2nd edition

By Liz Battocletti,

Bob Lawrence & Associates, Inc.

Report No. INEEL/EXT-99-01284 / November 1999
2nd edition

By Liz Battocletti,

Bob Lawrence & Associates, Inc.

Report No. INEEL/EXT-99-01284 / November 1999

Prepared for

Idaho National Engineering & Environmental Laboratory

Under Purchase Order No. F99-181039

& the U.S. Department of Energy,

Assistant Secretary for Energy Efficiency & Renewable Energy,

Office of Geothermal & Wind Technologies

Under DOE Idaho Operations Office

Contract DE-AC07-99ID13727
Disclaimer

This information was prepared as an account of work sponsored by an agency of

the U.S. Government. Neither the U.S. Government nor any agency thereof, nor

any of their employees, makes any warranty, express or implied, or assumes any

legal liability or responsibility for the accuracy, completeness, or usefulness of any

information, apparatus, product, or process disclosed, or represents that its use

would not infringe privately owned rights. Reference herein to any specific

commercial product, process, or service by trade name, trademark, manufacturer,

or otherwise, does not necessarily constitute or imply its endorsement,

recommendation, or favoring by the U.S. Government or any agency thereof. The

views and opinions of authors expressed herein do not necessarily state or reflect

those of the U.S. Government or any agency thereof.
Geothermal Financing Workbook, 2nd edition

Preface

The Geothermal Financing Workbook, 2nd edition, was prepared by Liz Battocletti

of Bob Lawrence & Associates, Inc. for Idaho National Engineering and

Environmental Laboratory (INEEL) under Purchase Order No. F99-181039, and

the U.S. Department of Energy, Office of Geothermal and Wind Technologies.

Special thanks go to Joel Renner of INEEL and Dr. Marshall Reed of DOE’s

Office of Geothermal and Wind Technologies for their continued support; the

Geothermal Energy Association; and the many financing sources who completed

the Geothermal Financing Questionnaire and answered the author’s questions.

Financing sources have been updated in the 2nd edition. The 1st edition included 19

sources; the 2nd—30. While a few financing sources have been removed, many

more new sources have been added. In direct response to requests from the U.S.

geothermal industry, financing sources which are not specifically targeted towards

U.S. companies are included in the 2nd edition. This is useful for comparison’s

sake (interest rates, loan periods, etc.) as well as to show the additional financing

sources available to U.S. companies working in partnership with non-U.S.

companies.

The photograph on the cover and title pages is of the Heber Geothermal Power

Station located south of El Centro, California. Taken by Warren Gretz, it is

provided courtesy of the National Renewable Energy Laboratory.

— November 30, 1999
Geothermal Financing Workbook, 2nd edition

Table of Contents

INTRODUCTION .............................................. 1

What is the Geothermal Financing Workbook? ..................... 3

The Workbook will help you, the Project Developer .................. 3

The Workbook will not ...................................... 4

PROJECT FINANCING .......................................... 6

What is Project Financing? .................................... 6

Criteria for Successful Project Financing .......................... 7

Risk Mitigation ........................................... 11

Assessing a Project’s Financing Readiness ........................ 18

THE FINANCING PLAN & BASIC FINANCIAL ANALYSIS ............. 21

The Financing Plan ........................................ 21

Estimate the Borrowing Capacity of Your Project ................... 25

Discounted Cash Flow Analysis ............................... 29

Annual Coverage Ratios ..................................... 41

FINANCING SOURCES ......................................... 43

Background .............................................. 43

Sources of Financing for Geothermal Projects ..................... 46

African Development Bank .............................. 50

Bank of China ....................................... 58

Black Sea Trade and Development Bank .................... 59

California Energy Commission International Energy Fund ........ 63

Commonwealth Development Corporation ................... 65

Deutsche Bank Securities, Inc. ........................... 68

E & Co. ........................................... 69

Energy Capital Holding Company ......................... 75

Energy Sector Management Assistance Programme ............. 77

Environmental Enterprises Assistance Fund .................. 81

European Bank for Reconstruction & Development ............ 83

European Investment Bank .............................. 97
Export-Import Bank of the United States ................... 102

Fundación Solar ..................................... 107

Global Environment Facility ............................ 109

Global Environment Facility Small Grants Programme .......... 114

Inter-American Development Bank ....................... 117

Inter-American Investment Corporation .................... 123

International Finance Corporation ........................ 130

International Finance Corporation

Small and Medium-Scale Enterprises Program .......... 134

Japan Bank for International Cooperation ................... 136

Multilateral Investment Guarantee Agency .................. 139

Nordic Environmental Finance Corporation ................. 146

Overseas Private Investment Corporation ................... 150

Preferred Energy, Inc. ................................ 156

Renewable Energy & Energy Efficiency Fund (in development) ... 158

Scudder Latin American Power Fund ...................... 160

U.S. Small Business Administration ....................... 164

U.S. Trade & Development Agency ...................... 170

World Bank Prototype Carbon Fund (in development) ......... 183

UNLOCKING A $45-BILLION MARKET ........................... 187

How to Work with the World Bank and other Multilateral Development

Banks (MDBs) ..................................... 187

The World Bank Group ............................... 188

MDB Project Cycle .................................. 190

Tracking MDB Information about Public Sector Projects ....... 195

Approaching the Private Sector Investment Arms of the MDBs for

Financing for Private Sector Projects ................. 197

Hints and Tips for Winning MDB-Financed Contracts .......... 198

Multilateral Development Bank Operations (MDBO) Office and

Commercial Liaisons ............................. 200

Untied Aid Initiative .................................. 202

CONCLUSION .............................................. 203

GLOSSARY ................................................. 205

BIBLIOGRAPHY ............................................. 212
1

International Energy Outlook (IEO) 1997 World Energy Consumption; May 1, 1997; 

http://www.eia.doe.gov/oiaf/ieo97/world.html.

Geothermal Financing Workbook, 2nd edition 1

“Financing is never in short supply—vision is.”

—Achilles Adamantiades, Workshop Proceedings on Financing the Development and

Deployment of Renewable Energy Technologies, May 15-16, 1995, p. 32.

Introduction

By the year 2015, world energy demand is projected to reach nearly 562 quadrillion

British thermal units (Btu). Two-thirds of that growth will occur in the developing

and transitional economies, particularly in Asia. Of the total energy needed, 46.3

quadrillion Btu is estimated to come from renewable sources of energy. 

At the Earth Summit in Rio de Janeiro, Brazil, in 1992, 166 countries endorsed the

text of a Framework Convention on Climate Change committing the world’s

governments to stabilizing atmospheric concentrations of greenhouse gases.1

Geothermal energy has an important role to play in both delivering electricity to

people in the developing and transitional economies (including those in the hard to

reach, off-grid rural areas) and in helping to reduce greenhouse gas emissions. By

the year 2010 U.S. geothermal power plants installed overseas will: 

U account for an estimated 15,000 megawatts (MWe), 

U supply electricity to 40 million people in the developing nations, and

U reduce greenhouse gas emissions by 22 million metric tons of carbon

(MMTC) per year. 

Central America, South America, and Africa have the potential to meet a large

proportion of their electricity needs through utilizing their geothermal

resources—more than 50% of the current electricity needs in Latin America and the

Caribbean and 28% in Africa. Thirty-nine (39) countries could be totally powered

by geothermal resources including Bolivia, Djibouti, Ecuador, Ethiopia,

Guadeloupe, Guatemala, Honduras, Indonesia, Kenya, Martinique, Mozambique,
2

“Preliminary Report: Geothermal Energy, The Potential for Clean Power from the Earth” by Karl

Gawell, Dr. Marshall Reed, and Dr. P. Michael Wright, April 7, 1999, p. 1.

3

Ibid, pp.1-2. 

4

“Geothermal Energy Can Make A Major Contribution,” First Alert, Geothermal Energy

Association, Vol.1 No. 1, January 1998. 

5 Power Money: The International Business Executive’s Guide to Government Resources, by

Williams A. Delphos, Second edition, (Washington, D.C., Venture Publishing, N.A.,© 1996). 

2 Geothermal Financing Workbook, 2nd edition

Nicaragua, Panama, Peru, Philippines, Rwanda, Somalia, Sudan, Tanzania, Uganda,

Vanuatu, and Yemen.2

With today’s technology, geothermal resources could support 35,448-72,392 MWe

of electrical generation capacity worldwide. Using enhanced technology, e.g.,

permeability enhancement and drilling improvements, geothermal could support

65,576-138,131 MWe. Worldwide, geothermal power could provide electricity to

865 million people, or about 17% of the world’s population.3 

Low-enthalpy resources, e.g., geothermal district heating, will warm 5 million

homes and buildings around the world. Direct use of geothermal resources overall

will increase ten-fold by the year 2010, reducing emissions by an additional 15

MMTC.4 

Many geothermal projects will be small and medium-sized, 30 MWe and lower. 

The big questions: Who will pay for them? and How?. 

The Who has been addressed by several good publications, both general and with a

regional focus. Power Money,

5

 for one, which was produced by the U.S. Export

Council for Renewable Energy, is an excellent source of information on U.S.

government financing for renewable energy projects. There is less instruction,

however, on the How, specifically, how smaller geothermal developers can

structure their overseas projects and approach potential financing sources in a

manner most likely to lead to success in obtaining financing and implementing their

much-needed smaller projects.
6

Investors receive countless requests for financing. The more the project developers can do to

answer investors’ questions and address their concerns up-front, the better their chances of

having their projects seriously considered for financing.

Geothermal Financing Workbook, 2nd edition 3

What is the Geothermal Financing Workbook?

The Geothermal Financing Workbook was designed to help fill the How void, to

take Power Money and other excellent sources like it, the next logical step—to give

small and medium-size U.S. geothermal companies the information they need to

identify, structure, and obtain financing for overseas geothermal projects. 

Rather than reinventing the wheel, the Workbook coalesces into one comprehensive

package and in one place, the spokes of that wheel—the information on project

financing, financing plans, financial analysis, and financing sources that smaller

project developers may find most relevant to their projects. (Financing sources

included in the Workbook have indicated an interest in smaller geothermal

projects.)

The Workbook will help smaller project developers become familiar with the

financial analysis they should conduct and the jargon they should use in order to

evaluate and present their projects in terms potential investors understand. Part of

the problem that developers find when approaching potential investors is that they

don’t “speak the same language.” The Workbook will give developers a better

understanding of financial terminology thereby increasing their chances of having

their projects taken seriously by investors, considered for financing, and ultimately,

financed.6 

The Workbook will help you, the Project Developer

to...

1. Understand project financing as a mechanism for financing your

project, its advantages and disadvantages, criteria for successful

project financing, and risk mitigation;

2. Assess your project’s financing readiness, estimate its borrowing

capacity, and develop a financing plan;
7 Large project developers face many of the same problems but, due to their size and extensive inhouse resources, can more readily absorb the transaction costs associated with overcoming

regulatory, market, financing, and other barriers. They also have readier access to financing and

advisory support. 

4 Geothermal Financing Workbook, 2nd edition

3. Perform a basic financial analysis of your project using:

U discounted cash flow analysis,

" Net Present Value analysis,

" Internal Rate of Return analysis, and

U the standard coverage tests typically used by lenders:

" interest rate coverage ratio,

" fixed charge coverage ratio, and

" debt service coverage ratio;

4. Understand what specific potential financing sources are looking for

(e.g., investment criteria, financing structure, and application

procedures), enabling you to:

U anticipate financing sources’ need for financial data—the

“What,” “How,” and “Why;”

U tailor your approach and business and financing plans to better

respond to individual investors’ particular criteria; and 

U improve your overall chances of getting your project financed at

the optimal cost; and

5. Learn how to access the $45-billion Multilateral Development Bank

(MDB) market.

The Workbook will not:

1. Take the place of a business or financing plan or substitute for

financial advice;

2. Overcome the obstacles inherent in financing smaller (less than 30

MWe) geothermal projects7, including:
8

“Unfortunately for smaller and medium sized projects, development costs are not proportionate to

the size for the project, i.e., a 12 MWe project may incur development costs equal to those of a 50

MWe project...Legal costs in particular are not linearly related to project size.” Draft Financing

Readiness: A Handbook for Energy Project Developers, for the California Energy Commission by

Power Project Financing, Inc., December 11, 1997, pp 4-1 and 4-2.

Geothermal Financing Workbook, 2nd edition 5

U the high exploration, development, and financing costs

associated with smaller geothermal projects; 8

U project sponsors who may have less of a track record in

developing international projects; and

U the poor or unproven creditworthiness of customers (e.g., stateowned utilities, municipalities, or rural populations). 

3. Remedy the lack of financing for the exploration stage of a geothermal

power project; and

4. Solve financing problems that are not related to the economic

soundness of your project or are caused by things outside of your

control (e.g., country and political risk, economic instability, inflation,

etc.).
9 This section is largely adapted from Project Financing: Asset-Based Financial Engineering by John

D. Finnerty, Ph.D. (New York, NY: John Wiley & Sons, Inc., © 1996).

10 Ibid, p. 2.

11 Ibid, p. 24.

6 Geothermal Financing Workbook, 2nd edition

Project financing is not...

...a way to finance a project that is so weak economically that it may

not be able to service its debt or provide an acceptable rate of

return to equity investors, or

...a way to finance a project that cannot be financed by conventional

means.

Project Financing 9

What is Project Financing?

Project financing is:

“...the raising of funds to finance an economically separable capital

investment project in which the providers of the funds look primarily to the

cash flow from the project as the source of funds to service their loans and

provide the return of and a return on their equity invested in the project.”10

A smaller project developer should consider project financing if it is unable to

obtain sufficient funds to finance a project at a reasonable cost on its own. Project

financing may then offer the only practical means of financing the project.11

There are two types of project financing: 

1. Nonrecourse—securities and other borrowings are serviced entirely

out of project cash flow.

2. Limited recourse—project sponsors are obligated to supplement the

project’s cash flow under certain (limited) circumstances.
12 Ibid, p. 3.

Geothermal Financing Workbook, 2nd edition 7

Figure 112 illustrates the basic elements and inter-relationships of a project-financed

investment.

Project Assets

LENDERS

SUPPLIERS

EQUITY

INVESTORS

INVESTORS/

SPONSORS

POWER

PURCHASER

Loan

funds

Equity

funds

Cash deficiency

agreement and other

forms of credit

support

Returns

to

investors

Debt

repayment

Supply

contract(s)

Raw

materials

Power Purchase

Agreement

Output

Figure 1 - The Basic Elements of a Project Financing

Criteria for Successful Project Financing

In a project financing, lenders require the sponsors or other creditworthy parties

involved with the project to provide assurances, generally through contractual

obligations, that:

1. the project will be completed even if costs exceed those originally

projected or, if the project is not completed, its debt will be repaid in

full; 

2. the project, when completed, will generate cash sufficient to meet all of

its debt service obligations; and
13 Ibid, p. 53.

14 Ibid, p. 33.

15 Ibid, pp. 25-27.

8 Geothermal Financing Workbook, 2nd edition

3. if for any reason, including force majeure, the project’s operations are

interrupted, suspended, or terminated, the project will continue to

service (and fully repay on schedule) its debt obligations.13

On the downside, project financing is more costly to arrange than conventional

direct financing. Because project financing is structured around a set of contracts

that all parties must negotiate and agree to, it is usually more complex, costly, and

time-consuming to arrange than conventional financing. 

Due to the higher transaction costs and yield premiums inherent in project

financing, project financing will usually be more cost-effective than conventional

direct financing when:

1. it permits a higher degree of leverage than project sponsors could

achieve on their own, and

2. the increase in leverage produces tax shield benefits sufficient to offset

the higher cost of debt funds, resulting in a lower overall cost of

capital for the project.14 (For example, a heavily leveraged project

carries more debt. The greater debt results in lower profits, thereby

decreasing the project’s tax burden.) 

Table 115 compares direct or conventional direct financing to project financing. 

CRITERION DIRECT FINANCING PROJECT FINANCING

Organization • Large businesses are

usually organized in

corporate form.

• Cash flows from different

assets and businesses

are commingled.

• The project can be

organized as a

partnership or limited

liability company to

utilize more efficiently

the tax benefits of

ownership.

• Project-related assets

and cash flows are

segregated from the

sponsor’s other

activities.
CRITERION DIRECT FINANCING PROJECT FINANCING

Geothermal Financing Workbook, 2nd edition 9

Control & monitoring • Control is vested

primarily in

management.

• Board of directors

monitors corporate

performance on behalf of

the shareholders.

• Limited direct monitoring

is done by investors.

• Management remains in

control but is subject to

closer monitoring than in

a typical corporation.

• Segregation of assets

and cash flows allows

for greater accountability

to investors.

• Contractual

arrangements governing

the debt and equity

investments contain

covenants and other

provisions that facilitate

monitoring.

Allocation of risk • Creditors have full

recourse to the project

sponsor.

• Risks are diversified

across the sponsor’s

portfolio of assets.

• Certain risks can be

transferred to others by

purchasing insurance,

engaging in hedging

activities, and so on.

• Creditors typically have

limited recourse—and in

some cases, no

recourse—to the project

sponsors.

• Creditors’ financial

exposure is projectspecific, although

supplemental credit

support arrangements

can at least partially

offset this risk exposure.

• Contractual

arrangements

redistribute projectrelated risks.

• Project risks can be

allocated among the

parties who are best

able to bear them (e.g.,

engineering firm will

build facility under a

fixed-price turnkey

contract, utility will

purchase power under a

PPA)
CRITERION DIRECT FINANCING PROJECT FINANCING

10 Geothermal Financing Workbook, 2nd edition

Financial flexibility • Financing can typically

be arranged quickly.

• Internally generated

funds can be used to

finance other projects,

bypassing the discipline

of the capital market.

• Higher information,

contracting, and

transaction costs are

involved.

• Financing arrangements

are highly structured and

very time-consuming.

• Internally generated

cash flow can be

reserved for proprietary

projects.

Free cash flow • Managers have broad

discretion regarding the

allocation of free cash

flow between dividends

and reinvestment.

• Cash flows are

commingled and then

allocated in accordance

with corporate policy.

• Managers have limited

discretion.

• By contract, free cash

flow must be distributed

to equity investors.

Agency costs • Equity investors are

exposed to the agency

costs of free cash flow.

• Making management

incentives projectspecific is more difficult.

• Agency costs are

greater than for project

financing.

• The agency costs of free

cash flow are reduced.

• Management incentives

can be tied to project

performance.

• Closer monitoring by

investors is facilitated

• Agency costs are lower

than for internal

financing.

Structure of debt contracts • Creditors look to the

sponsor’s entire asset

portfolio for their debt

service.

• Typically, debt is

unsecured (when the

borrower is a large

corporation).

• Creditors look to a

specific asset or pool of

assets for their debt

service.

• Typically, debt is

secured.

• Debt contracts are

tailored to the specific

characteristics of the

project.
CRITERION DIRECT FINANCING PROJECT FINANCING

Geothermal Financing Workbook, 2nd edition 11

Debt capacity • Debt financing uses part

of the sponsor’s debt

capacity.

• Credit support from other

sources, such as

purchasers of project

output, can be

channeled to support

project borrowings.

• The sponsor’s debt

capacity can be

effectively expanded.

• Higher leverage (which

provides valuable

interest tax shields) than

the sponsor would feel

comfortable with if it

financed the project

directly can be achieved.

Bankruptcy • Costly and timeconsuming financial

distress can be avoided.

• Lenders have the benefit

of the sponsor’s entire

asset portfolio.

• Difficulties in one key

line of business could

drain cash from “good”

projects.

• The cost of resolving

financial distress is

lower.

• The project can be

insulated from the

sponsor’s possible

bankruptcy.

• Lenders’ chances of

recovering principal are

more limited; the debt is

generally not repayable

from the proceeds of

other unrelated projects.

Table 1 - A Comparison of Direct Financing and Project Financing

Risk Mitigation

There are countless risks in developing and financing a project. Investors are

concerned about all a project’s risks, specifically, who will bear them, how will they

be minimized, and whether the project’s cash flow will be adequate to compensate

them for the risks they are being asked to bear. 

In project financing, risk mitigation is achieved, in part, through an interlocked

system of contracts between the project sponsor and other implementing parties. 

The nature and extent of the contractual arrangements depend on the financial

strength of the sponsor(s), the profitability of the project, and the type and

magnitude of project risks.
16 “Resource Risk and Its Mitigation for the Financing of Geothermal Projects” by Subir K. Sanyal

and James B. Koenig. Proceedings of the World Geothermal Congress, 1995, Auckland, New

Zealand: International Geothermal Associates, Inc., Volume 4, (1995), pp. 2911-2915. 

17 Except for the question of resource existence, other resource risks can change in perception or in

reality over time. Ibid, p. 2912.

18 If the project is the first one to be developed in a field, typically 10% to more than 30% of the

production necessary to supply the plant needs to be proven before project financing can be

obtained. Ibid, p. 2911.

12 Geothermal Financing Workbook, 2nd edition

Project financing involves identifying and evaluating the risks and allocating them

appropriately. The risks are numerous in a geothermal project, and include:

1. Sponsor risk

U equity contribution and creditworthiness of project developer

U corporate strength and experience

2. Completion risk

U cost overruns

U construction delays

U increased construction costs

U finance cost increases

3. Resource risk16,17

U resource existence

U resource size and deliverability18

U premature resource degradation

U production wells may decline in production rate and/or

temperature (or enthalpy)

U anticipated cost of well field development

U injection pressure may increase

U the chemistry of the produced fluid may change adversely with

time as the project is operated
Geothermal Financing Workbook, 2nd edition 13

4. Operation risk

U risk to the forecasted cash flow

U poor technical and financial performance

U plant downtime

U fuel interruption

U machinery breakdown

U poor O&M

U poor plant performance

5. Offtake and sales risk

U risk that the project will fail to generate adequate income

U creditworthiness of purchaser/utility

6. Political or country risk

U greatest concern to lenders

U expropriation

U currency exchange — assuring availability of foreign exchange

to service project debt and pay dividends to offshore investors

is critical to obtaining project financing

U taxation and duties

7. Approvals, regulatory, and environmental risk

U home-country laws with extra-territorial applicability

U potential for default on the part of the government or its

agencies in meeting contractual obligations

U laws may change without grandfathering provisions

8. Force majeure risk

U natural disaster or accident

U fires, flood, storms, earthquakes

“All of these except the resource risk are common to all other types of power

projects; therefore, financial institutions are familiar with them and have developed

mechanisms to assess and mitigate them. By contrast, geothermal resource risks,
19 Ibid, p. 2911.

20 Ibid, p. 2913.

14 Geothermal Financing Workbook, 2nd edition

When approaching potential financing sources, the project developer,

particularly one that is not a major corporation, must address the specific

risks of the project with a clear plan of how to overcome each risk or

assign them to the party best suited to overcome them. 

being relatively unfamiliar, have been the subject of intensive investigation in recent

years...often as a condition of financing.”19

Increased costs due to unmitigated or unmanageable resource risks accrue to the

developer and the equity investors. In certain cases the costs can be passed on to

lenders (default and rescheduling or loan repayment) or to the public (increased

power cost or taxes)....The final consequence...is to make future geothermal

projects more costly to finance, and thus less likely to succeed economically.”20

Table 2 notes the most common risks inherent in a geothermal power project, 

measures which can be taken or contracts which may be negotiated to lessen them,

and additional comments.

RISK RISK MITIGATION COMMENT FOR SMALLER DEVELOPERS

Sponsor Lenders will normally require

15-50% equity to ensure the

sponsor’s continued

commitment.

Lenders generally prefer to work with corporate

sponsors which have substantial technical

expertise and financial depth.

Small project developers, who do not have the

resources and track record of major

companies, should anticipate and prepare for a

discussion with potential lenders on these

points.

Sponsor risk can be reduced in the lender’s

eyes if the smaller developer enters into a joint

venture arrangement with a more established

sponsor. 
RISK RISK MITIGATION COMMENT FOR SMALLER DEVELOPERS

Geothermal Financing Workbook, 2nd edition 15

Completion /

Construction

In the pre-construction stage,

lenders will require insurance

against physical damage,

loss, and liability.

For completion, lenders will

request fixed-price “turnkey”

construction contracts to be

negotiated with the

contractors.

This is the period of highest risk for lenders. 

It may be possible, subject to the robustness

of the project economics, to pre-agree to a

debt-funded cost overrun contingency facility,

or to raise additional equity up-front to cover

this risk.

A Construction Contract is needed.

Resource Potential lenders will likely

require the opinion of an

independent technical

consultant on the project’s

geothermal resources.

The project sponsor must show that:

• the resource is proven,

• the contractor is an experienced

geothermal developer,

• the guarantees and warranties which

have been negotiated are adequate,

and

• the resources will perform as expected

for as long as expected.

Operation Lenders derive comfort from

the employment of an

experienced third-party O&M

contractor whose costs can be

fixed.

In addition to committing to an

O&M schedule, an O&M

contractor also guarantees to

keep x MWe online at y% load

factor, and faces financial

penalties if he fails to do so. 

Sponsors should consider an O&M contractor,

even though it may involve greater expense,

because of the additional “comfort factor” it

gives potential lenders.

Sponsors should also carefully review the

efficiency levels, downtimes, and predicted

outages in the cashflows they provide. It is

better to err on the side of conservative

estimates.

An O&M Agreement should be strongly

considered.
RISK RISK MITIGATION COMMENT FOR SMALLER DEVELOPERS

16 Geothermal Financing Workbook, 2nd edition

Offtake & Sales Risk that the project may fail

to generate adequate income.

The sponsor should discuss the maturity of the

market and price volatility in the business plan. 

Availability of a long-term, guaranteed-price

Power Purchase Agreement (PPA) is a key

element in eliminating volume and price risks.

(Long-term, fixed price PPAs are become

increasingly rare. This applies less, however,

to developing and transitional countries where

it is still possible to obtain a PPA, and where

merchant plants are a future development.)

Sponsors should expect lenders to require the

repayment of their loans during the life of the

PPA or preferential offtake contracts.

Ways to contractually reduce the working

capital required for the sponsor to realize pro

forma revenue projections:

• require the purchaser to procure

directly major variable cost items, e.g.,

spare parts, or 

• structure purchase rates to insure a

direct “pass-through” of O&M costs.

To offset utilities which are not creditworthy in

their own right, it may be possible to sell

electricity directly to the end users, e.g.,

industry.

Sponsors should also expect lenders to take a

security interest in PPAs. 
RISK RISK MITIGATION COMMENT FOR SMALLER DEVELOPERS

21 European Commission-Directorate General for Energy-DGXVII, THERNIE and SYNERGY

Programmes, and the European Bank for Reconstruction and Development. “Guide to Energy

Efficiency Bankable Proposals,” April 1997, pp. 15-19.

22 “Minimizing Business Risks in Geothermal Power Generation Projects,” by George M. Knapp, from

Meeting the Challenge of Increased Competition, Davis, CA, Geothermal Resources Council, 1997,

pp. 471-477.

Geothermal Financing Workbook, 2nd edition 17

Political A key consideration is the

ability of the utility/buyer to

pay in hard currency,

preferably in the currency with

which project obligations must

be paid.

Currency risk mitigation:

• sovereign guarantee,

• irrevocable standby letter of credit from

host government,

• currency “swap” arrangements and

block fund transfers, and

• combination of barter and

countertrade. 

Implementation Agreement (IA) or state

support agreement which seeks to guarantee

the performance of government entities involved

in the project. IAs are also called

“Cooperation” or “Coordination” Agreements.

Political risk insurance to cover basic risks of

expropriation, currency inconvertibility, and

breach of contract by government bodies. 

(See OPIC, MIGA)

Approvals,

Regulatory &

Environmental

Identify required governmental approvals and

mandate governmental support in obtaining

permits.

Land Conveyance Agreement (LCA) transfers

land ownership to the project company

(purchase or long-term lease).

