Project Finance, Support & Management...

Project developers do not normally have expertise in the financial packaging of projects, the services of an ININ Financial Advisor in doing this would prove valuable for the developers.

Among others, the role of the adviser will include the preparation of a Project Information Memorandum (PIM) which should reflect the due diligence efforts of the developers.

The aim of the activity at this stage is to attain a financial close with terms that are agreeable to both the developers and lenders

Information Memorandum

• a. Project summary
• b. Overview of financing plan, sources and uses of funds
• c. Term sheet
• d. Description of development plan
• e. Description of the principal contracting parties
• f. Summary of major project contracts
• g. Summary of risks
• h. Summary of principal licenses and permits
• i. Financing evaluation Checklist for Successful Financing

a. Project Summary

• brief history of the project
• -list of major parties involved
• -location
• -technology used
• -energy output
• -total costs

b. Overview of financing plan, sources and uses of funds

• -description of overall financing plan breakdown of costs (use of funds)
• - plant hardware - construction cost - development cost - external fees (lawyer, financial adviser, etc.)
• - interest costs during construction -
• contingencies source of funds
• - planned debt, equity
• - other funds such as subordinated debt/grants (list)

c. Term Sheet

• -loan structure
• - amount to be borrowed
• - time over which borrowing will occur (draw down period) to fund construction
• - loan repayment/interest rate (conservative rate should be used)
• - key coverage ratios, covenants, default conditions

d. Description of development plan

• -development plan/schedule
• -technology -environmental issues
• -construction details -operation
• -site attributes
• -permits and licenses
• -resource availability
• -electricity interconnection
• -fuel supply
• -waste disposal, etc.

e. Description of the principal contracting parties

• -relationship of parties involved and roles
• -brief financial statement of each party

f. Summary of major project contracts

• -normally produced by developer’s legal adviser
• -highlights of each major contract

g. Summary of risks

• -review of all considered principal risks and description of how these risks have been mitigated
• - completion risks (cost overruns, etc.) - need for experienced operator - completion bond (from the contractor)
• - effect of increase in interest rate
• - secure, long- term market for the project output
• - new technology (plants with similar technology operating elsewhere, availability, capacity)
• - protection from defects in technology

h. Summary of principal licenses and permits

• -list all the permits needed for construction and operation of the project
• -status report on each license/permit should be provided indicating those obtained (with conditions) and the expected timing for approval for those yet to be obtained

i. Financing evaluation

• -cash flow projections
• -how the project will repay debt under different scenarios (changing external and internal factors)

CHECKLIST FOR SUCCESSFUL FINANCING...

• The project is sponsored by experienced and reputable developer(s).
• A satisfactory feasibility study and financial plan have been prepared.
• The cost of raw materials to be used in the project is assured.
• Supply of energy at reasonable cost is assured.
• A market exists for the products (electricity, other by-products) or services to be produced.
• Product Flow systems are sufficient (to connect to the grid).
• Adequate infrastructure (roads, water, etc.) is or will be available. •Experienced and reliable contractor.
• Experienced and reliable operator.
• Management personnel are experienced and reliable. •Use of proven (well-demonstrated) technology.
• Well-structured agreements (fuel supply, power purchase, etc.)
• Adequate cash flow, acceptable debt service coverage.
• Electricity sales price risks in market are addressed.
• Availability of all permits and licenses.
• Country and sovereign risks are acceptable.
• Currency and foreign exchange risks are addressed.
• Adequate and timely equity contributions by sponsors.
• Project and assets have value as collateral.
• Satisfactory appraisals of resources and assets have been obtained.
• Proof of adequate insurance coverage. •Force majeure risk is addressed
• Completion and cost over-run risks are addressed.
• Project offers adequate ROE, ROI and ROA for the sponsors and investors.
• Inflation and interest rate projections are realistic and from reliable sources.
• Environmental risks are manageable.
• Proper due diligence on joint venture partners and agreements that makes sense.
• Review report of the independent engineer.