overview of project finance for geothermal power...

Copyright (c) Mizuho Financial Group, Inc. All Rights Reserved.

Strictly Confidential

Overview of Project Finance for Geothermal Power Projects

Prepared for World Bank Seminar, July 20th, 2018

Global Project Finance DepartmentMizuho Bank, Ltd.

World Bank Seminar:“Climate Investment Funds” experience: Finance, Technology, and Japanese companies

STRICTLY CONFIDENTIALDISCUSSION PURPOSE ONLY

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Table of Contents

1. Mizuho's Project Finance

Mizuho’s Project Finance – Organizational Structure 3

Mizuho’s Project Finance – Our Product Offering 4

2. Key Considerations from PF Lenders’ Perspective

Key Risk Allocation at each stage from financing perspective 7

Key Considerations from PF Lenders’ Perspective 8

3. Case Studies

1.) Sarulla Geothermal Power Project 9

2.) Muara Laboh Geothermal Power Project 10

Appendix : Mizuho’s Worldwide Network

Mizuho’s World Wide Network 14

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1. Mizuho’s Project Finance


3

Mizuho’s Project Finance – Organizational Structure

New York

Sydney

Singapore

Hong Kong

Bangkok

Energy & Natural Resources Team

Agency Services (Planning & Coordination Team)

Power Team

Infrastructure Team

Asset Management Team

Sustainable Development Office

New Business Development Office

Export & Agency Finance

Global Project Finance Department

Project Finance Department

Japanese Domestic Project Finance

Project Finance outside Japan, HQ function and support to related offices

Asia Office

In charge of deals in Asia

Singapore

Hong Kong

Bangkok

Mumbai

Seoul Branch

Americas Financial Products Dept. Europe Structured Finance Dept. Australia Corporate Banking Dept.

In charge of deals in Americas In charge of deals in EMEA In charge of deals in Australia, New Zealand and Pacific Region

London SydneyNew York

Houston

Mumbai

LondonSeoul

Houston

GPF Tokyo

Mizuho has over 30 years of experience in the advising, structuring, arranging, closing, and distributing complex multi- sourceproject finance transactions throughout the world.

Mizuho PF team can utilize its extensive branch network worldwide, and its huge asset basis. For Project Finance, more than 220 full-time professionals covering all over the world, all industries.


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Our Service Offerings Across the Lifecycle of a Project Mizuho provides its expertise and services to the clients for each stage of project development starting from origination through the final stage of

financing to even post-closing. Mizuho is also a member of the Equator Principles Financial Institutions (EPFI), a group of 40 other major global private and governmental

institutions that have established common standards that private financial institutions apply to determine, assess and manage environmental andsocial risks in project financing. As the first Asian bank to adopt the Equator Principles in 2003, we have over 10 years of experience implementingEquator Principles for Project Finance and Financial Advisory deals, around the globe and across various industry sectors.

Global Project Finance

Department

PROJECT FINANCE PRODUCTS

Debt Financingconstruction loans, term loans, project bonds, equity bridge financing

Export Creditespecially JBIC/NEXI financing

Mezzanine Financingsubordinated debt

Structured Financetax-based products, leasing

Risk Management Productshedging of interest rate, FX exposures, commodity

Merger & Acquisitionasset evaluation of existing projects

Bid and Performance Bonds

Agency Services Full agency services

Post Financial Close

Coordination & Syndication

Financial Advisory

Structure & Arrange

Coordination & Syndication Manage international

syndication Lead negotiations among

sponsors and financial institutions

Focus on achieving timely financial close

Post Financial Close Full Loan Agency services

and Operations management

Dedicated portfolio management team

Financial Advisory Evaluate project contracts,

risks & economics Modeling and information

memorandum preparation Financial structuring and

negotiation with key parties Assist bid submissions and

negotiation

Structure & Arrange Devise / Implement optimal

finance scheme Enlist ECAs and multilateral

agencies Provide large underwriting

capability Documentation

Mizuho’s Project Finance – Our Product Offering

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2. Key Considerations from PF Lenders’ Perspective


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Stage Key Activities

Allocation of Responsibilities

Key Considerations SuggestionsHost Government

Developer Lenders

Surface geo-scientific exploration

Baseline environmental studies

Pre-FS study, etc

X

It costs approx. US$ 1 - 2 Million

The data and reports will be used forthe preparation of the competitive bid.