The LCA must be assignable to lenders in

case of default.

Political risk insurance to cover basic risks of

expropriation, currency inconvertibility, and

breach of contract by government bodies. 

(See OPIC, MIGA)

Force Majeure An IA may include a covenant which provides

protection against uninsurable force majeure

events to which a country may be especially

susceptible (e.g., floods, cyclones,

epidemics).

Table 2 - Common Geothermal Power Project Risks and Their Mitigation 21, 22
18 Geothermal Financing Workbook, 2nd edition

Assessing a Project’s Financing Readiness

The Developer Self-Scoring Test, shown below in Table 3, is a simple yet effective

way to measure a project’s risk and financing readiness. 

Developed by Power Project Financing, Inc. for the California Energy

Commission, the Test is designed to assess a project’s readiness for financing,

specifically, how far, in temporal terms, a project is from seeking outside financing. 

Instructions for scoring and analyzing the Test follow.

SUCCESS

FACTOR

HIGH = 3 MEDIUM = 2 LOW = 1

Developer

Experience

• Developer team in

place

• Developer has

done similar

projects at same

company

• Developer has

experience in

necessary tasks with

similar projects at

other companies or at

the same company

with dissimilar

projects (e.g.,

geothermal vs. gas

projects)

• First attempt at

project

development in

lead role

• Experience in

individual

disciplines

does not count

Project Size • Over 50 MWe • 20-50 MWe • Under 20 MWe

Country • Investment-grade

rated

• Strong economy

• Active, wellregarded

sovereign and

corporate

borrowing

• Top 15-20 risk

ranking of all

countries

• Emerging market

country

• Low or below

investment-grade but

still ranked

• Strongly growing

economy

• Large population

• Natural resources

and/or lost-cost labor

force

• Enabling legal

system in place

• Unstable

economy

• Political

instability

• Lack of policy

consensus

among

government,

business, and

labor

Geothermal

Resource

• Resource proven

• Exploration

drilling completed

• Resource being

proved

• Exploration drilling in

progress

• Resource

unproven

• Exploration

drilling to be

done
SUCCESS

FACTOR

HIGH = 3 MEDIUM = 2 LOW = 1

23 Financing Readiness: A Handbook for Energy Project Developers (draft version), by Power

Project Financing, Inc. for the California Energy Commission, December 11, 1997, Section 1 pp. 1-4.

Geothermal Financing Workbook, 2nd edition 19

Status of

Contracts

• All contracts

executed and

drafted as per

international

standards for

project financing

• Competitive bid

awarded or key

meaningful and

exclusive Letter of

Intent or

Memorandum of

Understanding is

signed

• No

commitments

in writing

Table 3 - Developer Self-Scoring Test to Evaluate Financing Readiness 23

SCORING TOTAL

SCORE

ANALYSIS OF FINANCING READINESS

Step 1 Score 1 to 3 for each

Success Factor

100 Ready to close financing; as certain as is possible.

Step 2 Multiply Success

Factor scores

60-100 Project looks very good; very likely to succeed.

Step 3 Divide by 2.43 40-60 A decently, typical good project; perhaps 6 months from

financing.

20-40 A promising project; may have many hurdles to

overcome; probably 1-2 years to go in development.

1-20 An early-stage project with very high risk or with an

unqualified sponsor.

1 Will never be eligible for commercial financing.

Table 4 - Scoring the Test to Evaluate Financing Readiness
20 Geothermal Financing Workbook, 2nd edition

Example

A developer with no experience (1) has a project in China (2) using conventional

geothermal technology (3) for a 20 MWe plant (2) with a signed PPA (3)

Financing Readiness Score: = 1 x 2 x 3 x 2 x 3 = 36 ÷ 2.43 =14.8

Analysis: An early-stage project with very high risk or with

an unqualified sponsor.

You may calculate your project’s own “Financing Readiness” score:

SUCCESS FACTOR SCORE

Developer Experience

Project Size

Country

Geothermal Resource

Status of Contracts

TOTAL

(MULTIPLY ALL SCORES TOGETHER)

TOTAL ÷ 2.43

FINANCING READINESS SCORE
24 This section incorporates Chapters 6, 7, and 8 of Finnerty.

25 Ibid, p. 91.

Geothermal Financing Workbook, 2nd edition 21

The Financing Plan & Basic Financial

Analysis24

The Financing Plan

The financing plan describes how a project will be financed, specifically, the

sources, types (e.g., debt, equity, quasi-equity, loan guarantees, insurance, etc.),

and allocation of financing. The optimal financing plan for a project will: 

1. ensure that sufficient financial resources are available to complete the

project; 

2. secure the necessary funds at the lowest practicable cost by

maximizing debt as a percentage of total capitalization, and adjusting

the amortization schedule for project debt to match the project’s cash

flows; 

3. minimize the project sponsor’s credit exposure to the project; 

4. establish a dividend policy that maximizes the rate of return on the

project sponsor’s equity subject to the constraints imposed by lenders

and the cash flow generated by the project; 

5. maximize the value of the tax benefits of ownership to which the

project will give rise; and 

6. achieve the most beneficial regulatory treatment.25
22 Geothermal Financing Workbook, 2nd edition

A financing plan format is below.

1. Current and Required Sources of Finance

Financing Source Local Currency USD (,000's) % of Total Project

Costs

Sponsor’s own resources

Suppler

Local banks

Foreign loans

Foreign equity

Others

Total Project Costs 100%

2. Type of Financing Required

Type of Financing Local Currency USD (,000's) % of Total Project

Costs

Debt

Equity

Other:

Total 100%

Things to consider when designing a financing plan:

U In general, the lowest cost of capital will be achieved when: 

" debt is maximized as a percentage of total capitalization, and 

" the amortization schedule for project debt is matched as closely as

possible to the project’s cash flows. 
26 The typical equity/debt ratios that particular financing sources required are noted in the

“Financing Sources” section of the Workbook.

Geothermal Financing Workbook, 2nd edition 23

Total cash cost

of facilities

required for

basic completion

Initial

investment

in working

capital

Interest paid

on debt during

construction &

other financing

fees

Margin of

safety

beyond

total

+ +

+ + =

Total

external

funds

needed

Cash to cover salaries

& operating expenses

prior to project

completion

Figure 2 - Calculating Total External Funds

U Creating a financing plan begins with an estimate of the total external 

funds required:

U A project’s maximum feasible debt/equity ratio depends on the: 

" expected profitability and operating risks of the project,

" adequacy of the project’s security arrangements,

" creditworthiness of the parties, and 

" sponsor’s ability to contribute equity to the project. 

U Of particular importance is whether there is a Power Purchase Agreement

(PPA) or other long-term purchase commitment. The weaker these

commitments, the lower the maximum debt/equity ratio.26

U Smaller project developers will usually have to look for outside equity

investors. It may be advantageous for them to make a portion of the

equity available to certain lenders or other participants: 
27 An “equity kicker” is when lenders receive an equity incentive (e.g., direct equity participation,

royalty payments, or contingent payments) to assume additional risk to induce them to accept less

restrictive covenants and less demanding credit support.

24 Geothermal Financing Workbook, 2nd edition

" financial institutions might be induced to lend more, or to lend on

superior terms and conditions to the project if an equity kicker27 is

provided, or

" power purchasers might consider an equity interest as sufficient

encouragement to enter into a long-term PPA that would provide

meaningful credit support to the project. 

U The financing plan must address the need for and potential identity of

outside equity investors for the project. 

U A project’s financing plan is composed of construction financing and

permanent financing. Possible alternatives for securing construction

financing are: 

" the project company or a special-purpose finance corporation issues

short-term promissory notes or borrowing short-term funds for

construction directly from commercial banks, or 

" each of the sponsors borrows its share of the required construction

financing directly, on a short-term basis, from commercial banks, and

then lends the funds to the project company. 

U The existence of withholding taxes can influence the design of the

financing plan for a project. 

U Bank lenders to a project typically estimate the borrowing capacity of a

project in two ways: 

" they use Discounted Cash Flow Analysis to calculate Net Present

Value (NPV) and Internal Rate of Return (IRR), and

" they test the ability of the project to meet its debt service payment

obligations year by year by using Annual Coverage Tests. 
28 A debt service coverage ratio less than 1.00 indicates that a project cannot service its debt fully

out of operating income.

29 Ibid, p. 101.

Geothermal Financing Workbook, 2nd edition 25

Estimate the Borrowing Capacity of Your Project

A project’s borrowing capacity is the amount of debt it can fully service during

the loan repayment period. 

The Present Value (PV) of a project is the total amount that a series of future

payments is worth today. For example, when you borrow money, the loan amount

is the present value to the lender. Stated another way, present value is the value of

the free cash flow stream that is available to service project debt, and is calculated

from the project’s cash flow projections. 

Lenders are generally not willing to lend an amount to the project which exceeds a

specified multiple of the present value of the project’s free cash flow expected to

be available for debt service over the loan repayment period. This multiple is known

as the Debt Service Ratio or Cash Flow Coverage, and is calculated after

depreciation and before taxes. A typical debt service ratio is 1.50.28

If you can estimate your project’s revenues and expenses in Year 1, and the rate(s)

at which both are expected to grow over the loan repayment period, you can use

the Borrowing Capacity Model29 to estimate the maximum amount of debt your

project’s cash flow will support. 

The Borrowing Capacity Model can be applied to two different drawdown

schedules: full drawdown immediately prior to project completion or periodic loan

drawdowns. 
26 Geothermal Financing Workbook, 2nd edition

BORROWING CAPACITY MODEL – VARIABLES

R Cash revenues in Year 1 (first full year of operation)

E Cash expenses in Year 1 (first full year of operation)

C Noncash expenses deductible for tax purposes each year

T Income tax rate

gR Annual growth rate of cash revenues

gE Annual growth rate of cash expenses

I Interest rate on the debt

N Life of the loan measured from the date of project completion

M Loan deferral or grace period

PV Present value

" Target debt service/cash flow coverage ratio

Do Maximum loan amount

In the case of full drawdown immediately prior to project completion: 

D

o

= PV / α

In the case of a loan deferral or a grace period–when revenues and operating

expenses do not begin for M years from the date the loan is initially drawn down

and the loan is drawn down during plant construction–the maximum loan amount

can be found using equation 1: 

D [ ( ) ] i

o M

= PV / α 1 + .

(1)

The present value of the cash flow stream available during the N-year period

between project completion and final loan repayment is: 
Geothermal Financing Workbook, 2nd edition 27

( ) ( )

( )

PV =

− +

+

−

− +

+

+

+

−

=

−

=

=

∑ ∑

∑

1 1

1

1 1

1

1

1

1

1

1

1

T R g

i

T E g

i

TC

i

R

t

t

t

N

E

t

t

t

N

t

t

N

) ( )

( )

) ( )

( )

.

(2)

which can be simplified to...

( ) ( )

.

1

1

1

1

1

1

1

1

1

1

1

−

−

−

+

+





























−

−

−

−

+

+





























+ −

+





























T R

i g

g

i

T E

i g

g

i

TC

i i

R

R

N

E

E

N

N

(3)

Now assume that the project has a target debt level which we will call D. Given the

desired loan amount of D, we can rewrite equation 3 to solve for R, the Year I

revenues the project must generate to meet the cash flow coverage ratio test given a

target debt level of D: 

R

i D

T E

i g

g

i

TC

i i

T

i g

g

i

M E

N N

R

R

N

E

=

+ +

−

−

−

+

+





























− −

+





























−

−

−

+

+





























( )

( )

( )

.

1

1

1

1

1

1

1

1

1

1

1

1

α

(4)

When gE = gR= g, and C = 0, equation 4 simplifies to:

R

i D i g

T

g

i

E

M

N

=

+ −

− −

+

+





























+

( ) ( )

( )

.

1

1 1

1

1

α

(5)
28 Geothermal Financing Workbook, 2nd edition

And now, for an example. Assume the following parameter values:

BORROWING CAPACITY MODEL – EXAMPLE

R $150 million Cash revenues in Year 1 (first full year of operation)

E $26 million Cash expenses in Year 1 (first full year of operation)

C 0 Noncash expenses deductible for tax purposes each year

T 40% (0.40) Income tax rate

gR 5% p.a. Annual growth rate of cash revenues

gE 5% p.a. Annual growth rate of cash expenses

I 10% (0.10) Interest rate on the debt

N 12 years Life of the loan measured from the date of project completion

M 2 years Loan deferral or grace period

" 1.50 Target debt service/cash flow coverage ratio

Using equation 3 to solve for PV, the Present Value of the project is $636.54

million. Applying equation 1, we find that the maximum loan amount with a target

debt service coverage ratio of 1.50 and a two-year grace period is: 

D

o

= 636 54 150 11 = 71 2. / [ . ( . ) ] $350. million.

Assume the same parameter values as above, but with a grace period of 3 rather

than 2 years and a debt service coverage ratio of 1.25. We find that the maximum

loan amount is: 

D

o

= 63654 125 11 = 59 3. /[ . ( . ) ] $382. million.

Now suppose the project developer wants to know how much revenue the project

must generate in Year I to service long-term debt of D = $350 million with a

three-year grace period and a target debt service coverage ratio of 1.50. They can

use equation 5 to calculate R, the amount of revenue required during the first full

year of operations if D = $350 million: 
30 Ibid, pp. 99-107.

Geothermal Financing Workbook, 2nd edition 29

R =

−





























+ =

( . ) ( . )( )( . )

( . )

.

.

$162. .

11 150 350 0 05

0 6 1

105

110

26 1

3

12

million

Now, suppose that I, the interest rate, is 8% rather than 1O%. Assuming that gR =

gE= g = 5%, then: 

R =

−





























+ =

( . ) ( . )( )( . )

( . )

.

.

$218. .

108 150 350 0 05

0 6 1

105

108

26 1

3

12

million

Discounted Cash Flow Analysis30

When approached by a project developer to invest in a project, a potential investor

will look at several factors: 

1. The Creditworthiness of Project Participants - the participants’

ability to perform the intended project functions and to fulfill their

financial obligations, namely their: 

T reputation, experience, staffing, management; 

T cash position and net worth; 

T income stability; 

T borrowing capacity and history; 

T liabilities or obligations inherent in the geothermal industry;

T financial strength and ability to access capital; and regional or

local expertise; and 

2. The Creditworthiness of the Project - the strengths and weaknesses of

the project itself, including:

U the reliability of project revenues and cash flows; 

U debt service coverage ratios; 
31 “Credit Requirements for Commercial Bank Lending to Power Projects: Credit Suisse Project

Finance,” by R. Scoff McInnis and Stephen Rigal Jones from the proceedings of the World

Geothermal Congress, 1995, Auckland, New Zealand: International Geothermal Associates, Inc.,

Volume 4, (1995), pp. 2921-2923.

30 Geothermal Financing Workbook, 2nd edition

U mitigation of various risks, e.g., market (change in market

demand, currency exchange fluctuation, interest rate risk),

economic (inflation), political, country, etc.; 

U availability of insurance; 

U existence of security packages and their enforceability (lenders

must always have at least two ways out of a credit); and 

U the geothermal resource and technology being used.31

A potential investor uses discounted cash flow analysis to ascertain the economic

viability and profitability of a proposed project and the adequacy of the rates of

return that they can expect. The objective of discounted cash flow analysis is to

find projects that are worth more than they cost–projects that have a positive Net

Present Value (NPV) and an Internal Rate of Return (IRR) that exceeds the

cost of capital. 

NPV is the difference between what a project costs and what it is worth; the

present value of all of the after-tax cash flows, all its costs now and in the future.

When considering the purchase of capital assets (e.g., land, plant, and machinery),

a project sponsor or potential investor must compare the expected future cash

flows resulting from the purchase to the amount of the initial investment. 

IRR is the capital investment project’s expected rate of return; if the required rate

of return (cost of capital) equals the IRR (the expected rate of return), the project’s

NPV is zero. 

Discounted cash flow analysis can be broken down into four steps:

1. Compute the amount of the initial investment needed,

2. Project the incremental, after-tax cash flows, 

3. Estimate the cost of capital, and 

4. Use the Net Present Value (NPV) and Internal Rate of Return (IRR)

methods to determine whether the project is worth more than it costs and

is therefore worth undertaking. 

This explanation will start with Step 2. 
Geothermal Financing Workbook, 2nd edition 31

í Project the Incremental After-tax Cash Flows

Only cash flow, not earnings can be used to service a project’s debt. Cash flows

must be measured on an incremental, after-tax basis. 

Incremental cash flow is the difference between the sponsor’s cash flow with and

without the project. Sunk costs–money that has already been spent on the project

for items such as feasibility studies, R&D, drilling, exploration, and site

preparation–are not relevant in the calculation. Only future expenditures are relevant

to deciding whether or not to proceed with a project. 

A capital investment project has four different types of cash flows: 

1. Net initial investment outlay (CO) are cash expenditures, changes in net

working capital, net cash flow from the sale of old equipment, and

investment tax credits: 

CFAT = −IO − W − − EO + − SO + BO + I Δ C(1 τ) (1 τ) τ . (6)

INCREMENTAL CASH FLOW ANALYSIS –

VARIABLES

CO Net initial investment outlay

IO Initial cash expenditures

)

W

Increase in net working capital

J Marginal tax rate

EO Expensed cost

SO Net sale price (revenues minus expenses)

BO Net book value

ICInvestment tax credit
32 The cost of a capitalized asset is allocated to two or more time periods.

33 An expensed cost is recognized for tax purposes at the time of expenditure.

34 Cleanup and removal expenses are generally expensed immediately. The release of net working

capital is not affected by tax considerations. Tax law treats it as an internal transfer of funds. It is

simply an added cash flow.

32 Geothermal Financing Workbook, 2nd edition

Capitalized expenses32 do not affect taxes at the start of a project.

Expensed items33 have an immediate tax benefit. 

2. Net operating cash flows, or cash flows after taxes (CFAT), are funds

which will be realized from operating the asset, and can be thought of as

net income plus depreciation: 

CFAT = (1 − τ)(ΔR − ΔE − ΔD) + ΔD.

(7)

CASH FLOW AFTER TAX (CFAT) – VARIABLES

J Marginal tax rate

)R Changes in revenue

)E Changes in expenses

)D Depreciation change

For simplicity, assume that all depreciation is recognized on a straight-line

basis. Consequently, )D, the change in depreciation, is identical each

period. 

3. Nonoperating cash flows are funds needed to support the initial

investment outlay (e.g., major overhaul expense), and can be either

capitalized or expensed immediately. 

4. Net salvage value is the after-tax net cash flow for terminating the

project, and can be broken down into sale of assets, cleanup and removal

expenses, and release of net working capital34: 

(1− τ)S + τB − (1− τ)REX + ΔW.

(8)
Geothermal Financing Workbook, 2nd edition 33

NET SALVAGE VALUE – VARIABLES

J Marginal tax rate

S Sale price

B Book value

RE

X

Cleanup and removal expense

)W Increase in net working capital

An Example of Incremental Cash Flow Analysis 

Geo-Co is considering investing in a geothermal power project that would involve

purchasing equipment costing $15 million. The new equipment would be

depreciated over a 10-year period on a straight-line basis to a net book value of

$500,000. The project would produce pretax cash flows of $1.5 million per year for

10 years.

Geo-Co estimates that the project would involve additional start-up costs of $1

million. Of this amount, $900,000 would be capitalized in the same way as the

equipment (straight-line over 10 years), and the remaining $100,000 would be

expensed immediately. The project would also require an investment in net working

capital of $2 million. Finally, it is expected that, at the end of 10 years, the project

will require $250,000 for closing old wells. Geo-Co estimates a marginal tax rate of

40 percent for the project. 

Geo-Co’s cash expenditures for the initial outlay are: 

T the $15 million purchase price, 

T the $900,000 capitalized installation cost, and 

T the $100,000 expensed installation cost. 

IO = $15.9 million and EO = $100,000. The increase in net working capital is )W =

$2 million. No investment tax credit is specified. 
35 Change in depreciation (for years 1 through 10) would equal $15 million (Equipment Cost) minus

$500,000 (Net Book Value) divided by 10, or $1.45 million.

34 Geothermal Financing Workbook, 2nd edition

INCREMENTAL CASH FLOW ANALYSIS – GEO-CO

IO $15 million + $900,000 = $15.9

million

Initial cash expenditures

)W $2 million Increase in net working capital

J 40% (0.40) Marginal tax rate

EO $100,000 Expensed cost

SO Not specified Net sale price (revenues minus

expenses)

BO $500,000 Net book value

IC Not specified Investment tax credit

)R $1.5 million Changes in revenue

)E Not specified Changes in expenses

)D $1.45 million35 Depreciation change

S $500,000 Sale price

B $500,000 Book value

RE

X

$250,000 Cleanup and removal expense

Using equation 6, the Net Initial Investment Outlay for Geo-Co’s project is: 

C

C

O

O

= − − − − + + +

= −

15 900 000 2 000 000 1 04 100 000 0 0 0

17 960 000

, , , , ( . )( , ) .

, , .

Using equation 7, the Net Operating, Cash Flow, or Cash Flow After Tax, resulting

from investing in the project is: 

CFAT

CFAT

CFAT

= − +

= +

=

0 6 1500 000 1450 000 1450 000

30 000 1450 000

480 000

. ( , , , , ) , , .

, , , .

$1, , .
36 Beta ($) is a measure of an asset’s risk in relation to the market. A stock with a beta of more than

1.0 is generally more volatile than the market. For example, a stock with a beta of 1.5 will tend to rise

or fall by 15% when the market portfolio rises or falls by 10%.

Geothermal Financing Workbook, 2nd edition 35

î Estimate the Cost of Capital for a Project

The equipment is expected to have a book value of $500,000 at the end of the

project’s life. A well reserve expenditure of $250,000 is expected. Using equation

8, the project’s Net Salvage Value is: 

= + − +

=

0 6 000 04 000 06 250 000 2 000 000

350 000

. (500, ) . (500, ) . ( , ) , , .

$2, , .

To summarize: 

INCREMENTAL CASH FLOW ANALYSIS – GEO-CO

CO $17.96 million Net initial investment outlay

CFA

T

$1.48 million Cash flow after tax / Net operating cash flow

$2.35 million Net salvage value

Using the above information. we can outline the incremental cash flows for GeoCo’s project (in $ millions):

INCREMENTAL CASH FLOW ANALYSIS – GEO-CO

YEAR 0 1 2 3 4 5 6 7 8 9 10

Cash Flow -17.96 1.48 1.48 1.48 1.48 1.48 1.48 1.48 1.48 1.48 3.83

Geo-Co’s incremental cash flow shows how much money is available to service the

debt on an annual basis, and will also enable us to calculate the project’s Net

Present Value and Internal Rate of Return (see Step 4). 

To estimate the cost of capital for a project, you must first know the project’s

operating risk profile (beta)

36 and its capital structure (debt/equity). In project
36 Geothermal Financing Workbook, 2nd edition

financing, a project’s beta is not the same as the sponsor’s because the sponsor

has limited liability for the debt of the project company. 

To calculate the total Cost of Capital, you must add the Cost of Equity to the Cost

of Debt. Cost of Equity may be calculated using the Capital-Asset-Pricing

Model (CAPM): 

r r r e = f + β( M ). (9)

CAPITAL-ASSET-PRICING MODEL (CAPM)

COST OF EQUITY

re Required rate of return for equity

rf Risk-free interest rate

$ Common equity beta

rM Expected excess return on the market portfolio

Cost of Debt may be measured using the Weighted Average Cost of Capital

(WACC): 

WACC = (1− θ)r + θ)(1 − τ)r .

e d (10)

WEIGHTED AVERAGE COST OF CAPITAL (WACC)

COST OF DEBT

2 Ratio of debt financing to total investment value

re Required rate of return for equity

J Marginal income tax rate

rd Required rate of return on debt

Since calculating beta is beyond the scope of this workbook, the easiest way to

demonstrate how to calculate cost of capital is with an example. Using the CAPM

and the following, calculate the cost of capital for Geo-Co’s project. 
37 Financial Tune-Up for Windows 1.0.01 , © 1995-96 Odyssey Computing Inc. and Furistics Corp. A

Windows 95 demo version may be downloaded at www.zdnet.com.

Geothermal Financing Workbook, 2nd edition 37

COST OF CAPITAL – GEO-CO

rf 6% (0.06) Risk-free interest rate

$ 1.25 Common equity beta

rM 8.4% (0.084) Expected excess return on the market portfolio

J 40% (0.40) Marginal income tax rate

2 80% (0.80) Ratio of debt financing to total investment

value

10% (0.10) Expected cost of debt (pretax)

1. Use CAPM (equation 9) to estimate re:

re = 6.0 + 1.25(8.4) = 16.5 percent.

2. Use WACC (equation 10) to calculate the project’s total cost of capital:

= − + −

= +

= +

=

( ) )( ) .

( . )( . ) ( . )( . )( . ).

. . .

. .

1 1

0 2 0165 08 0 2 01

0033 0 016

0049

θ r θ τ r e d

The project’s cost of capital is 4.9 percent.

Table 5 outlines the appropriate cost of equity capital for different types of

businesses.37

COST OF

EQUITY

BUSINESS TYPE

10% to 15% Large businesses that are leaders in their industry. These

businesses are comparable to publicly traded companies and

future earnings may be easily estimated based on historical

trends. 
COST OF

EQUITY

BUSINESS TYPE

38 Ibid.

38 Geothermal Financing Workbook, 2nd edition

ï Calculate NPV and IRR

16% to 20% Larger businesses that have a stable earning record, readily

available capital, and depth in management. Future earnings are

fairly predictable.

21% to 25% Medium-sized businesses that have a fairly long history. May have

some management depth but is in a competitive and everchanging industry where risk is high. 

26% to 30% Smaller-sized businesses that depend on a few key people usually

consisting of family members or friends. Difficult to project the

future earnings of the business and is usually undercapitalized.

31% to 40% Businesses that depend heavily on the skills of one person, usually

set up as a sole proprietorship. These types of businesses are

usually service-oriented and may be based in the home of the

business owner. Extremely difficult to project the future earnings of

the business.

Table 5 - Cost of Equity Capital for Different Businesses

The fourth and final parts of discounted cash flow analysis are the Net Present

Value (NPV) and Internal Rate of Return (IRR) analyses. The basic premise of

NPV and IRR is the time value of money, or the fact that a dollar today is worth

more than a dollar in the future. 

An increase in value is commonly known as compounding. The reverse of

compounding is discounting which is used to determine the present value of

money.38
Geothermal Financing Workbook, 2nd edition 39

Present Value Future Value

Compounding

Discounting

Figure 3 - Time Value of Money

The Net Present Value (NPV) of a project is the difference between what it costs

and what it is worth. Because its future it unknown, we must estimate NPV. 

The NPV of a capital investment project is the present value of all of the after-tax

cash flows (CF)–all its costs now and in the future. The variable r equals the

discount rate, or cost of capital: 

NPV = +

+

+

+

+ +

+

=

= +

∑

CF CF

1

CF

1

CF

1

CF

O

1

( ) ( )

...

( )

( )

.

r r r

r

n

n

t

t

t

n

2

2

0 1

(11)

Most spreadsheet programs (e.g., Excel and Quattro Pro) will calculate PV and

NPV. 

If the NPV is negative, or will be worth less than it costs, the project should be

rejected. When comparing two projects, the project with the higher NPV is a better

investment.

The Internal Rate of Return (IRR) is a project’s expected rate of return. If the

cost of capital equals IRR, the NPV would be zero. The IRR for a project is the

discount rate that makes the NPV zero: 

0

0 1 1 1

=

+

= +

= = +

∑ ∑

CF

IRR

CF CF

IRR

t

t

t

n

O

t

t

t

n

( ) ( )

. (12)
40 Geothermal Financing Workbook, 2nd edition

Most financial calculators and spreadsheet programs will calculate the IRR of a

cash flow stream. 

