Project finance, BOT projects and risk

Project and other structured finance models have become a method of choice for financing infrastructure projects in many different sectors across the globe. They allow greater flexibility for governments and project sponsors wishing to develop infrastructure without the concomitant burden on their balance sheets and their ability to fund other needs and priorities. However, The fall of Enron, WorldCom and so many other organisations who pushed the structured finance model one step too far has raised alarm bells. Has project and structured finance seen the end of its useful life? Are the risks surrounding such projects so extreme as to bring into question their usefulness? The viability of structured infrastructure projects relies on a comprehensive, yet sensible assessment of risk and allocation of that risk in an efficient manner. Yet our understanding of efficient risk allocation often runs contrary To The actual risk allocation models that we apply to such projects. Risk analysis for complex projects requires a level of sophistication and objectivity of which few individuals are capable. Jeff Delmon's book addresses the many issues around risk and structured infrastructure projects. it is not a dry legal treatise, but an eminently readable and practical explanation of efficient risk allocation And The contractual framework which forms the bedrock of BOT and other project finance transactions. Based on Jeff's practical experience in the sector, this book provides practical guidance and insight into many of the pitfalls often encountered in such projects. This book is ideal for those relatively new To The issues surrounding project finance and risk as well as those with significant experience as an aide-memoire and a challenge To The approaches to risk allocation that are so often applied to such transactions.

Preface	p. xxvii
Chapter 1 Risk, Risk Assessment and Risk Allocation	p. 1
1.1 Risk Assessment	p. 2
1.1.1 Quantitative risk assessment	p. 2
1.1.2 Qualitative risk assessment	p. 3
1.2 Quantitative Assessment	p. 4
1.2.1 Probability and standard mean variation	p. 5
1.2.2 Utility and cost-benefit analysis	p. 9
1.2.3 Causation	p. 12
1.2.4 Game theory	p. 12
1.2.5 Diversification	p. 13
1.2.6 Information	p. 14
1.3 Qualitative Assessment	p. 16
1.3.1 Basic needs	p. 17
1.3.2 Control and the search for certainty	p. 18
1.3.3 Magnitude	p. 23
1.3.4 Immediacy	p. 23
1.3.5 Focus	p. 23
1.3.6 Past personal experience/familiarity	p. 24
1.3.7 Physical condition and preparedness	p. 26
1.3.8 Personal, genetic or natural propensity to take risk	p. 27
1.3.9 Cultural	p. 28
1.3.10 Sociological	p. 29
1.3.11 Justice, equity and law	p. 29
1.3.12 Political context	p. 29
1.3.13 Power	p. 30
1.3.14 Institutional approaches or policy	p. 31
1.3.15 Team structure	p. 32
1.3.16 Education and training	p. 33
1.3.17 Technical	p. 33
1.3.18 Financial	p. 34
1.3.19 Commercial	p. 35
1.3.20 Risk Communication	p. 35
1.3.21 Nature versus nurture	p. 36
Chapter 2 Traditional Theory of Risk Allocation	p. 39
2.1 Elements of the Traditional Approach	p. 40
2.1.1 Who can control the occurrence of a risk?	p. 41
2.1.2 Who wants to be in a position of control over the circumstances related to the risk?	p. 42
