the agreement.
Implementation:
The Foreign Investment Promotion and Protection Act makes explicit reference to buy back agreements as a widely used method for foreign investment. Although, buy-back agreements are usually used in oil and gas fields, the possibility to enter into such agreements beyond oil and gas, is also possible. A buy-back agreement entails that the supplier, wholly or partially, places the goods and services required for the establishment, expansion, reconstruction, improvement or continued production of manufacturing enterprises of the country at the disposal of the producer. Therefore, buy-back agreement brings, among others, two important advantages for the host-country:
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- Attracting foreign investment;
- Transferring new knowledge and technology to the host-country.
Since under the bay-back agreement, the foreign investor is responsible for financing the project and providing the needed equipment, by way of reciprocity, the other party commit to pay back the costs undertaken by the investor and the interest that the parties have agreed through the sale of the products and profits arising from the project operation after the project is completed and operationalized.
Advantages of Buy-back Agreement:
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- A method for transfer of knowledge, capital and technology to developing countries such as Iran, especially in times of economic sanctions;
- A means to facilitate marketing and exploiting business opportunities in investee countries
- Financing the project through buy back prevent the foreign investor control and influence since ownership, administration and oversight of the project is considered as the host country rights which may not be denied. Also, at the end of the period and after payment of the costs and profits, the foreign investor no longer enjoys any right with respect to the project.
- All the needed equipment in order to launch or develop the project provided by the foreign investor will belong to the host country and thus, can be used in future projects.
- All risks associated to the project are transfer to the foreign investor.
Bayan Emrooz Law Firm renders services to foreign and Iranian natural and legal entities in the field of contract law, including consulting, for setting up a Buy-back Agreement. Having an experienced and specialized legal staff, Bayan Emrooz is ready to provide the needed legal services in respect to investment and JVs, sale and purchase in accordance with Incoterms, exclusive and non-exclusive agency, distributorship, technology transfer, license, franchise, turn-key, buy-back, finance, consultancy services, service contracts, EPC, transportation and logistics, insurance, MOUs, LOIs and etc. in Iran.
