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Written by Angela Tan, Taiwan   
Saturday, 01 October 2011 12:26



Types of Agreement Taker System


Operation and Maintenance Agreement - (O&M Agreement)

An agreement between the project company and the operator. The project company delegates the operation, maintenance and often performance management of the project to a reputable operator with expertise in the industry under the terms of the Operations and Maintenance (O&M) agreement. The operator could be one of the sponsors of the project company or third party operator. In other cases the project company may carry out by itself the operation and maintenance of the project and may eventually arrange for the technical assistance of an experienced company under a technical assistance agreement. Basic contents of a O&M contracts are:

§  Definition of the service

§  Operator responsibility

§  Provision regarding the services rendered

§  Liquidated damages

§  Fee provisions

Shareholders Agreement - (SHA Agreement)

The agreement between the project sponsors to form a special purpose company (“SPC”) in relation to the project development. This is the most basic of structure held by the sponsors in project finance transaction. This is an agreement between the sponsors and deals with: 

§  Injection of share capital

§  Voting requirements

§  Resolution of disputes

§  Dividend policy

§  Management of the SPV

§  Disposal and pre-emption rights

Supply Agreement

An agreement between the project company and the supplier of the required feedstock / fuel. If a project company has an off-take contract, the supply contract is usually structured to match the general terms of the off-take contract such as the length of the contract, force majeure provisions, etc. The volume of input supplies required by the project company is usually linked to the project’s output. Example under a PPA the power purchaser who does not require power can ask the project to shut down the power plant and continue to pay the capacity payment – in such case the project company needs to ensure its obligations to buy fuel can be reduced in parallel. The main supply agreemnts are: The degree of commitment by the supplier can vary.

§  Fixed or variable supply: the supplier agrees to provide a fixed quantity of supplies to the project company on an agreed schedule, or a variable

supply between an agreed maximum and minimum. The supply may be under a take-or-pay or take-and-pay.

§  Output / reserve dedication: the supplier dedicates the entire output from a specific source, e.g. a coal mine, its own plant. However the supplier may have no obligation to produce any output unless agreed otherwise. The supply can also be under a take-or-pay or take-and-pay

§  Interruptible supply: some supplies such as gas are offered on a lower cost interruptible basis – often via a pipeline also supplying other users.

§  Tolling contract: the supplier has no commitment to supply at all, and may choose not to do so if the supplies can be used more profitably elsewhere. However the availability charge must be paid to the project company.

Loan Agreement

An agreement between the project company (borrower) and the lenders. Loan agreement governs relationship between the lenders and the borrowers. It determines the basis on which the loan can be drawn and repaid, and contains the usual provisions found in a corporate loan agreement. It also contains the additional clauses to cover specific requirements of the project and project documents. Basic terms of a loan agreement include the following provisions.

§  General conditions precedent

§  Conditions precedent to each drawdown

§  Availability period, during which the borrower is obliged to pay a commitment fee

§  Drawdown mechanics

§  An interest clause, charged at a margin over base rate

§  A repayment clause

§  Financial covenants - calculation of key project metrics / ratios and covenants

§  Dividend restrictions

§  Representations and warranties

§  The illegality clause

Inter-creditor Agreement

Inter-creditor agreement is agreed between the main creditors of the project company. This is the agreement between the main creditors in connection with the project financing. The main creditors often enter into the Inter creditor Agreement to govern the common terms and relationships among the lenders in respect of the borrower’s obligations. Inter-creditor agreement will specify provisions including the following.

§  Common terms

§  Order of drawdown

§  Cash flow waterfall

§  Limitation on ability of creditors to vary their rights

§  Voting rights

§  Notification of defaults

§  Order of applying the proceeds of debt recovery

§  If there is a mezzanine funding component, the terms of subordination and other principles to apply as between the senior debt providers and the mezzanine debt providers.


Last Updated on Thursday, 03 November 2011 17:55
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