As a powerful stimulus for business, project finance and lease financing can help companies upgrade production assets, accelerate the introduction of new technologies, reduce the time it takes to launch new products, and simplify the supply of innovative equipment and its maintenance.

In addition, leasing schemes in project finance can reduce the risk of financial losses during the development of new projects and, to a certain extent, simplify the process of obtaining loans.

As a result, the business is expanding opportunities for its modernization and expansion in many areas.

In other words, Project finance and lease financing serves as an important tool for upgrading the industrial potential of enterprises and increasing the efficiency of investments and innovation.

According to the classical definition, “leasing” refers to the transfer by the lessor to the lessee for a certain period of time of assets that are the property of the lessor or were acquired by him on behalf and in agreement with the lessee from the relevant seller (manufacturer).

This mechanism involves the payment of transferred assets by the lessee in the form of periodic lease payments and often provides for the possibility of purchasing assets after the expiration of the agreement.

Although the object of lease can be almost any asset used in the production cycle, experts note some limitations, depending on the national legislation and other circumstances. In some countries, land plots and other natural objects cannot be leased. Depending on the type of asset, there are leasing of movable assets and leasing of real estate.

A special category in this context is finance lease, which is widely used in project finance (it will be described in detail below).

The following assets can be transferred under a lease agreement:

• Vehicles including trucks, ships and freight cars.
• Construction machinery including heavy equipment for drilling and other work.
• Agricultural machinery, tractors, combine harvesters and equipment of all types.
• Pipelines, roads, overpasses, substations and power lines.
• Digital communications and electronic equipment.
• Machine tools and other production equipment.
• Commercial and industrial buildings.

Given the legislative complexity and numerous market barriers, the organizers of project finance (PF) schemes have to make a lot of efforts to effectively organize lease financing of large projects.

The key to success should be a rational contractual structure of the lease agreement, which protects the interests of all project participants.

Lease participants and their interests

Among the classic participants in this type of relationship are the manufacturer / seller of equipment, lessor and lessee.

It should be understood that the lessor and the lessee are direct parties to the lease agreement. They may be represented by individuals, financial institutions (banks), manufacturers, suppliers, and organizations operating in the leasing field.

The lessor is a legal entity that acquires expensive assets from the manufacturer (seller) and transfers it to the lessee in accordance with the terms of the lease agreement.

The functions of a lessor are usually performed by specialized companies. Banks, other financial institutions and manufacturers (machine-building plants, construction firms, and others) can also be lessors.

The benefits of lease financing for the lessor are listed below:

• Acceleration of business development
• Promoting the marketing of innovative products.
• Simplify the sale of used equipment.
• Obtaining significant income after the sale of assets at a high salvage value using accelerated depreciation schemes.
• Promoting the maximum use of productive resources.
• Reducing the risk of customer insolvency.
• An additional source of profit for companies.
• Tax incentives and so on.

The lessee is a legal entity that receives assets for temporary use under a lease agreement.

From the point of view of the lessee, the economic benefits of leasing operations can be divided into four groups, which are listed below.

Project finance and lease financing provides the lessee with the following advantages:

• An available source of resources for the renewal of fixed assets.
• Reducing the company’s need for initial equity capital.
• Diversification of sources of financing for capital-intensive projects.
• Minimize the use of internal business resources.
• Flexible schedule for paying the cost of assets.

An important place in this list is given to tax incentives. In some countries, lessors may “pass on” depreciation tax credits to lessees.

In addition, lease payments are usually charged to the company’s gross expenses, which reduces the tax base.

A manufacturer or seller is a legal entity acting as the owner of the property selected by the lessee, which enters into an agreement for the sale of a specific asset. This function in the leasing market is most often performed by manufacturers, but this role can also be played by large firms engaged in wholesale trade in machinery and equipment (including international companies).

Any legal entity operating legally and whose activities do not contradict international and national standards, including the requirements of the UNDROIT Convention on International Financial Leasing (Ottawa), can act as a manufacturer or seller of leasing objects.

It may be one of the many international suppliers of industrial equipment, vehicles, agricultural machinery and technology.

Most of the leasing companies at present are affiliated banking structures and companies actually created by industrial organizations to promote their products around the world. Commercial leasing companies created by banks, as well as specialized divisions of commercial banks, are the most powerful group of leasing companies active in developing countries.

They provide leasing services to a wide range of customers, but in some cases the bank prefers to serve a limited circle of regular customers. In the practice of many countries, it is accepted that commercial banks not only finance the activities of leasing companies, but also recommend their clients to be serviced by a certain leasing company.

Obviously, such companies, which are part of the structure of large commercial banks, have a high potential, a significant range of clients and a high position in the leasing market.

Indirect participants in project finance and lease financing of large projects include the following entities:

• Reputable insurance companies that protect the property and financial interests of lessors, lessees and manufacturers.

• Joint investment institutions that accumulate significant financial resources for the purpose of further investment in promising leasing projects.

• Investment banks lending to the lessor and acting as guarantors of the safe implementation of large leasing operations.

• Consulting companies that help the lessee to receive high-quality consulting services and learn more information about the leasing market.

In order to support financial and business activity at a certain level, government bodies are also actively involved in leasing, regulating the leasing business, creating conditions for increasing the interest and initiative of all subjects in organizing and implementing important projects.

Finance lease in project finance schemes

Although leasing has various features, below we will focus only on those that are related to the financing of large investment projects.

It is necessary to dwell in more detail on finance lease and leverage leasing. In the context of project finance, finance lease plays a vital role in financing investment projects, such as power plants, factories, infrastructure, etc.

Finance lease agreements are agreements that provide for the payment, within a clearly defined base period, of lease payments that are sufficient to fully reimburse the lessor’s costs associated with the acquisition of property, as well as to earn an adequate profit. 

Finance lease (capital lease) is the acquisition of assets for the purpose of their subsequent transfer for temporary use for a period approaching the period of its operation and depreciation of all or most of the value of these assets. During the term of the agreement, the lessor recovers the entire value of the assets through lease payments and receives an adequate profit, and the lessee acquires ownership rights at the end of the lease agreement.

The main features characterizing finance lease:

• The lessor initially acquires the asset not for its own use, but specifically for leasing it.

• The client has the full right to choose the leasing assets and the seller company.

• The seller of the assets knows that the asset (equipment) is being purchased for leasing.

• The asset is directly delivered to the customer and put into operation.

• The object of leasing is taken on the balance sheet of the company-lessee.

• Claims for the quality of assets and a request for the correction of defects during the warranty period, the lessee sends directly to the seller.

• The risk of loss and damage to the asset passes to the lessee after signing the Transfer-Acceptance Act of leasing assets.

It is an important mechanism within project finance schemes.

Large companies using finance lease can carry out large investment projects in order to expand existing production facilities by purchasing fixed assets. SMEs and young companies, including those at the development stage, can use leasing leverage to implement capital-intensive investment projects to acquire assets that are not available to them through bank loans or other sources of funds.

The large-scale modernization of companies and the development of large projects with a long payback period require businesses to look for new approaches to increase the scale and timing of financing and reduce the cost of attracted financial resources.

This can be achieved using leverage leasing, which is considered one of the most complex lease financing schemes.

This scheme best meets the needs of project finance.

For example, investment projects for the purchase of equipment for hydropower plants (turbines) or the construction of oil platforms in the ocean. It is clear that at the end of the term of the agreement, such assets cannot be dismantled by lessees and returned to the lessor, so clients will have to buy such assets from the owners.

Leverage leasing requires a clear coordination of the actions of a significant number of participants in the framework of large-scale investment projects with an implementation period of 20-25 years or more. The complexity of leverage leasing is explained by the fact that a significant number of participants participate in this operation, among which there may be several owners, shareholders, creditors and sellers.

The group of co-investors of the project on the part of the lessor may be the shareholders of a special company (lessor) that directly enters into a lease agreement.

Such participants finance a certain part of the funds necessary for the purchase of assets. They use a limited amount of their own funds, typically around 20% of the initial asset value. Funds are usually raised through the issuance and placement of securities. The main part of the funds (about 80%) for the acquisition of assets is attracted by a group of creditors, which usually consists of commercial banks. In the scheme above, the leverage ratio is 4.

Leveraged leasing transactions involving multiple parties typically involve two representatives. One of them coordinates actions and represents the interests of banks. In turn, the representative of the lessor manages the actions of another group of participants (the management company).

Such a company acts in the person of the lessor, concludes a lease agreement, signs agreements for the sale of assets for leasing, a loan agreement and an insurance contract. Also, this company distributes the profit from the leasing project among the shareholders.

Here the similarity between leveraged project finance and leasing becomes apparent.

The use of leasing to finance a complex investment project gives the lessor the right, with insignificant own participation, to use tax and other benefits or preferences that apply to participants in finance lease, for example, accelerated depreciation. These benefits can reduce the amount of lease payments and provide savings to project participants compared to investment loans.

