The Hydropower Lenders’ Technical Advisor
(Room Jupiter 8)
02 Sep 15
11:00 AM
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12:30 PM
In this paper we explore the role of the Independent Engineer (or “Lender’s Technical Advisor” - LTA) in identifying and mitigating risks in hydropower projects on behalf of the lenders. It describes the services required to manage the pre-closure, construction and financing period of a new project.
There are differing types of risk in both large and small hydro projects (contractual, commercial, participant, completion, country, technology, reputational, environmental and social, etc) and each is discussed with regard to how the lenders may be exposed if the risk eventuates.
There are several unique features and risks associated with hydro projects that financiers need to be aware of. The process by which the LTA interacts with other advisors engaged by the lenders is also explored, such as legal and insurance advisors. For instance, the liquidated damages clauses related to guarantees for performance or time for completion within construction contracts awarded by the borrower often require back-to-back arrangements or ‘full pass through’ of any such penalties that may be imposed on the borrower by the offtaker, i.e. as set out in the power purchase agreement. These issues clearly require the combined services of technical and legal advisors.
We discuss the typical process whereby a hydropower developer has procured a feasibility study and is working towards financial close. The rather misleading concept of bankable is explored and discusses what that really means, since stakeholders have differing standpoints.
The paper draws on case studies from the Asia Pacific region to illustrate the key elements in hydro project financing from the LTA’s perspective, together with the author’s recent and current experience on multiple hydropower projects ranging from <5MW to 500MW, across Asia and Africa in the run-of-river, storage reservoir and pumped storage type of plants.