The Law and Business of International Project Finance · A Resource for Governments, Sponsors, Lawyers, and Project Participants by Hoffman, Scott L. -- Read -- Imperial Library of Trantor

Index

THE LAW AND BUSINESS OF INTERNATIONAL PROJECT FINANCE Title page Copyright page Dedication Contents Preface to the Third Edition Preface to the Second Edition Preface to the First Edition PART ONE. AN INTRODUCTION TO PROJECT FINANCE

CHAPTER ONE. AN INTRODUCTION TO PROJECT FINANCE

§ 1.01 Definition of Project Finance § 1.02 Confusion of Terms § 1.03 Nonrecourse Project Finance § 1.04 Limited Recourse Project Finance § 1.05 Structured Project Finance – Toward Greater Economic Efficiency? § 1.06 Contrast With Other Financing Types

[1] Balance Sheet Finance [2] Asset-Based Finance

§ 1.07 Uses of Project Finance § 1.08 Basic Components of Project Finance § 1.09 Advantages of Project Finance

[1] Nonrecourse Debt Financing – It Ain’t Necessarily So [2] Off-Balance-Sheet Debt Treatment [3] Leveraged Debt [4] Avoidance of Restrictive Covenants in Other Transactions [5] Favorable Financing Terms [6] Internal Capital Commitment Policies [7] Political Risk Diversification [8] Risk Sharing [9] Collateral Limited to Project Assets [10] Lenders Are More Likely to Participate in a Workout Than Foreclose [11] Matching Specific Assets With Liabilities [12] Expanded Credit Opportunities

§ 1.10 Disadvantages of Project Finance

[1] Complexity of Risk Allocation [2] Increased Lender Risk [3] Higher Interest Rates and Fees [4] Lender Supervision [5] Lender Reporting Requirements [6] Increased Insurance Coverage [7] Encourages Potentially Unacceptable Risk Taking

§ 1.11 International Project Finance § 1.12 Examples of Facilities Developed With Project Finance

[1] Energy Generation [2] Pipelines, Storage Facilities, and Refineries [3] Mining [4] Toll Roads [5] Waste Disposal [6] Water [7] Telecommunications [8] Uses by Industrial Companies for Growth and Restructuring [9] Leisure and Sports Stadium Projects [10] Ethanol Production [11] Other Projects [12] Contrasting Risks

§ 1.13 Chicken or the Egg: The Effect of a Project’s Financing Structure on Its Commercial Structure § 1.14 Merchant Facilities: Projects Financed Without Revenue Contracts § 1.15 Project Finance in Developing Countries § 1.16 Other Financing Alternatives § 1.17 Bankability, Financeability, and Other Assaults on Language § 1.18 The Law of Project Finance – Sources of Project Finance Law and Standards § 1.19 Economic Studies of Project Finance § 1.20 The Lessons of a Financial Crisis – What the East Asian Financial Crisis Teaches About Project Finance

[1] Increased Cost of Power [2] Power Purchase Contract Renegotiation [3] Decrease in Market Demand for Private Power [4] Conclusions

§ 1.21 Political Risk: The Dabhol Project § 1.22 Project Cancellations

PART TWO. RISK IDENTIFICATION, ALLOCATION, AND MITIGATION

CHAPTER TWO. PROJECT FINANCE RISKS

§ 2.01 Risk § 2.02 The Risk Matrix § 2.03 Project Finance Participants and Perspectives

[1] Development Risks [2] Design Engineering and Construction Risks [3] Start-up Risks [4] Operating Risks

§ 2.04 Objectives of Project Finance Participants § 2.05 Risk Identification by Participants

[1] Sponsor [2] Construction Lender [3] Permanent Lender [4] Contractor [5] Operator [6] Technology Owner [7] Supplier [8] Output Purchaser [9] Host Government [10] Other Governments – Export and Transit Countries [11] Equity Investor [12] Multilateral and Bilateral Agencies

§ 2.06 Development Stage Risks § 2.07 The Joint Venture as a Risk Mitigation Device § 2.08 A Caveat About Risk Allocation

CHAPTER THREE. PROJECT FINANCE CROSS-BORDER RISKS

§ 3.01 Generally § 3.02 Currency-Related Risks

[1] Generally [2] Nonconvertibility of Currency (Unavailability of Foreign Exchange) [3] Currency Transfer (Inability to Transfer Foreign Exchange Abroad)

Generally Types and Characteristics of Exchange Controls Violation of Exchange Laws Enforcement of Transactions That Violate a Country’s Exchange Controls Exchange Permissions and Consents Reducing Exposure to Exchange Controls

[4] Currency Devaluation Risk Caused by Fluctuations in Foreign Exchange Rates

Generally Indexing Revenues Matching Revenue Currency to Debt Currency Raising Debt in Local Currency Derivatives Sharing of Risk

[5] Offshore Accounts [6] Special Currency Problems in Large-Scale Projects [7] Advance Approvals

Consent Exemption Debt Repayment

[8] Summary of Currency Risk Minimization Techniques

Payment in Hard Currency Foreign Exchange Risk Insurance Indexed Local Currency Payments

§ 3.03 Permit, Concession, and License Risk

[1] Permits [2] Concessions and Licenses

§ 3.04 Expropriation Risk § 3.05 Expatriation § 3.06 Change of Law Risk

[1] Import Tariffs [2] Export Tariffs [3] Production or Consumption Controls [4] Taxes

Generally Taxes on Income Customs Duties Withholding Tax on Payment of Interest Nondiscrimination

[5] Environmental Controls [6] Regulation and Deregulation [7] Price Controls [8] Privatization of Suppliers or Purchasers [9] Change in Foreign Laws

§ 3.07 Political Violence, Civil Unrest, War, and Other Political Force Majeure Events § 3.08 Political Collapse and Succession § 3.09 Preemption and Priority § 3.10 Sovereign Risk § 3.11 Breach of Undertakings (Contract Repudiation) § 3.12 Collateral Risk

[1] What Type of Collateral Security Does the Sovereign Government Allow? [2] Are All Local Formalities Complied With? [3] What Is the Priority of the Lien? [4] How Is the Lien Enforced? [5] How Does the Foreclosure Process Work? [6] Collateral Trusts [7] Real Property [8] Interaction Among Risks

§ 3.13 Law and Legal System Risks

[1] Choice of Law [2] Agent for Process and Submission to Jurisdiction [3] Dispute Resolution [4] Fees, Approvals, and Filings [5] Legal Expertise and Experience [6] General Business Law and Regulation [7] Waiver of Sovereign Immunity [8] Legal Cultures

§ 3.14 Illiquidity of Equity Investment § 3.15 Freezing or Blocking Orders § 3.16 Export Prohibitions § 3.17 Price Controls and Regulation § 3.18 Commercial or Political – It May Be Both

CHAPTER FOUR. PROJECT FINANCE COMMERCIAL RISKS

§ 4.01 Introduction to Commercial Risks

[1] Probability of Risk Evolving Into a Project Problem [2] Due Diligence [3] Feasibility Study in Risk Identification [4] Categories of Commercial Risk

§ 4.02 Credit Risks § 4.03 Increase in Construction Costs § 4.04 Delay in Completion § 4.05 Force Majeure in Construction Contracts § 4.06 Experience and Resources of Contractor § 4.07 Building Materials § 4.08 Facility Site § 4.09 Technology § 4.10 Construction of Related Facilities § 4.11 Shortfalls in Mineral Reserves § 4.12 Raw Material Supply and Utilities § 4.13 Creditworthiness of Off-Take Purchaser § 4.14 Market for Product or Service § 4.15 Shortfalls in Anticipated Capacity, Output, and Efficiency § 4.16 Operator Experience § 4.17 General Operating Expenses § 4.18 Sponsor Commitment § 4.19 Management Experience § 4.20 Permits and Licenses § 4.21 Political Environment § 4.22 Interest Rate § 4.23 Force Majeure § 4.24 Economic Projection and Feasibility Report Inaccuracy § 4.25 Environmental § 4.26 Contract Mismatch § 4.27 Contract Risks Generally § 4.28 Commercial Risk Mitigation

