Principles of Project Finance

The effect of this was seen, for example, in the Asian crisis of 1997, and in Tur-

key in 2001, where Power Purchasers under long-term PPAs had linked Tariff pay-

ments to foreign currencies. When the Power Purchasers’ home currencies suffered

huge devaluations, they had an obligation under the PPA to increase the Tariff pay-

ments accordingly. However, it was simply not economically or politically realistic

for the tariff to their own end-users of electricity to be increased immediately to a

similar extent, to enable the required payments to be made to foreign lenders and in-

vestors. Thus in practice the protection supposedly given by currency indexation in

the Tariff did not work and the PPAs of course fell into default.

“Catastrophic devaluation ...