Units 1 and 2, would also be delayed by six
months, with liquidated damages payable by
the contractor under the turnkey construc-
tion contract.
The ‘performance’ case assumed that the
Net Contracted Capacity of the units was 97
per cent of the Guaranteed Net Contracted
Capacity and that the pumping efficiency
was 98.5 per cent of the Contracted
Efficiency. Below these levels, the units were
assumed to have been rejected by the project
company as provided under the turnkey con-
struction contract. Therefore this represented
a worst-case scenario.
The ‘EAF’ case assumed a 97 per cent
equivalent availability factor. This meant that
the annual allowable planned and/or forced outage downtimes specified in the BROT
Agreement were exceeded for approximately 1,000 hours, or approximately 12 per cent of the
number of hours per year.
Compared to the base case, the ‘economic variables’ case assumed higher inflation rates
- 4 per cent in the United States and 12 per cent in the Philippines – and a higher devaluation
rate of the Philippine peso, at 2 per cent per year in excess of the forecast.
Finally, the ‘interest rate sensitivity’ case assumed a 1 per cent increase in Libor and a
0.5 per cent increase in the swap rate.
Political risk insurance
In an article in Project Finance International^2 and subsequent interviews, David Gore,
Director, Project Finance and Advisory, SG Asia, and Ken Hawkes, Senior Associate,
Milbank, Tweed, Hadley & McCloy LLP, pointed out that, until recently, the sponsor of an
emerging-market project could not source nonrecourse international bank financing without
securing risk cover from ECAs or other bilateral or multilateral agencies. Negotiations with
these agencies are time-consuming, however, and that often prolongs the time required to
close a project financing. Just like banks, the agencies have country credit limits, and most
ECAs lend primarily in order to support exports from their own countries.
When the lead banks reached their agreement with CBK Power in August 2000, they
were under time pressure to syndicate the loan as soon as possible. Most equipment would be
sourced from Argentina, where little if any ECA support was available, and the size of the
loan posed a challenge for securing full political risk coverage. At the same time the lenders
were also aware of the growing private political risk insurance market, which tended to take
a more flexible approach.
Gore and Hawkes pointed out that private political risk insurance is now increasingly
available for emerging markets as an alternative to the coverage commonly provided by
ECAs and other agencies. One of the reasons why it has become more attractive is that some
private insurers have extended their available tenor to 15 years and more in recent years, often
reinsuring some of their earlier-year coverage with underwriters not willing to go out as far.
POWER PLANT
Exhibit 10.1
Sensitivity analysis of debt service
coverage ratios (DSCRs)Average Minimum
DSCR DSCR
Base case 1.47 1.34
Delay 1.54 1.37
Performance 1.41 1.28
Equivalent availability factor (EAF) 1.42 1.30
O&M 1.45 1.33
Economic variables 1.44 1.31
Interest rate sensitivity 1.44 1.31
Source:Loan Information Memorandum.