[1] Construction Period Risk Mitigation

Contractual Undertakings Contingency Reserve Funds and Equity and Other Funding Commitments Insurance

[2] Operation Period Risk Mitigation

Contractual Undertakings Contractual Arrangements Contingency Reserve Funds Cash Traps Insurance

PART THREE. PROJECT FINANCE STRUCTURES

CHAPTER FIVE. PROJECT FINANCE PARTICIPANTS AND THEIR ROLES

§ 5.01 Project Sponsor § 5.02 Project Company § 5.03 Borrowing Entity § 5.04 Commercial Lender

[1] Arranging Bank [2] Managing Bank [3] Agent Bank [4] Engineering Bank [5] Security Agent

§ 5.05 Bondholders § 5.06 International (Multilateral) Agencies § 5.07 Bilateral Agencies § 5.08 Rating Agency § 5.09 Supplier § 5.10 Output Purchaser § 5.11 Contractor § 5.12 Operator § 5.13 Financial Advisor § 5.14 Technical Consultants § 5.15 Project Finance Lawyers § 5.16 Local Lawyers § 5.17 Host Government § 5.18 Insurers

CHAPTER SIX. PROJECT FINANCE STRUCTURES

§ 6.01 Generally § 6.02 Commercial Loan Financing

[1] Construction Phase [2] Operations Phase

§ 6.03 Export Credit Financing

[1] Generally [2] Types of Export-Import Financing

Direct Lending Financial Intermediary Loans (Bank-to-Bank) Interest Rate Equalization

§ 6.04 Lease Financing

[1] Generally [2] Advantages to the Project Company

Control Over the Project Total Financing Lower Financing Costs Tax Deductibility of Rent Shifting of Residual Risk Equity Risk Taker Replaces Lender as Financing Source

[3] Lease Financing From the Lessor’s Perspective

§ 6.05 Bond Financing § 6.06 BOT § 6.07 Co-financing § 6.08 Production Payments § 6.09 Forward Purchase Agreements

CHAPTER SEVEN. SELECTING THE PROJECT FINANCE OWNERSHIP STRUCTURE

§ 7.01 Generally § 7.02 Pre-development Activities

[1] Generally [2] The Development Agreement

Definition of Project Exclusivity Roles and Responsibilities Tasks and Schedule Cost Funding Management and Voting Withdrawal Abandonment Confidentiality Antitrust and Restrictive Trade Practices Considerations

§ 7.03 Determining the Structure to Use

[1] Need for Leverage [2] Grade of Investment [3] Tax Laws and Treaties [4] Project Management [5] Accounting Treatment and Objectives [6] Lender Preferences [7] Transferability of Equity Interests

§ 7.04 Avoiding Parent Company Direct Involvement § 7.05 Special-Purpose Nature of Project Company § 7.06 Host-Country Investment Requirements

[1] Generally [2] Ownership of Real Estate [3] Local Participation [4] Local Formation of Project Company

§ 7.07 Corporation

[1] Generally [2] Reasons for Selection [3] Management

§ 7.08 General Partnership

[1] Generally [2] Liability [3] Reasons for Selection [4] Collateral Considerations

§ 7.09 Limited Partnership

[1] Generally [2] Reasons for Selection [3] Management

§ 7.10 Limited Liability Company § 7.11 Joint Venture

[1] Generally [2] Reasons for Selection [3] Types [4] Project Management [5] Conflicts of Interest [6] Nature of Liability

§ 7.12 European Economic Interest Groupings (EEIG)

[1] Generally [2] Nature of Liability [3] Management [4] Collateral Considerations

§ 7.13 Development Consortium § 7.14 Preserving Flexibility § 7.15 Fragmentation: The More the Merrier

PART FOUR. TECHNICAL, POLITICAL, AND ECONOMIC FEASIBILITY

CHAPTER EIGHT. THE FEASIBILITY STUDY AND NEEDS ASSESSMENT

§ 8.01 Purpose of Feasibility Study § 8.02 General Description § 8.03 Project Sponsors and Project Company § 8.04 Project Participants § 8.05 Technical Information § 8.06 Economic Information § 8.07 Contracts § 8.08 Project Schedule § 8.09 Government § 8.10 Market § 8.11 Proposed Financing Sources § 8.12 Privatization

[1] Generally [2] Types [3] Benefits [4] Effect on Project Feasibility

§ 8.13 Needs Assessment § 8.14 The Independent Engineer

CHAPTER NINE. HOST-COUNTRY BUSINESS ENVIRONMENT FOR PROJECT FINANCE

§ 9.01 Introduction § 9.02 Political Conditions § 9.03 Social and Human Rights Conditions § 9.04 Legislative and Regulatory Conditions § 9.05 Economic Conditions § 9.06 Project Finance in Developing Countries

CHAPTER TEN. ECONOMIC FEASIBILITY

§ 10.01 Purpose § 10.02 Construction Budget § 10.03 Operating Budget § 10.04 Debt Service § 10.05 Working Capital § 10.06 Assumptions § 10.07 Ratios § 10.08 Valuation

CHAPTER ELEVEN. ENVIRONMENTAL REGULATION AND ENVIRONMENTAL FEASIBILITY OF THE PROJECT

§ 11.01 Growth of Environmental Regulation

[1] Generally [2] Host Country [3] Multilateral and Bilateral Institutions [4] International Treaties [5] Home Country

§ 11.02 Environmental Impact of Project

[1] Site [2] Air [3] Water [4] Plant and Animal Habitats [5] Health Hazards [6] Noise [7] Aesthetics [8] Historic and Cultural Significance [9] Transportation, Public Services, and Utilities [10] Indigenous People

§ 11.03 Permits § 11.04 Public Opposition § 11.05 World Bank Environmental Standards § 11.06 Environmental Damage and Audits § 11.07 Future Environmental Regulation § 11.08 The Equator Principles

[1] Assessment [2] Management [3] Documentation [4] 2006 Revisions [5] Effects on Project Finance

PART FIVE. PROJECT FINANCE DOCUMENTATION

CHAPTER TWELVE. AN OVERVIEW OF PROJECT DOCUMENTATION

§ 12.01 Generally § 12.02 Transnational Contracting

[1] Governing Law [2] Forum [3] Contract Formation [4] Contract Structure and Validity [5] Formalities [6] Enforceability of Risk Allocation and Remedies [7] Currency Issues [8] Government Action [9] Term [10] Language

§ 12.03 Document Types § 12.04 Amendments, Modifications, and Supplements § 12.05 Nonrecourse Provision

[1] Introduction [2] Sample Provisions

§ 12.06 Cooperation With Financing

[1] Introduction [2] Sample Provision

§ 12.07 Term § 12.08 Completion

[1] Introduction [2] Sample Provision

§ 12.09 Come Hell or High Water § 12.10 Force Majeure § 12.11 When Things Go Wrong

[1] Generally [2] Contract Damages [3] Liquidated Damages [4] Specific Performance

§ 12.12 Internationalization of Contracts

CHAPTER THIRTEEN. REPRESENTATIONS AND WARRANTIES IN PROJECT FINANCE CREDIT AGREEMENTS AND CONTRACTS

§ 13.01 Generally

[1] Definition [2] Purpose [3] Role of Representations and Warranties in Project Finance

§ 13.02 Mechanics of Representations and Warranties

[1] Affirming the Basic Assumptions

Legal Status Authority to Enter Into Transaction

[2] Additional Facts Received in Negotiation Process [3] Date Representations and Warranties Are Made [4] Materiality and Knowledge Limitations in Representations and Warranties

