University Of East Anglia Norwich Law School

LAW- M608

THE LAW AND PRACTICE OF INTERNATIONAL PROJECT FINANCE

PG COURSEWORK 2009-2010

STUDENT REGISTRATION NUMBER [42 0! 1"

Word count 3964

T#$%& '( C')*&)*+

! "ntroduction #! Structure $hase #! ! %oint venture Agree&ent #!#! 'redit Agree&ent #!3! (O) Agree&ent #!4! 'onstruction Agree&ent #!*! Off+)a,e Agree&ent 3! -is, "dentification 3! ! )he -is, of non+co&$letion or delay 3!#! .ar,et -is, 3!#! ! )he Out$ut /rice -is, 3!#!#! )he "n$ut Su$$ly -is, 3!#!3! "nterest -ate -is, 3!#!4! )he E0change -ate -is, 3!3! /olitical -is, 3!4! "nsolvency -is, 4! Security "nterest 4! ! .ortgage Security 4!#! Assign&ent 1y way of security 4!3! Security on S$ecial (an, Account 4!4! Novation *! )he $osition of the -uritania govern&ent as creditor in the event of insolvency *! ! "ntercreditor agree&ent 6! 'onclusion 2! (i1liogra$hy 9! A$$endi0

1, I)*-'./0*1') "t is generally agreed that /ro3ect 4inance +international or otherwise+ is a well+ organised for& of financing that is tailored to &eet the re5uire&ents of relatively large $ro3ects! )he nature of the ty$ical $ro3ect finance transactions are co&$le06 and often involve large ca$ital $u1lic sector $ro3ects such as $ower $lants6 infrastructure trans$orts6 &ines6 etc! 7istorically6 $ro3ect finance has e0$erienced a $eriod of accelerated growth in the last decades 8 929s and 999s: as a result of the increased de&and for financing infrastructure $ro3ects6 na&ely in develo$ing countries as well as e&erging &ar,ets! At $resent6 &any of countries are either reluctant or inca$a1le of funding large infrastructure $ro3ects for &any reasons! )heir tendency to ac5uire nonrecourse de1ts # instead of conventional de1ts has hel$ed in constituting and $ro&oting the $ro3ect finance techni5ues! "n this field6 the ter& ;$ro3ect finance; can 1e defined as a de1t financing &ethod in which the de1tor relies funda&entally u$on the e0$ected revenues $roduced 1y a single $ro3ect!3 )he assets of such $ro3ect are al&ost certain to serve as collaterals! )he 1orrower is usually a S$ecial /ur$ose <ehicle 4 8S/<: which has for&ed 1y the s$onsors of the $ro3ect6 in order to o$erate and $ro&ote the $ro3ect!
)he ai& of this essay is to advise the govern&ent of -uritania* 8-: in res$ect of its

intent to ta,e a $art in $ro3ect finance transaction for the $ur$ose of construction a hydroelectric $ower station on the -iver 7ydra in -uritania! "n doing so6 the -uritania govern&ent has for&ed a $ro3ect co&$any 8/: with a selected instruction co&$any 8':6 and entered into ta,e off agree&ent with neigh1ouring state Sealandier 8S: under which S will $urchase the electricity generated 1y the $ower station! Also the $ro3ect
%ohn =! 4innerty6 Project financing: asset-based financial engineering 8#nd end6 Wiley6 New 3ersey #99>: 0v # Nonrecourse de1t is a secured loan often 1y a collateral6 under which the de1tor is not $ersonally lia1le! "n the event of default6 the loaner has the right to recourse only to the collateral or the esti&ated cash flow! 3 'atherine /eda&on6 ?7ow is 'onvergence (est Achieved in "nternational /ro3ect 4inance@ 8#999+ #99 : #4 4ordha& "nt;l L!%! #>#6 #>3 4 Often a li&ited co&$any for&ed in order to fulfil so&e s$ecific or te&$orary o13ectives6 as well as isolating the assets and lia1ilities of the s$onsors of the co&$any! * An i&aginary ,ingdo& in central Euro$e which is often used in acade&e to refer to a hy$othetical country! 3

