Construction risks
the construction of any major
power plant involves many
risks, including shortages of
materials and labour; work
stoppages and other labour
disputes; weather interference;
disputes with landowners;
catastrophic events such as
floods, volcanic eruptions,
earthquakes or fires; sab otage,
including guerrilla attacks; and
engineering, archaeological,
environmental and geo logical
problems. Any of these could
cause delays and/or cost
overruns. Mitigating these risks
on this particular project were
insurance against specific
construction risks, the
obligation of the EPCM
contractors to pay liquidated
damages resulting from
unexcused delay in achieving
provisional acceptance by the
Guaranteed Completion Date
and a US$35 million
contingency in the construction
budget
Operating risks
Although the plant was to use
proven technology, and would
be operated and maintained by
companies with significant
experience and high
reputations, any major power
plant is subject to many risks,
including the breakdown or
failure of equipment or
processes, and plant
performance below expected
levels of output and efficiency.
These problems may be caused
by wear and tear, misuse,
labour disputes, weather,
catastrophic events or
sabotage. Although the project
company was to maintain
insurance and reserves to
protect against these risks,
there could be no assurance
that these measures would
cover all possible financial
losses.
Currency risks
Because it was to receive
revenues in local currency and
pay debt obligations in foreign
cur rency, the project company
would be subject to foreign
exchange rate risk and
availability risk. The foreign
exchange rate risk was covered
by the US dollar indexation of
Meralco's peso-denominated
payments under the PPA, but
the project would still have
foreign exchange availability
risk because there was no
assurance that the Onshore
Trustee would be able to obtain
dollars at a given time. The
Monetary Board of the Central
Bank has the power, with the
approval of the President of the
Republic, temporarily to
suspend or restrict foreign
exchange transactions during a
national emergency or a
foreign exchange crisis.