Project Finance of power plant ventures

Project Finance of power plant ventures

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Inhaltsangabe:Abstract Although measures are taken to ensure that the investment in a Project Finance venture will pay off, studies of the recent past have shown that the bigger the projects and the larger their monetary value, the more susceptible the project was to suffer distress and the higher the chances of incurring losses. Another issue that has emerged during recent years is the topic of environmental and social sustainability in Project Finance. At the dawn of the new millennium, environmental and social sustainability of a project was no longer a by-product of sound project design, but a requirement for obtaining the necessary financing. In order to address both issues, the thesis has the following structure: Besides a concise introduction into the nature of Project Finance, the thesis deals with financial success as well as with environmental and social sustainability of a selected group of Project Finance undertakings. Concerning the issue of financial success, the paper identifies success criteria of Project Finance undertakings in general. From that basis, criteria which are of particular relevance to the financial success of power plant Project Finance ventures are determined. Considering the issue of environmental and social sustainability, a concept is developed to facilitate the evaluation of environmental and social sustainability of a project in its entirety. The results concerning financial success criteria of power plant Project Finance undertakings indicated that there is no clear distinction between general and financial success criteria. Yet, it strongly emerges that some criteria are of more relevance to financial success than others. In terms of environmental and social sustainability, the result of the research is a concept to measure the impact of the project. The concept evaluates the data and information on a mostly qualitative basis and aggregates the results in order to obtain one final value reflecting the overall extent to which environmental and social guidelines as well as benchmarks were met. Inhaltsverzeichnis:Table of Contents: Statutory DeclarationII AcknowledgementsIII AbstractV PrefaceVI Table of ContentsVIII List of FiguresXI List of TablesXII Glossary and Table of AbbreviationsXIII 1.Introduction1 1.1Structure and goals of the thesis1 1.2Relevance of the thesis2 1.3Methodology3 1.4Focus of the thesis4 2.Introduction (Part I)7 2.1Definition of the term PF 7 2.1.1Development of PF8 2.1.2Early use of PF (until the 20th century)8 2.1.3Fields of application in recent times (20th century until now)9 2.2Characteristics of PF12 2.2.1General Features12 2.2.2Advantages14 2.2.3Disadvantages16 2.2.4Table: Characteristics of PF17 2.3PF process17 2.3.1The Planning Phase18 2.3.2Construction Phase19 2.3.3Operation Phase19 2.4Risks in PF20 2.4.1Bankability risk21 2.4.2Cost overrun risk23 2.4.3Construction delay risk23 3.Core Parties in PF25 3.1Project Company (SPV)25 3.2Sponsor26 3.3Lender26 3.4Export Credit Agency27 3.4.1Description of the institution27 3.4.2The typical PF cycle (ECA)28 3.5Multilateral Development Bank29 3.5.1Description of the institution29 3.5.2Typical PF cycle (WB)31 3.6Host Government32 3.7Construction Company32 3.8Supplier and Purchaser33 3.9Other Parties33 3.9.1Technical Advisor33 3.9.2Legal Advisor34 3.9.3Financial Advisor34 3.9.4Operation and Maintenance Company (OaM Company)36 3.10Side note: Developer36 3.11Figure: Core Parties in PF37 4.Core Contracts and agreements in PF38 4.1Joint Venture Contract38 4.2Government Support Agreements39 4.2.1Letter of Support39 4.2.2Concession agreements, licenses and permits39 4.3Construction Contract41 4.4Input Supply Agreement43 4.5Loan Agreement and Securities44 4.6Off-take Agreement45 4.7OaM Contract and other Service Contracts47 4.8Insurance Contract49 4.9Side note: Special contracts occurring in PPPs49 4.10Figure: Core Contracts and Agreements in PF52 5.Introduction (Part II)55 5.1Current situation in the PF industry55 5.2Previous studies of infrastructure projects56 6.Research Question I58 6.1Definition of terms58 6.2Approach to answer Research Question I60 7.Identification of success criteria61 7.1Identification of sources61 7.2Source 1: Literature62 7.3Source 2: Expert interview71 7.4Preliminary list of success criteria74 8.Method how to identify financial success criteria76 8.1Reasons for an expert questionnaire76 8.2Structure of the questionnaire77 9.Results of the questionnaires79 9.1Importance of the criteria for power plant PF undertakings79 9.2Financial Success Criteria that are extremely important81 9.3Additional findings82 9.3.1Specific criteria that are dispensable82 9.3.2Other observations during the analysis82 10.Limitations84 11.Introduction (Part III)87 11.1Current state of environmental and social sustainability87 11.2Environmental and social sustainability in PF88 11.2.1Host Governments89 11.2.2MDBs and other non commercial lending institutions90 11.2.3ECAs91 11.2.4Commercial lenders92 12.Research Question II93 12.1Definition of terms93 12.2Approach to answer Research Question II94 13.Environmental Success Indicator (EnSu) Concept95 13.1Underlying methodology95 13.1.12008 EPI methodology95 13.1.2Reasons for using 2008 EPI's methodology96 13.1.3The EnSu's methodology97 13.1.4Side note: Environmental impact assessment as data source for compiling the EnSu value98 13.2Necessary data and information for the EnSu concept99 13.2.1Environmental sustainability data and information99 for using EHS TPNP benchmark values and key issues99 and information that will be evaluated to compute environmental sustainability100 13.2.2Social sustainability information102 for using IFC PS information103 necessary to compute social sustainability103 13.3Applying the EnSu concept106 13.3.1Main operations used in the EnSu concept107 13.3.2Level 1: Categories108 13.3.3Level 2: Components111 13.3.4Level 3: Parts113 13.3.5Level 4: EnSu115 13.3.6Figure: EnSu's framework116 14.Limitations118 15.Conclusion122 15.1Main findings of Research Question I122 15.2Main findings of Research Question II124 16Areas of future research127 List of References128 Appendix138 Appendix 1 - Risks in international