A typical leverage leasing model looks like a combination of a number of elements:

• A contract for the sale and purchase of an asset at the expense of the lessor’s own capital or funds received as a result of syndicated lending with limited recourse to the borrower.

• A lease agreement drawn up and signed on the terms and conditions detailed above.

• Assignment of receivables for lease payments due to repayment of debt on principal and interest.

Thanks to leverage leasing, the number of investment financial products is growing, which contributes to competition between various sources of financing and the expansion of financial opportunities for the implementation of investment projects in the most beneficial mode for participants.

The similarity of leverage leasing with syndicated lending, as world experience shows, can become a powerful “long” investment resource, involving the use of a complex and flexible contractual structure between participants. This scheme also increases the lessor’s interest in the lessee’s business.

Choosing leasing to finance large projects

The rapid development of the financial sector, including long-term lending and project finance in Singapore, has contributed to the successful implementation of multi-million dollar projects in industry, energy, infrastructure, transport, trade, real estate, healthcare and other areas.

Singapore, a small state in Southeast Asia, has undergone major economic changes since the end of World War II.

As a result of these transformations, this former British colony is now one of the most economically developed countries in the world, significantly influencing the geopolitical situation in the region.

Today, innovative financial instruments play an important role in the development of big business and international cooperation between Singaporean companies and foreign partners.

Brief overview of economy of Singapore

Southeast Asia is the most politically, culturally and economically diverse region on the planet.

Here, the highly developed countries and the poorest countries in the world coexist side by side. Singapore is of exceptional interest among the most investment-attractive countries that have achieved a high level of development.

A small island state, devoid of valuable minerals, is surrounded by much stronger neighbors, both in territory and in economic power. It is important that the region is torn apart by political, ethnic and religious contradictions. The Lion City, as Singapore is sometimes called, has managed to create an efficient political and economic system that has allowed not only to survive on the world stage, but also to effectively use the available local resources for the prosperity of business and society.

Singapore is a city-state with an open economy based primarily on the international trade.

It is the leading financial, shipping and trade center in the Asia-Pacific region and a gateway for expanding trade and investment in the rest of Asia.

Singapore’s policy is aimed at developing friendly relations with all neighboring countries, supporting activities within the ASEAN framework, liberalizing international trade, and establishing close trade and economic ties with all interested partners.

Singapore’s Gross Domestic Product reached US$397 billion in 2021, which is impressive given its population of just 5.45 million. Economic growth at the level of 3.8-4.5% per year contributes to the further development of this promising market by foreign companies and the attraction of additional investments in all key sectors. This is also facilitated by the balanced policy of local authorities.

The Singapore government pursues a business-oriented economic policy, creating an attractive investment climate in almost all areas.

Singapore’s economy is dominated by services, the most important of which are trade, banking and financial services, and infrastructure and transportation.

Industrial production is also important, especially high-tech industries with high added value. A favorable investment climate and stability facilitate the implementation of capital-intensive projects based on project finance (PF) and other advanced financing schemes.

Singapore is considered to be a well organized country in terms of legal, tax, regulatory and political issues.

It is highly trusted by large foreign investors due to its economic and social stability, a well-developed financial sector operating in accordance with the best international standards, as well as a large number of high-qualified specialists in the local labor market.

Singapore has been pursuing a successful pro-export policy in recent decades. The electronic industry, shipbuilding, mining machinery and petrochemical industries are at a high level, attracting the attention of investors from all over the world. Singapore is also one of the world leaders in biotechnology, medicine and many other science-intensive fields.

The prosperity of Singapore is largely based on its favorable location, as the city plays the role of a world trade center.

The weaknesses of the Singaporean economy are the lack of raw materials, which makes local investment projects highly dependent on the import of minerals, raw materials, semi-finished products and energy.

But this fact did not prevent Singapore from becoming the third oil refining center in the world after Rotterdam and Houston. Agriculture plays a minor role in the local economy, so almost all necessary food is imported.

Some features of project finance and lending in Singapore

Project financing is a method of attracting long-term debt financing for large investment projects, in which the source of debt servicing is the cash flows that the project generates or will generate in the future.

This method came to Southeast Asia later than to the European market, where it showed itself in the financing of large oil and gas projects. Despite the high cost of organizing PF schemes, this method allows companies to attract huge financial resources on an off-balance sheet basis, using special formally independent companies (SPV, SPC).

Lending and project finance in Singapore is traditionally well developed and has a long history of commercial success.

This market is replete with large-scale public-private projects (PPP) designed to develop infrastructure, energy, manufacturing and trade.

This concept has been widely used by Singaporean companies for the construction of water treatment facilities, marine infrastructure, waste processing plants and other facilities. Since the mid-2000s, official guidelines have recommended increased use of project finance to modernize and expand high-value facilities worth over S$50 million (about US$35 million).

Major projects in Singapore are financed by dozens of financial institutions, among which we should mention such reputable institutions as Standard Chartered Bank, United Overseas Bank, BNP Paribas, Bank of America and a number of others.

Singapore banks play a huge role in project finance schemes throughout the region. According to some reports, more than half of all project finance loans issued to companies in Southeast Asia are issued by financial institutions in Singapore. In 2018, the Infrastructure Asia was created, which is designed to help Asian businesses in the development of large infrastructure projects.

An important feature of the implementation of investment projects in Singapore is the smaller scale and, accordingly, the lower cost of projects compared to countries such as India, China, Japan or Saudi Arabia.

This is reflected in a peculiar approach to contractual relations, financing terms and capital structure. In particular, financing without recourse to the borrower is used less frequently.

Non-recourse financing gives the lender the right to repay the debt only from the profit generated by the project. From the borrower’s point of view, the risk is limited to the funds that he has invested in the project. Thus, most of the risk lies with the providers of capital.

To finance expensive projects, partners use innovative mechanisms to ensure the safety of capital, increase the creditworthiness of companies and collateral. This includes mezzanine financing, the collateralization of a loan with highly liquid assets, the issuance of bonds, and more.

For example, a bank may issue a large long-term loan for the construction of a new facility.

Large investors provide liquidity by issuing asset-backed securities.

The borrower provides this liquidity to lending banks in exchange for long-term loans, which are converted into securities and contribute to a credit rating upgrade.

Singapore law does not restrict foreign participation in special purpose vehicles that are registered in the country. Exceptions are such sectors as banking, media, as well as some projects in licensed industries. Restrictions usually relate to the ownership of a controlling stake in a company, which is important to consider when designing a project finance structure in Singapore.

In general, the local system is quite liberal and does not require special permissions to organize project finance schemes. Additional costs associated with obtaining permits and licensing may be required only for the registration of land, the operation of communal infrastructure, as well as some issues related to energy, telecommunications, access to water and waste management.

When planning investment projects in Singapore, investor should also take into account laws that allow the authorities to forcefully buy land from private companies for public purposes.

These rules are rarely enforced and are all clearly defined in local legislation.

Project finance services in Singapore: Our core business service

Contact our consultants and learn more about CP Finance UK Finance opportunities in international project finance.

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According to the Basel Committee on Banking Supervision, international project loans is a form of financing the construction of capital facilities based on debt repayment through cash flows generated by the facility.

To this end, the initiators of the project create a legally independent company (Special Purpose Entity or Special Purpose Vehicle), which is responsible for the development of the project and attracts borrowed funds, guaranteeing the return of the debt exclusively by the assets of the project.

international Project loans are based on the participation of private capital in the implementation of large state and public projects.

Back in the 18th and 19th centuries, England underwent a massive modernization of the road network, using tolls as the main source of repayment of borrowed funds for Italian banks. The development of transport infrastructure, electricity and communications in the 19th century required active participation of private capital, laying the foundation for project finance in Europe.

The age-old desire of business to go beyond the possible in search of new sources of income leads to the creation of unprecedented masterpieces of technical and engineering thought.

One such example was the construction of the Suez Canal, which was made possible by the use of new financial instruments. Nowadays, the funding of international projects has received effective tools to implement grandiose investment ideas.

In 2015 alone, International project loans accounted for several hundred projects worth about $ 275 billion worldwide.

The experience of recent decades shows that international project financing is applicable to many investment projects. PF can be used both in the real sector of the economy and for large-scale financial projects. This has been proven by the examples of the rapid development of the countries of the European Union, China, the United States, Saudi Arabia and many other successful global players.

The largest private banks and international financial institutions, such as the EIB and the EBRD, actively use PF instruments in their activities.

CP Finance UK Finance offers funding of large international investment projects by providing long-term loans from € 50 million on flexible terms.

We also offer a full range of engineering, organizational and legal services for large businesses anywhere in the world.

International project loans: practical basis

International project loans refers to the cross-border method of realizing capital intensive investments through a legally and financially independent project company (SPV).

