- For the Base Case Projected Operating Results (see Exhibit 11.5), revenues from the
sale of electricity, transmission line payments and interest income should be adequate
to pay the power plant’s annual operating and maintenance expenses (excluding major
maintenance), fuel and fuel transport costs, lime costs, ash disposal costs, and
Philippine corporate taxes, providing a minimum annual debt service coverage ratio of
1.55 times the annual debt service requirement and a weighted average debt service cov-
erage of 2.22 over the life of the contract. Under an increased-heat-rate sensitivity
analysis, minimum coverage was estimated to be 1.51 and average coverage 2.17; under
a reduced availability sensitivity, minimum coverage was 1.55 and average coverage
2.18; under an increased operating and maintenance expense sensitivity, minimum cov-
erage was 1.48 and average coverage 2.13; under a reduced inflation sensitivity, mini-
mum coverage was 1.42 and average coverage 1.95; under a combination of increased
O&M and reduced availability, minimum coverage was 1.48 and average coverage
2.08; and, finally, under zero availability, minimum coverage was estimated to be 1.0
and average coverage 1.48.
Fuel Adviser’s Report
In March 1997 Norwest Mine Services, Inc., prepared the Fuel Adviser’s Report, with three
principal conclusions:
- the coal supply plan for the project had a high degree of security;
- by using a combination of two high-quality coal suppliers, the project was unlikely to
face material fuel supply disruptions; and - even if fuel supply disruptions did occur, the project could easily find alternatives sup-
plies in a timely manner from other suppliers in Indonesia or Australia.
Risk factors
The prospectus for the bond offering and other sources summarised project risk factors for
lenders and bond investors under a number of headings.
Construction risks
Despite the experience of the EPCM contractors and their use of proven technologies, the
construction of any major power plant involves many risks, including shortages of materials
and labour; work stoppages and other labour disputes; weather interference; disputes with
landowners; catastrophic events such as floods, volcanic eruptions, earthquakes or fires; sab-
otage, including guerrilla attacks; and engineering, archaeological, environmental and geo-
logical problems. Any of these could cause delays and/or cost overruns. Mitigating these risks
on this particular project were insurance against specific construction risks, the obligation of
the EPCM contractors to pay liquidated damages resulting from unexcused delay in achiev-
ing provisional acceptance by the Guaranteed Completion Date and a US$35 million contin-
gency in the construction budget. However, there was no guarantee that these risk-mitigation
measures would completely cover expenses that the project company could have incurred in
the event of construction delay.
POWER PLANT