project finance case study

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Project Finance: Free Online Course

Learn the basics of a project finance transaction, key debt, and cash flow metrics, as well as return calculations and common scenarios used to support negotiations using a real case study. Includes FREE Excel template.

Get Certified in Project Finance Modeling

Table of Contents

What is Project Finance?

Before we begin – download the free excel template, video 1: introduction, video 2: project finance primer, video 3: course overview, video 4: timeline and process, video 5: timeline and process, part 2, video 6: construction and operations calculations, video 7: negotiations & optimizations, conclusion & next steps.

Welcome to Wall Street Prep’s free online course on Project Finance! 

Project finance refers to the funding of large, long term infrastructure projects such as toll roads, airports, renewable energy using a non-recourse financing structure, which means that debt lent to fund the project is paid back using the cash flows generated by the cash flows generated by the project.

Course objectives: We created this course to provide students and finance professionals pursuing a career in project finance with an understanding the role and interests of the typical participants project finance transaction, key debt and cash flow metrics such as CFADS , DSCR & LLCR, as well as equity return calculations. We hope you enjoy –  let’s begin!

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This is the first part of a 7 part series, where you will learn about the basics of project finance analysis. Using Heathrow’s expansion of a third runway , we will walk through the basics of a project finance transaction, key debt, and cash flow metrics, as well as return calculations and common scenarios used to support negotiations.

In part 2, you’ll learn the basics of a typical project finance transaction, as well as key project finance jargon and terminology, such as SPV, PPP, CFADS, DSCR , EPV, EPC, DSRA, P90/P50.

In part 3, we introduce our project finance case study: Heathrow Airport’s expansion of a third runway.

The Ultimate Project Finance Modeling Package

Everything you need to build and interpret project finance models for a transaction. Learn project finance modeling, debt sizing mechanics, running upside/downside cases and more.

In part 4, you’ll learn about the typical project finance timeline and process. You’ll learn about the different characteristics of the project development, construction and operation phases of an infrastructure project.

In this lesson, you’ll continue on with the Heathrow Airport case study and learn about the capex , operations, debt and tax mechanics and calculations involved in a project finance transaction.

In part 6, you’ll learn about the cash flow waterfall and set the stage to determine cash flow available for debt service (CFADS), the Debt Service Coverage Ratio (DSCR), the Loan Life Coverage Ratio (LLCR), determine the all-important Project IRR .

In this final lesson, we will introduce the various interests of the stakeholders involved in a project finance transaction. You will learn about the typical contours of a project finance negotiation and the typical scenarios that a project finance model must accommodate to support these negotiations.

We hope you enjoyed the course and please provide feedback in the comment section below. To learn more about how to build a comprehensive bankable project finance model, consider enrolling in our complete Project Finance Modeling Certification Program.

• Project Finance Guide
• Project Finance Career Paths
• Project Finance Model Structure

Well done. Project Finance is really demystified.

A joy to listen.

Glad to hear, and thanks for that feedback!

It´s interesting for me the Scenarios Manager. In the model End i see it but in the other one i don´t know how to make the table and the index. Could you explain me?

If there is a completed version in the model that comes with this course, try to duplicate it. Also check out our FSM course online for its lesson on scenarios.

kindly e mail to me the schedule of On line courses and fees and eligiblity criterion .

We will adjust our work shcedule to match the time lags/leads owing to our geographical locations

Please check out this link: https://www.wallstreetprep.com/support/ , and email [email protected] , and they will get back to you with that information!

Sir , I would consider referring my employees from finance department to go for concise On Line Course . we are taking up BOOT projects of mid sized tickets for food waste digesters and Effluent Treatment and recycling to private industries in India

Hi, Shreepad,

Great, we would love to help your employees!

Dear sir , this free on line course on BOOT Finance is excellant , it enlightened me on all aspects of Long term Project financing . It is crisp, to the point , simplified to understand the complex process of making the financial decision .I work as CEO in Indian …  Read more »

Glad to hear the course was helpful!

I think this free Project Finance intro course was brilliant! I wish we could also get the slides

Thank you, Ukamaka! Unfortunately, we do not provide the slides for this course, but please do check out our complete project finance online course! https://www.wallstreetprep.com/self-study-programs/the-ultimate-project-finance-modeling-package/

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Learn Online: Everything you need to build and interpret project finance models for a transaction.

The Wall Street Prep Quicklesson Series

Dubai International Academic City, Institute of Management Technology, Dubai, United Arab Emirates

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• Includes insightful case studies on finance in major projects
• Discusses both theoretical perspectives and practical aspects of project finance
• Presents a framework for evaluating structure, value and risk

Part of the book series: Management for Professionals (MANAGPROF)

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About this book

Large projects are defining moments for companies and countries. When large projects succeed, they can dramatically improve the social and economic conditions in a region. This book focuses on major aspects of the world’s largest infrastructural, industrial and public service projects through the lens of structuring, valuing, managing risk and financing projects. The book analyses and discuss large projects in government, private and public and private partnership. The author sheds light into the attributes of project finance which have unique structural elements. The book focuses on case studies related to 50 mega projects which includes infrastructural projects, energy related projects, industrial projects, roads, ports and bridges among others. This book covers both the theoretical aspects of financing of mega projects and the practical applications by including case studies of the world’s largest projects in terms of value.

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Table of contents (54 chapters)

Front matter, trends in infrastructure industry.

B Rajesh Kumar

Infrastructure Financing Instruments

Risks inherent in project finance and its mitigation, structuring and implementation of the project, case 1: the chuo shinkansen project, japan, case 2: developing the world’s largest passenger aircraft-airbus a3xx, case 3: south north water transfer project china, case 4: dubailand project, case 5: international space station, case 6: al maktoum international airport, case 7: california high speed rail project, case 8: london cross rail project, case 9: beijing daxing international airport, case: 10 jubail ii industrial city, case 11: hong kong zhuhai macao bridge (hzmb), case 12: gotthard base tunnel (gbt), case 13: channel tunnel uk, case 14: doha metro, case 15: panama canal expansion, authors and affiliations, about the author.

B. Rajesh Kumar  is a professor of finance at IMT Dubai (UAE). He received his Ph.D. from the Indian Institute of Technology Kharagpur (IIT Kharagpur, India). His research interests are in areas of applied corporate finance, valuation, M&A   and sustainability.  He has authored over 65 empirical research papers in refereed journals and seven scholarly books published by publishers such as Springer, Academic Press-Elsevier, Palgrave Macmillan and McGraw-Hill.

Bibliographic Information

Book Title : Project Finance

Book Subtitle : Structuring, Valuation and Risk Management for Major Projects

Authors : B Rajesh Kumar

Series Title : Management for Professionals

DOI : https://doi.org/10.1007/978-3-030-96725-3

Publisher : Springer Cham

eBook Packages : Economics and Finance , Economics and Finance (R0)

Copyright Information : The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022

Hardcover ISBN : 978-3-030-96724-6 Published: 04 May 2022

Softcover ISBN : 978-3-030-96727-7 Published: 05 May 2023

eBook ISBN : 978-3-030-96725-3 Published: 03 May 2022

Series ISSN : 2192-8096

Series E-ISSN : 2192-810X

Edition Number : 1

Number of Pages : XV, 332

Topics : Business Finance , Risk Management , Project Management , Industries

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Easing complex transactions: project finance case studies, project finance is complex, which is a why a corporate trust partner with comprehensive capabilities is a critical piece of the puzzle..

Improving the country’s aging infrastructure is a top priority, and the $1 trillion Congress recently committed to infrastructure spending will likely kickstart a host of new building projects. At the same time, the American Society of Civil Engineers estimates that the United States needs to spend $4.5 trillion by 2025 to “fix” the country’s infrastructure.

What that means for stakeholders across the infrastructure industry is a growing pipeline of projects, along with the need for project finance expertise to help move projects forward. Bringing those projects to a successful close requires proven expertise, experience and strong communication processes, as well as an ability to work seamlessly with a number of parties and an ability to understand and navigate project finance risks.

As a leading global corporate trust provider , U.S. Bank has experience working on many complex transactions.

“We’ve seen many different approaches to these financings, and we have the ability to come to the table, apply our expertise from prior transactions in the documentation process, and help our clients reach the best outcome on how they’re going to put these complex financing packages together,” says Bob Kocher, managing director, U.S. Bank Global Corporate Trust.

That expertise was recently highlighted in two major project finance projects, where U.S. Bank served as a trustee in bond issuances in the capital stack of the Red River Diversion Project at the Minnesota/North Dakota border and the Central 70 Project in Colorado.

