by penalties payable to government by the sponsors in case of default
i.e. inability of the facility to provide the targeted performance.
18.8.5 Pricing
Revenues to the project must at all times be assumed. This is the underlying principle
of any BOT scheme.
The pricing formula will vary, and can take any one of the following options or a
combination of several:
(i) Fixed rate component of the commodity to cover the operation fixed cost and
debt service.
(ii) Incorporation of an appropriate price escalation clause.
(iii) Cost plus basis i.e. production costs plus a margin for profit.
(iv) Charge i.e. basic charge per kWh for a power project or a basic charge per cubic
metre in a water or sewerage treatment plant.
(v) Acceptance of lowest offered price, irrespective of components, based on
competitive bidding process.
18.8.6 Subordinated Loans by Government
The pricing/revenue package will depend on whether the BOT project will sell its
goods or services to the consumers directly, or to the host government, instead. Both
equity investors and lenders will want to know how the revenues to the project will
be guaranteed in cases of decrease in demand for the commodity from the consuming public. They may be concerned that the collectibles will not be enough to
reimburse the debt, and generate equity return.
One solution to this problem is the concept of “subordinated loans”. The host
government agrees to provide assistance in terms of money, called “subordinated
loans” to the project company whenever consumption revenues drop below an
agreed threshold level. This “minimum level” will obviously be negotiated and
agreed by both parties beforehand.
A second solution is for the government to give such a guarantee on its own if it
has the necessary resources. A third solution is to request a multilateral to provide a
“stand-by” loan to cater for such occurrences.
18.8.7 Foreign Currency Issues
The Foreign Currency issue in the financing of a BOT project is a crucial one. The
shares of the foreign currency component and the local currency component in the
18.8 Structuring a BOT Financing Package
515
i.e. inability of the facility to provide the targeted performance.
18.8.5 Pricing
Revenues to the project must at all times be assumed. This is the underlying principle
of any BOT scheme.
The pricing formula will vary, and can take any one of the following options or a
combination of several:
(i) Fixed rate component of the commodity to cover the operation fixed cost and
debt service.
(ii) Incorporation of an appropriate price escalation clause.
(iii) Cost plus basis i.e. production costs plus a margin for profit.
(iv) Charge i.e. basic charge per kWh for a power project or a basic charge per cubic
metre in a water or sewerage treatment plant.
(v) Acceptance of lowest offered price, irrespective of components, based on
competitive bidding process.
18.8.6 Subordinated Loans by Government
The pricing/revenue package will depend on whether the BOT project will sell its
goods or services to the consumers directly, or to the host government, instead. Both
equity investors and lenders will want to know how the revenues to the project will
be guaranteed in cases of decrease in demand for the commodity from the consuming public. They may be concerned that the collectibles will not be enough to
reimburse the debt, and generate equity return.
One solution to this problem is the concept of “subordinated loans”. The host
government agrees to provide assistance in terms of money, called “subordinated
loans” to the project company whenever consumption revenues drop below an
agreed threshold level. This “minimum level” will obviously be negotiated and
agreed by both parties beforehand.
A second solution is for the government to give such a guarantee on its own if it
has the necessary resources. A third solution is to request a multilateral to provide a
“stand-by” loan to cater for such occurrences.
18.8.7 Foreign Currency Issues
The Foreign Currency issue in the financing of a BOT project is a crucial one. The
shares of the foreign currency component and the local currency component in the
18.8 Structuring a BOT Financing Package
515