Market, revenue and fuel cost risks
The Guangxi government assumed basic market and revenue risks concerning power demand
and transmission as they related to the minimum power output it contracted to purchase. The
sponsors assumed risks related to power sales above that minimum.
Operating risks
While the project company and the Guangxi government shared some operating risks related
to labour or a force majeureevent, the project company bore most of the other operating risks
related to operator ability, environmental damage, technology and prolonged downtime.
Principal contracts
The Laibin B project is underpinned by three major contracts: the Concession Agreement, the
PPA and the FSTA.
Concession Agreement
The Concession Agreement is the overriding document that summarises the major rights and
obligations of the project company and the Guangxi provincial government with respect to
the concession. The Guangxi government is the counterparty to the consortium under the
Concession Agreement, and the primary obligor under both the PPA and the FSTA. The
Concession Agreement defines the concession period, which is to run 18 years, including the
three-year construction period, from the financial closing date of 3 September 1997, when the
contract documents were signed. During the concession period the consortium has the right
to own and operate all of the project’s assets, equipment and facilities, to mortgage them for
the purpose of financing and to assign the right to operate them.
Power Purchase Agreement
The GPIB, the offtaker, agreed to buy about 63 per cent of the plant output based on 100 per
cent of baseload factor. The sponsors estimated that a 63 per cent output level would be suf-
ficient to service the project debt and thus saw an opportunity for profit on the sale of power
beyond that minimum.
The project sponsors had good reason to expect strong demand for extra power capacity.
First, Guangxi Province was short of power and demand was expected to increase about 13
per cent per year. Second, much of the Guangxi grid was based on hydropower, which was
less effective during the dry season. As a coal-fired plant, Laibin B would provide year-round
reliability.^15
The PPA provided for a fixed tariff with pre-agreed annual adjustments. This contrasted
with the Chinese government’s previous approach to projects with foreign participation, in
which it sought to limit developers’ IRRs to about 15 per cent. The tariff is paid in renminbi.
The sponsors assume foreign exchange risk for the first 5 per cent of the tariff, after which
the tariff is adjusted to reflect depreciation of the Chinese currency against the dollar.
LAIBIN B, CHINA