Red River Diversion project

In an infrastructure industry that is no stranger to large, complex projects, the Red River Diversion Project is a notable standout. The $3 billion project is more than a decade in the making, with numerous stakeholders and a mix of funding sources. It’s also a landmark public-private partnership (P3) project in the water infrastructure industry.  

The Red River Diversion project represents the first use of the U.S. Army Corps of Engineers’ P3 Pilot Program to reach financial close. The aim of the program is to improve collaboration between the public and private sectors, as well as develop a more efficient alternative financing model for future Corps infrastructure projects.  

The Red River Diversion project intends to provide permanent, reliable flood protection to the Fargo-Moorhead metropolitan area. The Red River serves as the state border for much of Minnesota and North Dakota and cuts through the center of Moorhead, Minnesota, and Fargo, North Dakota. Spring flooding in the Fargo-Moorhead metro has been a chronic problem for decades.  

The solution is the development of a 30-mile diversion channel. The Army Corps of Engineers is overseeing design and construction, with completion scheduled in 2027.  

The Red River Diversion project involved a number of intricate financing sources that were woven together, including developer equity, federal and state funding and $1.1 billion from local tax levies. The Metro Flood Diversion Authority worked with the U.S. Environmental Protection Agency to obtain one of the largest Water Infrastructure Finance Innovation Act (WIFIA) loans in the program’s history, at $569 million. In addition, project financing included $273 million in tax-exempt senior bonds issued through the Wisconsin-based Public Finance Authority.  

According to the Corps , the Red River Diversion P3 was an “innovative approach leading to significant gains in efficiency, productivity and resiliency” that saved the federal government $277 million and shortened the construction time by 10 years.  

As part of a competitive bid process, U.S. Bank was selected in April 2021 to serve as the bond trustee on the bonds issued by the Wisconsin Public Finance Authority, as well as filling additional roles as the account bank, collateral agent and dissemination agent.  

Once U.S. Bank was selected as trustee, it needed to get up to speed quickly with all documents, provide comments regarding duties and liability and communicate to all parties its views on how the transaction should work as it related to the daily activities of the trustee.  

“This trustee deal had a tremendous amount of document turnarounds as a result of the complexity of the transaction. It required attention to detail to ensure changes were consistent throughout all the documents,” says Angela Davis, relationship manager, Global Corporate Trust at U.S. Bank.  

Keeping communication and workflow on track is a testament to the U.S. Bank team’s diligence in tracking documents, as well as its proactive approach to the collection and distribution of project information and covenants.  

“Through our hands-on partnership and ability to work efficiently with other business lines inside of U.S. Bank, our client received everything they needed to keep this project moving forward,” says Davis.  

Collectively, the U.S. Bank team will serve as the operational and administrative end of the financing, following the documents, administering the movement of funds and making sure the money is moved from account to account properly. U.S. Bank will be responsible for the billing and collecting funds to pay holders of the bonds and senior notes through 2056.  

“P3 projects are the wave of the future, and U.S. Bank is at the forefront of that shift in how infrastructure projects are financed,” says Kocher.

“We can come to the table, apply our expertise from prior transactions in the documentation process, and help our clients reach the best outcome.” Bob Kocher, managing director, U.S. Bank

Central 70 project

Interstate 70, between I-25 and Chambers Road in Denver, is a key corridor that services nearly 1,200 businesses and provides an important regional connection to Denver International Airport. The  Central 70 Project  will reconstruct a 10-mile stretch of I-70, add one new Express Lane in each direction, remove the aging viaduct and create a four-acre park over a portion of the lowered interstate between Brighton and Colorado Boulevards.  

The Central 70 Project involves the refinancing of a 2017 Transportation Infrastructure Finance and Innovation Act (TIFIA) loan, along with the financing of additional costs. As part of the refinancing, the U.S. Department of Transportation’s (DOT) Build America Bureau provided a new TIFIA direct loan with a reduced interest rate, allowing for additional loan principal increase to facilitate project completion.  

Besides TlFIA, the project is backed by the proceeds of tax-exempt private activity bond and taxable bond issuances, as well as contributions from the state DOT, the Colorado Bridge and Tunnel Enterprise, the High Performance Transportation Enterprise, and local and state entities .  The Series A bond issuance totaled $51,670,000 and the Series B bond issuance totaled $464,955,000.  

U.S. Bank served as bond trustee and acted in ancillary roles as the collateral agent and intercreditor agent, paying agent, registrar, transfer agent and dissemination agent. In addition, because bondholder approval was needed to issue the new debt in 2021, U.S. Bank stepped in and served as the tabulation agent for the existing investors.  

Key to a successful project finance deal is finding a partner with the expertise, resources and systems to streamline the process, such as tracking necessary compliance requirements and providing online reporting for the client. In addition, these complex deals often require a higher level of client relationship management.  

“There is a lot more client interaction than a typical municipal financing, because there is always something going on, whether it is requisitions being paid or the sponsor needing to post financials or updates that need to be disseminated to the market,” says Gretchen Middents, relationship manager, Global Corporate Trust at U.S. Bank. “So, it is a much more hands-on relationship as compared with other assignments that don’t have the same scope of documents and requirements.”  

In addition, working with a third-party trustee and agent to perform all project finance roles can produce numerous efficiencies, such as streamlining operations, coordinating workstreams from various parties and providing assistance for investors at every stage of the project lifecycle. Finding a partner with extensive experience servicing all debt vehicles can help guide decision-making with strategic insights and proactive solutions.  

“These projects are more of a team effort because of the complexity,” adds Middents, “and being able to rely on others within our organization is key to our success.”

U.S. Bank administers a variety of infrastructure asset types and has the dedicated expertise to assist investors at every stage of the project finance lifecycle. See our extensive suite of services for debt financing  here  or contact Lars Anderson at  [email protected]  or Alejandro Hoyos at  [email protected] .

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Disclosures.

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.

• Harvard Business School →
• Faculty & Research →
• June 2014 (Revised July 2014)
• Background Note
• HBS Case Collection

An Overview of Project Finance and Infrastructure Finance—2014 Update

• Format: Print
• | Language: English
• | Pages: 42

About The Author

Benjamin C. Esty

Related work.

• Faculty Research
• An Overview of Project Finance and Infrastructure Finance—2014 Update  By: Benjamin C. Esty, Carla Chavich and Aldo Sesia

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Project Finance Modeling & Infrastructure Modeling

How to Master Cash Flow Projections, Debt Sculpting, and Infrastructure Asset Modeling - So You Can Ace Your Project Finance Case Studies and Win Offers

Evaluate infrastructure deals like a pro.

You’ll evaluate the risks and rewards and make investment recommendations

Master financial modeling

Model solar, wind, gas, nuclear, toll road, airport, and mining assets

Complete 8 case studies

Build 4 shorter “crash course” models and 4 detailed “on the job” ones

View short course outline  or scroll down for the details

Join Our Community Join the 56,763+ students and professionals who have already used our training to win interviews and job offers Ace Your Interviews Get everything you need to answer technical questions and complete case studies with confidence Get Expert Support Unlimited access to course files, 5 years of support/updates/video access, and a 90-day money-back guarantee Outperform At Work The more models and deal analyses you have, the better you'll perform... and the higher your bonus will be

I won’t mix words: Most Project Finance training is terrible .

Whether you’re looking at paid courses, in-person training, or free resources, most training uses two equally useless approaches: 

Wrong Approach #1: Convoluted Models – Complex models can be nice, but when you’re  completing case studies in an interview setting , no one will ask you for a 5,000-row Excel model with built-in VBA and macros. And when you’re on the job, shorter, simpler models are more useful if you need a quick reference or formulas you can re-purpose for your current task.

Wrong Approach #2: “Barely Project Finance” Financial Modeling – On the other end of the spectrum, some of this training is so simple and generic that it’s a stretch to call it “Project Finance.” You can project the cash flows for  almost any asset , but you need a lot more than simple cash flows linked to energy production to call it a “Project Finance model.”

The correct approach – the one our course uses – is  based on real-life case studies given in interviews .

We don’t teach 5,000-row Excel models that require 30 hours to understand; we teach what you need to know to complete case studies.

That means the models in this course are in the “intermediate zone,” with each one taking up 50 to 300 rows in Excel (the “on the job” case studies go beyond this since they are intentionally more complex).

It’s enough to learn the core concepts and finish in a few hours, but not so much that you get lost in a pile of minutiae under some broken wind turbines.