Undertake a capital investment Project if the IRR exceeds r, the project’s cost of

capital.

Let’s calculate the NPV and IRR for the Geo-Co project. The project’s cost of

capital is 4.9%. Geo-Co’s incremental cash flows calculated earlier in this section

are: 

INCREMENTAL CASH FLOW ANALYSIS – GEO-CO

YEAR 0 1 2 3 4 5 6 7 8 9 10

Cash Flow -17.96 1.48 1.48 1.48 1.48 1.48 1.48 1.48 1.48 1.48 3.83

Using equation 11, Geo-Co’s NPV is: 

NPV

NPV

NPV million

=

+

= − + +

= −

=

=

∑

∑

CF

1

t

t

t

n

t

t

( r)

.

.

.

( . )

.

( . )

.

$5. .

0

1

9

10 17 96 148

1049

383

1049

87

Since the NPV is negative, the project should not be undertaken. What is the GeoCo project’s IRR? Using Excel, we find that the IRR is -2%.

A smaller project often has a larger IRR but a smaller NPV than a larger

project.

In cases like this, the project that will add the most wealth–the project with

the higher NPV–should be selected.
Geothermal Financing Workbook, 2nd edition 41

Annual Coverage Tests

Lenders generally use three financial ratios to ascertain a project’s ability to service

its debt on a year by year basis: 

1. Interest rate coverage ratio, 

2. Fixed charge coverage ratio, and 

3. Debt service coverage ratio.

RATIO EQUATION AND INTERPRETATION

Interest rate

coverage

= Earnings Before Interest & Taxes (EBIT) / Interest

• Measures project’s ability to cover interest charges.

• An interest rate coverage ratio below 1.00 indicates that a

project cannot cover its interest charges fully out of

operating income.

• Lenders typically require interest coverage of over 1.00.

Fixed charge

coverage

= (EBIT + a rentals) / (Interest + a rentals)

• Used if there are rental agreements which do not appear

on the project company’s balance sheet.

• The Security and Exchange Commission (SEC) permits

companies to treat one-third of rental payments as an

interest component.

• A fixed charge coverage ratio below 1.00 indicates that a

project cannot cover its interest charge fully out of operating

income. 
RATIO EQUATION AND INTERPRETATION

42 Geothermal Financing Workbook, 2nd edition

Debt service

coverage

=

+

+ +

−

EBITDA Rentals

Interest Rentals Principal repayments

1 Tax rate

• Accounts for all debt service payment obligations.

• A debt service coverage ratio below 1.00 means that the

project cannot fully service its debt out of project cash flows

and will have to borrow funds or seek equity to cover the

shortfall.

• Particularly useful in designing the amortization schedule

for project debt.

• Most comprehensive of the three coverage ratios.

EBITDA = Earnings before interest, taxes, depreciation, and

amortization.

Table 6 - Annual Coverage Tests
39 Adapted from Trade in Environmental Services and Technologies (TEST), U.S. Agency for

International Development, “U.S. Environmental Financing Programs for India,” October 18, 1996.

Geothermal Financing Workbook, 2nd edition 43

Financing Sources

Background39

Financing sources can be categorized by type, form, transaction size, and terms.

Types of Financing

Project development – One of the most commonly sought after types of support is

for financing the costs of preparing pre-feasibility and feasibility studies and

business plans. This financing can be in the form of loans or grants. The handful

of current programs which finance project development are supported by the U.S.

Government.

Project finance – Project finance, also known as “no- or limited recourse finance,”

refers to projects that are financed on the basis of projected revenue streams from

the specific project rather than on the creditworthiness of the project’s sponsors,

or, “on the balance sheet.”

Corporate finance – Unlike project finance, corporate finance or “recourse

financing” is “on the balance sheet” of the borrower, with both equity and debt

financing based on projected earnings of the corporation with its underlying assets

used as collateral to back up debt financing.

Trade finance – Trade finance or “export credit,” is available to finance U.S.

exports of goods and services. Trade finance, however, requires letters of credit

from qualified in-country banks or buyers to provide assurance of repayment to the

U.S. lender. Thus, export credit is available only to those borrowers which have

strong enough balance sheets or connections to qualify for the required letters of

credit from their local bankers.

Venture capital – Venture capital is used usually by start-up companies which do

not have a track record or financial base to support conventional bank financing. 

Because of the high risks associated with start-ups, venture capitalists typically

require very high returns (e.g., 25-50% annual return on equity).
44 Geothermal Financing Workbook, 2nd edition

Forms of Financing

Grants – Grants are available from U.S. Government (USG) agencies and USGfunded organizations. Some grants are unconditional; others may require

repayment or charge a “success fee” if the project is successful.

Equity – Equity investors provide funding in return for an ownership interest in the

project or company being financed. Equity investors expect a return in the form of

dividends on their equity shares in relation to their risk.

Debt – Debt financing is a loan which is secured by the assets of a company or

project. Lenders typically expect sufficiently more collateral than the amount of

exposure they face which normally implies that a significant portion (25-50%) of a

project or company be financed through equity. Debt is divided into short-term

(less than one year) and long-term (over one year).

Loan Guarantees, Insurance, and Export Credit Assistance – Governments and

other sponsors often loan guarantees, insurance, or other export credit

enhancement mechanisms (e.g., subordinated debt) in order to make projects more

attractive to traditional lenders or investors. The various credit enhancements are

designed to reduce the risks other lenders or investors face.

Transaction Size

Small (less than $1 million) – Small transactions are usually financed through

specialized government programs or informal sources because of the high costs of

due diligence in relation to the potential returns.

Mid-size ($1 million to $10 million) – Mid-size transactions are often the most

difficult to finance because they are too large for informal sources and too small to

be of serious interest to larger commercial or investment banks.

Large ($10 million to $100 million) – Large transactions are of interest to most

conventional commercial and investment banks and to multilateral development

banks.

Very Large (over $100 million) – These projects are of interest to larger private and

multilateral development banks. Private financing on this scale is almost always

through a consortium of lenders who often seek additional credit enhancement
Geothermal Financing Workbook, 2nd edition 45

through sovereign guarantees or other assurances of repayment from government

agencies.

Terms

The terms associated with any financing vary considerably. For debt financing, the

primary terms are the loan’s interest rate, maturity, and grace period. For equity

financing, the primary terms are expected return on investment and exit

requirements or strategy.

In addition to type, form, transaction size, and terms, financing sources may also

have other policies for investment which may include:

Cofinancing Requirement – Many funds limit their participation to a certain

percentage of the total project cost or financing requested, requiring cofinancing

from other financing sources. Typically, one fund or program will act as the lead

agency in cofinancings.

Active versus Passive Management – Some equity investors may want to play an

active role in managing the company in which they invest. Most will want seats on

the company’s Board of Directors if they are significant investors. Lenders are

usually less active than equity investors, but may still insist on substantial oversight

of the borrowing company’s operations.

Types of Projects Preferred or Avoided – Some sources of financing may favor or

avoid certain types of projects (e.g., greenfield, expansions, privatizations, etc.). 
40 Financing sources described in the Workbook are not exhaustive and inclusion is not an

endorsement of any particular source relative to another.

46 Geothermal Financing Workbook, 2nd edition

Sources of Financing for Geothermal Projects40

Table 7 on the following pages lists potential financing sources for smaller

geothermal power projects indicating which specific form(s) of financing each may

provide. The pages which immediately follow the table include detailed information

(when relevant and available) for each financing source, including:

1. Funds available

2. Investment made to date in geothermal projects

3. Type(s) of financing

4. Form(s) of financing

5. Financing structure

U investment range

U term range (years)

U interest rate range

U grace period

U equity/debt ratio required

U expected return on investment

U minimum debt service ratio/cash flow coverage (before taxes,

including depreciation)

U fees

U other

6. Application procedure

7. Useful publications

8. Key contact(s)

9. Web site
Geothermal Financing Workbook, 2nd edition 47

FINANCING

SOURCE

FINANCING AVAILABLE

Project

Development

Debt

Equity

Loan

Guarantee

s / 

Insurance

Export

Credit

Short-term Long-term Assistance

African

Development

Bank

U U U

Bank of China U U U U

Black Sea Trade &

Development Bank U U U

California Energy

Commission U

Commonwealth

Development

Corporation

U U

Deutsche Bank

Securities, Inc. U U U

E & Co. U U

Energy Capital

Holding Company U U U

Energy Sector

Management

Assistance

Programme

U

Environmental

Enterprises

Assistance Fund

U U

European Bank for

Reconstruction & 

Development

U U U

European Investment

Bank U

Export-Import Bank

of the U.S. U U U

Fundación Solar U

Global Environment

Facility U U U
FINANCING

SOURCE

FINANCING AVAILABLE

Project

Development

Debt

Equity

Loan

Guarantee

s / 

Insurance

Export

Credit

Short-term Long-term Assistance

48 Geothermal Financing Workbook, 2nd edition

Global Environment

Facility Small Grants

Programme

U

Inter-American

Development Bank U U

Inter-American

Investment

Corporation

U U

International

Finance

Corporation

U U

International

Finance Corporation

Small & MediumScale Enterprises

Program

U

Japan Bank for

International

Cooperation

U U

Multilateral

Investment

Guarantee Agency

U

Nordic

Environmental

Finance Corporation

U U U

Overseas Private

Investment

Corporation

U U U

Preferred Energy,

Inc. U U U U

Renewable Energy &

Energy Efficiency

Fund

(In development)

U U U U

Scudder Latin

American Power

Fund

U U

U.S. Small Business

Administration U U U U U
FINANCING

SOURCE

FINANCING AVAILABLE

Project

Development

Debt

Equity

Loan

Guarantee

s / 

Insurance

Export

Credit

Short-term Long-term Assistance

Geothermal Financing Workbook, 2nd edition 49

U.S. Trade &

Development

Agency

U U

World Bank

Prototype Carbon

Fund

(In development)

Not available

Table 7 - Sources of Financing for Geothermal Projects
50 Geothermal Financing Workbook, 2nd edition

African Development Bank (AfDB)

Private Sector Department (OPSD)

Funds available In 1998, the AfDB lent about $154.1 million. 

The AfDB’s total authorized capital in 1998 was UA (Units of

Account) $21.87 billion, or approximately US$29.2 billion.

Investment made to date

in geothermal projects $0

Type(s) of Financing Project finance / Venture capital

Form(s) of Financing Debt / Equity / Quasi-equity investments / Loan guarantees /

Syndications / Underwriting / Advisory services

Financing Structure

Investment Range (US$) Typically from $140,000 to $15 million. Can be exceeded on

case-by-case basis.

The AfDB’s equity investment will not normally exceed 25% of

the share capital of the enterprise and will not be lower

than $150,000.

Total amount of AfDB assistance to any enterprise, including

loans, equity investment, guarantees and underwriting

commitment will not normally exceed 33 1/3% of the total cost

of the project. 

Term Range (years) Flexible. Typically from 5 to 12 years

Interest Rate Range (%) Case-by-case, typically from LIBOR +1 to +5 (London Interbank

Offered Rate)

Grace Period (years) Yes, negotiable, reflecting the implementation schedule and

projected cash flow of the borrower.

Equity/Debt Ratio Required Case-by-case

Expected Return on Investment (%) Case-by-case

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Case-by-case
African Development Bank (AfDB)

Private Sector Department (OPSD)

Geothermal Financing Workbook, 2nd edition 51

Fees Standard front-end fee of 1% due before or at signing. 

Commitment fee of 1% per annum on undisbursed loan

balances; accrues 60 days after the loan

agreement is signed.

Legal expenses incurred by the AfDB in connection with the

appraisal and preparation of loan and other documents for a

AfDB-financed project will normally be for the account of the

investee company.
African Development Bank (AfDB)

Private Sector Department (OPSD)

41 Algeria, Angola, Benin, Botswana, Burkina-Faso, Burundi, Cameroon, Cape-Verde, Central African

Republic, Chad, Comoros, Congo, Côte d’Ivoire, Democratic Republic of Congo, Djibouti, Egypt

Eritrea, Equatorial Guinea Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya,

Lesotho, Liberia, Libyan Arab Jamahiriya, Madagascar, Malawi, Mali, Mauritania, Mauritius,

Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal,

Seychelles, Sierra Leone, Somalia, South Africa, Sudan, Swaziland, Tanzania, Togo, Tunisia,

Uganda, Zambia, and Zimbabwe.

52 Geothermal Financing Workbook, 2nd edition

Other The AfDB gives priority to projects in which other reputable

institutions are involved. 

Equity participation is conditional upon a pre-determined exit

strategy.

To be eligible for AfDB assistance:

1. an enterprise must be located and incorporated in a

regional member country (RMC) of the AfDB41, and

2. an enterprise should be privately owned and managed.

It may be locally or foreign owned. An enterprise partly

owned by the government may also be eligible for AfDB

assistance, provided that its private ownership exceeds

51% of the voting stock, it satisfies the criteria of

operational autonomy and managerial freedom, and is

run on a commercial basis.

AfDB assistance may be considered for projects to establish,

expand, diversify and modernize productive facilities in various

sectors including energy, as long as the investment is

beneficial to the economy of the host country. 

The AfDB gives consideration primarily to financially viable

proposals, which hold good prospects for earning a profit

adequate to provide a good return on invested capital, and

which contribute to one or more of the following:

1. generation of foreign exchange earnings and savings;

2. creation of employment, improvements in the skills of

both labor and management and for the enhancement

of productivity of capital and labor;

3. transfer of technology and acquisition of appropriate

scientific equipment; and

4. forward and backward linkage effects.

For the AfDB to be involved in a project, it needs to be satisfied

that the project is consistent with the country’s economic
African Development Bank (AfDB)

Private Sector Department (OPSD)

Geothermal Financing Workbook, 2nd edition 53

Application Procedure To enable the AfDB to promptly assess the eligibility of a

project for investment, interested enterprises should submit a

feasibility study including the following information:

1. description of the project;

2. the sponsors, including financial and managerial

background;

3. cost estimates, including foreign exchange

requirements;

4. financing plan, indicating the amount of ADB financing

desired;

5. market prospect, including proposed marketing

arrangements; and

6. implementation plan, including the status of

government approvals.

After this information is assessed, the AfDB will convey its

preliminary views to the applicant enterprise and may also ask

for additional details and documents for further processing. The

AfDB will observe confidentiality in its dealing with project

sponsors.

See “Checklist for the Preparation of an Application to the

AFDB for a Loan and/or an Equity Investment in a Privately

Owned Project” attached.

Useful Publications http://www.afdb.org/news/publications.html

Quarterly Operational Summary (QOS). Contains brief

descriptions of projects for which financing has been approved

by the AfDB Board of Directors in the last six months as well

as those which are expected to be submitted to the Board for

approval during the next six months. AfDB’s QOS is available

with a subscription to U.N. Development Business.

Assistance to Private Enterprises. Outlines AfDB policies.
African Development Bank (AfDB)

Private Sector Department (OPSD)

54 Geoth ermal F inancin g Wo rkbook , 2nd edition

Key Contact(s) Rolf B. Westling

Director

Private Sector Department

AfDB

01 Boite Postal 1387

Rue Joseph Anoma

Abidjan 01, Côte d Ivoire

Tel: [225] 20-20-40-57

Fax: [225] 20-20-59-67

or [225] 20-20-49-64

Web S ite http://www.afdb.org/about/opsd-home.html
Geothermal Financing Workbook, 2nd edition 55

AFRICAN DEVELOPMENT BANK

Private Sector Department

Checklist for the Preparation of an Application to the AFDB

for a Loan and/or an Equity Investment

in a Privately Owned Project

This checklist is designed to serve as a guide for the preparation of an application to the Private Sector

Department for a loan or equity investment. It will not be applicable to all projects and merely indicates

the type of issues which should be addressed.

Name of Potential Borrower and/or Name of the Project

Location

1. Give the exact location of the project.

Name of Sponsoring Company and Brief Description of Project

2. Describe the proposed or existing company, its capital structure, land ownership details, nature of

major activities, sponsors, history, management, financial results for past five years, bank

references etc.

3. Project description and rationale.

4. Review of the Sector. Describe how the project fits within the country’s development objectives.

Market

5. Describe the market for the product or service, give production and sales data including imports

and exports. Provide forecasts and justification.

6. Describe marketing channel, sales arrangements, usual commercial arrangements.

7. Competition, both domestic and foreign, past and current market trends and developments.

8. Tariff and non-tariff barriers.

9. Price structures, price controls, subsidies, rebates, import regulations, government involvement

etc.

Technical Aspects

10. Detailed description of technical, construction or other aspects of putting together the project. 

11. Technical process. Basis for its selection, suitability, relative costs, describe processes, rated

capacity and anticipated output.
56 Geothermal Financing Workbook, 2nd edition

Raw Materials and Procurement

12. Materials needed, sources, order time, stability of supply, concessions, import licenses, supply

contracts. Likelihood of cost increases.

Infrastructure, Transportation

13. Adequacy of electricity, water and other utilities and transportation facilities. Costs. Possible

installation delays. Possible port delays.

Environmental Aspects

14. Detailed description of waste disposal systems, how project affects the physical and social

environment and what project sponsors are doing to mitigate effects.

Organization and Management

15. Describe the structure of the Board and Management.

16. How is the project construction and supervision organized? How is the project construction and

supervision organized? How are costs to be determined and negotiated? Construction schedule.

17. Provide details of technical assistance or management contracts or other agreements. Provide

information on competence of those involved.

18. Provide details on availability and costs of appropriately skilled workers, as well as information on

labor laws, union organizations, ease of work force reduction and so forth.

19. Describe the company’s program for Africanization of management

Government role, taxation, regulation, insurance, special incentives

20. Does the Government have any direct or indirect role? What government approvals are required

and current status?

21. Are there any investment incentives or privileges accorded to the project?

22. Describe applicable, provisions for repatriation of capital, dividends, royalties, foreign exchange

rates, loans, etc.

23. Provide details on insurance policies related to the company, the project, and the management.

Project Investment Cost Financing Plan

24. Provide detailed cost estimates, land, buildings, earthworks, machinery, equipment licensing,

permanent working capital, interest during construction. Allocate costs among local and foreign

currency requirements.

25. Financing plan, including details of share holding structure, and various details of loans.
Geothermal Financing Workbook, 2nd edition 57

26. Disbursement schedule and rationale.

Proposed financial and technical assistance from African Development Bank (See “Assistance

to Private Enterprise” an AfDB publication for outline of Bank Policies. 

27. Provide details of assistance requested and reasons why the Bank should be of assistance to the

project.

Financial and Economic Evaluation

28. Projections of output revenues, costs and profits for ten profits for ten years or more. Costs items

should include raw material, labor, power and other utilities, repair and maintenance,

administration expenses, sales expenses, depreciation, taxes and so forth. Provide calculation of

gross operating profit, cash flow projected income statements, summary balance sheet projection,

etc. Supply detailed schedules as appendixes. 

29. Provide a complete final evaluation of the project including computation of internal rate of return.

For project expansion provide comparisons of forecasts with and without the project.

30. Provide an economic evaluation with economic rate of return and the assumptions used in its

calculation. 

Risks and Safeguards

31. Discuss realistically the risks involved in carrying out the project, including weather infrastructure,

government, labor, supplier, market and other factors. Then review how the project sponsor

intends to guard against the risks.

Appendixes

32. Provide maps, lists of affiliated companies, information on individual shareholders and managers,

detailed process, equipment or project subscriptions, market statistics, financial schedules and so

forth.
58 Geothermal Financing Workbook 

Bank of China

Funds available N/A

Investment made to date

in geothermal projects $0

Type(s) of Financing Project finance / Trade finance

Form(s) of Financing Export credit assistance / Loan guarantees / long-term Debt /

Short-term Debt

Financing Structure

Investment Range (US$) N/A

Term Range (years) N/A

Interest Rate Range (%) N/A

Grace Period (years) N/A

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees N/A

Other N/A

Application Procedure N/A

Useful Publications N/A

Key Contact(s) Jeff Liu

Loan Officer

Credit and Business Development Department

Bank of China

410 Madison Avenue

New York, NY 10017-1191

Tel: [1] 212-935-3101

Fax: [1] 212-308-4993

Web Site http://www.bank-of-china.com/english/boc.html
Geothermal Financing Workbook 59

Black Sea Trade and Development Bank (BSTDB)

Funds available $10-20 million

Investment made to date

in geothermal projects

None to date; established 1998

Type(s) of Financing Corporate finance / Project finance / Trade finance

Form(s) of Financing Equity / Export credit assistance / Long-term Debt

Financing Structure

Investment Range (US$) From $3 million to $20 million

Funds available for no more than 35% of total project costs

Term Range (years) From 3 to 8 years

Interest Rate Range (%) Subject to evaluation

Grace Period (years) Yes

Equity/Debt Ratio Required Subject to evaluation

Expected Return on Investment (%) Subject to evaluation

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Subject to evaluation

Fees Front-end fee of up to 1%. Commitment fee on undisbursed

amount.
Black Sea Trade and Development Bank (BSTDB)

60 Geothermal Financing Workbook 

Other The BSTDB invests in projects in member countries: Albania,

Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova,

Romania, Russian Federation, Turkey, and Ukraine. It will also

consider projects with strong regional cooperation or

developmental impact in the Black Sea Region.

The BSTDB would be a minority shareholder and possibly

request a seat on the Board.

During the initial period of its operations, the BSTDB will

primarily concentrate on the following areas:

1. Project finance, to include medium-size, medium-term,

and economic infrastructure investments with strong

cooperation and development impact, preferably

involving participation of several member countries. The

BSTDB will seek to co-finance such projects with the

other International Financial Institutions (IFIs) and

Export Credit Agencies (ECAs) as well as to attract

private sources of capital (commercial banks and

institutional investors). 

2. Private enterprise sector development by providing

credit lines and equity investments, in particular to

medium sized companies which constitute the most

vibrant and dynamic component of the private sector in

member countries. The majority of these operations will

be implemented through selected financial

intermediaries. 

Application Procedure All projects must be economically justified, financially viable,

technically feasible, and environmentally sound. 

The major steps of the BSTDB’s project approval process are:

1. Initiation

2. Appraisal

3. Negotiations

4. Approval

See Project Information Form attached.

Useful Publications None provided
Black Sea Trade and Development Bank (BSTDB)

Geothermal Financing Workbook 61

Key Contact(s) Gueorgui Horozov

Project Finance Manager

Black Sea Trade and Development Bank

1 Kominion Street

546 24 Thessaloniki, Greece

Tel: [30] (31) 290-441

Fax: [30] (31) 221-796

or [30] (31) 286-590

Email: info@bstdb.gr

Web Site http://www.bstdb.gr/index.html
62 Geothermal Financing Workbook 
Geothermal Financing Workbook 63

California Energy Commission (CEC)

International Energy Fund

Funds available Not provided

Investment made to date

in geothermal projects

5 MWe baseload feasibility, Vanuatu

Reservoir confirmation, Nicaragua

Drilling technology (fiber optics), Venezuela

Drilling technology, Indonesia

Type(s) of Financing Feasibility studies / Pre-feasibility studies / Technical

assistance / Market and site assessment and analysis /

Technology transfer agreements

Form(s) of Financing Grants

Financing Structure

Investment Range (US$) Up to $25,000 per proposal for pre-investment activities abroad

Pre-investment activities include feasibility studies, market and

site assessment and analysis, and technology transfer

agreements

The fund requires applicants to provide at least half of the total

cost of pre-investment activities. 

Term Range (years) N/A

Interest Rate Range (%) Not provided

Grace Period (years) N/A

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees Awards plus interest are reimbursed to the Commission when

the recipient companies earn revenue and positive cash flow

from a specific project.
California Energy Commission (CEC)

International Energy Fund

64 Geothermal Financing Workbook 

Other Companies receiving funds must be small- and medium-sized

California-based companies and have the host country s

strong s upport. 

Applicatio n Proce dure To receive an information package on the International Energy

Fund, c ontact the CEC . 

Solicitation is February to June 2000.

Useful Publications California Energy Com mission Energ y Technology E xport

Program.

Key Contact(s) Tambu Kisoki

International Energy

Specialist

California Energy

Commission

1516 Ninth Street, MS-45

Energy Tec hnology Expo rt

Program

Sacramento, CA 95814-5512

Tel: [1] 916-654-4719

Fax: [1] 916-654-4676

Ema il: 

TKisoki@energy.state.ca.us

Tim Olson

International Program

Manager

California Energy

Commission

1516 Ninth Street, MS-45

Energy Technology

Development Division

Technology Evaluation Office

Sacramento, CA 95814-5504

Tel: [1] 916-654-4528

Fax: [1] 916-653-8251

Ema il: 

TOlson@energy.state.ca.us

Web S ite http://www.energy.ca.gov/export/fund.html
Geothermal Financing Workbook 65

Commonwealth Development Corporation (CDC)

United Kingdom

Funds available CDC has global investments of over $2.6 billion in over 400

businesses in 54 countries.

Investment made to date

in geothermal projects

$20 million in 24 MWe BOO Orzunil I Power Plant in

Guatemala. CDC is taking a 14% share holding. ORMAT has a

20% stake in the company.

The plant’s $66.7 million in financing needs will be subscribed 

by ORMAT International, Scudder Latin American Power Fund,

the International Finance Corporation, and a group of local

investors. 

Type(s) of Financing Development and early stage equity stakes (when projects are

in the feasibility stage)

Form(s) of Financing Equity / Quasi-equity / Loan guarantees

Financing Structure

Investment Range (US$) Typically invests between $1million and $50 million in a

business. 

Smaller equity requirements can be met through country and

regional private equity funds managed by CDC. 

Invests primarily in equity or mezzanine finance and can

arrange the provision of debt finance.

Term Range (years) Is a medium to long-term investor ultimately aiming to realize

its investments in consultation with its partners.

Interest Rate Range (%) Not provided

Grace Period (years) Not provided

Equity/Debt Ratio Required Not provided

Expected Return on Investment (%) Looks for fully commercial returns on its investments

commensurate with the risk involved 

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Not provided

Fees Not provided
Commonwealth Development Corporation (CDC)

United Kingdom

66 Geothermal Financing Workbook 

Other CDC may co-sponsor and invest during the due diligence or bid

stage of a potential business. 

It will consider projects in Africa, East Asia and the Pacific, and

Latin America and the Caribbean. 

CDC seeks to establish a partnership with sponsors to acquire,

expand, or restructure a business. It invests in businesses

with good management teams. 

Application Procedure CDC applies a number of sound business criteria in considering

investments:

• Commercial viability

• Economics –includes the Economic Internal Rate of

Return which adjusts for various distortions, as well as

the transfer of skills and training, economic linkages,

positive and negative impacts on infrastructure, and the

effect of the business on the market

• International social and environmental standards – CDC

will only invest in a project if satisfied that any social or

environmental risks have been properly mitigated

through appropriate project design

• Modern forms of energy

The CDC would like to see before meeting a business plan

which includes the following:

1. An executive summary for the business and the

proposal;

2. A description of the business;

3. The background, resources, and experience of the

sponsors;

4. The experience, commitment and track record of the

key managers, together with the management and

board structure;

5. Information on the sector and the markets in which you

work; and

6. The proposed financial structure. 

Useful Publications — 
Commonwealth Development Corporation (CDC)

United Kingdom

Geothermal Financing Workbook 67

Key Contact(s) Dr. Derrick Fielden

Manager, Renewable Energy

Commonwealth Development Corporation (CDC)

One Bessborough Gardens

London SWIV 2JQ, United Kingdom

Tel: [44] (20) 7963-3873

Fax: [44] (20) 7963-3956

Email: DFielden@cdc.co.uk

Web Site http://www.cdc.co.uk
68 Geothermal Financing Workbook 

Deutsche Bank Securities, Inc.

