The image below depicts a simplified version of the different timelines for the workstreams that will be carried out on a project financing.

The main points to note are:

1. The concession will be negotiated for sometimes several years and maybe even signed before the financing is arranged. The project investors and government counterparty need to be mindful of the requirements of funders when putting the concession package together.
2. The effective dates of the various contracts should ideally align, although in some projects early works may be contracted and undertaken before the financing has been entered into.
3. Although the O&M contract will not kick in until the end of the construction period, it will need to be signed at the same time as the other project documents to ensure that the operator is lined up and the relevant risks adequately transferred to the operator.
4. Financial close is the date on which all the conditions of the lenders to financing have been met – these include all consents, corporate and other authorisations to be in place; all relevant documents to have been entered into; legal opinions provided; feasibility, due diligence and environmental studies to have been done and reports from the relevant experts provided, etc. Following satisfaction of these conditions, the lenders will be ready to fund.
5. Funding will be in line with an agreed construction schedule, with payment usually being made monthly against construction invoices. The lenders’ technical adviser will sign off on the progress of the works before payment will be made by the lenders. The lenders will make payments during the availability period – usually the period from financial close to expected construction completion. The lenders may want to include a “look forward test” as a condition to drawdowns – if the technical adviser certifies that the project is unlikely to complete by the longstop date, then it will a default under the loan agreement. They won’t want to throw good money after bad. This type of test is also linked to a “funding shortfall” test – which looks at whether there is enough money to achieve construction completion – if there isn’t (perhaps because of delays) the lenders will want to drawstop the loan (stop making disbursements) or call a default (unless further funding can be found).
6. At the outset of construction the different documents will provide for an expected completion date. It is well known that construction projects rarely run on time, so some flexibility for delays is built into the documents. However, the documents will provide for an ultimate long stop date, by which time construction must be completed. This longstop date will be different under each document. The first longstop date to occur will be under the construction contract, say, 6 months after the expected completion date; then the loan agreement, say 9 months after the expected completion date and then the concession contract, say 12 months after the expected completion date. This gives the project company time to resolve the issues before it becomes a default under the loan agreement, and then the lenders time to resolve the issue (using any step in rights under a direct agreement – which are discussed in section 5.2(f) before the concession agreement is terminated.
7. The operator’s obligations will arise just before the expected completion date with a mobilisation period to get on site and prepare for completion when the project will effectively be handed over to the operator to run. There will be a period of warranty by the construction contractor when it will be obliged to return and rectify any issues with construction, after which the construction contract will terminate. A detailed interface agreement is usually entered into between the construction contractor and the operator to deal with this period and to address any issues between them e.g. who is liable for an issue and how it will be dealt with.
8. The O&M agreement will typically continue until expiry of the concession agreement. The loan agreement will however terminate some years before that – this is to ensure that the loan is repaid while the project is still performing and that the lenders are out of the picture before any handback obligations kick in (the obligations relating to the conditions of the project assets when they are transferred back to the government at the end of the concession).