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 EIGHTEEN - PROJECT FINANCE OFF-TAKE SALES CONTRACTS
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
NECESSITY FOR OFF-TAKE CONTRACTS
Off-take agreements are the agreements that provide the revenue flow to a project. They are the agreements by which the project company sells its product or service. Truly, they are the linchpins of project finance transactions.
Long-term contracts in which a creditworthy purchaser agrees to purchase the output of a facility are not always necessary for a nonrecourse or limited recourse project financing. Instead of this arrangement, the project company and the project lenders rely on the demand produced by the market for the credit support. This type of structure works effectively where the need for the project is well established and the price for the project output will remain generally stable throughout the term of the project debt. Nonetheless, the project company and project lender assume risks related to output price fluctuations, obsolescence, competition, and other market risks.
TYPES OF OFF-TAKE CONTRACTS
Great Confusion
There is confusion over the definitions of two terms: take-or-pay and take-and-pay. Yet, the difference between the two terms is straightforward: take-and-pay requires a payment only if the product is produced, whereas take-or-pay requires a payment unconditionally.
Take-or-Pay
A take-or-pay contract, in general, refers to a contractual obligation between a purchaser of a facility's output and a project company in which the purchaser agrees to make payments to the project company for the good or service producible at the facility in return for maintaining the capacity to produce and deliver the good or service.
- Type
- Chapter
- Information
- The Law and Business of International Project FinanceA Resource for Governments, Sponsors, Lawyers, and Project Participants, pp. 209 - 221Publisher: Cambridge University PressPrint publication year: 2007