Read the summary and the most important questions on Project finance Class notes

• Class notes project finance

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• GSA (Government Support Agreement)

  1. 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

• Input supply contract

  1. 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

• O&M contract

  1. 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

• Turnkey EPC contract

  1. "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)

• Gross-up (in context of withholding taxes)

  1. Gross-up (in context of withholding taxes) – increase a payment to compensate for tax deductions

• Hedging interest rates (interest rate swaps, caps, collars)

  
  

  1. 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 

• 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 

• 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

• 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

• What concerns/risks are particular to developing countries?

  Political risks