§ 13.03 Verification of Representations and Warranties § 13.04 Introduction to Sample Provisions § 13.05 Formalities of Business Organization

[1] Generally

Due Incorporation; Due Formation Valid Existence Good Standing Power and Authority Due Qualification

[2] Corporation [3] General Partnership [4] Limited Partnership [5] General Partners of Limited Partnership

§ 13.06 Power and Authority

[1] Introduction

Authority to Enter Into and Perform Transaction Corporate or Partnership Approval Violation of Law or Judicial Order Breach of Existing Agreement Creation of Liens

[2] Sample Provision

§ 13.07 Legally Enforceable Agreement

[1] Introduction [2] Sample Provision

§ 13.08 Financial Statements, Project Budget, and Projections

[1] Introduction [2] Sample Provision for Project Finance Credit Agreement for New Project

Project Budget Projections

[3] Modification of Financial Statement Representation for Existing Project

Generally Accepted Accounting Principles Fair Presentation of Financial Condition

[4] Financial Statement Representation for Contracting Party

§ 13.09 Litigation

[1] Introduction [2] Litigation Representation When No Litigation Exists [3] Litigation Representation When Litigation Exists

§ 13.10 Judgments and Orders

[1] Introduction [2] Sample Provision

§ 13.11 Existing Agreements

[1] Introduction [2] Sample Provision

§ 13.12 Force Majeure

[1] Introduction [2] Sample Provision

§ 13.13 Asset Ownership and Liens

[1] Introduction [2] Sample Provision

§ 13.14 Subsidiaries and Ownership of Securities

[1] Introduction [2] Sample Provision

§ 13.15 Operation of Business

[1] Introduction [2] Sample Provision

§ 13.16 Project Assets and Necessary Assignments

[1] Introduction [2] Sample Provision

§ 13.17 Project Contracts

[1] Introduction [2] Sample Provision

§ 13.18 Debt

[1] Introduction [2] Sample Provision

§ 13.19 Taxes

[1] Introduction [2] Sample Provision

§ 13.20 Regulatory and Legal Status

[1] Introduction [2] Sample Provision

§ 13.21 Permits

[1] Introduction [2] Sample Provision

§ 13.22 Compliance With Laws

[1] Introduction [2] Sample Provision

§ 13.23 Infrastructure

[1] Introduction [2] Sample Provision

§ 13.24 Completion

[1] Introduction [2] Sample Provision

§ 13.25 Collateral

[1] Introduction [2] Sample Provision

§ 13.26 Full Disclosure

[1] Introduction [2] Sample Provision

§ 13.27 Representations and Warranties Made in Other Project Contracts

[1] Introduction [2] Sample Provision

§ 13.28 No Prior Business Activity

[1] Introduction [2] Sample Provision

§ 13.29 Complete Project

[1] Introduction [2] Sample Provision

CHAPTER FOURTEEN. PRELIMINARY HOST-COUNTRY AGREEMENTS

§ 14.01 Introduction § 14.02 Bidding (Tendering) Processes

[1] Generally [2] Advantages of Bidding Programs [3] Disadvantages of Bidding Programs [4] Prequalification of Bidders (the RFQ) [5] Bid Design and Preparation of Bid Documents (the RFP)

Generally Evaluation and Scoring

[6] Model Contracts [7] Bid Meetings and Bidder Questions [8] Security [9] Promotion of Public Bids by Multilateral Agencies [10] Bidding in the Project Finance Context

Generally Special-Purpose Entities The Problem of Consortium Bids When to Involve the Lenders

§ 14.03 Letter of Intent and Memorandum of Understanding § 14.04 Concessions and Licenses

[1] Generally [2] Concession Agreement

Terms From the Host Government’s Perspective Terms From the Project Company’s Perspective Ongoing Consents and Approvals by the Host Government

[3] Example in a BOT Structure [4] Disputes

§ 14.05 Legislative Approval § 14.06 Implementation Agreements

[1] Generally [2] Sovereign Guarantees [3] Expropriation [4] Permits and Other Governmental Approvals [5] Currency Concerns [6] Tax Benefits and Customs Duties Relief

Generally Tax Holiday

[7] Legislative Protection [8] War, Insurrection, General Strikes, and Political Violence [9] Authorization to Do Business [10] Exclusive Right to Develop Project [11] General Cooperation for Project Development and Nondiscrimination [12] Good Citizenship [13] Enforcement and Dispute Resolution [14] Constitutionality Considerations of Implementation Agreements [15] Damages [16] Contrast: Country Support Agreements [17] Stabilization Clauses [18] Sovereign Guarantees From the Government’s Perspective

§ 14.07 Other Considerations for Preliminary Agreements

[1] Infrastructure Development

Land and Air Transportation Water Ports and Harbors Power Water Waste Disposal Communications

[2] Product or Service [3] Milestones [4] Expansion Rights or Requirements [5] Social Program Support [6] Option to Acquire Raw Materials in the Host Country [7] Importation of Construction Equipment [8] Price Regulation [9] Government-Owned Natural Resources [10] Local Restrictions on Sale [11] Export Restrictions [12] Import Restrictions [13] Employees [14] Withholding Taxes on Loan Interest

§ 14.08 Host-Country Approval of Political Risk Insurance § 14.09 The Problem of Binding Future Governments to Actions of Predecessor Governments

[1] Introduction [2] The Effectiveness of Contracts With Host Governments as Risk Mitigation [3] Contractual Damages and Assurances [4] Sanctity of Contract Versus State Sovereignty

§ 14.10 Waiver of Sovereign Immunity

[1] Generally [2] Foreign Sovereign Immunities Act of 1976

Generally Exceptions to Immunity Counterclaims Extent of Sovereign Liability Attachment of Sovereign’s Property Case Study: Waiver of Sovereign Immunity in a Project Finance Transaction

[3] State Immunity Act of 1978 (U.K.)

Generally Exceptions to Immunity Application

§ 14.11 Act of State Doctrine (U.S.) § 14.12 Cooperative Risk Management

CHAPTER FIFTEEN. CONSTRUCTION CONTRACTS

§ 15.01 Generally § 15.02 Important Construction Risks

[1] Increase in Construction Costs [2] Delay in Completion [3] Performance Guarantees [4] Force Majeure in International Construction Contracts [5] Experience, Reputation, and Resources of Contractor [6] Building Materials [7] Construction of Related Facilities [8] Raw Material Supply and Utilities [9] Excuses for Contractor Nonperformance – The Owner Did It [10] Coordination

§ 15.03 Creditworthiness § 15.04 Types of Construction-Related Contracts

[1] Engineering Contract [2] Procurement Contract [3] Construction Contract [4] EPC Contract

§ 15.05 Fixed-Price Contract § 15.06 Cost-Plus-Fee Contract § 15.07 Cost-Plus-Fee Contract With Maximum Price and Incentive Fee § 15.08 Project Finance Turnkey Contract § 15.09 Typical Provisions in Project Finance Turnkey Construction Contracts § 15.10 Scope of Work

[1] Introduction [2] Sample Provision

§ 15.11 Contractor’s Responsibilities

[1] Introduction [2] Sample Provision

§ 15.12 Project Company’s Responsibilities

[1] Introduction [2] Sample Provision

§ 15.13 The Notice to Proceed and Commencement of Construction

[1] Introduction [2] Sample Provision

§ 15.14 Price

[1] Introduction [2] Sample Provision

§ 15.15 Payment and Retainage

[1] Introduction [2] Retention Money Guarantee [3] Liens [4] Sample Provision

§ 15.16 Completion Date Guarantees, Performance Guarantees, and Liquidated Damages

