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RISK MANAGEMENT IN LNG FSRU PERSPECTIVES IN PROJECT FINANCE CONTRACT STRUCTURES IN LNG CHAIN & INSURANCE

BY HIMADRI BANERJI EX CEO RELIANCE ENERGY MD ECOURJA

Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

PRESENTATION FLOW
INTRODUCTION TO FSRU KEY RISK ISSUES RISK ALLOCATION AND ISSUES IN INSURANCE LNG FSRU TERMINALS THE CHANGING PARADIGM : NON RECOURSE FINANCING A REALITY IN LNG FSRU PROJECTS EVOLVING CONTRACT STRUCTURES FOR R-LNG FSRU

Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

INTRODUCTION

The face of global LNG is changing. Oil majors are shifting from 'Traditional LNG' to 'Frontier LNG' by employing cutting-edge technology to reali e !alue in an increasingly tighter gas mar"et. Floating LNG # F$%&# is a ground-brea"ing inno!ation based on the integration of t'o e(isting technologies) Traditional LNG *rocessing and +ard ,$hipping construction.

Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

INTRODUCTION

- series of "ey players are already positioned to de!elop mid-scale 'stationary' facilities .$hell# *etrobras# G/F0 or 'or"ing on smaller scale 'nomad' facilities# more appropriate for smaller LNG players ./ele"# Fle(0. /ue to the relati!ely unpro!en technology of F$%& 'e 'ill focus on assessing the main ris"s of the F$%& .during completion and operation0 and deli!ering the appropriate structures to mitigate ris"s to ma"e them ban"able on the *roject Finance 1ar"et.
Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

INTRODUCTION There are curre !"# $$ FSRU% & '(era!&' a ) a a))&!&' a" ** & +ar&'u% %!a,e% '- c' %!ruc!&' . I A%&a a"' e/ 0e 1a# %'' %ee a% 1a # a% 23 e0 FSRU (r'4ec!%. The re,&' 5% re,a% )e1a ) &% e6(ec!e) !' ,r'0 7# 8.9 7&""&' cu7&c -ee! (er )a# '+er !he e6! -&+e #ear%/ 0h&"e a FSRU ha% a a+era,e re,a% ca(ac&!# '*93 1&""&' cu7&c -ee! (er )a#. There are -'ur !#(e% '- c' %!ruc!&' !ha! -a"" u )er !he FSRU ca!e,'r#: Je!!# 7a%e) %h&(;!';%h&( !ra %-er 0here +a('r&<er% are & %!a""e) ' 7'ar) ' e %h&(/ &% (erha(% !he 1'%! c' +e !&' a". Bu'# &1('r! %#%!e1% & +'"+& , %u7%ea ,a% (&(e"& e% a ) LNG +a('r&<a!&' %h&(%. I%"a ) 4e!!# 7a%e) %h&(;!';%h&( !ra %-er %#%!e1%. C' +er!e) LNG carr&er% 0&!h !urre!/ %u7%ea (&(e"& e a ) +a('r&<er systems.
Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

KEY RISK ISSUES LNG FSRU It is often said that the essential characteristic of project finance is the methodology of risk identification and subsequent risk allocation. Before entering into a discussion of the financing-specific aspects of FSR it is !orth!hile re"ie!ing the "arious component elements of the #$% chain form the perspecti"e of risk analysis. THE LNG CHAIN %enerally lumped together for ob"ious reasons& oil and gas are "ery different in a number of critical respects& transportation being the most important. 'ithin the gas industry& the #$% business is in a class of its o!n due to the enormous in"estment in infrastructure in"ol"ed and the resultant rigidity of the contractual relationships throughout the chain. For these reasons& it is almost improper to speak of a global #$% market& as the industry is more an accumulation of contractual monopolies.
9 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

KEY RISK ISSUES LNG FSRU

GAS MARKET In $orth (merica and& to a lesser e)tent& in $orthern *urope& the gas business is a commodity trade !ith numerous buyers and sellers and gas put into the system !ill be taken for a price& !hich !ill fluctuate in accordance !ith supply and demand. *lse!here& gas tends to be produced only in response to a long-term gas offtake agreement.