The complexity of implementing such projects on an international scale is not limited by the legal peculiarities of creating an SPV and providing borrowed funds in different countries. Multilateral contractual relations concluded by partners must reliably protect the interests of creditors and guarantee funding for the project on the most favorable terms.

Although there is no single universally accepted definition of project finance, this method has the following features:

• The initiators create an independent company, the life of which is limited by the period of implementation of a specific project.

• The share of borrowed funds usually reaches 80-90% of investment costs, and all funds are attracted by the project company.

• Project assets include valuable property, the value of which is expected to grow in the long term or which provide an opportunity to enter a promising business.

• The risks of the project are evenly distributed among the participants in such a way as to increase the chances of the success of the entire project.

• The future financial flows of the project must be sufficient to service the debt.

• Financing is provided without recourse or with limited recourse to the borrower.

There is currently no consensus on the superiority of international project loans over other forms of funding such as bank loans.

The main advantage of the PF is non-recourse financing, which allows companies to use a high level of leverage without burdening financial statements with high levels of debt.

Table: Features of international project loans in brief.

A wide range of PF contractual options allows the initiator to share risks with foreign partners and ensures more efficient project implementation compared to traditional funding methods.

The disadvantages of PF are associated with the complexity of the organization due to the increase in the number of participants in the scheme. PF is associated with higher transaction costs, so the cost of borrowing is usually higher compared to other financial alternatives.

Banks’ requirements for international project loans also include extensive financial, legal and technical analysis of the project.

The essence of international project loans covers aspects such as organizational structure, financing and risks.

They are connected and mutually condition each other. The connecting link in this process is the SPV. Special purpose investment companies are created for a specific purpose, which may be, for example, an investment in the modernization of production, the construction of a large facility, or the purchase of real estate.

This is a flexible organizational structure, which primarily allows the companies that initiate the project to obtain loans based on the future income projected from the project.

SPV in international practice is an independent business entity, and all relations with the project participants follow from the general principles of law, concluded agreements and contracts.

Doing business in this form is justified by the peculiarities of large and capital-intensive projects, as well as certain advantages arising from the separation of the company from the sponsors’ assets.

The SPV (SPE) has ownership of the assets being funded and the sponsor is not financially liable for the debt of this entity (unless it has provided appropriate guarantees). The investment process is focused on assets created as a result of the project, which are a source of generating cash flows and at the same time protect the interests of investors.

When setting up a special purpose investment company, sponsors should choose a suitable legal form that will determine their impact on company management, control methods, profit sharing, etc.

The choice of the legal form of SPV in international project finance should also be dictated by the need to comply with the number of partners and the size of capital investments, international requirements and the need for public disclosure of performance results.

It is also necessary to take into account the specifics of a particular project and the legal regulations of the host country in which it is being implemented.

The choice of the organizational and legal form of the SPV is one of the key steps in the pre-investment phase of the project development cycle. In many cases, companies prefer joint stock companies or limited liability companies, which have a number of advantages for the initiating companies. In such companies, the participants are liable for the debts of the project solely within the framework of their contribution to the capital of the SPV or its shares.

Placing individual projects in separate project companies means diversifying investment risk.

SPV is also considered to be a relatively safe solution from the point of view of the lender bank.

The bank is confident that a particular company will limit its activities to specific investments only and that the possibilities for securing claims and meeting them are significant. The procedure for a possible bankruptcy of the project is also simplified.

With its ability to carry out large-scale investment activities on multiple fronts, international project finance is well suited to large companies active around the world.

In fact, unlimited opportunities to raise capital allow them to quickly implement promising projects without burdening the company’s balance sheet with large debts.

Among the determining factors for choosing an SPV form, it is important to consider maximizing a positive tax effect for both the project company and its sponsors.

Correctly chosen form and structure of its activities can provide significant tax “savings“. Both value added tax and numerous corporate taxes and fees applied in different countries of the world are taken into account. In some cases, there is a risk of double taxation at the level of the company’s capital and the payment of dividends, which should also be avoided.

In project finance, subordinated capital is also widely used, which, in fact, being external capital, is considered as equity in order to determine the capital structure ratios. This is especially useful in terms of financial engineering and project bank analysis.

As a rule, interest on subordinated loans is not taxed, however, exceptions are possible.

The global project finance market today and tomorrow

The growth of project finance over the past 25-30 years is mainly associated with the global processes of deregulation of the economy.

This trend is supported by the ongoing internationalization of investment processes.

During the period from 1991 to 2012, about 6,000 investment projects were implemented using project finance for a total of US $ 2.5 trillion.

Leading investors, consultants and lenders have projects from different countries in their portfolio and successfully use the practical experience gained in other similar projects.

The global financial crisis caused a sharp reduction in lending to government projects and contributed to a shift in project activity towards China and other Asian countries. If in the countries of the Americas, the PF volume in 2015 reached $ 95 billion, while in the developing countries of Asia, the Pacific region and Japan, projects worth $ 75 billion were implemented.

Today, trends are changing again, fueled by geopolitical tensions and unpredictability that have affected a number of regions of the planet and even industries.

However, government projects have repeatedly demonstrated high resilience to financial shocks.

The use of PF has helped to maintain growth in Latin America, Africa, South and East Asia.

This confirms that international project finance is most effective for developing countries with weak business infrastructure and high external capital requirements. Interestingly, a significant proportion of North American and European investment today is directed to high-risk Third World countries.

Analysts believe that international project loans is more about large investments made outside the country by sponsors or investors.

Numerous publications provide us with information on the successful use of PF to refinance already completed projects, including in the energy sector, heavy industry, transport, oil and gas sector and mining. These industries are characterized by high project implementation costs, long construction times and the need to attract numerous suppliers and qualified contractors, often from several countries.

Our financial team is ready to assist you in the implementation of large investment projects anywhere in the world.

We have experience in providing engineering and financial services in dozens of countries in Europe, Africa, the Middle East, East Asia and Latin America.

Contact our consultants and learn more about CP Finance UK Finance opportunities in international project finance.

CP Finance UK FINANCE LIMITED
Website:https://c-pfinanceuk.com/
E-mail:finance@cpuk-financeltd.com
Alt-Email:admin@cpukfinanceltd.com

Project management in the oil and gas industry minimizes risks such as schedule delays, cost overruns, and underperformance.

In recent years, the development of new fields and maintaining the high productivity of existing facilities in the oil and gas sector requires huge investments.

Gaining access to large loans and other sources of financing for oil and gas industry allows companies to introduce more efficient technologies and equipment to extract hard-to-reach resources from fields that were previously considered unprofitable.

Rising prices for hydrocarbons generally favor the development of such facilities, however, increasing competition for capital requires companies in the oil and gas sector to be more flexible and adaptable to new financial realities.

These risks often coexist with each other, requiring complex solutions. For example, any schedule delays result in cost overruns through increased facility maintenance costs and associated contract penalties.

Clearly, professional project management services are critical to success in the highly competitive oil and gas industry.

The real situation with hydrocarbon reserves makes oil and gas projects one of the most difficult to manage and finance.

This sector brings together an extremely wide range of financial, engineering and management solutions that must be applied flexibly in different climatic, economic, regulatory and political environments around the world.

Any unforeseen event, such as a delay in the delivery of drilling equipment or a ban on the supply of high technology to a foreign partner due to geopolitical issues, can easily destroy the fragile chains of an international project and jeopardize investments. The difficulties of managing oil and gas projects in today’s realities highlight the need for professional services in this area.

Financing, engineering, contracting, procurement, construction, marketing and other aspects of each project must be supervised by professionals with sufficient experience and knowledge. It should also be remembered that the success of any oil and gas project depends at least half on preliminary studies, such as natural reserves assessment, supply chain analysis, financial modeling, etc.

Phases of oil and gas project development

Project management in most cases is carried out from a standard algorithm that is adapted to the conditions of a particular project.

In any case, this process includes the initiation phase, planning, engineering support and execution, as described below.

In the initial stages of oil and gas project development, participants have a very vague idea of the final cost, but with each subsequent stage of planning, financial needs become more precise. This is due to a better understanding of the challenges, such as licensing, access to technology, insurance, and so on. At these stages, action plans and decisions are laid that will ensure the financial sustainability of the entire project in the future.

Project initiation and definition phase:

Although in the past the oil and gas industry could hardly be called innovative or high-tech, today many new investment projects are inextricably linked with the introduction of new technologies that make it possible to successfully exploit hard-to-reach fields.

New business opportunities that open up as a result of rising world prices for hydrocarbons, geopolitical changes or technical breakthroughs form the basis for the initiation of major projects in this sector.

Regardless of the reasons for developing a new project and the motivation of investors, each project (oil well, refinery, LNG terminal, liquefied natural gas plant) must be well justified.

Comprehensive research conducted in the pre-investment stage allows sponsors to confidently move forward to the next phases of the project.