Funds available N/A

Investment made to date

in geothermal projects Not provided

Type(s) of Financing Corporate finance / Project finance / Trade finance

Form(s) of Financing Equity / Long-term Debt / Short-term Debt

Financing Structure

Investment Range (US$) Up to $75 million

Term Range (years) Up to 10 years

Interest Rate Range (%) Open

Grace Period (years) Open

Equity/Debt Ratio Required Open

Expected Return on Investment (%) Not provided

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Case-by-case

Fees Case-by-case

Other

Application Procedure Contact the bank

Useful Publications — 

Key Contact(s) Paul Naumann

Deutsche Bank Securities, Inc.

31 West 52nd Street

New York, NY 10019, 

Tel: [1] 212-469-3756

Fax: [1] 212-469-8565

Email: PaulNaumann@db.com

Web Site http://www.db.com
Geothermal Financing Workbook 69

E & Co.

Funds available Not provided

Investment made to date

in geothermal projects

$225,000 in El Hoyo-Monte Galán Geothermal Project

(Nicaragua). E&Co provided investment support to assist

Trans-Pacific during the final negotiations of the three

agreements necessary to advance to financing: the Power

Purchase Agreement with the Nicaraguan utility, receipt of the

concession agreement (obtained) and the investment contract

with the Government of Nicaragua. 

$250,000 in Geoteca Geothermal Project to complete the

pre-investment package needed to secure project financing

(Guatemala). 

Type(s) of Financing Technical assistance / Project finance

Form(s) of Financing Short-term Equity / Short-term Debt

Financing Structure

Investment Range (US$) From $50,000 to $250,000

Term Range (years) Up to 3 years

Interest Rate Range (%) Negotiable

Grace Period (years) Yes, balloon payment ok.

Equity/Debt Ratio Required Negotiable

Expected Return on Investment (%) Negotiable

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees None

Other Project must be in a developing country in Africa, East Asia

and the Pacific, Latin America and the Caribbean, or South

Asia. Prefer to lend to in-country organizations. Prefer

repayment as early as possibly, preferably at financial closure. 
E & Co.

70 Geothermal Financing Workbook 

Application Procedure E&Co. will consider providing energy enterprises with small

loans, technical assistance, intermediary services, and direct

investment if the following conditions are met:

1. New money for new energy

2. Social and environmental benefits

3. Technology

4. Businesslike

5. Reasonable risk

6. “But for”

7. Policy framework

8. Human capability

See Investment and Project Proposal Guidelines attached.

Useful Publications — 

Key Contact(s) Dr. Mike Allen

Executive Director

E&Co. - USA

Energy House

383 Franklin Street

Bloomfield, NJ 07003

Tel: 973-680-9100

Fax: 973-680-8066

Email: 

eco@energyhouse.com

André Escalante

E&Co. - Caribbean

40B Hillrise Road

Blue Range

Diego Martin, Trinidad

Tel: [1] 868-633-0330

Fax: [1] 868-633-0330

Email: eeep@carib-link.net

Dr. Anil K. Rajvanshi

E&Co. - India

PO Box 44

Phaltan 415523

Maharashtra, India

Tel: [91] 216-622-396

Fax: [91] 216-623-328

Email: akraj@pnz.vsnl.net.in

Jennifer Morsink-Villalobos

Regional Director

E&Co.- LAC

Apartado 98-1250

Escazu, , Costa Rica

Tel: [506] 289-8327

Alt Tel: [506] 228-6320

Fax: [506] 289-8327

Email: 

jennifer@energyhouse.com

Gonzalo H. Rico Calderón

E&Co. - South America

Av. Santa Cruz No 1274

Piso 7, Oficina No 3

Cochabamba, Bolivia

Tel: [591] 429-4006

Fax: [591] 429-4007

Email: 

ghrico@albatros.cnb.net

Claude Potvin

E&Co. - Vietnam

31 Hung Vuong Street

Hanoi, Vietnam

Tel: [84] (4) 823-5500

Fax: [84] (4) 843-5560

Email: hanoipsu@hn.vnn.vn
E & Co.

Geothermal Financing Workbook 71

Web Site http://www.energyhouse.com/ecomain.htm
72 Geothermal Financing Workbook 
Geothermal Financing Workbook 73
74 Geothermal Financing Workbook 
Geothermal Financing Workbook 75

Energy Capital Holding Company (ECHCO)

A Member of the Energy House Consortium

Funds available Not provided

Investment made to date

in geothermal projects

Past activity has been through DesignPower/GENZL, a

shareholder in ECHCO International.

Type(s) of Financing Integrated Project Finance Services including Investor, Financial

Advisor, Project Legal Counsel, Insurance, and Engineering

Form(s) of Financing Equity / Long-term Debt / Insurance

Debt sourcing includes alternatives from the International Bond,

Insurance Lender, and Bank Credit Market.

Financing Structure

Investment Range (US$) $10 million to $250 million

As ECHCO’s volume increases, the minimum project size will

decrease. The company is studying the establishment of

specialized pools for 2-3 MWe projects.

Term Range (years) 12 to 15 years

Interest Rate Range (%) 9.5% to 11% fixed

Grace Period (years) Yes, construction period plus up to 1 additional year

Equity/Debt Ratio Required Varies from 30/70 to 15/85

Expected Return on Investment (%) 15-25% depending on the stage of investment

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) 1.30

Fees 1 to 2.5% on Senior Debt depending on amount. 

2 to 5.0% on Equity depending on source and amount.
Energy Capital Holding Company (ECHCO)

A Member of the Energy House Consortium

76 Geothermal Financing Workbook 

Other ECHCO is a company of companies with its shareholders

providing merchant banking, legal, insurance, trustee, and

engineering services. ECHCO offers “one stop shopping” for

financing. In the early stages of project development, ECHCO

works with other members of the Energy House Consortium to

offer financial support to developers. In the later stages of

development, ECHCO sources capital from outside lenders and

the capital markets. 

ECHCO generally invests in projects in Latin America and the

Caribbean.

Application Procedure No formal procedure. Submit information on the project

including:

1. Project participants

2. Status of Power Purchase Agreement

3. Description of project

4. Pro Forma of Financial Statements

Useful Publications — 

Key Contact(s) Dr. Ronald E. Müller

Energy Capital Holding Company (ECHCO)

REM Capital Corporation

727 15th Street, N.W., 11th Floor

Washington, D.C. 20005

Tel: [1] 202-737-5400

Fax: [1] 202-737-4554

Email: 

remcap@bellatlantic.net and remcap@erols.com

Web Site None
Geothermal Financing Workbook 77

Energy Sector Management

Assistance Programme (ESMAP)

Funds available In 1998, the cumulative value of ESMAP’s 89 ongoing projects

in 37 countries was $21.6 million.

ESMAP disbursed $13 million against projects in the portfolio in

1998.

Nine donors contributed $8.2 million to ESMAP in 1998.

Investment made to date

in geothermal projects $0

Type(s) of Financing Pre-feasibility studies (occasionally) / Technical assistance

Form(s) of Financing Grants 

Financing Structure

Investment Range (US$) From $150,000 to $300,000; average size is $240,000

Term Range (years) N/A

Interest Rate Range (%) N/A

Grace Period (years) N/A

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees N/A
Energy Sector Management

Assistance Programme (ESMAP)

78 Geothermal Financing Workbook 

Other ESMAP channels free policy advice and other technical

assistance to governments, focusing on three priority areas: 

1. market-oriented energy sector reform and restructuring;

2. access to efficient and affordable energy; and 

3. environmentally sustainable energy production,

transportation, distribution and use. 

ESMAP works along six main themes: 

1. assisting with energy sector policy and restructuring,

2. promoting energy access in rural and urban areas and

under-served households and businesses,

3. analyzing local, regional and global 

energy-environment linkages,

4. mainstreaming renewable energy technologies,

5. encouraging more efficient energy practices, and

6. facilitating international energy trade. 

ESMAP aims at designing innovative approaches to address

energy issues. Its activities include one or several of the

following: 

• free technical assistance 

• specific studies 

• advisory services 

• pilot projects 

• knowledge generation and dissemination 

• trainings, workshops and seminars 

• conferences and roundtables 

• publications.

ESMAP is co-financed by the World Bank, the United Nations

Development Programme, and other public and private donors. 

Its activities are managed by World Bank energy specialists. 
Energy Sector Management

Assistance Programme (ESMAP)

Geothermal Financing Workbook 79

Application Procedure Proposals for activities are submitted to the Manager of

ESMAP, reviewed by independent experts, and evaluated

according to the Basic Selection Criteria. 

Calls for proposals are directed to all the members of the World

Bank Group energy practice, and the evaluation of the proposal

is done by World Bank Group and outside experts with the

participation of the UNDP. 

Projects must have the support of in-country World Bank or

UNDP personnel. 

See Project Proposals: Basic Selection Criteria attached.

Useful Publications Annual Report 1998.

Key Contact(s) Dominique M. Lallement

Manager

Energy Sector Management Assistance Programme (ESMAP)

2121 Pennsylvania Avenue, N.W.

Room 8K-296

Washington, D.C. 20433

Tel: [1] 202-458-2321

Fax: [1] 202-522-3018

Email: DLallement@worldbank.org

Web Site http://www.worldbank.org/esmap
80 Geothermal Financing Workbook 
Geothermal Financing Workbook 81

Environmental Enterprises Assistance Fund (EEAF)

A Member of the Energy House Consortium

Funds available Varies by country

Investment made to date

in geothermal projects $0

Type(s) of Financing Venture capital

Form(s) of Financing Equity / Long-term debt

Financing Structure

Investment Range (US$) From $100,000 to... Varies by country.

Term Range (years) From 4 to 7 years

Interest Rate Range (%) Depends on deal

Grace Period (years) Depends on deal

Equity/Debt Ratio Required Depends on deal

Expected Return on Investment (%) Depends on deal

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Depends on deal 

Fees — 

Other Co-financing and significant equity investment by owner or

developer are required. Borrower must have a proven track

record, its own capital at risk, and a strong management team.

EEAF operates primarily in the Caribbean, Central America,

and Southeast Asia.

Application Procedure None indicated

Useful Publications — 
Environmental Enterprises Assistance Fund (EEAF)

A Member of the Energy House Consortium

82 Geothermal Financing Workbook 

Key Contact(s) In the United States:

Mary Ann Bovay Alger

Senior Investment Officer

Environmental Enterprises

Assistance Fund (EEAF)

1655 N. Fort Myer Drive

Suite 520

Arlington, VA 22209

Tel: 703-522-5928

Fax: 703-522-6450

Email: alger@igc.org

In Indonesia:

Ms. Yani Witjaksono

President

Environmental Business

Foundation

Renewable Energy Network

Indonesia (RENI)

Yayasan Bina Usaha

Lingkungan (YBUL)

Jl. Mendawai III, No. 2

Jakarta 12130, Indonesia

Tel: [62] (21) 739-6481

Fax: [62] (21) 739-6481

Email: ybul@indo.net.id

In Central America:

Leonardo Ramirez

Manager

Empresas Ambientales de

Centro America

Apdo 1581-2050

San Pedro de MO, 

Costa Rica

Tel: [506] 257-4717

Fax: [506] 256-1357

Email: Leoramirez@cfafund.com

Web Site http://www.eeaf.org
Geothermal Financing Workbook, 2nd edition 83

European Bank for Reconstruction & Development

(EBRD)

Funds available N/A

Investment made to date

in geothermal projects

US$ 99.9 million (ECU 85.6 million), sovereign loan to the

Russian Government for on-lending to Geoterm, to finance the

40 MWe geothermal Mutnovsky Independent Power Plant. 

The Mutnovsky plant will be the first IPP in Kamchatka and the

first EBRD-funded renewable energy project in Russia.

Type(s) of Financing Project finance

Form(s) of Financing Loan guarantees / Debt / Revolving Credit / Equity / Quasiequity (subordinated loans, debentures and income notes to

redeemable preference shares)

Financing Structure

Investment Range (US$) From US$ 5.5 million (ECU 5 million) to US$150 million (ECU

140 million)

Up to 35% of the total project cost for a greenfield project or the

long-term capitalization of an established company

Average amount of the Bank’s involvement in private sector is 

US$ 17.6 million (ECU 16 million).

Term Range (years) Generally from 5 to 10 years.

Longer maturities may be considered on an exceptional basis,

for example up to 15 years for infrastructure projects.

Interest Rate Range (%) LIBOR + 1% (sovereign projects)

Grace Period (years) Yes, negotiable.

Equity/Debt Ratio Required At least 1/3 to 2/3

Equity from sponsors need not be exclusively in cash but can

be in the form of equipment, plant machinery, etc.

Expected Return on Investment (%) 20/30

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) 1.5
European Bank for Reconstruction & Development

(EBRD)

84 Geothermal Financing Workbook, 2nd edition

Fees A front-end fee will be charged at signing. Commitment fee of

0.5-1.0% per annum beginning 30 days after signing. Sponsors

will be obliged to reimburse the Bank for out-of-pocket

expenses, such as fees for technical consultants and outside

legal counsel, and travel expenses.

Other Notification and short-listing procedures for Technical

Cooperation Operations:

Brief notices of technical cooperation projects for which

consultants are required, are now published by fax immediately

after approval by the Bank.

Consultant short lists for assignments estimated to cost over

ECU 50,000 will not be finalized until five working days after

such publication. This allows consultants to submit brief

expressions of interest to the responsible staff member prior to

the finalizing of a short list. These expressions of interest

should not exceed two pages, and should be faxed to the Bank

for the attention of the staff member in charge.

Consultants are kindly requested to submit any

correspondence by fax only. Telephone calls to Bank staff on

these matters cannot be dealt with and will not be taken as

expressions of interest.

Only consultants who are specifically qualified and experienced

for the assignment should submit expressions of interest.

Consultants Contracts costing ECU 50,000 or less are normally

selected on a direct basis without short-listing.

Publication of formal calls for expressions of interest is now

made for all corporate services contracts with an estimated

budget of ECU 200,000 or over.

For all projects, complete Terms of Reference, etc. will be sent

only to consultants formally invited to submit a proposal or to

negotiate a contract. Other consultants will not receive

notification that they have not been retained.
European Bank for Reconstruction & Development

(EBRD)

Geothermal Financing Workbook, 2nd edition 85

Application Procedure The basis for providing a loan is the cash flows of the project

and the ability of the project to repay that loan over the agreed

period.

Prospective borrowers are encouraged to approach the EBRD

at an early stage of a project in order for the banking staff to

advise on procedure, potential structuring options and to be

kept informed of the relevant developments in a project’s cycle.

For this initial stage the Bank will require the following

information from the client, in as much detail as possible:

1. Information on the shareholders, both local and foreign;

2. Business and project rationale: a clear explanation of

the business proposal, its technical and

economic/commercial aspects; and

3. Initial proposal as to the type of EBRD involvement the

client requires: for example, as an equity partner, as a

source of credit (debt financing), or as a combination of

both.

The information provided at this stage should be sufficient to

enable the Bank to determine whether the proposed project fits

within its guidelines and strategies and warrants further

involvement and work on the part of the Bank. This will lead to

the first step in the approval process, the Concept Clearance.

If the project concept is accepted, a Mandate Letter will be sent

which forms the basis of a working agreement.

See “EBRD information requirements for private sector

financing” attached.
European Bank for Reconstruction & Development

(EBRD)

86 Geothermal Financing Workbook, 2nd edition

Useful Publications Alternative Sources of Finance for Small and Medium-Sized

Projects, October 1997. Lists financial intermediaries which

provide funding for projects in Central and Eastern Europe and

the Commonwealth of Independent States (CIS) that are too

small to be funded directly by EBRD. Updated monthly.

Procurement Policies and Rules.

Financing with the EBRD, 1996. Offers a step-by-step approach

to financing with the EBRD. It provides details on the financial

instruments on offer, the terms for its products, how and when

the Bank should be approached, and how a project is

processed.

See also http://www.ebrd.com/english/Public/index.htm.

Key Contact(s) Riccardo Puliti

Principal Banker, Power &

Energy Utilities Team

EBRD

One Exchange Square

London ECA 2EH, 

United Kingdom

Tel: [44] (171) 338-7379

Fax: [44] (171) 338-7280

Gene R. Harris

Senior Commercial Officer

Office of the U.S. Director

European Bank for

Reconstruction &

Development (EBRD)

No. 6 Broad Street Place

London EC2M, 

United Kingdom

Tel: [44] (171) 588-4027

Alt Tel: [44] (171) 588-4028

Fax: [44] (171) 588-4026

Email: 

gene.harris@mail.doc.gov

See also

http://www.ebrd.com/english/busin/FINANCE/index.htm

Web Site http://www.ebrd.com/
Geothermal Financing Workbook, 2nd edition 87
88 Geothermal Financing Workbook, 2nd edition
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90 Geothermal Financing Workbook, 2nd edition
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94 Geothermal Financing Workbook, 2nd edition
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96 Geothermal Financing Workbook, 2nd edition
Geothermal Financing Workbook, 2nd edition 97

European Investment Bank (EIB)

Funds available In 1998, the EIB signed contracts totaling $25.9 million (€25

million) to projects within the European Union; $4.6 million (€4.4

million) to projects outside of the Union.

Investment made to date

in geothermal projects Not provided

Type(s) of Financing Corporate finance / Project finance

Form(s) of Financing Long-term debt

Financing Structure

Investment Range (US$) Individual loans for large-scale projects; concluded with

promoters; over $25.9 million (€25 million). Up to 50% of the cost

of a project to a state, an entity with a state guarantee, or a

credit-worthy private investor

Global loans: for small and medium-scale projects (local

authorities or firms with less than 500 persons and fixed assets

of up to $78 million [€ 75 million]); supported indirectly by loans

from some 130 banks operating at national or regional level. 

For new capital investment projects worth up to $25.9 million

(€25 million, undertaken by small and medium enterprises

(SMEs) or, in the case of small infrastructure projects, by local

authorities. Up to 50% of the investment costs. 

EIB loans may be granted to public or private borrowers in

support of projects in all sectors of the economy, including

environment and energy infrastructure.

Term Range (years) Individual loans: In the industrial sector up to 12 years, and for

infrastructure projects 20 years, or more in exceptional cases.

Global loans: 5-12 years (for new construction projects

exceptionally 15 years). 

Interest Rate Range (%) Individual loans: market rate of interest

Global loans: to be agreed upon with the intermediary bank,

which takes the financing decision in accordance with criteria

determined with the EIB.
European Investment Bank (EIB)

98 Geothermal Financing Workbook, 2nd edition

Grace Period (years) Individual loans: Yes, grace periods for capital repayment may

be obtained for the construction phase of a project.

Global loans: to be agreed upon with the intermediary bank,

which takes the financing decision in accordance with criteria

determined with the EIB.

Equity/Debt Ratio Required Individual loans: Not provided

Global loans: to be agreed upon with the intermediary bank,

which takes the financing decision in accordance with criteria

determined with the EIB.

Expected Return on Investment (%) Individual loans: Not provided

Global loans: to be agreed upon with the intermediary bank,

which takes the financing decision in accordance with criteria

determined with the EIB.

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation)

Individual loans: Not provided

Global loans: to be agreed upon with the intermediary bank,

which takes the financing decision in accordance with criteria

determined with the EIB.

Fees Individual loans: Generally, neither processing fees nor

commitment fees or any other fees are charged.

Global loans: Not provided

Other The EIB is the European Union’s (EU) long-term lending

institution. 

While most of its lending is for projects located within the EU,

the EIB also participates in the implementation of the EU’s

development policy in countries outside the European Union: in

the Mediterranean region, in 71 African, Caribbean and Pacific

countries which are signatories to the Lomé Convention, in

South Africa, in Central European countries and in Latin

America and Asia.
European Investment Bank (EIB)

Geothermal Financing Workbook, 2nd edition 99

Application Procedure The EIB finances specific projects complying with the European

objectives. It lends to both public and private sector borrowers.

Outside the European Union, financing operations are governed

by the various agreements in force. 

Prior to any financing decision, the EIB examines whether the

project submitted to it conforms to one or more of the European

objectives which it helps to promote: 

• balanced regional development, 

• creation of communications networks, 

• environmental protection and urban development, 

• competitive industrial and service sectors, 

• energy conservation and rational use of resources. 

How to Apply:

1. Requests for individual loans can be addressed directly

to the EIB, without specific formalities, either to its

headquarters in Luxembourg, or to one of its external

offices located in Rome, Athens, Lisbon, London,

Brussels or Madrid.

2. Requests for credits financed in the framework of global

loans should be addressed directly to one of the 130

intermediary banks and financing institutions, which

operates on the national, regional or local level (see

http://www.eib.org/loans/intermed.htm).

The EIB assesses the consistency of the project with European

policies, its technical and financial viability as well as its

economic benefits; it verifies compliance with environmental

protection and procurement regulations; it analyses the

promoter’s financial situation and cash flow projections along

with security offered. 

The EIB welcomes U.S. companies to bring private-sector

projects directly to the EIB. 
European Investment Bank (EIB)

100 Geothermal Financing Workbook, 2nd edition

Useful Publications 1998 Annual Report.

Annual Brochure of the European Investment Bank. Updated

each year, provides an illustrated summary of the Bank’s major

objectives and fields of activity, both within and outside the

European Union.

Basic infrastructure investments in South-Eastern Europe. 

Report of the Balkan Task Force, September 1999. 

Country fact sheets. Describe EIB financing facilities available

in different countries and geographical areas (Member States,

Central and Eastern Europe, the Mediterranean Region, the

African, Caribbean and Pacific States, South Africa, Asia and

Latin America).

Environmental Policy Statement. Covers guidelines, standards

and procedures in the environmental field, June 1996.
European Investment Bank (EIB)

Geothermal Financing Workbook, 2nd edition 101

Key Contact(s) Headquarters:

Fridolin Weber-Krebs

Director General

Lending Operations outside

the European Union

European Investment Bank

(EIB)

100, boulevard Konrad

Adenauer

L-2950, Luxembourg

Tel: [352] 4379-1

Fax: [352] 43-77-04

Office for Lending

Operations in Italy:

Via Sardegna, 38

I - 00187 Rome

Tel. (+39) 06 - 4719-1

Fax (+39) 06 - 4287 3438

Athens Office:

364, Kifissias Ave & 1

Delfon

GR - 152 33 Halandri/Athens

Tel. (+30) 1 682 4517-9

Fax (+30) 1 682 4520

Lisbon Office:

Avenida da Liberdade,

144-156, 8/

P - 1250 Lisbon

Tel. (+351) 1 - 342 89 89

or (+351) 1 - 342 88 48

Fax (+351) 1 - 347 04 87

London Office:

68, Pall Mall

GB - London SW1Y 5ES

Tel. (+44) 171 - 343 1200

Fax (+44) 171 - 930 9929

Madrid Office:

Calle José Ortega y Gasset,

29

E - 28006 Madrid

Tel. (+34) 91 - 431 13 40

Fax (+34) 91 - 431 13 83

Representative Office in

Brussels:

Rue de la Loi, 227

B - 1040 Brussels

Tel. (+32) 2 - 230 98 90

Fax (+32) 2 - 230 58 27

Web Site http://www.eib.org/
102 Geothermal Financing Workbook, 2nd edition

Export-Import Bank of the United States

(Ex-Im Bank)

Funds available Supports the sale of U.S. goods and services to creditworthy

foreign buyers. 

No limit on funding.

Investment made to date

in geothermal projects

$49.7 million Direct Loan to Ormat Leyte Co. , Ltd. (Political

risk guarantee of loan provided by a syndicate of commercial

banks led by ING Bank, Amsterdam, The Netherlands; upon

project completion, Ex-Im Bank will replace the commercial

bank financing with a direct loan). 

Type(s) of Financing Trade finance / Project finance (no limits but usually for

transactions over $30 million due to high preparation costs)

Form(s) of Financing Medium- and long-term Debt / Medium- and long-term loan

guarantees / Short- and medium-term insurance / Export credit

assistance

Financing Structure

Investment Range (US$) Medium-term: From $80,000 to $10 million

Long-term: Over $10 million

Maximum amount is 85% of the contract price; 15% cash

payment by foreign buyer.

Term Range (years) Medium-term: From 2 to 5 years; exceptionally 7 years.

Long-term: Over 7 years.

Interest Rate Range (%) Direct Loan: commercial interest reference rate (CIRR); fixed

rate

Guarantee: LIBOR-based

Grace Period (years) Yes. 6 months. Capitalization of interest during construction. 

Equity/Debt Ratio Required Depends

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Depends on nature of project
Export-Import Bank of the United States

(Ex-Im Bank)

Geothermal Financing Workbook, 2nd edition 103

Fees Direct Loan: $100 processing fee; commitment fee of 1/2% of

undisbursed portion; front-end exposure fee (may be financed).

Guarantee: $100 processing fee; commitment fee of 1/8% of

undisbursed portion; front-end exposure fee (may be financed).

Project Finance: $100 processing fee; evaluation fee; additional

fees for independent legal counsel, engineers, and insurance

advisors; two-part commitment fee (pre and post-completion)

based on coverages desired and risk assessment; not

financeable; two-part exposure fee system based on coverages

desired and risk assessment; 100% financeable.

Insurance: No processing fee; priced at each application for

each market.

Exposure fee based on risk assessment of customer, country,

and terms of credit.
Export-Import Bank of the United States

(Ex-Im Bank)

104 Geothermal Financing Workbook, 2nd edition

Other 1. Financial Guarantee Program - Ex-Im provides

guarantees for repayment of medium- and long-term

loans used to finance U.S. exports.

2. Credit Guarantee Facility - Ex-Im provides guarantees

for repayment of draws under bank lines of credit used

to finance U.S. exports.

3. Direct Loan Program - Ex-Im provides direct loans to

foreign purchasers of U.S. exports.

4. Project Finance Program - Ex-Im will assist U.S.

exporters in new or expansion projects such as power,

infrastructure, oil and gas, mining, telecommunications,

transportation, and other sectors. 

a. repayment from project cash flow

b. separate exposure fee schedule

c. political only coverage through project

completion

d. outside financial, legal, and technical advisors

5. Working Capital Guarantee Program: 90% guarantee of

principal and interest to lenders; must be fully

collateralized; 1 year revolving line of transactionspecific line.

6. Export Credit Insurance Program: short-term up to 180

days. Medium-term up to 5 years. 

7. Environmental Exports Program:

a. Short-term Environmental Export Insurance

Policy - terms up to 180 days; 95% coverage

against commercial losses; $0 deductible.

b. Medium-term Export Credit Insurance for

Capital Goods and Services, e.g., feasibility

studies -terms up to 5 years; $10 million

maximum.

8. Financing Leasing Insurance: U.S. company would

build, own, and operate a plant and lease it to the

customer; quicker processing time; more cost-effective

than project financing; 100% protection for sovereign

lessees, 90% for all others. 
Export-Import Bank of the United States

(Ex-Im Bank)

Geothermal Financing Workbook, 2nd edition 105

Application Procedure Applications should be made on the standard Ex-Im Bank

application form and vary depending on what coverage is

sought. 

Project finance applicants are required to submit 5 copies of the

following:

1. Summary of all aspects of the project

2. Draft project agreements

3. Breakdown of anticipated project financing plan and

security package

4. Projected annual financial statements and assumptions

5. Market information regarding the exports

6. Description of the principal risks and benefits of the

project

7. Description of the types of insurance coverages to be

obtained.

All applications can be found at:

http://www.exim.gov/forms.html

Instructions can be found at: http://www.exim.gov/95howto.html

Useful Publications Ex-Im Bank: Jobs Through Exports, A Map of Programs.

Financing and Insuring Exports: A User’s Guide to Ex-Im Bank

Programs, $75 per copy; $25 on disk.

Environmental Exports, May 8, 1997.