[1] Introduction [2] Mechanical Completion [3] Substantial Completion [4] Final Completion [5] Correction [6] Delay Liquidated Damages [7] Testing [8] Bonuses for Early Completion [9] Environmental Guarantees [10] Exceptions to Guarantees [11] Alternatives to Guarantees [12] Sample Provision

§ 15.17 Warranties

[1] Introduction [2] Sample Provision

§ 15.18 Changes § 15.19 Title to Work

[1] Introduction [2] Sample Provision

§ 15.20 Remedies for Breach

[1] Introduction [2] Sample Provision

§ 15.21 Suspension of Work and Termination

[1] Introduction [2] Sample Provision

§ 15.22 Payment and Performance Bonds

[1] Introduction

Performance Bond Payment Bond Warranty Bond Money Retention Bond

[2] Sample Provision

§ 15.23 Insurance

[1] Introduction [2] Sample Provision

§ 15.24 Force Majeure

[1] Introduction [2] Sample Provision

§ 15.25 Coordination Concerns

[1] Introduction [2] Sample Provision

§ 15.26 Training

[1] Introduction [2] Sample Provision

§ 15.27 Subcontractors

[1] Introduction [2] Sample Provision

§ 15.28 Liability Limitations

[1] Introduction [2] Sample Provision

§ 15.29 Site Conditions

[1] Introduction [2] Sample Provision

§ 15.30 The Special Problem of Compliance by the Contractor With the Other Project Contracts

[1] Introduction [2] Sample Provision

§ 15.31 Unraveling the Project Finance Deal: Termination for Convenience § 15.32 Compliance With Concession Terms and Conditions

[1] Introduction [2] Sample Provision

CHAPTER SIXTEEN. INPUT CONTRACTS

§ 16.01 Introduction § 16.02 When Input Contracts Are Not Needed § 16.03 Important Input Risks

[1] Increase in Input Costs [2] Delay in Completion of Transportation Facilities [3] Availability of Supply [4] Disruption to Transportation [5] Force Majeure in International Input Contracts [6] Experience and Resources of Input Supplier and Transporter [7] Fuel Management and the Fuel Manager [8] Quality [9] Linking Project Inputs to Outputs

§ 16.04 Types of Input Contracts

[1] Fixed Amount [2] Requirements [3] Output [4] Spot [5] Dedicated Reserves [6] Firm Versus Interruptible [7] Subordination of Project Costs to Debt Service [8] The Commodity Supplier as Project Partner

§ 16.05 Excuses to Performance § 16.06 Creditworthiness § 16.07 Typical Provisions in Project Finance Input Contracts § 16.08 Quantities and Commencement of Deliveries

[1] Introduction [2] Sample Provision

§ 16.09 Price

[1] Introduction [2] Sample Provision

§ 16.10 Payment

[1] Introduction [2] Sample Provision

§ 16.11 Scheduling, Metering, and Weighing

[1] Introduction [2] Sample Provision

§ 16.12 Quality and Rejection

[1] Introduction [2] Sample Provision

§ 16.13 Title and Risk of Loss

[1] Introduction [2] Sample Provision

§ 16.14 Term

[1] Introduction [2] Sample Provision

§ 16.15 Force Majeure

[1] Introduction [2] Uncontrollable Events [3] Change of Law [4] Sample Provision

§ 16.16 Default

[1] Termination Events Generally [2] Termination by Supplier [3] Termination by Project Company [4] Sample Provision

§ 16.17 Remedies for Breach

[1] Introduction [2] Termination Payments [3] Specific Performance [4] Alternative Inputs [5] Sample Provision

§ 16.18 Reserves and Mining or Production Plans

CHAPTER SEVENTEEN. OPERATION AND MAINTENANCE AGREEMENTS

§ 17.01 Generally

[1] Operating Agreement [2] Self-Operation

§ 17.02 Important Operation Risks

[1] Increase in Operating Costs [2] Performance Guarantees [3] Force Majeure in International Operation Contracts [4] Experience and Resources of Operator [5] Raw Material Supply and Utilities [6] Excuses for Operator Nonperformance – The Contractor Did It; The Owner Did It [7] Coordination

§ 17.03 Creditworthiness § 17.04 Fixed-Price Contract § 17.05 Cost-Plus-Fee Contract § 17.06 Cost-Plus-Fee Contract With Maximum Price and Incentive Fee § 17.07 Typical Provisions in Project Finance Operation and Maintenance Agreements § 17.08 Operator’s Responsibilities

[1] Introduction [2] Sample Provision

§ 17.09 Project Company’s Responsibilities

[1] Introduction [2] Sample Provision

§ 17.10 Operating Standard

[1] Introduction [2] Sample Provision

§ 17.11 Price and Payment

[1] Introduction [2] Sample Provision

§ 17.12 Performance Guarantees and Liquidated Damages

[1] Introduction [2] Sample Provision

§ 17.13 Capital Changes

[1] Introduction [2] Sample Provision

§ 17.14 Remedies for Breach

[1] Introduction [2] Sample Provision

§ 17.15 Suspension of Services

[1] Introduction [2] Sample Provision

§ 17.16 Procedure at End of Agreement

[1] Introduction [2] Sample Provision

§ 17.17 Insurance

[1] Introduction [2] Sample Provision

§ 17.18 Force Majeure

[1] Introduction [2] Sample Provision

CHAPTER EIGHTEEN. PROJECT FINANCE OFF-TAKE SALES CONTRACTS

§ 18.01 Necessity for Off-Take Contracts § 18.02 Types of Off-Take Contracts

[1] Great Confusion [2] Take-or-Pay [3] Take-and-Pay [4] Blended [5] Long-Term Sales Agreement [6] Spot Sales

§ 18.03 Contractual Risk – The Value of Contracts to the Project Company and as a Credit Support § 18.04 Risks in Contract Terms and Defenses

[1] Commercial Impracticability [2] General Contract Theories [3] An Example of Project Contract Risks: Output and Requirements Contracts

§ 18.05 Revenue Contracts in Transnational Projects § 18.06 Enforcement of Revenue Contracts in Transnational Projects § 18.07 Assignment of Revenues to the Project Lenders § 18.08 Selected Provisions in Off-Take Contracts § 18.09 Agreement for Allocation of a Portion of Production Capacity

[1] Introduction [2] Sample Provision

§ 18.10 Option Capacity

[1] Introduction [2] Sample Provision

§ 18.11 Reserve Capacity

[1] Introduction [2] Sample Provision

§ 18.12 Standby Charge

[1] Introduction [2] Sample Provision

§ 18.13 Sanctity of Contracts

[1] Introduction [2] Analysis Under U.S. Law [3] Retroactivity and Settled Expectations – The Effect of Governmental Actions on Existing Contracts [4] Lessons for International Project Finance [5] Stability of Contracts in Emerging Markets – The Dabhol Project

CHAPTER NINETEEN. POWER SALES AGREEMENTS

§ 19.01 Introduction § 19.02 Revenue Contracts in Transnational Projects § 19.03 Development Obligations § 19.04 Performance Milestones

[1] Generally [2] Approval of Project Contracts [3] Financial Closing [4] Penalties for Missed Milestones

Generally Delayed Entry Into Commercial Operation Failure to Construct Facility Shortfall in Nameplate Capacity

[5] Commercial Operations [6] Force Majeure

§ 19.05 Obligation to Deliver Power; Obligation to Take Power § 19.06 Delivery Point and Interconnection

[1] Delivery Point [2] Interconnection Facilities [3] Power of Eminent Domain [4] Wheeling [5] Land Rights

§ 19.07 Price for Power

[1] Introduction [2] The Political Side of Energy Rates – A Lesson Learned in the United States [3] General Forms of Power Contract Price Provisions

Take-or-Pay Take-and-Pay

[4] Capacity and Energy Payments Structure [5] Capacity Payment

Fixed or Variable Floor Front-Loaded Back-Loaded Levelized

[6] Adjustments to Capacity Charges [7] Energy Payment

Fixed or Variable Floor Forecasted Indexed

[8] Fuel Costs [9] Penalties and Bonuses [10] When Capacity Payments Begin [11] When Capacity Payments End [12] The Problem of Equity Return for Developing Countries [13] What If the Deal Turns Out to Be a Bad One?

