Seasoned independent expert in Capex and cement engineering

Due Diligences and Expertises

1. INTRODUCTION

The LENDER has been mandated to co-ordinate a long-term PROJECT financing for a cement plant in the COUNTRY.

The LENDER intends to select an independent the IE firm as the Lenders’ Independent Engineer (“IE”).

With this, the IE accepts to undertake and carry out the mentioned and required tasks to accomplish the PROJECT. With this goal, the contracting parties held discussions that led to a mutual agreement according to which the IE will carry out the described tasks for this PROJECT, in compliance with the terms and conditions agreed herein.

Among others the IE shall – on behalf of the LENDERS :

- Review the technical and equipment sourcing concept in total.

- Review the contracts for the cement plant and supervise the implementation and start-up phase of the PROJECT as well as assess the ability of the PROJECT teams to erect the plant.

- Assist in the review of technical terms/issues in the loan documentation (e.g. definition of Technical Completion) and also consider in his review the requirements and the actions necessary by the LENDER for the implementation of the relevant national and local laws, regulations and standards applicable.

2. METHODOLOGY

The monitoring of the PROJECT implementation is based on information received from the LENDERS, on the experience of the IE and on the results of the different site missions.

The main objective is to guarantee that the PROJECT will be implemented according to the state of the art and in conformity with the requirements and schedule of the LENDER.

the IE’s mission will start with a review of the existing documentation on the PROJECT. The documents will be sent to the office of the IE latest two weeks after enter in force of the AGREEMENT. A report prepared by the IE will be issued within the following 2 weeks, summarizing the findings, suggestions and recommendations.

An initial site visit of six effective days followed by periodic follow-up 3 days missions will mainly contain the following:

Delegation of one or two the IE’s experts (according to the needs) for a detailed site inspection, including erection of equipment, civil works, infrastructures, auxiliaries and quarries as well as environmental and social aspects.

The first mission will go in depth throughout the PROJECT and scrutinize all aspects on a technical, environmental and social point of view. If particular events have affected the PROJECT, they will be taken into consideration and remedies will be proposed.

The IE will familiarize with all parameters that may influence the works.

Examination of existing major documents related to the PROJECT.

Collection and review of social and environmental studies and in particular Environmental and Social Review Summary (ESRS) and action plans (resettlements and social and environmental management action plans) etc.

Meeting at site with staff personnel to define the main issues of the PROJECT and to record the necessary requirements.

Meeting at site with staff personnel and main contactor(s) to review the different milestones of the PROJECT.

The meetings will focus on design studies, works problems and their solutions, progress of works vs. time schedule, progress of costs vs. budget, safety measures at site, status of environmental and social action plan.

Examination and comment on main design (plant layout, flow-sheets).

Checking of the compliance of the works with the main contract and in respect of international standards.

Reviewing of the production capacities.

Information to the client of all important aspects of the PROJECT development with particular emphasis on quality standards, performances, costs, dates and safety.

Further site missions will record the progress of the works and comments will be proposed to improve the situation if needed.

Prior to and at the end of each mission the IE PROJECT manager will have a phone contact with the LENDER’s team leader.

At the end of each site mission, the engineer will prepare a report within two weeks. The report will encompass the main findings with comments and propose solutions to improve the progress of the PROJECT. The report will be addressed to the LENDER.

3. SCOPE OF WORKS

3.1 Initial Technical Due Diligence Report (Initial PROJECT Documents review)

A maximum of documentation on the PROJECT will be sent to the IE prior the plant visit and the IE experts will study the available documentation in their office.

Realistic capital investment, working capital and costs
Technical feasibility of the PROJECT concept
Warranties provided by the original equipment suppliers
Opinion on adequacy of performance guarantees and liquidated damages provided by the main contractors
Limits of responsibilities
Interface Risks
Realistic implementation scheme and time schedule
Comments on concept to verify compliance with technical specifications
Comments on the flow of information requirements to closely follow the parameters of the PROJECT development.

3.2 Initial Site Visit

A first site investigation of four effective days (6 days including travel time) by two experts from the IE together with the CLENT team leader will take place in the COUNTRY for a visual observation of the site.

Meetings will be organized with individuals / entities / community members based upon the IE expert requirements to discuss the issues mentioned above and obtain any additional information. The LENDER team leader will assist in the discussions and ensure that the IE expert gets all information requested about the PROJECT.

The IE will have access to any information already gathered by the LENDER and to meetings with relevant parties.

The IE will gather and format the existing information and findings in a relevant manner for the cement industry and will identify any points which may be missing from the above.

3.3 Inception Report

The review of PROJECT documents and site visit will be documented through a short minute of meeting followed by the production of an Inception Report (Summary of Principal Findings including an overview of next steps/to do’s and a qualification of their urgency, SWOT analysis) which will summarize the major issues as well as conclusions and recommendations and will serve as a basis for the future monitoring of the PROJECT. The Inception Report will flag the PROJECT risks.

3.4.1 CONSTRUCTION

Evaluate the construction activities to date (if any) and the planning for construction. Is there any completion risk? Is there any risk of cost-overrun in the construction phase of the PROJECT? Is there a risk of delay of construction?
Potential impact of logistics on schedule and PROJECT costs (such as reception conditions, roads, customs clearance, etc.)
Assess (and possibly revise) the supply contracts for the necessary equipment and services for the construction and operation of the plant. Comment on the nature of performance guarantees with the contractors and any interface risks. Evaluate the suitability of the contractual arrangements to safeguard achievement of the objectives: within schedule, budget and quality.