Key Contact(s) Craig S. O’Connor

Environmental Liaison Officer

International Business

Development

Export-Import Bank of the

United States

811 Vermont Avenue, N.W.

Washington, D.C. 20571

Tel: [1] 202-565-3939

Fax: [1] 202-565-3932

Email: 

craig.o’connor@exim.gov

John Lavelle

Director

Export-Import Bank of the

United States

6 World Trade Center, 

Suite 635

New York, NY 10048

Tel: [1] 212-466-2950

Fax: [1] 212-466-2959

Web Site http://www.exim.gov
Geothermal Financing Workbook, 2nd edition 107

Fundación Solar

Renewable Energy Project Support Office (REPSO)

Central America

Funds available Not provided

Investment made to date

in geothermal projects $300,000

Type(s) of Financing Feasibility studies / Pre-feasibility studies / Technical

assistance 

Form(s) of Financing Grants

Financing Structure

Investment Range (US$) $20,000 to $100,000

Term Range (years) From 1 to 3 years

Interest Rate Range (%) N/A

Grace Period (years) N/A

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees N/A

Other The Fundación Solar is a private development organization that

was founded in 1993. It invests in robust, sound projects in

Central and Latin America.

Application Procedure Not provided

Useful Publications — 
Fundación Solar

Renewable Energy Project Support Office (REPSO)

Central America

108 Geothermal Financing Workbook, 2nd edition

Key Contact(s) Iván Azurdia-Bravo

Director

Fundación Solar-REPSO Central America

15 Avenida 18-78, Zona 13

01013 Ciudad Guatemala, Guatemala

Tel: [502] 360-1172 or 360-5776

Fax: [502] 332-2548

Email: funsolar@guate.net

Web Site None
Geothermal Financing Workbook, 2nd edition 109

Global Environment Facility (GEF)

Funds available Variable; funding is disbursed in response to specific projects

Since its creation in 1991, GEF has invested more than $2

billion in over 500 projects in 120 countries. 

Investment made to date

in geothermal projects

$46.3 million facilitating $1.57 billion in co-financing for four

projects with geothermal components:

1. $5.4 million in Poland to support the use of geothermal

heat in the Zakopane district heating system

(facilitating $84.7 million in co-financing)

2. $30 million in the Philippines to support the

construction and operation of a 440 MWe geothermal

electric generation plant, reinjection of waste gases to

further reduce greenhouse gas emissions, and

connection of the power station to the national grid

(facilitating $1.3 billion in co-financing)

3. $6.9 million in Lithuania to construct a demonstration

geothermal plant to provide hot water, and to modify the

heating system (facilitating $18.02 million in cofinancing)

4. $4.0 million in Indonesia to fund 75 MWe of small

renewable energy projects (facilitating $141.0 million in

co-financing)

Projects in the GEF pipeline:

Projects in the pipeline are proposals in the early stages of

development that have been found to meet GEF eligibility

requirements.

$5 million in Armenia for construction of a geothermal heat

production plant for integration into the Yerevan district heating

system.

$2.7 million contingency loan in Vietnam for site exploration

and a feasibility study for a 50 MWe geothermal power plant.

Type(s) of Financing Feasibility studies / Pre-feasibility studies / Project finance /

Technical assistance

Form(s) of Financing Concessional and contingent financing / Grants / Loan

guarantees
Global Environment Facility (GEF)

110 Geothermal Financing Workbook, 2nd edition

Financing Structure

Investment Range (US$) Medium-Sized projects – up to $1 million. Funding of up to

$25,000 may be available through the GEF Project Preparation

and Development Facility to assist in preparing the project. 

Average GEF investment is $5.5 million

Term Range (years) N/A

Interest Rate Range (%) N/A

Grace Period (years) N/A

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees N/A

Other GEF grants cover the incremental costs of a project—the costs

that exceed the cost of the conventional energy alternative. 

GEF gives higher priority to projects which have co-financing. 

Eligible borrowers are developing countries that have ratified the

U.N. Framework Convention on Climate Change (UNFCCC) or

countries with economies in transition that are party to the

UNFCCC and are eligible to borrow from the World Bank or

receive technical assistance from the U.N. Development

Programme. 
Global Environment Facility (GEF)

Geothermal Financing Workbook, 2nd edition 111

Application Procedure Projects originate in developing countries in partnership with

one of the three Implementing Agencies––the U.N.

Development Programme (UNDP), the U.N. Environment

Programme (UNEP), or the World Bank––or regional

development banks. 

All project proposals must be submitted to the GEF through the

Implementing Agencies. 

For Medium-Sized Projects (up to $1 million):

1. Preparation of the project proposal – The project

proposer should first submit a project concept to an

Implementing Agency. The project proposer can either

send the concept to the headquarters of the

Implementing Agency or discuss it with the local or

regional representative (in the case of UNDP and

UNEP). 

2. Once a project concept is cleared, the project proposer

is responsible for developing the concept into a project

proposal. Funding of up to $25,000 may be available

through the GEF Project Preparation and Development

Facility (PDF) to assist in preparing the project. Project

preparation funds are authorized by an Implementing

Agency.

3. Review and approval of project proposal – Once the

project brief has been jointly accepted by the proposer

and the Implementing Agency, the Implementing

Agency submits the project proposal to the GEF 

Secretariat, and circulates copies to the Implementing

Agencies, the Scientific and Advisory Panel (STAP),

and to the conventions’ Secretariats, when appropriate.

The comment period for reviewing projects will normally

not exceed 15 working days. 

Medium-sized project proposals up to and including

US$750,000 do not require a technical review by an

expert from the STAP roster. 

4. Preparation of the final project document and project

implementation – Once the project proposal has

received approval, the Implementing Agency will inform

the executing agency and immediately work with it to

finalize the project document and other contractual

arrangements. The time between approval of the project

proposal by the CEO or the Council and the approval of

the final project document and other contractual
Global Environment Facility (GEF)

112 Geothermal Financing Workbook, 2nd edition

Useful Publications Introduction to the GEF, August 1999. See

http://www.gefweb.org/intro/intqa.htm

Operational Strategy of the Global Environment Facility,

February 1996. See

http://www.gefweb.org/PUBLIC/opstrat/ops.htm

Key Contact(s) Hutton Archer, Sr. 

Senior External Relations

Coordinator

Global Environment Facility 

1818 H Street, N.W.

Washington, D.C. 20433

Tel: [1] 202-458-7117

Fax: [1] 202-522-3240

Alt Fax: [1] 202-522-3245

Email: 

harcher@worldbank.org

Ahmed Djoghlaf

Executive Coordinator

United Nations Environment

Programme (UNEP)

GEF Unit

Nairobi, Kenya

Tel: [254] (2) 624-166

Fax: [254] (2) 520-825

Email:

Ahmed.Djoghlaf@unep.org

Lars Vidaeus

Executive Coordinator and

Program Leader of Global

Environment Coordination

The World Bank

Global Environment Division

1818 H Street, N.W.

Washington, D.C. 20433

Tel: [1] 202-473-4188

Fax: [1] 202-522-3256

Email: 

LVidaeus@worldbank.org

Andrea Merla

Program Manager

Global Environment Facility 

1818 H Street, N.W.

Washington, D.C. 20433

Tel: [1] 202-458-8198

Fax: [1] 202-522-3240

Alt Fax: [1] 202-522-3245

Email: 

amerla@worldbank.org

Rafael Asenjo

Executive Coordinator

United Nations Development

Programme (UNDP)

GEF Unit

One United Nations Plaza

New York, NY 10017

Tel: [1] 212- 906-5044

Fax: [1] 212-906-6998

Email: 

rafael.asenjo@undp.org

Louis C. Boorstin

Chief, Environmental Projects

Unit

Technical and Environmental

Department

International Finance

Corporation

2121 Pennsylvania Ave, N.W.

Room F9K-156

Washington, D.C. 20433

Tel: [1] 202-473-6684

Fax: [1] 202-974-4349

Email: LBoorstin@ifc.org

For complete directory, see:

http://www.gefweb.org/agencies.htm
Global Environment Facility (GEF)

Geothermal Financing Workbook, 2nd edition 113

Web Site http://www.gefweb.org
114 Geothermal Financing Workbook, 2nd edition

Global Environment Facility

Small Grants Programme (GEF/SGP)

Funds available Since its inception in 1992, the GEF/SGP has funded over 750

projects in Africa, North America, the Middle East, Asia and the

Pacific, Europe, and Latin America and the Caribbean.

Investment made to date

in geothermal projects $0

Type(s) of Financing Technical assistance

Form(s) of Financing Grants

Financing Structure

Investment Range (US$) Up to $50,000; average grant is $20,000

GEF/SGP grants are usually paid in three installments: 

1. an up-front payment to initiate the project; 

2. a mid-term payment upon receipt of a satisfactory

progress report; and 

3. a final payment on receipt of a satisfactory project

completion and final report. 

Term Range (years) N/A

Interest Rate Range (%) N/A

Grace Period (years) N/A

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees N/A

Other Grants focus on “software,” e.g., capacity-building, community

organization, and microenterprise, rather than hardware.

Grants are made to local community-based groups (CBOs) and

non-governmental organizations (NGOs) for activities that

address local problems related to the GEF areas of concern. 
Global Environment Facility

Small Grants Programme (GEF/SGP)

Geothermal Financing Workbook, 2nd edition 115

Application Procedure In each participating country, a broad-based national steering

committee (NSC) provides overall guidance and strategic

direction for the programme and screens and selects projects

for grant awards. 

To be eligible for GEF/SGP support, a project proposed for

funding must fit the GEF/SGP country programme strategy and

country-specific eligibility criteria approved by the NSC. In the

area of climate change, activities must either demonstrate the

removal of local barriers to energy conservation and energy

efficiency, or promote the adoption of renewable energy. 

Several different kinds of activities are eligible for funding under

the GEF/SGP, including:

• Community-based assessment and planning (planning

grants),

• Pilot demonstration activities,

• Capacity development, 

• Monitoring and analysis, and

• Dissemination, networking, and policy dialogue.

How to Apply for a Grant:

National and local NGOs and CBOs may propose projects for

grant support under the Small Grants Programme. Procedures

for project proposal screening and approval are generally as

follows:

1. The project proponent contacts the SGP national

coordinator to receive project application guidelines 

and forms. 

2. With assistance from the national coordinator and

using the standard SGP format, the proponent prepares

a brief project concept paper and submits this to the

coordinator. 

3. The national coordinator reviews and pre-screens the

concept paper according to GEF criteria and criteria 

adopted by the NSC for activities in that country. 

4. If the project is judged eligible, the project proponent

prepares a project proposal; in some cases, this step

may be supported by a planning grant. 

5. Completed project proposals are submitted by the

national coordinator or the NSC. 
Global Environment Facility

Small Grants Programme (GEF/SGP)

116 Geothermal Financing Workbook, 2nd edition

Useful Publications Second Independent Evaluation of the GEF Small Grants

Programme: the Transition to an Operational Phase. 

See http://www.undp.org/gef/sgp/sgp-eva.htm

Key Contact(s) Sarah Timpson

Global Programme Manager

United Nations Development Programme

BDP/SEED/GEF/Small Grants Programme

Room FF-1610

New York, NY 10017

Tel: [1] 212-906-6191

Fax: [1] 212-906-6690

Alt Fax: [1] 212-906-6998

Email: sarah.timpson@undp.org

For a list of GEF Small Grants Programme National

Coordinators, see

http://www.undp.org/gef/sgp/sgpcoor.htm

Web Site http://www.undp.org/gef/sgp/main.htm
Geothermal Financing Workbook, 2nd edition 117

Inter-American Development Bank (IDB)

Private Sector Department (PRI)

Funds available $650 million per year

Investment made to date

in geothermal projects

$1 million for Feasibility Study of Azufral Geothermal Field. 

Colombia—Japan Special Fund Grant.

$1.4 million for El Valle de Antón Geothermal Field Advanced

Pre-feasibility Studies, Phase II. Panamá—Japan Special Fund

(approved February 1996).

$676,100 for studies of the Momotombo Geothermal Field,

Nicaragua—Italian Trust Fund (approved August 1994).

$49.7 million for 27 MWe BOT Miravalles III; $17 million for A

loan; $32.9 million for B; total project costs $65.8 million, Costa

Rica.

Type(s) of Financing Corporate finance / Project finance for large-scale infrastructure

projects in the power, transportation, water/sanitation, and

telecommunication sectors

Form(s) of Financing Loans / Guarantees (partial risk and partial credit)
Inter-American Development Bank (IDB)

Private Sector Department (PRI)

118 Geothermal Financing Workbook, 2nd edition

Financing Structure

Investment Range (US$) Loans:

The IDB can lend directly to the private sector without

government guarantees for infrastructure projects, whether

greenfield or refurbishing operations, 

Up to $75 million or 25% of total cost, whichever is lower, in US

dollars; country dependent (up to 40% in smaller economies)

The IDB will limit its financial commitment to the amount

required to secure funding from private sponsors and lenders.

Guarantees:

Partial risk guarantees may cover up to 50% of total project

cost or $150 million for specific political risks, such as

sovereign contractual obligations or transferability. 

Partial credit guarantees may cover a portion of financing

provided by private financiers. Up to 25% of total project cost or

$75 million can be guaranteed without a government

counter-guarantee. 

Term Range (years) Up to 20 years

Interest Rate Range (%) Commercial rates

Grace Period (years) Yes, established on case-by-case basis

Equity/Debt Ratio Required Yes, established on case-by-case basis

Expected Return on Investment (%) Established on case-by-case basis

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Established on case-by-case basis

Fees Analysis fee. Commitment fee on undisbursed balance of loan. 

Front-end fee. Prepayment fee for prepayment before loan

maturity. Late payment fee. Outside legal fees incurred by the

IDB.
Inter-American Development Bank (IDB)

Private Sector Department (PRI)

Geothermal Financing Workbook, 2nd edition 119

Other Through its lending and guarantee programs, the IDB acts as a

catalyst, enabling projects in the region to secure financing in

US dollars under appropriate conditions and longer tenors.

The beneficiary must be a company that is established within

the laws of the country where the investment will be made.

More than 50% of the shares must be held by investors from

IDB-member countries. There is no requirement that there be

majority ownership by local investors. 

Inter-American Investment Corporation (IIC)

The IDB’s other private-sector funding facility is the InterAmerican Investment Corporation (see page 123 for additional

information on the IIC). The IIC can take equity or debt

positions in a broader range of smaller projects.

Application Procedure Two-stage review process.

See information requirements attached.

Useful Publications Basic Opportunities for Consulting Firms, 1991. Covers the

rules for selecting consultants for IDB projects.

Guarantee Program, 1995.

The IDB and the Private Sector. Describes the IDB’s privatesector financing programs, including those of the IIC.

IDB Projects. Lists information on public sector projects under

consideration for IDB financing and associated procurement

opportunities. Published monthly. Subscription currently costs

$175 per year. See

http://www.iadb.org/exr/pipeline/subscrip.htm

Lending for Private Sector Operations, 1999. Provides

guidance to companies and entrepreneurs which are

considering IDB financing for their infrastructure projects in Latin

America and the Caribbean.

1998 Annual Report.

U.N. Development Business.
Inter-American Development Bank (IDB)

Private Sector Department (PRI)

120 Geothermal Financing Workbook, 2nd edition

Key Contact(s) Hiroshi Toyoda

Manager

Private Sector Department

Inter-American Development

Bank (IDB)

1300 New York Avenue, N.W.

Washington, D.C. 20577

Tel: 202-623-1000

Fax: 202-623-3639

Roberto Vellutini

Senior Advisor

Private Sector Department

Inter-American Development

Bank (IDB)

1300 New York Avenue, N.W.

Washington, D.C. 20577

Tel: [1] 202-623-2159

Fax: [1] 202-623-3639

Email: RobertoV@iadb.org

Rebecca Mann

Senior Commercial Officer

Email:

Rebecca.Mann@mail.doc.gov

Robert J. McEntire

Commercial Liaison Officer

Email: 

Bob.McEntire@mail.doc.gov

Office of the U.S. Executive

Director

Commercial Liaison to the IDB

1300 New York Avenue, N.W.

Washington, D.C. 20577

Tel: 202-623-3821/3822

Fax: 202-623-2039

Web Site http://www.iadb.org
Geothermal Financing Workbook, 2nd edition 121
122 Geothermal Financing Workbook, 2nd edition
Geothermal Financing Workbook, 2nd edition 123

Inter-American Investment Corporation (IIC)

A Member of the Inter-American Development Bank Group

Funds available $100 million per year

Investment made to date

in geothermal projects $0

Type(s) of Financing Project finance / Corporate finance

Form(s) of Financing Long-term Debt

Financing Structure

Investment Range (US$) From $3 million to $10 million; 50% of an expansion

The IIC will not fund greenfield projects.

Term Range (years) From 5 to 12 years

Interest Rate Range (%) LIBOR + from 3% to 6%

Grace Period (years) Yes, 2 to 3 years

Equity/Debt Ratio Required Not provided

Expected Return on Investment (%) Not provided

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Not provided

Fees The IIC charges a project appraisal fee and other fees where

applicable.

Other The IIC is a private-sector lending facility and an affiliate of the

IDB.

While U.S. companies may not directly approach the IIC for

financing, their Latin American or Caribbean partners may.
Inter-American Investment Corporation (IIC)

A Member of the Inter-American Development Bank Group

124 Geothermal Financing Workbook, 2nd edition

Application Procedure Projects must have majority Latin American or Caribbean

ownership to qualify for IIC financing.

Send a brief description of the project to the IIC Regional

Coordinator for the relevant country (see Key Contacts below).

If the project meets the IIC’s eligibility criteria, more detailed

information will be requested (see the Project Presentation

Guide). 

After reviewing this detailed information, the IIC may decide to

conduct an on-site project appraisal.

If the results of the project appraisal are satisfactory to the IIC,

the IIC’s management will submit the project and proposed

terms to the Board of Directors. If the IIC Board approves the

project, the final terms of the IIC’s involvement are negotiated

and the legal documents drafted and signed. For cofinancing

transactions, the IIC may contact other interested financial

institutions.

Funds are disbursed in accordance with the terms of the loan

agreement signed by the IIC and the project company. The IIC

requires quarterly reports on the progress of the project and the

company’s operations, along with audited financial statements

and other pertinent information.

The IIC maintains close contact with its clients and partners to

monitor its loan and investment portfolio.

See Project Presentation Guide attached.

Useful Publications How to Work with the IIC. Describes the IIC, its financing

programs, and how to apply for funds.

The IDB and the Private Sector. Describes the IDB’s privatesector financing programs, including those of the IIC.

Lending for Private Sector Operations. Provides an annual

overview of the Latin American and Carribean economies,

including updated country summaries and statistical

information. 

1998 Annual Report.
Inter-American Investment Corporation (IIC)

A Member of the Inter-American Development Bank Group

Geothermal Financing Workbook, 2nd edition 125

Key Contact(s) Roldan Trujillo

Chief

Operations Division

Inter-American Investment

Corporation (IIC)

1300 New York Avenue, N.W.

Stop W0206

Washington, D.C. 20577

Tel: [1] 202-623-3922

Fax: [1] 202-623-2036

Email: RoldanT@iadb.org

Region I: 

Argentina, Bahamas,

Barbados, Bolivia, Brazil,

Chile, Dominican Republic,

Guyana, Haiti, Jamaica,

Paraguay, Suriname, Trinidad

and Tobago, Uruguay

In Washington, D.C.:

Steven Reed

Tel: 202-623-3981

Fax: 202-623-3761\

Email: StevenR@iadb.org

In Montevido, Uruguay:

Gustavo Romero

Tel: [598] 2-901-6063

Fax: [598] 2-900-8899

GustavoRC@iadb.org

Rebecca Mann

Senior Commercial Officer

Email:

Rebecca.Mann@mail.doc.gov

Robert J. McEntire

Commercial Liaison Officer

Email: 

Bob.McEntire@mail.doc.gov

Office of the U.S. Executive

Director

Commercial Liaison to the IDB

1300 New York Avenue, N.W.

Washington, D.C. 20577

Tel: [1] 202-623-3821/3822

Fax: [1] 202-623-2039

Region II:

Belize, Colombia, Costa Rica,

Ecuador, El Salvador,

Guatemala, Honduras,

México, Nicaragua, Panamá,

Peru, Venezuela

In Washington, D.C.:

Jean-Philippe Prosper

Tel: 202-623-3959

Fax: 202-623-3802

Email: JeanP@iadb.org

In Bogota, Colombia:

Rigoberto Ordonez

Tel: [571] 288-7244

Fax: [571] 288-7244 or 

288-2006

Email: RigobertoO@iadb.org

In San José, Costa Rica:

Carlos Roa

Tel: [506] 233-2543

Fax: [506] 257-0083

Email: CarlosRoa@iadb.org
Inter-American Investment Corporation (IIC)

A Member of the Inter-American Development Bank Group

126 Geothermal Financing Workbook, 2nd edition

Web Site http://www.iadb.org/iic/
Geothermal Financing Workbook, 2nd edition 127
128 Geothermal Financing Workbook, 2nd edition
Geothermal Financing Workbook, 2nd edition 129
130 Geothermal Financing Workbook, 2nd edition

International Finance Corporation (IFC)

Power Department (CPW)

A Member of the World Bank Group

Funds available Annual target for private power investment is $400 million

Investment made to date

in geothermal projects

$29.4 million in a 24 MWe BOO Orzunil I Power Plant in

Guatemala. 

IFC will provide a $14.4 million A-loan for its own account, a 

$12.8 million B-loan, and equity of up to $2.2 million. 

The plant’s $66.7 million in financing needs will be subscribed 

by CDC, IFC, the Scudder Latin American Power Fund,

ORMAT International, and a group of local investors.

Type(s) of Financing Technical assistance / Project finance

Form(s) of Financing Debt / Equity / Quasi-equity / Loan guarantees

Financing Structure

Investment Range (US$) From $1 million to $100 million and higher

Up to 25% of total project costs for greenfield projects or longterm capitalization of a company (to ensure the participation of

other private investors)

Up to 50% of total project costs for expansion and rehabilitation

projects.

Term Range (years) Up to 15 years

Interest Rate Range (%) Variable and fixed commercial rates set at a margin over LIBOR

Grace Period (years) Yes, typically construction period plus 6 months

Equity/Debt Ratio Required 20/80 to 50/50 typical

Expected Return on Investment (%) Commercial rates for IPPs in emerging markets which range

from 15% to 25% depending on project and country risk

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) ~ 1.50 average or higher
International Finance Corporation (IFC)

Power Department (CPW)

A Member of the World Bank Group

Geothermal Financing Workbook, 2nd edition 131

Fees Loan fees: 1% front-end fee for A-loans. 1⁄2 of 1% commitment

fee per annum for variable rate loans on undisbursed balance. 

1% commitment fee per annum for fixed-rate loans on

undisbursed amount. 1% syndication fee for B-loans (up-front

fee for B-Loans is 2%). 

Appraisal fees: $100,000 to $200,000 for smaller projects plus

out-of-pocket expenses. 

Other The IFC owns equity in approximately 77 investment funds

valued at $4 billion in developing regions around the world. The

funds include both public investment funds investing in

emerging stock markets and private funds for direct investment

in small and medium-sized companies. 

 

Relevant IFC-sponsored funds: 

1. Global Power Fund - GE Capital Corporation, Quantum

Industrial Holdings (Soros Fund Management), and IFC

are lead sponsors. 

2. Scudder Latin American Power Fund - see page 160.

3. Renewable Energy and Energy Efficiency Fund - in

development, see page 158. 

4. Small and Medium-Scale Enterprise (SME) Program,

see page 134.

5. Infrastructure equity funds, e.g., the Asian

Infrastructure Fund, which can invest in power projects. 

 
International Finance Corporation (IFC)

Power Department (CPW)

A Member of the World Bank Group

132 Geothermal Financing Workbook, 2nd edition

Application Procedure In order to receive IFC funding, a project must meet a number of

IFC guidelines. Whether it is the establishment of a new

enterprise or the expansion of an existing one,

• the project must be in the private sector; 

• it must be technically sound; 

• it must have a good prospect of being profitable; and

• it must benefit the local economy. 

in addition to being financially, economically, and technically

viable, the project in question must satisfy IFC’s stringent

environmental standards and conform to host country and

World Bank guidelines.

There is no standard application form for IFC financing. A

company or entrepreneur can approach IFC directly by

requesting a meeting and submitting preliminary project or

corporate information to the Power Department (see Key

Contacts below) or the closest IFC mission or field office. 

Preliminary information on a project for consideration by IFC

should include the following: 

1. Brief description of project. 

2. Sponsorship, management and technical assistance: 

a. History and business of sponsors, including

financial information. 

b. Proposed management arrangements and

names and curricula vitae of managers. 

c. Description of technical arrangements and

other external assistance (management,

production, marketing, finance, etc.). 

3. Market and sales: 

a. Basic market orientation: local, national,

regional, or export. 

b. Projected production volumes, unit prices,

sales objectives, and market share of proposed

venture. 

c. Potential users of products and distribution

channels to be used.

d. Present sources of supply for products. 

e. Future competition and possibility that market

may be satisfied by substitute products. 
International Finance Corporation (IFC)

Power Department (CPW)

A Member of the World Bank Group

Geothermal Financing Workbook, 2nd edition 133

Useful Publications IFC 1999 Annual Report 

Impact. IFC magazine which reviews private investment in

developing countries 

 

Key Contact(s) Power Department (CPW)

International Finance Corporation

2121 Pennsylvania Ave, N.W.

Washington, D.C. 20433

Vivek V. Talvadkar

Director

Room 2P-174

Tel: [1] 202-473-0607

Fax: [1] 202-974-4309

Email: VTalvadkar@ifc.org

Dennis T. Koromzay

Principal Investment Officer

Room 2P-118

Tel: [1] 202-473-0578

Fax: [1] 202-974-4307 or

[1] 202-974-4308

Email: DKoromzay@ifc.org

Ms. Sybile Lazar

Senior Investment Officer

Room 2P-128

Tel: [1] 202-473-4111

Fax: [1] 202-974-4307 or 

[1] 202-974-4308

Email: SLazar@ifc.org

Surya P. Sethi

Chief Investment Officer

Room 2K-102

Tel: [1] 202-473-0611

Fax: [1] 202-974-4307 or

[1] 202-974-4308

Email: SSethi@ifc.org

Web Site http://www.ifc.org/power/
134 Geothermal Financing Workbook, 2nd edition

International Finance Corporation

Small and Medium-Scale Enterprise (SME) Program

Funds available $16.8 million available for projects; $11 million committed to

date

Investment made to date

in geothermal projects $0

Type(s) of Financing Corporate finance / Project finance

Form(s) of Financing Long-term debt

Financing Structure

Investment Range (US$) Up to $1 million for corporate debt

Up to $250,000 for project debt

SME invests in projects which have a total asset value of less

than $5 million. 

Due to funding limits, project funding is probably best for small

demonstration geothermal power projects or the first phase of

larger projects.

Term Range (years) From 4 to 8 years

Interest Rate Range (%) Below commercial rates

Grace Period (years) Yes, 2 to 3 years

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Depends, not fixed

Fees N/A
International Finance Corporation

Small and Medium-Scale Enterprise (SME) Program

Geothermal Financing Workbook, 2nd edition 135

Other The SME Program is managed by the International Finance

Corporation (IFC). Projects must adhere to World Bank/IFC

environmental guidelines and procedures. 

The SME Program is an initial active investor which becomes

passive.

The SME Program primarily lends to intermediary organizations

e.g., the Environmental Enterprises Assistance Fund (EEAF),

see page 81.

Application Procedure Contact the Program Manager for an initial discussion of

eligibility. If there is a fit, an application package will be sent

out.