2.1.3 Who can manage the risk for the least cost?	p. 42
2.1.4 Is the relevant party able to manage the risk, does it have the relevant resources and is it in a position to manage the risk?	p. 43
2.1.5 Can the relevant party bear the consequences of the risk?	p. 43
2.1.6 Is there an interrelationship between the relevant risk and other project risks?	p. 44
2.1.7 Will that party be motivated to manage the risk in the most efficient and effective manner possible?	p. 45
2.2 The Background to the Traditional Approach	p. 45
2.2.1 Latham, Egan, Grove and on	p. 45
2.2.2 Mechanisms to assist in implementing the traditional approach	p. 46
2.2.3 The traditional approach in other disciplines	p. 47
2.3 The Traditional Theory and Risk Noise	p. 47
2.3.1 Numeric quantification of linguistic quantitative assessment	p. 48
2.3.2 Hints at risk noise and its effects in the traditional approach literature	p. 49
2.4 Conclusion	p. 50
2.4.1 Political Drivers	p. 51
2.4.2 Finance Drivers	p. 52
2.4.3 Risk noise	p. 52
Chapter 3 Introduction to BOT Projects	p. 55
3.1 Private Investment in Public Infrastructure	p. 56
3.1.1 Public sector projects	p. 57
3.1.2 Financing	p. 58
3.1.3 Progression of financing	p. 59
3.1.4 Benefits and disadvantages	p. 59
3.2 Description of a BOT Project	p. 62
3.2.1 Financing agreement	p. 63
3.2.2 Shareholders' agreement	p. 64
3.2.3 Concession agreement	p. 64
3.2.4 Offtake purchase agreement	p. 64
3.2.5 Input supply agreement	p. 65
3.2.6 Construction contract	p. 65
3.2.7 Operation and maintenance agreement	p. 65
3.3 Direct Agreements	p. 65
3.4 Parties Involved in a BOT Project	p. 66
3.4.1 Lenders	p. 66
3.4.2 Grantor and host government	p. 67
3.4.3 Multilateral, bilateral and export credit agencies	p. 70
3.4.4 Project company	p. 72
3.4.5 Construction contractor	p. 73
3.4.6 Operator	p. 73
3.4.7 Offtake purchaser	p. 73
3.4.8 Input supplier	p. 74
3.4.9 Interfaces	p. 74
3.5 Stages of Development and Negotiation of a BOT Project	p. 75
Chapter 4 Project Finance	p. 79
4.1 Project Financing	p. 79
4.2 Types of Contributions	p. 83
4.2.1 Equity contributions	p. 83
4.2.2 Debt contributions	p. 83
4.2.3 Mezzanine contributions	p. 84
4.2.4 Debt-to-equity ratios	p. 85
4.3 Lender Recourse	p. 85
4.3.1 Recourse, limited recourse and non-recourse financing	p. 85
4.3.2 Rights against other persons	p. 87
4.3.3 Loss of non-recourse treatment	p. 87
4.4 Issues Specific to Financing Agreement	p. 88
4.4.1 Conditions precedent	p. 88
4.4.2 Security issues	p. 88
4.4.3 Repayment	p. 89
4.4.4 Shareholder support	p. 90
4.4.5 Step-in	p. 90
4.4.6 Warranties, undertakings and representations	p. 91
4.4.7 Use of insurance	p. 91
4.5 Other Issues Relevant to Financing	p. 92
4.5.1 Completion	p. 92
4.5.2 Host government support	p. 92
4.5.3 Force majeure and change in law	p. 93
4.5.4 Political risk	p. 94
4.5.5 Environmental risk	p. 94
4.5.6 Currency exchange risk	p. 94
4.5.7 Lenders' technical adviser	p. 95
4.5.8 Intercreditor issues	p. 95
Chapter 5 Project Bankability	p. 97
5.1 Project Viability	p. 98
5.1.1 Economic/political viability	p. 98
5.1.2 Legal viability	p. 100
5.1.3 Financial viability	p. 102
5.1.4 Technical viability	p. 103
5.2 Site Issues	p. 105
5.2.1 Political issues	p. 105
