SPE 101044

Financing Strategies for the Procurement of Gas Projects in Developing Countries

J. Ellafi, Altahadi U.; F. Al-Thani, Anadarko Energy Co.; and A. Merna, U. of Manchester

Copyright 2006, Society of Petroleum Engineers

private companies and host governments; the bases
This paper was prepared for presentation at the 2006 Abu Dhabi International Petroleum
Exhibition and Conference held in Abu Dhabi, U.A.E., 5–8 November 2006. of these agreements are typically production sharing
This paper was selected for presentation by an SPE Program Committee following review of contract (PSC), concession agreement (CA), and
information contained in an abstract submitted by the author(s). Contents of the paper, as
presented, have not been reviewed by the Society of Petroleum Engineers and are subject to joint venture agreement (JVA).
correction by the author(s). The material, as presented, does not necessarily reflect any
position of the Society of Petroleum Engineers, its officers, or members. Papers presented at Risks: are major a concern for investors considering
SPE meetings are subject to publication review by Editorial Committees of the Society of
Petroleum Engineers. Electronic reproduction, distribution, or storage of any part of this paper investing in gas projects in DCs. Identifying these
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Different project companies have different
Abstract procedures for identifying, analysing and mitigating
Numerous financial and contractual strategies are risks irrespective of the contract strategy adopted.
available to finance gas projects. In developing Ownership: is a sensitive issue for most
countries gas projects are financed and developed governments when it concerns their natural
under different contractual strategies including; resources, especially oil and gas. Most governments
Production Sharing Contract, International Joint in DCs (oil and gas producers) are keen to keep
Venture Contracts or hybrid Project Finance ownership rights. For this reason investors in the oil
strategies. These contractual strategies play a vital and gas industry accept this provided they retain
role in allocating risks involved in the procurement control of the operation and management of the
of gas projects. Gas projects are, in many cases able project through a joint venture company with the
to access traditional forms of financing but the huge host countries or as an appointed operator for the
capital required to develop new gas projects to meet project.
future gas demand may necessitate innovative Rewards: depend on the method of finance and risk
approaches to be developed. This paper outlines the perceived by the parties involved in the project.
economic benefits to both public and private sectors Forms of rewards and profit typically include: a
for the adoption of Build-Own-Operate-Transfer sharing between government and private investors,
(BOOT) strategies for the procurement of gas the use of reimbursement and bonus systems or the
projects in developing countries (DCs). A adoption of tax and royalty payment systems. In
comparison of the economic parameters of three most cases the type of contract adopted is
strategies is also presented. negotiated, to suit the parties involved. (Schlesinger
1997)
Key Elements in Financing Gas Projects Governments in DCs rely heavily on international
The key commercial issues for project managers and major oil and gas companies to provide the
and government officials when negotiating a gas finance needed to develop gas projects. Finance
project are: typically comes from, corporate finance and off
balance sheet project finance with equity from the
Finance: after identifying the need for a gas project, host government or local investors and financial
governments in DCs seek investors to finance gas markets. Current contractual agreements used to
projects under an agreement with the host country. procure gas projects in DCs have, however, limited
The gas industry has experience of different types private investor participation in financing and
of financial and contractual agreements between developing gas projects. The need for an innovative
2 SPE 101044
and more liberalized contractual approach would
attract more investors and increase competition to
an under-funded industry.
Procurement Strategies for Gas Projects
