5.1  BULK

Bulk is generally less risky for investors and lenders alike. Risk assessment is easier in Bulk projects, where offtake or credit risk, demand history, etc. is easier to analyze. Bulk delivery will involve managing the operation of the project, providing maintenance for and replacing materials and equipment, receiving and managing inputs and developing the relationship with the offtake purchaser.

Bulk risks will include:

•  Performance risk - the proper operation and maintenance of the works to achieve the required levels of output or availability. Where the works do not operate at the levels required, the offtake purchaser will, unless it is at fault, have some right to withhold payments or collect damages from the project company in relation to the amount of the damages incurred, or (subject to certain requirements) terminate the offtake purchase agreement.

•  Increase of cost risk - including the effects of inflation, increases in the market price of materials or labor or increases in the cost of other required services, such as insurance.

•  Operation risk - operating the project in accordance with the standards and performance levels set out in the concession and the offtake purchase agreements, including the impact of defects associated with the construction of the works, shortcomings in inputs (such as fuel and chemicals) used to produce outputs, etc..

•  Political risk - including the risk of change in the political climate of the host country.  The project company's methods of operation and its relationship with its employees and the local and national communities will be under close observation by both the local population and the host government to ensure that the services rendered by the operator are consistent with public expectations. The project company's services can have an impact on the popular perception of the grantor.

•  Commercial interfaces - the project company will need to liaise with all of the project participants, manage the input and output needs of the project, and manage the transfer of care for the project from the construction contractor at completion of construction and to the grantor at the end of the concession period. These project participants include:

  Operation and maintenance (O&M) contractor - the project company may outsource some of the operation tasks to an O&M contractor. In this event, the project company will need to manage carefully the interfaces with this contractor to ensure proper performance.

  Construction contractor - the project company will be responsible for delivery of services and output, therefore the performance of the construction contractor (whether or not hired or paid by the project company) will be key to fulfilling these obligations. The project company will therefore want to manage carefully the construction contractor's activities, and testing the completion of the works to avoid the need to address defects or performance shortfalls.

  Offtake purchaser - the purchaser of the output or services provided by the project company. The offtake purchaser and the project company will need to maintain a constant relationship throughout the concession period. They will need to develop an efficient mechanism to facilitate the communication to the project company of the offtake purchaser's needs. The parties will then have to organize the delivery and receipt of the output provided, including inspections and testing.

  Input supplier - the supplier of materials, equipment, spares, fuel, electricity and any other inputs needed to produce the services or outputs to be sold to the offtaker,

  Grantor - The grantor will have an interest in the proper operation and maintenance of the project, to ensure that the assets it receives at the end of the concession period are in an appropriate condition and will not require extensive replacement or repair. Therefore, during operation, the grantor may wish to review to some extent the testing carried out, and to perform testing of its own, on the works to confirm the general operating condition of the project; although it will probably not want to be involved in the more detailed testing.