HomeRegional NewsAfricaWhat to look for in a (lender’s) technical advisor

What to look for in a (lender’s) technical advisor

When it comes to the technicalities of a project, the old saying that the devil is in the detail could not be more appropriate. All too often projects deliver average results when, with the right focus on the technicalities, they could move from average to outstanding performance.

There is no doubt that in many markets renewable energy has become a mainstay with technologies and project scopes advancing as the market matures. However, project risks still require careful evaluation to deliver the best possible performance – both technically and financially.

And key to this is the technical advisor carrying out the analysis. Let’s take a look at some of the key considerations when appointing an advisor.

Knowledge of the market

The renewables landscape across Africa is developing rapidly, and while global perspectives are most definitely an advantage, sometimes it is the market specifics that are the deal-breakers.

Most procurement on the continent is done via tenders, therefore Sponsors are looking to reduce costs and come up with innovative ways to manage risk and structure projects. While of course, you can do your homework by reading industry journals, news and/or attending events, but nothing beats hands-on involvement for up to the minute
understanding of trends, drivers, risks and opportunities.

In South Africa, getting new parties up to speed on a myriad of local complexities such as BBEEE, Local Content Requirements, Force Majeure and termination provisions under the Eskom PPA and other quirks of the market can be difficult. These items are challenging enough with the changes from bid window to bid window so experience through working is invaluable.

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And of course, understanding the peculiarities of individual lender teams, and how that works in a consortium, only comes from having worked with them in previous projects.

Relying on market understanding from your last project or discussion with advisors 12 or 18 months ago, is already hugely out of date – in the RMIPPPP in South Africa, there were 24 briefing notes issued after the massive RFP documents. Good technical advisors see a vast array of projects come across their desks allowing them insight to develop novel solutions, identify trends and potential opportunities.

Appropriate team

In these strange times where travel is restricted, it becomes particularly important to ensure that your advisor has boots on the ground. Desktop reviews provide a certain level of risk mitigation but nothing can beat laying eyes on a project.

Hence the importance of a local team that can carry out site visits to confirm findings from the desktop assessment and providing a robust risk assessment. This is just as important for sites under development as it is for these under construction or in operation.

Having experience of projects from different viewpoints, such as Owners Engineer and operator, as well as advisory and across the lifecycle of projects in different regions allows a good LTA to provide value and insights to the due diligence process.

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Effective communication

Rather than rehashing what is contained in all the documents, which is time-consuming (i.e. expensive) and doesn’t necessarily provide clarity on what a lender needs, a good advisor will cut to the chase and focus on what the project actually needs.

Your advisor should focus on the key risks that can impact the project and hence its ability to pay back the lenders while retaining touch with reality – risks should always be considered in the context of magnitude (impact) and likelihood.

What is the goal? To close the project. Seems obvious, but sometimes the goal of some advisors appears to be to rack up hourly rates.

The job of the technical advisor is to translate the detailed technical analysis to something more easily understood by the financiers and sometimes the sponsors! Volume is not the goal…information and reports should be concise and to the point, relevant to the reader and with recommendations and residual risks to inform the decision making process.

Another key requirement for a good technical advisor is the ability to be flexible and respond quickly. Projects are constantly evolving so as the due diligence progresses, questions and queries come up regularly and require continuous exchange not only with the lenders, but also with the other advisors such as the legal and insurance teams.

Ideally, the advisor keeps the lender up to date with findings and is also able to adapt the scope of work as and when necessary to ensure the project closes.

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Commercial and technical advisor

A good technical advisor needs to be more than just technical. While this may seem counterintuitive, your technical advisor needs to touch on all aspects of the projects and balance the inputs with a commercial mindset. Engineers often focus on delivering a perfect project, when in fact a commercially feasible or bankable project more often than not factors in balancing technical design, economic and financial requirements, timescales, contracts, risks, market and regulatory considerations amongst others in a practical manner.

Contracting is a prime example of where this balance is crucial as market conditions, Sponsor, Lender and Contractor requirements compete for priority. Negotiating a warranty package, particularly for new hybrid projects, requires the advisor to lean on previous experience of warranty clauses, liquidated damages and termination clauses for each of the underlying technologies, and be able to design new terms to suit the project and the specific RFP.

Author: Chanda Nxumalo, director at Harmattan Renewables, providers of technical advisory, project management and asset management software 

Guest Contributor
The views expressed in this article by the author are not necessarily those of the publishers and/or association partners. While every effort is made to ensure accuracy, the publisher and editors cannot be held responsible for any inaccurate information supplied and/or published.