PROJECT FINANCE GLOSSARY

Definition Explanation

API Gravity A measure of density of Crude Oil or other liquid hydrocarbons, as

measured by a system recommended by the American Petroleum
Institute (API), measured by degrees. The lower the API gravity, the
heavier the compound.

Availability For a power station the technical capacity of the plant less the time
when the plant is expected to be shut for maintenance. Measured as a
percentage of the technical capacity of the plant

Barrel 42 US gallons

Barrel of oil equivalent 1 Barrel of crude oil = 5800 cubic feet of gas or 6,400,000 BTU.
Amounts will vary according to energy content.

Barter The sale of goods for goods, rather than cash or deferred payment
terms

Base load plant A power plant that forms part of the core electrical energy requirements
in a country

Berne Union The agreement governing the terms and conditions relating to finance
and financial support provided by Export Credit Agencies that are
signatories to the Berne Union.

Bid Bond A bond (guarantee) issued when submitting a construction contract bid,
which can be claimed on if the bidder fails to comply with the terms of
their bid

BOT Build Operate Transfer. A scheme where a private sector operator is

awarded a concession to build, operate and transfer a facility for a
specified period. At the end of the period the facility is typically returned
to the host government. Variations on BOT / BOOT schemes include
BLT schemes (Build Lease Transfer)

BPCD Barrels per calendar day

BTU British Thermal Units, the quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit

Bullion Gold or silver in bars or ingots

Buyer Credit A credit facility granted by a group of banks to a buyer of capital

equipment and guaranteed by an Export Credit Agency

Capacity charge A charge for making available a specified physical plant. Usually
structured to cover the cost of the asset, and maintenance / operation
charges. May also include a charge to reflect debt servicing costs,
exchange rate fluctuations and a return on the equity investment for the
relevant project
 PROJECT FINANCE GLOSSARY

Definition Explanation

CCGT Combined Cycle Gas Turbine

CFADS Cash flow available for Debt Service

CFD Contract for difference. Used in a number of UK Independent Power

Station project financings. A contract where a third party agrees to pay
(or receives) the difference between an agreed price for the purchase of
a specified product and the market price at the time of calculation. As
such works on the same principles as an interest rate swap

Co–financing A financing involving commercial and development banks

Co – generation A power plant that produces both electrical power and steam. As such
more efficient in its use of energy than a single cycle power plant

Coke or Fuel Coke The solid bi – product of an oil refining process

Concession The right to operate a physical plant or system for a specified period on
pre-specified terms and conditions

Contingency An amount set aside to meet costs in excess of the anticipated budget
for a project

Covenant An undertaking to do or not do a specified action. Can relate to either

financial or operational issues

Debt service The cost of meeting principal and interest costs

Debt service coverage The ratio between Cashflow Available for Debt Service and Debt
Service

Downstream activities In an oil and gas project, the activities other than the core exploration
and production facilities. An example would be oil refining

DSCR Debt Service Coverage ratio (see Debt Service Coverage)

ECA Export Credit Agency. An organisation established to support exports of

goods and services from the country concerned. This can be a mixture
of insurance of export receivables, guarantees or insurance of debt
incurred in support of the exports, or, in the case of some Export Credit
Agencies, a direct loan in support of the exports

Efficiency ratio In a power station, the ratio between energy produced and the energy
needed to produce it

Energy charge In a power station project, the charge for the energy consumed in
producing the energy output

EPC Engineering & Procurement Contract

 PROJECT FINANCE GLOSSARY

Definition Explanation

Escrow account A trust account, typically to hold monies on trust for the project lenders.
Released on the occurrence of certain events, such as foreign currency
transfer restrictions, or to meet specified payments in relation to the
project

Finance lease A lease where the rental payments over the lease term effectively
transfer the risk of owning the asset leased to the lessee (user)

Force majeure Acts or events which are beyond the control of the parties concerned
and which has a material adverse effect on the ability of a party to
perform its obligations. A possible example would be extreme climatic
conditions such as a hurricane