§ 19.08 Security and Commitment of Project Sponsor

[1] Security for Performance [2] Project-Based Security [3] Minimum Equity Undertaking [4] Cash and Letters of Credit [5] Tracking Accounts – Front-End Loaded

§ 19.09 Force Majeure

[1] Political Risk [2] Uncontrollable Events [3] Change of Law

§ 19.10 Payment § 19.11 Currency Convertibility § 19.12 Term and Termination

[1] Term [2] Termination Events [3] Termination by Power Purchaser [4] Termination by Project Company [5] Project Lenders [6] Remedies [7] Termination Payments [8] Power Purchaser’s Right to Operate the Project [9] Ownership of Project at Expiration of Term

§ 19.13 Penalties § 19.14 Technical Standards § 19.15 Operating Procedures § 19.16 Metering § 19.17 Third-Party Sales and Project Transfers of Ownership

[1] Generally [2] Right of First Refusal [3] Effects of Third-Party Sales

§ 19.18 “Regulatory Out” Provisions § 19.19 Power Purchaser Responsibilities § 19.20 Project Company Responsibilities § 19.21 Insurance § 19.22 Successors to the Power Purchaser § 19.23 Common Risk Allocation in Developing Country Power Purchase Agreements

[1] Construction

Cost Overrun Delay Failure to Achieve Performance Standards

[2] Operating

Cost Overrun Operating Performance Shortfall

[3] Fuel

Price Supply Transportation

[4] Market

Demand Price Inflation Exchange Rate Fluctuations

[5] Political

§ 19.24 Tolling Agreements

[1] Fuel Availability and Force Majeure [2] Efficiency and Fuel Use

PART SIX. CREDIT ENHANCEMENT

CHAPTER TWENTY. PROJECT FINANCE CREDIT ENHANCEMENT

§ 20.01 Introduction to Credit Enhancement in Project Financings § 20.02 Guarantees

[1] Generally [2] Sponsor [3] Third Party [4] Contrast to Put Options [5] Collateral

§ 20.03 Transnational Guarantees

[1] Introduction [2] Varying Interpretation of Terms [3] Payments and Currency Risks [4] Tax Implications [5] Foreign Law

§ 20.04 Limited Guarantees

[1] Generally [2] Claw-back [3] Cash Deficiency [4] Completion [5] The Risk With Unlimited Guarantees

§ 20.05 Indirect “Guarantees”

[1] Take-or-Pay Contracts [2] Take-and-Pay Contracts [3] Other Forms

§ 20.06 Implied Guarantees and Undertakings

[1] Generally [2] Comfort Letter

§ 20.07 Put Options

[1] Generally [2] Regulatory Put [3] Contrast to Guarantees

§ 20.08 Letters of Credit § 20.09 Surety Obligations

[1] Bid Bonds [2] Performance Bonds [3] Payment Bonds [4] Warranty Bonds [5] Retention Money Bonds [6] Labor and Material Payment Bond

§ 20.10 Commercial Insurance

[1] Generally [2] Commercial Insurance and the Project Lender

Additional Insured Loss Payee Non-vitiation Clauses Reinsurance Waiver of Subrogation Collateral Security Other Insurance Issues

[3] Types of Commercial Insurance

Contractor’s All Risks Advanced Loss of Revenue Marine Cargo Marine Advanced Loss of Revenue Operator’s All Risks Operator’s Loss of Revenue Third-Party Liability Employers’ Liability/Workers’ Compensation Finite Risk Trade Disruption

[4] The “Commercially Available in the Marketplace” Standard [5] Exchange Controls [6] Export Financing Requirements

§ 20.11 Political Risk Insurance, B Loan Programs, and Guarantees

[1] Generally [2] Multilateral Investment Guarantee Agency

Generally Eligibility Coverage

[3] International Finance Corporation [4] World Bank Guarantees [5] Asian Development Bank [6] Inter-American Development Bank [7] Overseas Private Investment Corporation (U.S.) [8] United States Export-Import Bank [9] Japanese Bank for International Cooperation [10] Export Credit Guarantee Department of the United Kingdom Department of Trade and Industry [11] Export Development Corporation (Canada) [12] Other OCED Government Insurance Entities [13] Other OCED Export Credit Agencies [14] Commercial Insurance

Scope of Coverage MIGA Cooperative Underwriting Program (CUP) Portfolio Political Risk Insurance

[15] Assignment Rights [16] Political Risk Insurance for Bond Financing in Emerging-Market Project Finance [17] Credit Evaluation of Political Risk Insurance Policies

§ 20.12 Warranty § 20.13 Liquidated Damages in Fixed-Price Construction Contracts and Other Liquidated Damages § 20.14 Indemnification Obligations § 20.15 Sovereign Guarantees

[1] Project [2] World Bank [3] Are Sovereign Guarantees Useful Without World Bank Involvement? [4] Availability of Funds to Pay Guarantee Claims [5] Are Sovereign Guarantees From the Host Government Always Necessary?

§ 20.16 Other Forms of Government Credit Enhancement

[1] Generally [2] Government Subordination [3] Government-Funded Accounts [4] Pledge of Receivables [5] Government Account Supported With Local Country Bank Letter of Credit [6] Use of State Devolution Account as Collateral [7] Replacement of the State-Owned Off-Take Purchaser With a More Creditworthy Purchaser

§ 20.17 Implementation Agreements § 20.18 Reserve Funds § 20.19 Cash Calls § 20.20 Subordination of Project Costs to Debt Service § 20.21 Hedging Strategies § 20.22 The Commodity Supplier as Project Partner

PART SEVEN. DEBT AND EQUITY FINANCING

CHAPTER TWENTY-ONE. FINANCING SOURCES FOR THE PROJECT

§ 21.01 Generally § 21.02 Banks and Institutional Lenders § 21.03 The Equity Markets

[1] Domestic Equity Markets and Equity Placements [2] International Equity Markets

§ 21.04 The Bond Markets

[1] Generally [2] Credit Ratings

Sovereign Risk Analysis Currency Risk Analysis Political Risk Analysis Legal (Contract) Risk Analysis Market for Output

[3] Advantages

Large and Liquid Market Longer Term of Debt Less Onerous Terms

[4] Disadvantages

Regulatory Oversight Ratings Consents to Changes to Underlying Project Are Difficult Negative Arbitrage Expensive Transaction Costs

[5] The Mini-perm and Amortizing Mini-perm

§ 21.05 Rule 144A Debt Placements (U.S.)

