FOREN 14-15 June 2012, Hotel Intercontinental Bucharest,

1. FOREN • 14-15 June 2012, Hotel Intercontinental Bucharest, • The basic contractual structure of a non recourse project financed for renewable projectsusing an EPC contract. • Robert Ghelasi • Director of Energy Department • Capital Partners • robert.ghelasi@capitalpartners.ro

2. The following diagram illustrates the basic contractual structure of a non recourse project financed wind farm project using an EPC contract.

3. Operation services • Local Public Authorities Maintenance services • Call centers • Field services Sponsor decision – wind farms needed to be located on sites that have • with adjacent land uses Consultants/Advisers Superficies Agreement Concession Agreement • Metering • Repairs Financing and Security Agreements • Remote monitoring • Inspection • Community acceptance and compatibility with adjacent land uses Equity Support Agreement • Project Company • (SPV) • Control room operation (24h/7d) • Preventive & corrective maintenance • strong, steady winds throughout the year, including extreme wind conditions. Romania has one of the Europe’s best wind resources especially along the Black Sea Coast. • Sponsors • Financial Institutions • Energy management & automation • Emergency response • Spare part management • good road access with adequate capacity to serve the wind plant (distance to publicly accessible areas) and spacing between turbines Partner 1 Partner 2 Other equity investors • Seismic activity, noise constraints, altitude, corrosion, and extreme temperatures Technical Advisor • Environmental impact, including avian, bat and other biological considerations EPC Contract O&M Contracts Connection Agreement PPA + GCPA • proximity to the electricity grid. • EPC • Contractor • O&M • Contractor • Network • Distributor • Power Offtaker • Green Certificates Offtaker Sub-contractor Tripartite Agreements

4. Project financing is a generic term that refers to financing secured only by the assets of the project itself. Therefore, the revenue generated by the project must be sufficient to support the financing. Project financing can be “non-recourse” financing or “limited recourse” financing. The recourse is limited both in terms of when it can occur and how much the sponsors are forced to contribute. In practice, true non-recourse financing is rare. In most projects the sponsors are obliged to contribute additional equity in certain defined situations.

5. A construction contract for a wind farm includes various elements, from manufacture of the blades and towers and assembly of the nacelles and hubs and construction of the balance of the plant comprising civil and electrical works. • There are a number of contractual approaches that can be taken to construct a wind farm. An EPC contract is one approach. • Another option is to have three separate contracts: • Wind Turbine Generator (WTC) supply contract; • Balance of Plant (BOP) contract; • Warranty Operating and Maintenance Agreement (WOM). • Balance of Plant (BOP) is the infrastructure of a wind farm project, in other words all elements of the wind farm, excluding the turbines. Includes civil works, SCADA and internal electrical system. It may also include elements of the grid connection.

6. The choice of contracting approach will depend on number of factors including: • the time available • the lender requirements • the identity of the contractor(s). • The major advantage of the EPC contract over the other possible approaches is that it provides for a single point of responsibility. Interestingly, on large project financed wind farm projects the contractor is increasingly becoming one of the sponsors, iean equity participant in the project company. Contractors will ordinarily sell down their interest after financial close because, generally speaking, contractors will not wish to tie up their capital in operating projects.

7. In assessing bankability, lenders will look at a range of factors and assess a contract as a whole. • A fixed completion date; • A fixed completion price; • No or limited technology risk; • Output guarantees; • Liquidated damages for both delay and performance ; • Security from the contractor and/or its parent; • Large caps on liability (ideally, there would be no caps on liability, however, given the nature of EPC contracting and the risks to the contractors involved there are almost always caps on liability); • Restrictions on the ability of the contractor to claim extension of time and additional costs;

8. An EPC contract delivers all of the requirements listed above in one integrated package, being designed to satisfy the lenders‟ requirements for bankability. This is one of the major reasons why they are the predominant form of construction contract used on large-scale project financed power and infrastructure projects.

