![]() ![]() The idea is to answer the questions with the model that is developed in subsequent pages by messing around with different construction periods and different funding or construction strategies. As with other lessons, I am in the process of making shorter introductory videos that focus on the economics and finance issues.įiles Associated Funding During ConstructionĪs with lesson set 1 of this page, I have set the exercise files up with open-ended conceptual questions in the first page of the file. Further, the models use monthly periods and demonstrate the effect of alternative construction periods. Circular issues arise with interest during construction and fees during construction. ![]() Other videos associated with this lesson set describe how to program alternative draw-down techniques in the construction phase of a project. The video and associated file demonstrates how to put together multiple projects and assess where the income from one project can be used to fund other project. It can occur in nuclear plants were a station of 4 plants in China had different dates for the start of power production. This can occur for small gas engines where in Jordan a portfolio of engines that have 20 MW of capacity were put together to generate a 500 MW plant. The video below works through the issue of funding during construction where a project can be divided into multiple parts. Borrowing Money During the Construction Period ![]() Finally, the lesson includes working capital that may be funded during construction and the alternative ways working capital can be financed. This requires alternative assumptions with respect to how the delay in construction occurs. The lesson set also deals with liquidated damages for delay in construction associated with the cost of money that occurs while a project is delayed. This has an effect if the debt to capital constraint is applicable. If profits during construction are measured as income rather than cash flow, the amount of cash equity input into the project can be dramatically reduced. In fact, if equity is contributed before debt it makes no difference at all. ![]() Capitalisation of interest makes hardly difference at all either where a debt to capital constraint is applied or whether a DSCR constraint is used. Other issues associated with borrowing money during the construction involve capitalisation of interest rather than payment of interest, the accounting treatment of cash flow and profits generated during construction, treatment of interest during construction on a shareholder loan, evaluation of the risks and costs for a construction over-run facility, liquidated damages for delay and other issues. As equity bridge loans would not be made without a parent guarantee, interesting conceptual issues arise as to whether the benefits of the bridge loan should be attributed to the project or whether the project return should be computed without the equity bridge loan. These bridge loans involve borrowing money for the equity and then paying back the loan at commercial operation. Further with a guarantee from the parent, equity bridge loans have been used. But now with some kind of direct or indirect support from either sponsors or EPC contractors, the debt can be borrowed on a pro-rata basis with equity. Pure project finance would involve putting all of the equity money in before debt is drawn. The videos and files in this lesson set address alternative methods of borrowing money that has been committed by lenders. ![]()
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