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

RISK ALLOCATION AND CONTROL IN LNG FSRU

1.Project Interdependency 2.Construction Risk Delays in construction Cost-Overruns Performance below guaranteed parameters Materials and Labor Cost and Availability 3. Operating Risk Operator performance Equipment failures Increased operational costs Labor Availability (e.g., seafarers)
Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

4.Upstream Supply Risk Insufficient Reserves Failure of Supply 5.Downstream Market Risk Lack of Market Demand Competing Fuels Downstream Buyer Credit Risk Natural Gas Pricing Regulatory / Legal Regime

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RISK ALLOCATION AND CONTROL IN LNG FSRU

=. Cre)&! & Pa#1e ! R&%> ? R&%> '- N' ;Pa#1e ! ? LNG 'r Ga% O--!a>er Cre)&!0'r!h& e%% ? Char!erer Cre)&!0'r!h& e%% 8. L&@u&)&!# R&%> ? C'%!;'+erru % ? I +'&ce a ) ca%h;-"'0 1&%1a!che% ? C'11&%%&' & , a ) ra1(;u( (er&')%

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

RISK ALLOCATION AND CONTROL IN LNG FSRU TERMINAL

A. F'rce Ma4eure ? BU -'re%eea7"eC r&%> ? Ac!% '- G') ? I !er;)e(e )e c# '- -'rce 1a4eure c"au%e% !hr'u,h'u! LNG Su(("# Cha& ? F'rce Ma4eure C"au%e% -re@ue !"# '! 7ac>;!';7ac> D. P'"&!&ca" R&%> ? G'+er 1e !a" %u(('r! -'r (r'4ec! ? Per1&!!& , a ) Au!h'r&<a!&' % ? R'"e '- S!a!e & Su(("#/ Tra %('r!a!&' a ) O--!a>e

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

RISK ALLOCATION AND CONTROL IN LNG FSRU

$3. Le,a" R&%> ? Breach '- c' !rac! a ) ' ;(er-'r1a ce ? E -'rcea7&"&!# ? C' !rac!ua" a17&,u&!# 'r %&"e ce ? D&%(u!e re%'"u!&' ? De+e"'(e) +%. De+e"'(& , Re,u"a!'r# E +&r' 1e ! $$. Ge era" Ec' '1&c R&%> ? LNG a ) Ga% De1a ) a ) Su(("# ? LNG Ve%%e" De1a ) a ) Su(("#

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Market Risks for FSRU

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

RISK ALLOCATION AND CONTROL IN LNG FSRU TERMINAL

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

RISK ALLOCATION AND CONTROL IN LNG FSRU TERMINAL

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Financing LNG FSRU Terminals


+he emergence of a ne! type of #$% buyers has stressed the need to adapt the finance structure of this capital-e)tensi"e industry. ,e"eloping markets such as India and -hina represent the largest potential for the #$% FSR business !hile *uropean nations& .apan& /orea and +ai!an0s consumption ha"e stabili1ed for the last couple of years. -ontrasting !ith in"estments backed on state-to-state agreements among high in"estment grade major oil companies and equi"alent rated utilities& e0 LNG FSRU & +e%!1e !% re"# ' 7e"'0 & +e%!1e ! ,ra)e e !&!&e% !' e %ure %u--&c&e ! "' ,; !er1 re+e ue% !' %u(('r! a 1u"!&;7&""&' )'""ar & +e%!1e ! cha& E. !he ' rec'ur%e -& a c& , The issues raised by this situation are compounded by the approach being taken towards the financing of the different in-country components of the chain; the LNG port / import terminal / FSRU unit and storage on the one hand and the distribution network and power plants on the other hand, with the emphasis being placed on the private sector, IPPs and Clean Energy Development
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N' Rec'ur%e F& a c& , a Rea"&!# & LNG FSRU Ter1& a"% Ke# -ac!'r% !' %ucce%% '- ' rec'ur%e -& a c& , The crea!&' '- a %!r' , re,u"a!'r# -ra1e0'r> a% 0e"" a% The "&1&!a!&' '- (r'4ec! r&%>% a""'ca!e) !' !he LNG Ter1& a" C'1(a #. R&%> M&!&,a!e) Pr'4ec! C' !rac! S!ruc!ure A 0e"" )e-& e) (r'4ec! r&%> a""'ca!&' a ) c' !r'" 1e!h')'"',#