in DCs
The main principle behind the creation of different
contract strategies in most DCs is based on the type
of funding and risks perceived. The level of
commitment that public and private sectors provide
to fund, operate and manage risk in gas projects
vary depending on the type of project, its location
and characteristics.
Production Sharing Contract (PSC)
Usually PSCs are undertaken by IOCs (International
Oil Companies) who provide the funds and
experience required to explore, produce and
transport whatever petroleum resources are
discovered; in return the IOC receive a share of the
revenue generated. Almost all petroleum contracts
are designed for the discovery and development of
crude oil, however, in petroleum contracts the terms
suitable for oil cannot adequately govern or much
less promote the development of natural gas. PSCs
often allow companies who have discovered, and
want to develop gas resources only the recovery or
reimbursement of its costs and remuneration
(bonus) which is calculated by reference to the
recoverable reserves. This may vary from one
country to another. (Omorogbe, 2002)
The challenges for most DCs are ownership
rights and shares of gas. A consequence of the
current PSC rules is that the IOCs’ portion of the
gas production alone would frequently be
inadequate to capture an external market. Due to the
size and production capacity of the gas volumes
reverting to the IOCs, only the most significant gas
discoveries would be large enough to justify the
enormous infrastructure costs and allow for long-
term gas supply commitments. However, the
challenge for National Oil Companies (NOCs) is
how to recognise a right for gas production for IOCs
without unduly creating competition, especially to
the prices between the gas exported by NOCs
exclusively and the gas reverting to IOC’s. A major
objective is to avoid such competition which would
be prejudicial to themselves as well as to their
partners. This strategy has shown weaknesses vis-à-
vis both the aim and objectives of the NOCs and the
IOCs. NOCs consider that such systems oblige them
to exclusively assume the development investments,
depriving them of the IOCs financial and technical
support. On the other hand IOCs consider such a
system, which provides reimbursement of the cost
and payment of a bonus, is insufficient to encourage
them to risk exploration investments in the gas
sector.
International Joint Venture (IJV)
The majority of gas projects in DCs are procured
through IJV agreements between NOCs and foreign
investors (often IOCs), whereby the foreign
investors and NOCs provide the funds required to
develop gas projects. The financial instruments (or
structure) used to finance these types of venture
varies from one IJV to another. These include
corporate finance, project finance, use of the
financial markets to raise funds through bonds,
issuances of shares or a combination of any of these
financial instruments; all have been used to date. (
Merna & Al-Thani, 2005).
IJVs in the gas industry, like any other type of
IJV contain numerous risks. Larimo (2001)
explained that the motivation which contributes to
the creation of IJVs can be divided into three broad
categories: 1) Market-driven, 2) Resource-driven
and 3) Risks-driven IJVs. These three categories are
found in most gas IJVs and are usually interrelated.
Larimo illustrates that high failure rates of IJVs
arise from different dimensions, including
objectivities, ownership and culture. Selection of
the right organisational structures to develop gas
projects can either improve performances or
complicate matters further and add more layers of
risk to these projects. These would typically be
differences in objectives, divergence of interests,
control issues, management quality and stakeholder
motivations.
Project Finance
In many DCs, the use of project finance
(concessionary contracts) in the oil and gas sector is
considered to cause depletion of natural resources
without providing a fair share of profit to the host
government. The concession period can often be 20-
30 years after which the facility is transferred to the
host government, unlike PSCs or IJVs where
revenues are shared over the project lifetime. On the
other hand project companies are often deprived of
ownership rights of gas resources because it is