5.2.2 Administrative issues	p. 108
5.2.3 Currency issues	p. 110
5.2.4 Market issues	p. 110
5.2.5 Force majeure	p. 112
5.3 Source Country Issues	p. 112
5.4 Project Structure Issues	p. 112
5.4.1 Shareholders	p. 112
5.4.2 Financing structure	p. 113
5.4.3 Third party risk allocation	p. 114
5.5 Contractual Structure Issues	p. 115
5.5.1 Concession agreement	p. 115
5.5.2 Construction contract	p. 117
5.5.3 Operation and maintenance agreement	p. 119
5.5.4 Offtake purchase agreement	p. 120
5.5.5 Input supply agreement	p. 121
Chapter 6 Allocation of Risk in Project Finance	p. 125
6.1 Allocation of Risk	p. 126
6.2 Development Risk	p. 128
6.3 Completion Risk	p. 129
6.3.1 Construction	p. 129
6.3.2 Commissioning	p. 130
6.3.3 Time for completion	p. 131
6.4 Cost Increase Risk	p. 132
6.4.1 Currency risk	p. 132
6.4.2 Inflation	p. 133
6.4.3 Taxes	p. 133
6.4.4 Input price increase	p. 133
6.4.5 Construction cost increase	p. 134
6.4.6 Operation cost increase	p. 134
6.4.7 Cost of spare and replacement parts	p. 134
6.4.8 Decrease in output price	p. 135
6.4.9 Coverage of cost overrun risk	p. 135
6.5 Performance Risk	p. 136
6.5.1 Design and construction	p. 136
6.5.2 Operation	p. 137
6.5.3 Input supply	p. 137
6.5.4 Offtake purchaser infrastructure	p. 137
6.6 Operation Risk	p. 138
6.7 Market Risk	p. 139
6.7.1 Output price	p. 139
6.7.2 Input cost risk	p. 140
6.8 Political Risk	p. 140
6.8.1 Authority and enabling legislation	p. 140
6.8.2 Change in budget, government or political atmosphere	p. 140
6.8.3 Expropriations	p. 142
6.8.4 Change of law or taxation	p. 143
6.8.5 Change in technical requirements	p. 143
6.8.6 Immunities	p. 144
6.8.7 Public perception	p. 145
6.8.8 Political risk insurance	p. 146
6.8.9 Source country political risks	p. 147
6.8.10 Choice of law	p. 147
6.9 Environmental Risk	p. 148
6.10 Credit Risk	p. 150
Chapter 7 Project Participant Interface Risk	p. 153
7.1 Project Interfaces	p. 154
7.1.1 Technology interfaces	p. 154
7.1.2 Methodology interfaces	p. 154
7.1.3 Management and allocation of interface risk	p. 157
7.2 Grantor Interfaces	p. 157
7.2.1 Interfaces with construction contractor	p. 157
7.2.2 Interfaces with operator	p. 158
7.2.3 Interfaces with offtake purchaser	p. 159
7.2.4 Interfaces with input supplier	p. 160
7.3 Construction Contractor and Operator	p. 160
7.4 Operator and Offtake Purchaser	p. 162
7.5 Operator and Input Supplier	p. 163
7.6 Intra-project Company Interfaces	p. 163
Chapter 8 Concession Agreement	p. 165
8.1 Risks	p. 168
8.1.1 Political risk	p. 168
8.1.2 Completion risk	p. 169
8.1.3 Operation risk	p. 169
8.1.4 Permits and licences	p. 169
8.1.5 Transfer and re-tendering	p. 170
8.2 Interfaces	p. 170
8.2.1 Construction contractor	p. 170
8.2.2 Operator	p. 171
8.2.3 Offtake purchaser	p. 172
8.2.4 Input supplier	p. 172
8.3 Payment and Guarantees	p. 172
8.3.1 Tolls and tariffs	p. 172
8.3.2 Guarantees	p. 172
8.3.3 Non-competition/exclusivity	p. 173
8.3.4 Foreign currency exchange and transfer of funds	p. 173
8.3.5 Taxation	p. 173
8.3.6 Compensation events	p. 174
8.3.7 Compensation on termination	p. 174
8.4 Completion and Operation	p. 174
8.4.1 Design, construction and technical requirements	p. 174
8.4.2 Modification of technical requirements	p. 175