Pre-ere ce !' Pr'4ec! T'""& , S!ruc!ure/ 0h&ch !ra %-er% %'1e '- !he LNG &1('r! 7u%& e%% r&%>% %uch a% %u(("# a ) 1ar>e! r&%> ' -'re&, 'r !h&r) (ar!&e%.

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Non recourse Financing a reality in LNG Import terminals

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

N' Rec'ur%e F& a c& , Rea"&!# & FSRU


ntil the 2334s& the industry !as largely financed on the back of state-to-state agreements among strong national counter-parties !ith the acti"e in"ol"ement of high in"estment grade-rated major oil companies and equi"alently rated utilities. +he projects implemented o"er the past decade ha"e seen an increasing reliance on limited recourse finance& but !ith high or medium in"estment grade countries on either end of the chain and "ery strong industry players managing the process. Significantly& the only large project during the period not fitting that approach or benefiting from structural supports to achie"e that result& $igeria $#%& !as de"eloped from sponsors0 o!n equity funds. *"en those that !ere implemented using project finance for the most part in"ol"ed a critical combination of host go"ernment0s supports and undertakings on the supply and offtake ends and the integration into the o"erall financing of multilateral agency or e)port agency credits.
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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Evolving Project Contract Structure helps Risk Management

Merchant
Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

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Evolving Project Contract Structure helps Risk Management

TOLLING STRUCTURE
Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

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Evolving Project Contract Structure helps Risk Management

GAIL PETRONET CONTRACT STRUCTURE Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

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Evolving Project Contract Structure helps Risk Management

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Evolving Project insurance Structure helps Risk Management

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Evolving Project insurance Structure helps Risk Management

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

Evolving Project insurance Structure helps Risk Management

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

VALVE STATION: A LNG Ta >er 7e& , -&""e)...c'ur!e%# Ger1a &%cher L"'#)%

THANK YOU FUESTIONS PLEASEG

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Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore

RISK ALLOCATION AND CONTROL IN LNG FSRU

Dr. Himadri Banerji :Project Advisory & Structured Finance in Energy Industries (Oil, Gas, Power) Assistance to agencies for implementation of projects with private sector participation through BOOT/BOT/BOO routes. Assistance in preparation of bid documents including relevant contracts and agreements, evaluation of bids and selection of bidder. Assistance to private parties in preparation and submission of bids for projects through competitive bidding Assistance in tariff filing to generating, transmission and distribution companies and franchisee / restructuring and privatisation of State Electricity Boards. Policy advisory to Central & State Governments, Centre and State Electricity Regulatory Commissions. Preparation of Business, Investments and Financing Plan Identification of sources of Finance and Syndication of Rupee and Foreign currency loan.
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RISK ALLOCATION AND CONTROL IN LNG FSRU Dr. Himadri Banerji :Project Advisory & Structured Finance in Energy Industries (Oil, Gas, Power) Advisory for renewable energy projects with Advisory for Projects
under Indian Solar Mission Appraisal of projects in various Energy industry sectors. Investment appraisals for review of capital budgeting decision process of companies Securitisation and other structured finance products Due Diligence Capital Structuring Financial Modelling Risk Analysis Financial Viability Studies Project Development EPC Contract Risk Management Support
35 Presented by Dr. Himadri Banerji at the 2ND FSRU Conference 26th to 29th Nov 2013 Singapore