Project initiation refers to any form of proposal, theoretical substantiation of future investments. Of course, at this stage, the participants do not have a clear idea of the future investment needs, cash flows, funding schedules and payback periods of the project. This uncertainty is aggravated by the fact that prices for oil, oil products and natural gas are characterized by extreme volatility, being highly dependent on the geopolitical situation and on the phase of the global economic cycle.

Therefore, the project will take on a clearer shape in the next phases, when the participants will draw up a certain budget and propose optimal financing models.

The definition of an oil and gas project is aimed at gradually narrowing the number of investment options, clarifying the parameters and financial needs of the project. A critical role at this stage is played by professional engineering services, laying the foundation for choosing the right technology, equipment and technical solutions.

During the first phase of project development, participants will have to resolve issues such as the supply of materials, the acquisition of technology, logistics and markets. It is important to correctly distribute the risks between the parties, which is laid down in the contractual structure.

Detailed design and engineering phase:

It is important to note EPC contracting (Engineering, Procurement, Construction), which is widely used in capital-intensive projects.

This is a comprehensive contracting approach that makes it easy to implement technically complex ideas by attracting experienced contractors.

A clear project framework, defined by the participants in the previous stages, allows the company to formulate technical requirements and start negotiations with engineering firms. Design activities, including field studies, environmental monitoring and other aspects, will allow the EPC contractor to select and purchase materials and equipment. During this phase, significant changes in the project budget can be expected, as engineers may encounter unforeseen difficulties.

Accordingly, after the end of the engineering phase, the participants can proceed to the selection of specific financial mechanisms for the future project, better understanding the investment needs and the schedule for spending funds.

The results of these studies will be required by potential lenders when making a decision on issuing a loan, especially when it comes to project finance (PF).

The soundness of the engineering decisions made during this phase has a significant impact on the success of the project and its financial viability. For this reason, many companies prefer to entrust the development of oil and gas projects to specialized companies with relevant experience.

Tenders, procurement and construction

Tendering and equipment procurement activities are time consuming and require highly experienced specialists.

In this phase, it is important to find the most suitable suppliers, select certain types of equipment and their modifications for a particular project, conduct multi-stage negotiations and conclude contracts on suitable terms.

Since the oil and gas industry is largely internationalized, there may be tenders involving companies from dozens of countries.

The complexity of technical, logistical and commercial decisions in such projects requires a professional approach to procurement.

Given the complexity and long lead times of modern oil and gas projects, the equipment procurement phase can be carried out in parallel with the construction phase. As new batches of equipment are purchased and delivered, construction teams will continue to install it and prepare the facility for commissioning.

Along with these activities, separate teams of specialists can carry out inspections, equipment adjustments and personnel training.

The procurement and construction phase is considered one of the longest and most complex. More than 70% of project costs come from equipment and installation, so the cost of any mistake at this stage is potentially high. In addition, investors and lenders strictly control the implementation of each planned stage of construction, often tying further funding to these milestones.

Putting the facility into operation:

The scope and nature of the work associated with the commissioning of the project, largely depends on the type of project and its purpose.

For example, an important stage in the commissioning of gas pipelines is pressure testing, checking the quality of connections, etc.

High-tech equipment of oil refineries is checked according to their protocols, with the involvement of the equipment manufacturer and independent experts.

There are certain safety standards that a project must meet in order to receive approvals. Among the goals of this phase is to ensure the safety of the object, as well as to check it for compliance with the requirements of the customer.

The latter is related to the achievement of planned productivity and, therefore, to the generation of cash flows sufficient to repay the project debt.

Given the scope of the tasks, the commissioning phase can stretch over several months, depending on the type and scale of the project.

Sometimes this phase is coincides with construction, when some teams install the equipment, while others check it and make final adjustments. All this requires careful planning, considering the complexity of the facilities and the potential fire and environmental risks (especially for offshore petroleum projects).

It should be noted that in project finance schemes, the peak of indebtedness usually occurs in this phase. Consequently, by the time the facility is put into operation, the risks increase. Good project management is especially important to this phase.

Professional management of oil and gas projects

CP Finance UK Finance is an international finance and engineering company that focuses on innovation and business development through investment funds for Project financing 

We support companies and projects at all stages of the life cycle, helping to turn innovative solutions into successful business ventures.

Providing a full range of financial services, together with Spanish and international partners, we concentrate financial resources on projects with high growth potential.

We also focus on collaboration between business and science, helping to overcome the challenges of bringing innovative products and services to market.

We actively finance investment projects in the following industries:

• Energy sector, including renewable energy sources.
• Oil and gas sector, including the liquefied natural gas industry.
• Waste disposal and recycling, as well as WtE technologies.
• Wastewater treatment and desalination plants.
• Extraction and processing of minerals.
• Logistics and infrastructure.
• Agriculture.
• Industry.

By investing in your business, we strive to provide a positive impact on the environment, society and economy of a particular region. This is why our portfolio includes environmentally friendly facilities such as solar power plants, wind farms, waste treatment plants and water treatment plants.

Investing in each project, our experts evaluate the proposed technology, the professional level of the team, competitive advantages, the amount of investments, the market situation and prospects.

We work closely with numerous banks, networks of high net-worth individuals and investment funds in the EU countries, and also attract private investors from all over the world.

Are you planning a major project in Europe, the Middle East, East Asia, Africa or Latin America?
Interested in cheap funding sources?

Contact us and tell our experts about your business project. Along with Investment funds and Project financing, we also provide engineering and technical services for the successful implementation of the project.

The role of investment funds in project financing

In addition to grants, businesses can obtain investment funds or project financing  (loans) through equity participation.

These funds are provided through specialized models under operating programs called financial instruments. Funds offered through financial instruments must be returned, which is an important difference from a grant.

Funding projects through these financial instruments in a global context ensures a more efficient use of resources compared to grants, since the funds provided are subject to return, reuse and mobilization of additional co-financing.

Investment funds and project financing are targeted at companies willing to share risks and rewards.

They are ideal tools for businesses that cannot access sufficient bank financing.

Mutual investment funds are an option through which young companies can finance a large project for future cash flows.

These funds are a kind of financial intermediaries that channel the resources of large investors to companies unable to finance their projects from traditional sources, such as bank loans.

To obtain funding from this source, a business will also need a well-structured and well-founded business plan. Young companies may need the support of an incubator or business accelerator to effectively present their project to private equity funds focused on venture capital.

The situation is different with existing companies that have a long operating history.

CP Finance UK Finance financial experts will conduct comprehensive studies of activity and assess the prospects of a specific project, offering their professional conclusions to the largest European investors.

Current requirements and rules for bank financing for credit institutions often restrict financing of projects that promise good returns, but have some risk. Some companies with a strong innovation focus are unable to meet the strict requirements of bank lending, although they have an original and promising idea.

Young companies, especially those that rely on innovative technologies or workflows, cannot get bank financing because of the risk, no matter how valuable their idea is.

Some projects, such as innovative solar power plants, biomass thermal power plants or geothermal plants, require a special approach to financing.

Meanwhile, renewable energies, waste recycling, water treatment and energy efficiency are now on the list of national priorities in many countries around the world. These areas contribute to the overall technological progress of the economy, opening up new markets, ensuring high-quality growth and saving natural resources.

CP Finance UK Finance offers investment funds for project financing in EU and other countries of the world, providing a reliable source of funds for your strategic plans.

From the point of view of recipient companies, financing a project by an investment fund ensures that funds are received on favorable terms (lower interest rates, lower collateral, a long financing period, favorable levels of risk) compared to bank lending.

The largest investment funds in the world

First emerging in Europe in the 19th century, investment funds over the past decades have become one of the most demanded sources of funds for the implementation of large projects in the energy sector, mining, logistics, industry and agriculture.

Currently, investment funds are considered to be an excellent economic strategy allowing investors to earn money in the short, medium or long term, and this situation will depend on the type of investment fund chosen.

For potential clients, this is a unique opportunity to finance large innovative projects anywhere in the world.

It may sound incredible, but in 2019, the five largest investment funds in the world concentrated in their hands about $ 20 trillion. This is comparable to the GDP of the United States of America or 15 times the GDP of Spain.

According to recent research, BlackRock turned out to be the largest investment fund in 2019 with $ 6.96 trillion in assets under management. In fact, BlackRock is the world largest asset manager.

The second and third places in the ranking are occupied by the Vanguard Group and State Street Global Advisors, managing assets of $ 5.5 trillion and 2.8 trillion, respectively.

The top five are closed by investment funds with a long history of JP Morgan Chase ($ 2.78 trillion) and Fidelity Investments ($ 2.5 trillion).

Currently, American and European financial companies continue to be the global leaders in project financing, concentrating more than $ 80 trillion of investor funds in their hands.

Professional asset management and balanced financial policy make investment funds the leaders in trust both among investors and among clients implementing large projects with multi-billion dollar investments.