We created this course by gathering dozens of case study examples from students who had been through interviews at Infrastructure Private Equity firms and Project Finance groups and synthesizing the best parts of their cases.

Our approach focuses on the  3 most important points in Project Finance Modeling:

1) Cash Flow Projections – You need to know how to move from  energy production or traffic levels to  revenue and expenses and how items such as depreciation, loan fees, and interest factor into an asset’s cash flows.

If you get your units wrong, your offshore wind farm might morph into a nuclear plant and have a meltdown or two – and you won’t be able to blame it on Homer Simpson!

2) Debt Sizing and Sculpting – Project Finance is fundamentally different from corporate finance because of this focus on  sculpting the Debt to match the asset’s future cash flows. And you must know how to set up debt sizing and sculpting with standard Excel formulas, Goal Seek, simple VBA code, and circular reference switches.

3) Investment Recommendations – Finally, you need to understand  how to put together all the pieces to make an investment recommendation. You must be able to read the numbers in the different cases, assess the risk factors, and say “Yes” or “No” to a deal.

No other training on the market  puts together all the pieces quite like this because they’re too busy teaching confusing models that require a Ph.D. to understand.

This course has 8  case studies ranging from 30 minutes to 4 hours, so you can pick your ideal learning path based on how much time you have.

Through these case studies, you’ll learn to:

• Project cash flows for different types of infrastructure assets, ranging from renewables to fossil fuels to nuclear to toll roads and airports.
• Understand timelines and flags in infrastructure models and how they factor into debt refinancing, sculpting, and sizing.
• Build the key drivers for infrastructure assets, including the links between energy production under different contract types and revenue (and, for transportation, the links between GDP, inflation, and growth rates).
• Calculate the key metrics for infrastructure assets for both the equity investors and the lenders, including the equity IRR and cash-on-cash multiple, the Debt Service Coverage Ratio (DSCR), the Loan Life Coverage Ratio (LLCR), the Project Life Coverage Ratio (PLCR), and the Levelized Cost of Energy (LCOE).
• Sculpt and size Debt properly based on minimum DSCR and LLCR targets – with standard Excel formulas, Goal Seek, simple VBA code, or circular calculations.
• Handle multiple tranches of Debt, such as one tranche with a “merchant tail” and fixed amortization or two tranches that are both sculpted and sized based on the asset’s cash flows.
• Build in reserve accounts, such as the Debt Service Reserve Account (DSRA), Major Maintenance Reserve Account (MMRA), and Decommissioning Reserve, and analyze their impact on the cash flows.
• Model construction periods in development deals, including tricks to avoid the circular references created by the interest during construction (IDC) and the loan commitment fees.
• Use VBA to avoid circular references, size and sculpt Debt properly, build sensitivity tables, and back-solve for key assumptions such as the proper PPA rates in different scenarios.
• Make investment recommendations based on the deal’s expected returns and the key risk factors.

If you want to answer interview questions, complete case studies with ease, and leap up the ladder once you start working, this is the course for you.

Brian DeChesare Founder, Breaking Into Wall Street

Here’s What You’ll Get When You Sign Up for This Project Finance & Infrastructure Modeling Course:

Acquisition Case Studies ("Brownfield" Deals)

WHY IT’S IMPORTANT: This training gets you up to speed  quickly with cash flow projections and debt modeling for assets like toll roads and power plants, which are the bread-and-butter of infrastructure.

This training is based on  2 case studies – one for a toll road in Spain and one for a natural gas power plant in the U.S.

You’ll learn how to project revenue, expenses, and cash flow for each one, including nuances around downtime for maintenance and repairs and possible net operating losses (NOLs).

You’ll also learn how to sculpt and size the Debt using simple Goal Seek functions as well as a macro written in VBA – and how to handle an acquisition scenario with two tranches of Debt and a “merchant tail” on one.

Finally, you’ll use the IRR and credit metric output to make an investment recommendation in each case and determine whether the asking prices are appropriate.

Development Case Studies ("Greenfield" Deals)

WHY IT’S IMPORTANT: These lessons walk you through the construction and operations of renewable assets (solar and wind farms) and explain how to evaluate deals and make investment recommendations.

In these lessons, you’ll complete a  solar plant development model and an  offshore wind farm model .

You’ll start by learning how to model the  construction period for renewable assets, including the debt and equity draws, the interest during construction (IDC), the loan commitment fees, and more.

Then, you’ll learn how to refinance the construction loan into permanent loans, and you’ll forecast the revenue and expenses based on the asset’s energy production, degradation, seasonality, and “uncertainty” (e.g., P50 vs. P70 vs. P90).

Each model treats the Debt a bit differently, so you’ll learn how to size and sculpt it to match the asset’s cash flows based on targets such as a minimum DSCR or LLCR – and you’ll learn how to model multiple Debt tranches in a single deal based on these overall constraints.

Finally, you’ll answer case study questions, set up sensitivities, and recommend investing based on the potential returns and risk factors.

Debt Sculpting, Sizing, and VBA (Mini-Course)

WHY IT’S IMPORTANT: This mini-course is perfect if you want to learn  the concepts in Project Finance without completing the detailed case studies. Think of it as your “interview crash course.”

This set of lessons walks you through the fundamental concepts using simplified models: The Debt Service Coverage Ratio (DSCR), the Loan Life Coverage Ratio (LLCR), and how to size and sculpt Debt based on both of them, including VBA and Goal Seek to remove circular references.

The training also covers cash flow sweeps, Debt sizing/sculpting with variable dates and maturities, quarterly models, and how to size and sculpt two Debt tranches with different terms.

The final lessons explain the link between the Construction Loan and Permanent Loans in a Project Finance model and how to avoid circular references in the development period using simple VBA code.

Detailed Quarterly Solar Development Case Study

WHY IT’S IMPORTANT: These lessons walk you through a more complex “on the job” case study for a solar plant development in Australia, with a full quarterly model and support for reserve accounts.

In these lessons, you’ll complete a  quarterly model for a real solar plant in Queensland, Australia, and make an investment recommendation for the equity investors and the lenders.

You’ll start by setting up the  upfront and pro-rata equity and debt draws to cover the construction costs, and you’ll forecast the revenue and operating expenses based on annual vs. quarterly payments and production incentive payments.

Then, you’ll sculpt and size the Senior Debt based on a minimum targeted LLCR in each operating case, with full support for downside scenarios such as availability reductions, construction contingencies, and operating expense overruns.

You’ll also learn how the  reserve accounts , such as the Debt Service Reserve Account (DSRA), Major Maintenance Reserve Account (MMRA), and Decommissioning Reserve, work in an infrastructure model, and how they affect the cash flow to equity and dividends (including a “Cash Trap” setup based on a minimum DSCR and Funded Reserves).

The final lessons walk you through the Levelized Cost of Energy (LCOE) calculation, sensitivity tables, and a full investment recommendation in both Word and PowerPoint format.

Airport Acquisition and Expansion Case Study

WHY IT’S IMPORTANT: These lessons walk you through an “on the job” case study for the acquisition and expansion of the Singapore Changi International Airport, including support for a full 3-statement model.

In this case study, you’ll build a  full 3-statement buyout model for the Singapore International Airport and evaluate the initial deal and its S$10 billion Terminal 5 construction project.

This model blends elements of traditional leveraged buyout models, such as scheduled debt repayments and cash flow sweeps, with infrastructure-specific features, such as Construction Loans and Equity Draws, DSCR-constrained Dividends, and growth rates that depend directly on GDP and inflation numbers.

It also includes some more advanced debt features, such as “grace periods” and variable repayment schedules that change based on the year number.

The final lessons walk you through the IRR and cash-on-cash multiple calculations and how to evaluate the credit risk to the lenders in the deal; you’ll also get the full case answers and a presentation with our recommended changes to the deal.

Nuclear Plant Development Case Study

WHY IT’S IMPORTANT: This training delves into the nuances around assets with extremely long construction timelines and operating lives and explains how the financing methods and investment analysis differ.

You’ll build a detailed development and operational model based on the Shin Hanul nuclear power plant in South Korea in this module (estimated construction cost of nearly $9 billion USD), and you’ll use this model to recommend the electricity rates used in the power purchase agreement (PPA).

This model includes additional complexities around the development process, such as multiple phases and Preferred Stock that is not refinanced; the operational period also includes a cash flow sweep, DSCR-limited Dividends, and a reserve account for multi-year decommissioning.

It also includes support for a cash flow sweep, interest income from the reserve accounts, and hybrid financing that behaves more like debt or equity, depending on the period.