Useful Publications —

Key Contact(s) Doug Salloum

Small and Medium Scale

Enterprise Program

Program Manager

International Finance

Corporation

674 Kingston Road, Suite #6

Toronto, Ontario M4E 1R4,

Canada

Tel: [1] 416-690-1250

Fax: [1] 416-690-9757

Email: Dsalloum@ifc.org

Louis C. Boorstin

Chief, Environmental Projects

Unit

Technical and Environmental

Department

International Finance

Corporation

2121 Pennsylvania Ave, N.W.

Room F9K-156

Washington, D.C. 20433

Tel: [1] 202-473-6684

Fax: [1] 202-974-4349

Email: LBoorstin@ifc.org

Web Site http://www.ifc.org/depts/html/environ.htm
136 Geothermal Financing Workbook, 2nd edition

Japan Bank for International Cooperation (JBIC)

Overseas Economic Cooperation Operations

Funds available FY 1999 budget of the Overseas Economic Cooperation

Operations is 920 billion yen, or $8.6 billion.

Investment made to date

in geothermal projects Not provided

Type(s) of Financing Project development / Project finance

Form(s) of Financing Long-term debt / Untied Loans

Financing Structure

Investment Range (US$) No specific range

Term Range (years) Average repayment period is 32.5 years 

Interest Rate Range (%) As a general rule, ODA loans are provided at a low interest rate. 

ODA loans approved in fiscal 1998 had an average rate of 1.3%.

Grace Period (years) Average is from 7 to 10 years. The condition will be decided

according to the income level of the recipient country and the

subsector which is receiving the financing. 

Equity/Debt Ratio Required No specific requirement

Expected Return on Investment (%) N/A

Internal rate of return (financial and economic internal rate of

return) should have a reasonable level in comparison with other

alternative projects.

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) None

Fees None
Japan Bank for International Cooperation (JBIC)

Overseas Economic Cooperation Operations

Geothermal Financing Workbook, 2nd edition 137

Other The Japan Bank for International Cooperation (JBIC) was

established October 1, 1999, by merging the Export-Import

Bank of Japan (JEXIM) and the Overseas Economic

Cooperation Fund, Japan (OECF). 

The Overseas Economic Cooperation Operations support selfreliant development efforts in developing countries (Official

Development Assistance [ODA] operations).

ODA loans are provided to developing countries, in which Asia

accounts for 80% of its share, followed by Africa, Latin

America, and the Middle East. In recent years, assistance to

Eastern Europe and Central Asia has been increasing, making

the number of ODA loan recipient countries as 93 at the end of

fiscal 1998. 

ODA loans are targeted mainly to socioeconomic infrastructure

including power.

Application Procedure Under an ODA loan, the principal condition is “general untied,”

under which procurement can be made from any country in the

world. In practice, international competitive bidding (ICB) is

carried out in order to purchase high quality but inexpensive

goods and services from the world.

The beneficiary government should apply for JBIC financing

through the Ministry of Foreign Affairs of the Japanese

Government. 

U.S. companies with some exceptions, are eligible to apply for

JBIC procurements. Procurement conditions are included in

the press release of new loan agreements. Tendering within the

loan along with the procurement guidelines will be publicized in

at least one major newspaper in the borrowing country. 

Useful Publications The Role and Functions of JBIC. Introduces JBIC's outline and

operations (International Financial Operations and Overseas

Economic Cooperation Operations), etc.

Guidelines for Procurement under JBIC ODA Loans. Set forth

the general rules to be followed by Borrowers of JBIC ODA

Loans to carry out the procurement of goods and services. 

Guidelines for the Employment of Consultants under JBIC ODA

Loans. Set forth the general rules to be followed by Borrowers

of JBIC ODA Loans to carry out the employment of consultants. 
Japan Bank for International Cooperation (JBIC)

Overseas Economic Cooperation Operations

138 Geothermal Financing Workbook, 2nd edition

Key Contact(s) Representative Office in Washington

Japan Bank for International Cooperation (JBIC)

2100 Pennsylvania Ave, N.W.,, Suite 535

Washington, D.C. 20037 

Tel: [1] 202-785-5242

Fax: [1] 202-785-8484

Email: washington@jbic.org

Web Site http://www.jbic.go.jp/
42 The amounts described constitute the Maximum Amount of Guarantee available for each risk

category and for the insured investment. The Current Amount of Guarantee is the amount of

coverage in force during any one contract year. The difference between the Maximum Amount of

Guarantee and the Current Amount of Guarantee is the Standby Amount of Guarantee which is a

reserve of insurance coverage that the investor may put into effect at any annual election of

coverage to account for changes in the value or amount of the investment at risk. 

Geothermal Financing Workbook, 2nd edition 139

Multilateral Investment Guarantee Agency (MIGA)

A Member of the World Bank Group

Funds available N/A

Investment made to date

in geothermal projects

$12.9 million in guarantees for equity and loan investments in

24 MWe BOO Orzunil I Geothermal Power Plant in Guatemala. 

The plant’s $66.7 million in financing needs will be subscribed 

by CDC, IFC, the Scudder Latin American Power Fund,

ORMAT International, and a group of local investors.

Type(s) of Financing Political risk insurance coverage against currency transfer

restriction, expropriation, war and civil disturbance, and breach

of contract. 

Form(s) of Financing Investor guarantees for equity, loans (shareholder and

non-shareholder), loan guaranties, and technical assistance

agreements.

Financing Structure

Investment Range (US$) Up to $200 million maximum per single project, including treaty

reinsurance. Additional amounts of coverage are available under

MIGA’s Cooperative Underwriting Program (see page 141).

Maximum Amounts of Guarantees 42 for:

Equity: Up to 90% of the investment contribution, plus an

additional 450% of the investment contribution to cover earnings

attributable to the investment. 

 

Loan or loan guarantees: Up to 95% of the principal, plus an

additional 135% of the principal to cover interest that will accrue

over the term of the loan. 

Technical Assistance contracts: Up to 90% of the total value of

payments due under the insured agreement.
Multilateral Investment Guarantee Agency (MIGA)

A Member of the World Bank Group

43 “Current” is the amount of investment currently at risk.

44 “Standby” is the amount of investment expected to be at risk in the future.

140 Geothermal Financing Workbook, 2nd edition

Term Range (years) Up to 15 years (20 years under special circumstances)

Contract term for investments other than equity generally

follows the term of the insured agreement.

Interest Rate Range (%) N/A

Grace Period (years) N/A

Equity/Debt Ratio Required N/A

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees Application fee of $10,000, which will be credited against first 

year’s premium if guarantee infrastructure/oil and gas project is

accepted, or refunded if MIGA declines to offer coverage. 

Processing fee of $25,000 for environmentally sensitive or

financially complex projects (e.g., oil and gas, infrastructure) to

cover external financial, legal, or environmental services. 

Unused portion will be refunded; applicant will be charges an

additional amount if needed. 

Application and Processing fees are due with submission of the

Definitive Application. 

Premiums are based on the Project’s risk profile. Annual base

rates for Infrastructure/Oil and Gas projects are: 

Type of Guarantee Current43 Standby44

Transfer Restriction 0.50% 0.25%

Expropriation 1.25% 0.50%

Breach of Contract 1.25% 0.50%

War and Civil Disturbance 0.70% 0.30%
Multilateral Investment Guarantee Agency (MIGA)

A Member of the World Bank Group

Geothermal Financing Workbook, 2nd edition 141

Other MIGA must obtain the approval of the host country to issue a

Contract of Guarantee. 

Cooperative Underwriting Program (CUP) 

 

In further collaboration with the private insurance market, MIGA

created the Cooperative Underwriting Program, a form of

coinsurance in which MIGA is the insurer-of-record for the entire

insured amount. 

The CUP is designed to expand available investment insurance

capacity for prospective investors by encouraging private

underwriters to offer coverage in developing countries where

they might not have insured investments without the

involvement of a multilateral institution such as MIGA. 

IPAnet - The Investment Promotion Network 

 

MIGA announced the launch of a new release of IPAnet, its

Internet portal for firms engaged in foreign direct investment, in

October 1999. See: http://www.ipanet.net

Application Procedure An investor seeking coverage from MIGA should submit a

Preliminary Application (no cost) before the investment is made

or irrevocably committed. MIGA will register Preliminary

Applications for eligible investments in countries that have

signed the MIGA Convention. 

For eligible investments in countries that have not yet signed

the Convention, MIGA will consider issuing a Letter of Intent to

register the project formally when the country signs the

Convention.

Once investment and financing plans are established, the

investor should promptly complete and return a Definitive

Application for Guarantee along with any relevant project

documentation, such as a joint venture contract, feasibility

study, and an environmental assessment. 

See Preliminary Application for Guarantee attached. 

Application is online at http://www.miga.org/miggu/prelim.htm
Multilateral Investment Guarantee Agency (MIGA)

A Member of the World Bank Group

142 Geothermal Financing Workbook, 2nd edition

Useful Publications Investment Guarantee Guide, February 1999.

MIGA Annual Report, 1999.

MIGA News (MIGA’s quarterly newsletter).

Key Contact(s) Roger Pruneau

Vice President

Office of Guarantees (MIGGU)

Multilateral Investment

Guarantee Agency (MIGA)

1800 G Street, N.W., 

12th Floor

Washington, D.C. 20433

Tel: [1] 202-473-6167

Fax: [1] 202-522-2630

Philippe Valahu

Manager, Infrastructure Group

Office of Guarantees (MIGGU)

Multilateral Investment

Guarantee Agency (MIGA)

1800 G Street, N.W., 

12th Floor, Room 313

Washington, D.C. 20433

Tel: [1] 202-473-8043

Fax: [1] 202-522-2630

Web Site http://www.miga.org
Geothermal Financing Workbook, 2nd edition 143
144 Geothermal Financing Workbook, 2nd edition
Geothermal Financing Workbook, 2nd edition 145
146 Geothermal Financing Workbook, 2nd edition

Nordic Environment Finance Corporation (NEFCO)

Funds available $83 million (ECU 80 million)

Investment made to date

in geothermal projects

Slovakia: 

Slovgeoterm a.s., Bratislava (Iceland) – Consultancy in

geothermal energy – Total $85,620 (EUR 82,000); $17,750

(NEFCO EUR 17,000)

Galantaterm Spol. s r.o., Galanta (Iceland) – Geothermal

district heating – Total $4,803,250 (EUR 4.6 million); $439,569

(NEFCO EUR 421,000)

Type(s) of Financing Project finance

Form(s) of Financing Equity

Grants: through the Nordic Environmental Development Fund

Loan guarantees

Medium- and Long-term debt: loans on market terms, with

equity features, or subordinated loans or mezzanine financing 

Financing Structure

Investment Range (US$) Maximum commitment for one project is $4 million (ECU 4

million) 

A commitment under $130,000 (ECU 125,000) will be

considered only under special conditions, for example in the

case of environmentally significant demonstration projects. 

Equity: 25-35% of total equity

Loans: 25-50% of total loan financing

Grants: maximum is one-third of the total project cost

Term Range (years) NEFCO’s participation does not have to follow pre-set time

limits; time can be agreed upon on a case-by-case basis.

Interest Rate Range (%) Private sector: depending on project sponsor strength and

country, short-term 3-8 years

Public sector: 6 m LIBOR + 1.0-1.5%, long-term 5-15 years
Nordic Environment Finance Corporation (NEFCO)

Geothermal Financing Workbook, 2nd edition 147

Grace Period (years) Private sector: 1 to 5 years

Public sector: 5 to 10 years

Equity/Debt Ratio Required 30/70

Expected Return on Investment (%) NEFCO requires projects to meet reasonable profitability

criteria but, this having been established, focuses more on the

environmental effects. In this NEFCO represents a green equity

concept, unlike commercial investment funds. 

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) > 1.25

Fees Commitment charge 0.5% p.a.

Other NEFCO, established 1990 by the five Nordic countries

(Denmark, Finland, Iceland, Norway, and Sweden), is a

multilateral financial institution which participates as a risk

capital financier in environmental investment projects. 

The purpose of NEFCO is to improve the environmental

situation in Central and East European countries with positive

effects also for the Nordic region. 

NEFCO takes an active management position which usually

requires the right to nominate a representative to the Board of

project companies, at least in the early phases of a project.

Nordic Environmental Development Fund

Established in October 1995 with initial capitalization of $14

million (DKK 100 million), the fund support the realization of

projects that otherwise would not materialize or could be

realized only later in the future. It is expected that annual

contributions to the fund will be approximately $5 million (DKK

35 million). 

The fund will complement and supplement other financing

organizations, particularly IFI’s (international financial

institutions) and bilateral sources. Local participation in the

financing is required.

Contributions from the fund can be provided as grants for the

procurement of goods or services (cash subsidies) or to reduce

the borrower’s debt service costs.
Nordic Environment Finance Corporation (NEFCO)

148 Geothermal Financing Workbook, 2nd edition

Application Procedure The main criteria for NEFCO’s participation in projects are: 

• The project is located in one of NEFCO’s countries of

operation – Priority is given to the Baltic Sea region

and the Barents region–the most important countries of

operation are Estonia, Latvia, Lithuania, Poland and

northwest Russia. Projects in the Czech Republic,

Slovakia, Hungary, Belorussia or Ukraine are also

eligible. 

• The project has a relevant environmental effect –

Priority will be given to projects that lead to reduction of

pollution in the Baltic Sea and the Barents Sea or

reduction of transboundary airborne pollution. 

• The project is based on long-term cooperation through

investments in enterprises, primarily though the

formation of joint venture companies or corporate

acquisitions. 

• The project has a Nordic company or institution as

business partner. 

• The project is economically, financially, institutionally

and technically viable. 

NEFCO has no application guide but expects a brief project

description in which the following items are included: 

• The Nordic Partner/s 

• Project Country 

• Local partner(s)

• Project category, e.g., modernization of industrial and

energy production processes; production of equipment

for pollution abatement, metering, improved energy

efficiency etc.; environmental services such as waste

management, recycling, water and waste water

treatment; and planning and consulting services.

• Environmental benefits 

• The size of the financing 

• Other financiers 

• Possible feasibility studies 

Useful Publications — 
Nordic Environment Finance Corporation (NEFCO)

Geothermal Financing Workbook, 2nd edition 149

Key Contact(s) Harro Pitkänen

Managing Director

Nordic Environment Finance Corporation (NEFCO)

P.O. Box 249

Fabianinkatu 34

FIN-00171 Helsinki, Finland

Tel: [358] (9) 180 01

Alt Tel: [358] (9) 180 0344

Fax: [358] (9) 630 976

Email: info.nefco@nib.fi

Web Site http://www.nefco.fi/
45 1998 Annual Report, Global Challenges, Innovative Solutions. 

46 MidAmerican Energy Holdings Company announced on November 18, 1999 that OPIC and Lloyds

have paid in full MidAmerican’s claims under its political risk insurance policies. An international

arbitration panel ruled in favor of Himpurna California Energy Ltd. and Patuha Power Ltd. (indirect

subsidiaries of MidAmerican) in an arbitration proceeding brought by them against the Republic

of Indonesia for breach of sovereign performance undertakings issued by the Ministry of Finance. 

MidAmerican received full payment of the claims filed with OPIC and Lloyds totaling $290 million.

150 Geothermal Financing Workbook, 2nd edition

Overseas Private Investment Corporation (OPIC)

Funds available In 1998, OPIC supported 47 U.S.-sponsored projects in more

than 30 developing and emerging markets, and increased

cumulative amount of investment made by OPIC-backed

projects to more than $121 billion.45

Investment made to date

in geothermal projects

Insurance:46

$200 million – Philippines: MidAmerican Energy Holdings

$100 million – Philippines: MidAmerican Energy Holdings

Finance:

$75 million – Philippines: MidAmerican Energy Holdings

$40 million – Philippines: MidAmerican Energy Holdings

Type(s) of Financing Corporate finance / Project finance

Political risk insurance against currency inconvertibility,

expropriation, and political violence 

OPIC also has specialized insurance programs for: 

1. financial institutions,

2. leasing arrangements, 

3. oil and gas projects, 

4. natural resource projects,

5. contractors and exporters, and

6. capital markets investors.
Overseas Private Investment Corporation (OPIC)

47 OPIC’s Small Business Definition: All companies, both service and industrial, with annual sales of

less than $250 million (taking into account the consolidated sales of the parent company). Entities

with no revenues per se, such as individual private investors or newly-formed companies, with net

worth or stockholders’ equity of less than $67 million. 

48 OPIC’s Small Business Definition: All companies, both service and industrial, with annual sales of

less than $250 million (taking into account the consolidated sales of the parent company). Entities

with no revenues per se, such as individual private investors or newly-formed companies, with net

worth or stockholders’ equity of less than $67 million. 

Geothermal Financing Workbook, 2nd edition 151

Form(s) of Financing Debt (for projects involving U.S. small businesses 47 and

cooperatives) 

Loan guarantees (typically used for larger projects)

Insurance

Equity (through OPIC-supported private investment funds) 

OPIC will not participate in projects that can secure

adequate financing or political risk insurance from private

commercial sources.

Financing Structure

Investment Range (US$) Direct loans $250,000 to $30 million; for projects involving U.S.

small businesses 48 and cooperatives; up to 50% of total project

costs of a new venture; up to 75% for expansion.

Loan guarantees: $10 million to $200 million; up to 50% of total

project costs of a new venture; up to 75% for an expansion. 

Up to $400 million in total project support for any one project. 

Up to $200 million in political risk insurance per project;

specialized insurance for capital markets transactions is also

available.

Term Range (years) Direct loans: 5 to 15 years

Loan guarantees: 5 to 15 years

Political risk insurance: up to 20 years
Overseas Private Investment Corporation (OPIC)

152 Geothermal Financing Workbook, 2nd edition

Interest Rate Range (%) Direct loans: Vary with OPIC’s assessment of the financial and

political risks involved; based on OPIC’s cost of funds plus a

spread for undertaking the risk associated with the transaction.

Loan guarantees: Comparable to those of other U.S.

Government-guaranteed issues of similar maturity.

Grace Period (years) Yes

Equity/Debt Ratio Required 40/60, but depends on project

Expected Return on Investment (%) Depends on project

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Depends on project
Overseas Private Investment Corporation (OPIC)

Geothermal Financing Workbook, 2nd edition 153

Fees Costs and expenses may vary for each transaction, and will

depend upon the type of financing, the location of the borrower,

the type of collateral offered, and the extent of the security

package.

Direct loans: Retainer, commitment, and cancellation fees may

be charged; reimbursement of related out-of-pocket expenses is

also required.

Project finance fees: Up-front retainer fee; facility fee of 1.0%;

commitment fee of 0.50% of undisbursed and uncanceled

amount; cancellation fee of 1.0% of the canceled amount;

prepayment fee; maintenance fee plus reimbursement of out-ofpocket expenses including legal costs.

Loan guarantees: Guarantee fee of 2.5% to 5% per annum on

the outstanding principal amount, depending on the project.

Insurance: Premiums based on project’s risk profile.

Annual base rates for Natural Resources (except oil and gas)

per $100 of Coverage:

Type of Coverage Current Standby

Inconvertibility $0.30 $0.25

Expropriation $0.90 $0.25

Political Violence

Business Income $0.45 $0.25

Assets $0.60 $0.25

Base rates shown may be increased or decreased, usually by

not more than one-third, depending on the risk profile of the

project. Once established, the rates are fixed for the life of the

contract.
Overseas Private Investment Corporation (OPIC)

154 Geothermal Financing Workbook, 2nd edition

Other OPIC assistance is available for new investments,

privatizations, and for expansions and modernizations of

existing plants sponsored by eligible U.S. investors. In the case

of a project with foreign ownership, only the portion of the

investment made by the U.S. investor is insurable by OPIC. 

OPIC Insurance Assistance is available for plants not

sponsored by U.S. investors.

Under agreement with certain countries, the host government

may be required to approve OPIC assistance to a project. 

OPIC will only support projects that promote internationally

recognized workers rights, do not have an adverse impact on

the environment, and do not result in a loss of U.S. jobs. Other

policy issues may apply.

 

OPIC-backed Investment Funds

OPIC-supported funds operate in most countries in East Asia,

sub-Saharan Africa, South America, Russia and other New

Independent States, Poland and other countries in Central

Europe, and India and Israel. 

Funds typically invest in 5% to 40% of the equity capital of

each of their portfolio companies, and own interests in 10 to 20

companies when fully invested. 

Investment funds are privately owned, privately managed, and

make their own commercially based investment decisions.

Sponsors seeking long-term growth capital for their projects

should approach the appropriate fund directly. 

Written requests for Investment Funds information may be sent

to the attention of “Administrator - Investment Funds

Department” at 1100 New York Avenue, N.W., Washington,

D.C., 20527. Callers with fax machines may use OPIC’s

automated FactsLine at (202) 336-8700 to obtain a current

OPIC Direct Investment Funds List (Document #6011).
Overseas Private Investment Corporation (OPIC)

Geothermal Financing Workbook, 2nd edition 155

Application Procedure OPIC 220 – Small Business Financing Worksheet

OPIC 115 – Application for Financing

Form 50 – Request for Registration for Political Risk Insurance

OPIC 223 – Small Business Application for Political Risk

Insurance

Form 52 – Application for Political Risk Insurance

See http://www.opic.gov/subdocs/forms.htm for applications.

Useful Publications OPIC Program Handbook, 1998.

OPIC’s website is an important source of information on OPIC’s

programs and products.

Key Contact(s) Joan J. Edwards 

Managing Director for Business Development 

Overseas Private Investment Corporation (OPIC) 

Investment Development Group

1100 New York Avenue, N.W. 

Washington, D.C. 20527 

Tel: [1] 202-336-8621

Fax: [1] 202-408-5145

Email: jedwards@opic.gov

OPIC lnfoline: 202-336-8799

– to listen to recorded information, request printed material, or

speak with an Information Officer (from 8:45 a.m. to 5:30p.m.

EST)

OPIC FactsLine: 202-336-8700

– to obtain faxes of various OPIC documents

Web Site http://www.opic.gov
156 Geothermal Financing Workbook, 2nd edition

Preferred Energy, Inc. (PEI)

Funds available Renewable Energy Financing and Technical Assistance

(REFTA) Capital Investment Fund — a revolving fund of

$900,000

Investment made to date

in geothermal projects $0

Type(s) of Financing Advisory services / Corporate finance / Feasibility studies /

Project development / Project finance / Venture capital

Form(s) of Financing Equity / Grants / Long-term debt / Short-term debt

Financing Structure

Investment Range (US$) Up to $300,000

Term Range (years) Up to 7 years

For equity, minimum of 5 years

Interest Rate Range (%) Prime commercial

Grace Period (years) Yes, 1 year

Equity/Debt Ratio Required 20/80

Expected Return on Investment (%) 20%

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) None

Fees None
Preferred Energy, Inc. (PEI)

Geothermal Financing Workbook, 2nd edition 157

Other Passive management. Prime security. Borrower cannot be

heavily leveraged.

PEI is a non-profit organization that promotes renewable

energy, energy efficiency and demand-side management in the

Philippines. It is more of a project developer, working with

project sponsors to obtain financing, than a regular financial

institution.

PEI manages the REFTA Capital Investment Fund, the new

Village Power Fund for renewable energy projects, and Winrock

International’s Renewable Energy Project Support Office in the

Philippines.

Village Power Fund: Designed to provide pre-investment, loan,

or equity financing to small, village-based sustainable

renewable energy projects that are unable to access

mainstream financing windows. PEI has financed feasibility

studies for eight projects, and is currently looking for additional

capital funds.

Application Procedure No specific procedure. Project sponsors should contact PEI.

Useful Publications N/A

Key Contact(s) Grace Santibañez-Yeneza

Managing Director

Preferred Energy, Inc.

10/F, Strata 100 Building

Emerald Avenue, Ortigas

Center

1600 Pasig, Metro Manila, 

Philippines

Tel: [63] 2-631-2826

Alt Tel: [63] 2-631-3078

Fax: [63] 2-632-7097

Email: pei@info.com.ph

Roberto C. Julian 

Financial Advisor

Preferred Energy, Inc.

10/F, Strata 100 Building

Emerald Avenue, Ortigas

Center

1600 Pasig, Metro Manila, 

Philippines

Tel: [63] 2-631-2826

Alt Tel: [63] 2-631-3078

Fax: [63] 2-632-7097

Email: pei@info.com.ph

Web Site http://www.geocities.com/peinc_2000/index2.html
158 Geothermal Financing Workbook, 2nd edition

Renewable Energy & Energy Efficiency Fund (REEF)

— In Development —

Funds available Mobilization target of $100 million to $200 million

$30 million from the Global Environment Facility (GEF) in grant

and concessional funds for eligible incremental costs for

promising new technologies and management costs

Investment made to date

in geothermal projects

N/A

Target launch date is the end of 1999.

Type(s) of Financing Project finance

Form(s) of Financing Grants / Debt / Equity / Loan guarantees

Financing Structure

Investment Range (US$) The Fund will focus on small and medium-size projects (less

than 100 MWe) and companies requiring $1 million to $100

million in financing.

Term Range (years) N/A – fund in development

Interest Rate Range (%) N/A – fund in development

Grace Period (years) N/A – fund in development

Equity/Debt Ratio Required N/A – fund in development

Expected Return on Investment (%) N/A – fund in development

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A – fund in development

Fees N/A – fund in development

Other GEF-support would normally be extended after considerable

resources already have been invested by the project sponsors.

About two-thirds to three-fourths of GEF-supported projects will

be renewable energy projects.

Application Procedure N/A – fund in development

Useful Publications N/A – fund in development
Renewable Energy & Energy Efficiency Fund (REEF)

— In Development —

Geothermal Financing Workbook, 2nd edition 159

Key Contact(s) Ken R. Locklin

Managing Director

Renewable Energy & Energy Efficiency Fund (REEF)

Energy Investors Funds Group (EIF)

727 Fifteenth Street, N.W.

Eleventh Floor

Washington, D.C. 20005

Tel: [1] 202-783-4419

Fax: [1] 202-371-5116

Email: KLocklin@EIFGroup.com

Web Site None
160 Geothermal Financing Workbook, 2nd edition

Scudder Latin American Power Fund

(“Latin Power”)

Funds available First fund was capitalized at $100 million in 1996. Additional

capital commitments of $157 million were raised in 1997. 

Additional funds will be raised as needed. 

Investment made to date

in geothermal projects

$32.8 million (49% of total project costs) in a 24 MWe BOO

Orzunil I in Guatemala.

The plant’s $66.7 million in financing needs will be subscribed 

by CDC, IFC, the Scudder Latin American Power Fund,

ORMAT International, and a group of local investors.

Type(s) of Financing Corporate finance / Financial expertise

Form(s) of Financing Equity / Preferred stock / Convertible stock

Financing Structure

Investment Range (US$) From $10 million to $40 million; $20 million to $25 million is

ideal transaction size.

The Fund is usually the largest shareholder in a project,

seeking to own from 25% to 50% of a project’s equity.

No more than 25$ of Latin Power’s capital commitment can be

invested in one country (except for Argentina, Brazil, Chile,

Colombia, and Mexico in which Latin Power may invest up to

40% of its capital).

From 20 MWe to 100 MWe

Latin Power is able to invest a potion of its capital

commitments in development equity in order to form strategic

alliances with quality developers. Much smaller amounts are

appropriate for these investments.

Term Range (years) Not provided

Interest Rate Range (%) Not provided

Grace Period (years) Not provided

Equity/Debt Ratio Required Not provided

Expected Return on Investment (%) 20% after local taxes, cash-on-cash, based upon the cash

flows generated by project investments
Scudder Latin American Power Fund

(“Latin Power”)

Geothermal Financing Workbook, 2nd edition 161

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) Not provided

Fees Not provided

Other Latin Power has a preferred policy of investing in companies

with long-term, dollar-indexed power sales contracts. It invests

primarily in privately-owned electrical generating facilities

employing proven technologies.