financing 1an, 8(:has 1een identified! )his advise will address three ,ey areas! 4irst6 the &a3or ris,s for the $arties who engaged in this $ro3ect6 and $ro1a1le contracts that will 1e agreed u$on 1etween the&! Second6 the variety of securities which are high li,ely to 1e sought 1y ( as a &ain creditor of the $ro3ect! )hird6 in the event of insolvency what the $ro1a1le $osition of - as su1ordinate creditor!6 2, S*-/0*/-& 23#+& )y$ically6 the structure of $ro3ect finance is co&$licated! "t is grounded on the assess&ent and allocating the ris,s as well as rewards a&ong the $artici$ants 8$ro3ect s$onsors6 off ta,e $urchasers6 contractors6 o$erators and su$$liers: of the $ro3ect! 7ence6 a considera1le nu&1er of the contracts6 which are included in the $ro3ect finance structure6 ai& in essence at achieving the deferring o13ectives of these $arties often on the reconciling 1asis!> "n the interest of 1revity6 this essay will &erely &ention the $ri&e agree&ents that - is going to engage in either as a host govern&ent6 as a s$onsor or as a creditor of the $ro3ect co&$any 8see figure :!2 2,1, J'1)* 4&)*/-& A5-&&6&)* As - has for&ed / in association with ' to 1uild and o$erate the hydroelectric $ower station6 these s$onsors of the $ro3ect co&$any generally ta,e a $art in a 3oint ventures agree&ent under which each of the& is lia1le to $rofits6 losses6 and o$erations according to its 3oint a&ount!9 Unli,e $artnershi$ agree&ent6 the 3oint venturers coo$erate solely for a single transaction! 7owever6 3oint venture agree&ent is not &erely a for& of sharing ris,s and rewards6 1ut also codifying the rights6 duties6 &anage&ent and voting 1etween the s$onsors of the $ro3ect as shareholders!
9

Ado$ting the 3oint venture agree&ent gives $arties the advantage of financing the construction of the $ro3ect 1y a nonrecourse loans which are given 1y ( to the $ro3ect co&$any under credit agree&ent! 2,2, C-&.1* A5-&&6&)*
.ichael /! .alloy ?"nternational /ro3ect 4inanceA -is, Analysis and -egulatory 'oncerns @ 8#994+ #99*: 2 )ransnat;l Law! 29 > Braha& =! <inter6 Project finance: a legal guide 83rd end6 Sweet and .a0well6 UC #99>: $ 3 2 so&e of these agree&ents and others will 1e given in &ore details later in this assay! 9 /eter ,! Nevitt and 4ran, %! 4a1oDDi6 Project financing 8>th end6 Euro&oney (oo,s6London #999: $39* 9 Scott L! 7off&an6 The law and business of international project finance 8'a&1ridge University $ress6 'a&1ridge #992: $ 32
6

( is al&ost certain to enter into a credit agree&ent with / in which the for&er arranges to loan / a certain a&ount of &oney to finance &ost of the cost of the $ro3ect! )y$ically6 the loan will 1e re$aid fro& revenues of the $ro3ect either after co&$letion or over the life of $ro3ect fro& the ta,e+off agree&ent! /6 in turn6 will confer the creditor 1an, an e0clusive recourse to its assets in event of the $ro3ect co&$any failure to fulfil its financial o1ligations toward the 1an,6 1esides a nu&1er of interest securities! )he credit Agree&ent is high li,ely to contain $rovisions in res$ect of interests rate6 events of default6 su1&ission to 3urisdiction 8in this case English law:6 the de1t $ay&ent currencies and so on! # Eet6 there will 1e a shortfall in the $ro3ect funding where - will 1e willing to lend / as su1ordinate creditor! )hus6 entering into an "ntercreditor agree&ent 3 with (! 2, , BOT A5-&&6&)* )he (O) 81uild6 own6 transfer: agree&ent 4 is a contract 1etween the $ro3ect co&$any and the host govern&ent6 in which the latter grants a concession to / for a $redeter&ined $eriod in order to $er&it it to 1uild and o$erate the $ro3ect *! Under this agree&ent - transfers the land to / $rovided that it is to 1e retransferred after the s$ecified $eriod! 7owever6 -uritania govern&ent &ust o1serve that this $eriod ?1eing as long@ is needed to ena1le / to fully re$ay the finance as well as ac5uiring a reasona1le $rofit &argin! 6 )he (O) agree&ent is high li,ely to contain $rovisions such as the authority 8-: will $rovide the necessary land on lease for the concession $eriod6 the authority will ensure that $lanning and other official $er&its are availa1le6 the co&$any 8/: will co&$ly with official $er&its and with local safety and environ&ental law etc! > 2,4, C')+*-/0*1') A5-&&6&)*