considered by many developing countries as a
SPE 101044
strategic reserve which should not be handed to
foreign investors.
A BOOT strategy, utilising project finance can be
used to procure a gas project through a SPV
(Special Purpose Vehicle) structure whereby the
promoter will build, own and operate the pipeline
for the concession period before transferring the
facility to the government. Project financing is a
routine technique, although each gas project will
present its own unique set of issues. Most gas
projects seek to secure long-term supply contracts in
a form of send-or-pay (producer’s term) also known
as take-or-pay contracts (buyer’s term), which could
be used as a security or protection for project
lenders. (Merna & Dubey, 1998)
Lenders usually demand limited recourse to the
company assets for the recovery of their loan. In gas
pipeline projects, for example, the line itself is
usually of little or no value as security to the lenders
without securing take-or-pay contracts, because its
real value is in its ability to transport gas from gas
fields to end-users. In reality lenders recourse will
be limited to the pipelines or LNG (Liquefied
Natural Gas) facility cash flow, meaning that the
tariff and the send-or-pay contract will be assigned
by way of security to a common trustee on behalf of
the lenders who will ordinarily have no recourse
against the project company. Lenders ensure that
the tariff or send-or-pay amounts are adequate to
repay their investment. (Pirani, R. 1998)
Financial Strategies and Risks Allocation
The different types of organisational structures
usually based on the allocation of funds, risks and
profit is also true for gas projects. As for other
infrastructure projects most developing countries
involved in gas projects prefer to distance
themselves from taking any financial commitment
or risks unless their contribution is inevitable to
secure the fund required. Table (A-1) shows the
allocation of funds, risks and financial shares
depending on the finance strategies or project
structure used in developing gas projects. The
numeric values for X and Y are agreed between
project participants and depend on the financial
contribution and risks borne by each party involved
in the financing and development of the gas project.
3
Strategy PSC IJVC BOOT
Fund 100% X% Public, 100%
Providers Private Y% Private Private
Risk 100% Public & 100%
Private Private Private
Profit X% Public, X% Public, CTLP*
Y% Private Y% Private
*CTLP is Concession Time-Linked Profit
Table (A-1): Allocation of funds, risks and financial
shares in gas companies for different contract
strategies.
Project finance for the procurement of
gas projects
The number of projects financed purely on non-
recourse bases are few, because lenders will
inevitably require some degree of security from
project sponsors, promoters or principal. In
arranging limited or non-limited recourse financing
for BOOT projects, it is the responsibility of the
government (usually NOC), sponsors, contractors,
operators and suppliers to satisfy the concerns of
finance providers. Those parties determine the
shape and form of security required and the funds
available to the project. Financial institutions will
determine the terms and combination of debt, equity
and mezzanine capital to be used to finance a
project depending on the project risks identified.
(Merna & Njiru, 2002)
Most lenders are reluctant to finance projects that
are based purely on gas exploration because of the
risks and uncertainties involved. The private sector
may not attract the required finance for the project if
the targeted country is not known to have sufficient
gas reserves. In other words, projects in countries
that have large gas reserves can be financed on a
non or limited recourse finance basis; otherwise full
recourse finance will be inevitable depending on the
project profile. (Pollio, 1999)
Figure (B-1) illustrates how a project company
may engage in two types of gas project; one based
on an existing gas field (where the discovery of gas
has occurred in the past and been abandoned on the
basis of economic or political concerns), the other
based on exploring for gas (here the discovery of
either oil or gas accumulation; both or neither are
possible). Project companies have a greater chance
of attracting private funds to develop the former
4 SPE 101044

