Risk analysis
Construction risk
As with any major construction undertaking, many factors such as material shortages, labour
disputes, bad weather, failure to obtain necessary permits or unforeseen engineering, envi-
ronmental or geological problems could have caused a cost overrun or a delay in project
completion. Except in the case of certain defined force majeureevents, the contractor was
required to pay schedule and performance-liquidated damages totalling 40 per cent of the
contract price if the project was not completed on or before the guaranteed completion date
(22 months from the full notice to proceed under the construction contract and 24 months
from the financing date under the PPA). The contract also stipulated penalties if the plant did
not satisfy the performance tests, including 233.8 MW capacity, by 365 days after the com-
pletion date. Emcali could terminate the PPA if construction was not complete within 24
months of the financing date and if plant capacity at the time of commercial operation was
less than 196 MW. In addition, the company took out delay-in-completion insurance and set
aside an owner’s contingency of US$10 million in its construction budget to cover budget
overruns, force majeureevents and other events that could delay completion of the facility.
Over the previous 10 years Bechtel had constructed 25 combined-cycle plants similar to the
TermoEmcali project. In its history as an EPC contractor for combined-cycle plants, Bechtel had
incurred neither delay penalties nor performance damages through to the date of the financing.
Bechtel had a strong financial incentive to complete the project within the 22-month construction
timetable and was further motivated by an obligation to pay up to 40 per cent liquidated damages
to cover delay penalties owed to Emcali under the PPA; a holdback letter of credit equal to 10
per cent of the contract price; and unlimited liability to achieve mechanical completion.
Offtake risk
The PPA with Emcali provides fixed-capacity payments designed to cover all fixed operating
costs, including debt service, and energy payments that pass through virtually all actual fuel
supply, transportation and other variable costs. Emcali, rated ‘BBB-’ at the time of the pro-
ject financing by Standard & Poor’s, is contractually obligated to provide additional support
in the form of a letter of credit and a fiducia, described below, to cover short-term payment
disruptions. The project was considered to be of strong strategic importance to Emcali, pro-
viding it with low-cost power, reduced transmission costs and diversification away from
hydroelectric power. Emcali’s obligations under the PPA remain in effect if Emcali is reor-
ganised or privatised.
Fuel supply/transportation risk
Ecopetrol is a national fuel company, obliged to provide fuel and firm transportation capaci-
ty under long-term contracts. Emcali’s capacity-payment obligations to the project continue
if fuel is unavailable, so long as the project remains available. Emcali is obliged to pay for
substitute fuel if it is used. In the independent fuel consultant’s report CC Pace estimated that
there would be adequate transportation and more than an adequate supply of natural gas for
the project’s requirements during the term of the debt.
POWER PLANT