INDEPENDENT ENGINEER
A typical scope of work for Merlin Associates as Independent Engineer in support of Project Financing is shown below. This scope of work includes most of the possible options which we have been requested to provide. Not all projects have included all of these services.

Merlin Associates will audit the proposed project facility in order to support the decision-making process for the various banks participating or considering participating in financing the project. The audit is performed as an Independent Engineer with no Merlin involvement in the outcome of the analysis nor in the actual project work. The result of the audit will be to provide a written report explaining the findings of the audit. Frequently Merlin makes presentations of the results to the Lead Bank, The Arranging Bank Group, and/or participates in Syndication meetings to other potentially interested banks at various locations around the world.

DEFINITIONS:

EPC
Engineering, Procurement, Construction contractor company designated as the Prime Contractor for project implementation.

Independent Engineer
Engineering company that will provide an independent Technical, Financial, Project Management, and Project Implementation review of the potential project.

Lead Bank
This can be the Lead Bank, a designated Lead Technical Bank from the Arranging Bank group, Agent Bank, or any coordinating financial institution designated by the Lead Bank.

Merlin Associates
Merlin

Owner/Company
The party(ies) seeking to obtain Project Finance.

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INITIAL PROJECT REVIEW and RISK ANALYSIS REPORT
Merlin will analyze the available project documents, drawings, and reports. The Lead Technical Bank will coordinate appropriate meetings with Owner/Company and arrange for the required documentation to be made available in a timely manner to Merlin. It is assumed that Merlin personnel will visit the Owner/Company offices for presentations and question/answer sessions to review the documentation and discuss project planning and philosophies with appropriate Owner/Company Project Management personnel.

Scope of Work
Upon apppointment as designated Independent Engineer, Merlin will receive a full scope of work. This is the basis of the Independent Engineer’s project Audit along with the project documentation listed below.

Project Documentation Desired for Review

1. Project Basis of Design
2. Project Capital Budget Cost Estimate and underlying assumptions
3. Project Execution Plan
4. Project Schedule – level III preferred.
5. Project Process Flow Diagrams
6. Overall Facility Heat & Material Balance
7. Facility Plot Plans
8. Project Organization Charts for Owner/Company Project Team and Major Engineering Contractor for each of their main execution locations.
9. History of previous actual project Construction Performance to date & Capital Cost Allocation To Major Accounts, i.e., Engineered Equipment, Bulk Materials, Material Related Expenses (Ocean and Inland Freight, Customs Duty, Vendor Engr., Third Party Inspection), Erections Sub-Contractors, Supply & Erect Sub-Contractors, Prime Contractor, Any Owner Overhead Costs that will also be included in the project.

Usually it is most efficient if the documentation can be shipped to Merlin offices prior to the visit to the Owner/Company project offices

Key Personnel Desired Available for Questions & Answers

1. Owner/Company and EPC Project Managers.
2. Process Engineering Supervisor familiar project design and interface with downstream facilities.
3. Operations Supervisor familiar with proposed project facility operation. Should be able to review and discuss operating expense system and how the system will be applied to.

Project Risk Analysis Report
Merlin will immediately begin preparing the Project Audit/Risk Analysis Report. The report outline will have the following format:

The Introduction will define Merlin’s basis of analysis. The Executive Summary and Current Project Status sections are believed to be self-explanatory.

The Project Technical Risk Analysis section will review the project design compared to current technology, existing facilities, and comment on any significant differences. The project design and integration with downstream facilities will be reviewed for safety, adequacy, operability, maintainability, constructability, and reasonable capital and operating costs.

Merlin does not have the current Basis of Design nor the description of total facilities that will be installed under this project financing. Upon receipt of the full Independent Engineer’s project scope of work, a full project terms of reference will be agreed between Lead Bank and Merlin.

The Project Capital Cost section will analyze Owner/Company capital cost estimate in comparison to similar most-recent projects and present Merlin’s 75% Probable and 95% Probable Non-Exceedance cost estimates in comparison. The estimate data will be presented in the following format (assuming this is consistent with already developed project reporting formats) with appropriate discussion.

Merlin’s methodology of capital cost analysis and calculation of Probable Non-Exceedance cost estimates is based on using Merlin’s proprietary capital cost estimating models with MicroSoft Project and Excel software package the major project activities. The probability analysis is performed on the summarized cost accounts using @Risk for Project and @Risk for Excel. The Project Schedule section will provide Owner/Company expected major milestone achievement dates versus Merlin’s expected 75% and 95% Probability dates.

The Project Operating Cost section will provide Merlin commentary on the Owner/Company provided Operating cost data with reference to comparable costs at other existing facilities.

The Merlin’s Project Risk Analysis Report will probably be on the order of 40 - 50 pages. Merlin assumes that 10 total copies of the report will be provided to Lead Bank and another 3 copies to Owner/Company. Merlin further assumes that 30 additional copies will be provided for the finance syndication meetings with a total of 50 copies including Merlin file copies and spare copies for future use.

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ONGOING PROJECT REVIEW and ANNUAL PROJECT REPORTING
Merlin has typically provided ongoing project review and monitoring services to the financing institutions during construction, commissioning, startup, and operation until conclusion of a satisfactory Completion Test.

Ongoing Project Review
Ongoing project review comprises Merlin reviewing various monthly and special project progress reports sent from Owner/Company directly to Merlin. Merlin reviews the reports immediately upon receipt but only reports significant issues that may impact project cost or completion schedule to Lead Bank.

Merlin will occasionally converse directly with the Owner/Company project liaison person regarding any questions arising from the reports to insure complete understanding.

Merlin is essentially continuously available for questions from Banks (or any of the Syndicate Bank Members) with current overall project status. Merlin normally asks that all banks coordinate their contacts through a designated representative bank to avoid confusion and to insure proper communications.

Annual Project Reporting
Merlin typically provides an annual project update to the banks. This can be provided quarterly, semi-annually or annually. Merlin will visit Owner/Company’s primary project office approximately thirty days prior to issuing one of these reports for and will then visit the plant construction site after the project review meetings.

Merlin will then prepare a project update report that will have the same sections described in the Initial project review. The report will primarily focus on variances from the last report. It is assumed that this report will be approximately 15 pages in length and that 40 total copies will be reproduced and couriered to Agent Banks, Syndicate Bank members, and Owner/Company.

Project Special Reports
It is uncommon for the project basis of design to significantly change or be expanded during the course of execution. In the event that this should occur, Merlin is called upon to review the variance and report on it to the Financing Institutions.

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PROJECT COMPLETION WITNESSING
Owner/Company’s contract with the prime contractor will specify that the project is complete and accepted upon completion of a satisfactory performance test by the facility.

It is common for at least a portion of this testing to be witnessed by the Financing Syndicate Independent Engineer. The entire test usually takes place over several days (or weeks). Merlin normally is present only for one day at design processing rates and receives a copy of the test data for review and then sends a letter of their agreement that the project does perform to specification and has every likelihood of meeting project contract requirements.

The Financial Terms and Conditions normally specify various conditions that must be satisfied to meet the Completion Test for conversion from Construction Phase to Long Term Operations Phase. Merlin reviews all specified proof of completion and provides a letter of compliance to the financing institutions.

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TECHNCAL CONSULTANT

INDEPENDENT ENGINEER

OWNER’S ENGINEER

COST of CONSULTANT SERVICES