Financing Natural Resources: Oil Gas & Mining Projects

Euromoney Learning Solutions

Euromoney Learning Solutions

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About the course

Get unique skills in the natural resource sectors - oil, gas and mining

Building on the foundation that is established in the first module of the Academy, this two-day course focuses on elements that are unique to projects in the natural resource sectors. The course begins by exploring the core themes and challenges faced in the financing of natural resource projects, from financing structures, allocating risk, logistics and transportation financing, as well as Islamic finance alternatives. At the end of the day, participants will break into small groups to examine a case study on equipment financing and use a computer simulation to model possible outcomes. The second day of the course explores research and off-take evaluation, mining projects, risk management with interest rate, currency and commodity derivatives, and the different stages in financing natural resources projects.

Methodology

This course combines formal instruction and presentations with case studies, practical exervices, group discussions and computer simulations to reinforce key learning points and ensure the training experience is engaging and relevant. The case studies, practical exercises and group discussions cover upstream oil and gas delivery as well as green-field and later phase mining projects.

Agenda

** Day 1 **

The Context Of The IPP Within The Power Sector

  • Power Market Structures from Horizontal and Vertical Unbundling to Privatization
  • Difference of Single Buyer PPA and Wholesale market PPA
  • Importance of Energy System Planning and Public Procurement of IPPs
  • Competiveness and Transparency within Tenders and Unsolicited Proposals
  • Local content and potential conflicts of interest

CASE STUDIES:

  • Mexico power sector reform: from zero to heroe
  • Vietnam's IPPs Sector Toward Market Liberalisation
  • South Africa best practice IPP procurement program or not?

Context of the PPA within the project set-up

  • Main risks of an IPP during developing, construction and operation
  • Role of project contracts to mitigate risks
  • Why a PPA at all and the fit into the overall project set-up
  • Understanding the link to Project Finance
  • Lenders requirements and debt ratios

CASE STUDY: Financial Structure of Oman Sohar2 Natural Gas IPP

Overall structure of a PPA

  • Definition of commercial terms
  • Risk to bankability
  • Obligations and Undertakings of each party
  • Conditions Precedents to be on the safe side
  • PPA Definitions and Annexes

GROUP WORK: Seller & Buyer Role Play getting to terms

PPA Timing and Milestones

  • From Signing to Expiry Date
  • Scheduled Dates, Actual Dates and Events
  • Changing Rights and Obligations at each dates
  • Release of obligations in certain events
  • Pre-COD and Post-COD periods
  • Periods to exercise rights, notify and cure
  • Termination rights not meeting milestones

GROUP WORK: Analysis & Comparison of two PPA timelines as the core framework for allocating risk between seller and buyer

Day 2

Pre-Commercial Operation Date Period

  • Order of execution of other project contracts
  • Back to back requirements with the EPC contractor
  • Development bonds, Performance Bonds and Letter of credits
  • Fine tuning with the Fuel Supply Agreement and Interconnection Agreement
  • Bankable Insurance program for the IPP and EPC contractor
  • Delays caused by lack of utilities, equipment, grid connection and conditions of site
  • Definitions of achieved, declared, contracted and minimum capacities
  • Delay and Performance Liquidated Damages – calculation and different structures
  • Testing & Handover procedures and risk to achieve COD on time
  • Declaration of Commercial Operation Date – an idea becomes reality
  • Deemed COD, Capacity and Energy – as-of clauses to keep going

Post-Commercial Operation Date Period

  • Delivery Point, Metering and Losses – the devil is in the detail
  • Invoicing, Billing and Payments procedures or show me the money
  • Impact on working capital requirements and bankability
  • Availability, Planned Maintenance Outages and requested changes
  • Timing and Charges for Black, Cold, Warm and Hot start
  • Requirements for heat rate, fuel specifications, quality and storage
  • Prudent Utility Practice, emergency procedures and manufacturer warranties
  • Non-discriminatory economic dispatch and conflict of interest
  • Allowed Grid Unavailability Periods, Curtailment and Deemed Energy provisions

Events beyond Business-As-Usual

  • Dispute Resolution, Cure Periods and Arbitration
  • Lenders Step-in Rights
  • Political and Natural Force Majeure Events
  • Changes of Law and Stabilization clauses
  • Consequences of Force Majeure and Changes of Law
  • Seller or Buyer Event of Default
  • Termination rights of PPA by either side
  • Put and Call options and buyout pricing methodology

GROUP EXERCISE: Structured Risk Allocation between Seller and Buyer Throughout the day delegates will work through a long list of questions on each topic to identify the risk taking on by the Seller and Buyer respectively by analysing sample clauses from a range of fuel based and renewable PPAs.

Day 3

PPA Tariff Structures

  • Understanding Levelized Cost of Electricity, Cost of Capital and their impact on tariffs
  • Tariff Structures for fuel based and intermittent power generation technologies
  • Take-or-Pay versus Take-and-Pay contracts
  • Capacity and Energy Charge and Pass-Through Clauses
  • The rational for indexation and escalation of local, foreign inflation and currencies
  • Seasonal weighting factors in a PPA
  • Locational Marginal Pricing and grid charges
  • Competitive Tenders for Tariffs with Cost Openers
  • Marginal Cost and the Merit Order Effect in competitive wholesale electricity markets
  • Contract for Differences, Sleeved and Synthetic PPA structures

CASE STUDY: Split tariff and indexation in Egypt and Bangladesh PPAs

GROUP EXERCISES: Tariff simulation and sensitivity analysis of key variables for various types of remuneration schemes

OFFTAKER’s CREDIT WORTHINESS and CREDIT ENHANCEMENT INSTRUMENTS

  • Quasi fiscal deficit and non-cost reflective tariffs within emerging markets
  • Corporate offtakers as the new kids on the block
  • Credit Support for Offtaker and Project Company's Obligations
  • Escrow Accounts and Structural measures as liquidity facilities
  • Government guarantees and limitations in obtaining them
  • Partial Risk Guarantee and the requirements of an indemnity agreement
  • Political Risk Insurance covering debt and equity providers
  • Currency Convertibility risk and difficulties to mitigate them
  • Currency risk hedging and risk guarantee fund
  • Local currency lending
  • Export Credit Agencies, Developments Finance Institutions and Multilateral Banks

CASE STUDIES:

  • Indonesian Infrastructure Guarantee Fund buffering PLN payments
  • Azura-Edu gas power project– the white unicorn in Nigeria
  • AES Tiete: Expansion plant in Brazil
  • Bujagali Hydro Power project in Uganda from trouble to
  • GuarantCo and TCX going where nobody dares to go
  • Lake Turkana Wind project – it had to happen…late
  • TermoEmcali Colombia Natural Gas Project
  • IFC and the Tata Mundra Power Plant in India
  • …plus selective other case studies according to upcoming discussions!

Experts

Meg Osius

Ms. Osius designs and delivers executive level training sessions as well as providing consulting services to a wide variety of organizations worldwide. Specializing in international project finance, capital markets, and risk management, she works with corporate investors, private and development ...

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Financing Natural Resources: Oil Gas & Mining Projects at Euromoney Learning Solutions

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