Introduction

• Characteristics of limited recourse financing
• Differences between project financing and conventional financing
• The role and structure of the special purpose entity
• The role of project cashflow model
• The rationale for undertaking a project using limited recourse
• Financier due diligences

BOT, PFI & PPP

This session explains the workings of BOT, PFI and PPP projects - the relationship of the parties, the tendering and procurement process, and a summary of the arguments in favour of and against procuring public works projects through the PPP method.

• Explanation of BOT, PFI and PPP
• Motivations of the commissioning authority
• The procurement process – OBC, VFM, PSC, ITN, BFO, FBC
• Critique of PPP – pros and cons
• The perceived weaknesses of PF1
• The new rules and structures introduced by ‘PF2’
• Differences between PPP and other forms of project finance
• The administration of PPP
• The implications of refinancing
• Political risk and political risk insurances

Assessment and Appraisal

A summary of the analytical approach and the structuring of risks. This will be further developed in the subsequent sessions.

• Economic assessment
• The difference of approach for projects with a contractual revenue stream vs market-based revenue
• Due diligence – technical, market assessment, financial, legal
• Modelling and quantifying risk
• Range of techniques for laying off risk
• Alternative dispute resolution in contract law
• Tax optimisation issues in structuring the project

Concession Agreements

This session captures the relationship between the government procurement agency and the private sector consortium. We will go through the components of the Concession Agreement - sample provided - and discuss the alternative structures that can be adopted and the merits of each.

• Standard form contracts, service agreements, toll-based contracts
• Revenue basis – cost plus, unitary charge, tolls, hybrids
• Legal issues pertinent to PPP
• The consortium vs commissioning authority relationship
• The components of a Concession Agreement
• Tariff setting, tariff resets
• Benchmarking, market testing and resetting of revenue drivers, basis risk
• Currency exposures and mismatches
• Political force majeure, contract frustration
• Frustration and termination
• Compensation clauses and financier exposure
• Direct agreements
• Step-in rights
• Collateral works
• Partial recourse structures
• Resumption of project assets and operations
• Performance incentives

The Development

As with other forms of project financing, getting the infrastructure built and getting it working, is often the critical challenge. If a PPP project goes wrong, it is likely to be in the development or commissioning phase. This session takes a careful look at how the allocation of risks and responsibilities is structured and the contractual protections that are put in place.

• Risk identification, cost overrun, delays, performance
• The importance of functional specifications
• Structure of insurances
• Environmental impact analysis and environmental liability
• The management of scope, cost, time
• Project quality performance
• The FIDIC turnkey EPC contract
• Liquidated damages, performance bonds, retentions
• Variation and change orders
• Completion guarantees
• Credit guarantee facility
• The six ‘killers’ of project finance

Financing

When there is only a single source of cashflow, debt financiers not surprisingly become very attentive to the structuring of how that cashflow is managed and assessed. These sessions examine the techniques and structures that are applied and how effective they are. It includes an assessment how members of the sponsor consortium should undertake their evaluation of the project.

• Free Cash Flow, CFADS – importance and derivation
• Debt sizing with cover ratios
• ADSCR, LLCR, PLCR
• Cashflow waterfall
• Control and reserve accounts – purpose and derivation
• Lock-up covenants, cash sweep mechanisms
• ‘Trapped’ cash, minimum capitalisation laws
• Implications of default
• Embedded recourse
• Market risk vs. performance risk
• Sponsor evaluation process
• Sponsor IRR vs. project IRR
• The five drivers of a Sponsor IRR

Dealing With Risk

A classification of the various ways to deal with risks – i.e. cashflow volatility contingencies.

• The three step analytical approach
• Putting suspension on the Special Purpose Vehicle (SPV)
• The six methods for dealing with volatility
• The ingredients of volatility modeling
• Illustration of the implementation of scenario analysis