The final lessons walk you through the returns calculations, the Levelized Cost of Energy (LCOE), and the VBA code to automate the process of back-solving for the recommended PPA rates. Finally, you’ll get the case study answers and a full investment recommendation presentation.

Lithium Mining Development Case Study

WHY IT’S IMPORTANT: This training gives you a crash course on models for natural-resource assets and goes into far more depth on how to use VBA and macros to drive models.

You’ll build a  detailed development and operational model for the Thacker Pass project in Nevada in this module (estimated $5 billion USD construction cost), and you’ll use this model to recommend for or against investing in the deal.

The case study goes into mining-specific nuances around the revenue, expenses, and cash flow, including offtake vs. spot prices, mineral grades, strip ratios, price hedging, and accelerated depreciation.

It also features the most advanced Debt Schedule in the entire course, with sizing and sculpting driven by a set of VBA macros and support for features like the DSRA, Cash Trap, and Cash Flow Sweep.

The final lessons walk you through the returns calculations and how to create sensitivity tables using custom VBA code that is fully integrated with the other macros. You’ll also get the full case study answers and an investment recommendation presentation, including proposed changes to the deal structure.

Certification Quiz

WHY IT’S IMPORTANT: This end-of-course certification quiz lets you test your knowledge and prove it to employers.

This quiz consists of 25 challenging questions that are based on the case studies in the course.

If you pass the quiz with a 90% score (no restrictions on time or the number of attempts), you’ll gain our Certificate in Project Finance Modeling, which you can add to your LinkedIn profile and present in interviews.

Plus… This Course Comes With The Following Valuable Tools To Accelerate Your Learning:

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Take a full 90 days to review the Project Finance & Infrastructure Modeling course and make certain it’s everything we promise.

You do not have to finish everything in that time – think of it as your “trial period” or “evaluation time.”

If you aren’t satisfied for any reason, simply ask for your money back, and we’ll issue a prompt refund – no questions asked.

Plus Expert Support from Experienced Finance Professionals

Just moments after you enroll, you’ll gain Instant Access to the  Project Finance & Infrastructure Modeling course.

But that’s not the best part.

The best part is expert support for a full 5 years after purchase!

If there’s anything that you don’t understand, just go to the “Question/Comment” area below each lesson and ask your question there.

These comments are monitored and responded to by our expert support team – every one of whom has personal experience working on deals at finance firms.

That ensures that you’ll get responses from people with deep experience in the field – not a clueless high school temp clutching the “Help Desk” manual.

This personalized, expert support is one of the things that sets Breaking Into Wall Street apart and gets you to your goals faster.

You can often learn just as much from reading other students’ questions and our responses as you will from the lessons themselves!

Our 1-on-1 coaching rate is $200+ per hour. But when you invest in the Project Finance & Infrastructure Modeling course, personal support is included for FREE .

NOTE: There are some limitations to these support services. For example, we cannot complete models, case studies, or homework assignments for you.

We also cannot provide play-by-play support with an earpiece during interviews.

Finally, we cannot answer questions about topics not covered in these courses, such as sales & trading interview questions.

We’re happy to answer career-related, qualitative, and technical questions that are related to the course materials.

What’s Your Investment In This Project Finance & Infrastructure Modeling Course?

To put this in context, let’s look at your Return on Investment in this course…

The pay for Project Finance jobs varies, but it’s safe to say that even entry-level Associates will earn  at least $150,000 USD per year, if not more than that at larger firms and groups – and the pay is even higher at infrastructure private equity firms.

And as you progress, your total compensation gets higher and higher; Principals can earn into the mid-six-figure range, and Partners in infrastructure private equity can earn $750K to $1 million+ annually, depending on the fund size and overall performance.

And each one had to start in an entry-level role to get their foot in the door – just like you today.

We  could sell the 8 core components of this course for $97 each, for a total of $776, but since this course is new, we’re offering an “early-bird deal” and discounting it to  just $247 .

Compared with your potential upside – jobs that pay well into the six-figure range – your investment in the course is nominal.

By investing just $247 in this course, you’re greatly improving your chances of landing a job that pays upwards of $150,000 in Year 1 – that’s more than a 600x return on investment!

Even if this training only helps you win an internship , that’s still at least $10,000 USD at any reputable firm, for a 40x ROI.

There is no other way to get this level of training… this level of on-demand support… this level of testing and case study practice… and this level of access to a community of thousands of peers…

…at ANY price!

So yes, you have to invest in yourself to gain access to this specialized infrastructure modeling training, but it will be one of the smartest, highest-return investments you ever make – we guarantee it!

We’ve bent over backward to deliver the best, most comprehensive program on the market that gives you everything you need to land a great job and start a long-term career in infrastructure investing.

To date, over 56,763+ people have invested in BIWS training and gone on to secure lucrative jobs in the industry. I want you to be next, and I want to make this a “no-brainer” decision for you.

click here to get project finance & infrastructure modeling Just 1 Payment of $247 (100% Unconditional Money-Back Guarantee)

You’re Also 100% Protected By Our Unique 90-Day, No-Questions-Asked, Money-Back Guarantee

Since I want to make this a “no-brainer” decision for you, the Project Finance & Infrastructure Modeling course comes with the same iron-clad guarantee that we offer on everything:

You have 90 days to evaluate the course material and see if it’s right for you.

If you decide at any point during those 90 days that the Project Finance & Infrastructure Modeling  course doesn’t meet your expectations, simply request a refund.

We perform for you, or you get your money back – that’s how it always should be.

Here’s What Will Happen Within a Few Short Moments of You Joining the Project Finance & Infrastructure Modeling Course:

The minute you join, you’ll have access to the complete  Project Finance & Infrastructure Modeling course, including 169 separate videos, full written notes, transcripts and captions, “Before and After” Excel files for each lesson, and 8 case studies based on different energy, transportation, and mining assets.

And the best part: We’ll be here to guide you every step of the way because your enrollment comes with a full 5 years of expert support. If there’s something you don’t understand, just go to the “Question/Comment” area below each lesson and ask your question, and we’ll respond with a detailed answer.

On top of that, you’ll also get access to free updates over time as we continue to improve the course.

Decision and Action Time

Of course, there are other options for learning this material.

For example, you could complete a course on this topic from another provider, buy a generic course on a random e-learning site for $10 or $20… or download some long and convoluted Project Finance models from another site.

These methods have their merits, but they won’t get you the same  results as this course because they’re designed for “generalist” audiences – not people currently interviewing for investment roles at infrastructure firms or project finance roles at banks.

So, if you want to master cash flow projections, debt sizing and sculpting, and returns analysis  as they are used in these industries and hit the ground running on Day 1 of your internship or full-time job, this training is your best option.

Yes, it is more of an investment than a book or an online course written by monkeys at the keyboard, but ask yourself about the value of your time and interview opportunities.

If you win a coveted interview spot at a top infrastructure investment firm, such as Brookfield, Global Infrastructure Partners, or Stonepeak, do you want to “wing it?”

Or do you want to ensure that you’ve prepared in the most comprehensive way possible?

If you’re serious about your future career in the finance industry, you should not even have to think about this one.

And if you have any doubts, it’s all backed by our no-questions-asked, no-hassle, 90-Day Money-Back Guarantee.

In fact, the ONLY risk is that you might apply for a job or walk into an interview without this course – and lose out to another candidate who has completed it.

The next move is up to you.

You can  hope that an investment firm or bank hires you without knowledge of these topics or the ability to complete case studies and make investment recommendations…

…or you can confidently tell them you’ve completed  the most targeted infrastructure and project finance training available , based on 8 case studies and authored by finance professionals who have collectively worked on dozens of deals.

I know you’ll make the right choice.

To YOUR success,

Brian DeChesare Breaking Into Wall Street Founder

P.S. Remember that you have NOTHING to lose and nearly unlimited upside – your future career in a high-paying industry – to gain. You have a full 90 days to evaluate the program and return it for a full refund if you’re not satisfied.

Of course, it’s much more likely that you’ll be writing in to thank me in the future – just like so many others have. Here’s what some of our BIWS students have said about their experiences:

"Thanks to the courses I bought on BIWS, I managed to get an offer in Project Finance in a top-ranked European bank."

"The courses have been with me since the beginning of my career. I was a sell-side research analyst, now working at an infrastructure investments company."

"With no background in IB, I won multiple offers in private equity as well as one offer from IB. I am currently working at a PE fund, and your case studies made the case studies in their interviews a cake walk."

