District Cooling Projects:         Legal & Commercial      Issues and their Solutions           Tim Burbury               ...
Presentation Outline(1) Deal Structuring: what legal    structures are being used?(2) Commercial Issues:    Stakeholder I...
(1) Models: Risk transfer No different to other infrastructure models…                                                    ...
EPC & O&M: build, separate operator                                               Developer                            D&B...
DBO: turnkey design & build, then operate                                          Developer                              ...
Concession/PPP: privately financed                                                  Developer                             ...
Trends in DC Infrastructure ContractsDevelopment               Examples                      Infrastructure Contract      ...
Which model is right for my project? Objectives/Risk appetite/Control/Timing restraints/historical   success/Remuneration ...
(2) Commercial Issues in DC ProjectsStakeholder Issues:    water source    end user demand    offtake guarantees    ta...
Water SupplyLocal utility restrictions on use of potable waterDesal too $$$$?TSE – OK, but enough to supply DC plants?Seaw...
End user demand: capacity requirementsDemand curve analysis    get it early    update regularly before signing/closingNa...
Offtake GuaranteesWhy relevant?    ‘Bankability’ - lenders’ requirement to get project up    Not captive - DC deals are ...
Tariff structuringRequires FA assistance & workshopsUsual components are:    Connection Charge (capex recovery/revenue ra...
Phased Capacity/Temporary facilities• Consider chiller/plant phasing & modular plants   • Modular plants (5k TR – 25k TR) ...
Network Delivery & InterconnectionCorridor reserved? Massive error on some projectsWhat other works surround the DCP site ...
Construction Issues - interconnectionCentral Plant   Distribution Network   ETS   End User Premises                       ...
(3) Legal Issues (in addition to the above)• Regulation - Middle East v Other DC/DH Markets• Land issues/risks• Constructi...
End of Presentation Any Questions?                      18
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Tim burbury, king & spalding

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Tim burbury, king & spalding