[1] Advantages

Large and Liquid Market Longer Term of Debt Less Onerous Terms Limited Regulatory Oversight

[2] Disadvantages

Consents to Changes to Underlying Project Are Difficult Negative Arbitrage

§ 21.06 Investment Funds § 21.07 The World Bank Group Financing Sources

[1] Global and Regional Multilateral Involvement [2] The International Bank for Reconstruction and Development (IBRD)

Generally Loan Program Guarantee Program General Requirements Enclave Projects Indirect Support Negative Pledge

[3] International Monetary Fund (IMF) [4] International Development Association (IDA) [5] International Finance Corporation (IFC)

Generally Loan Program Equity Program Guarantee Program Benefits of IFC Participation

[6] Role of World Bank Group Credit in Project Financings

Financing From the IBRD and IDA IBRD Financing for Enclave Projects IDA Credits Equity Financing Debt Refinancing

[7] Role of World Bank Group Guarantees in Project Financings

IBRD Guarantees IBRD Indirect (Financed) Guarantee Coverage When Are World Bank Guarantees Available? IDA Guarantees Other Credit Support – Take-or-Pay and Take-and-Pay Contracts

[8] Benefits of World Bank Involvement

Catalyst for Participation by Other Entities Financial Resources Ability to Lend to Developing Countries Ability to Finance Government Investment Favorable Maturities and Interest Rates on Debt Political Risk Protection and Comfort Ability to Influence Governmental Actions Through Cross-Default Provisions in Loan Agreements Ability to Influence Governmental Actions Through Decisions About Financing Future Governmental Projects Influence Over Macroeconomic Policies That May Affect a Project Less Emphasis on Project Risks Use of World Bank Procurement Policies Use of World Bank Management Requirements

§ 21.08 Regional Development Banks

[1] Generally [2] African Development Bank [3] Arab Fund for Economic and Social Development [4] Asian Development Bank [5] European Bank for Reconstruction and Development [6] European Union [7] European Investment Bank [8] Inter-American Development Bank

Inter-American Investment Corporation

[9] Islamic Development Bank [10] Nordic Investment Bank [11] Nordic Development Fund [12] OPEC Fund for International Development

§ 21.09 Bilateral Agencies

[1] Generally [2] The OECD Consensus [3] Methods of Export-Import Financing

Direct Lending Financial Intermediary Loans (Bank-to-Bank) Interest Rate Equalization

[4] U.S. Export-Import Bank [5] Export-Import Bank of Japan [6] Overseas Private Investment Corporation [7] Office National du Ducroire (Belgium) [8] Export Development Corporation (Canada) [9] Eksportkreditraadet (Denmark) [10] Finnish Export Credit Limited (Finland) [11] Compagnie Française d’Assurance pour le Commerce Extérieur (France) [12] Hermes Cover (Germany) [13] Instituto Centrale per il Credito a Medio Termine (Italy) [14] The Netherlands [15] Export Credit Guarantee Department (United Kingdom) [16] Export Finance and Insurance Corporation (Australia) [17] Oesterreichische Kontrollbank AG (Austria) [18] Garanti-Instituttet for Eksportkreditt (Norway) [19] Swedish International Development Authority [20] Export Credit Insurance Company (Spain) [21] Export-Import Bank of Korea [22] Other Bilateral Support

§ 21.10 Global Environment Facility § 21.11 Subordinated Debt

[1] Generally [2] Subordinated Debt Terms in Project Financings

Funding Conditions to Funding Other Indebtedness Payment Blockage Periods Amendment of Senior Debt Documents Amendment of Project Contracts

§ 21.12 Development Loans

[1] Introduction [2] Definition [3] Goals of Project Sponsor [4] Goals of Developmental Lender

§ 21.13 Financing From Project Participants § 21.14 Other Sources

[1] Generally [2] Host Government [3] Contractor

Generally Retainage as Financing No Right of Offset

§ 21.15 Financings Consistent With the Koran § 21.16 Securitizations of Project Cash Flows

[1] Generally [2] Benefits of Securitization [3] Structure of Securitizations

CHAPTER TWENTY-TWO. THE OFFERING MEMORANDUM

§ 22.01 Purpose § 22.02 Key Provisions § 22.03 Project Overview § 22.04 Borrower § 22.05 Project Sponsors § 22.06 Debt Amount § 22.07 Uses of Proceeds § 22.08 Collateral § 22.09 Sources of Debt and Equity § 22.10 Equity Terms § 22.11 Cost Overruns § 22.12 Other Sponsor Guarantees and Credit Enhancement § 22.13 Interest Rate § 22.14 Repayment and Debt Amortization; Mandatory and Optional Prepayments § 22.15 Commitment, Drawdown, and Cancellation of Commitment § 22.16 Fees § 22.17 Conditions to Closing and Drawdown of Funds § 22.18 Conditions to Each Drawdown of Funds § 22.19 Covenants § 22.20 Defaults § 22.21 Governing Law § 22.22 Lawyers, Advisors, and Consultants

CHAPTER TWENTY-THREE. PROJECT FINANCE DEBT COMMITMENT LETTERS

§ 23.01 The Term Sheet

[1] Approaching the Project Finance Lender for Business Advice [2] The Project Finance Loan Application – When Should the Process Begin? [3] The Letter of Intent – Showing Interest Without a Commitment [4] The Oral Commitment

§ 23.02 The Commitment

[1] The Commitment and Its Scope

Introduction Sample Provision

[2] The Loan Amount

Introduction Sample Provision

[3] Use of Proceeds

Introduction Sample Provision

[4] Repayment Terms

Introduction Sample Provision

[5] Representations and Warranties

Introduction Sample Provision

[6] Covenants

Introduction Sample Provision

[7] Events of Default

Introduction Sample Provision

[8] Conditions to Closing

Introduction Sample Provision

[9] Term

Introduction Sample Provision

[10] Non-disclosure

Introduction Sample Provision

[11] Expenses

Introduction Several Options Exist Sample Provision

[12] Material Adverse Change

Introduction Sample Provision

§ 23.03 General Recommendations on Commitment Letters

CHAPTER TWENTY-FOUR. CREDIT AND RELATED DOCUMENTATION FOR PROJECT FINANCE TRANSACTIONS

§ 24.01 The Commercial Lender’s Perspective § 24.02 Analyses of Project Risks in the Credit Appraisal Process by the Commercial Lender

[1] Experience and Reputation of Project Sponsor [2] Experience and Reputation of Project Management Team [3] Experience and Resources of Contractor [4] Experience and Resources of Operator [5] Predictability of Price and Supply of Raw Materials to Be Used for the Project [6] Predictability of Price and Supply of Energy to Be Used for the Project [7] Market for Product or Service [8] Terms and Enforceability of Off-Take Contracts [9] Completion and Cost Overrun Risks Are Addressed [10] Technology [11] Real Estate [12] Construction of Related Facilities [13] Permits and Licenses [14] General Operating Expenses [15] Political Environment [16] Currency and Exchange Risks [17] Timing and Certainty of Equity Contributions [18] Equity Returns for Equity Owners [19] Value of Project and Project Assets as Collateral [20] Interest Rate [21] Force Majeure [22] Project-Specific Risks

§ 24.03 Protecting the Lender From Project Risks

[1] Due Diligence [2] Assignments [3] Control Over Excess Cash Flow [4] Approval of Contract Amendments [5] Restrictions on Sale of Project Interests

§ 24.04 Overview of Project Finance Credit Agreements § 24.05 Significant Provisions of the Project Finance Credit Agreement § 24.06 Conditions Precedent to Closing

[1] Generally [2] Organization and Existence of Project Company, Project Sponsors, Guarantors, and Other Major Project Participants; Copies of Governing Documents of Project Company, Project Sponsors, Guarantors, and Other Major Project Participants

Generally Sample Provision

[3] Execution and Delivery of Credit Agreement and Related Financing Documents

Generally Sample Provision

[4] Lien Filings and Possession of Certain Collateral

Generally Sample Provision

[5] Availability of Funds

Generally Sample Provision

[6] Related Equity Documents and Availability of Funds

Generally Sample Provision

[7] Sponsor Support Documents

Generally Sample Provision

[8] Third-Party Support Documents and Credit Enhancement

Generally Sample Provision

[9] Host-Government Concessions and Guarantees

Generally Sample Provision

[10] Off-Take Agreements

Generally Sample Provision

[11] Supply Agreements

Generally Sample Provision

[12] Construction Contract and Issuance of the Notice to Proceed

Generally Sample Provision

[13] Operation and Maintenance Agreements

Generally Sample Provision

[14] Permits

Generally Sample Provision

[15] Insurance and Insurance Consultant’s Report

Generally Sample Provision

[16] Real Estate

Generally Sample Provision

[17] Financial Statements of Project Company, Project Sponsors, Guarantors, and Major Project Participants

