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
- 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
- CHAPTER TWENTY-EIGHT BANKRUPTCY
- CHAPTER TWENTY-NINE UNITED STATES LAWS AFFECTING FOREIGN INVESTMENTS
- CHAPTER THIRTY LOCAL LAWYERS AND OVERVIEW OF LOCAL LAWS
- CHAPTER THIRTY-ONE DISPUTE RESOLUTION IN PROJECT FINANCE TRANSACTIONS
- CHAPTER THIRTY-TWO MULTILATERAL AGENCY PROHIBITIONS ON ANTI-COMPETITIVE ACTIVITY
- CHAPTER THIRTY-THREE MERCHANT FACILITIES – PROJECT FINANCE WITHOUT CONTRACTUALLY ASSURED REVENUE FLOWS
- 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 THIRTY-THREE - MERCHANT FACILITIES – PROJECT FINANCE WITHOUT CONTRACTUALLY ASSURED REVENUE FLOWS
from PART TEN - SPECIAL TOPICS IN PROJECT FINANCE
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
- 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
- CHAPTER TWENTY-EIGHT BANKRUPTCY
- CHAPTER TWENTY-NINE UNITED STATES LAWS AFFECTING FOREIGN INVESTMENTS
- CHAPTER THIRTY LOCAL LAWYERS AND OVERVIEW OF LOCAL LAWS
- CHAPTER THIRTY-ONE DISPUTE RESOLUTION IN PROJECT FINANCE TRANSACTIONS
- CHAPTER THIRTY-TWO MULTILATERAL AGENCY PROHIBITIONS ON ANTI-COMPETITIVE ACTIVITY
- CHAPTER THIRTY-THREE MERCHANT FACILITIES – PROJECT FINANCE WITHOUT CONTRACTUALLY ASSURED REVENUE FLOWS
- 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
DEFINITION OF MERCHANT FACILITY
The term merchant facility is generally used to refer to a facility financed using project finance principles, except that long-term off-take contracts are not used to eliminate the market risk. Rather, project viability is based on the market for project output and forecasts of future market conditions because project output is sold into the commodity market and sold at a price at or below the market price. As a facility financed using project finance techniques, the project company will be a special-purpose, stand-alone entity that does not have access to the balance sheet of its owners. The highly leveraged, nonrecourse nature of project finance, coupled with commodity risk and the inherent inability to stockpile electricity, combine to make these pure merchant power plant investments speculative.
Interestingly, projects financed as non-merchant facilities often face these risks. For example, a project financed with a long-term contract involuntarily becomes a merchant plant if that contract is terminated. Similarly, a project that loses a regulatory benefit because of a change in law or a failure to comply with regulatory requirements can also become subject to merchant power risks.
- Type
- Chapter
- Information
- The Law and Business of International Project FinanceA Resource for Governments, Sponsors, Lawyers, and Project Participants, pp. 429 - 432Publisher: Cambridge University PressPrint publication year: 2007