/hilli$ Wood 6 Project Finance, Securitisation, Subordinated Debt 8#nd end6 Sweet F .a0well6 London #99>: $* # )o further details $lease see Scott L! 7off&an6 The law and business of international project finance 8'a&1ridge University $ress6 'a&1ridge #992: $ 3#2 3 An agree&ent a&ong creditors agreeing how their co&$eting interests in their co&&on 1orrower will 1e a$$roached! 4 Also ,nown as a concession agree&ent6 i&$le&entation agree&ent or (OO) agree&ent * %effrey =el&on6 /ro3ect finance6 BOT projects and risk 8Cluwer Law "ntl6 UC #99*: $ 63 6 Wood6 /! /ro3ect 4inance6 Securitisation6 Su1ordinated =e1t6 o$!cit! $ > > "1id! $ >+ 2 *

)he construction agree&ent is a for&al agree&ent 1etween the e&$loyer 8/: and the contractor 8': in which ' agrees to 1uild the $ro3ect in a definite $eriod and for a s$ecific a&ount of &oney which high li,ely to 1e $aid in stages according to the $rogressing of the construction!
2

"t generally contains $rovisions in res$ect of the

9

co&$letion such as the contractor will co&$lete the $ro3ect 1y date G6 the co&$letion date will 1e e0tended in certain circu&stances 8&entioned in the contract: etc! 2,!, O((-T#7& A5-&&6&)* "n order to &a,e this $ro3ect 1an,a1le6 the $ro3ect s$onsors &ay agree to sell6 in advance6 the $roducts of the $ro3ect to S under a long ter& off+ta,e agree&ent! )he yield of this agree&ent is often used to re$ay the de1t as well as to $ay the $rofits to the shareholders! .ethod of $ay&ent for these $roducts &ay have to 1e $aid in advance or gradually according to the &ilestones of the $ro3ect;s $rogress! #9 7owever6 such agree&ents are often include ter&s in res$ect of sale6 $rice6 and ter&s of the contract! 4or e0a&$le6 / will sell electricity to the S in the G 5uantities6 at the G ti&e and according to the agreed s$ecifications!#

"1id! $* "1id! $#3+#4 #9 7off&an6 S! o$!cit! $ 339 # Wood6 /! /ro3ect 4inance6 Securitisation6 Su1ordinated =e1t6 o$!cit! $#2+#9
9

, R1+7 I.&)*1(10#*1') "t is advisa1le for host govern&ents that are loo,ing forward to ta,e a $art in $ro3ect finance transactions6 as is the case with -6 to 1e ,eenly aware of the &a3or inherent ris,s arising whether during the structure $hase or after the $ro3ect has 1een co&$leted! Also6 in order to &a,e this $ro3ect 1an,a1le6 it is a &atter of i&$ortance to allocate and address these ris,s $ro$erly! 4unda&entally6 there are three &ain overarching ris,s in ty$ical $ro3ect finance which could negatively affect the success of the $ro3ect! ,1, T3& R1+7 '( N')-C'62%&*1') '- D&%#8 One of the &a3or ris,s that &ay encounter the $ro3ect6 during the construction $hase6 is the ris, of non+co&$letion the $ro3ect on the $redesigned ti&e which &ight occur as result of &any reasons such as cost overruns6 ## technology failure6 force &a3eure and so forth! 'onstruction delay can6 also6 cause serious $ro1le&s for the $ro3ect6 $articularly 1y a&$lifying the de1t interest of the $ro3ect6 increasing the costs of la1our6 $aying $enalties under the $ro3ect contracts etc!#3 )y$ically6 ' will 1e the selected $arty to 1ear this ris,s very often 1y $roviding a ty$e of contract 1ond6 usually $erfor&ance 1ond6 which is a for& of surety issued 1y a third $arty under which the surety $arty underta,es to conduct the financial o1ligation to / in event of the S failure to fulfil its o1ligations toward the for&er! #4)his $erfor&ance 1ond is often would 1e cou$led with the construction agree&ent 8&entioned a1ove:! ,2, M#-7&* R1+7 .ar,et ris,6 also ,nown as syste&atic ris,6 is a ris, that is related to the fluctuating in financial &ar,et $rices in res$ect of the in$ut su$$ly cost6 out$ut $rice 8the $rice of the $ro3ect sales:6 interest rate and e0change rate!