8.4.3 Time for completion and the project programme	p. 175
8.4.4 Method of operation	p. 176
8.4.5 Maintenance manuals, records and as-built drawings	p. 176
8.4.6 Update of project technology	p. 176
8.4.7 Training	p. 177
8.4.8 No discriminatory action by government or government entity	p. 177
8.5 Procedures and Mechanisms	p. 178
8.5.1 Approval, appointment and replacement	p. 178
8.5.2 Granting the concession	p. 178
8.5.3 Concession fees	p. 178
8.5.4 Independent expert	p. 178
8.5.5 Restrictions on transfer of shares of the project company	p. 179
8.5.6 Step-in and continuous operation provisions	p. 179
8.5.7 Transfer or re-tender	p. 179
Chapter 9 Shareholders' Agreement	p. 181
9.1 Form of the Project Company	p. 182
9.1.1 Added source of equity capital	p. 182
9.1.2 Special project expertise	p. 182
9.1.3 Shareholder interest	p. 183
9.1.4 Diversity of ownership	p. 183
9.1.5 Risk management	p. 183
9.1.6 Off balance sheet treatment	p. 183
9.1.7 Availability of funding	p. 184
9.1.8 Control over a resource or market position	p. 184
9.2 Investment, Return, Costs and Cash Flow	p. 184
9.2.1 Shareholder contributions	p. 184
9.2.2 New equity infusions	p. 185
9.2.3 Application of cash flow	p. 186
9.2.4 Costs	p. 186
9.2.5 Contribution clause	p. 186
9.3 Shareholder Rights and Obligations	p. 187
9.3.1 Shareholder undertakings	p. 187
9.3.2 Conflicts of interest	p. 187
9.3.3 Confidentiality	p. 188
9.3.4 Transfer to grantor	p. 188
9.3.5 Transfer of shares	p. 188
9.4 Management and Administration	p. 189
9.4.1 Management	p. 190
9.4.2 Dispute resolution	p. 190
Chapter 10 Construction Contract	p. 191
10.1 Turnkey Construction Contracts	p. 192
10.1.1 Single point responsibility	p. 193
10.1.2 Time for completion	p. 196
10.1.3 Fixed price	p. 197
10.1.4 Disadvantages	p. 198
10.2 Risk Allocation	p. 199
10.2.1 Completion risk	p. 199
10.2.2 Performance risk	p. 200
10.2.3 Increase of cost risk	p. 201
10.3 Interfaces between Construction Contractor and Other Project Participants	p. 201
10.3.1 Operator	p. 201
10.3.2 Offtake purchaser	p. 202
10.3.3 Input supplier	p. 203
10.4 Completion and Performance	p. 203
10.4.1 Scope of works	p. 203
10.4.2 Design	p. 204
10.4.3 Quality assurance	p. 204
10.4.4 Site risk	p. 205
10.4.5 Completion and takeover	p. 205
10.4.6 Tests on completion	p. 206
10.4.7 Performance tests	p. 207
10.4.8 Language	p. 207
10.5 Time	p. 207
10.5.1 Time for completion and project programme	p. 208
10.5.2 Late completion	p. 209
10.5.3 Defects liability period	p. 211
10.5.4 Latent defects	p. 211
10.6 Price and Payment	p. 212
10.6.1 Contract price	p. 212
10.6.2 Payment	p. 212
10.6.3 Bonds, guarantees and retention	p. 214
10.6.4 Limitation of liability	p. 215
10.6.5 Joint and several liability	p. 216
10.7 Additional Considerations	p. 216
10.7.1 Procurement restrictions	p. 216
10.7.2 Subcontracting	p. 216
10.7.3 Independent engineer	p. 217
10.7.4 Training and operation manuals	p. 217
10.7.5 Transfer of title and risk	p. 217
Chapter 11 Splitting Turnkey Construction Contracts	p. 219
11.1 Domestic Contracts	p. 220
11.2 International Contracts	p. 222
11.3 Splitting Contracts	p. 224
11.4 Setting the Terms	p. 225
11.5 Fixed Time for Completion	p. 225
11.5.1 Co-ordination of work programmes	p. 226
