Project Finance: Practical Case Studies

Meeting the financial closing deadline

When project negotiations began the coordinating banks told the government that a minimum
of a year, but usually longer, is required for arranging a project financing after a PPA has been
signed. The word ‘minimum’ seems not to have made any impact. When the PPA was signed,
on 12 February 1994, the government set a one-year deadline for both signing loan agree-
ments and advancing funds. If the deadline was not met the government could reopen nego-
tiations on the price defined in the PPA.
In January 1995 a team representing the underwriting banks and the sponsors convened
in New York to work full time on the project contracts and financing documents, in an effort
to meet the 12 February deadline. As that deadline began to appear unrealistic the team kept
PLN informed of each milestone so that PLN could at least see evidence that work on the con-
tracts was moving ahead. Wood recalls working 36 hours straight at one point in February, in
an effort to deliver as many completed documents as possible to PLN in Jakarta by 12
February. When the documents were delivered the government decided to extend the final
deadline for closing the deal to 21 April.
During the entire period from the original to the revised deadline, work on the EPC
and fuel contracts also continued. Two issues that remained outstanding until the very end
related to real estate security and interpretation of the government support letter. On the
first issue the lenders had to settle for a provision in the PPA that indemnified the project
against any claims against the site. They were not able to persuade the government to
change its position. On both issues government officials said that they were unwilling to
make any further changes to terms that had already been negotiated. They reiterated that
if the deal was not closed by midnight on 21 April they would have the right to terminate
the PPA.

POWER PLANT

Exhibit 6.1

Structure of the bond offering

Payments under

funding loan

Bond payments

Guarantee of

payments under bond

Payment under

funding loan

Sale of funding

loan notes

Bonds

Pledge of

funding

loan notes

Proceeds from

offering

Proceeds

from

offering

Commercial

bank

lenders

Paiton Energy

Funding BV

PT Paiton

Energy Company Trust

Bondholders