Cleanwater Inc. is an Australian public company involved in water treatment projects.

In early 2020 it was involved in negotiations with the provincial government of Da Nang in Vietnam.

Following the negotiation a proposed contract was submitted, as summarized below:

● Cleanwater will build a water treatment plant of 300,000 cubic metres/day capacity and serving 1 million people, via a joint venture company created with the Da Nang Water Supply Company

(to put in a 10 per cent stake), and a private local conglomerate, the Jade Group (30 per cent stake), with Cleanwater holding 60 per cent of the capital. The joint venture operates as a concession of the project under a BOT contract.

● The capital cost is estimated at $55 million of imported equipment and services plus 115 billion Vietnamese dong (VND) of local costs (rate of exchange is 23,000 VND to the dollar).

● The financing of the project is:

—— Shareholders: $30 million

—— New Development Bank (ex-BRIC Development Bank): 10-year loan of $10 million, with interest of 6 per cent, repayable in six instalments after the fourth year.

—— Export credit from EFIC, the Australian export credit agency: Spain: 8-year loan of $15 million, with interest at 3 per cent, refundable after the second year

—— Asian Development Bank: local currency 10-year loan of 184 billion VND, with interest at 8 per cent, repayable straight after 10 years.

● The contributions of shareholders to the joint venture are the following:

—— Cleanwater: $18 million cash

—— Da Nang Water Supply Company: $3 million cash

—— The Jade group, a local conglomerate: $8 million.

● The cost of operations and maintenance without depreciation and financing is estimated at 27,800 VND/m3 plus 200 billion VND.

It has been agreed that the joint venture will charge for water at 34,500 VND/m.3 Questions:

1 What are the risks in this project for Cleanwater?

2 What do you think of the financing of the project?

3 Cleanwater shareholders request a 15 per cent return on risky environments. Will they approve this project?