## #3

)he costs of a $ro3ect are higher than the esti&ated e0$enditure! Este1an '! (ul3evich and Eoon S! /ar,6 Project financing and the international financial arkets 8Cluwer Acade&ic /u1lishers6 US 999: $ 4* #4 -ichard 7udson 'lough6 Blenn A! Sears and S! Ceo,i Sears6 !onstruction project anage ent 84th end6 Wily and sons 'anada #999: $ *9 >

,2,1, T3& O/*2/* P-10& R1+7 )he financing 1an, will de&and a level of certainty in ter& of the out$ut $rice in order to o1tain its de1ts! "n this $ro3ect such de&and can 1e a$$roached through a long ter& off+ta,e agree&ent 1etween /ro3ect 'o&$any and Sealandier otherwise 1y future or forward contracts!#* ,2,2, T3& I)2/* S/22%8 R1+7 )he in$ut su$$ly ris, will 1e addressed to so&e degree 1y two &ain &ethods! 4irst6 through the in$ut su$$ly agree&ent in which the $ro3ect su$$lier will 1e o1liged to furnish / with the &aterials necessary for the $ro3ect! Such agree&ent usually covers the 5uality6 5uantity and the $rice of the in$ut! /6 thus6 will 1e isolated fro& the &ar,et ris, in ter& of $rice as well as the availa1ility of the in$ut! #6 Second &ethod to a$$roach this ris, is 1y &atching of contracts! According to the &atching $rinci$le S 1ears this ris, 1y incurring the value of the $ro3ect $roduct including the $ro3ect costs and the loans regardless of whether the $ro3ect has $roduced or not! Such costs &ay include the fuel or raw &aterial costs6 de1t service cost6 o$erating cost etc!#>

,2, , I)*&-&+* R#*& R1+7 )he s$onsors of the $ro3ect co&$any &ust ta,e into account all foreseea1le fluctuation of interest rate that &ight occur during the life of the $ro3ect and 1e $re$ared to acco&&odate it 1y the esti&ated revenue of the $ro3ect! Eet6 there is a ris, of higher interest rate than what was antici$ated! )his ris, can 1e &itigated 1y transferring it to a creditworthy $arty often through the interest rate swa$#2 agree&ent under which the $ro3ect co&$any agree to e0change its interest $ay&ents6 which 1ased on floating interest rate6 with a counter$arty which its interest $ay&ents are 1ased on fi0ed rate! )hus6 / $ays the fi0ed+rate interest $ay&ents of the counter$arty and the counter$arty in turn $ays the floating rate interest $ay&ents to / which are $assed ulti&ately through to (!#9

#* #6

(ul3evich6 E! o$!cit! $ * =el&on6 %! o$!cit! $ 6* #> Wood6 /! /ro3ect 4inance6 Securitisation6 Su1ordinated =e1t6 o$!cit! $ 6 #2 Also ,nown as cou$on swa$ agree&ent #9 Wood6 /! /ro3ect 4inance6 Securitisation6 Su1ordinated =e1t6 o$!cit! $ *3+ *4 2

(oth of $ay&ents often $ay at set intervals over the life of the interest swa$ agree&ent! Also6 the interest rate ris, can 1e addressed 1y $assing it through to S according to the &atching $rinci$le 8&entioned a1ove in the conte0t of the in$ut su$$ly ris,:!39 ,2,4, T3& E903#)5& R#*& R1+7 "t occurs when the currency in which the $ro3ect $roducts are sold differs fro& the currency of de1t re$ay&ent! )hus6 any decline in the value of the for&er currency will lead to failure to cover the loan 1y the sale $roceeds! Under $ro3ect finance S as a $urchaser can deal with this ris, usually 1y 1uying the $ro3ect $roducts in the sa&e currency of the original de1t!