  1. 1. District Cooling Projects: Legal & Commercial Issues and their Solutions Tim Burbury Kuwait District Cooling Summit Partner Tuesday, 25h January 2011 King & Spalding LLP e-mail: tburbury@kslaw.com552661v1
  2. 2. Presentation Outline(1) Deal Structuring: what legal structures are being used?(2) Commercial Issues:  Stakeholder Issues: water source, end user demand, offtake guarantees, billing & collection issues  Project Phasing: Phasing of Capacity & Temporary Chilling/Heating  Construction Issues: Reticulation Network/Centralized Plant interconnection issues(3) Legal Issues: regulations, land issues, construction & O&M issues, temporary facilities, bankability issues 2
  3. 3. (1) Models: Risk transfer No different to other infrastructure models… Full Privatization PPP DBFO/Concession Level of (BOT/BOO/IWPP) risktransfer to JV/DBO PSP EPC Outsourcing Level of sophistication and PSP 3
  4. 4. EPC & O&M: build, separate operator Developer D&B/EPC Contract O&M Contract D&B/EPC O&M Contractor Operator• Traditional procurement model • O&M (annual, 3, 5, 10, 20 years)• D&B or EPC • Payments through O&M Fee (tariff)• Developer retains full responsibility for • KPIs D,B,O,M but ‘outsources’ for a fee 4
  5. 5. DBO: turnkey design & build, then operate Developer DBO Contract DBO Contractor Same model as (JV Co?) EPC/O&M, but a new ‘DBO’ contractor involved D&B/EPC Contract O&M Contract to ‘wrap’ all obligations DBO might be a JV between• D&B or EPC Developer and operator• FIDIC or bespoke D&B/EPC O&M Operator Contractor Interface Contract 5
  6. 6. Concession/PPP: privately financed Developer Concession and Real Estate Direct Agreements Agreement Shareholder 1 $ Debt $ $ Equity $ SPV Financiers PF & Security Shareholder 2 documents Direct Agreements D&B/EPC Contract O&M Contract• IWPP/IPP• BOT/BOO/DBFO• PPP D&B/EPC O&M Contractor Operator Interface Contract 6
  7. 7. Trends in DC Infrastructure ContractsDevelopment Examples Infrastructure Contract ModelsIsland / mixed use real Saadiyat, Reem, Sowwah, Concessions/PPP,DBO, JV,estate developments Bahrain Bay, Singapore EPC/O&M (ie most types) Marina Sands, Capital Gate, Dubai island deals, DharhanSocial infrastructure Universities, hospitals, Concessions/PPP, DBO, housing, stadiums, malls EPC/O&MIndustrial/Essential Industrial Zones, Airports, DBO, JV, EPC/O&MInfrastructure PortsVertical clusters Residential/Commercial DBO, JV, EPC/O&M tower blocks 7
  8. 8. Which model is right for my project? Objectives/Risk appetite/Control/Timing restraints/historical success/Remuneration options Full Privatization PPP DBFO/Concession Level of (BOT/BOO/IWPP) risktransfer to JV/DBO PSP EPC/O&M Outsourcing Level of sophistication and PSP 8
  9. 9. (2) Commercial Issues in DC ProjectsStakeholder Issues:  water source  end user demand  offtake guarantees  tariff structuring Cross over intoProject Phasing: legal issues  phasing of capacity  temporary chillingConstruction Issues:  Reticulation Network/DC Plant interconnection issues 9
  10. 10. Water SupplyLocal utility restrictions on use of potable waterDesal too $$$$?TSE – OK, but enough to supply DC plants?Seawater – higher operating cost and materialsPossible solutions:  engage with local utility/authorities early in project planning  seek short term potable water exemption until TSE or other water source is sufficient 10
  11. 11. End user demand: capacity requirementsDemand curve analysis  get it early  update regularly before signing/closingNature of development  single v multiple offtake?Multiple offtake deals - “Links in the chain”  Developer/Operator/End Users  Solutions include - offtake guarantees/wraps 11
  12. 12. Offtake GuaranteesWhy relevant?  ‘Bankability’ - lenders’ requirement to get project up  Not captive - DC deals are not like IWPPsWho from?  Developer or Anchor End User (but usually Developer)What is the guarantee?  shortfall demand curve - demand falls below base line curve  shortfall revenue guarantee - revenue falls below base line FMDepends on many variables:  project structure  development & end user profile  network structure  other ‘concessions’ 12
  13. 13. Tariff structuringRequires FA assistance & workshopsUsual components are:  Connection Charge (capex recovery/revenue raiser)  Capacity Charge (capex recovery & real profit area)  Consumption Charge (opex recovery/pass through of utilities charges)1st two charges can be mergedBilling and collection risk? 13
  14. 14. Phased Capacity/Temporary facilities• Consider chiller/plant phasing & modular plants • Modular plants (5k TR – 25k TR) which are built in ‘phases’ according to demand; first chilling is then met with delivery of Plant 1a and 1b etc • Other option is for Plant 1 to have chiller ramp up (eg build plant for 30k T but slot in 5k TR chillers at a time like leggo pieces) • Efficiency and flexibility • Easier to finance for DBFOs/Concessions• Have you developed a temporary chilling plan? • hired chillers plugged into the network pre permanent solution. Space requirements 14
  15. 15. Network Delivery & InterconnectionCorridor reserved? Massive error on some projectsWhat other works surround the DCP site and the corridor? (eg other pipes)Timing issues: Developer led or private sector?If Developer, how is the CAPEX recovered?Relationship with Musataha/Right of Usage AgreementIndependent CertifiersInterconnection issues: warranties, multiple contractors, claims, defects risk 15
  16. 16. Construction Issues - interconnectionCentral Plant Distribution Network ETS End User Premises 16
  17. 17. (3) Legal Issues (in addition to the above)• Regulation - Middle East v Other DC/DH Markets• Land issues/risks• Construction issues - defective works/latent defects• Temporary facilities - breaches?• O&M Issues - KPI breaches?• Bankability Issues:  Change Events (Variations, FM, Compensation Events, Relief Events)  Security package and Step in rights  Termination Payments 17
  18. 18. End of Presentation Any Questions? 18

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