Generally Sample Provision

[18] Construction Budget and Construction Drawdown Schedule

Generally Sample Provision

[19] Revenue and Expense Projections

Generally Sample Provision

[20] Engineering Report

Generally Sample Provision

[21] Consultants’ Reports

Generally Sample Provision

[22] Environmental Review

Generally Sample Provision

[23] Legal Opinions

Generally Sample Provision

[24] No Material Adverse Change

Generally Sample Provision

[25] No Defaults

Generally Sample Provision

[26] No Litigation

Generally Sample Provision

[27] Other Conditions Precedent

Generally Sample Provision

§ 24.07 Conditions Precedent to Each Construction Loan Drawdown

[1] Generally [2] Recertification of Representations and Warranties

Generally Sample Provision

[3] No Change in Law

Generally Sample Provision

[4] Permit Status

Generally Sample Provision

[5] No Default

Generally Sample Provision

[6] No Material Adverse Change

Generally Sample Provision

[7] No Litigation

Generally Sample Provision

[8] Construction Progress

Generally Sample Provision

[9] Construction Budget and Funds Available to Complete the Project

Generally Sample Provision

[10] Lien Waivers

Generally Sample Provision

[11] Other Conditions Precedent

Generally Sample Provision

§ 24.08 Conditions Precedent to Conversion of Construction Loan to a Term Loan

[1] Generally [2] Recertification of Representations and Warranties

Generally Sample Provision

[3] No Change in Law

Generally Sample Provision

[4] Permit Status

Generally Sample Provision

[5] No Default

Generally Sample Provision

[6] No Material Adverse Change

Generally Sample Provision

[7] No Litigation

Generally Sample Provision

[8] Completion

Generally Sample Provision

[9] Other Conditions Precedent

Generally Sample Provision

§ 24.09 Representations and Warranties § 24.10 Covenants

[1] Generally [2] Reports on Project Construction and Completion

Generally Mechanical Completion Operation Completion Final Completion Sample Provision

[3] Reports on Project Operation

Generally Sample Provision

[4] Notice of Certain Events

Generally Sample Provision

[5] Maintain Existence

Generally Sample Provision

[6] Maintain Interest in Project

Generally Sample Provision

[7] Pay Taxes

Generally Sample Provision

[8] Compliance With Laws

Generally Sample Provision

[9] Obtain and Maintain All Approvals, Permits, and Licenses

Generally Sample Provision

[10] No Merger or Consolidation

Generally Sample Provision

[11] Engineering Standards for Construction and Operation

Generally Sample Provision

[12] Maintenance of Properties

Generally Sample Provision

[13] Environmental Compliance

Generally Sample Provision

[14] Insurance and Insurance Proceeds

Generally Sample Provision

[15] Performance of Project Documents

Generally Sample Provision

[16] Amendment, Modification, Termination, Replacement, and So Forth of Project Documents

Generally Sample Provision

[17] Change Orders

Generally Sample Provision

[18] Engaging in Other Business

Generally Sample Provision

[19] Indebtedness

Generally Sample Provision

[20] Liens

Generally Sample Provision

[21] Investments

Generally Sample Provision

[22] Dividends and Restricted Payments

Generally Sample Provision

[23] Maximization of Use of Export Financing, Sponsor Support, and Subordinated Debt

Generally Sample Provision

[24] Mandatory Prepayment on Occurrence of Certain Events From Excess Cash Flow

Generally Sample Provision

[25] Financial Tests

Generally Sample Provision

[26] Special Milestones

Generally Sample Provision

[27] Change in Project

Generally Sample Provision

[28] Project Support

Generally Sample Provision

[29] Financial Reporting

Generally

[30] Use of Proceeds

Generally Sample Provision

[31] Security Documents

Generally Sample Provision

[32] Operating Budget

Generally Sample Provision

[33] Accounts

Generally Sample Provision

[34] Guarantee Obligations of Others

Generally Sample Provision

[35] Sale of Assets

Generally Sample Provision

[36] Capital Expenditures

Generally Sample Provision

[37] Transactions With Affiliates

Generally Sample Provision

[38] Construction Cost Overruns

Generally Sample Provision

[39] Other Covenants

Generally

§ 24.11 Events of Default

[1] Generally [2] Payment

Generally Sample Provision (Project Company) Sample Provision (Project Participant)

[3] Breach of Covenants

Generally Sample Provision (Project Company) Sample Provision (Project Participant)

[4] Breach of Representation or Warranty

Generally Sample Provision (Project Company) Sample Provision (Project Participant)

[5] Filing of Bankruptcy Petition

Generally Sample Provision (Project Company) Sample Provision (Project Participant)

[6] Commencement of Bankruptcy Proceeding

Generally Sample Provision (Project Company) Sample Provision (Project Participant)

[7] Judgments

Generally Sample Provision (Project Company) Sample Provision (Project Participant)

[8] Final Acceptance Date

Generally Sample Provision

[9] Government Approvals

Generally Sample Provision

[10] Project Contracts

Generally Sample Provision

[11] Abandonment

Generally Sample Provision

[12] Expropriation

Generally Sample Provision

[13] Ownership and Control

Generally Sample Provision

[14] Payment of Obligations

Generally Sample Provision (Project Company) Sample Provision (Project Participant)

[15] Breach of Credit Support

Generally Sample Provision

[16] Security Documents

Generally Sample Provision

§ 24.12 Remedies § 24.13 Governing Law § 24.14 Limitations on Recourse

CHAPTER TWENTY-FIVE. EXPORT CREDITS DOCUMENTATION FOR PROJECT FINANCE TRANSACTIONS

§ 25.01 The Export Lender’s Perspective

[1] Generally [2] OECD Consensus

§ 25.02 Methods of Export-Import Financing

[1] Direct Lending [2] Financial Intermediary Loans (Bank-to-Bank) [3] Interest Rate Equalization

§ 25.03 Export-Import Banks § 25.04 Overview of Project Finance Export Credits Agreements § 25.05 Significant Provisions of the Project Finance Export Credits Agreement

[1] Currency of Loan [2] Right to Prepay [3] Conditions Precedent [4] Representations and Warranties [5] Covenants [6] Events of Default

PART EIGHT. COLLATERAL

CHAPTER TWENTY-SIX. PROJECT COLLATERAL

§ 26.01 The Role of Collateral in a Project Financing

[1] Generally [2] Collateral as a Defensive Tool [3] Collateral as an Offensive Tool [4] Uncertainty in Collateral Protections Available to Lenders – You Can’t Always Get What You Want

§ 26.02 The Collateral Package

[1] The “Blanket” Lien [2] Project Cash Flow [3] Personal Property

Intangible Assets Permits, Licenses, and Concessions Contracts Insurance Proceeds Surety Bonds Guarantees Liquidated Damages Political Risk Insurance Accounts

[4] Real Property

§ 26.03 Collateral Documents

[1] Generally [2] Personal Property Security Agreement [3] Mortgage, Deed of Trust, and Indenture [4] Pledge of Ownership Interests [5] Voting Trust [6] Offshore Accounts [7] Disbursement Agreement

§ 26.04 Negative Pledges § 26.05 The Floating Lien § 26.06 Other Collateral Problems

[1] Types of Liens Allowed

Common Law Countries Civil Law Countries Developing Countries

[2] Local Formalities [3] Denomination of Liens in Local Currency [4] Priority of Lien [5] Enforcement [6] Foreclosure [7] Real Property [8] The Problem of Transferability of Project Ownership and Operation Rights [9] Limited Potential Purchasers of Collateral [10] If You Think You’re So Smart

§ 26.07 Collateral Trusts § 26.08 Security Interests in Project Contracts

[1] Contract Assignment and Anti-assignment Clauses [2] Consents to Assignment: Approving Assignments and Enhancing the Contract’s Value as Collateral