39

"1id! $ *3+ *4 9

, , P'%1*10#% R1+7 /olitical ris, is the $ro1a1ility of loss 1ecause of unwanted conse5uences of $olitical changes in the -uritania as a host country! )hese changes &ay lead to adversely intervene of -uritania govern&ent to change the (O) agree&ent or even e0$ro$riate the whole $ro3ect finance assets3 ! "n this conte0t6 &itigating $olitical ris, can ta,e two $ractical for&s! 4irst6 1y de&anding a guarantee given 1y - under which - underta,es to $erfor& all its o1ligations toward /!3# )his guarantee can6 also6 given 1y foreign creditworthy $arty! Second6 ado$ting invest&ent $rotection treaties 1etween the s$onsors; govern&ent and -!33 )hird6 1y ac5uiring a $olitical ris, insurance that $rotects the lenders as well as the s$onsors of / fro& the ris, of interfering the host govern&ent whether 1y changing its $olicies and regulations such as increased ta0es or royalties6 changes to the concession agree&ent6 sales in local currency only or even 1y e0$ro$riation of the $ro3ect assets!34 )he $rice of this insurance is high li,ely to de$end on the level of the $olitical insta1ility of the host country!

Ste$hen %! Co1rin6;/olitical ris,A A review and reconsideration; 8 9>9: (utterworths %ournal of "nternational (usiness Studies 6> 3# Nevitt6 /! o$!cit! $ 39*63 > 33 Wood6 /! /ro3ect 4inance6 Securitisation6 Su1ordinated =e1t6 o$!cit! $ > 34 "1id! $ > 9

,4, I)+'%4&)08 R1+7 )he $ro1a1ility of loss due to one of the $ro3ect finance $arties is una1le to service its de1ts!3* Such insolvency &ight lead other $arty to cancel its contract! 4or e0a&$le S &ight 1e reluctant to conduct its o1ligations toward / if the later 1eco&es insolvency! )his ris, will e0$ose in the first $lace ( as a &ain creditor who de$ends $ri&arily on the revenues of the $ro3ect! So it is ut&ost i&$ortant to the 1an, that all the re5uire&ents of the $ro3ect has 1een satisfied to carry out the $ro3ect regardless of a $articular counter$arty 1eco&es insolvent! "n doing so6 there is a variety of security as well as arrange&ents will 1e sought 1y the 1an,! 7owever6 there are &any other secondary ris,s that - &ight ta,e into account such as technology ris, 8 if the $ro3ect engages new un$roven technology which &ay fail:6 causality ris, 8ris, of da&age:6 o$erating ris, 8related to &an$ower costs6 &aintenance and so on: and environ&ental ris, 8$ollution and clean u$ costs:!

3*

"1id! $ 2

4, S&0/-1*8 I)*&-&+* "t is generally agreed that ( will finance the $ro3ect 1y a nonrecourse loan! So it is essential for the 1an, to have the 1est availa1le security over the assets of / in order to 1e entitled in the event of insolvency to stand first in the order $riority and realising the assets to cover its secured de1t! "n this conte0t6 the ter& ;security interest; can 1e defined as an e0clusive legal recourse to a $articular collateral that has 1een $ledged 36 in advance often under the credit agree&ent!3> As the English governing law and the 3urisdiction of the English courts has 1een agreed to a$$ly to the credit agree&ent6 the $ro3ect co&$any can 1e lawfully create a charge over all its assets to secure its de1t that will 1e given 1y (! Ado$ting the security interests well undou1tedly shield the secured de1t in the event of insolvency!32 )hus6 the ca$ital will 1e induced to engage6 the cost of credit will 1e reduced and the 1an,a1ility of the $ro3ect will 1e enhanced!39 7owever6 the &a3or for&s of security interests that ( is high li,ely to re5uire under English law are as followsA 4,1, M'-*5#5& S&0/-1*8 (asically6 the first security interest that the 1an, will loo, forward is the &ortgage security under which the 1an, secured lawfully its loan 1y so&e s$ecified real estate $ro$erty in -uritania such as the land where the $ro3ect is grounded on! 4,2, A++15)6&)* $8 :#8 '( +&0/-1*8 Under the Off ta,e agree&ent S as a custo&er owes / for the electricity $urchased on credit! )his &oney financially so called6 ;Accounts -eceiva1le; and considered as a current assets of /! )herefore6 ( will see, a direct assign&ent fro& / under which the right of receiving $ay&ents fro& the custo&er will 1e transferred te&$orally to ( until its de1t has 1een satisfied!49 )y$ically6 ( &ay notify the costu&er of its right to receive the $ay&ents u$on re5uest instead of / under its security arrange&ent with
36 3>