type of project than the latter type, because most pure gas exploration due to the risk and uncertainty
lenders are unwilling to finance projects based on involved.

Project Company

Pre-existing gas field Exploration of gas

Less Risky More Risky

-Licenses
Well head sale Development -Location of blocks
(Agreed price) Program -Information Availability
Figure (B-1): The acquisition process of gas resources

Figure (B-2) illustrates typical stakeholders and
contracts associated with a project procured using
project finance in a gas project. A primary contract
is signed between the Ministry of Energy or its
representative NOC and a project company (SPV)
which gives the right to the SPV to develop gas
fields and sell its product over an agreed concession
period, before finally transferring the facility at no
cost to the NOC. The length of concession is often
dependent on the time required by the SPV to
generate sufficient revenue to service the debt and
provide a reasonable rate of return. NOCs have a
significant role in facilitating the purchase and/or
accessibility to land, extension of exploration
contracts to increase production, administration
permits and as an equity holder.

PRINCIPAL
NOC
Insurance WBG / multilateral
Companies institution
Insurance contracts Equity Financial Support
Offtakers & Private
Purchasers Offtake contracts Equity investors

Contractors All types of contracts SPV Loan Export Credit

Agency
Lenders &
Loan
Creditors Information Consultants
Operation contracts
Supply contracts
Suppliers
Operators

Promoter

Figure (B-2): Typical structure of stakeholders and

contracts in a gas project.
SPE 101044
Secondary contracts are signed between the SPV
and lenders. A project can be financed on a non-
recourse or limited recourse basis depending on
project risks and forecasted revenues. For other
secondary contracts, the project company may
appoint a single constructor or operator to carry out
the necessary work. Insurance companies may offer
to cover many risks that the project company are
exposed to such as political risks, force majeure,
construction and supply delay risks. (Merna &Khu
2003)
The role of the World Bank Group (WBG) or
multilateral finance institutions is to provide
guarantees to encourage private investments, and
often to provide seed capital to promote commercial
interest. Usually private sector involvement in
Lenders
National Oil Dividends
Repayment Loan
& Gas Co.
Equity
Government Taxes
SPV
Equity
Contractors
Sales Revenue
Dividen
Gas
Purchasers
Figure (B-3): Typical Cash Flows in a Gas Project.
Development of a Concession Time-
Linked Profit (CTLP) strategy for Gas
Projects
Many managers and decision makers in DCs argue
that the adoption of a BOOT strategy with its
current features is unappealing for a number of
reasons. Firstly, the government have to wait a long
time before obtaining a reasonable profit. Secondly,
the real lifetime of the gas reserves may fall short of
5
traditional public services or assets, which in many
DCs are dysfunctional and require reform, often
need guidance and support from the multilateral
finance institutions which provide a platform for
privately financed projects to proceed.
Figure (B-3) illustrates the movement of funds
between stakeholders. SPVs have to deal with each
stakeholder in the financing process according to
the performance of project cash flow; senior loans
will be paid first and on maturity; others are paid
according to the project’s performance. Gas sale
contracts (offtake contracts) should also be secured
because they are the only source of revenue
generation which lenders normally require as forms
of security for the loan.
Payment Insurance
Companies
Premium
Dividends
Investors
Equity
Loan
Mezzanine
Repayment Sources
expectations. Thirdly, gas projects whether a
pipeline or LNG facility are unlike other
infrastructure projects (road or water projects)
where the benefit can be identified not only in terms
of profit but also for the services provided and their
socioeconomic benefits. Many decision makers,
however, believe that innovative approaches have to
be adopted in order to support BOOT strategies for
the procurement of gas projects in DCs.
6 SPE 101044
The authors suggest that the introduction of a
Concession Time-Linked Profit (CTLP) strategy
when awarding concession contracts can increase
government support and interest in the project by
addressing the above issues. This would secure
constant revenue for the host government rather
than waiting for the facility to be transferred before
making a profit, similar to the process used in PSCs
in the oil industry. In return the host government
could exempt or offer a tax holiday to the project
company for a certain period of time, as under a
PSC. The CTLP could be measured on the basis of
project performance or economic parameters such
as Internal Rate of Return (IRR) or Net Present
Value (NPV). This means that the percentages of
+VE
Pay Back Period
Money
Time
Construction Public a % Pub. c %
Period Private b % Pri. d %
Figure (B-4): Stages of distribution of profits between promoters and NOCs.
Application of the Concession Time Link
Profit
The Western Libyan Gas Project (WLGP) is used to
test the CTLP concept. The project will eventually
transport 11bcm/yr. The project will dovetail gas
and oil/condensate production from Libya's offshore
Bahr Essalam and desert Wafa fields and transport
it under the Mediterranean to Sicily. A joint venture
company between the Libyan National Oil
Company (LNOC) and Eni Gas has been signed and
the project total cost is approximately US $ 5
billion. Eni and LNOC investigated harnessing the
gas to generate electrical power in southern Europe
via a long-distance submarine cable, however, the
cost and technical risk appeared too great.
government and SPV share are decided on the basis
of the project cash flow.
Figure (B-4) illustrates a number of stages that
can be used to introduce the CTLP, after the
execution of all construction activity and the start of
revenue generation. The share of the revenue would
be divided between promoter and principal
depending on project performance. According to
Pirani (1998), international experience suggests that
investors may seek minimum post-tax return on
investments of about 7-10% on relatively risk-free
endeavours such as gas transportation projects (no
exploration risks involved) and 15-25% on
relatively more risky investments such as gas
production and processing (including unsuccessful
and successful exploration costs).
NPV
Pub. e % Pub. g %
Pri. f % Pri. h %
The financial data is used to evaluate the financial
parameters of the WLGP under different financial
contractual strategies including: PSC, IJV and
concessionary system under a BOOT strategy using
the CTLP. The computed economic parameters
were then compared to select the best finance
strategy for the WLGP based on the risks identified.
CASPAR (Computer Aided Simulation for
Project Appraisal and Review) is a software
package developed by the Centre for Research in
the Management of Projects in UMIST. The authors
have selected this software to validate the model
because of its feature of modelling the interaction of
time, resources, cost and revenue, throughout the
entire project lifecycle. Since the model is based on
comparisons of different financing strategies, it is
SPE 101044 7