Outsourcing the surveys to theexternal advisors.

It helps to accumulate the experiences.

Tender to decide the developerX

Evaluation of experienced geothermaldevelopers and reliabletechnology/equipment.

Methodology to determine the tariff

Follow the international procurementrule of ADB and the World Bank

All bids should be denominated in USD.

FITs is not always best option.

Exploration activities to verifythe reserve

X X

3 – 4 wells shall be drilled for thecapacity of 50MW. It costs approx.US$ 30 – 40 million.

Lenders are basically reluctant tofinance the upfront reserveverification

Availability of governmental fund is akey driver for the process.

Reserve consultant should be retainedfor the verification process.

Tariff adjustment mechanism shouldbe introduced.

Finance Arrangement X X X Lenders’ Due Diligence should be

completed.

Governmental body’s assistance to getthe developer obtain permissions is akey.

Construction and geothermalreserve development

X X X

Governmental support to ensure theofftaker’s obligation is crucial.

Management of construction anddrilling schedule

Governmental body’s assistance(Direct Support) to ensure theofftaker’s obligation is a key.

Operation X X X

Governmental support to ensure theofftaker’s obligation is crucial.

Management of make up wells

Governmental body’s assistance(Direct Support) to ensure theofftaker’s obligation is a key.

Base

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nKey Risk Allocation at each stage from financing arrangement perspective

(Source) Mizuho Bank


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Key Considerations from PF Lenders’ Perspective

Key Considerations PF Lenders’ Concern Key DD Points

Resource Verification

Appointment of well experienced reserve consultant

Application of methods applied in other cases (e.g.：volumetric method, 3D simulation ）

Validation by consultant： 90% probability of reserve amount based on volumetric as well as 3D simulation.

Debt Sizing

Appropriate level of debt sizing

（e.g.：coal-fire 1.25x – 1.30x, hydro power 1.30x –1.40x, geothermal 1.40 – 1.50x）

Debt Sizing based on a situation that assumes a combined stress case

Verification of geothermal degradation rate in a stress case

Verification of Make-up Well number and additional wells during operation period

Application of Cash Sweep Mechanism, when DSCR lowers than certain level

Sizing of Contingency Budget

Interface between Drilling Activities and plant construction

Volume of Contingency Equity based on a stress case

Verification of stress case by consultation: validity of schedule, number of failed wells, Contingency Plan etc.

Thorough arrangement by technical consultant and reserve consultant: verification on interface plan and schedule management

Degradation rate and Make-up well

Advice from reserve consultant regarding the degradation rate under stress case

Validity of Make-up Well Plan which is to mitigate degradation risk

Validity of appropriate degradation rate by comparing with other deals

Validity on numbers of Make-up Well under stress case

Additional drilling reserve account

(Source) Mizuho Bank

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3. Case Studies


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3. Case Studies1.) Sarulla Geothermal Power Project

• The financing was procured as a package of JBIC (US$ 490 mio) / ADB directloan (US$ 250 mio), ADB CTF (US$ 100 mio) and commercial bank loan(US$ 330 mio) with JBIC extended political risk guarantee.

• It is noted that Sponsors achieved the entire COD of 3 units in May 2018.Compared with the original assumption of February of 2018, the schedule wasalmost within the target timeline.

• We would like to highlight that CTF contributed to reduce financing costs andimprove sponsors’ return due to the facts that its base rate is fixed and it can bedrawdown entirely upfront upon FC to compensate for sponsors’ preinvestmentrelated to reserve drilling activities.

• It is to be noted that PLN and Pertamina are amongst the major projectcounterparties. Mizuho, as a Financial Advisor, has on-going experience inactively supporting a project consortium in negotiation with these institutions.

• Mizuho assisted Sponsors in achieving the successful financing closing of USD1,150 million debt. We have the most up to dated lenders’ positions ongeothermal project.