9. EPC Contracting - Abbreviation E P C C Engineering Applying acquired knowledge and experience to efficiently Design The wind farm according to requirements Procurement Supplying of equipment at the best possible cost to meet the needs of the project in terms of quality, quantity time and location Construction Building and assemblying the ifrastructure and the equipment. Requires competive costs, carefull planning of works and materials, QHSE awareness, etc Contract

10. EPC Contracting – Scenarios Technical Advisor • The sponsor and lenders sign separate contracts with the EPC contractor (BoP) and the Equipment supplier; • An Interface Table regulates the responsibilities between the involved parties; • The supplier warranties the equipment and optionally, maintains theequipment under a long term contract; • The EPC Contractor warranties the infrastructure; Project Company Financing Supplier EPC • Scenario 1

11. Technical Advisor • Scenario 2 • The Sponsor and the Lenders sign one contract with the EPC Contractor ; • The Supplier sign also a contract with the EPC Contractor ; • The Interface Table regulates the responsibilities between the involved parties. • The EPC Contractor warranties the project; • Optionally the Supplier maintains the equipment under a long term contract; Project Company Financing Supplier EPC

12. EPC Contracting – FIDIC Contract form • EPC Contracting – Project Insurance Coverage • FIDIC is acronym for the International Federation of Consulting Engineers. The FIDIC forms are the most widely used forms of contract internationally, including by the World Bank for its projects. • Professional liability insurance (PLI), also commonly known as errors & omissions (E&O) in the US, is a form of liability insurance that helps protect the professional advice and service by EPC contractor from bearing the full cost of remedying works because of fault design. • Conditions of Short Form of Contract (the Green Book). • It is best known for its range of standard conditions of contract for: • Conditions of Contract for EPC/Turnkey Projects (Silver Book) • Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (Red Book); • Conditions of Contract for Plant and Design-Build (Yellow Book);

13. The contractor is responsible for all design, engineering, procurement, construction, commissioning and testing activities. Therefore, if any problems occur the project company need only look to one party – the contractor – to both fix the problem and provide compensation. As a result, if the contractor is a consortium comprising several entities, the EPC contract must state that those entities are jointly and severally liable to the project company. EPC contracts provide for: • A single point of responsibility. • A fixed contract price • Risk of cost overruns and the benefit of any cost savings are to the contractor‟s account. The contractor usually has a limited ability to claim additional money, which is limited to circumstances • EPC contracts include a guaranteed completion date that is either a fixed date or a fixed period after the commencement of the EPC contract. If this date is not met the contractor is liable for Delay Liquidated Damages (DLDs). DLDs are designed to compensate the project company for loss and damage suffered as a result of late completion of the wind farm. • A fixed completion date

14. The project company’s revenue will be earned by operating the wind farm. Therefore, it is vital that the wind farm performs as required in terms of output and reliability. Therefore, EPC contracts contain performance guarantees , payable by the contractor if it fails to meet the performance guarantees. These performance guarantees usually comprise a guaranteed power curve and an availability guarantee guaranteeing the level of generation of electricity • Performance guarantees • Most EPC contractors will not, as a matter of company policy, enter into contracts with unlimited liability. Therefore, EPC contracts for power projects cap the contractor’s liability at a percentage of the contract price. This varies from project to project. • Caps on liability.

15. It is standard for the contractor to provide performance security to protect the project company if the contractor does not comply with its obligations under the EPC contract. The security takes a number of forms including: • Security • A bank performance guarantee for a percentage, normally in the range of 5–15%, of the contract price. The actual percentage will depend on a number of factors including: • the other security available to the project company; • Retention Money Guarantee, ie withholding a percentage (usually 5%–10%) of each payment. • the payment schedule (because the greater the percentage of the contract price unpaid by the project company, the smaller the bank guarantee can be); • Advance payment guarantee, if an advance payment is made • the identity of the contractor and the risk of it not properly performing its obligations; • A parent company guarantee - this is a guarantee from the ultimate parent (or other suitable related entity) of the contractor, which provides that it will perform the contractor‟s obligations if, for whatever reason, the contractor does not perform • the price of the bank guarantee and the extent of the technology risk;

16. Vă mulţumesc, Robert Ghelasi Director Energy Department Capital Partners Email: robert.ghelasi@capitalpartners.ro Mobil: 0724377661