The Use of “Equator Principles” for Project Compliance …
343
3.2 Financial Structure of the Santo Antônio Hydroelectric
Power Plant (HPP)
Due to the magnitude of the Santo Antônio HPP construction and its social, environmental, economic, and financial relevance, with notorious importance in the process
of adding clean energy in the Brazilian electricity system, the only way to make the
project viable was through project finance fundraising, considering a project structure
based on meeting sustainability and financing parameters according to environmental
requirements imposed by financial institutions and other stakeholders.
Project financial structure is determined by to the magnitude of the project and its
favorable conditions of cash flow generation, in addition to the favorable conditions
for segregation of risk between each of its participants and not having recourses
against the investor.
For Bonomi and Malvessi (2008), financing projects in the modality project
finance leads to an expensive financial and legal structure to establish rights, obligations, allocation of risks, previous conditions for disbursement, in addition to having
all contractual instruments related to the company’s financing. For such purpose,
a detailed knowledge of all the risks of the project is mandatory and they must be
allocated among all participants, respecting the different contracts within the scope
of the company. The correct allocation and transfer of risks among the various actors
are critical factors of financing success.
According to the International Project Finance Association—IPFA (2010), project
financing is based on a financial engineering “non-recourse” or “limited recourse”
situation where debt and invested capital are paid through the cash flow that the
project can generate.
According to Borges (2005), project finance is a structured operation in which
loans granted by creditors do not show solidarity by third parties (or have limited
solidarity), and for this to happen, risk segregation is done through the Society of
Specific Purposes (SSP), using the flow of receivables from the project as a basis for
economic and financial analysis. Project guarantees are formalized from the assets
connected to the financial structure.
The main participants of the project finance structure of the Santo Antônio HPP
from the Society of Specific Purposes are as follows:
1. Granting Authority, which acts as a regulatory body, encharged with determining
the rules to be complied by the Concessionaire, and must be respected for project
financial structure;
2. Funders, responsible for structuring the resources for the feasibility of the project
consistency with the financing contracts concluded with the SSP. Creditors act
with the support of financial and legal advisors. Financial and legal advisors are
independent advisors who instruct sponsors about the risks, contractual issues,
techniques and sources of financing available in the market that can mitigate the
project;
3. Investors, also known as sponsors, who will be responsible for equity contribution;
343
3.2 Financial Structure of the Santo Antônio Hydroelectric
Power Plant (HPP)
Due to the magnitude of the Santo Antônio HPP construction and its social, environmental, economic, and financial relevance, with notorious importance in the process
of adding clean energy in the Brazilian electricity system, the only way to make the
project viable was through project finance fundraising, considering a project structure
based on meeting sustainability and financing parameters according to environmental
requirements imposed by financial institutions and other stakeholders.
Project financial structure is determined by to the magnitude of the project and its
favorable conditions of cash flow generation, in addition to the favorable conditions
for segregation of risk between each of its participants and not having recourses
against the investor.
For Bonomi and Malvessi (2008), financing projects in the modality project
finance leads to an expensive financial and legal structure to establish rights, obligations, allocation of risks, previous conditions for disbursement, in addition to having
all contractual instruments related to the company’s financing. For such purpose,
a detailed knowledge of all the risks of the project is mandatory and they must be
allocated among all participants, respecting the different contracts within the scope
of the company. The correct allocation and transfer of risks among the various actors
are critical factors of financing success.
According to the International Project Finance Association—IPFA (2010), project
financing is based on a financial engineering “non-recourse” or “limited recourse”
situation where debt and invested capital are paid through the cash flow that the
project can generate.
According to Borges (2005), project finance is a structured operation in which
loans granted by creditors do not show solidarity by third parties (or have limited
solidarity), and for this to happen, risk segregation is done through the Society of
Specific Purposes (SSP), using the flow of receivables from the project as a basis for
economic and financial analysis. Project guarantees are formalized from the assets
connected to the financial structure.
The main participants of the project finance structure of the Santo Antônio HPP
from the Society of Specific Purposes are as follows:
1. Granting Authority, which acts as a regulatory body, encharged with determining
the rules to be complied by the Concessionaire, and must be respected for project
financial structure;
2. Funders, responsible for structuring the resources for the feasibility of the project
consistency with the financing contracts concluded with the SSP. Creditors act
with the support of financial and legal advisors. Financial and legal advisors are
independent advisors who instruct sponsors about the risks, contractual issues,
techniques and sources of financing available in the market that can mitigate the
project;
3. Investors, also known as sponsors, who will be responsible for equity contribution;