The main advantages of investment funds for business

Joint investment is based on the accumulation of free financial resources of individual investors.

These resources are professionally managed using science-based asset management and risk minimization techniques.

The advantage of Investment funds for project financing lies in the ease of attracting financing, even in cases where obtaining bank loans is problematic. This is a convenient option for companies that generate promising ideas and need to receive significant funds for future cash flows.

It is also the best choice for those willing to share risk and reward, regardless of project outcomes. If a company expects to fund its growth plans with investment funds, it must be prepared to share the dividend or profit. For example, private equity funds spend 5 to 15 years in a company, make it profitable, and then sell their stake to another investor.

The main advantages of investment funds and project financing over other financial instruments for potential investors and clients are as follows.

Professional financial management. Small investors are not very familiar with the situation on the stock market, asset management, etc. Management companies can provide high profitability to investors of any level.

Cheap source of funding. Funds provided by an investment fund for project financing are usually provided at a lower interest rate than bank loans and other sources of funding.

Diversification of investments in stock market instruments. Investment funds greatly simplify investment risk management by diversifying investments.

Ease of receiving funds. Many investment funds, especially those specializing in startups (innovative companies), have minimum requirements for clients, in contrast to commercial banks.

Providing high liquidity. Typically, investment fund securities have a higher liquidity than primary securities.

Low collateral. Investment funds interested in an innovative business idea usually do not require high-value assets as collateral for the client’s financial obligations.

The construction of liquefied natural gas plants presents a huge investment opportunity for energy companies in Europe, the Middle East, North Africa and Latin America.

The cheapening of technologies and equipment for liquefying natural gas and transporting LNG makes this type of fuel more and more attractive to consumers around the world.

LNG demand and production are expected to rise in the coming years, which will contribute to significant savings in many sectors and an acceleration of the global economy.

Morgan Stanley research shows that massive investments in new terminals, ships and liquefied natural gas plants will soon pay off. According to the agency’s estimates, the new capacity will lead to global growth of this market by 50% by 2025.

CP Finance UK Finance offers financing and construction of liquefied natural gas plants under an EPC contract.

For over 20 years our specialists have been offering financial and innovative solutions in the energy sector for private companies and government customers.

In this article, you will learn more about the prospects for investments in LNG plants, new technologies for the production of liquefied natural gas and our opportunities.

Liquefied natural gas plants: new investment opportunities

Liquefied natural gas is a non-corrosive, odorless cryogenic liquid made up of 90% methane.

Liquefied natural gas is a revolutionary fuel that could spur global economic growth over the next decade. It is becoming a more affordable fuel thanks to the development of technologies and the groeth of an extensive infrastructure for the production, transportation and regasification of LNG.

The LNG industry value chain consists of four links:

• Extraction of natural gas.
• Purification and liquefaction.
• Transportation.
• Regasification.

upon extraction, natural gas is transported via pipelines to liquefied natural gas plants, where it undergoes preliminary treatment.

This treatment removes all liquids and other components that may freeze (propane, butane, ethane, carbon dioxide and water). Then the gas is converted into a liquid state by deep cooling at atmospheric pressure, during which the volume is reduced by 600 times.

The resulting product is loaded onto LNG carriers, which are equipped with refrigeration and insulation systems to store and maintain the liquid state of the gas until it reaches the port of destination (LNG terminal).

The gas that evaporates during transportation is used as fuel.

In an LNG terminal, liquefied gas is vaporized during the heating process. The terminals have storage tanks that provide a continuous flow of gas into pipelines and cover peaks in demand.

Finally, after pressure regulation, natural gas is pumped into the main gas pipeline and sold to distributors or directly to power plants and large industrial consumers.

In some cases, liquefied is supplied to consumers by specially equipped tank trucks.

The importance of LNG for the global economy

In recent years, hydraulic fracturing has revolutionized the US energy sector, making the country the largest exporter of energy for the first time.

However, until recently, the role of liquefied natural gas plants in the global economy was small due to the technical difficulties associated with transporting and storing this flammable gas.

Experts predict that cheap LNG exports in the coming years will reduce energy prices in Europe and Asia, thereby stimulating the energy sector and commodity markets.

In the late 1990s, concerns about oil shortages arose in developed countries. The emergence of hydraulic fracturing technology, which is used to release gas and oil under high pressure, has radically changed the situation in the energy market.

Natural gas prices have declined 80% since the mid-2000s, largely driven by exponential growth in shale gas production in North America.

Thanks to the boom in shale gas, coal consumption has fallen in half and CO2 emissions have fallen by 25%.

This is despite the fact that in those years it was very difficult to transport and store natural gas, and the main share of gas exports fell on expensive gas pipeline systems.

The situation changed with the advent of LNG: natural gas became liquid and it is now very easy to transport it by tanker trucks or ships. For this reason, experts are talking about big changes in the energy market, opening up investment opportunities for the next few years.

Economic implications of increased LNG production

Building new liquefied natural gas plants could forever change the gas market and the energy companies that make money from it.

The LNG industry will affect the following companies:

• Engineering companies (EPC contractors).
• Transport companies (including ship owners).
• LNG equipment manufacturers.
• European chemical manufacturers.
• Other gas consumers.

Engineering and construction companies will clearly benefit from the introduction of the new fuel, as multibillion-dollar LNG production, transportation and regasification projects are under way around the world.

Industrial equipment manufacturers receive orders for new equipment and everything related to it. This represents a potential growth of 50% over the next five years over the previous decade.

Finally, chemical companies and other industrial gas consumers will benefit from reduced energy costs.

This will affect regional markets and change the direction of energy-intensive product flows.

The switch to LNG could put more pressure on other sectors, including those dependent on coal. Coal carriers may face a 5% decline in revenue in 2020 as more customers switch from coal to gas.

It should be noted that the construction of LNG plants around the world has a positive impact on the environment. Liquefied natural gas offers an alternative with lower CO2 emissions compared to solid fuels. However, the environmental benefits of switching to LNG vary greatlu.

Supply chain efficiency is key as distribution factors such as methane leakage can reduce these benefits.

Investment risks: In the LNG industry, long-term contracts are the main mechanism for ensuring coordination between all parts of the value chain.

Such coordination is necessary because the production capacity of Liquefied natural gas plants is in many ways limited by the capacity of transport systems.

The liquefied natural gas industry has a high level of investment risk due to the small number of alternative uses for LNG plants, terminals and ships, as well as the high volume of investments. Until now, there is high uncertainty about large LNG projects.

The risk factors for the construction Liquefied natural gas plants are as follows:

• Product prices are falling faster than costs.
• Concerns about security of demand (risk of recession).
• Conflicts in the distribution of gas supplies.
• Financial obstacles of all kinds.
• Environmental problems.
• Political tensions.

Uncertainty complicates the process of making investment decisions, since it is not known how much capacity will be commissioned in the coming years.

The risk is clear when you look at the delays that some companies face.

These delays are due to financial, environmental, social, regulatory and political issues. The planning, construction and commissioning times for LNG plants sometimes reach 4-6 years. During this time, the economic situation, demand and production can change significantly, so investors need accurate forecasts.

Liquefied natural gas plants: projects technology

Liquefied natural gas production is a proven technology that has been successfully used in the energy sector for many years.

Typically, an Liquefied natural gas plants consists of the following elements:

• Gas pre-treatment and liquefaction line.
• LNG production equipment.
• Protected gas storage tanks.
• Equipment for loading gas carriers.
• Auxiliary systems.

The transformation of natural gas into a liquid state is carried out in several stages. In the first stage, impurities (primarily carbon dioxide and minimal residues of sulfur compounds) are removed.

Then water is removed, which can turn into crystals and damage the system.

The next stage is the removal of heavy hydrocarbons, after which mainly methane and ethane remain. Recently, for the purpose of complex gas purification from moisture, carbon dioxide and heavy hydrocarbons, the adsorption method of deep gas purification on molecular sieves has been used. The gas is then gradually cooled by passing through several heat exchangers (evaporators).

Purification and fractionation are carried out, like most cooling processes, under high pressure.

The temperature is reduced to -160C using refrigeration cycles. Under these conditions, natural gas becomes a liquid at atmospheric pressure.

The construction of LNG plants begins with the selection of the most suitable technology.

There are currently seven LNG production technologies in use worldwide, including AP-C3MR, AP-X, AP-SMR, MFC, PRICO, DMR, Liquefin and Optimized Cascade.

However, Air Products remains the industry leader.

The AP-SMR, AP-C3MR and AP-X processes developed by this company account for over 80% of the market.

The only competitor for these processes is Optimized Cascade technology from ConocoPhillips.

AP-SMR (single mixed refrigerant) is traditionally used for onshore LNG plants, typically with a capacity of up to 1 million tons per year per line. Several separate lines are needed to increase the capacity of the plant. A feature of the AP-SMR is a unified automated system that simultaneously controls several gas turbines. The use of a mixed refrigerant increases the efficiency of heat exchange.