Mizuho acted as FA and MLA to the project consortium for the Sarulla Geothermal Power Project

[Project Structure]

Project Overview (FC achieved in September 2014)

Borrower Sarulla Operation Limited

Capacity 321MW

Sponsors Itochu, Kyushu, INPEX, Medoco Energi, Ormat

Project Cost Approx USD1,600 million

Debt Approx USD1,150 million

Facility Type JBIC Direct Loan, ADB Direct Loan, ADB Clean Tech Fund, Commercial Loan with JBIC EPRG

Lenders JBIC, ADB , Mizuho and other commercial banks

EPC Hyundai Construction and Engineering

[Project Site]Shareholder Agreement (SHA) / Joint Operation Agreement (JOA)

Medco OrmatKyudenItochu

HDEC Multifab

[Halliburton]

SOL Gov. of Indonesia

ADB

Drilling

Contract ECA

Contract Joint Operation

Contract (JOC)

Business Viability

Gurantee Letter (BVGL)

Equity

JBIC

Commercial Banks

Pertamina Geothermal

Energy (PGE)

PLN

Loan Agreement

19% 25% 25% 12.75%

(Source) Project Finance International

INPEX

18.25%


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3. Case Studies2.) Muara Laboh Geothermal Power Project (1/2)

Project Overview (FC achieved in January 2017)Borrower PT. Supreme Energy Muara Laboh

Capacity 80MW

Sponsors ENGIE, Sumitomo, PT. Supreme Energy

Project Cost Approx USD580 million

Debt Amount Approx USD440 million

Facility TypeAssuming a package of JBIC Direct Loan, ADB Direct Loan, ADB CTF, Commercial Loan with ADB or NEXI cover.

Lenders Commercial Lenders, JBIC, ADB

EPC Consortium of Sumitomo and Rekayasa(Turbine: Fuji)

Mizuho acted as FA and Structuring Bank to the lenders for the Muara Laboh Geothermal Power Project

• Mizuho acted as the Financial Advisor as well as the DD Coordinatorto the Muara Laboh consortium and Lenders in connection with PPAnegotiation, the tariff negotiation with PLN and organization offinancing structure for the development of Muara Laboh geothermalpower project. In this capacity, we were heavily involved in all aspectsof financial and commercial structuring of transaction, and maintainedan active communication with JBIC.

• The financing was procured as a package of JBIC (US$ 200 mio) /ADB direct loan (US$ 90 mio), CTF (US$ 19 mio) and commercialbank loan (USD 133 mio) with NEXI cover.

• We would like to highlight that CTF contributed to reduce financingcosts and improve sponsors’ return due to the facts that its base rate isfixed and it can be drawdown entirely upfront upon FC to compensatefor sponsors’ pre-investment related to reserve drilling activities.

[Project Structure]Sponsors

ENGIE Sumitomo PT. Supreme Energy

Project CompanyPLN

EPC Contractor

PPA

EPC Contract

JBIC

ADB

Commercial Lenders

Loan

(Source) Website of Sumitomo, JBIC, and NEXI

[Project Site]


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3. Case Studies2.) Muara Laboh Geothermal Power Project (2/2)

Reservoir Exploration Activities

JBIC, ADB, CTF and NEXI Reserve DD

Support PPA negotiation

Assit sponsors in negotiating the commercial terms of PPA with PLN

Support Lenders’ Reserve DD

Assist sponsors in selecting JBIC, ADB and NEXI’s reserve consultant.

Assist JBIC, ADB and NEXI in conducting their reserve DD.

Tariff Negotiation with PLN

Tariff Approval Process in GOI

Tariff MoU was signed in February of

2015

2011 2014-2015 2015-2016

Facilitate Lenders’ comprehensive DD

Due Diligence coordination for JBIC, ADB and NEXI as Structuring Bank.

Facilitate financing documentation

Draft information memo. Draft financing term sheet Coordinate the discussion on financing

documents.

PPA Negotiation

PPA was signed in March 2011

2012 - 2013

Lenders’ Technical Due Diligence

Review the package of EPC tender documents

Review the package of Drilling tender documents

Review the technical aspects of CF model if required.

