To structure a production payment facility without a trustee, the sale proceeds would then be controlled by way of an escrow account to cover production payment instalments and special conditions. These may embrace regular independent audits of production with an obligation on sponsors that specified levels and rates of production are met. FIGURE PF.3 ABOUT HERE Variations on this basic production payment financing method abound they – are sometimes termed production loans or production backed loans. We now turn to the use of a joint venture finance and/or operating company. If an unincorporated joint venture is established to own and operate a project, one has to consider financing possibilities carefully to shed risk. One method, involves management of separate financing by each sponsor, and the separate marketing of production. This preserves the joint venture for tax purposes and provides considerable flexibility in borrowing structures, and differentiation for each sponsor’s terms and conditions. Other means of achieving an acceptable project financing with appropriate risk reduction involve variants of this technique such as the use of a marketing/financing company to conduct the operations, marketing and project’s financing see Figure PF.4. – FIGURE PF.4 ABOUT HERE The operating agreement with the financing company makes the sponsors’ latter responsible for project operations, including the borrowing and servicing of loans on behalf of the sponsors, paying expenses and remitting dividends. Depending upon the finance and taxation objectives there are many sponsors’ variations on the theme summarized in Figure PF.4. For example, the marketing may be undertaken via a sales agency arrangement or by the use of back-to-back sales contracts with the finance/operating company as an intermediary between project owners and purchasers of output. But it should be noted that, as in other structures where the sponsors are not the direct project borrowers, the sponsors would need to
To structure a production payment facility without a trustee, the sale proceeds would then be controlled by way of an escrow account to cover production payment instalments and special conditions. These may embrace regular independent audits of production with an obligation on sponsors that specified levels and rates of production are met. FIGURE PF.3 ABOUT HERE Variations on this basic production payment financing method abound – they are sometimes termed production loans or production backed loans. We now turn to the use of a joint venture finance and/or operating company. If an unincorporated joint venture is established to own and operate a project, one has to consider financing possibilities carefully to shed risk. One method, involves management of separate financing by each sponsor, and the separate marketing of production. This preserves the joint venture for tax purposes and provides considerable flexibility in borrowing structures, and differentiation for each sponsor’s terms and conditions. Other means of achieving an acceptable project financing with appropriate risk reduction involve variants of this technique such as the use of a marketing/financing company to conduct the project’s operations, marketing and financing – see Figure PF.4. FIGURE PF.4 ABOUT HERE The sponsors’ operating agreement with the financing company makes the latter responsible for project operations, including the borrowing and servicing of loans on behalf of the sponsors, paying expenses and remitting dividends. Depending upon the sponsors’ finance and taxation objectives there are many variations on the theme summarized in Figure PF.4. For example, the marketing may be undertaken via a sales agency arrangement or by the use of back-to-back sales contracts with the finance/operating company as an intermediary between project owners and purchasers of output. But it should be noted that, as in other structures where the sponsors are not the direct project borrowers, the sponsors would need to
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