11.5.2 Testing and completion	p. 227
11.5.3 Timing of completion	p. 227
11.5.4 Liquidated damages for delay	p. 228
11.5.5 Duration of performance security	p. 231
11.6 Fixed Cost of Completion	p. 231
11.7 Single Point Responsibility	p. 232
11.7.1 Quality of the works	p. 233
11.7.2 Defects	p. 233
11.7.3 Interfaces between the contracts	p. 233
11.7.4 Dispute resolution	p. 234
11.7.5 Choice of law	p. 234
11.7.6 Limits of liability	p. 235
11.7.7 Insurance	p. 235
11.8 Splitting Terms	p. 235
11.8.1 Effective date	p. 236
11.8.2 Payment	p. 236
11.8.3 Cross-indemnities	p. 237
11.8.4 Termination	p. 237
11.8.5 Umbrella contracts	p. 238
11.9 Splitting the Works	p. 239
11.10 Conclusion	p. 240
Chapter 12 Operation and Maintenance Agreement	p. 241
12.1 Risk Allocation	p. 243
12.1.1 Performance risk	p. 243
12.1.2 Increase of cost risk	p. 244
12.1.3 Operation risk	p. 244
12.1.4 Political risk	p. 244
12.2 Interfaces	p. 245
12.2.1 Construction contractor	p. 245
12.2.2 Offtake purchaser	p. 247
12.2.3 Input supplier	p. 247
12.2.4 Grantor	p. 248
12.3 Operator's Obligations	p. 248
12.3.1 Scope of services	p. 248
12.3.2 Standards of performance	p. 249
12.3.3 Remedy of defects	p. 249
12.3.4 Emergency situations	p. 250
12.3.5 Procurement restrictions	p. 250
12.3.6 Spare parts	p. 250
12.3.7 Asset removal/replacement	p. 251
12.4 Payment	p. 251
12.4.1 Cost of operation and payment	p. 252
12.4.2 Budgeting for spare parts, major maintenance and asset renewal	p. 253
12.4.3 Operator as agent	p. 253
12.4.4 Liability	p. 254
12.4.5 Foreign exchange and convertibility	p. 254
12.5 Procedures	p. 254
12.5.1 Transfer of risk	p. 254
12.5.2 Independent engineer	p. 255
12.5.3 Access to books and records	p. 255
12.5.4 Training of the grantor's personnel	p. 255
12.5.5 Transfer	p. 256
Chapter 13 Offtake Purchase Agreement	p. 257
13.1 Risk Allocation	p. 259
13.1.1 Market risk	p. 260
13.1.2 Operation risk	p. 260
13.2 Interfaces	p. 260
13.2.1 Operator	p. 261
13.2.2 Construction contractor	p. 261
13.3 Primary Obligations	p. 261
13.3.1 Scope of services	p. 262
13.3.2 Quantity	p. 262
13.3.3 Technical and performance specifications	p. 262
13.3.4 Modifications to the project	p. 263
13.3.5 Facilities provided by offtake purchaser	p. 263
13.3.6 Ancillary services	p. 263
13.3.7 Completion and transition	p. 264
13.3.8 Transfer to grantor	p. 264
13.4 Price and Payment	p. 264
13.4.1 Capacity charge	p. 266
13.4.2 Usage charge	p. 267
13.4.3 Input efficiency	p. 268
13.4.4 Input supply	p. 268
13.4.5 Metering of output	p. 269
13.4.6 Other offtake	p. 269
13.4.7 Other pricing schemes	p. 270
13.4.8 Bonuses	p. 270
13.4.9 Guarantees	p. 270
13.4.10 Foreign exchange risk	p. 270
13.5 Mechanisms and Procedures	p. 271
13.5.1 Operation regime	p. 271
13.5.2 Maintenance regime	p. 271
Chapter 14 Input Supply Agreement	p. 273
14.1 Risk Allocation	p. 275
14.1.1 Market risk	p. 275
14.1.2 Operation risk	p. 275
14.2 Interfaces	p. 276
14.2.1 Operator	p. 276
14.2.2 Construction contractor	p. 276
14.3 Principal Obligations	p. 276
14.3.1 Quantity	p. 277
14.3.2 Procurement restrictions	p. 278
14.3.3 Source of input	p. 278
14.3.4 Shipment and storage	p. 280
14.3.5 Quality	p. 281
14.3.6 Completion and transition	p. 281
14.4 Payment	p. 282
14.4.1 Price	p. 282