has 1een agreed to $alace an assets as a collateral for a loan! /hili$ Wood6 "aw and practice of international finance 8Sweet and .a0well6 London #992: $ #24 32 "1id! $ #24+#94 39 "1id! $ #*9+#* 49 4innerty6 %! o$!cit! $ 99! Also6 Wood6 /! Law and $ractice of international finance o$!cit! $ 4*+ *3 #

the latter in this res$ect4 8see figure #:! Assign&ent 1y way of security is lawful according to Law of /ro$erty Act 9#* 8c! #3:! 4, , S&0/-1*8 ') S2&01#% B#)7 A00'/)* /ractically6 the received $ay&ents 1y the costu&er are often $laced in a s$ecial 1an, account 8S(A: 1efore it is $aid 1ac, to /! Unsur$risingly6 ( will see, a for& of security on this valua1le asset 1y two &ethods! 4irst6 1y o1taining a right of set+off under which the ( is entitled to offset a&ounts that owes to / against o1ligations that the latter owes to the for&er!4# Second6 1y re5uiring ;fi0ed charge; on S(A under which ( ac5uires lawfully an e0clusive recourse to S(A in the event of insolvency of /!43 Also6 withdrawing &oney fro& S(A will need a $er&it fro& ( according to English law 8see figure 3:! 4,4, N'4#*1') "t is a &atter of i&$ortance to ( that ' is 1ound to the construction agree&ent even if / 1eca&e insolvent! So that6 the credit agree&ent is very li,ely to contain a $rovision where1y / &ay novate or re$lace its rights and o1ligations to ( 44! Also6 ' &ust 1e a$$roved for this ;Novation; in its construction agree&ent with /! )hus6 in the event of insolvency of the $ro3ect co&$any6 ' will 1e re5uired to enter into a new agree&ent with ( to 1uild the $ro3ect on the sa&e ter&s of the construction contract originally agreed u$on! ( in turn will &a,e $ay&ents to ' instead of / 8see figure4:!4*

Wood6 /! Law and $ractice of international finance o$!cit! $ 49 "1id! $ # 2 43 "1id! $ ### 44 "1id! / *4 4* "1id!
4#

!, T3& 2'+1*1') '( *3& R/-1*#)1# 5'4&-)6&)* #+ 0-&.1*'- 1) *3& 1)+'%4&)08 As there will 1e a shortfall in the $ro3ect funding where - will 1e willing to lend / as su1ordinate creditor! )hus6 entering into an "ntercreditor agree&ent with (! !,1, I)*&-0-&.1*'- #5-&&6&)* ;*/-)'4&- +/$'-.1)#*1') #5-&&6&)*< "t is ut&ost i&$ortant for ( as a &ain creditor that it has $riority6 in the event of insolvency of the $ro3ect co&$any6 over other creditors6 es$ecially when the security is inade5uate! )herefore6 ( is al&ost certain to ta,e a $art6 in advance6 into "ntercreditor agree&ent46 with -6 as one of the creditor6 under which - is welling to 1e classified as a 3unior or su1ordinated creditor to ( 4>! - &ust 1e realised that its loan to / will 1e unsecured and has no collateral which &ean that it will 1e ran,ed after ( who considered as a secured creditor 8su$er $riority creditor: in the 1an,ru$tcy ladder of $riorities under English law6 thus it &ight receive little or nothing of its de1t!42 "n addition under the turnover su1ordination agree&ent - will 1e agreed to not clai& or receive $ay&ents until the clai&s of ( has 1een $aid in full! Also6 to 1e agreed to clai& its $ay&ent and turn it over to the senior creditor when the latter de&and that 49! "n fact6 such agree&ent will 1e restricted in ter&s of the $ay&ent of the 3unior de1t! 7ence6 it &ight include $rovision such as the 3unior creditor will not receive any distri1ution in res$ect of the 3unior de1t in cash or ,ind fro& the de1ater or any other source6 e0ce$t for $er&itted $ay&ents and when re5uired 1y this agree&ent to receive the& and turn over to the senior creditors!*9

46 4>

also ,nown as turnover su1ordination agree&ent "1id! $ 2 42 /hili$ -! Wood6 Principles of international insol#enc$ 8#nd end6 Sweet F .a0well6 London #99>:$#236#26 49 Wood6 /! /ro3ect 4inance6 Securitisation6 Su1ordinated =e1t6 o$!cit! $ 212-241 *9 Wood6 /! /ro3ect 4inance6 Securitisation6 Su1ordinated =e1t6 o$!cit! $ 214 4