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• General & Introductory Civil Engineering & Construction
• Construction
• Construction Management

Project Finance for Construction and Infrastructure: Principles and Case Studies

ISBN: 978-1-405-15127-6

January 2008

Wiley-Blackwell

Digital Evaluation Copy

Frederik Pretorius , Douglas Arner , Berry-Fong Chung-Hsu , Paul Lejot , Arthur McInnes

This is a self-contained text on the logic and institutions of project finance, supplemented by a series of project finance case studies illustrating applications in different economic environments, across different jurisdictions and at different stages of development.

It will introduce an analytical framework drawing on applied institutional economics that includes and concentrates primarily on an analysis of the institutional logic behind generic project finance arrangements.

The application of the institutional framework will be demonstrated with project cases from Hong Kong, Thailand, India, Europe and Azerbaijan – each at different stages of development. While each project case will have a general theme and will highlight aspects of interest to built environment professionals, it will primarily be used to illustrate one or more specific PF/PFI principle.

Frederik Pretorius and Berry Hsu, Department of Real Estate and Construction, University of Hong Kong.

Paul Lejot and Douglas Arner, Faculty of Law, University of Hong Kong.

Arthur McInnis, Faculty of Law, City University of Hong Kong.

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What Is Project Finance?

• How It Works

Off-Balance Sheet Projects

Nonrecourse project financing.

• Recourse vs. Nonrecourse Loans

Project Finance vs. Corporate Finance

The bottom line.

• Corporate Finance
• Corporate Debt

Project Finance: Definition, How It Works, and Types of Loans

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Diane Costagliola is a researcher, librarian, instructor, and writer who has published articles on personal finance, home buying, and foreclosure.

Project finance is the funding of long-term infrastructure, industrial projects, and public services using a nonrecourse or limited-recourse financial structure . The debt and equity used to finance the project are paid back from the cash flow generated by the project.

Project financing is a loan structure that relies primarily on the project’s cash flow for repayment, with the project’s assets, rights, and interests held as secondary collateral. Project finance is especially attractive to the private sector because companies can fund major projects off-balance sheet (OBS) .

Key Takeaways

• Project finance involves the public funding of infrastructure and other long-term, capital-intensive projects.
• Project financing often utilizes a nonrecourse or limited-recourse financial structure.
• A debtor with a nonrecourse loan cannot be pursued for any additional payment beyond the seizure of the asset.
• Project debt is typically held in a sufficient minority subsidiary that is not consolidated on the balance sheet of the respective shareholders, which makes it an off-balance sheet item.

How Project Finance Works

As noted above, the term “project finance” refers to the financing of long-term industrial and/or infrastructure projects—most commonly for oil and gas companies and the power sector. It is also used to finance certain economic bodies like special purpose vehicles (SPVs) . The funding required for these projects is based entirely on the projected cash flows.

Some of the common sponsors of project finance include the following entities:

• Contractor sponsors : These sponsors provide subordinated or unsecured debt and/or equity. They are key to the establishment and operation of business units.
• Financial sponsors : These sponsors include investors and are usually in the pursuit of a big return on their investment.
• Industrial sponsors : These sponsors generally believe that the project is related to their own businesses.
• Public sponsors : These sponsors include governments from various levels.

The project finance structure for a build, operate, and transfer (BOT) project includes multiple key elements. Project finance for BOT projects generally includes an SPV. The company’s sole activity is carrying out the project by subcontracting most aspects through construction and operations contracts. Because there is no revenue stream during the construction phase of new-build projects, debt service only occurs during the operations phase.

For this reason, parties take significant risks during the construction phase. The sole revenue stream during this phase is generally under an offtake agreement or power purchase agreement. Because there is limited or no recourse to the project’s sponsors, company shareholders are typically liable up to the extent of their shareholdings. The project remains off-balance sheet for the sponsors and for the government.

Not all infrastructure investments are funded with project finance. Many companies issue traditional debt or equity in order to undertake such projects.

Project debt is typically held in a sufficient minority subsidiary and is not consolidated on the balance sheet of the respective shareholders. This reduces the project’s impact on the cost of the shareholders’ existing debt and debt capacity. The shareholders are free to use their debt capacity for other investments.

To some extent, the government may use project financing to keep project debt and liabilities off-balance sheet so they take up less fiscal space. Fiscal space is the amount of money that the government may spend beyond what it is already investing in public services such as health, welfare, and education. The theory is that strong economic growth will bring the government more money through extra tax revenue from more people working and paying more taxes, allowing the government to increase spending on public services.

When a company defaults on a loan, recourse financing gives lenders full claim to shareholders’ assets or cash flow. In contrast, project financing designates the project company as a limited liability SPV. The lenders’ recourse is thus limited primarily or entirely to the project’s assets, including completion and performance guarantees and bonds, in case the project company defaults.

A key issue in nonrecourse financing is whether circumstances may arise in which the lenders have recourse to some or all of the shareholders’ assets. A deliberate breach on the part of the shareholders may give the lender recourse to assets.

Applicable law may restrict the extent to which shareholder liability may be limited. For example, liability for personal injury or death is typically not subject to elimination. Nonrecourse debt is characterized by high  capital expenditures (CapEx) , long loan periods, and uncertain revenue streams. Underwriting these loans requires financial modeling skills and sound knowledge of the underlying technical domain.

To preempt deficiency balances, loan-to-value (LTV) ratios are usually limited to 60% in nonrecourse loans . Lenders impose higher credit standards on borrowers to minimize the chance of default. Nonrecourse loans, on account of their greater risk, carry higher interest rates than recourse loans.

Recourse Loans vs. Nonrecourse Loans

If two people are looking to purchase large assets, such as a home, and one receives a recourse loan and the other a nonrecourse loan, the actions that the financial institution can take against each borrower are different.

In both cases, the homes may be used as collateral , meaning they can be seized should either borrower default. To recoup costs when the borrowers default, the financial institutions can attempt to sell the homes and use the sale price to pay down the associated debt. If the properties sell for less than the amount owed, the financial institution can pursue only the debtor with the recourse loan. The debtor with the nonrecourse loan cannot be pursued for any additional payment beyond the seizure of the asset.

Project and corporate finance are very important concepts in the world of financing. Both of these funding methods rely on debt and equity to help businesses reach their financing goals. Having said that, they are very distinct.

Project finance can be very capital-intensive and risky and relies on the project’s cash flow for repayment in the future. Corporate finance, on the other hand, is focused on boosting shareholder value through various strategies like the investment of capital and taxation. Unlike project financing, shareholders receive an ownership stake in the company with corporate financing.

Some of the key features of corporate financing include:

• A company’s capital structure, which is a company’s funding of its operations and growth.
• The distribution of dividends . Dividends represent a portion of the profits generated by a company and are paid to shareholders.
• The management of working capital , which is money used to fund a company’s day-to-day operations.

What Is the Role of Project Finance?

Project finance is a way for companies to raise money to realize opportunities for growth. This type of funding is generally meant for large, long-term projects. It relies on the project’s cash flows to repay sponsors or investors.

What Are the Risks Associated With Project Finance?

Some of the risks associated with project finance include volume, financial, and operational risk. Volume risk can be attributed to supply or consumption changes, competition, or changes in output prices. Inflation, foreign exchange, and interest rates often lead to financial risk. Operational risk is often defined by a company’s operating performance, the cost of raw materials, and the cost of maintenance, among others.

Why Do Firms Use Project Finance?

Project finance is a way for companies to fund long-term projects. This form of financing uses a nonrecourse or limited-recourse financial structure . Firms with weak balance sheets are more apt to use project finance to meet their funding needs rather than trying to raise capital on their own. This is especially true for smaller companies and startups that have large-scale projects on the horizon.

Companies need capital in order to begin and grow their operations. One of the ways that certain companies can do so is through project financing. This form of funding allows businesses that may not have a strong financial history to raise capital for larger, long-term projects. Sponsors, which invest in these projects, are paid using cash flows from the project. This is unlike corporate finance, which is less risky and concentrates on maximizing shareholder value.

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Book description

Tackle infrastructure development projects in emerging markets with confidence

In Project Finance: Applications and Insights to Emerging Markets Infrastructure , distinguished professor and author Paul Clifford insightfully applies the fundamental principles of project finance structuring to infrastructure investments in emerging markets.