Gearing The ratio between debt and equity

Heat rate A measure of the conversion of energy into electrical input

Heavy Crude Oil Crude Oil with an API Gravity of less than 21 degrees

Interconnection charge A charge for use of connection facilities to a third party’s facilities, such
as a telephone connection

IPP Independent Power Plant

Kwh Kilowatt hours – the total energy generated by one kilowatt (1000 watts)
in an hour

Leaching Extraction of a precious metal from an ore by dissolving it in a cyanide

solution

Letter of Credit An undertaking by a bank to make payment to the beneficiary of the

Letter of Credit, provided the terms of the Letter are fully satisfied

Light Crude Oil Crude Oil with a specific gravity in excess of 28 degrees

Liquidated damages Damages paid for delay under a construction contract, based on a pre-
estimate of costs as a result of delay.

LNG Liquefied Natural Gas. Produced through a process of liquefaction

which compresses the gas into a liquid form

Loan Life Coverage ratio The ratio between the Net Present Value of the forecast project
cashflows over the life of the loan, and the amount of the loan

LPG Liquefied Petroleum Gas

Merchant plant A power plant which does not have the benefit of long term sales
agreements, and therefore operates in the spot market
 PROJECT FINANCE GLOSSARY

Definition Explanation

Metre 3.28 feet

Metric ton 1000 kilograms = approximately 2205 pounds

MMCFD Millions of cubic feet per day

Mwh Megawatt hours – the total energy generated by one megawatt (one
million watts) in one hour

NPV Net Present Value. The value of projected inflows and outflows in
today’s terms

O&M Operations & maintenance

Offtake agreement An agreement for the purchase of a project’s output

Open pit A mining property, where the ore containing the commodity to be
produced is close to the surface
The ratio between the commodity being mined and the quantity of material
Ore grade
that has to be mined to produce it e.g. 7 grammes per tonne
Pass-through Costs that can be passed through to the purchaser of a project’s output

Peaking plant A power plant that is likely to be used only at peak hours of
consumption

Performance bond A bond (guarantee) issued by a financial institution on behalf of a

supplier or contractor that provides for payment to the beneficiary if they
claim that the supplier / contractor has failed to perform specified
obligations

PFI Private Finance Initiative. The UK equivalent of PPP

PPA Power Purchase Agreement

PPP Public Private Partnership. A service contract, covered by a concession,

to provide services to a public sector organisation (such as roads,
hospitals, water treatment facilities) in which the concession is granted
to a private sector company . This normally involves constructing the
facility and then providing operating and maintenance services for the
lifetime of the concession. At the end of the concession the assets
revert back to the public sector entity

Rule 144a A section of the US Securities Act which permits the distribution of
securities to Qualified Institutional Buyers without a public listing

Sinking Fund An amount of money put aside to meet certain costs incurred in respect
of a project. An example would be a sinking fund set up for the
maintenance of a hotel
 PROJECT FINANCE GLOSSARY

Definition Explanation

Subordinated debt Higher risk debt where the holder of the debt agrees to accept a lower
ranking claim on the Borrower’s assets and cashflow in return for a
higher rate of interest

Supplier Credit A financing guaranteed, insured or provided by an ECA to a supplier in

support of the delivery of specified Capital goods. Financing would be
provided on a non recourse basis to the supplier

Supranational An institution with shareholders from a range of countries. Examples

would be the World Bank and the IMF

Take or pay The purchaser under a contract is obliged to take the product it has
committed to purchase (and pay) or pay for it

Tariff agreement An agreement set out the pricing terms applicable to the purchase of a
specified product and/or service

Tax holiday An arrangement which provides for relief from tax payments over a
specified period

Throughput agreement An agreement for the delivery and payment of a specified product.
Typically used in oil and gas financings

Tolling Processing of a raw material with repayment for the raw material
coming from the sale of the processed material e.g. alumina being
processed into aluminium

Turnkey contract A construction contract providing for the construction of specified

facilities without the scope for requiring increases in prices if costs
increase

Upstream activities The assets used in the exploration and development of oil and gas
resources

WACC Weighted Average Cost of Capital – the weighted after tax cost of debt
plus the weighted cost of equity