AP-C3MR is often used in the construction of LNG plants.

This technology accounts for the vast majority of the world’s liquefied natural gas production capacity. The AP-C3MR process uses two separate refrigerant cycles. The propane cycle is designed to pre-cool natural gas and partially dilute the refrigerant, and in some cases remove fuel gas (used for plant needs), while the mixed refrigerant cycle is used to liquefy and sublimate natural gas.

C3MR is a proven technology, proven over decades, making it suitable for many onshore plants. For floating LNG plants, this technology looks less attractive due to the large supply of propane, especially when kettle-type heat exchangers are used. Storing propane requires an increased strength tank where the working fluid is stored.

Since the C3MR process in floating LNG plants is of low appeal, Air Products has developed the more efficient AP-X technology (which is used in a number of large production lines in Qatar). An external nitrogen cycle is used to liquefy natural gas. Compression of nitrogen refrigerant is performed in three stages, which helps to optimize the process when there are significant fluctuations in natural gas flow.

The above technologies for the production of liquefied natural gas, as a rule, are used for the production of large volumes intended for further export.

Low-tonnage LNG plants also have a high development potential, meeting the demand of individual enterprises.

Estimated cost of building LNG plants

The gas industry is characterized by significant investment in infrastructure, unlike other solid or liquid energy sources that are easy to store and transport without an increased risk of loss.

The fact that natural gas is difficult to extract and transport via gas pipelines to the consumer’s boiler has slowed the development of the sector for many years.

It would seem that these disadvantages are not inherent in LNG, since it is transported in liquid form by sea like oil, without pipeline restrictions. But the fact that it must be liquefied and stored at low temperatures makes it difficult to handle and requires strict safety regulations.

Consequently, the LNG value chain also requires large investments.

Today, we see a reduction in capital costs at all links of the chain, including the production of LNG. This is happening both as a result of improving technologies and increasing capacities, and as a result of increased competition between technology and equipment suppliers, shipyards, etc.

Over the past 10 years, the cost of capital per unit of production at liquefied natural gas plants has decreased by 25%, for LNG tankers this figure has dropped by 35%, and at regasification terminals by 20% over the same period.

The cost of LNG plants can vary widely.

Building an LNG plant in Norway is not the same as implementing a similar project, for example, in Nigeria. Obviously, the availability of engineers, trained personnel, workshops and logistics services plays an important role.

Building a liquefied natural gas plant or receiving terminal near an existing port is not the same as building tens of kilometers from the sea coast. Floating LNG plants require a specific approach.

The approximate investment amounts given below are only averages and can vary greatly depending on the project conditions.

In the late 2000s, building an LNG plant from scratch with an estimated capacity of 8 million tons per year (MTPA) cost $ 1.5-2 billion.

Of this amount, 50% was for engineering design, construction and installation, 30% for the purchase of equipment, and the remaining 20% ​​for building materials.

The previous example refers to large LNG plants designed to supply large existing markets.

On the other hand, when a company is about to open up a new market or cover an emerging shortage in a small market, it makes sense to build a smaller plant with the prospect of future expansion.

Building LNG plants with a lower capacity is more expensive in terms of MTPA.

Thus, a plant with a capacity of 4-5 million tons of LNG per year at the end of the 2000s cost about $ 1 billion.

Due to the reduction in the cost of technology and equipment, the cost of liquefied natural gas plants has dropped significantly, and the scale of projects has increased.

Our services in the field of construction of LNG plants

CP Finance UK Finance offers a full range of services in the field of financing and construction, modernization and expansion, maintenance and operation of liquefied natural gas plants in Europe, Latin America, North Africa and the Middle East.

Services include:

• Feasibility study and financial modeling.
• Development of a general project and detailed design.
• Design and manufacture of customized LNG equipment.
• Construction and commissioning.
• Consultations during the operation of the plant.
• Modernization and expansion.

Cooperation with CP Finance UK Finance brings clear benefits to our customers in the form of favorable financing conditions, cost-effective production, high reliability, long equipment life and a quick return on investment.

We can design the optimal workflow for your business in order to simplify your LNG production scheme, saving on future plant expansion. A tailor-made approach contributes to reduced feed gas consumption, stable operation at low pressure and other benefits.

CP Finance UK Finance and partners help major energy companies around the world to achieve their goals.

In recent years, the EPC contract has become the most common form of cooperation in the construction of large-scale facilities such as LNG plants and terminals.

The advantage of an EPC contract for investors is that a single professional contractor performs all the work and bears full responsibility for the implementation of the project.

Contact us at any time to learn more about the construction of LNG plants under the EPC contract.

CP Finance UK FINANCE LIMITED
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Investing, monitoring the financial health of a company or obtaining loans is the daily life of modern business, so financial consulting service of CPUK is in high demand.

The knowledge and experience of experts helps to choose the most profitable financial solutions in order to implement a new large investment project or accelerate business development.

Financial consulting service is very expensive compared to other types of consulting.

For its money, the business receives a highly qualified team of several narrow-profile financial specialists who do not depend on the company’s managers and guarantee an unbiased analysis of existing problems.

CP Finance UK FINANCE provides financial consulting services, as well as facilitates the financing of large projects in the energy, transport, oil and gas, mining and processing of minerals, environmental protection, chemical industry and other industries.

In particular, we organize project financing with an initiator’s contribution of 10% of the planned cost of the project.

Financial consulting service: what you need to know

Financial consulting is a comprehensive service offered by specialists who are well aware of the financial market and have experience in investing.

Choosing the best models for project financing, tax optimization and related issues.

A financial advisor can plan finances and correctly analyze the financial position of a company.

Such a specialist has the appropriate education, experience and knowledge of the markets.

Thanks to this, he can find the best solutions for a specific business client or an entire sector, depending on the current situation.

This service can be provided to small, medium and large enterprises operating in various industries. A financial advisor should always be at the client’s disposal, ready to find the most profitable financial solutions for the company. Thanks to this, the entrepreneur can benefit from comprehensive professional assistance 24/7.

Benefits of financial consulting for large projects

Companies that do not have experienced staff or resources to comprehensively analyze investment projects often use the services of financial advisors.

Hiring outside consultants gives businesses fresh ideas to look at familiar financial models from a different angle.

CP Finance UK FINANCE is also ready to train OUR customer’s personnel on financial issues.

Features of financial consulting service for large projects:

• High complexity of this type of consulting, which requires a detailed analysis of several complex business processes with serious preparatory work and justification for each recommended action.

• Providing financial experts with access to reports and other key information that constitutes the company’s trade secret. This will require a high level of trust between the consulting company and the client.

• The need for a clear statement of objectives, defining the responsibilities of advisers and responsibility for their improper performance in the process of providing services.

The benefits of hiring an external financial advisor for large projects are numerous. First of all, it is a clear scientific base and a systematic approach to the analysis of the company’s financial health. An experienced financier can quickly identify client problems that slow down business development and jeopardize projects.

It is important that the external consultant does not depend on the management of the client company and reports only to his manager.

An objective assessment of the financial situation is exactly what the internal analytical departments of large firms often lack.

Finally, the significant experience gained from other projects will contribute to the effective work of the external consultant. Based on extensive experience, a financial advisor can propose clear and feasible activities for your company.

This type of service covers not only financial issues.

From a broader point of view, financial consulting helps clients make the right decisions for effective business management:

• The client can properly allocate his assets and make the right decisions, for example, regarding investments in new projects.
• The client gets more opportunities to develop his company, relying on effective long-term strategies.
• The client can use the results of financial analysis and plans aimed at the development of the company, taking into account certain conditions.
• The client receives professional support in obtaining the best sources of financing for their projects, as well as in choosing the most suitable bank.
• The client gains access to extensive knowledge of the financial markets.

Should you hire a financial advisor for your new project?

Every senior executive or business owner should answer this question on their own, but there is no doubt that this service is extremely useful in the current uncertainty.

Our services in the field of financial consulting

One of the preferred options for financing a businesses and capital intensive projects is the so-called syndicated loan.

Companies often face the challenge of finding funds to finance large projects, especially when it comes to multi-billion dollar infrastructure, industrial or energy projects with a long construction period.

At the planning stage, our clients must decide whether to use equity capital, finance a project with the help of business partners, shareholders, investors, or use loans from banks and other financial institutions.

Do you know how to use this financial instrument?

If you are planning to implement a large investment project, contact CP Finance UK FINANCE for advice.

Our team has extensive experience in financial modeling and project financing.

With the support of our high net worth angel investors and financial institutions, we can help you finance the construction of a solar power plant, wind farms, waste recycling plant or other capital-intensive facility on the most favorable terms.

Syndicated loan and other types of external financing

According to the World Bank, financing large projects is a major challenge for fast growing economies.