Latin Power is interested in investing in power projects in Latin

America and the Caribbean (except Puerto Rico and Cuba)

ranging from greenfield construction to privatization of existing

facilities to expansion or retrofit opportunities.

Latin Power will participate in the management of each project

through a Board or Management Committee seat. 

Lead investors on first fund were Corporación Andina de 

Fomento (Andean Development Corporation), CMS Generation

Company, the International Finance Corporation, and NRG

Energy, Inc. Each has named a representative to Latin Power’s

Management Committee. 
Scudder Latin American Power Fund

(“Latin Power”)

162 Geothermal Financing Workbook, 2nd edition

Application Procedure All projects must comply with host country and World Bank

environmental, health, and safety guidelines. 

Each country in which Latin Power invests must have:

• sound economic prospects,

• a stable political environment,

• a supportive energy regulatory regime, and 

• a legal system that supports the implementation of a

sound project financing structure.

Each project must be economically viable in its local context.

Scudder Kemper Investments, as the Investment Manager for

Latin Power, is responsible for sourcing and screening potential

investments. Project investments will be assessed as follows. 

1. A preliminary due diligence review will be performed by

the Investment Manager to evaluate the viability of the

project in relation to Latin Power’s investment criteria.

2. If the results of the due diligence review determine a

potential project investment, Latin Power will consult

with its Project Committee to decide whether to

proceed with the investment.

3. Once the Investment Manager approves the project, it

will begin to negotiate the documentation and proceed

with the investment. 

Useful Publications Scudder Latin American Power Fund.
Scudder Latin American Power Fund

(“Latin Power”)

Geothermal Financing Workbook, 2nd edition 163

Key Contact(s) Scudder Latin American Power Fund

Scudder Kemper Investments

345 Park Avenue, 15th Floor

New York, NY 10154-0010

John H. Northrup

Investment Manager

Tel: [1] 212-326-6209

Fax: [1] 212-751-3660

George Osorio

Investment Manager

Tel: [1] 212-336-4656

Fax: [1] 212-751-3660

Antonio Tavares Paes, Jr.

Investment Manager

Tel: [1] 212-336-4619

Fax: [1] 212-751-3660

J. Scott Swensen

Lead Investment Manager

Tel: [1] 212-326-6612

Fax: [1] 212-751-3660

Web Site — 
164 Geothermal Financing Workbook, 2nd edition

U.S. Small Business Administration (SBA)

Office of International Trade (OIT)

Funds available In FY 1998, the SBA Export Working Capital Program

guaranteed $160 million in SBA loans about a 3 percent

increase over FF 1997.

The SBA helps small businesses obtain capital to explore,

establish, or expand international markets.

Investment made to date

in geothermal projects

$0

Type(s) of Financing Trade finance / Technical assistance
U.S. Small Business Administration (SBA)

Office of International Trade (OIT)

Geothermal Financing Workbook, 2nd edition 165

Form(s) of Financing Loan guarantees – through SBA programs

Debt / Equity – through SBICs

1. Export Working Capital Program (EWCP)

a. loan guarantees for short-term,

transaction-specific financing

b. available for pre-export financing of labor and

materials, financing receivables generated from

export sales, and standby letters of credit to

foreign buyers

2. International Trade Loan Program (ITL) 

a. loan guarantees

b. available for working capital, facilities, and

equipment

c. cannot be used for debt payment 

3. 7(a) Loan Guaranty Program 

a. provides loan guarantees to small businesses

that are unable to secure financing on

reasonable terms through normal lending

channels

b. available for long-term loans 

4. Small Business Investment Companies (SBICs)

a. working capital 

b. long-term debt 

c. Equity

Small Business Investment Companies (SBICs) are privately

owned and operated investment companies that use their own

capital, plus funds borrowed at favorable rates with an SBA

guarantee, to make venture capital investments in small

businesses in a wide range of industries. 

Companies that received financing from SBICs include America

On-Line, Apple Computer, Federal Express, Intel Corporation,

Outback Steakhouse, Staples, and Sun Microsystems.
U.S. Small Business Administration (SBA)

Office of International Trade (OIT)

166 Geothermal Financing Workbook, 2nd edition

Financing Structure

Investment Range (US$) For the EWCP, ITL, and 7(a) programs, there is no limit on the

loan amount. There is, however, a limit to the amount that can

be guaranteed. 

EWCP: Maximum loan guarantee is $750,000 or 90% of loan 

amount.

ITL: Maximum loan guarantee is $1.25 million, less other

outstanding SBA loans.

7(a): Maximum loan guarantee is $750,000 or 75-80% of loan 

amount, depending on the size of the loan. 

SBICs: Over $750,000. 

 

Term Range (years) EWCP: Generally 12 months; revolving credit lines may be

renewed up to a total of 36 months.

ITL: Up to 25 years excluding the working capital portion of the

loan (3 years).

7(a): 7 to 10 years for working capital; 10 to 25 years for

machinery and equipment; up to 25 years for building

construction or purchase.

SBICs: Negotiated with SBIC.

Interest Rate Range (%) EWCP: Negotiable between the applicant and the lender.

ITL: Up to 2.25% over New York Prime Rate for loans with

maturities less than 7 years; up to 2.75% over Prime for

maturities over 7 years.

7(a): Up to 2.25% over New York Prime Rate for loans with

maturities less than 7 years; up to 2.75% over Prime for

maturities over 7 years.

SBICs: Negotiated with SBIC.

Grace Period (years) Negotiated between small business and commercial lender or

SBIC

Equity/Debt Ratio Required Negotiated between small business and commercial lender or

SBIC
U.S. Small Business Administration (SBA)

Office of International Trade (OIT)

Geothermal Financing Workbook, 2nd edition 167

Expected Return on Investment (%) Negotiated between small business and commercial lender or

SBIC

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation)

Negotiated between small business and commercial lender or

SBIC

Fees Negotiated between small business and commercial lender or

SBIC

Other U.S. Export Assistance Centers (USEACs) - located in 19

cities across the U.S., OIT delivers the EWCP and other 

finance programs for exporters through these centers. Centers

also house representatives of the Department of Commerce

and Ex-im Bank. For USEAC locations, see 

http://www.sbaonline.sba.gov/oit/txt/exportluseac.html.

Business Development Assistance - trade counseling, training,

legal assistance, and publications through the Service Corps of

Retired Executives (SCORE), Small Business Development

Centers (SBDCs), and Small Business Administration local

district offices.

Export Legal Assistance Network (ELAN) - local SBA office can

arrange a free initial consultation with an attorney to discuss

international trade questions. 
U.S. Small Business Administration (SBA)

Office of International Trade (OIT)

168 Geothermal Financing Workbook, 2nd edition

Application Procedure Borrower eligibility:

To be eligible, the business must be operated for profit and fall

within the size standards set by SBA (generally, a small

business is defined as up to 500 employees). Loans cannot be

made to businesses engaged in speculation or investment.

See http://www.sba.gov/library/forms.html for application forms

for the EWCP, ITL, and 7(a) programs.

EWCP: Apply directly to the SBA for a preliminary

commitment; approach your bank with the SBA commitment;

bank applies to the SBA for final commitment. Use SBA Form

84-1, Application for Export Working Capital Guarantee. See

http://www.sbaonline.sba.gov/OIT/finance/downform.html

ITL and 7(a): Applicants must establish either of the following to

be eligible, that loan proceeds will significantly expand or

develop export markets or applicant’s business is harmed by

import competition.

1. Take business plan including information on how debt

will be serviced to your bank and request loan from

bank.

2. If your bank is unwilling or unable to make the loan,

request that they consider making the loan under the

SBA Guaranty Program.

3. If bank agrees, complete a formal application for

forwarding to the SBA.

4. In the case of guaranteed loans, the SBA generally

deals with the bank only and not the small business.

5. Use SBA Form 4, Application for Small Business Loan

(short form).

For SBIC Program:

1. See http://www.sbaonline.sba.gov/INV for listing of

SBICs.

2. Research the SBICs, e.g., their investment criteria,

amount of money available, etc.

3. Contact SBICs directly with business plan.
U.S. Small Business Administration (SBA)

Office of International Trade (OIT)

Geothermal Financing Workbook, 2nd edition 169

Useful Publications Breaking Into the Trade Game: A Small Business Guide to

Exporting

Bankable Deals: A Question and Answer Guide to Trade

Finance

Key Contact(s) SBA/OIT:

Office of International Trade

U.S. Small Business

Administration

409 Third Street, SW

Washington D.C. 20416

Tel: [1] 202-205-6720

Fax: [1] 202-205-7272

SBA SBIC Program:

Investment Division

U.S. Small Business

Administration

409 Third Street, SW

Washington D.C. 20416

Tel: [1] 202-205-6510

Fax: [1] 202-205-6959

Local SBA offices:

SBA has offices across the United States. For the one nearest

you, consult the telephone directory under “U.S. Government,”

or call the SBA Answer Desk at 1-800-ASK-SBA; Fax: 202-

205-7064.

Web Site http://www.sba.gov/oit

http://www.sbaonline.sba.gov/INV

http://www.sba.gov/financing/
170 Geothermal Financing Workbook, 2nd edition

U.S. Trade & Development Agency (TDA)

Funds available In FY 1998, TDA obligated $56 million for U.S. firms in 62

countries.

Investment made to date

in geothermal projects

$1.75 million in 8 projects in 6 countries:

1. Assal Geothermal Power Plant, Desk Study, $2,500,

Djibouti, 1999.

2. Geothermal Power Assessment Trade Mission,

$40,200, and Geothermal Power PFS Results,

$34,533, Kenya, 1988.

3. Luzon Geothermal Energy, Definitional Mission and

Orientation, $487,028, Philippines, 1988.

4. Geothermal Gas Abatement, Definitional Mission and

Feasibility Study, $365,617, Philippines, 1989.

5. Tiwi Geothermal Power Plant Rehabilitation, Feasibility

Study, $125,000, Philippines.

6. Central Vietnam Geothermal Power Plant, Technical

Assistance and Desk Study, $209,000, 1998.

7. Geothermal Feasibility Study, $350,000, St. Lucia,

1983.

8. International Geothermal Energy, $28,492, worldwide,

1990.

Type(s) of Financing Feasibility studies / Definitional Missions / Desk Studies /

Conferences / Orientation visits / Trade-related training /

Technical assistance / Financial packaging

Form(s) of Financing Grants

Financing Structure

Investment Range (US$) Feasibility study: From $200,000 to $1 million; average grant is

$320,000; costs for private projects are shared between TDA

and the U.S. firm developing the project.

Term Range (years) N/A

Interest Rate Range (%) N/A

Grace Period (years) N/A

Equity/Debt Ratio Required N/A
U.S. Trade & Development Agency (TDA)

Geothermal Financing Workbook, 2nd edition 171

Expected Return on Investment (%) N/A

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A

Fees Feasibility study: A “success fee” is charged when the project

is implemented and the U.S. firm involved in the study obtains

significant economic benefit from the project. 

Other Evergreen Funds: TDA maintains trust funds at the World Bank,

IFC, EBRD, IDB, and IIC; funds can be used for technical

assistance or feasibility studies conducted by U.S. firms.

Definitional Missions: Small firms that are interested in

competing for a contract to conduct a Definitional Mission can

access TDA’s DM Hotline at (703) 875-7447 or see 

http://www.tda.gov/pipeline/. Solicitations over $25,000 are

published in the Commerce Business Daily (CBD) or see

http://cbdnet.gpo.gov/search1.html.

Technical assistance: TDA also funds activities designed to

bring U.S. technical assistance to bear on a variety of projects.
U.S. Trade & Development Agency (TDA)

172 Geothermal Financing Workbook, 2nd edition

Application Procedure Official requests for assistance must be made directly by the

sponsoring organization (government or private sector) of the

host country. 

Feasibility studies: TDA provides feasibility study grants to the

host country or a foreign private company undertaking a project.

The grant recipient-not TDA-selects the U.S. company that will

perform the study. 

Eligible projects: To be considered for funding, projects must: 

1. Face strong competition from foreign companies that 

receive subsidies and other support from their

governments; 

2. Be a development priority of the country where the

project is located and have the endorsement of the

U.S. embassy in that nation;

3. Represent an opportunity for sales of U.S. goods or

services that is many times greater than the cost of

TDA assistance (exports in excess of $20 million per

project); and

4. Be likely to receive implementation financing, and have

a procurement process open to U.S. firms. 

If the project satisfies the criteria above, qualifies, prepare

documentation and research that confirms the information.

Begin with a one- to two-page summary. Be sure to tell TDA

about your company, its capabilities, resources, and personnel. 

 

Contact the TDA Country Manager responsible for the country

where the project is located. A telephone or office appointment

will be arranged for an informal review of your proposal. 

For the formal application, obtain a copy of the TDA Feasibility

Study Model Format and follow the instructions carefully. TDA

will review the project and inform you of its ability to be of

assistance. 

See TDA Feasibility Study Model Format attached.
U.S. Trade & Development Agency (TDA)

Geothermal Financing Workbook, 2nd edition 173

Useful Publications Commerce Business Daily. Lists bid announcements

solicitations over $25,000; call CBD Subscription at (202)

512-1800 or see http://cbdnet.gpo.gov/search1.html.

TDA Biweekly. Provides U.S. suppliers and manufacturers with

timely information on agency-supported projects. 

TDA Feasibility Study Model Format. Guidelines for submitting

a Feasibility Study Proposal to TDA. See

http://www.tda.gov/resources/feasibility.html

 

TDA Pipeline. Call TDA to subscribe or see

http://www.tda.gov/pipeline/ for latest issue and to sign up for

the bi-weekly email update.

Key Contact(s) U.S. Trade and Development Agency

1621 North Kent Street, Suite 200

Rosslyn, VA 22209-2131

Tel: [1] 703-875-4357

Fax: [1] 703-875-4009

Albert W. Angulo

Regional Director, Latin America and the Caribbean

Email: AAngulo@tda.gov

Ned Cabot

Regional Director, Central and Eastern Europe

Email: NCabot@tda.gov

Geoff Jackson

Regional Director, South and East Asia

Email: GJackson@tda.gov

John Richter

Regional Director, Africa and the Middle East

Email: JRichter@tda.gov

Daniel D. Stein

Regional Director, New Independent States and Turkey

Email: DStein@tda.gov

Web Site http://www.tda.gov
174 Geothermal Financing Workbook, 2nd edition
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182 Geothermal Financing Workbook, 2nd edition
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World Bank Prototype Carbon Fund (PCF)

— In Development —

Funds available Mobilization target of $60 million (minimum) to $150 million

(cap). 

Target first closing is the first quarter of 2000. Second closing

(if required) is March 2001. If the Fund reaches a subscription

of $120 million-$150 million, there will be no second closing.

Investment made to date

in geothermal projects N/A

Type(s) of Financing N/A

Form(s) of Financing N/A

Financing Structure

Investment Range (US$) N/A – fund in development

Term Range (years) N/A – fund in development

Interest Rate Range (%) N/A – fund in development

Grace Period (years) N/A – fund in development

Equity/Debt Ratio Required N/A – fund in development

Expected Return on Investment (%) N/A – fund in development

Minimum Debt Service Ratio/

Cash Flow Coverage

(before taxes, including depreciation) N/A – fund in development

Fees N/A – fund in development
World Bank Prototype Carbon Fund (PCF)

— In Development —

184 Geothermal Financing Workbook, 2nd edition

Other The PCF will finance Projects designed to achieve Greenhouse

Gas (GHG) Reductions of a sufficiently high quality, i.e., “High

Quality” Emission Reductions. 

The Fund Manager will be responsible for initiating the process

of Project identification and will co-ordinate the Fund’s portfolio

development with the GEF. Once the Fund Manager has

identified a prospective Project for the Fund’s pipeline, the

Project will first be reviewed by the Secretariat of the GEF to

determine its GEF eligibility, on a no objection basis. (The

GEF has first rights of refusal on all projects to be considered

for the Fund portfolio.) 

Only if it is determined that the Project will not receive GEF

financing, will the Fund Management Unit proceed with

developing it and preparing the Project Concept Note (the

“PCN”). 
World Bank Prototype Carbon Fund (PCF)

— In Development —

Geothermal Financing Workbook, 2nd edition 185

Application Procedure Most Projects are expected to be supplemental to projects in

the existing and planned World Bank project pipeline.

The PCN will include relevant Project information, in particular,

on the project Baseline, expected Emission Reductions and

other Fund criteria. 

The Project Selection Criteria include the following:

1. Consistency with the UNFCCC and/or the Kyoto

Protocol

2. Consistency with Relevant National Criteria

3. Consistency with the World Bank’s Country

Assistance Strategy

4. Funding Alternatives/Complementarity with the Global

Environment Facility (“GEF”) – see page 109 for a

description of the GEF

5. National and Local Environmental Benefits

6. Consistency with the Fund’s Strategic Objectives and

Operating Principles 

7. Consistency with the Guidance Provided by

Participants

8. Additional Characteristics of Fund Projects

a. Projects should generally entail manageable

technological risk. 

b. The technology to be used in a Project should

be commercially available and have been

demonstrated in a commercial context and be

subject to the usual commercial performance

guarantees. 

c. The technical competence in the Host Country

to manage the Project technology should be

established during the course of project

appraisal. 

d. Projected Emission Reductions over the life of

the Project should be predictable and

Emission Reductions should also be amenable

to standardized Validation and Verification

processes with existing methodologies.

Useful Publications — 
World Bank Prototype Carbon Fund (PCF)

— In Development —

186 Geothermal Financing Workbook, 2nd edition

Key Contact(s) Ken Newcombe

Fund Manager, Prototype Carbon Fund (PCF)

Senior Manager, Environment Department

World Bank

ENVGC

1818 H Street, N.W.

Washington, D.C. 20433

Tel: [1] 202-473-6010

Fax: [1] 202-522-7432

Email: Knewcombe@worldbank.org

Web Site http://www.prototypecarbonfund.org
49 This section benefits greatly from The Multilateral Development Bank Handbook.- A Guide to

Opportunities for U.S. Business, produced by the Multilateral Development Bank Operations

(MDBO) office of the U.S. and Foreign Commercial Service. To obtain a copy of the handbook,

contact the MDBO office at (202) 482-3399, or refer to their web site: 

http://www.ita.doc.gov/mdbo/.

Geothermal Financing Workbook, 2nd edition 187

Unlocking a $45-billion Market49

How to Work with the World Bank and the other

Multilateral Development Banks (MDBs) 

Each year, the five major Multilateral Development Banks (MDBs) lend

approximately $45 billion in more than 30,000 loans to developing countries which

are implemented through contracts with small, medium, and large firms around the

world. 

U. S. geothermal project developers and consultants are eligible to bid on

procurement opportunities funded by the MDBs of which the United States is a

member: 

1. African Development Bank

(AfDB)

2. Asian Development Bank

(ADB)

3. European Bank for

Reconstruction and

Development (EBRD)

4. Inter-American Development

Bank (IDB) Group 

U Inter-American Development

Bank

U Inter-American Investment

Corporation (IIC)

U Multilateral Investment Fund

(MIF)

5. The World Bank Group 

U International Bank for

Reconstruction and

Development (IBRD)

U International Development

Association (IDA)

U International Finance

Corporation (IFC)

U Multilateral Investment

Guarantee Agency (MIGA)
50 The World Bank Annual Report 1999. (The International Bank for Reconstruction and

Development/The World Bank, © 1999). 

188 Geothermal Financing Workbook, 2nd edition

The World Bank Group 

International Bank for Reconstruction and Development (IBRD)50 – The IBRD

provides loans and development assistance to middle-income countries and

creditworthy poorer countries, lending only for projects that promise high real rates

of economic return to the country. The IBRD does not reschedule payments or

participate in debt rescheduling agreements on its loans. While it does not aim to

maximize profits, but rather to provide development funds at the lowest cost, the

IBRD has earned a net income every year since 1948. 

The IBRD borrows most of the money it lends through medium- and long-term

borrowings in capital markets across

the globe. It also borrows funds at

market-based rates from central

banks and other government

institutions. Conservative lending

policies, strong financial backing from

members, and prudent financial

management give the IBRD strong

standing in the markets. As well as borrowings, the IBRD is funded by the capital

its members have paid in, its retained earnings, and repayments on its loans. 

The IBRD has lent $338.5 billion since being established in 1945. Its FY 1999

lending was $22.2 billion for 131 new operations in 39 countries. The IBRD’s

lending terms include an average cost of borrowings plus a spread (for most

products), 12-20-year maturities, and a 3- to 5-year grace period on most loans. 

International Development Association (IDA) – As the Bank’s concessional lending

arm, IDA plays a key role in supporting the World Bank’s poverty reduction

mission. IDA assistance is focused on the poorest countries, to which it provides

interest-free loans (known as “credits”) and other non-lending services. IDA

credits are made only to governments. IDA is legally and financially distinct from

IBRD, but it shares the same staff, and the projects it supports have to meet the

same criteria. 

IDA depends on contributions from its wealthier member countries–including some

developing countries–for most of its financial resources. In FY 1999, 81 countries
51 1999 IFC Annual Report.

Geothermal Financing Workbook, 2nd edition 189

MDB projects are initiated in several ways: 

1. by the government of the borrowing nation,

2. by the MDBs themselves through project identification

missions,

3. through cofinancing proposals submitted by other MDBs or

financing institutions, or 

4. occasionally, by private sponsors.

were IDA-eligible. Operational cutoff for FY 1999 IDA eligibility was a 1997 GNP

per capita of $925, with some exceptions.

IDA has lent $115.9 billion since its creation in 1960. Its FY 1999 lending was $6.8

billion for 145 new operations in 53 countries. IDA’s loans are interest-free (with a

service charge of 0.75%) and have 35-40-year maturities with a 10-year grace

period. 

International Finance Corporation (IFC) – Established in 1956, the IFC helps

promote private sector growth in developing countries and mobilize domestic and

foreign capital. The IFC provides loans and makes equity investments in support of

projects in its 172 member-countries. Unlike most multilateral institutions, the IFC

does not accept government guarantees for its financing. 

Like a private financial institution, the IFC seeks profitable returns and prices its

finance and service, to the extent possible, in line with the market while taking into

account the cost of its funds. The IFC shares full project risks with its

private-sector partners. 

In FY 1999, the IFC signed investment commitments of $3.6 billion for 218

projects in 79 countries, of which $798 million was mobilized through loan

syndications and underwriting. IFC’s committed portfolio at the end of FY 1999

increased by 12.8% from FY 1998, of which nearly 76% was in loans and 24% in

equity investments.51 (See page 130 for additional information about the IFC.) 

Multilateral Investment Guarantee Agency (MIGA) – MIGA’s main objective is to

encourage the flow of foreign direct investment (FDI) to its developing member

countries. It facilitates investment primarily by providing investment guarantees
52 MIGA Annual Report 1999.

190 Geothermal Financing Workbook, 2nd edition

Programming /

Identification

Preparation

Project

Appraisal /

Analysis

Ex Post

Evaluation

Execution /

Implementation

& Supervision

í

î

ð

ñ

ì

Negotiations & ïBoard Approval

Figure 4 - MDB Project Cycle

against noncommercial risks, e.g., currency transfer, expropriation, war, and civil

disturbance. MIGA also provides technical assistance to help countries

disseminate information on investment opportunities, and to build capacity for

investment promotion. MIGA has its own operating and legal staff and is legally

and financially a separate entity from the World Bank, on which it draws, however,

for certain services. Since being established in 1988, MIGA has issued cumulative

guarantees totaling $5.5 billion and facilitating an estimated $30 million in FDI. 

In FY 1999, issued 72 guarantee contracts totaling $1.3 billion in gross coverage.

These contracts facilitated investments in 29 developing member countries. First

projects were guaranteed in Côte d’Ivoire, Malaysia, West Bank and Gaza, and

Zambia, bringing the cumulative number of countries that have received MIGA

guarantees to 66.52 (See page 139 for additional information about MIGA.) 

MDB Project Cycle 

To successfully work with the MDBs,

it is vital for a company or consultant

to understand how the banks work,

specifically, to know the Project

Cycle, and how to obtain timely

information about projects in the

pipeline. 

All public sector projects financed by

the MDBs pass through a Project

Cycle. While each MDB has its own

project cycle, all share the six steps

shown in Figure 4.

It is essential for companies to have

early warning and information on

MDB projects because competition

for consulting contracts may begin before board approval. 

Information on projects is produced and publically available at different stages in

the project cycle. For each Project Stage, Table 8 shows:
53 Additional information about subscribing to Development Business may be obtained at their

website, http://www.devbusiness.com/. A one-year print subscription is $445; one-year of print

plus on-line is $695.

54 In addition to obtaining written information on a project, companies should contact the

Government Executing Agency or Ministry responsible for the project. The executing agency or

ministry will assign an official or unit to be the project contact for the government. This individual

or unit will rely have detailed information on the scope of the project, including procurement and

consulting needs. Companies should contact executing agencies early on in the process.

Geothermal Financing Workbook, 2nd edition 191

T which parties are responsible, e.g., the Borrowing Government, the

Bank, or both; 

T what specific activities the responsible parties are conducting; 

T what information is available to the public; and

T what an interested contractor should do.

PROJECT STAGE RESPONSIBLE

PARTIES

ACTIVITIES PUBLIC

INFORMATION

AVAILABLE

CONSULTANT

ACTION

ì

Programming /

Identification

Borrowing 

Government

Bank

Sources of project ideas:

• borrower-country

proposal

• Bank economic

or sector work

or field offices

• previous

projects

• other agencies

(e.g., bilateral

donors, nongovernmental

organizations,

and cofinancing

agencies)

Initial summary of

project approved by

country department

Projects under

consideration for bank

financing are added to a

“pipeline” of projects.

Project published in the

World Bank Monthly

Operation Summary

(MOS) which is located

in the bimonthly

Development

Business.

53

• The notice will

include the

name and

contact

information of

the in-country

executing

agency

Project Information

Document (PID)54

• PID lists the

Bank contact

Obtain PID
PROJECT STAGE RESPONSIBLE

PARTIES

ACTIVITIES PUBLIC

INFORMATION

AVAILABLE

CONSULTANT

ACTION

55 In addition to obtaining written information on a project, companies should contact the

Government Executing Agency or Ministry responsible for the project. The executing agency or

ministry will assign an official or unit to be the project contact for the government. This individual

or unit will rely have detailed information on the scope of the project, including procurement and

consulting needs. Companies should contact executing agencies early on in the process.

56 Lastly, companies should identify and contact the person in the MDB who is charged with

supervising or managing the project they are pursuing. These “task managers” or “project

officers” are responsible for working with borrower governments to develop and move projects

through the MDBs approval process. The task manager or project officer will have detailed

information on the scope and terms of projects assigned to him or her. 

192 Geothermal Financing Workbook, 2nd edition

í

Preparation

Consulting firms are

often required during this

stage.

Borrowing

Government

• Defines the

scope of the

project in more

detail

• Establishes

project

components

• Determines

costs and

institutional

issues

• Carries out

environmental

assessment and

other

engineering and

design studies

Revised PID

Environmental

Assessment (EA)

Contractors and

suppliers should begin to

make contacts with the

proper executing agency

in-country as well as

Bank staff.

Obtain revised PID

Obtain EA

Contact Executing

Agency55

Contact Bank Task

Manager56
PROJECT STAGE RESPONSIBLE

PARTIES

ACTIVITIES PUBLIC

INFORMATION

AVAILABLE

CONSULTANT

ACTION

57 The Staff Appraisal Report (SAR) loan document or loan proposal describes in full detail a project

to be financed, including extensive background analysis of the project sector in that country; past

bank experience lending in that sector; economic justification, financial evaluation, and project

objectives; description; cost estimates; financing plan; procurement details; and disbursement

plans. The SAR is the document that is forwarded to the relevant banks board of executive

directors for review and approval. 

