Advanced Modelling for Project Finance

170 Pages·2005·0.769 MB·English

by  Charles T Haskell

Disclaimer: This eBook does not include ancillary media that was packaged
with the printed version of the book.
Advanced Modelling for Project Finance

Advanced Modelling for Project Finance
for Negotiations and Analysis
Charles T. Haskell
Euromoney Books
Published by
Euromoney Books
Nestor House
Playhouse Yard
London EC4V 5EX
Tel: [phone]
Fax: [phone]
[email protected]
www.euromoneybooks.com
Copyright © 2005 Charles T. Haskell
ISBN 1 84374 214 4
This publication is not included in the CLA Licence and must not be copied with-
out the permission of the author and the publisher.
All rights reserved. No part of this publication may be reproduced or used in any
form (graphic, electronic or mechanical, including photocopying, recording, taping
or information storage and retrieval systems) without permission by the author and
the publisher.
The views and opinions expressed in the book are solely those of the author. Although
Euromoney has made every effort to ensure the complete accuracy of the text, nei-
ther it nor the author can accept any legal responsibility whatsoever for conse-
quences that may arise from errors or omissions or any opinions or advice given.
Typeset by Julie Foster
Printed by Hobbs the Printers
Contents Political risk 22
Financial risk 22
Structures 24
Contracts and documents 25
Preface xi Construction contract 25
Feedstock, or fuel supply contract 26
Off-take contract 26
Module 1: Project finance overview 1 Operations and maintenance contract 26
Shareholder’s agreement 27
Introduction 3 Financing documents 27
Definition 3
History 4
Module 2: Modelling conventions and advanced Excel
Corporate finance versus project finance 4
techniques 29
Rationale 6
Equity 6 Introduction points on Excel 31
Debt 6 Module 2 fonts and symbols 31
Suppliers 7 Mouseless Excel 31
Government 8 ‘Alt’ key 31
Appropriate project size 9 ‘Ctrl’ key 31
Project timelines 9 Summary of shortcuts 32
Risks 10 Model layout 32
Supply risk 17 Coding 36
Market risk 17 The Paste function 36
Currency, or foreign exchange, risk 18 Sum, Min, Max and Average 36
Operation risk 18 Logic functions 37
Environmental risk 19 Escalation coding 37
Infrastructure risk 19 Flag technique 37
Force majeurerisk 20 Transpose 38
Completion risk 20 Payment function 38
Technology risk 21 Sum(Index) function 38
v
Contents
Goal Seek 39 Project description 64
Tables 39 Project structure 65
VLOOKUP 39 Project costs and capitalization 65
Conditional Formatting 40 Project time schedule 65
Manual calculations 40 Lump Sum Turnkey engineering, construction
Summary 40 and procurement contract 65
Power Purchase Agreement 66
Gas Supply Agreement 66
Module 3: Project economics and selected
Operations & Maintenance (‘O&M’) Agreement 66
financial maths 41
Additional information 67
Microeconomics 43 The sponsor/developer 67
Market fundamentals 49 Selected review of the project documents 67
Time Value Of Money 52 General information 68
Risk versus reward 53 General Development Costs and Information 70
Discounted Cash Flow 53 EPC Contract Tariff Sheet, Delivery Time Schedule,
Net Present Value 53 and Performance Guarantees 71
Weighted Average Cost Of Capital 54 Power Purchasing Agreement 71
Internal Rate Of Return 56 Gas Contract 72
NPV versus IRR 57 Operations and Maintenance (O&M) Agreement 73
Continuing Value 58 Insurance Premiums for both construction and operation phases 74
Terminal value 58 Host Country Tax Regime 75
Purchasing Power Parity 58 Term Sheet presented by the project company 75
Summary 59 Worksheet 1 77
Exercise 4.1 77
Review 77
Module 4: Building the project finance model:
Worksheet 2 83
case study 61
Exercise 4.2 83
Introduction 63 Review 83
The project 64 Main points 83
Executive summary 64 Worksheet 3 87
vi
Contents
Exercise 4.3 87 Main points 118
Review 87 Worksheet 11 120
Main points 92 Exercise 4.11 120
Worksheet 4 93 Review 120
Exercise 4.4 93 Main points 123
Review 93 Worksheet 12 126
Main points 93 Exercise 4.12 126
Worksheet 5 95 Review 126
Exercise 4.5 95 Main points 127
Review 95 Worksheet 13 132
Main points 96 Exercise 4.13 132
Worksheet 6 98 Review 132
Exercise 4.6 98 Main points 132
Review 98 Worksheet 14 134
Main points 98 Exercise 4.14 134
Worksheet 7 100 Summary 134
Exercise 4.7 100
Review 100
Module 5: Due diligence of case study 137
Main points 100
Worksheet 8 111 Introduction 139
Exercise 4.8 111 Seeking financing 139
Review 111 AGSIM Bank of the Netherlands 140
Main points 111 Exercise 5.1 143
Worksheet 9 115 Review of Exercise 5.1 144
Exercise 4.9 115 Exercise 5.2 145
Review 115 Review of Exercise 5.2 147
Main points 115 Exercise 5.3 147
Worksheet 10 118 Review of Exercise 5.3 149
Exercise 4.10 118 Exercise 5.4 149
Review 118 Review of Exercise 5.4 149
vii
Contents
Exercise 5.5 150 Review of Exercise 5.6 154
Review of Exercise 5.5 151 Summary 155
Exercise 5.6 152