Today a business can choose the following sources of project financing:

• Leasing.
• Factoring.
• Issue of shares and bonds.
• Bank loans, etc.

Syndicated loan and external financing instruments have different purposes and usually mean different costs for the companies that use them.

All of the above sources of project financing can be used in various combinations, based on the characteristics of a particular business.

Despite the existing possibilities of obtaining funding from various sources, loans should be the basis of external financing for projects, and other sources should be considered as complementary.

Any major project requires a significant flow of funds, which must flow on a clear schedule to ensure the continuous operation of numerous contractors and subcontractors, manufacturers and equipment suppliers. Depending on the schedule, companies can use different sources of funds at certain stages of construction or operation of the facility.

A bank loan is a common form of external financing for large projects.

Due to the variety of forms of lending, this tool can be easily adapted to the individual needs of a particular company. It is also one of the cheapest sources of capital.

Thanks to close cooperation with high net worth angel investors and some other European countries, CP Finance UK Finance can assist clients in obtaining a long-term syndicated loan on attractive terms.

A syndicated loan is a long-term loan usually used to finance a specific project.

The main features of syndicated financing are listed below:

• Long term maturity: usually several years, but there are known examples with maturities up to several decades, especially in the oil and gas sector, energy and environmental projects.

• The loan is intended to finance specific activities, including the construction of a new thermal power plant or laying of a gas pipeline.

• The funds are partially provided in the form of a revolving loan up to a certain limit established by the agreement.

A syndicated loan is a highly customized financial instrument, which means there are no strict rules.

Loan agreements are very flexible and take into account the specifics of each company, its financial health and market position.

One of the features of a syndicated loan is its wide application in project financing. In these cases, the loan amount often exceeds the value of the assets of the entire enterprise, therefore banking institutions tend to apply very restrictive loan agreements.

Obtaining a long-term syndicated loan exceeding the value of the company’s assets within the framework of project financing is possible if several conditions are met:

• The industry in which the borrower operates is very stable and shows good development prospects (for example, the renewable energy sector).

• The borrower receives guarantees from partners or the contract includes other conditions for recapitalizing the company in the event of certain events.

• The syndicated loan is secured not only by all the assets of the given company, but also by the future cash flows of the project.

In addition, banks usually reserve the right to unblock subsequent loan tranches only when certain events occur.

For example, the allocation of the next part of funds becomes possible after the completion of a certain stage of construction.

Such agreements are usually concluded for significant amounts of financing, incomparably larger than in the case of traditional loans received from one bank. This is explained by the concentration ratios established by law per organization and the internal policy of banks regarding financing a specific sector.

In the case of a large loan, one bank may not be able to provide sufficient funds to implement the project on its own.

The first reason is that the bank runs the risk of violating the legislation, which in some countries imposes strict limits on the concentration of funds for one legal entity or even a sector.

On the other hand, each bank develops its own procedures (some of them even more stringent than national laws) that govern how much funds can be allocated to a particular enterprise or sector. For the combination of these reasons, banks are showing a willingness to organize syndicates in large projects.

An exception to the rule is financing provided in recent years by some Chinese banks, for which it is generally considered unusual to finance large investments by a single institution. Examples of this approach are financing telecom projects in Europe and financing large mining sector projects in Africa and South America. However, these decisions are often made in a centrally controlled economy and are usually aimed at bringing certain products to this market (usually projects are associated with Chinese manufacturers).

In the European context, the amounts of syndicated loans range from several tens of millions to several billion euros.

The largest syndicated loans in the EU are usually issued in the energy and infrastructure sectors, where the loan amount can exceed 1 billion euros.

Such large amounts require special conditions for the distribution of funds and control over their subsequent use. These conditions are determined long before the conclusion of the loan agreement itself and require special preparatory measures.

The role of a financial advisor in obtaining a syndicated loan

High-quality preparation and organization of project financing is the first and most significant step in this process.

Company managers need to understand that preparation determines the subsequent success of the entire operation, and the better your company is adapted to the demands of the financial markets, the sooner and on better terms the process will be completed.

When your company first enters the syndicated finance markets with a major project, it is advisable to hire a financial advisor from the start. Such advisory functions are performed by renowned European and American banks such as Merryll Lynch, Goldman Sachs, JP Morgan, Citibank, Deutsche Bank, RBS, West LB and many other world famous brands.

In addition, you can hire a financial advisor from companies that are professionally engaged in such activities, such as Deloitte & Touche, Ernst & Young, PricewaterhouseCoopers, TDI Corporate Finance, etc. Of course, the cost of such services from market leaders can be very high.

CP Finance UK FINANCE is ready to provide businesses with a full range of advisory services, including financial modeling, selection of optimal funding sources and assistance in obtaining a syndicated loan on favorable terms.

The financial advisor is usually selected through a competition announced by the company.

His role is to guide the company through the entire financing process in an optimal way. However, this is often limited to optimization of the financing structure without legal advice.

The consultant’s fee depends on the loan amount. For the largest loans of about 1 billion euros, this fee can amount to hundreds of thousands of euros. The advisor’s excellent knowledge of the financial market (both domestic and international) will be an advantage for the borrowing company.

The role of a financial advisor in obtaining a syndicated loan:

• Conducting a detailed analysis of the financial market. Choosing the most appropriate moment to enter the market to obtain a loan on the best terms.

• Selection of alternative sources of financing for the project, which will supplement or replace the syndicated loan. Determination of the most suitable banks or financial institutions to manage funds. Providing a list of institutions interested in the project.

• Professional assistance in drawing up a business plan at the request of the bank. Execution of official documentation and negotiations with interested parties.

Only companies that have experience in syndicated financing or are part of an international group using such financing can enter the market without the assistance of a financial advisor.

Stages of obtaining a syndicated funding for a large project

Preparing documents and arranging syndicated financing usually takes more time than applying for a loan from one bank.

A simple contract with standard market terms can take up to 3 months to prepare, while more complex options can take 6 months or more.

At this stage, a professional financial consultant helps to clearly divide the organizational process into several stages with deadlines for their implementation.

In general, the stages of obtaining a syndicated loan include:

• Hiring a financial advisor (optional).

• Selection of proposals, selection of the organizing bank for the consortium and signing of a mandate letter (a document authorizing this bank to organize a syndicate on agreed terms). In some cases, it is possible to sign an underwriting letter, a document guaranteeing a company to organize financing on agreed terms.

• Drawing up a project financing schedule, taking into account the specifics of a particular business, technical and other possibilities for the implementation of a particular project.

• Prepare a term sheet, a document that contains a funding request detailing the financial needs of the borrower.

• Preparation and signing of an information memorandum.

• A syndication process for arranging financing on specified terms.

• Selection and signing of an agreement with a law firm.

• Development of a loan agreement and approval of collateral.

• Obtaining the necessary official and legal approvals.

• Signing the agreement.

Below we describe the most important stages of syndicated financing.

Syndicated loan standard terms and conditions

Financing large projects through a syndicated loan requires the borrowing company to strictly comply with numerous requirements throughout the term of the agreement.

This includes informational, financial, legal or other obligations stipulated by the relevant contract.

Particular attention should be paid to the events of default prescribed in the agreement, which can jeopardize the position of the lender or borrower. In general, in the case of obtaining a syndicated loan, the borrower has to provide a little more information than a regular loan.

Disclosure obligations are limited to standard reports such as quarterly and annual reports, often requiring audits. You may need to provide much more detailed reports. The amount of this information is usually agreed upon at the stage of signing the contract. In addition, the company provides its budget and long-term business plan.

In addition to standard reporting on project finance, banks may require permission to change a company’s business profile, an obligation to apply for consent (waiver) in the event of a merger with another legal entity, the creation of subsidiaries, and many others.

Bank requirements depend on many factors, including the following:

• The size and position of the company in the market.
• The amount of the syndicated loan and its maturity.
• History of cooperation with agent bank.

The agent bank is the financial institution through which the company contacts the rest of the syndicate.

Thus, the bank acts as a coordinator between the borrower and the funding banks.

The agent charges a commission for this service. This commission is also negotiated before signing the loan agreement and usually does not exceed 100 thousand euros per year, which is quite a sufficient amount for a large syndicate.

Further responsibilities of the borrowing company should include maintaining certain financial ratios within specified limits.

The most common indicators in loan agreements include:

• Debt / EBITDA ratio. The lower the number, the better. The level considered safe is between 0 and 1, and the indicator above 2.5 is usually considered dangerous for the company. However, this scheme should not be considered final, because, as is the case with many other financial indicators, a lot depends on the industry.

• EBITDA / debt service. This figure should be high. An indicator below 1.5 is considered dangerous, and at a lower level, companies have problems servicing their current debt.

• Debt / equity. The lower the number, the better. It is used at the initial stage of implementation of large projects, when the company has not yet generated positive EBITDA. An indicator level above 2 is considered dangerous.