Geothermal Financing Workbook, 2nd edition 193

î

Project Appraisal /

Analysis

Bank Bank evaluates projects

viability and aspects:

• economic

• technical

• institutional

• financial

• environmental

Bank decides whether

projects should go

forward, be re-designed,

or dropped.

ï

Negotiations and Board

Approval

Borrowing

Government

Bank

Borrower reviews final

documents including:

• implementation

schedules

• procurement

arrangements

Terms and conditions of

loan agreed upon by

Borrower and Bank

Board of Directors of the

Bank approves loan

Loan agreement signed

by Borrower and Bank

Staff Appraisal Report

(SAR) or Technical

Annex (TA)57

Obtain SAR or TA –

available approximately

3 weeks after loan is

signed
PROJECT STAGE RESPONSIBLE

PARTIES

ACTIVITIES PUBLIC

INFORMATION

AVAILABLE

CONSULTANT

ACTION

58 The Multilateral Development Bank Handbook.- A Guide to Opportunities for U.S. Business

Ibid, Appendix 4, pp. 44-45.

194 Geothermal Financing Workbook, 2nd edition

ð

Execution /

Implementation &

Supervision

Borrowing

Government

Bank

Loan declared ready for

disbursement

Implementation by

Borrower

Supervision by Bank

Legal Agreement

Consultants may be

used for studies,

training, and institutional

strengthening at this

stage.

ñ

Ex Post Evaluation

Bank Completion and audit

reports

Analysis used for future

project studies

Impact studies

Table 8 - Multilateral Bank Project Cycle

Tracking MDB Information about Public Sector Projects58

Each of the MDBs publishes slightly different information on the projects it is

considering for financing. The information is published in a variety of formats, and

the documents and publications are known by a variety of names. Table 9

describes where interested companies can locate specific procurement information

for each MDBs.

MDB PROCUREMENT INFORMATION IN...

African Development

Bank (AfDB)

AfDB’s Quarterly Operational Summary (QOS). Contains brief Bank

descriptions of projects for which financing has been approved by the AfDB

Board of Directors in the last 6 months, and those which will go before the

Board in the next 6 months. Available with a subscription to U.N.

Development Business. 

Web site: http://www.afdb.org
MDB PROCUREMENT INFORMATION IN...

Geothermal Financing Workbook, 2nd edition 195

Asian Development

Bank (ADB)

ADB Business Opportunities (a.k.a. the “blue book” or ADBBO). Lists Bank

information on public sector projects under consideration for financing and

associated procurement opportunities. Published monthly. Subscriptions are

$100 per year or $160 for two years. Contact the ADB Information Office to

subscribe.

U.N. Development Business

Web site: http://www.adb.org

 

NOTE: For economic reasons, ADB prefers to help finance large ($100 million

or more) projects funded on least cost principles. ADB has recently

expressed interest in smaller projects. 

European Bank for

Reconstruction and

Development (EBRD)

EBRD Procurement Opportunities. Lists information on public sector projects

under consideration for financing and associated procurement opportunities.

Published monthly. See

http://www.ebrd.com/english/procure/opportunities/main.htm.

Web site: http://www.ebrd.com

Inter-American

Development Bank

(IDB)

IDB Projects. Lists information on public sector projects under consideration

for financing and associated procurement opportunities. Published monthly. 

Subscription currently costs $175 per year. See

http://www.iadb.org/exr/pipeline/subscrip.htm.

U.N. Development Business

Web site: http://www.iadb.org
MDB PROCUREMENT INFORMATION IN...

59 Ibid, Appendix 6, p. 48.

196 Geothermal Financing Workbook, 2nd edition

World Bank

IBRD

IDA

Monthly Operational Summary (MOS). Lists information on projects under

consideration for financing and associated procurement opportunities. 

Included in subscription to U.N. Development Business.

Guidelines for the Use of Consultants by World Bank Borrowers and by the

World Bank as Executing Agency, 1997. Provides the rules for the selection

of consultants. Known as the “green book.”

Procurement in World Bank Financed Projects: Self-Learning Program

CD-ROM, August 1999.

Standard Bidding Documents. Prepared for a number of sectors for use by

World Bank borrowers in the procurement of goods and works. Also available

is the Standard Form of Contract for use by borrowers in the contracting of

consultants. These documents are essential reading.

The World Bank Directory. Provides organization charts and telephone

numbers for World Bank Group staff.

Web site: http://www.worldbank.org

Table 9 - MDB Procurement Information

Approaching the Private Sector Investment Arms of the MDBs for

Financing for Private Sector Projects59

Increasingly, the MDBs provide funding to private sector entities for private

projects in developing countries. A growing number of companies and project

developers around the world are taking advantage of this funding, which is secured

based on the financial, economic, and social viability of the projects in question.

Requests for MDB financing for private ventures are generally made directly by the

project developer(s) and/or sponsor(s) to the relevant MDB. There are no standard

application forms to complete. 

To begin, the project developer/sponsor should determine whether or not their

project fits the relevant MDBs economic, social, and financial parameters. Next, the

project developer/sponsor should submit to the bank a business plan as a first step

in applying for financing. The financing proposal should include information on the

following: 
60 Ibid, Appendix 5, pp. 46-47.

Geothermal Financing Workbook, 2nd edition 197

T description of the project (technical, economic, and commercial

aspects),

T description of the main parties to the transaction, 

T financing plan, 

T financial overview, and 

T environmental impact. 

While the project developer/sponsor may make initial contact with the MDB by

submitting a brief or preliminary description of the project, it is important to note

that the better prepared a company or consultant is on initial contact with the MDB,

the faster the MDB can respond. It is also important to note that responsibility for

project preparation rests with the project developer/sponsor, and not the MDB,

although the bank will work closely with the project developer/sponsor to ensure

that the proposal meets bank standards. 

If, after reviewing the details, the bank agrees to appraise the project, a bank team

will fully evaluate the technical, financial, and economic aspects of the project. If

the project proves satisfactory to the bank team, it submits the project and

proposed terms to its board of executive directors for review and approval. 

If approved, the project developer/sponsor is responsible for up-front costs

associated with the project appraisal, which usually amount to 1 to 3 percent of the

total project cost. The project developer/sponsor may also be responsible for a

commitment fee charged on undisbursed loan balances and for consulting, legal,

and other expenses associated with the project as incurred by the bank. 

In general, total time for a private sector project to go from initial review to board

approval can vary from 6 to 12 months, depending on how well prepared the

project is at the time of initial review. 

Hints and Tips for Winning MDB-Financed Contracts60

1. Learn how the MDB operates, how it is organized, and what its priorities are.

2. Determine whether the goods and services your company offers are required

in bank-funded projects. 
198 Geothermal Financing Workbook, 2nd edition

3. Subscribe to U.N. Development Business which tracks projects funded by

the World Bank, Asian Development Bank, Inter-American Development

Bank, Caribbean Development Bank, European Bank for Reconstruction and

Development, African Development Bank, the North American Development

Bank, and the U.N. Development Programme. 

4. Focus your efforts on those regions, countries, sectors, and projects in

which your firm has a competitive advantage. 

5. Develop partnerships with firms that have a competitive advantage or 

are familiar with MDB-financed projects.

6. Follow a project through each stage of the project cycle. 

7. Learn the procurement process and the guidelines that govern it. 

8. If you are a consultant, take the time to complete the DACON registration

process. 

9. Learn as much as you can about the borrower and/or executing agency.

Travel to the country of operation and make direct contact with the relevant

officials. 

Market yourself and your goods and services directly to the country decision

makers. 

10. Associate with a local agent or representative in the borrowing country.

11. Make direct contact with MDB staff to market your goods and services. 

12. Obtain tender documents as soon as they are available. Local agents can be

very helpful in this regard. 

13. Read the tender documents and evaluation criteria carefully. Make sure your

tender is priced competitively and complies strictly with all specifications and

contractual conditions stipulated in the documents. This is not the time to be

creative.

14. Ensure that all required bonds, guarantees, or deposits are posted for each

bid. 
Geothermal Financing Workbook, 2nd edition 199

15. If at all possible, attend the tender opening to learn about your competitors

pricing. 

16. If you did not win, ask for a debriefing by the MDB, analyze the reasons why

you lost, learn from your experience, and modify your subsequent tenders.

17. Use the U.S. Commercial Service resources available to you—your nearest

Export Assistance Center, the MDBO Operations office, Commercial

Liaisons at the banks, and Commercial Officers at U.S. embassies and

consulates around the world.

Multilateral Development Bank Operations (MDBO) Office and

Commercial Liaisons—U.S. Department of Commerce

The Multilateral Development Bank Operations (MDBO) office of the U.S. and

Foreign Commercial Service located at the U.S. Department of Commerce is an

essential resource for any U.S. company wishing to work with the MDBs. The 

MDBO offers U.S. businesses “one-stop shopping,” including: 

1. information on approved projects and downstream financing plans; 

2. expert guidance on what you need to know to pursue business at the

MDBs;

3. advocacy and assistance with pre-award support and procurement

disputes;

4. on-line information including a guide to electronic media providing

up-to-date information relating to projects; and 

5. “heads-up” on future opportunities.

In addition to its Washington, D.C. headquarters, the Department of Commerce

has assigned commercial liaison officers to each of the MDBs. These officers

work closely with the U.S. Executive Directors of the respective MDBs to support

the efforts of U.S. companies pursuing MDB contracts. 
200 Geothermal Financing Workbook, 2nd edition

MDBO Headquarters

Janet G. Thomas

Director, Multilateral Development

Bank Operations

U.S. Department of Commerce

USA Trade Center

Ronald Reagan Building

Mezzanine Level

Washington, D.C. 20230

Tel: [1] 202-482-3399

Fax: [1] 202-482-3914

Email: JThomas8@doc.gov

Web site: www.ita.doc/mdbo

African Development Bank (AfDB)

Vacant

Commercial Liaison Officer

U.S. Embassy

5 Rue Jesse Owens

01 B.P. 1712

Abidjan 01, Cote d’Ivoire

Tel: [225] 21-46-16

Fax: [225] 22-24-37

Asian Development Bank (ADB)

Denny Barnes

Senior Commercial Officer

Office of the Commercial Liaison

Asian Development Bank (ADB)

U.S. and Foreign Commercial Service

2

nd Floor, GSO Building, Seafront

Compound

Roxas Boulevard, Pasay City

Manila, Philippines

Tel: [63] 2-804-0460 or 

[63] 2-804-0353

Fax: [63] 2-804-0357

Email: Denny.Barnes@mail.doc.gov

European Bank for Reconstruction

and Development (EBRD)

Gene R. Harris

Senior Commercial Officer

Office of the U.S. Executive Director

European Bank for Reconstruction &

Development (EBRD)

No. 6 Broad Street Place

London EC2M, United Kingdom

Tel: [44] (171) 588-4027/4028

Fax: [44] (171) 588-4026

Email: Gene.Harris@mail.doc.gov

Inter-American Development Bank

(IDB)

Rebecca Mann

Senior Commercial Officer

Email: Rebecca.Mann@mail.doc.gov

Robert J. McEntire

Commercial Liaison Officer

Email: Bob.McEntire@mail.doc.gov

Office of the U.S. Executive Director

Inter-American Development Bank

(IDB)

U.S. and Foreign Commercial Service

Liaison Office

1300 New York Avenue, N.W.

Mail Stop E 0209

Washington, D.C. 20577

Tel: [1] 202-623-3821/3822

Fax: [1] 202-623-2039

World Bank

Eric Weaver
Geothermal Financing Workbook, 2nd edition 201

Senior Commercial Officer

Email: Eric.Weaver@mail.doc.gov

Janice Mazur

Commercial Liaison Officer

Email: Janice.Mazur@mail.doc.gov

Office of the U.S. Executive Director

World Bank

1818 H Street, N.W.

Washington, D.C. 20433

Tel: [1] 202-458-0118/0120/1954

Fax: [1] 202-477-2967

Untied Aid Initiative—U.S. Department of Commerce

In 1995, the U.S. Government launched the Untied Aid Initiative to help U.S. firms

take advantage of potential business opportunities created by official untied aid and

credit financing in developing countries. While many industrialized countries offer

untied aid, Japan by far has the largest and best-known program, the bulk of which

are administered by the Japan Bank for International Cooperation (see page 136).

Under the Untied Aid Initiative, U.S. Embassy staff in Washington, D.C. and

Tokyo as well as in Indonesia, China and India, Thailand, Philippines, and Vietnam

(the leading recipients of untied financing), collect and report as much timely

information as possible on projects that may be financed by Japanese untied aid

and credits, allowing U.S. companies sufficient time to prepare effective bids.

For additional information on this initiative, please contact:

Denise Carpenter

Office of Finance

U.S. Department of Commerce

International Trade Administration

14th & Constitution Avenue, N.W.

Room 1104

Washington, D.C. 20230

Tel: [1] 202-482-4002

Fax: [1] 202-482-5702

Email: 

Denise_Carpenter@ita.doc.gov

Web site: www.ita.doc.gov/untiedaid

Jay Biggs

Office of Japan Trade Policy

U.S. Department of Commerce

14th & Constitution Avenue, N.W.

Room 2320

Washington, D.C. 20230

Tel: [1] 202-482-2176

Fax: [1] 202-482-0469

Email: biggs@usita.gov
202 Geothermal Financing Workbook, 2nd edition

Conclusion

Congratulations! You made it through the Geothermal Financing Workbook and

are now better prepared to identify, structure, and obtain financing for your smaller

geothermal project. You know what information potential financing sources look

for and why, what types of investments they are looking for, and what their specific

investment criteria are. You can consequently improve your chances of obtaining

financing at the most optimal cost by adapting your approach and drafting your

business and financing plans to be responsive to the financing sources

you approach. 

The good news: there is money to finance small geothermal

power plants. The bad news: it is neither “easy” nor “quick.”

Some projects, no matter how economically sound or beneficial to the

local population, may be too small to interest traditional financing sources.

In these cases, it is necessary to go outside the boundaries—to focus on new and

creative financing strategies. Such creative financing strategies might be to:

T Link the power plant to its end user, e.g., for direct use, agricultural

drying, industrial use, district heating, cooling, etc.;

T Link the power plant to a new use, e.g., new small businesses,

geothermal-powered communication facilities, low-cost

telecommunication technology;

T Accept a marketable commodity as payment in kind;

T Aggregate small projects with similar economics for submission to a

financing source; 

T Provide credit by including project costs on consumers bills and

spread the cost over several years; or

T Form a strategic alliance with a complementary company to be eligible

for a wider range of non-U.S. financing sources. 
61 Lucien Y. Bronicki, Chairman, ORMAT International, Inc. Presentation at the Geothermal

Resources Council 1999 Annual Meeting, Reno, NV, October 18, 1999.

Geothermal Financing Workbook, 2nd edition 203

Structuring financing for even for the large, experienced geothermal project

developers, takes significant time, focus, energy, and money. ORMAT

International’s Orzunil I Plant in Guatemala was fully constructed before the

financing even closed! 

Financing small renewable projects, including geothermal, should be on everyone’s

“fast track.” Suggestions made by ORMAT include:61

T In the case of co-financing, financing sources should choose a leader,

T The closing schedule and fees should be specified and agreed to

during the initial review,

T Performance specifications should be based on those of the

manufacturer of the equipment used,

T Agency teams should be assigned for the duration of the project

process, through initial review to financial closing,

T The review period through financing approval should be targeted to

take no longer than six months, and

T Agency requirements should be defined up front, during the review

process.

Geothermal developers around the world, be they constructing a small power plant

or designing a geothermal district heating system, must market geothermal to the

financing sources—the World Bank, the IFC, and others—and get small

geothermal projects in the financing fast lane. 
204 Geothermal Financing Workbook, 2nd edition

Glossary

AMORTIZATION - the gradual payment

of a debt through a schedule of

payments or the process of writing off

an intangible asset against expenses

over the period of its economic useful

life. 

BETA - a measure of an assets risk in

relation to the market. A stock with a

beta of more than 1.0 is generally more

volatile than the market. For example, a

stock with a beta of 1.5 will tend to rise

or fall by 15% when the market

portfolio rises or falls by Io% (p). 

BORROWING CAPACITY MODEL -

used to estimate the maximum amount

of debt a projects cash flow will

support. 

CAPITALIZATION - of an asset, when

the cost of the asset is allocated to two

or more time periods. 

CASH FLOW - the difference between

the money coming into an investment

project and the money going out.

CASH FLOW COVERAGE RATIO -

measures the projects ability to pay for

its long-term loan out of its generated

free cash flows (see also Debt Service

Coverage Ratio). 

CASH FLOW PROJECTION - indicates

how profitable a project is expected to

be, how much cash flow it is expected

to generate, the assumptions used,

and how that cash flow will be

allocated among the various providers

of capital.

COMMITMENT FEE - a fee charged

by a lender for committing to lend the

undisbursed amount of the loan. It

normally begins to accrue 30 to 60

days after the signing of the loan

agreement. Normal commitment fee is

0.5-1.0 per cent per annum..

CONVENTIONAL DIRECT

FINANCING - lenders to the firm look

to the firms entire asset portfolio to

generate the cash flow to service the

loans. 

COST OF CAPITAL - a projects cost

of debt plus its cost of equity.

CROSS-DEFAULT CLAUSE - a

provision in a loan agreement which

provides that a default by the

borrower on another loan or loans

would constitute a default under the

loan agreement. Multilateral

development banks require that they

retain the option of either declaring

their loans immediately due and

payable, or of seeking other remedies

following what is called the optional

cross-default clause. 
Geothermal Financing Workbook, 2nd edition 205

CUMULATIVE PRESENT WORTH OF

REVENUE (CPWNR) - a profitability

criteria for geothermal projects based

on discounted cash flow analysis;

usually calculated on a pre-tax basis.

DEBENTURES - a type of bond issued

to raise funds from the market.

DEBT SERVICE COVERAGE RATIO - a

ratio which measures the projects

ability to pay for its long-term loan out

of its generated free cash flows; a ratio

below 1.00 indicates that a project

cannot service its debt fully out of

operating income; decreases in those

years when the principal repayment

increases (see also Cash Flow

Coverage Ratio).

DEPLETION EXPENSE - recognized as

natural resource reserves (e.g., a coal

deposit or natural gas reserve) are used

up. 

DEPRECIATION - the recognition of a

capital expense as the asset is used

over time. Depreciation is a non-cash

expense; it reduces taxable income and

provides an annual tax advantage (or

tax shield). 

DEVELOPMENT COST PER KW

INSTALLED CAPACITY - a profitability

criteria for geothermal projects which

includes the costs incurred before the

plant goes on line (e.g., lease

acquisition, exploration, construction

of access roads and drilling pads,

drilling, surface facilities, overhead,

tax credits). 

DISCOUNTED CASH FLOW ANALYSIS

- a method used to analyze the

economic viability and profitability of

a proposed project and the adequacy

of the rates of return that investors can

expect. 

EQUITY KICKER - an equity incentive

(e.g., direct equity participation,

royalty payments, or contingent

payments) which lenders receive to

assume additional risk and induce

them to accept less restrictive

covenants and less demanding credit

support. 

EUROPEAN COMMISSION - proposes

policies and legislation for the

European Union, is responsible for

administration, and ensures that the

provisions of the Treaties and the

decisions of the institutions are

properly implemented.

EUROPEAN UNION (EU) - previously

known as the European Community,

the EU is an institutional framework

for the construction of a united

Europe. Created after World War II to

unite the nations of Europe

economically so another war among

them would be unthinkable, the EU

currently has 15 member-countries.

FINANCING PLAN - a description of

how a project will be financed; the

current and required sources of
206 Geothermal Financing Workbook, 2nd edition

financing, the types (e.g., debt, equity,

etc.) of financing required, and the

sources of financing. The financing

plan includes arrangements for both

construction and permanent financing.

FIXED CHARGE COVERAGE - a ratio

used to measure a projects ability to

repay its debt which includes treating

one-third of rental payments as part of

the interest component; a ratio below

1.00 indicates that a-project cannot

service its debt fully out of operating

income. 

FORFAITING - discounting export

receivables, e.g., promissory notes,

bills of exchange, or letters of credit,

without recourse to the exporter. 

Forfaiting allows exporters to grant

credit terms to their overseas buyers

without assuming non-payment or

currency exchange risks. Once an

exporter has received its money from

the forfaiter, they are out of the

transaction. Forfaiting deals tend to be

over $100,000 and take 5-30 days to

complete.62

FREE CASH FLOWS - the cash not

required for operations or reinvestment

which can be used to service the

projects debt or pay dividends to

equity investors. 

FRONT-END FEE - a commission

charged by the Financier for arranging

a loan facility payable at signing of the

loan. 

GUARANTEE - a written undertaking

by the guarantor to pay a beneficiary a

stated amount if the borrower fails to

meet certain commitments such as

loan repayment. If a guarantee covers

part of debt servicing and covers all

events of nonpayment, it is commonly

called partial credit guarantee. If it

covers a specific risk guarantee, e.g.,

sovereign risk, it is called partial risk

guarantee. A partial risk guarantee is

callable only if the default on debt

servicing is due to the specific risk

covered.

INCREMENTAL CASH FLOW - the

difference between the cash flow with

and without the project; does not

include sunk costs. 

INTERNAL RATE OF RETURN (IRR)

- the capital investment projects

expected rate of return; if the required

rate of return (cost of capital) equals

the IRR (the expected rate of return),

the projects NPV is zero. The project

should be undertaken if the IRR

exceeds the projects cost of capital.

INTEREST COVERAGE RATIO - the

ratio of earnings before interest and

taxes (EBIT) divided by interest

charges which measures a projects

ability to cover interest charges; a ratio

below 1.00 indicates that a project

62 Credit Managers Association of

California,

http://www.cmaccom.com/art056.htm

l.
Geothermal Financing Workbook, 2nd edition 207

cannot service its debt fully out of

operating income. 

JOINT FINANCING - when loans from

the primary fiancier and the

co-financiers are used to finance, in

some agreed proportions, the same set

or package of goods and services

required for an operation.. 

LIMITED LIABILITY CORPORATION

(LLC) - a condition in which owners

of stock are not held liable for the

debts of the corporation beyond the

extent of their stockholdings.

LIMITED RECOURSE, - when project

sponsors are obligated to supplement

the projects cash flow under certain

(limited) circumstances. 

MILL - one-thousandth of the U.S.

dollar. 

NEGATIVE CASH FLOW - more money

going out than coming in over a period

of time. 

NET INCOME, OR ACCOUNTING

PROFIT - the remaining revenue after

paying all explicit costs. 

NET PRESENT VALUE (NPV) - the

difference between what a project

costs and what it is worth; the present

value of all of the after-tax cash flows,

all its costs now and in the future.

Undertake a capital investment project

when its NPV is positive.

NON-RECOURSE FINANCING - when

securities and other borrowings are

serviced entirely out of a projects cash

flow. 

ORDINARY SHARES - a class of share

that does not benefit from any

preference in the payment of

dividends or in the repayment of

capital.

OVERALL STEAM SUPPLY COST - a

profitability criteria of a geothermal

project which represents the “fuel

cost” of the power plant; cost of

steam of hot water supply to the

power plant in unit cost per kilowatt

hour; allows comparison of a 166

geothermal power plant with other

types of electrical power projects. 

PARALLEL FINANCING - when loans

from the primary financier and the

co-financiers are used to finance

separate packages of goods and

services. 

PARI PASSU - Latin meaning “all

equal.” 

PASSIVE INVESTOR - an investor that

does not actively manage or would

not contribute to the improvement of

the efficiency of the company. 

PAYOUT TIME - the number of years

when CPWNR is zero for the first

time in plant life; capital investment

divided by free cash flow (the amount
208 Geothermal Financing Workbook, 2nd edition

available to pay back the original

capital investment). 

POSITIVE CASH FLOW - more money

coming in than going out over a period

of time. 

PREFERENCE SHARES - a class of

share that benefits from preference in

the payment of dividends or the

repayment of capital. 

PRESENT VALUE (PV) - the total

amount that a series of future payments

is worth today. Stated another way, PV

is the value of the free cash flow

stream that is available to service

project debt, and is calculated from the

projects cash flow projections.

PROFIT-TO-INVESTMENT RATIO - the

ratio of total undiscounted net profit to

investment; the amount of new money

generated from an investment project

per dollar invested.

PROFITABILITY CRITERIA - methods

used by project developers and

potential investors to assess a projects

profitability and ability to cover debt

service with free cash flows; see

Cumulative Present Worth of Net

Revenue, Development Cost per kW

Installed Capacity, Discount Cash

Flow Analysis, Internal Rate of

Return, Net Present Value, Overall

Steam Supply Cost, Payout Time,

Profit-to-Investment Ratio.

PRO FORMA FINANCIAL

STATEMENTS - Income Statement,

Balance Sheet, Cash Flow, Financial

Ratios. 

PROJECT FINANCING - the raising of

funds to finance an economically

separable capital investment project in

which the providers of the funds look

primarily to the cash flow from the

project as the source of funds to

service their loans and provide the

return of and a return on their equity

invested in the project. Cofinancing

and guarantees can form a part of the

financing package for such projects.

QUASI-EQUITY - in addition to the

contribution of cash as capital, there

are other forms of capital investment

such as subordinated loans and

redeemable preference shares; such

forms do not usually have the same

rights as ordinary shares.

RETURN ON EQUITY - profit on the

total equity in the company.

RETURN ON INVESTMENT (ROI) -

profit on the invested capital.

RULE 144A - adopted by the

Securities and Exchange Commission

(SEC) in 1933, Rule 144A liberalized

the restrictions that existed on trading

unregistered debt and equity

securities. As a result of Rule 144A,

qualified institutional buyers can trade

unregistered debt and equity securities
Geothermal Financing Workbook, 2nd edition 209

with each other without regard to the

private placement restrictions that

otherwise apply to unregistered

securities. Rule 144A issues can

generally be arranged more quickly

than public offerings because the

securities do not have to be registered

with the SEC. The principal buyers of

Rule 144A debt are large life insurance

companies which are receptive to Rule

144A debt offerings that are rated

investment grade (e.g., Moodys Baa 3

or better or Standard & Poors BBBor better).63

SENSITIVITY ANALYSIS - evaluation of

any chosen profitability criterion to

changes in project variables (e.g., plant

capacity factor, inflation rate, etc.);

main purpose is to identify the

variables that will have the most impact

on profitability.

SUNK COSTS - money that has already

been spent.

SYNDICATION LOAN - a loan that will

be lent by a number of banks.

SYNDICATED PARTICIPATION - when

the primary financier commits to fund

the entire loan and, at or subsequent to

loan closing, sells a participation in its

loan to another bank or banks. In

these cases, the primary financier

remains committed for the entire

amount but funds a portion of its

commitment through the purchaser(s)

of the participation(s).

SYNDICATION - the process whereby

the primary financier identifies other

financial institutions that will commit

to lend under its documentation on

terms reasonably similar to those

under which it is prepared to lend.

USEFUL LIFE - the lifetime of a piece

of equipment or machinery as defined

by the government for tax purposes

(or by the manufacturer).

VENTURE CAPITAL (VC) - the

process by which investors fund early

stage, more risk-oriented business

endeavors. A venture capital funding

arrangement will typically entail

relinquishing some level of ownership

and control of the business to offset

the high risk the investor takes in the

promise of high return on the

investment. 

The investment is usually in the form

of stock or an instrument which can

be converted into stock at some future

date. Typical investments range from

between $500,000 and $5 million with

a VC expecting a 20-50% annual

return on their investment at the time

they are bought out.64

63 Finnerty, p. 174.

64 Vfinance.com,

http://www.vfinance.com/.
210 Geothermal Financing Workbook, 2nd edition

YIELD - the rate of return from an

investment relative to the actual dollars

paid.
Geothermal Financing Workbook, 2nd edition 211

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