important to evaluate the risks imposed on each
activity in each case and their impact on the project.
CASPAR computes the economic parameters in
terms of IRR, NPV, Payback Period (PBP) and
Cash Lock-up (CLUP) under different risk
scenarios for all cases, as well as producing
probability and sensitivity analyses for each case as
part of the comparison process. The economic
parameters were used to assess the commercial
viability of each case. CASPAR has been used
before to evaluate oil and gas projects and proved
to be successful. (Al-Thani & Merna, 2004)
Economic Parameters of the WLGP
Tables (A-2, 3 & 4) show the economic parameters
of the WLGP utilising a BOOT strategy, PSC
strategy and a IJV strategy respectively. The results
indicate that the project finance strategy using a
BOOT strategy provides better overall economic
parameters than the other two strategies.

Table (A-2): Economic Parameters for the WLGP utilising a BOOT strategy.
After Risk Mitigation Base Case Worst Case Best Case
NPV (mm $ US) 26,935 17,506 29,760
IRR % 19.01 13.9 20.4
Cash Lock up (mm $ US) 4,958 6,041 4,590
Payback Time (Years) 10.7 12 10.3

Table (A-3): Economic Parameters for WLGP utilising a JVC strategy.

After Risk Mitigation Base Case Worst Case Best Case
NPV (mm $ US) 26,260 12,640 30,700
IRR % 17.1 9.3 17.5
Cash Lock up (mm $ US) 4,958 7,230 4,670
Payback Time (Years) 11.7 15.1 11.5

Table (A-4): Economic parameters for the WLGP utilising a PSC strategy.
PSC Base Case Worst Case Best Case
NPV (mm $ US) 26,830 12,530 28,610
IRR % 17.3 9 16.7
Cash Lock up (mm $ US) 4,958 7,430 4,750
Payback Time (Years) 11.6 15.4 11.7

