Poland'sA2 (1)

Poland'sA2 (1) - Chad-Cameroon Pipeline: Summary Did the...

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Chad-Cameroon Pipeline: Summary Did the project finance create value for the sponsors? Value creation is expected, or it would have used other types of finance. Gross Value: at least $15 million + value of time structuring the deal. (It must have been worth it to spend the time and pay the $15 million in fees.) Value net of PF transaction costs should be positive. The fact that the sponsors used corporate finance for the field system suggests that transaction costs of PF are high. The incremental benefit of arranging a PF for the field system is exceeded by the incremental transaction cost. Important sources of the value World Bank/ECAs participation mitigated political risk. The RMP constrains the party (Chad gov’t) who controls the risks. Non-recourse debt shielded sponsors credit exposure. PF structure allowed the use of higher leverage (higher value of tax shields, and reduced equity exposure). Compared to the Busang/Bre-X deal in Indonesia, Chad and Cameroon all got a pretty good deal. But the cash flows that Chad receives is “back-loaded”—it gets more of the cash flows later, rather than earlier. In other words, it ends up bearing more of the reserve risk than the sponsors.
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Murphy’s Law Applied to Project Finance Project risks end up on those least able to resist them.
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Poland'sA2 (1) - Chad-Cameroon Pipeline: Summary Did the...

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