Page 66 - Industrial plants

facility to offer some protection against time-and- a product involved it is essential to identify the
cost overruns. offtaker or buyer and to establish the basic
terms. Lenders prefer guaranteed minimum or
• The operating contract: The lenders have to be ‘floor’ prices, but these are frequently
assured that an experienced operator will be unobtainable. There is then the need to
available on completion of construction. establish whether the future price of the product
is something upon which the potential lenders
• The offtake contract. This is one of the key to the project are prepared to take a risk. There
contracts. As limited-resource projects are, by may be an opportunity for the offtaker to take
definition, funded on the security of the future some of the downside risk by providing a very
cash flow, there has to be some form of buyer. low floor price, for example one which is below
Projects fall into two categories: those where the level at which the debt would have to be
the identity of the buyer is obvious, for example rescheduled with the lenders risking such
toll roads and some power stations and those rescheduling. In exchange the offtaker would
where there is physical product which has to be expect a high reward in good times.
sold, often on the world market. Where there is

EPC or EPCM contracts? Starting with understanding the
difference between these definitions and their impact on Project
Finance

- Commissioning, Startup, Training and Operations

Many different terms are tossed around the
construction industry loosely describing the different
methodology used to design and construct new
facilities and turnarounds. Unfortunately, there are no
tried and true definitions for the different methods
and numerous variations of each of the most popular
methods.
Determining the correct form of construction
contract to pursue can have a great effect on the
cost and risk associated with the construction
project. The cost of construction varies inversely
with the amount of business risk the “owner /
financers” are willing to accept. The less business
risk the owner wishes to assume, the higher the cost
he transformation of and engineering of construction and management. This follows the
company into an organized EPC or “risk-reward” motto for business.
EPCM. The first step is to understand
the difference between these “Determining the correct form of
definitions, which will impact deeply construction contract can have a
T the Project Finance. great effect on the
An EPC or EPCM Contractor will perform the cost and risk associated with the
following main activities: construction project
- Feasibility Studies
- Project Financing The two most common types of construction
- Contracting contacts are EPC “turn-key” and EPCM. Each of
- Basic and Detailed Engineering Services/FEED these methods have variations that can be adapted
- Project Management to each project as needed; example (EPCC
- Procurement and Manufacturing Engineering, Procurement, Construction, and
- Construction Commissioning), etc.

IndustrIal Plants - May 2023
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