Using leading emerging market case studies to illuminate the underlying themes of the book, the author provides a practitioner’s perspective and incisive analysis of concepts crucial to a complete understanding of project finance in emerging markets, including:

· Risk management

· ESG and impact investing

· The emergence of new global multilateral development banks

· China’s Belt and Road Initiative

Project Finance bridges the gap between theoretical infrastructure development, investment, and finance and the implementation of that theory with instructive and applicable case studies. Throughout, the author relies on a grounded and quantitative approach, combining the principles of corporate finance with straightforward explanations of underlying technologies, frameworks, and national policies.

This book is an invaluable resource for undergraduate and graduate students in finance, as well as professionals who are expected to deal with project and infrastructure finance in emerging markets.

Table of contents

• Acknowledgments
• ORIGINS AND HISTORY OF PROJECT FINANCE
• WHY SPONSORS USE PROJECT FINANCE
• PROJECT FINANCE—ASSET CLASS PERFORMANCE
• GLOBAL INFRASTRUCTURE OUTLOOK
• THE INFRASTRUCTURE GAP IN EMERGING MARKETS
• FOCUS—ASIA INFRASTRUCTURE NEEDS
• COMMERCIAL VERSUS CONTRACT VIABILITY
• SPONSOR RISK
• POLITICAL RISK
• CONSTRUCTION AND COMPLETION RISK
• OPERATION AND MAINTENANCE RISK
• SUPPLY RISKS
• RESERVE RISK
• SALES/OFFTAKE RISK
• APPROVALS AND PERMITS
• SOCIAL AND ENVIRONMENTAL CONSIDERATIONS
• FINANCIAL RISKS
• FORCE MAJEURE RISK
• CONSTRUCTION CONTRACTS IN PROJECT FINANCE
• OPERATIONS AND MAINTENANCE CONTRACTS IN PROJECT FINANCE
• OFFTAKE CONTRACTS/CONCESSION AGREEMENTS
• SUPPLY CONTRACTS
• PROJECT FINANCE LOAN DOCUMENTATION
• KEY LENDER PROTECTION MECHANISMS AND STRATEGIES FOR NEGOTIATING FINANCE AGREEMENTS
• TRACK RECORD OF PROJECT FINANCE IN EMERGING MARKETS—THE ASIAN IPP EXPERIENCE
• CURRENCY MISMATCH—LESSONS LEARNED FROM THE ASIAN CURRENCY CRISIS
• HOW THE ASIAN CURRENCY CRISIS TRANSFORMED THE APPROACH TO PROJECT FINANCE
• ROLE OF MULTILATERAL, BILATERAL DEVELOPMENT BANKS, AND EXPORT CREDIT AGENCIES
• STAKEHOLDER ALIGNMENT ISSUES
• MITIGATING POLITICAL AND SOVEREIGN RISKS
• MULTILATERAL DEVELOPMENT BANKS (MDBS)
• BILATERAL DEVELOPMENT BANKS (BDBS)
• EXPORT CREDIT AGENCIES (ECAS)
• COMMERCIAL BANKS
• POLITICAL RISK INSURANCE MARKET—BREACH OF CONTRACT AND NON-HONORING OF FINANCIAL GUARANTEES
• PROJECT BONDS
• EQUIPMENT SUPPLIERS AND FINANCING
• INSTITUTIONAL LENDERS (INSURANCE COMPANIES, INFRASTRUCTURE FUNDS, PENSION FUNDS, PRIVATE EQUITY, AND SO FORTH)
• STRATEGIES FOR MULTI-SOURCED FINANCING IN EMERGING MARKETS
• THE BORROWER/SPONSOR OBJECTIVES
• LENDERS' OBJECTIVES
• DEBT SIZING AND SCULPTING
• FINANCIAL STRUCTURING—DEBT SIZING AND LOAN AMORTIZATION
• LENDER RATIOS FOR DEBT CALIBRATION AND STRESS TESTING
• CASH TRAPS AND SWEEPS
• SUSTAINABLE INFRASTRUCTURE PROJECT FINANCE AND INVESTING
• EQUATOR PRINCIPLES
• MULTILATERAL DEVELOPMENT BANKS AND ESG FRAMEWORKS
• IFC IMPACT INVESTING PRINCIPLES
• GREEN BONDS
• SUSTAINABILITY PROJECT FINANCING AND UN SOCIAL DEVELOPMENT GOALS (SDGS)
• UNLOCKING INSTITUTIONAL CAPITAL TO MEET EMERGING MARKET SDGS
• PROJECT BONDS VERSUS PROJECT LOANS
• PROJECT BONDS INVESTOR BASE AND MARKET LIQUIDITY
• LOCAL CURRENCY PROJECT BONDS AND PARTIAL CREDIT GUARANTEES/INSURANCE WRAPS
• BACKGROUND AND SCOPE OF THE BELT AND ROAD INITIATIVE
• CHINA'S FINANCING STRATEGY FOR BRI INFRASTRUCTURE DEVELOPMENT
• EMERGENCE OF NEW MULTILATERAL DEVELOPMENT BANKS—FOCUS ON THE ASIA INFRASTRUCTURE INVESTMENT BANK
• MINI-PERM FINANCING STRUCTURES
• BACK-LEVERED FINANCINGS FOR RENEWABLE ENERGY PROJECTS
• INFRASTRUCTURE GUARANTEE PRODUCTS—BOND AND PRIVATE CAPITAL CREDIT ENHANCEMENT
• Bibliography
• End User License Agreement

Product information

• Title: Project Finance
• Author(s): Paul D. Clifford
• Release date: December 2020
• Publisher(s): Wiley
• ISBN: 9781119642466

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Resolving BS in Project Finance

Project Finance Case Study – Dabhol Power Plant

This webpage puts together information of the Dabhol electric power plant case. The case is old, but it has a lot of project finance lessons. One lesson is the dangerous way students are taught at Harvard before they go to Wall Street.  Other issues relate to the danger of a high IRR and a high plant cost. The case includes philosophical issues related to legal structuring versus economic analysis; benchmarking of costs; the use of different types of financial models evaluation of the ability of off-takers to honour contracts.

Dabhol is also an interesting case for me because it was first launched as a breakthrough in electricity investment for India and arguably was an important cause of the downfall of Enron. The central issue in the case is whether risk analysis and valuation should have involved contract evaluation and insurance on PPA contracts or whether the ultimate affordability of the produced electricity to ultimate consumers should have been the focus of the analysis.

PDF File with Case Study of the Dabhol Plant Financed by Enron, GE, and Bectel in India in the Late 1990's

Dabhol Case Introduction

For the Dabhol case I have made an assignment rather than just putting some of my opinions on the website. The outcome of the Dahbol case study is well known in project finance (it is difficult not to call the project a dramatic failure). I am not interested in you just telling me what happened. I am interested in how you would have assessed the risks, the contract structure and other issues at the time the loan was made (a long time ago in the 1990’s). Even though the failure of the case is well known, I would like to know how you would have evaluated both positive and negative aspects of the project financing and how you would have considered nuances involving contract structure (in particular, the PPA pricing); benchmarking of costs, rate of return analysis, and off-taker assessment.

The case is about project finance risk analysis and contract structuring.  If you would like to review background in these subjects I have included power point slides that provide discussion of project finance and contracts. You can download these slides by pressing the buttons below.  In particular, you need to understand that project finance does not have history and as such benchmarking may be a good idea. You should also understand why a capacity or availability payment is present in some project finance transactions. You can review project finance issues by clicking on the button below to download power point slides.

Power Point Slides that Accompany the Video Lecture Series on The Theory of Project Finance

Enron Corporation was the main sponsor (owner or equity investor) and developer of the project. The plant was completed in 2001 and became a disaster at about the same time Enron collapsed. Maybe the Dabhol plant problems in India had something to do with the Enron fall.  You can see the Enron stock price data below in case you are young and don’t know story.

In most places in the world (especially in India), the kind of arrangement where the revenue contract (in this case the PPA contract) is negotiated without a bidding process are no longer acceptable. This does not make the Dabhol case obsolete, as the economics of the contracts and political risk associated with the contracts still must be assessed even if a bidding process is used.

Background Resources for Completing Questions Raised in the Case

You can find many of the resources on the website except for the Harvard Business School (HBS) write-up. (I am not allowed to put the HBS case itself on the website because of copyright issues. Somebody from HBS has sent me threatening e-mails about this). I have however, put some of the information from the case in screenshots below.

The basis for the case is the HBS Dabhol Case 1. The last exhibit in this case has numbers on the PPA agreement including the capacity charge.  (In fact, the PPA was changed after the case write-up, but the re-negotiated numbers are not available). For purposes of this assignment you should use numbers and structure from the data in the HBS Case 1 that is the last page of the case.