14.4.2 Failure to deliver	p. 283
14.4.3 Testing quality	p. 284
14.4.4 Measuring quantity	p. 284
14.4.5 Payment	p. 284
14.4.6 Guarantees	p. 285
14.5 Mechanisms and Procedures	p. 285
14.5.1 Independent engineer	p. 285
14.5.2 Transfer to grantor	p. 285
Chapter 15 Issues Common to the Project Documents	p. 287
15.1 The Site	p. 287
15.1.1 Possession of and access to the site	p. 287
15.1.2 Site conditions	p. 289
15.2 The Works	p. 289
15.2.1 Procurement restrictions	p. 289
15.2.2 Transfer of title and risk	p. 290
15.2.3 Completion	p. 291
15.2.4 Spare parts	p. 292
15.3 Payment	p. 292
15.3.1 Price, payment and revenues	p. 292
15.3.2 Foreign currency exchange	p. 293
15.3.3 Guarantees	p. 294
15.4 Changes	p. 294
15.4.1 Assignment	p. 295
15.4.2 Change in law	p. 295
15.4.3 Change in pricing mechanism	p. 296
15.4.4 Change in requirements	p. 296
15.4.5 Dispute	p. 296
15.4.6 Lenders' interests	p. 296
15.5 Political and Natural Events	p. 297
15.5.1 Licences and permits	p. 297
15.5.2 Force majeure	p. 299
15.5.3 Sovereign immunity	p. 301
15.5.4 Types of insurance	p. 302
15.5.5 Insurance issues	p. 305
15.6 Termination and Step-in	p. 307
15.6.1 Termination	p. 307
15.6.2 Step-in and continuous operation provisions	p. 308
15.6.3 Transfer to grantor	p. 309
15.7 Supervision and Disputes	p. 310
15.7.1 Grantor/lender access and inspection	p. 310
15.7.2 Independent engineer	p. 311
15.7.3 Dispute resolution	p. 311
15.8 Miscellaneous	p. 313
15.8.1 Definitions	p. 313
15.8.2 Conditions precedent	p. 313
15.8.3 Duration	p. 314
15.8.4 Language	p. 315
15.8.5 Confidentiality	p. 315
15.8.6 Training	p. 316
15.8.7 Choice of law	p. 316
15.8.8 Schedules	p. 317
15.9 Direct Agreements	p. 318
Chapter 16 Tendering Procedures	p. 321
16.1 The Procedures	p. 322
16.1.1 Pre-qualification	p. 323
16.1.2 Tender documentation	p. 324
16.1.3 Bid evaluation	p. 326
16.1.4 Preferred bidder	p. 326
16.2 The Purpose	p. 326
16.2.1 Efficiency	p. 327
16.2.2 Competition	p. 327
16.2.3 Transparency	p. 328
16.3 The Approaches	p. 329
16.3.1 Bidder response	p. 329
16.3.2 Fixed approach	p. 331
16.3.3 Negotiated approach	p. 333
16.4 Project Finance and Involving the Financiers	p. 335
16.4.1 Bankability	p. 336
16.4.2 Introduction of the financiers post-bid	p. 336
16.4.3 Introduction of the financiers pre-bid	p. 337
16.4.4 Managing financiers	p. 337
16.5 Solutions to Efficient Tendering	p. 338
16.5.1 Availability of resources to the grantor	p. 339
16.5.2 Reducing terms	p. 340
16.5.3 Variant bids	p. 342
16.5.4 Reducing numbers	p. 343
16.5.5 Three-stage bidding	p. 344
16.5.6 Consolidation of technical information	p. 345
Chapter 17 Power Projects	p. 347
17.1 BOT to BOO	p. 348
17.2 Merchant Power	p. 348
17.3 Merchant Power in the United States	p. 349
17.4 Tolling Agreements	p. 350
17.5 Grid Requirements	p. 350
17.6 Currency Mismatch	p. 351
17.7 New Electricity Trading Arrangements	p. 352
17.8 Other Offtake	p. 353
17.9 Special Characteristics	p. 354
17.9.1 Black start	p. 354
17.9.2 Reactive power	p. 355
17.9.3 Frequency responsive generation	p. 355
17.9.4 Load shedding	p. 355
17.10 Fuel	p. 355
17.11 Nuclear Fuel	p. 356
17.12 Renewables	p. 356
17.12.1 The drive for renewable energy sources	p. 357
17.12.2 Other available solutions	p. 358
17.12.3 Government incentives	p. 358