6, C')0%/+1') )his assay has 1riefly e0a&ined the nature of the $ro3ect finance transactions in the conte0t of $roviding a co&$rehensive advice to the -uritania govern&ent in its intent to $artici$ate in a $ro3ect finance transaction! Also6 it has ,noc,ed on all relevant issues of this transaction including the $ro1a1le contracts that will 1e agreed6 the &ethods of &itigating the wide s$ectru& of inherent ris,s and a nu&1er of interest securities sought 1y the financing 1an,! 4urther&ore6 "t has shed so&e light on the $osition of -uritania govern&ent as a su1ordinate creditor in the event of insolvency! 4ourth sets of conclusions can 1e drawn fro& the e0$osition a1ove! 4irst6 for the sa,e of re&aining 1an,a1ility 8acce$ta1le to the 1an,: of the $ro3ect6 / &ust 1e e0cluded fro& incurring contractually any for& of ris,s! "f / e0$osed to a ris, than6 in effect6 the ris, is incurred 1y ( since the latter rely 1asically u$on the for&er revenues to o1tain its de1ts! Second6 - &ust recognise the different roles and o1ligations that it will 1ear whether as a host country6 a creditor or a s$onsor of /! )hird6 in ter&s of security6 / &ust insure that its contracts rights with other $arties are6 as far as $ossi1le6 assigna1le including $erfor&ance 1ond! the consent to assigna1ility is a ,ey co&$onent in this res$ect6 otherwise ( will 1e reluctant to finance the $ro3ect! Not to &ention that these contract &ust 1e legal6 valid 61inding and enforcea1le under English law! E5ually i&$ortant6 fourth6 ( has to $erfect its security 1y following the re5uired $rocedure to secure or record its interests in -!

("(L"OB-A/7EA ! %ohn =! 4innerty6 Project financing: asset-based financial engineering 8#nd end6 Wiley6 New 3ersey #99>: #! 'atherine /eda&on6 ?7ow is 'onvergence (est Achieved in "nternational /ro3ect 4inance@ 8#999+#99 : #4 4ordha& "nt;l L!%! 3! .ichael /! .alloy ?"nternational /ro3ect 4inanceA -is, Analysis and -egulatory 'oncerns@ 8#994+#99*: 2 )ransnat;l Law! 4! Braha& =! <inter6 Project finance: a legal guide 83rd end6 Sweet and .a0well6 UC #99>: *! /eter ,! Nevitt and 4ran, %! 4a1oDDi6 Project financing 8>th end6 Euro&oney (oo,s6London #999: 6! Scott L! 7off&an6 The law and business of international project finance 8'a&1ridge University $ress6 'a&1ridge #992: >! /hilli$ Wood 6 Project Finance, Securitisation, Subordinated Debt 8#nd end6 Sweet F .a0well6 London #99>: 2! %effrey =el&on6 /ro3ect finance6 BOT projects and risk 8Cluwer Law "ntl6 UC #99*: 9! -ichard 7udson 'lough6 Blenn A! Sears and S! Ceo,i Sears6 !onstruction project anage ent 84th end6 Wily and sons 'anada #999: 9! Ste$hen %! Co1rin6;/olitical ris,A A review and reconsideration; 8 9>9: (utterworths %ournal of "nternational (usiness Studies ! /hili$ -! Wood6 Principles of international insol#enc$ 8#nd end6 Sweet F .a0well6 London #99>:$#236#26 #! /hili$ Wood6 Law and $ractice of international finance 8Sweet and .a0well6 London #992: 3! /hili$ Wood6 "nternational loans6 1onds6 guarantees6 legal o$inions 8Sweet and .a0well6 London #99>: 4! /hili$ Wood6 Set+off and netting6 derivatives6 clearing syste&s 8Sweet and .a0well6 London #99>: *! /hili$ Wood6 'o&$arative law of security interests and title finance 8Sweet and .a0well6 London #99>: 6! Berard .c'or&ac,6 Secured 'redit under English and A&erican Law 8'a&1ridge University $ress6 'a&1ridge #994:

4igure 3

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4ulfilled its O1ligations

>

-4igure #

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