4.2 The Role of the Independent Engineer in Project Finance Deals
4.2.3 Assistance at the Time of Plant Acceptance
Documents Produced: The site manager and sponsors’ technical advisor together with the independent engineer check completion of the works and prepare the punch list (a document listing construction details not yet completed) to check that any problems that might have arisen during construction have been resolved. This activity leads to production of a certificate stating that everything covered by the contract as regards realization of the works has indeed been completed.
. List of human resources employed and relevant qualifications (with training plan, if necessary)
. Acceptance procedure, with details of preliminary operations, raw materials requirements, parameters to be checked, methods to be employed, and appli- cable testing standards
Documents Produced: As already mentioned, the independent engineer must first express an opinion on the testing methods as to their applicability, completeness, and adequacy of the standards indicated, highlighting any shortcomings in the testing procedures adopted. Participation in testing means the independent engineer can evaluate whether the procedures have been applied correctly and that parameters checked in fact corresponded to the standards and that certified performance data agree with contractual requirements. This also means that any variances can be identified and analyzed.4
As a result of the foregoing, the PAC for the plant certifying that standards have been reached and the required performance achieved are validated.
4.2.3.2 Monitoring the Testing Phase
The testing phase for the plant is usually never very short, and so quite some time can pass between issue and validation of the PAC and production of the Final Accep- tance Certificate. During the time between the PAC and the FAC, the independent engineer must constantly inspect the plant and analyze periodic maintenance reports produced by the manager of the facility. It is very important that technical and operational variables for the plant be checked, together with the methods employed TABLE 4-6 Summary of Assistance During the Plant Acceptance Phase—Validation of the PAC
Phase
Independent Engineer’s
Activities Documents Required
Documentation Produced Validation of
the Provi- sional Acceptance Certificate
Participation in accep- tance tests
Analysis of test standards adopted
Review of certificates issued by third parties
Contracts (EPC contract, civil works, subcontracts) Construction plans
Operating manual Maintenance manual Safety plans
Authorizations, permits, and concessions (required for the purpose)
Detailed schedule for the commissioning, start-up, acceptance test, and final testing phases (this is required in order to express an opinion on ad- equacy of testing)
List of resources used and relevant qualifications (with training plan, if required)
Acceptance procedure, with details of preliminary operations, raw materials requirements, param- eters to be checked, methods of execution, and applicable test standards
Report on the adequacy of the provisional acceptance cer- tificate
4. If there is a variance between certified test values and those guaranteed, then it is not part of the independent engineer’s task to provide a support service and assistance to the banks in order to evaluate the technical and financial impact of differences found and define strategies to minimize any negative effects of these. Such services are considered accessory to the PAC validation.
84 C H A P T E R u 4 The Role of Advisors in a Project Finance Deal
for carrying out maintenance activities; the independent engineer’s task includes checking the facility’s safety procedures and verifying that they are applied correctly by management. (See Table 4-7 for a summary of activities and documentation produced by the independent engineer.)
Careful monitoring of the testing phase is very helpful for lenders. Thanks to the participation of the independent engineer, they obtain certification from an inde- pendent party attesting that the operational management of the facility is proceeding in accordance with contractual standards and international good engineering safety standards and complies with environmental regulations. Conformity of these vari- ables is a critical precondition to ensure operations can continue throughout the entire life of the project. On the other hand, periodic checks on maintenance reports means that the following aspects can be identified rapidly:
. Damage to machinery and systems due to bad management, defects in con- struction or assembly, lack of or inadequate maintenance
. Financial damage due to systems being down because of poor management or inadequate maintenance
. Catastrophic events and/or environmental catastrophes as a result of poor management of plant safety
Documents Required to Monitor the Testing Phase: The minimum documents that the independent engineer must have are the following:
. Supply contracts (EPC, civil works, subcontracts)
. Plans as built
. Operating manual
TABLE 4-7 Summary of Assistance During the Plant Acceptance Phase—Monitoring the Testing Phase
Phase
Independent Engineer’s
Activities Documents Required Documentation Produced
Monitoring the testing phase
Periodic inspection of the plant
Review and check periodic maintenance reports issued by the manager
Check the correctness and application of safety measures
Contracts (EPC contract, civil works, subcontracts)
As-built plans Operating manual Maintenance manual Safety plans Safety statistics
List of operations personnel and relevant qualifications
Periodic monitoring report;
statement as to the correct- ness of maintenance activities
Periodic maintenance reports prepared by the manager
Historical records of alerts and breakdowns Historical records of main operating
parameters for plant system performance (to be defined based on type of production) Accounts for consumption of raw
materials, fuels, chemicals, consumables, service fluids (water, natural gas, etc.) Accounts for production
Accounts for disposal of by-products
The Role of the Independent Engineer in Project Finance Deals 85
. Maintenance manual
. Safety plans
. Safety statistics
. List of operations staff and their qualifications
. Periodic maintenance reports prepared by management
. Historical report of alarms and breakdowns
. Historical report of main operating parameters concerning plant performance (to be defined according to type of production)
. Accounts for use of raw materials, fuels, chemicals, consumables, service fluids (water, gas, etc.)
. Production accounting records
. Accounts for disposal of by-products
Documents Produced: During the testing phase the independent engineer peri- odically produces a monitoring report that summarizes valuations of the variables indicated.
4.2.3.3 Validation of the Final Acceptance Certificate (FAC)
Validation of the FAC for the plant is carried out when periodic checks during the testing period have been completed. The bank’s independent engineer participates in the final inspection of plant systems (which is an activity the site manager and sponsors’ technical advisor are responsible for), analyzes historical operation and maintenance reports, analyzes results certified by the third-party organization, and confirms that the latter are correct in terms of meeting contractual requirements (Table 4-8).
TABLE 4-8 Summary of Assistance During the Plant Acceptance Phase—Validation of the FAC
Phase
Independent Engineer’s
Activities Documents Required Documentation Produced
Validation of the Final Accep- tance Certifi- cate
Participation in final tests of the plant
Analysis of reports during the testing period
Contracts (EPC contract, civil works, subcontracts)
Construction plans Operating manual Maintenance manual
Statement that stan- dards established in the construction con- tract have been fully observed
Safety plans
Authorizations, permits, and concessions (required for the purpose)
Detailed schedule for the commissioning, start-up, acceptance test, and final testing phases
List of operations personnel and relevant qualifications
Maintenance reports
Historical records of alerts and breakdowns Historical records of main operating
parameters for plant system performance Accounts for consumption of raw materials,
fuels, chemicals, consumables, service fluids (water, natural gas, etc.)
Accounts for production
Accounts for disposal of by-products
86 C H A P T E R u 4 The Role of Advisors in a Project Finance Deal
During the final check the following aspects are considered:
. State of repair and maintenance of the works
. A checkup on the spare parts inventory and warehouse
. Any operating problems identified
Validation of the FAC is very important for banks. In fact, they will receive certification from their independent engineer that plant performance conforms with what was established contractually and included in the financial plan.
The validation of the FAC requires the same documents indicated for the test monitoring phase, and the result of this phase is a document attesting that plant performance fully conforms with the contractual terms.