Other than the HBS case, resources that should help you completing the case and are available download in different sections include:

• Case from India with Financial Analysis of the off-taker (the buyer of power)
• Read PDF excel utility so you can download data from the PDF to an Excel File
• Database File on exchange rates with the India/US exchange rate
• Files for benchmarking that include EIA data and Lazard
• Other case write-ups that describe various aspects of the case

You can use the buttons I have added below to download and read the background materials. (I wrote a few comments about the Dabhol case a few years ago.  You are welcome to read these comments in my case studies preliminary manuscript. But please do not assume these comments are very good. I have not included my comments in the resources available for downloading below.)

Step by Step Instructions for the Dabhol Assignment

The assignment involves writing-up seven parts of the Dabhol project finance case.  There are seven parts of the assignment.  I would like you to write-up one or a couple of paragraphs on each section, something like a credit memo.  Do not worry about the length of this page — I have tried to put a lot of details in the sections so you can concentrate on the central learning issues.

Part 1: Write-up the Summary

Write a succinct summary of the case from a credit analysis perspective (e.g. what were unacceptable risks in the loan agreement and why was the project good or bad from the perspective of risk). Include a couple of sentences in your summary about the implications of the case in the context of general project finance theory.  You should probably write this up after you are finished with other parts of the assignment.

Part 2: Make a Diagram of the Contract Structure and Comment

The Dabhol project was named deal of the year for its contract structure before it imploded. In this section, I would like you to make a diagram of the structure of the contracts in the project financing — the entities and the contracts. Also, in a couple of paragraphs, discuss the general economic concepts of using a purchased power agreement with a capacity charge in an availability-based project. I am looking for a diagram that you can use to discuss risks of contracts not being honoured. I hope you can make it come alive with flows of where the money is coming from and where it is going.

I would also like you to comment on the diagram that is included in Exhibit 1 of the HBS study (shown in the screenshot below).  I hope you make a much better diagram that allows the reader immediately understand risks and mitigations associated with the different contracts.

Part 3: Write a Paragraph on Benchmarking of the Cost per Unit

Any project finance investment includes capital expenditures, operating costs, volumes produced and prices.  A lot of risk analysis depends whether the amounts for these capital expenditure, operating cost and revenue drivers are reasonable.  As project finance does not include financial history, you often need to do some detective work to evaluate unit costs for capital expenditures, operating costs and other items (e.g. capital expenditures per kW).  The cost and the capacity are at the top of the HBS case as shown in the screenshot below.

In this section, I would like you to do some cost benchmarking and compute unit costs of Dabhol. This is a bit difficult because of the age or the case, but you could start with an old HBS case that includes capital costs for different types of units. I have clipped a couple of sources in the screenshots below. Once you finished your benchmarking, comment on the reasonableness of the cost structure explain why you think the Dahbol costs are different from other plants. If you are really fancy, you could try also to benchmark the O&M cost.

I have included a photo of the plant that you can maybe use in benchmarking.  Tell me if you think there is something special about this plant that makes it different from other plants around the world.

Part 4: Compute the Project IRR from the PPA numbers in the HBS Case 1

In this part of the assignment I would like you to compute the project IRR (return on investment measure in project finance) from information given in the HBS case study on the PPA.  I would like you to think about the implications of different return measures.  Maybe as lenders you should not care much about the return. Maybe you think a high return is good. For example, S&P includes various criteria in developing credit ratios. One of the S&P criteria is the return on investment – a higher return on investment is associated with better credit quality.

I would like you to: (1) compute the project IRR from the PPA statistics at the bottom page of the HBS Case 1; (2) discuss the difference between project IRR, equity IRR and debt IRR; (3) comment on the level of the project IRR in the context of credit analysis; and, (4) comment on whether the IRR reflects the true returns to investors.

In computing the project IRR, you can use the step-by-step process below.  I do not want you to struggle too much with this.  I just want you to get a very general idea of what can go into the project IRR calculation and, most importantly, how to interpret the calculation.

Step 1 : Open the Read PDF Excel file (you can download it by pressing the button below)

Read PDF to Excel File that Allows you to Format Data After Copying from PDF File (Press Shift, Cntl, A)

Step 2: Copy the PPA data at the bottom of the HBS case study to a blank excel sheet (the first screenshot). The second screenshot below shows the messy raw data after you copy and paste it into excel.

Step 3 : Press SHIFT, CNTL, A sequence to get the menu to appear (it is essential that the Read PDF to Excel File is open and you see the SHIFT, CNTL A on the bottom status bar of excel). Then go to the Conversions and Adjustments Button and adjust the REPEAT ROW option.  These steps are illustrated in the screenshots below.  If you are having trouble, you can send me an e-mail to [email protected] . The menus that should appear are shown in the screen shots below.

When you have finished this process, there should be a second sheet in your file that is cleaned up.  The cleaned up sheet should look something like the screenshot below. Then you should add a couple of columns and you can make an analysis of the project IRR.

Step 4 : Insert a column for the construction period (assume a 1-year period) and enter the construction cost of $2.8 billion and the capacity of 2,000 MW for both units as quoted in the case.  I have illustrated a little excerpt from this below.

Step 5: Use the absurd assumption that the plant will run 8760 hours per year that is noted in the case (maybe the plant will get a sick day — have an outage of 24 hours in leap years). With this assumption, compute the volumes sold as the capacity multiplied by the hours to arrive at MWH. Assume also that the PPA applies to the entire 2,000 MW of the plant. Do all of your analysis in USD (not USD 000’s or USD millions).  In the case, the contract prices are in USD cents per kWh.  Convert these to USD per MWH through multiplying by 10. These few calculations are shown in the screenshot above.

Step 6: Assume that the contract structure is such that the fuel revenues in the PPA contract match fuel costs and the operating revenues in the PPA contract match the actual operating expenses. This means that the return is earned through multiplying the capacity charge in USD/MWH by the MWH.

Step 7: Compute the Project IRR on a pre-tax basis using the capital expenditures in the first year as the cash output and the combination of the capacity charge and the management fee multiplied by the volumes as the cash flow input.  Use the IRR function in excel. Now do the important part.

Part 5: Off-taker Analysis

If a project revenue depends on a PPA contract, then risk analysis of the project finance should include: (1) the incentive of the off-taker (the buyer of power) is to break the contract; and, (2) the financial ability of the off-taker to honour the contract are essential elements of project finance risk analysis. The Dabhol case was a classic case where evaluation of the off-taker was a crucial element of credit analysis.

To evaluate risks of the central PPA contract not being honoured, I would like you to compute the effects of the PPA on the prices charged by the off-taker in this section. My hope is for you to think past the fundamental legal structure of contracts and the SPV and examine the economics of the project.

You could get very sophisticated about calculating the effects of the PPA contractor on the off-taker the calculation, but for purposes of this assignment, assume that the revenues and therefore prices charged by the off-taker must be increased by the capacity charges and the operating costs.  This means you can make a pro-forma revenue calculation of the offtaker — MSEB — with and without the Dabhol plant. Once you have computed the pro-forma revenue increase, calculate the percent revenue increase that MSEB – the off-taker – must charge to its customers. Finally, as part of your write-up, comment on whether you think the percent increase in revenues will affect the non-technical losses, which is stolen electricity.

For the pro-forma calculation of the revenue increase and percent rate increase, you can use the India perspective case study that is available for download below. In this file you will find a couple of tables that show the revenue of MSEB before attempting to recover charges for the Dabhol plant. Tables that will be useful for this analysis are shown in the screenshot below the button. You can use the read pdf to excel conversion process for this just as you did for the PPA analysis file to do the analysis. Assume that the term Mus in the case study is the same as MWH.

PDF File with Dabhol Case Write-up from Indian Perspective Including Discussion of Finances of MSEB

To make your analysis of how much the capacity charge for Dabhol increases rates to MSEB customers, you should first convert the Rupiah to USD in the above table. This can be done by using the interest rate database file that is available for download. Once you have converted the numbers to USD, you can then use the 1998-1999 values to make a pro-forma rate calculation (Revenues in USD divided by MWH).  After that, make the same calculation, but add the capacity charges from the Dabhol plant to the revenues and compute the revenue per kWh after the plant is added.  Finally, compute the percent change in prices.

In making the calculation, you will need to convert the data in Rupiah to USD.  You can do this by using the file below or you can estimate the exchange rate using the graphs below. The graph can be downloaded by pressing the button below.

