Book contents
- Frontmatter
- Contents
- Preface to the Third Edition
- Preface to the Second Edition
- Preface to the First Edition
- PART ONE AN INTRODUCTION TO PROJECT FINANCE
- PART TWO RISK IDENTIFICATION, ALLOCATION, AND MITIGATION
- PART THREE PROJECT FINANCE STRUCTURES
- PART FOUR TECHNICAL, POLITICAL, AND ECONOMIC FEASIBILITY
- PART FIVE PROJECT FINANCE DOCUMENTATION
- CHAPTER TWELVE AN OVERVIEW OF PROJECT DOCUMENTATION
- CHAPTER THIRTEEN REPRESENTATIONS AND WARRANTIES IN PROJECT FINANCE CREDIT AGREEMENTS AND CONTRACTS
- CHAPTER FOURTEEN PRELIMINARY HOST-COUNTRY AGREEMENTS
- CHAPTER FIFTEEN CONSTRUCTION CONTRACTS
- CHAPTER SIXTEEN INPUT CONTRACTS
- CHAPTER SEVENTEEN OPERATION AND MAINTENANCE AGREEMENTS
- CHAPTER EIGHTEEN PROJECT FINANCE OFF-TAKE SALES CONTRACTS
- CHAPTER NINETEEN POWER SALES AGREEMENTS
- PART SIX CREDIT ENHANCEMENT
- PART SEVEN DEBT AND EQUITY FINANCING
- PART EIGHT COLLATERAL
- PART NINE PROJECT SPONSOR AND INVESTOR AGREEMENTS
- PART TEN SPECIAL TOPICS IN PROJECT FINANCE
- Appendix A A Checklist of Due Diligence Considerations for a Project Financing
- Appendix B UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects
- Project Finance Terms, Abbreviations, and Acronyms
- Select Bibliography
- Index
CHAPTER SEVENTEEN - OPERATION AND MAINTENANCE AGREEMENTS
from PART FIVE - PROJECT FINANCE DOCUMENTATION
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface to the Third Edition
- Preface to the Second Edition
- Preface to the First Edition
- PART ONE AN INTRODUCTION TO PROJECT FINANCE
- PART TWO RISK IDENTIFICATION, ALLOCATION, AND MITIGATION
- PART THREE PROJECT FINANCE STRUCTURES
- PART FOUR TECHNICAL, POLITICAL, AND ECONOMIC FEASIBILITY
- PART FIVE PROJECT FINANCE DOCUMENTATION
- CHAPTER TWELVE AN OVERVIEW OF PROJECT DOCUMENTATION
- CHAPTER THIRTEEN REPRESENTATIONS AND WARRANTIES IN PROJECT FINANCE CREDIT AGREEMENTS AND CONTRACTS
- CHAPTER FOURTEEN PRELIMINARY HOST-COUNTRY AGREEMENTS
- CHAPTER FIFTEEN CONSTRUCTION CONTRACTS
- CHAPTER SIXTEEN INPUT CONTRACTS
- CHAPTER SEVENTEEN OPERATION AND MAINTENANCE AGREEMENTS
- CHAPTER EIGHTEEN PROJECT FINANCE OFF-TAKE SALES CONTRACTS
- CHAPTER NINETEEN POWER SALES AGREEMENTS
- PART SIX CREDIT ENHANCEMENT
- PART SEVEN DEBT AND EQUITY FINANCING
- PART EIGHT COLLATERAL
- PART NINE PROJECT SPONSOR AND INVESTOR AGREEMENTS
- PART TEN SPECIAL TOPICS IN PROJECT FINANCE
- Appendix A A Checklist of Due Diligence Considerations for a Project Financing
- Appendix B UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects
- Project Finance Terms, Abbreviations, and Acronyms
- Select Bibliography
- Index
Summary
GENERALLY
A project sponsor has two options for project operation. It can decide either to operate the project itself, without an operating agreement, or retain an operator to operate the project for it. If the project company retains an operator, it is sometimes an affiliate of a project sponsor.
Operating Agreement
Similar to the project finance construction contract, operation and maintenance agreements in international project financings must serve to provide the project sponsor with a facility that performs within certain agreed-upon performance criteria, and that operates at a fixed or reasonably predictable cost. Similar to the contractor's responsibility in a project, an operator should likewise be responsible for all aspects of project operation and maintenance.
As discussed below, the risk that operating and maintenance costs will exceed the budgeted estimate and the funds available from project revenues is a significant risk in a project financing. If operating costs exceed estimates, the additional money needed for project operation will need to come from reserve accounts, if there are any, or from funds that would otherwise be used to pay debt service or distribute to the equity owners.
Project finance operation and maintenance agreements typically contain each of the following provisions: a detailed scope of work; a fixed or variable (but predictable) price for all of the work necessary to operate the project; performance guarantees; liquidated damages for failure to satisfy performance guarantees; and a showing of financial creditworthiness of the operator.
- Type
- Chapter
- Information
- The Law and Business of International Project FinanceA Resource for Governments, Sponsors, Lawyers, and Project Participants, pp. 198 - 208Publisher: Cambridge University PressPrint publication year: 2007