projects138 Appendix 2 - Project Cycle IFC141 Appendix 3 - Success criteria questionnaire143 Appendix 4 - Participants of the questionnaire145 Appendix 5 - Example of a Host Government's rules and regulations for a power plant project146 Appendix 6 - Equator Principle institutions150 Appendix 7 - EPI framework151 Textprobe:Text Sample: Chapter 8., Method how to identify financial success criteria: In order to find criteria that influence financial success (no time delay, no cost overrun and the generation of sufficient cash flow) of power plant projects the author developed a questionnaire which was sent to experts in the field of PF. They should validate if the 35 success criteria are significant for increasing the financial success of power plant projects. In the end, the analysis of the questionnaire identified important financial success criteria for the specific PF industry sector. Before the analysis, this section introduces the questionnaire which was sent out. This chapter is structured the following way: - Reasons for an expert questionnaire. - The structure of the questionnaire. Reasons for an expert questionnaire: After general success criteria have been identified, in a next effort the criteria had to be analyzed for their applicability. In order to evaluate the criteria, thorough knowledge in the field of PF was necessary. Significant information for this narrow topic could only be gained from a limited target group. Therefore, the sample of the questionnaire s participants was small. In order to tab the experts knowledge and expertise, the method had to fulfill various conditions: firstly, the method with which to extract information should not be too lengthy, as most of the experts work full time and could not be easily approached during this time; secondly, the experts were in different locations, therefore the method used had to be transferable; moreover, the cost for gathering the information should be reasonable; and the method should produce information that is easily comparable. Therefore, a questionnaire in a standardized format was chosen as the applied method, as it fulfilled all these requirements. Structure of the questionnaire: Five grade scale: The questionnaire consists of 35 statements (=success criteria) which the experts were asked to rank according to their applicability of positively influencing the financial success of power plant projects. This they should express by ranking the respective criterion on a five grade scale. The scale ranged from YES, extremely important for financial success , over Yes, moderately important for financial success , and YES, relevant for financial success to NO, not important for financial success . In case the experts were unable to rank the criteria accordingly they could tick Do not know as a fifth alternative. Since the author expected most of the statements to be of importance for the financial success of power plant projects, a mere YES/NO scale was not sufficient. Additionally, it should be examined if certain criteria are more important than others in achieving success. Also a scale with higher differentiation was considered inefficient as it would make the distinction between the different grades difficult and even more subjective. Consequently, a three-grade YES scale was seen as the optimal way to achieve the desired outcome. Word- and symbol indicators instead of numeral indicators: In addition to a simple scale model, the author used words supported by colors and symbols instead of numbers for the categories. The purpose was to clarify the difference between the categories. At the same time the usage of words improved user friendliness and made the grading more objective since words are more precise to differentiate categories than mere numbers. Usage of color: In order to increase differentiation between each indicator a color scheme was used. The most positive alternative, YES, extremely important for financial success , was assigned a luscious green color. The shade of the green color faded the less positive the alternative. The negative alternative, NO, not important for success was assigned a reddish color and the neutral alternative Do not know was left uncolored. Including a Do not know column: The Do not know column was included as a buffer which should prevent distortion of the results. In case an expert would be unable to rank a statement he could opt to tick Do not know before guessing the applicability of the individual criterion and thereby adulterate the result. However, since this additional column enables the expert not to think thoroughly about the ranking of a statement but finding the easy way out by ticking the box, the column was kept as neutral as possible (no coloring or symbols) and was smaller than the other four columns. This should keep the focus on the other four columns and the expert to make meaningful assumptions instead of rushing through the questionnaire by ticking the Do not know column. Grouping of the 35 success criteria: The penultimate point of this introduction deals with the grouping of the 35 success criteria. The criteria were grouped into four categories, general criteria, financial criteria, organizational criteria, and cultural criteria. The grouping was subject to the author s disposal. It was administered due to the underlying belief that the attention can be better maintained if the reader is provided with smaller chunks of statements instead of having to go through a long list of 35 criteria; at whose end the quality of the answers could suffer due to a lack of motivation and increased fatigue of the respondent. Optional space for comments: Ultimately, at the end of the questionnaire space was provided so that the expert could optionally state any remarks he might have. A copy of the questionnaire can be found in Appendix 3. The next chapter outlines the results of the questionnaire-process.Rationale for Research Question II (dealt with in Part III) Research Question II: How can environmental success of ... As advocated by Part III of this paper, environmental and social sustainability are topics of increasing importance not only foranbsp;...

Title:Project Finance of power plant ventures
Author: Manfred Elzlstorfer - 2008-07-24

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