Interest Rate Database that Extracts Data from the FRED Database with Quick Updates and Flexible Graphs

Part 6: Risk Analysis

Given the contract structure, benchmarking, rate of return calculation and off-taker assessment, write a short credit analysis report. In the credit analysis report, use key credit issues where you write a question (e.g. this is the first large NGCC plant in India, what is the risk of capital cost over-runs).  Then you can answer how the risk is mitigated.  Alternatively, or in addition, you can make risk matrix where you organise risks (construction, operation, financial) and put the name of the risk in different rows. The columns can include the name of the risk, a description of the risk, mitigation of the risk, and the potential cash flow effect of unmitigated risk.

Part 7: Conclusion and Opinions

Find the article with the chronology of the project and write a sentence or two on the final resolution of the power plant. Comment on the comical jiberish (apparently taken seriously by students) that Harvard students are given before they go to Wall Street — in particular the statement that Enron was “Spreading the Privatization Gospel” made by Rebecca Mark, a Harvard Alumni who was behind the transaction. The first screenshot below is the amazing crap that Harvard students are given with the case.  The second screenshot is a picture of Rebecca Mark with and Indian official.

Given your analysis, write a couple of sentences about what happened to the project and the introductory quote in the HBS case about India “desperately needing” the kind of thinking taught at HBS .  Comment on what you think are the major errors that were made in the case.

Other Resources

I have included a few other articles and case studies that you can read. These articles may be amusing to read and provide some further background for the case.  I even understand that there is a Bollywood film about the Dabhol project modelled after the Godfather.

Comprehensive Article on the Dabhol Project from the Asia Times

Article on Political Pressure from the U.S. on India Related to the Dabhol Project

Article with Time Line for Dabhol Cronology with Description of Meeting between India PM and Dick Cheny

Article from the Infrastructure Journal Describing the Final Settlement Between Dabhol and the Indian Government

Article with Discussion of the Current Operations and Status of the Dabhol Power Plant After Sale by Enron

My Comments on Possible Answers:

My opinions about the case are probably biased and wrong.  But here they are. In terms of credit, this case demonstrates that no matter how many government guarantees, letters of comfort or other legal assurances you have, if the counterparty cannot afford to honour the contract, the project will have big problems.  Further if you have promises from OPIC and other insurances, they are not like a letter of credit where you can just go and collect the money as soon as a default occurs.  This is aggravated if there are published reports that can be used against you in arbitration.

Most importantly, the project reveals a fundamental question about project finance.  This question is whether having really good contracts is most important or whether it is more important to evaluate the economics of the project. I hope you think that both are important. The government of India was heavily criticized for not honouring contracts.  This was a valid complaint as private investment in the country dried up to an extent.  Enron and its banks were criticized for not evaluating the economics of the project and relying too much on the contract structure of the project.

I think the diagram in the case sucked.  First, there was a bizarre line from the SPV to the Bank to the Off-taker.  I would hope a better diagram would start with the PPA and have arrows pointing which way the money is flowing.  Second, each line should represent a contract.  Third, essential elements of the contracts should be highlighted.  For the PPA, contract I would put right in the diagram the required price increase to consumers.  I am in no way saying the diagram below is any better, but I hope it can be used to thing about risks.

The reason I included this question is to highlight a fundamental fact about project finance.  That is that there is no history — no historical trends from financial reports — in project finance.  No trends in EBITDA or ROIC to evaluate. No historic volatility in cash flows; no way to compare Debt/EBITDA ratios across different companies operating in the business. Project finance involves large capital investments  that must be maintained and produce not very exciting products such as roads, electricity, oil, prison buildings, hospitals, LNG plants etc.  The differentiation between projects generally comes down to cost structure and efficiency.

The second point about benchmarking is that it is very difficult to do on an objective apples-to-apples basis with real data. Maybe there are customs duties; maybe added transmission facilities must be built; maybe labour costs are different.  In the case of Dabhol, the cost of $2.8 billion relative to capacity of 2,000 MW or a cost per kW of USD 1,400 per kW is very high.  This is demonstrated in the table below.

While you may say the comparison with plants around the world is not appropriate; you could also say that comparison with other plants in India is not appropriate because other plants in India were charging high EPC profits and using the political risk premium excuse. The two tables below demonstrate premiums of the Enron plant compared with other plants.

In addition to benchmarking plant costs, the O&M costs should be benchmarked which in general is even more difficult.  The Dabhol fixed O&M costs appear surprisingly high.  This is demonstrated by comparing the cost per kW-year in the HBS case with current costs that are published by Lazard.  Costs in the case study were

In response to my question for this section, I was hoping for comments that the IRR was very high. I was also interested in statements that IRR does not measure the real profit because profit is made from O&M and EPC contracts. You could get even fancier and discuss upside IRR options from continuation of the PPA; use of the LNG terminal for additional business ventures; and, increasing the IRR from re-financing.

There is an issue in project finance that economic rents that are in the IRR amount to transfer of wealth from consumers of electricity in India to investors in the U.S.  A high IRR may be suggested to compensate for political risk; but it also increases political risk.

In project finance there is a basic rule. the project IRR must be higher than the cost of debt which is the debt IRR.

Now, some people have mentioned that the IRR as a statistic has flaws.  This is true.  There is the famous problem of multiple IRR’s when cash flows are positive, then negative, then positive.  There is the re-investment rate.  There is the theoretical problem of project ranking discussed by McKinsey that almost never happens. But the IRR still provides a good measure of growth in future cash flows.  The real problem with IRR is that: (1) it does not account for changing risk of the project; (2) it undervalues far-out cash flows when the IRR is high; and (3) it does not account for probabilities in staged investments.  You can find further discussion of this on another page of this site:

My hope in getting a response to this question is that you think about ways to evaluate risks of project counter parties in an objective manner.  The idea of the structuring diagram is to show that projects depend on revenues.  If there are no revenues, there is of course no money to pay O&M; no money to pay debt service; no money to pay taxes; and no money for equity.  When you perform risk analysis, the question is how to do it on an objective basis.  I think a good answer to this question would be to try and evaluate what will happen to the off-taker as a result of signing the PPA contract.  This is not an easy task as the MSEB, the off-taker may be able to sell more energy because of surpressed demand. But if the demand is not surpressed, then the following four things could happen that would increase rates:

• MSEB must pay the capacity payment of almost USD 600 Million
• MSEB must pay the fixed O&M payment of about USD 98 Million
• MSEB must pay the additional cost of Gas Fuel compared to Coal Fuel if the plant is forced to dispatch.  This could cost another approximately USD 300 Million

The next task is to see how much consumers are currently paying to MSEB.  This is a bit tricky because you want to find the time period before Dabhol had any effects on revenues and you need to find the number that is not distorted by subsidies. Finally, as the numbers are in Rupee and not in USD, you need an exchange rate adjustment.

Part 6: Risk Write-up

For this section I expected a write-up that ultimately (with hindsight), recognised that the off-taker risk was not really mitigated.  It was not even mitigated with the state guarantee.  For this you could walk through a scenario where MSEB cannot pay the PPA agreement and then political issues regarding whether three big American companies would not be paid.

In writing up the risk it can be good to state the risk as a question and then answer the question with potential mitigation. If the risk cannot be mitigated and it is a large risk, the loan may not be acceptable.

It may have been good to create a credit issue and then answer the question.  For example a question may have been phrased as follows:  MSEB will have difficulty paying the PPA contract.  In this scenario will the state government honour its guarantee.  The answer could then be your discussion about the recession etc.

Another question could relate to the World Bank report — The World Bank issued a report stating that the Dabhol plant is uneconomic. Does the World Bank report provide a means by which the government guarantees may not be honoured if MSEB defaults on the PPA contract.

I made a few comments about the issue of whether the plant was really economically viable and whether the whole thing made economic sense.  If the plant does not make sense should the bank lend money.

Review Concepts

In this final section I have included a couple of ideas that I think are important in project finance analysis.  I have listed a couple of bullet points and some ways that you may think about the issues.  I have also included references to my set of power point slides that describe project finance theory.

• The difference between the structure and analysis of availability projects and output projects — see slides 8-13.
• DSCR definition and use in project finance — see slides 67-74.
• Use of DSCR, LLCR and PLCR in different projects — see slides 75-84.
• IRR in project finance and why IRR is different from ROIC — see slides 89-94.

You can find some of these review concepts in the power point slides that are available for downloading in the button below.

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View source version on businesswire.com: https://www.businesswire.com/news/home/20240826694689/en/

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