Review any other technical items

Lenders’ Reserve Due Diligence (substantially complete before key Milestone)

Review the schedule of drilling activities .

Review the interfacing schedule of the plant construction

Review the technical inputs related to drilling in CF model

Review any other terms related to drilling activities.

Lenders’ DD

Documentation

Signing in January of 2017

Milestone

EventsM

izuho’s Works

(Source) Website of Sumitomo, JBIC, and NEXI

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Appendix – Mizuho’s World Wide Network


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Appendix : Mizuho’s Worldwide Network Our Overseas Office Network

As of June 30, 2017

●Toronto▲■■ Chicago

MHBK: 87 offices● Branch

▲ Representative Office■ Subsidiary

MHTB: 2 offices■ Subsidiary

MHSC: 22 offices■ Subsidiary

▲ Representative office

Asset Management One: 4 offices■Subsidiary

■ Boston

●▲■■■■ New York

●■■ Atlanta

▲Calgary

▲ Vancouver

▲■■ San Francisco

Mexico City ▲■

■ Nassau

■ Sao Paulo

▲ Santiago

Brussels ■London ●■■■

Paris ●● Milan

Zurich ■

● Dusseldorf

●■ Frankfurt

■ Amsterdam

■ Vienna

■ Moscow

Johannesburg ▲

Bahrain ▲

Dubai ●

▲ Istanbul▲ Tehran

New Delhi ●

Bangalore-Devanahalli ●Chennai ●

■ Hoboken

■ Madrid

● Cayman

Houston ●■■

Luxembourg ■

●■■ Los Angeles

● Seoul

Yangon ●

Bangkok ●Eastern Seaboard ●

Phnom Penh ▲Ho Chi Minh City ●

Kuala Lumpur ●■Singapore ●■■ Jakarta ■

● Labuan

Sydney ●■

■ Dalian■ Tianjin

■■▲ Beijing

Qingdao ■

Nanjing ▲

Xiamen ▲

Hefei ■Wuxi ■

Wuhan ■

Shenzhen ■Guangzhoun ■

● Kaohsiung● Taichung● Taipei

● Manila

Riyadh ■

Thilawa ▲

■■▲ Shanghai

■ Suzhou

●▲■■■Hong Kong

●Hanoi

■ Philadelphia

Ahmadabad ▲

Mumbai ●■

(Source) Mizuho Financial Group HP

The Americas Europe / Middle East Asia / Pacific

CanadaToronto VancouverCalgaryU.S.A.BostonNew YorkHoboken

PhiladelphiaAtlantaChicagoSan FranciscoLos AngelesHoustonMexicoMexico City

BrazilSao PauloChileSantiagoCayman IslandsCaymanBahamasNassau

United KingdomLondonGermanyDüsseldorfFrankfurtAustriaVienna

FranceParisItalyMilanSpainMadridBelgiumBrussels

NetherlandsAmsterdamRussiaMoscowTurkeyIstanbulSouth AfricaJohannesburg

IranTehranBahrainBahrainUAEDubaiSaudi ArabiaRiyadh

ChinaBeijingDalianGuangzhouHefei Hong KongNanjingQingdao

ShenzhenShanghaiSuzhouTianjinWuhanWuxiXiamen

TaiwanGaoxiongTaichungTaipeiKoreaSeoul

IndiaAhmadabadBangaloreChennaiMumbaiNew Delhi

SingaporeSingaporeVietnamHanoiHo Chi Minh City

MalaysiaKuala LumpurLabuanIndonesiaJakartaPhilippinesManila

ThailandBangkokEastern SeaboardMyanmarYangonThilawa

CambodiaPhnom PenhAustraliaSydney

800 Offices in Japan

Mizuho’s extensive office network, approximately 115 offices (including subsidiaries and affiliates) in 38 countries and regionsoutside Japan to respond to its customers’ diversified and globalizing financial needs while supporting the smooth progress ofeconomic activities.


