2.1 The objective of the General Procedure shall be to adjust the values of entries used in the calculation of the Service Payment in Part 18 of the Schedule (Payment Mechanism) [after entering changes in costs shown in the Financial Model for the Project], taking into account all relevant matters including:
(a) the effect of the Qualifying Variation (including, to avoid doubt, the method of financing the Qualifying Variation, the impact of the Qualifying Variation on the project economics as reflected in the Financial Model, taxation and the commercial income earned by Project Co through its participation in the Project);
(b) any adjustments pursuant to paragraph 2.4 of this Section 3 of Part 22 of the Schedule;
(c) the effect of indexation to date and forecast inflation as it would affect the Project; and
(d) when any adjustment to the Service Payment takes effect,
so that comparison of the output from the Financial Model before such adjustments and changes in costs and after such adjustments and changes in costs shows that:
(i) the nominal internal rate of return from the expected date of implementation of the Qualifying Variation to the expiry of the Project Term in respect of the equity and subordinated debt originally expected to be invested in the Project (as shown in the Financial Model) shall be unchanged before and after modelling the effects of the Qualifying Variation;
(ii) the nominal internal rate of return from the expected date of implementation of the Qualifying Variation to the expiry of the Project Term in respect of any other equity and subordinated debt (which term when used in this Section 3 of Part 22 of the Schedule in connection with further subordinated debt supplied in connection with funding Qualifying Variations shall include other methods used by equity investors to provide capital to companies whether subordinated to senior lenders or not, other than subscribing for equity in those companies) (in addition to that referred to in (i) above) invested in the Project as a consequence of any other Qualifying Variation (as shown in the Financial Model as adjusted at the time for the investment of such other equity and subordinated debt) shall be unchanged before and after modelling the effects of the Qualifying Variation,
and so that the output from the Financial Model after such adjustments and changes in costs shows that:
(aa) Project Co would not, by reason of the effect of the Qualifying Variation and the consequential variation in cashflow during the remainder of the Project Term as shown in the Financial Model after such adjustments have been made, be placed in breach of its obligations under the Funding Agreements and there would be no event of default, acceleration event, limitation on drawdown, deterioration in all cover ratios over the period of repayment of the amounts due under the Funding Agreements or other adverse effect (whatever called or however described) (compared to the position if such adjustments were not made) under the Funding Agreements; and
(bb) the agreed IRR on any additional equity and subordinated debt to be invested in the Project as a consequence of the Qualifying Variation is achieved.
2.2 The output from the operation of the General Procedure shall be the prices and other terms referred to below and such other terms as may be required to give effect to the application of the General Procedure, having taken into account actual indexation as applied pursuant to this Agreement to determine the Service Payments in respect of the Contract Year following that in which the General Procedure was brought into operation by substituting new values for the terms designated [insert cross reference to the algebraic terms in the relevant formulae in Part 18 of the Schedule] for those values in force immediately prior to the operation of the General Procedure; in each such case for such period (not exceeding the remaining term of the Project Term) as shall be appropriate to give effect to the objective of the General Procedure.
2.3 Subject to the other Sections of this Part 22 of the Schedule, adjustments shall be made to the Financial Model in accordance with this paragraph to achieve the objectives set out in paragraph 2.1 and produce outputs reflecting the results required by paragraph 2.2 by entering into the model the revised or additional costs incurred by Project Co as a result of the Qualifying Variation, and, where necessary, incorporating the consequences of any funding obtained or used by Project Co to implement the Qualifying Variation. The following guidelines shall be followed to the maximum extent possible when making the adjustment:
(a) wherever possible, the adjustment shall be carried out without altering the logic and formulae incorporated in the Financial Model in any way whatsoever, and only data such as costs incurred by Project Co and the timing and amount of drawdowns of funding shall be changed;
(b) where it is necessary to amend any logic or formulae incorporated in the Financial Model to permit the adjustments to be made, this shall be done to the minimum extent necessary;
(c) where any amendment is made to the logic or formulae incorporated in the Financial Model, the Financial Model, as amended, shall first be run with the data included in the Financial Model prior to amendment to ensure that the outputs from the Financial Model as amended correspond to the outputs prior to amendment; and
(d) any amendments to the logic or formulae incorporated in the Financial Model shall be fully recorded and shall be such that the manner in which the revised prices are calculated can be readily verified.
2.4 In relation to Qualifying Variations, the adjustments to the Financial Model shall only take place as follows:
(a) when the expenditure or savings in connection with one or more Qualifying Variations in respect of which no adjustment has been made to the Financial Model exceeds (in either case) £250,000175 (index linked) in aggregate;
(b) on each anniversary of the date of this Agreement falling prior to the Actual Completion Date;
(c) on the Actual Completion Date; and
(d) at the end of a Contract Year.
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175 The existence and amount of this financial threshold is a matter to be determined by Boards on a project specific basis.