Summary: Project Finance Class Notes
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Class notes project finance
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GSA (Government Support Agreement)
- GSA (Government Support Agreement): A project contract that establishes the legal basis for the project, or under which the government agrees to provide various kinds of support or guarantees. See 7.5
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Input supply contract
- Input supply contract It is a type of project contract under which fuel or other raw material for the project will be provided on a long-term pricing formula in agreed quantities
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O&M contract
- O&M contract (operation and maintenance) It is a type of project contract under which a third party will be responsible for the running of the project after it has been built
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Turnkey EPC contract
- "Turnkey" EPC contract (Turnkey Engineering Procurement and Construction) It is a type of project contract under which the project will be designed and built for a fixed price, and completed by a fixed date (A contract for design and construction of a complete project)
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Gross-up (in context of withholding taxes)
- Gross-up (in context of withholding taxes) – increase a payment to compensate for tax deductions
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Hedging interest rates (interest rate swaps, caps, collars)
- Hedging interest rates (interest rate swaps, caps, collars) An interest rate swap is a contract in the derivative, financial or commodity markets to protect the project company against adverse movements in interest rates
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What commercial risks might exist in an international project financing outside of the U.S.? In our Solar deal? How do these risk differ from a project financing in the U.S.? From a corporate or balance sheet financing? What macroeconomic and/or political risks might exist?
Macroeconomic risks (financial)
- Inflation
- Liquidity
- Interest rate
- Currency
- Refinancing risk
Political risks (country)
- Expropriation
- Political violence
- Political succession
Legal risks
- Foreign law
- Governing law
- Change in law
- Collateral
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With respect to each of these risks, which party is best able to mitigate the risks? Which party should bear the risks (e.g. allocation?)
Risk
Project contract
Other mitigation
Whose risk?
Revenue
PPA
Offtaker
Construction
EPC
Parent guarantee
Insurance (bonding)
EPC contractor
Proprietary technology
Technology license
New technology
Extended warranties
Jurisdiction
dispute resolution
change in law
Due diligence
Force majeure – not in loan agreements in US market – lenders want to be at the table
Corruption
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Which risks may be addressed with political risk insurance?
- expropriation
- political violence
- currency inconvertibility
- breach of contract (if the foreign government fails to pay an award coming out of an arbitration process
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What concerns/risks are particular to developing countries?
Political risks
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