Professional Documents
Culture Documents
Question 1
1 Seven Parameters to consider when auditing an offtake contract?
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The SPC future tax payment (During the concession contract, it might include the
tax treatment however it is in the amid of the project, which has not started yet)
If there is clean Building Apartment (Clean Construction Project)
Clean here means free of recourse of potential acclaim by local communities
against the project
An independent technical audit in specially line of efficiency productivity
The productivity level as assumed in the sponsors model, which the project
would be viable or not
The relative economic viability (for given a renewable energy compared with
other sources of energy), especially in the current oil price structure which is low
Look at the offtaker structure as soon as you have from a public authority a fixed
offtake price,
Regulated market and also a market with very quick changes, level of supports
by public authority
Potential collateral and securities (in Renewable energy, usually dont have too
much to pledge, dont have land to take the mortage)
Last will be the currency exposure.
Record 17mins
following subordinate ranking, senior, junior and if any mezzanine) The last one
is Dividends (usually before payments of dividends occur, there is one step in
between, DSRA(Debt service reserve accounts) are usually often at pledge, what
is the use for such DSRA? (28min 20s) Mainly for strong maintenance, mainly
unexpected potential maintenance Capex that would cost more than expected.
Dividend payments to the sponsors knowing that the dividends are always
pledged affront as we see at the early.
Some PPP still have the market risk, the risk level usually links to or depends on
the status of the rent structure.
7 Who (which type of institutions) are the new project, financing sources in the
current Basel 3-regulated debt markets?
Long term funding structure
2. E&S risk?
Adding the reserve for implemental and advermental taxes or penalties.
Increasing budget for ex-preparation, building new infrastructure for the
law populations
Also, there might be negotiating between host country and the SPC sponsor,
some projects even with a strong NGO action, so better take a conservative and
higher budget with some potential E&S costs, in certain dense population areas.
Additionally, it would have a DSRA (debt service reserve account),specially
for E&S potential or exceptional costs, adding in the model.
3. Construction risk
What if analysis:
For example:
What if capex is 10% or 15% higher than the original budget made by
sponsors,
What if the time of operation (time for cash in) starts delay?
Make the construction time longer or delay in delivering
What will be impacted on the DICR, knowing that usually during the
destruction period, you will accumulate interest and capital repayment, to
start repayment only when operation starts.
4. Maintenance risk
Make a reserve with the DSRA, for Replacement or maintenance
equipment, expenditures, additional costs & any unexpected costs
5. Climatic risk (in a renewable energy project)?
Build up a productivity scenario by fixing the efficiency line based on
historical climatic exposure (for example sun or wind exposure)
Through measurement of P50- P80 values in probability functions
2 What are major risks involved when financing a transport infrastructure in an
exotic country? Define:
1. The risk occurrences and
Political Risk (MLA, ECA, Insurance company, or commercial banks)
CIT
Country war or violence activity (ie. Terrorism)
Breach contract (offtake contract) MLA if it would like to
Infrastructure RiskProper agreements, Concession contract (Host country or
public authority to build up surrounding infrastructures)
Construction Risk
Traffic Risk or Market Risk
Maintaining Risk
Supply Risk
2. Risk absorbers
Equator principles?
]
5 Differences between ECAs and MLAs in (1) shareholding (2) mission (3) policy
instruments
ECA would be either state owned or private, its a national institution
Multilateral, shareholders of MLA with different geographical area
Mission:
ECA: Sponsors
Cover two or three risks
Question 3
1 Give the meaning of these Project Finance acronyms:
1. EPC
Engineering, procurement and construction, is a common form of contracting
arrangement within the construction industry. Under an EPC contract, the
contractor designs the installation, procures the necessary materials and
builds the project, either directly or by of the work. In some cases, the
contractor carries the project risk for schedule as well as budget in return for
a fixed price, called lump sum turnkey(LSTK) depending on the agreed scope
of work.
2. PPA
Power purchase agreement
3. SPC
Special Purpose Company
4. MLA (2)
Multilateral Agency
Mandated leading arranger
5. CPI
Consumer Price Index
2 Why are project bonds developing as projects source of funding?
Under Basel 3, Banks are short of long term funding.
The market becomes high liquidity, very low cost so that bond issue is cheap
Some asset managers, life insurance are looking for diversification in their
portfolio, currently are more eager to invest into these projects than the past.
3 The European investment Bank: Role and policy instruments on the current
Project Finance markets
MLA
4 Under current Basel 3 constraints, European investment banks strictly monitor
their WACC and apply a RAROC to each project loan that they grant. What do
these two acronyms mean and why do these banks take such actions?
WACC: weighted average cost of capital
RAROC: Risk adjusted return on capital
Mainly risks are tested through the Basel 3
Low solvency, lending will be very much question of having sufficient liquidity,
and having sufficient solvency. Therefore each transaction will prior to being
approved by a bank credit comment will have to meet a minimum expected
return on capital after adjusted risk, related to Basel 3, the main risk matrix.
Asset liability management tool, will be there
Comply with Basel 3
5 Key securities when financing a crude oil concession?
Pledge and receivables
6 Why is it more accurate to take the Free Cash Flows rather than the CFADS
When testing projects cash flow models?
7 How would you structure the (1)Pricing and (2) amortization of toll road BOT
project loan in Canada?