1. CVE 61 9 Infrastructure System Development . . # 4

2. / SPV Supplier / 3. (concession agreement)

Project company

2

• Service contract

• Toll contract

Government supports

4. Service contract

Project company

• Availabilityinfrastructure

Usage risk ( demand risk )

Project company

• Construction cost overrun

• Availability

• Operating cost

5. Toll contract

Project company

• Real tolls

• Shadow tolls

project company

• Demand

• Construction cost overrun

• Operating cost overrun

• Etc.

6.

Shadow tolls project company

2-4

Shadow tolls R3 R2 R1 0 1 2 3 4 R3 R2 R1 0 2 3 4 Shadow tolls 1 7.

Fishbien and Babbar (1996)

government support Concession extension Revenue enhancements Shadow tolls Minimum traffic or revenue guarantee Subordinated loan Grant Debt guarantee Exchange rate guarantee Equity guarantee 8. debt guarantee lender

lender

9. (off-take purchase agreement)

project company off-taker(purchaser)

demand risk off-taker

off-take purchase agreement

• Take-or-paycontract

• Take-and-paycontract

• Long-term salescontract

• Hedgingcontract

• Contract for Differences

• ThroughputContract

10. EPC contract

project finance turnkey lender

Engineering-Procurement-Construction

Construction Management system (for fee)

Fixed-price, date-certain

LendersFIDIC

11. Operation and Maintenance contracts

lendersoperation & maintenance

Fees

• Fixed fee

• Cost-plus fee

IncentivesPenalties

12. Insurance

Construction insurance

• Lender

• Delay in Start-up ( DSU )

Operation insurance

• Business Interruption ( B I)

project company ?

13. Direct agreements

Stakeholdersdirect agreement lender

Acknowledgments and consents

• lenders

• lenders (security)

• lender project company

• Step-in right

• Etc.

14. Contract mismatch

Commercial operation date(COD)

input/supply agreementoff-take purchase agreement

term

15. project company (risk seeking behavior of project company)

Downside riskis partially eliminated by using debt

Higher uncertaintygive higher expected value

SPV would seek high risk high return actions

Increase operating leverage, etc.

16.

Financial structuring

17. Financial model

Project costsFunding structure

Operating revenuescosts

Loan drawingdebt service

Taxation and Accounting

Input

Project costs and funding

Lenders cover ratios

Output Model 18. Input

Macroeconomic assumptions

Project cost

Funding structure

Operating revenue and costs

Loan drawing and debt service

Taxation and accounting

19. Macroeconomic assumption

Inflation rates

commodity prices

interest rates

exchange rates

economic growth

20. Project costs

Project costs

• Development costs

• Development fees

• Project Company costs

• EPC contract price

• Construction phase insurance

• Start-up costs

• Initial spares

• Working capital

• Taxes

• Financing costs

• Funding of Reserve accounts

• Contingency

21. Operating revenuescosts

Operating surplus

Operating revenue

Operating costs

• Cost of supplies

• Project companys overhead costs

• Maintenance costs

• O&M contract costs

• Insurance

22. Loan drawingDebt service

Debt / Equity ratio

Drawing

drawequitydebt

• IDC (interest during construction)

23. Output

Cash flow statement

• Construction cost outflow

• Interest calculation

• Operating cash flow

• Tax

Lenders cover ratios

Investors return

24. Lenders cover ratios

margin

debt cover ratio

• Annual debt service cover ratio (ADSCR)

• Loan life cover ratio (LLCR)

• Project life cover ratio (PLCR)

25. Ratio analysis

ADSCR =

Operating cash flow (before interest, tax, depreciation)

Debt service

LLCR =

PV of operating cash flow during loan life

Debt outstanding

PLCR =

PV of operating cash flow during project life

Debt outstanding

26. Cover ratios Key revenue attributes Required ADSCR Required LLCR Full off-take, w/o currency risk 1.20 1.20 - 1.30 Full off-take, with currency risk 1.30 1.30 - 1.40 Full off-take, price risk, w/o currency risk 1.40 1.30 - 1.80 No off-take, w/o currency risk 1.50 1.50 1.90 No off-take, currency risk 2.00 1.75 2.00 27. Sensitivity analysis

cover ratio

• Construction cost overrun

• Delay in completion

• Demand volatility

• Sale prices reduction

• Input cost escalation

• Operating cost overrun

• Interest rates movement

• Exchange rate movement

28. Monte Carlo simulation Risk Model Risk A Risk B Risk C Input Output Process (Monte Carlo Simulation) Correlation Source with modifications : Copeland and Antikarov (2000) Probability Outcome 0