Principles of Project Finance

a Power Purchaser’s grid line going down) does not relieve it from the obligation

to pay the Availability or Unitary Charge, since the project is obviously still avail-

able even if unusable.

Loss of income or additional capital costs caused by temporary force majeure

should generally be covered by insurance (cf. §7.6), but this is usually a matter for

the Project Company to sort out, taking account of the provisions of the Project

Agreement.

Force majeure that makes it permanently impossible to complete or operate the

project is dealt with under the termination provisions discussed in §6.8.3.

§6.7 STEP-IN BY THE OFFTAKER OR

CONTRACTING AUTHORITY

As an interim measure on a default by the Project Company, the Offtaker or

Contracting Authority may also have the right to step in and operate the project it-

self to ensure continuity of supply or service. The Offtaker or Contracting Au-

thority may also have this right in the case of an emergency, even if the Project

Company is not in default. If the Offtaker or Contracting Authority operates the

plant, whether the Project Company is in default or not, the Tariff continues to be

payable (after deducting reasonable costs incurred), and the Offtaker or Contract-

ing Authority must indemnify the Project Company for any loss or damage.

Clearly both investors and lenders will be uneasy about the terms on which

such a step-in right can be allowed, and it has to be coordinated with the lenders’

step-in rights (cf. §7.7).

§6.8 TERMINATION OF THE PROJECT AGREEMENT

The Project Agreement may be terminated before the end of its normal term

because of a default by the Project Company (cf. §6.8.1) or the Offtaker or Con-

tracting Authority (cf. §6.8.2), or be made necessary because a force majeure

event has made it impossible to complete or continue operating the project

(cf. §6.8.3). The Offtaker or Contracting Authority may also have an option to ter-

minate the Project Agreement early and take over the project (§6.8.4). Allowance

may have to be made for the tax status of a payment on early termination (§6.8.5).

Provisions also need to be agreed to for the handover of the project at the end of a

BOOT/BOT/BTO contract (§6.8.6).

One difficult area in negotiating Project Agreements is the provisions concern-

ing what happens after a early termination, especially of a BOOT/BOT/BTO proj-

ect. The key issue is whether a compensation payment (known as the Termination

Sum) should be made by the Offtaker or Contracting Authority in all circumstances

§6.8 Termination of the Project Agreement 91