Risk Analysis of the WLGP Return on Investment (ROI) on the WLGP

The probability analysis illustrated in Figure (B-5)
shows that the BOOT strategy (in this case
measured against the IRR) of the WLGP has less
unertainty than the other two finance strategies.
Figure (B-5) indicates that there is a 15% chance
of achieving an IRR of over 15 % if the project is
financed by project finance, and for the PSC and
JVC the corresponding IRR is only 10.4 and 10.8
respectively. There is an 85% probability that the
IRR will be less than 17.4 % if financed using
project finance compared with 13.7 % and 14.7 %
for PSC and JVC strategies.
When assessing the financial parameters for the
project, such as IRR, NPV, CLU and PBP, it is
important to assess the ROI for both parties
involved in the project. The principle throughout is
for the host government to ensure that they achieved
an equitable deal based on the risks and
responsibility they have taken. The SPV on the
other hand seeks to achieve an acceptable ROI on
the basis of the risks accepted. The higher the risks
the higher the return expected.
8 SPE 101044
Figure (B-5): Probability analysis for the WLGP using different contract strategies.
ROI under Production Sharing Contracts
Using PSC the revenue of the project will be
divided according to an agreeable share between the
host government and the private company. As
explained earlier, private gas investors seek a
minimum return on investment of 7-10 % in a fairly
risk-free project (gas transportation projects), where
no exploration risks are involved; and 15-25 % in
gas project. This figure was taken into account by
the authors to calculate the ROI for each party. In
this case only ROI for the private investors will be
measured. Various percentages of production
sharing are measured along with ROI for the private
company to highlight the worthiness or
attractiveness of the project to the private sector.
Table (A-5) shows that the higher the percentage
taken by the private company, the higher ROI.
Table (A-5) : Profit shares of the WLGP.
-50% Public, 50% Private
Base Case Worst Best Case
Case
Public mm 13,400 6,265 14,305
US $
Private mm 13,400 6,265 14,305
US $
ROI % 11.2 5.2 11.9
(Private)
ROI for the worst-case scenario is below the
minimum 7% which is normally demanded by the
private investors.
ROI under Joint Venture Contracts
Using a JVC, in reality the WLGP is funded under a
JVC between the LNOC and Eni where Eni share of
the capital cost was 60%, the other 40% being
raised by the LNOC; in return each party would
receive 50% share of the revenue. Table (A-6)
shows the share of each party using a calculation of
cumulative cash flow computed by CASPAR. The
authors calculated ROI with various profit shares
but the actual agreed share in this case is 50% for
the Libyan government and 50% for Eni.
The result shows that if Eni was able to minimise
the risks during construction and operating of the
WLGDP, they would obtain an acceptable ROI for
all case scenarios of the project. Table (A-6) shows
that for a 50 / 50 share the ROI for the base, worst
and best case scenarios are 18.2 %, 8.8 % and 21.2
% respectively. The worst case is still in the range
of 7-10 % return on investment typically required
by private investors to develop gas projects.
Table (A-6): Profit Shares, 50% Public, 50% Private
ARM Base Case Worst Best Case
Case
Public mm 13,130 6,320 15,350
US $
Private mm 13,130 6,320 15,350
US $
ROI % 18.2 8.8 21.3
(Private)
SPE 101044 9

ROI of a BOOT Strategy in conjunction with
CTLP
The CTLP principle is applied by simply dividing
the revenue of the project based on the performance
of the project cash flow and then computing the
resulting economic parameters.
The concession period of the project is the time
during which the promoter will finance, construct
and operate the project and pay back the debt to
lenders and make a profit from the generated
revenue. Depending on the forecasted revenue of
the project in its early stages, lenders would be able
to make a decision on whether to lend to the project.
Projected cash flow is considered as recourse to
lenders which is secured by long-term (send-or-pay)
contracts.
The attractiveness of CTLP is that the promoter
receives an acceptable ROI and the principal a share
of the project revenue throughout the operation and
maintenance (O&M) period, depending on the
actual cash flow and economic parameters attained.
The promoter’s share will vary according to the
actual achieved cash flow of the project. This means
that when the project starts to generate revenue and
service its debt, the project promoter would provide
only a minimum share of the project revenue to the
principal. When the project cash flow starts
recording a positive NPV, this share will increase
gradually until the end of the concession period
where the promoter’s share will be at its lowest
percentage (just before transferring the facility to
the principal).
For the purposes of this case study the WLDGP
project was divided into four Time-Leg periods. In
this case the concession period is assumed to be 31
years including a 7-year construction period and a
24-year O&M period. The 24 years O&M period is
divided into four separate periods each with a time
leg of 6 years. Allocation of profit will differ from
one period to another which will ensure that the
promoter receives the agreed percentage return on
the investment. This can be achieved in many
different ways with percentages determined prior to
financial closure. Table (A-7) shows the calculated
CTLP of the WLGDP based on 7-10 % return to
private investors for the three possible case
scenarios (base, worst and best case).

