Project Finance Contracts Detail 2
- 02:02
An overview of operational contracts in project finance
Downloads
No associated resources to download.
Glossary
operational contracts Project financeTranscript
The operational contracts are critically important to the ongoing operation of the project once it's complete. But often these participants may have both interests in the operations of the project as well as the financial investment side of the project. And that's a nice thing because you've got a good incentive in that the people making money from the project will also be making sure that the operational performance of the project is good. We need operational experts to develop the project. And the SPV is essentially outsourcing these skills. Let's have a look at a typical list of operational contracts In a project. We'll have the construction contract. This is the contract which says you need to build the facility with this amount of money and in this timeframe. The operational and maintenance contract, this is when the construction is complete and operational maintenance starts. Next, the sales contract. And this could happen in two forms, either it's to a few key buyers of the project, for example, for an oil refinery where you'll only have a few customers, but in some cases, the facilities may be selling to lots of customers. A good example of this would be a highway or a tunnel where you'd have lots of different buyers. And so the sales contract in this case would be more about how you would price the product to the public. The supply agreement is where you have a key input to the facility. So for example, if it's power generation, there would be a supply agreement with the gas supply to the electricity generator. And then last but not least, the concession agreement with the government. And this is where the project would need specific regulatory approval. Think for example, a prison where the government has to approve that the facility is capable of being a prison.