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Appendix : Mizuho’s Worldwide Network Our Alliance and Business Cooperation

Mizuho has also established a worldwide network through the alliance and business cooperation with governmental agencies andlocal financial institutions illustrated below to enhance Mizuho’s capabilities to respond to a wide variety of customer needs

● Alliance● Business Cooperation

Matthews International Capital Management LLC

The Australian Trade Commission

Banco Santander (Mexico) S.A.

Agencia Parana de Desenvolvimento

Investe São Paulo

Itaú Unibanco Holding S.A.

Banco Santander Chile

Bank of Ceylon

SberbankKAZNEX INVEST

JSC Kazkommertsbank and JSC Development Bank of Kazakhstan

Trade and Development Bank of Mongolia

Export-Import Bank of Korea (KEXIM)

Korea Trade Insurance Corporation (K-sure)

Korea Finance Corporation

Alliance with Qatar National Bank

Bank of Taiwan

MAX MYANMAR Holding Co., Ltd.Myanmar Investment Commission

Chilean Foreign Investment Committee

(Source) Mizuho Financial Group HPAs of June, 2017

Mexico’s Secretaria de DesarrolloEconomico Sustentable Gobiernodel Estado de Guanajuato

The State of Jalisco

China CITIC

The Kenya Investment Authority

State Bank of India

Vietcombank

Bank of the Philippine Islands

Raiffeisen Bank International AGAustrian Business Agency

Invest in Bavaria

Sario/Slovak Investment and Trade Development Agency

Hungarian Investment Promotion Agency

Agenzia nazionale per l’attrazione degliinvestimenti e lo sviluppo d’impresa SpA

Akbank T.A.S

The Siam Commercial Bank

Banque Pour Le Commerce Exterieur Lao Public

Negara Indonesia

Secretaría de Desarrollo Sustentabledel Estado de Querétaro

Secretar ía de Economía y Trabajo del Estado de Nuevo León

Saudi Aramco

Banco Santander Rio S.A.

CzechInvest

Japan Finance Corporation (JFC)

China (Tianjin) Pilot Free Trade Zone Administrative Commision

The Government of Anshan City and Dalian Jin Pu District in Liaoning

The Department of Commerce of Yantai City and the Government of Weihaiu City

Xiangyang Investment Promotion Bureau

National Wuxi Economic and Technological Development Area in Jiangsu Province

The Government of Shaoxing City in Zhejiang Province

The Department of Commerce of Fujian Province

Tsinghua University

The Administrative Commission of the Changzhou National High-tech Industrial Development Zone in Jiangsu Province

The People’s Committee of Ba Ria-Vung Tau Province

Tamil Nadu Industrial Guidance & Export Promotion Bureau

An Investment Promotion Agency of the Government of Anhdra Pradesh

Maharashtra Industrial Development Corporation

The Industrial Extension Buareau in Gujarat

Hemaraj Land and Development Public Company Ltd.

National Hefei Economic and Technological Development Area in Anhui Province

The Saudi Arabian General Investment Authority (SAGIA)

ProColombia

Mashreqbank

Bancomext

Haryana State Industrial & Infrastructure Development Corporation Limited


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Disclaimer

These materials are prepared for the purpose of discussion with your company. The conditions entered in the materials are based on assumptions, and no claims are made as to the accuracy and integrity of the information included in the materials. Furthermore, the analysis in the materials is based on assumptions, and no claims are made as to the accuracy of the results.

The process or scheme may be substantially changed depending on: the information that is disclosed in the future, appraisals,views of rating agencies, and changes in the systems/financial environment. In such a case, please understand that the resultanalyzed in these materials may not be obtained. Furthermore, the materials do not suggest all the risks your company may be subject to.

Please participate in the scheme described in these materials at your company's own discretion after sufficiently understanding the risks involved. For legal/accounting/tax matters, please consult a specialist in each field, such as a lawyer, public accountant, or tax accountant.

Thank You

Mizuho Bank, Ltd.Global Project Finance Department

Tokyo Head Office

18th Floor Otemachi Tower5-5, Otemachi 1-chome, Chiyoda-ku, Tokyo 100-8176, Japan

Fax:+81 (3) 3201 6582

Copyright (c) Mizuho Bank, Ltd. All Rights Reserved.

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