Table (A-7): The CTLP for the WLGDP using a BOOT Strategy
-Base Case IRR= 19.01 %, NPV = 26,935 mm US $
Time Leg = 6 years
CTLP 0-6 years 6-12 years 12-18 years 18-24 years Total
Public-Private % 20-80 % 40-60 % 60-40 % 80-20% 53-47 %
Public mm US $ 832 3,272 4,621 5,516 14,241
Private mm US $ 3,326 4,909 3,080 1,379 12,694
ROI % (Private) 13.9 20.6 12.9 5.8 13.3

-Worst Case IRR= 13.9 %, NPV = 17,506 mm US $

Time Leg = 6 years
CTLP 0-6 years 6-12 years 12-18 years 18-24 years Total
Public-Private% 20-80 % 40-60 % 60-40 % 80-20% 55-45
Public mm US $ 540 2,127 3,003 3,586 9,256
Private mm US $ 2,162 3,190 2,002 896 8,250
ROI % (Private) 9.1 13.4 8.4 3.8 8.7

-Best Case IRR= 19.9 %, NPV = 29,760 mm US $

Time Leg = 6 years
CTLP 0-6 years 6-12 years 12-18 years 18-24 years Total
Public-Private% 20-80 % 40-60 % 60-40 % 80-20% 55-45
Public mm US $ 919 3,615 5,105 6,095 15,734
Private mm US $ 3,675 5,424 3,403 1,524 14,026
ROI % (Private) 15.4 22.8 14.3 6.4 14.7
10 SPE 101044

There is significant improvement in the project’s determine the Debt Service Coverage Ratio (DSCR)
economic parameters using the BOOT strategy for on the basis of the worst case cash flow.
both the best and worst case scenarios with IRR Figure (B-6, 7 & 8) show the projected cash flow
increases of 49.5% and 18.3% respectively, and allocation of the project CTLP periods for the
compared with JVC. NPV also experiences an three case scenarios under a BOOT strategy with
increase of 40% for the worst case scenario and different Debt/Equity ratios.
only minus 3% for the best case scenarios. The The results indicate that the WLGDP can be
improvement of the worst case scenario economic financed using a BOOT strategy and can provide an
parameters is achieved through better management acceptable ROI to the promoters under each case
and mitigation of risks by the project company. scenario. The authors emphasise that the time leg
Lenders look closely to the worst case scenario of a and percentage share for both the promoter and the
project to be sure that these risks will not have a principal vary and a project may have numerous
significant effect on the project’s ability to service CTLP scenarios depending on ROI, concession time
its debt. It should be noted that lenders usually and forecasted project cash flows.

Figure (B-6): Cash Flow for BOOT strategy with Various Debt/ Equity Ratios, Base Case.

40000

35000 100 % Debt

30000 80 /20 D /E

25000 60 /40 D /E
NPV mm US $

20000 50 /50 D /E

15000 40 /60 D /E

10000

5000

0
0 36 72 108 144 180 216 252 288 324 360 396
- 5000
Time Leg 1 time Leg 2 Time Leg 3 time Leg 4
- 10000
6 years 6 years 6 years 6 years
Period months

Figure (B-7): Cash Flow for BOOT strategy with Various Debt/ Equity Ratios, Best Case.
SPE 101044 11

25000

20000 100 % Debt

80 /20 D /E
15000 60 /40 D /E
50 /50 D /E
NPV mm US $

10000
40 /60 D /E

5000

0
0 36 72 108 144 180 216 252 288 324 360 396

- 5000
Time Leg 1 Time Leg 2 Time Leg 3 Time Leg 4
- 10000
6 Years 6 Years 6 Years 6 Years
Period months

Figure (B-8): Cash Flow for BOOT strategy with Various Debt/ Equity Ratios, Worst Case.

Conclusions
The huge financial requirement for future gas http://blake.montclair.edu/~cibconf/conference/DA
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