Day 1
Themes: Understanding the Project Finance Process;
Improving efficiency in the Project Finance process;
Effective identification, allocation and mitigation of risks in energy Project Finance;
Sources of Project Finance for projects in the energy sector.
Introduction – Project Finance in the Energy Sector
- Definition & Alternative Project Finance structures – BOT, BOO, BOOT, BLT
- Drivers for the growth of Project Finance in the Energy Sector
- Current Project Finance market conditions and developments, inc
- Who are the players and what are their roles?
The Project Finance Process
- The three “foundations stones” to Project Finance:
Risk analysis
Financial analysis
Documentation
- Structuring Project Finance transactions to meet the objectives of the parties
- Establishing the criteria for a successful Project Finance structure
Risk Analysis in Project Finance
- Risk identification
- Risk allocation under the project contractual framework
- Risk mitigation techniques
- Addressing political risks in the commercial and financial framework of the project
Environmental Risk Analysis in Project Finance – The Equator Principles
- What are the Equator Principles?
- Why are the Equator Principles important for Project Finance in the energy sector?
- How can the Equator Principles be satisfied?
- To what extent do the Equator Principles increase the risks for energy projects?
CASE STUDIES: The Equator Principles
Participants will review the Equator Principles and discuss their impact on Project Finance for the energy sector.
Quantitative risk assessment - cashflow modeling
- Building a model: good modeling practice
- Key cover ratios and levels in power and renewable energy project finance
- Forecasting techniques and limitations in the power and renewable energy sector
- Using cashflow sensitivity analysis
Sources of Project Finance for energy projects
- Impacts of the global credit crisis on debt and equity funding for projects
- The growing importance of alternative sources of Project Finance
- Commercial bank loans
- Capital markets bond issues
- Export credit agencies support
- Mulitilateral and bilateral agencies support (IFC, EBRD, EIB etc.)
- Islamic finance
- Mono line insurance company guarantees
- Leasing
The use of financial derivatives to manage risk in energy projects
- Interest rate derivatives
- Foreign exchange derivatives
- Commodity price derivatives
- Weather derivatives
CASE STUDIES: Examples of energy sector Project Finance structures
Issues related to the alternative debt financing sources and structures will be illustrated and discussed with participants by reference to examples of project financings using the various identified sources of debt.
Day 2
Themes: Project Finance in the Oil & Gas sector;
Contractual risk aspects of the application of Project Finance to oil & gas projects;
Structuring and sizing debt for projects
Overview of Project Finance in the Oil & Gas Sector
- History & current market developments
- Sub-sectors
- Oil & Gas Reserves
- Production assets
- Pipelines
- LNG
- Downstream (Refineries & Petrochemical Plants)
Legal aspects of Production Sharing Agreements (“PSA”) in the Oil & Gas Sector
- What is the purpose of the PSA?
- How is a PSA different from a Concession Agreement?
- Typical Project Finance risk issues and allocation in the PSA
CASE STUDY: Review of a model PSA for East Timor
Participants will break into groups to review the terms of a model PSA for oil concessions in East Timor and establish the risk allocation and issues of potential concern to Project Finance Lenders.
Structuring Reserve Base (“RBL”) and Borrowing Base (“BBL”) Loan Facilities for Oil & Gas Sector
- Understanding reserve based risks – the Petroleum Engineer’s report
- Commodity Price risks
- Structuring and sizing the loan facilities
CASE STUDY: Tullow Oil Reserve Base Loan Facility
In groups, participants will analyse data provided for Tullow Oil to establish the size and structure of a Reserve Base Loan facility to finance its portfolio of African assets.
Project Financing for Oil & Gas Pipelines
- The role of Host & Inter-Governmental Agreements in international pipeline projects
- Addressing completion risks in pipeline projects
- Regulatory and competition aspects
- Shipping contract structures
CASE STUDY: BTC oil pipeline project (Azerbaijan-Georgia-Turkey)
The project financing for the Baku Tbilisi Ceyhan (“BTC”) pipeline will be reviewed to establish how the financing and commercial structure of the project addressed the project risks.
Project Financing for LNG Facilities
- The growth and current developments in LNG markets
- The LNG supply chain
- Structuring successful LNG projects
- Risks in the financing of LNG projects
CASE STUDY: Qatar LNG projects
The development and financing of the LNG projects in Qatar will be reviewed
Day 3
Themes: Project Finance in the Power Sector
Contractual risk aspects of the application of Project Finance to power projects;
Risk evaluation of projects in the energy sector;
Financing documentation and lenders’ controls in Project Finance
Overview of Project Finance in the Power Sector
- History & current market developments
- Sub-sectors
- Generation
- Transmission
- Distribution
Project Finance in the Renewable Energy Sector
- Review of the different renewable energy sources (wind, solar, hydro, energy from waste, biomass, geothermal, wave)
- Comparative economics of renewable energy sources
- Types and impacts of incentive programmes (environmental credits and feed in tariff structures)
CASE STUDIES: Examples of Renewable Energy Projects
Issues will be illustrated and discussed with participants by reference to examples of renewable energy project financings in the various renewable energy sub-sectors.
Qualitative Risk Analysis – identification and allocation of risks in power and renewable energy project financing
- What are the typical risks associated with power and renewable energy projects?
- Principles of risk allocation – implications for revenues and costs
- Risk allocation models used in power and renewable energy projects
CASE STUDY: Risk identification and allocation in a European gas fired power project
Participants will break into groups to identify the potential risks and develop potential risk allocations for a recent gas fired power project in Europe.
Construction contract issues in power and renewable energy projects
- Completion and performance risk issues
- Excluded risks
- The use of industry association contract templates
Revenue contract structures and issues in power and renewable energy projects
- Power purchase agreements (PPAs)
- Tolling agreements
- Contracts for differences (CFDs)
- Merchant power structures
Other contract structures and issues in power and renewable energy projects
- Fuel supply agreements
- Operations & maintenance agreements
- Long term service agreements
- Quantitative risk assessment in a power generation project
CASE STUDY: Qualitative risk assessment
Participants will use a use a simplified financial model to assess the sensitivity of a Case Study power project to the risks identified in the preceding sessions. Exercises will include:
- Sizing the debt to achieve minimum cover ratio requirements and analysing impacts on equity returns
- Breakeven sensitivity for the identified risks
- Determining the levels of liquidated damages required under EPC construction contracts
Other Quantitative risk assessment techniques in Project Finance
- Application of project ratings in the energy sector
- Implications of the BASEL II Project Finance Supervisory Slotting Criteria on risk assessment for energy projects
Financing Documentation in Energy Projects
- Financing term sheets
- Lenders’ control mechanisms - the “covenant “ package
- Security - what security to lenders require?
- The role of Direct Agreements in the project contract structure
- The role of Inter-creditor Agreements in Project Finance structures
CASE STUDY: Negotiating the Covenant Package for a power project financing
Participants will break into groups representing the borrower and the lender for the Case Study power project and will develop part of the typical covenant package that would be expected by the lenders and the borrower (and its sponsor/shareholders). The two teams will then join together to attempt to negotiate a mutually agreeable covenant package.
Summary and close