Project Finance: Practical Case Studies

individual project risks related to construction, operations and market prices. The value of
crosscollateralisation and the likelihood of sufficient cash flow for debt-service coverage are
further enhanced by low correlation between the two project markets, as estimated in a mar-
ket diversity analysis by RW Beck, Inc., an independent engineering and electricity market
consulting firm.

Environmental permits

Both projects have a combined-cycle configuration. The combustion turbines use low-nitro-
gen-oxide (NOX) combustors along with selective catalytic reduction to reduce NOX emis-
sions. The exclusive use of low-sulphur natural gas in the combustion turbines minimises
particulate matter, sulphur dioxide and sulphuric acid mist air emissions. In addition space
is provided in the heat recovery steam generator for future installation of an oxidation cata-
lyst capable of reducing carbon monoxide emissions by 80 per cent. The air permits for the
projects include short-term and annual emission limits for combustion turbines and duct
burners, which operate on natural gas. They also set out testing, monitoring and record-keep-
ing requirements.

Risk summary

The projects are subject to typical power plant risks, including those discussed in this section.

Construction risk

SNC–Lavalin, which took over from NEPCO as the EPC contractor, is a full-service engi-
neering and construction company with over 60 years’ experience. TECO Energy replaced
Enron as the guarantor of some of NEPCO’s obligations under the EPC contracts in
December 2001. Liquidated damages and retainage provide SNC–Lavalin, and more
importantly their subcontractors such as GE and Alstom, with incentives to achieve guar-
anteed levels of performance on a timely basis. TECO Energy guarantees substantial com-
pletion of the projects on a date-certain basis and provides liquidated damage provisions

PANDA ENERGY–TECO POWER JOINT VENTURE, UNITED STATES

Exhibit 13.5

Flow of funds during the operations period

Union County Union Power PartnersLP (UPP)

UPP Finance Co

(UPP FinCo)

100%

Debt service

Lenders

4

Loan

payments

Bond^3

payments

(P&I)

2

Lease payments

1