17.12.4 Wind projects	p. 360
17.13 Energy from Waste	p. 363
17.13.1 The call for energy from waste	p. 363
17.13.2 Project issues	p. 364
Chapter 18 Transportation	p. 369
18.1 Roads and Bridges	p. 369
18.1.1 Operating costs	p. 370
18.1.2 Revenues	p. 370
18.1.3 Existing facilities	p. 371
18.1.4 Land and environmental risks	p. 371
18.2 Railways	p. 372
18.2.1 Revenues	p. 372
18.2.2 Interface with existing facilities	p. 373
18.2.3 Land and the environment	p. 373
18.2.4 Capital cost and subsidies	p. 374
18.2.5 Forecasts	p. 374
18.2.6 Extension or refurbishment of existing railways	p. 375
18.2.7 Regulation and safety	p. 376
18.2.8 BOT and DBT models	p. 376
18.3 Airports	p. 377
18.3.1 Revenue	p. 377
18.3.2 Regulation	p. 378
18.3.3 Design and long-term planning	p. 379
18.3.4 Land and environment	p. 380
18.3.5 Financing	p. 380
18.3.6 Traffic forecasts	p. 381
Chapter 19 Oil and Gas	p. 383
19.1 Oil and Gas Projects	p. 384
19.1.1 Oil and gas industries	p. 384
19.1.2 Operational issues	p. 385
19.2 Extractive Projects	p. 385
19.2.1 Regulation	p. 386
19.2.2 Reserves	p. 386
19.2.3 Oil and gas rights	p. 387
19.2.4 Commercial arrangements and equipment	p. 387
19.2.5 Credit risk and security	p. 388
19.2.6 Market liquidity	p. 389
19.2.7 Investment structures	p. 389
19.3 Pipelines to Refineries	p. 391
19.3.1 Revenues	p. 391
19.3.2 Political/cross-border issues	p. 391
19.4 Gas and LNG	p. 392
19.4.1 The LNG chain	p. 394
19.4.2 Revenues	p. 394
19.4.3 Transport	p. 395
19.4.4 Regulation	p. 396
19.4.5 Taxation and the project structure	p. 396
19.4.6 The future of LNG	p. 397
Chapter 20 Telecommunications	p. 399
20.1 Telecommunications	p. 399
20.1.1 Market risk	p. 400
20.1.2 Technology	p. 401
20.1.3 Regulation	p. 402
20.2 Fibre Optic Projects	p. 402
20.2.1 What is a fibre network?	p. 403
20.2.2 Property	p. 404
20.2.3 Construction contracts	p. 405
20.2.4 Operation issues	p. 407
20.2.5 Offtake contracts	p. 408
20.2.6 Lenders' security	p. 409
Chapter 21 Water and Sanitation	p. 411
21.1 Structures for Private Sector Participation in Water Projects	p. 413
21.1.1 Management contracts	p. 414
21.1.2 BOT projects	p. 415
21.1.3 Concessions	p. 416
21.1.4 Share or asset sale privatisation	p. 417
21.2 Water Projects, BOTs and Concessions	p. 418
21.2.1 Why water projects often require concessions	p. 418
21.2.2 Problems with concessions	p. 420
21.2.3 Challenges in financing concessions	p. 422
21.3 Water and Sewage Treatment	p. 424
21.3.1 Sewage treatment	p. 424
21.3.2 Water treatment	p. 426
Chapter 22 Outsourcing	p. 431
22.1 Risk Allocation	p. 432
22.2 Governance	p. 432
22.3 Exclusivity	p. 433
22.4 Scope of Services	p. 434
22.4.1 Nature of services	p. 434
22.4.2 Nature of provision of services	p. 435
22.5 Service Levels	p. 436
22.6 Change of Requirements and Additional Services	p. 438
22.7 Compensation	p. 438
22.8 Grantor Obligations	p. 439
22.9 Benchmarking	p. 439
22.10 Intellectual Property Rights	p. 440
22.11 Employees	p. 440
22.12 Legal and Regulatory Compliance	p. 441
22.13 Termination	p. 442
22.14 Joint Venture Arrangements	p. 442
22.15 Multi-jurisdictional Arrangements	p. 443
22.16 Offshore Outsourcing	p. 444
Glossary	p. 447
Index	p. 513

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