The Secured Party’s Perspective The Contracting Party’s Perspective The Project Company’s Perspective The Host Government’s Perspective

[3] The Project Finance Lender’s Rights Under U.C.C. § 9–406 [4] The Project Finance Lender’s Liability for Obligations Arising Under Assigned Contracts

§ 26.09 Offshore Collateral Accounts § 26.10 Intercreditor Agreements

[1] Generally [2] Goals of Lenders in an Intercreditor Relationship [3] Typical Intercreditor Arrangements

Generally Nonrecourse Nature of Project Debt Project Contracts

[4] Insurance [5] General Terms of Intercreditor Agreements

§ 26.11 Commercial Insurance

[1] Additional Insured [2] Loss Payee [3] Non-vitiation Clauses [4] Reinsurance [5] Waiver of Subrogation [6] Other Insurance Issues

PART NINE. PROJECT SPONSOR AND INVESTOR AGREEMENTS

CHAPTER TWENTY-SEVEN. GOVERNING THE PROJECT COMPANY: STOCKHOLDER, PARTNERSHIP, JOINT VENTURE, AND MANAGEMENT AGREEMENTS

§ 27.01 Generally § 27.02 Stockholder Agreements § 27.03 Partnership Agreements § 27.04 Joint Venture Agreements § 27.05 Management Agreements

PART TEN. SPECIAL TOPICS IN PROJECT FINANCE

CHAPTER TWENTY-EIGHT. BANKRUPTCY

§ 28.01 Introduction § 28.02 Types

[1] Universal [2] Territorial [3] Universal and Territorial

§ 28.03 U.S. Debtor Filing for Bankruptcy Protection in United States and With Foreign Assets § 28.04 Foreign Debtor Filing for Bankruptcy Protection Abroad and Has U.S. Assets § 28.05 Selection of Bankruptcy Forum for the Debtor With Multi-country Assets § 28.06 Structuring Bankruptcy Solutions Before Closing

CHAPTER TWENTY-NINE. UNITED STATES LAWS AFFECTING FOREIGN INVESTMENTS

§ 29.01 Introduction § 29.02 Foreign Corrupt Practices Act Generally

[1] Anti-bribery Prohibition [2] Accounting Provisions [3] Multilateral Agency Anti-corruption Prohibitions

§ 29.03 Anti-bribery Provisions of the FCPA

[1] Corrupt Intent [2] Interstate Commerce and Acts in Furtherance [3] Offer, Payment, Gift, or Promise of Money or a Thing of Value [4] Foreign Official [5] For the Purpose of Influencing the Foreign Official, in His “Official Capacity,” to Assist the Company in Obtaining or Retaining Business [6] Exceptions and Defenses

“Facilitating” Payments Payments Authorized by Local Law Promotional Expense Reimbursement Payments by Subsidiaries of U.S. Corporations

[7] Enforcement and Penalties [8] Avoiding Violations of the FCPA [9] The Problem of the Local Partner [10] Document Drafting Considerations

Representations Conditions Precedent Covenants Termination

§ 29.04 The Securities Exchange Act of 1934 § 29.05 The Mail and Wire Fraud Acts § 29.06 The Internal Revenue Code § 29.07 The Currency and Foreign Transactions Reporting Act § 29.08 The False Statements Act § 29.09 National Security and Related Political Considerations

[1] Introduction [2] Trade Embargo Regulations [3] Terrorist States [4] Export Restrictions [5] Exon-Florio Amendment

CHAPTER THIRTY. LOCAL LAWYERS AND OVERVIEW OF LOCAL LAWS

§ 30.01 Introduction § 30.02 Local Lawyers

[1] Need and Timing [2] Identifying Competent Lawyers [3] Criteria for Selection [4] Managing Local Lawyers

§ 30.03 Overview of Local Laws § 30.04 Local Counsel Opinions § 30.05 Opinion of Counsel on Permits and Approvals

[1] Purpose of Opinion [2] Status of Permits, Approvals, and Concessions [3] Change of Law [4] Rights of Lender [5] Renewal [6] Typical Problems Encountered and Disclosed

CHAPTER THIRTY-ONE. DISPUTE RESOLUTION IN PROJECT FINANCE TRANSACTIONS

§ 31.01 Introduction § 31.02 On Whether to Litigate or to Arbitrate

[1] Advantages of Arbitration [2] Advantages of Litigation [3] Can a Party Select Both? [4] Alternatives to Arbitration and Litigation [5] Which Is “Best” for a Project Financing?

§ 31.03 Inconsistent Preferences

[1] Lender [2] Project Company [3] Contractor and Operator [4] Off-Take Purchaser

§ 31.04 Inconsistent Procedures

[1] Consistency [2] Uniformity [3] Consolidation

§ 31.05 Choice of Law

[1] Substantive Law [2] Procedural Law [3] Renvoi [4] Lex mercatoria [5] New York Law [6] Failure to Select a Law [7] Flexibility for Application of Governing Law

§ 31.06 Choice of Forum

[1] Litigation [2] Arbitration – The New York Convention [3] Arbitration – Other Conventions [4] Arbitration – Bilateral Investment Treaties [5] Failure to Select a Law [6] Developing Countries

§ 31.07 Choice of Panel

[1] American Arbitration Association [2] International Chamber of Commerce [3] London Court of International Arbitration [4] United Nations Commission on International Trade Law [5] Inter-American Commercial Arbitration Commission [6] Stockholm Chamber of Commerce [7] International Centre for Settlement of Investment Disputes [8] Others [9] Ad Hoc

§ 31.08 Disputes Involving Project Participants Not Parties to the Contract in Dispute § 31.09 Challenging Arbitration Awards § 31.10 Arbitration and Host-Country Disputes

[1] Generally [2] Pacta Sunt Servanda, Private Contracting, and State Sovereignty

§ 31.11 Arbitration in Developing Countries § 31.12 Arbitration Provisions

[1] Final and Binding Arbitration [2] Scope of Arbitration [3] Location of Arbitration (Choice of Venue) [4] Institution Selected for Arbitration [5] Selection of Arbitration Panel [6] Procedure [7] Governing Language [8] Governing Law [9] Continuing Performance [10] Res Judicata

CHAPTER THIRTY-TWO. MULTILATERAL AGENCY PROHIBITIONS ON ANTI-COMPETITIVE ACTIVITY

§ 32.01 Introduction § 32.02 Procurement Guidelines

[1] Generally [2] World Bank [3] Inter-American Development Bank [4] European Bank for Reconstruction and Development

§ 32.03 Organization of American States Inter-American Convention Against Corruption § 32.04 Council of Europe Criminal Law Convention on Corruption § 32.05 Organisation for Economic Co-operation and Development (OECD) Recommendation of the Council on the Tax Deductibility of Bribes to Foreign Public Officials § 32.06 Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions § 32.07 European Union Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of the Member States of the European Union § 32.08 United Nations § 32.09 International Chamber of Commerce Rules of Conduct to Combat Extortion and Bribery

CHAPTER THIRTY-THREE. MERCHANT FACILITIES – PROJECT FINANCE WITHOUT CONTRACTUALLY ASSURED REVENUE FLOWS

§ 33.01 Definition of Merchant Facility § 33.02 Market Risk § 33.03 Management of Commodity Risk

[1] Generally [2] Long-Term Contracts [3] Linking Inputs and Outputs [4] Reserve Funds [5] Cash Calls [6] Subordination of Project Costs to Debt Service [7] Hedging Strategies [8] The Commodity Supplier as Project Partner

§ 33.04 Management of Commodity Output Risk § 33.05 Loan Covenants for the Merchant Project

Appendix A: Checklist of Due Diligence Considerations for a Project Financing Appendix B: UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects Project Finance Terms, Abbreviations, and Acronyms Select Bibliography Index

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