Hydropower projects financing through the public private partnership a future powered by hydro

/////In the frame of economy type that characterized Romania before 1990, the infrastructure and public utilities development, from which the hydropower sector is integral part, was ensured from public funds. The power generation belongs to the public services, which make profits on an average or long terms, in the benefit of the society. The demand for these services is increasing because of both economical increasing and the private sector weight in economy increasing. But, the quality increasing of these services needs investments, that is access to the long-term loans. Romanian banks are not prepared for long-run loans, and the international agencies don't have sufficient investment funds for all necessary projects. One of the options is or, could be, the transfer of entirely responsibility for infrastructure in the private sector hands, but this is not feasible in many cases. For this reason the government can choose a middle way realizing a private public partnership for solving the problem of the investment funds. In a general manner, this scenario consists in the fact of appealing to the private sector to finance, build and operate, for a limited period, an infrastructure, power or tourism project, necessary to the development. The impact zone between the public sector interest and private sector interest defined the concept of 'private public partnership' in its multiple alternatives (BOT, BOO, BOOT, ROT, etc.). The first official mentioning of a project in private public development under the name of BOOT 'Build, Own, Operate, Transfer' has been used in Turkey, in 1984, by the prime-minister ever since, Turgut Ozal, as part of a huge development program through the privatization in the power sector, infrastructure and tourism. The 'private public partnership' concept was studied and promoted, beginning with '95 years by the European Community too, with the view of this financing model utilization to the infrastructure projects development. One of the most common ways is the partnership of the non-recourse financing type, named BOOT too. The main characteristic of a - project finance - apart of traditional financing models is the fact that the credits and investments recovery is realized from the incomes generated by the project. Because the money is generated by the project and no by the state guaranties or by the some companies' guaranties, this type of project finance is known as non-or limited recourse financing. This approach permits that the investors not return towards the government or companies if the project doesn't give the anticipated result. The creditor can not resort only to the assets for that he loaned, and the cash flow can or can not be generated by these assets. Under these conditions, the project finance is different from the traditional financing models and techniques from the point of view of the state guaranties, through which a government has the duty to compensate the investor in the risk case or through the guaranties granted by the companies - in this case the investor can intervene in the balance sheet or in the pledged assets. BOT or its neighbors BOOT, DBOOT (design, build, own, operate and transfer), BRT (build, rent and transfer) are different forms of the transfer. The paper presents and discusses the following issues: - Why is a BOOT attractive?; - hydropower development in Romania; - the private financing of the hydropower projects; - The hold back of the developing hydropower in the market economy; - characteristics of a 'Project Finance' in the hydro sector; - financing influence in the projects selection; the economical validity of a public private partnership; - how to identify the private partners; - financial and co-operation models. The paper ends with the following conclusions and recommendations. Applying the finance project scheme at the hydro projects must respect several conditions in order to be successful: - The hydro project cost >20 millions Euro; - a minimum report of 3.5-4.0 GWh / 1 million Euro investment; - Debt report: equity set up at 80:20 % (one can prove an influence in price increase by 6-7 % if the report is fixed at 70:30 %); - Credit recovery period (debt) should not be lower than 12 years, with 3 years of grace period for construction, but 15 years for 'pay back' is recommendable; - The soft costs vs. hard costs report in the financial arrangement should be at most 25:75 %, but 15:85 is recommendable; - The loan interest should be fixed and not exceed LIBOR + 2 - 3 points; - ROE should not exceed 16-18 %; - A general contractor with experience in the hydro construction field and with solid bank guarantees ought to be hired for the EPC contract. Under these circumstances there one can finalize hydro projects through the project finance system. In order that the action of attracting private capital is successful, in any case it is primordial that it is strong support for behalf of the government to unfurl a public -private partnership project. The integral capitalization of the hydropower potential by building new hydroelectric plants - that implies in most of the cases as well as dam construction - represents on a long term for Romania both a condition of development and a prosperity source