letter affirms that the Concession Agreement, the PPA, and the Fuel Supply and
Transportation Agreement (FSTA) comply with current laws and regulations, and that the
Guangxi government has the authority to sign the Concession Agreement.
Dispatch constraint
Under the PPA the GPIB is committed to take or pay for a minimum net electricity output
(MNEO) of 3.5 billion kilowatt hours per year, or about 63 per cent of the plant’s output,
which the sponsors estimate would be sufficient to service the project debt. In addition, in the
PPA the GPIB commits itself not to discriminate against the power plant and to apply the
principles of economic dispatch to the purchase of additional power from the plant.
Change in law
The Concession Agreement protects the project company against possible changes in law
after the bid submission date (7 May 1996) in two ways:
- if the project company is prevented from fulfilling its obligations by a change in law, it
is entitled to receive MNEO payments irrespective of its ability to supply electricity; and - the project company is to be restored to its original economic position if a change in law
subjects it to expenses over an agreed threshold.
Exchange rate and convertibility
Exchange rate risk is addressed mainly by the project company’s ability to adjust the floating
portion of the tariff, which is payable in renminbi but indexed to the US dollar, to reflect ren-
minbi/dollar exchange rate fluctuations. The project sponsors bear the risk of the first 5 per
cent movement from the base rate under the PPA. The foreign exchange conversion and
remittance approval in the SAEC’s support letter affirms that the project’s foreign exchange
requirements have been incorporated into the National Foreign Exchange Balancing Plan, and
states that such approval will not be adversely affected by changes in laws and regulations.
Political risks
Political risks for the project were assumed primarily by the Guangxi government. They
included expropriation, change in law, development approvals, provision of utilities, increase
in taxes, termination of the concession or payment failure by the government, other adverse
government actions and political force majeure.
Construction and completion risks
As with most projects of this nature, the project sponsors assumed the majority of construc-
tion and completion risks. They included cost overruns, increases in financing costs, con-
struction delays and quality problems.
POWER PLANT