Bankable Agreement

According to the IEA, «more than 70 percent of the $2 trillion needed each year to invest in energy supply comes either from public bodies or has a full or partial revenue guarantee.» This revenue guarantee is usually offered in the form of a power purchase agreement in the electricity sector and is therefore an essential element in a project financing environment for IPPs. The banking capacity of PDOs is particularly challenging, given that the strongest growth in electricity demand is occurring in emerging countries, with the solvency of throughput being questionable to say the least. Therefore, the banking capacity of PDOs is determined not only by complex contractual clauses under the trade agreement, but also by the energy sector and the domestic context that integrates the foreign PPI. In most cases, the obligation of a project requires additional credit enhancement instruments that support the AAA to reach financial close. Simply put, the greater the risk allocation in relation to the borrower, the more bankable a contract becomes. The most flawed forms of construction contracts are fixed cost agreements with a single contractor responsible for planning and construction and a fixed completion date. As a result, the construction contract of lenders who attempt to remove these risks from the borrower and allocate them to other parties is under significant scrutiny. Since lenders are often only involved in later stages of contract negotiations, the necessary changes to the terms are too often taken over by the contractor as soon as the contract can be concluded for the most part. Reaching a trade agreement can be a delicate balance between negotiations with contractors and the often opaque demands of lenders. Addressing concerns about the bank`s capacity will contribute to the negotiation of bank documents, while early cooperation with lenders may be useful to ensure that there is no agreement with contractors on provisions that will then need to be amended as a precondition for financing. It is useful for the process if the contractor can agree in advance that it signs a tripartite agreement under a number of defined conditions, if a lender so requires. Essentially, a project is bankable if lenders (traditional banks, but increasingly other companies) are willing to finance the project….