The syndicated loan provides stable financing at relatively low costs. Preparation in this case is extremely important, since the subsequent success of the entire operation often depends on professional planning and competent paperwork.

When using syndicated financing, companies should maintain certain ratios within specified limits. These actions are in the best interests of the business as it will minimize subsequent costs.

If you are looking for funding sources for a large project, contact CP Finance UK Finance at any time.

We are ready to share our experience and assist in obtaining loans from leading European banks and financial institutions.

CP Finance UK FINANCE LIMITED
Website:https://c-pfinanceuk.com/
E-mail:finance@cpuk-financeltd.com
Alt-Email:admin@cpukfinanceltd.com

Global investment in the energy sector in 2020 decreased by about $ 400 billion compared to 2019, while Financing of electrical substations amounting to just over $ 1,500 billion.

An electrical substation is a key node in a power system where energy is converted to adequate voltage levels for transport, distribution or consumption.

The development of any sector of the economy that consumes electrical energy, be it heavy industry or mining, requires additional investment in the construction of electrical substations and other elements of the power system.

Growing competition requires businesses to implement more efficient solutions in various areas, including generation, transformation and transmission of energy.

In recent years, companies in the power sector around the world have been challenged to implement new technological developments at their facilities to improve customer power services while striving for better quality and price conditions. The cost of electrical substations is also rising, given the stringent requirements for energy quality, safety and facility automation.

CP Finance UK FINANCE, a financial specialists perform a full range of works on the design and calculation of technical and economic parameters of electrical systems and networks, including the development of individual energy projects for power plants, industrial facilities, transport hubs, and so on.

We offer financing for electrical substations and construction of the facilities in Europe, the USA, Latin America, North Africa, the Middle East, as well as in the countries of South and East Asia.

The offerings of our finance company include the organization of project finance (PF), long-term investment loans and much more.

Determination of the cost of financing an electrical substations

Engineering design and financial calculations of electrical systems are based on a detailed analysis and feasibility study of the initial parameters and data collected at the pre-investment research stage.

The chosen option for the implementation of the electrical substation project should ensure the supply of energy to consumers with the lowest investment costs while maintaining optimal quality, reliability and flexibility of the facility.

Multi-stage work to determine the cost of financing an electrical substations includes the search for structures, equipment, materials and methods for their connection, which ensure the achievement of the planned economic indicators of the project with the obligatory compliance with the technical standards of the host country. These works should be an important part of all projects for the construction, modernization, expansion or reconstruction of electrical systems of any scale.

After the approval of a specific list of equipment, materials and technical solutions, our technicians begin stage-by-stage work on the development of technical documentation.

At the same time, the CP Finance UK Finance legal team is working to obtain the necessary approvals from local authorities, licensing authorities, representatives of electricity supplier companies, etc.

The electrical substations planning stage usually includes, but is not limited to:

• Analysis of the existing power system of the region including determination of its load, regulation conditions, as well as the potential for further development.

• Assessment of the requirements of key consumers to ensure optimal operating conditions for the equipment and substantiation of the parameters of the future power substation.

• Analysis of the parameters of the connected power plants and the selection of suitable operating modes for each facility to ensure their balance and dynamic stability.

• Performing professional calculations of power grid operating modes in order to develop an optimal scheme of electrical equipment including transformers, automation, protection systems, compensating devices and other units.

• Estimation of the required costs, including the purchase of materials and equipment, site preparation and the cost of professional services, including the services of construction contractors, independent consultants, etc.

• Preparation of a detailed report with technical and economic indicators of the future system, stages of construction, funding requirements.

The engineering design and financing of electrical substations in general covers an extremely wide range of practical issues.

Along with a systematic approach, which should be aimed at solving strategic business problems, the engineering team is faced with numerous narrow technical problems, such as the most rational choice of protection and automation devices.

There are many techniques used to estimate project costs in the early stages of development. These methods, widely used in areas such as electrical engineering, include Phased Estimating, Multi-Element Estimating, Factoring Estimating, and Parametric Estimating, among others.

In general, the cost of electrical substations today can reach several tens of millions of euros, which depends on the type of facility, capacity, location, the degree of technical complexity of the project and a number of other factors.

The schedule of financing  for the electrical substations and the amount of funds received at each stage of construction should be drawn up individually, taking into account the conditions of a specific project and the requirements of stakeholders.

Factors affecting the cost of an electrical substation

When starting the engineering design of an electrical substations, it is necessary to clearly define its place in the power system, to determine the function that it should perform today and tomorrow.

When determining the parameters of a substation under construction, it is important to clarify the investment efficiency indicators. Investment decisions are made on the basis of analytical information obtained from various sources.

The cost-benefit principle states that value is created when the benefit of a solution exceeds its cost.

The financial cost of the construction of an electrical substation is formed under the influence of the following three variables:

• Cash flow of the investment project.
• Time of project implementation from idea to commissioning.
• Risks and uncertainties associated with the project.

Any financial decisions made by project initiators and investors are closely related to the value of money over time.

The money received the next year is worth more than the same amount when it was received in the fifth or tenth year of construction. Most financial decisions made at the large business level must take into account the change in the value of money over time.

The most important factors affecting the cost of financing an electrical substations are the type of facility and its location in the system.

Finding the optimal solution is often difficult and requires deep economic and technical analysis.

When choosing a specific technical solution for a substation, several factors are taken into account, such as the location of the substation and the length of the associated low voltage circuits, the type and layout of the site, the characteristics of medium and low voltage networks for connection.

Both investment and operating costs are taken into account when preparing an engineering project. The costs of construction of a substation, power lines and installations constitute the main costs incurred from the moment of making a decision on construction until the moment of putting this substation into operation. Operating costs mainly include the cost of purchasing electricity, maintenance, repairs and energy losses. The exact proportions of these costs differ for each project.

It is worth analyzing these costs not only at the construction stage, but also in the context of the long-term operation of the facility.

The substation should be designed in such a way as to ensure the appropriate quality of electricity supplied to consumers at the lowest possible cost. The power quality is determined, among other things, by the level of voltage harmonics, frequency, symmetry of the supply voltages. The substation must be flexible, that is, it must easily adapt to connecting new loads or increasing existing loads. It should also be simple and safe to use.

Factors affecting the cost of an electrical substation are listed below:

• The location of the substation and the length of the MV and LV circuits connected to it, which should be as short as possible.

• The type and design features of the facility that directly affect the use of space and the requirements for the site and premises.

• The power of the step-down transformer in relation to the existing or anticipated future electrical load.

• Investor requirements and operating conditions governing the selection of electrical equipment and ancillary installations.

The investment costs of a substation and transmission line spent during the construction and installation period represent any costs incurred from the moment the decision was made to build a given facility until its normal operation.

Investment costs include the following:

• Material costs (transformer equipment, protection systems, line conductors, supports, cables, fittings and other elements and materials).

• Costs related to construction (operation of equipment used in the construction of the substation, planning of works and hiring of personnel).

• Design and administrative costs (eg development of project documentation, obtaining official building permits).

Operating costs include the following:

• Costs for the purchase of electricity, as well as associated costs to cover energy losses (the latter depend on the resistivity of cables, expected power and consumer demand for electricity).

• Costs associated with the maintenance, repair and maintenance of an existing electrical substation and its equipment.

• The cost of a system failure (in other words, the cost of undelivered energy). The cost of energy not delivered as a result of equipment failures is determined based on the failure rate, taking into account the average number of failures per year and the average duration of failures.

Based on the experience of numerous implemented industrial and energy projects, our professional team can compare alternative options for the construction of electrical substations, choosing the optimal solution for the customer.

The financing of electrical substations requires in-depth knowledge and experience due to the numerous technical and economic factors affecting a project.

For example, the location of the substation close to energy consumers allows to reduce the cross-section of wires due to less voltage drop at a distance. This, on the one hand, reduces investment costs, however, reducing the cross-section of the wires in this case increases the operating energy losses.

When placing transformer equipment inside the premises where energy consumers are located, there is no need for the construction of an overhead power transmission line.

The disadvantage of this option is the need to allocate the appropriate equipped space, which may be associated with additional investment.

When choosing the design of the future electrical substation, our engineering team must find a balanced approach to parameters such as efficiency, loss rate, safety, access and ease of use, compact design, equipment size and weight, initial investment and maintenance costs. The final decision always rests with the investor.

When making calculations for large capital-intensive projects carried out over several years, financiers take into account discounting formulas that translate future flows into current values.

Need more information?
Are you looking for professional assistance in the implementation of your investment project?

Contact CP Finance UK FINANCE LIMITED for details.

Contact us for more information.

CP Finance UK FINANCE LIMITED
Website:https://c-pfinanceuk.com/
E-mail:finance@cpuk-financeltd.com
Alt-Email:admin@cpukfinanceltd.com