3.4.2 PROJECT’s TECHNICAL DESIGN

Technical feasibility and adequateness of the PROJECT concept in the specific local and regional context.
Adequateness of process technology, process concept and plant layout
Adequateness of planned capex and working capital figures.
Adequateness of assumptions for input requirements, particularly fuel and electricity, water, clinker and additives.
Is there potential for the use of alternative fuel and raw material utilization?
Envisaged logistics for inputs and final product.
Planned technical instruments for managing and monitoring the PROJECT.
Are the different contracts laid out and implemented such that they smoothly interlink?
Adequateness of (planned) insurance package

3.4.3 PLANT OPERATION

Evaluate the ability of PROJECT OWNER to take over and successfully manage the operations
Is the management well suited to a) implement the PROJECT and b) operate the new plant?
Assessment of PROJECT management and Management Information Systems / ability to meet technical, environmental & social specifications.
Are the implementation scheme and time schedule for the PROJECT realistic?
Any constraints which might impact the coming-on-stream of the PROJECT.
Comment on the operational/technical/logistical risks associated with amongst other, the use of imported clinker (including specific risks associated with clinker import/supply) in the grinding unit and the PROJECT OWNER’s ability to manage these risks within the COUNTRY of the PROJECT’s context.
Comment on appropriate and recommended raw material and clinker storage requirements at the PROJECT site
Comment on the information needed to monitor the parameters of the PROJECT’s implementation closely.

3.4.4ASSESSMENT OF COSTS and FINANCIAL MODEL

Assessment of PROJECT Investment Cost and Investment Cost benchmark
Estimation of the operational costs/EBITDA of the PROJECT with specific break-down regarding the main drivers
Verification of all relevant assumptions in the client’s financial model (including built in contingency and PROJECT schedule) backed by a comparison to other similar PROJECTs in the region.
Advise on parameters of PROJECT’s technical and financial completion.
Provide the Lenders with the following scenarios a) technical downside, b) time delays and c) cost overruns.

3.5 Follow-up during PROJECT implementation: Progress Reports

During the implementation of the PROJECT until Technical Completion, the PROJECT will be supervised by the IE to assess fulfillment of specific performance targets of the PROJECT and whether risks as established during the initial technical due diligence, or new risks, are confirmed, have increased, or decreased.

The scope of this assignment covers the quarries (if any for additives), cement plant, and related infrastructure (such as between quarry and plant, gas/electricity and water connections).

Based on discussions with the LENDER and site visits, the IE will submit Progress Reports to the LENDER with a particular focus on:

Progress of work (planned vs. actual), in particular time schedule of contractors as well as overall time schedule

Progress of cost (planned vs. actual), including assessment of contractors’ cash flow requirements (a detailed procedure for cost control will be agreed before signing of the loan documentation)

Assessment of variation orders (if any)

Review the application of insurance proceeds if any

Regular issuance of Eligible Cost Certificates confirming use of proceeds of the LENDER’s disbursements as well as adequateness of requested disbursement amounts.

The reports will include recommendations to be submitted to the LENDER.

The work of the IE shall address all relevant and applicable technical, economic, social and environmental aspects of the whole integrated plant, and in particular, the following:

Initial collection and review of the necessary documentation to fully understand the PROJECT and have a view of the monitoring issues. In particular: plant engineering information, investment plan, contractual arrangements regarding construction including foreign and local supplies (mainly main contractor EPC contract, sub suppliers contracts, consultancy services contracts), geological study, social and environmental studies, Environmental and Social Review Summary (ESRS) and action plans (resettlements and social and environmental management action plans), market studies, Technical Economical Feasibility study, etc.
Review of PROJECT management and future operation LENDER’s organization, including regarding social and environmental issues. Review of training plan activities.

3.5.1 CONSTRUCTION

Evaluate the construction activities to date and the planning for construction. Is there any completion risk? Is there any risk of cost-overrun in the construction phase of the PROJECT?
Potential impact of logistics on schedule and PROJECT’s costs (such as reception conditions, roads, customs clearance, etc.)
Revise the supply contracts for the necessary equipment and services for the construction and operation of the plant. Nature of performance guaranties. Evaluate the suitability of the contractual arrangements to safeguard achievement of the objectives: within schedule, budget and quality.

3.5.2 CHECKING OF PERFORMANCE TARGETS

As part of the monitoring of the PROJECT progress the IE will verify and report to the Lenders about the fulfilment of specific performance targets of the PROJECT. the IE will report to the Lenders about the fulfilment of the technical parameters for the Technical Completion under the Loan Documentation.

The frequency of the progress reports and site visits will be determined according to the PROJECT’s needs (with a planned schedule to be mutually agreed after the Initial site visit). the IE, the LENDER may reasonably request additional meetings and or reports at any time if needed will be as supplementary works.

Based on his experience the IE shall propose a frequency of visits, to the site for the planning, construction and operation phases until Technical Completion (providing information on the duration of each visit and overall number of visits, c.f. see schedule and fees table).

3.5 Verification of Technical Completion of the PROJECT

The IE will verify and report to the lenders about the fulfillment of conditions and requirements for the Technical Completion of the PROJECT, as specified in the PROJECT Agreements between the Lenders and the LENDER (including the EPC contract).

Such report will also address the performance test procedure and results, e.g.:

Assessment of performance testing program as issued by the contractor.
Review performance test results after their completion.
Review of the quality Assurance Program.
Supervise and advise the LENDER on the provisional and final acceptance certificates.
Final confirmation that the LENDER fund has been used in line with the PROJECT documents.

4. SCHEDULE

The work of the IE commences immediately after signature of the mandate, with a due diligence mission to the COUNTRY (together with the PROJECT manager of the LENDER) taking place as soon as practicable. A first draft of the report to be produced by the IE will be provided within 3 weeks of having signed the mandate, with the final report being scheduled two weeks thereafter.