Product details

The case looks retrospectively at an integrated geothermal steam field and a 320.8 MW power project in North Medan, Indonesia which reached financial close on March 28, 2014 after a combined tender and development period of almost 10 years. A critical last stage of the project commenced on April 4, 2013, in which the project’s four shareholders finally concluded almost seven long years of negotiations with the Government of Indonesia counterparts to secure geothermal resource extraction concession rights and a long term power sales contract with the Central Government owned Electricity Company. On the morning of April 5, 2013, a key member of the combined shareholder finance team had only a half-day to prepare for an intense set of meetings with lead shareholder representatives. Their authorisation was needed for an immediate step-up of development cost funding of work toward achieving a financial close of USD1.16 billion of complicated multi-sourced limited recourse debt. A delay of close beyond the one year deadline would risk forfeiture of the project to the Government of Indonesia. Moreover, shareholders and management were acutely aware that the project’s very long development cycle resulted in increased costs, which served to tighten the internal rate of return reflected in the Project’s detailed cash flow projections. Besides, there were real concerns that the lender process would diminish returns further. However, the finance team was confident that they could secure the US$1.6 billion in aggregate binding commitments from both shareholders and lenders within a 365-day deadline. Was their confidence well founded and properly aligned with project risk and returns?