A Strategic View on Planning and Financing Management in Di…

A Strategic View on Planning and Financing Management in District Cooling Financial Investments into advanced sustainable technology, such as district cooling are sometimes mismanaged. Efficient deployment of investment to maximize shareholder value and understanding the working capital requirements, for both district cooling providers and developers, is often overlooked and consequently have a negative impact on the industry. It is essential that organizations plan/monitor their investment, cash flows, working capital requirement, and deploy cash efficiently to maximize shareholders value. The cash management function

Mr. Ahmad Shehadeh Chief Financial Officer Qatar Cool

(treasury) includes capital structure management and operation cash management.

The main goals for a successful treasury function are to reduce the cost of funding, improve investment performance, ensure availability of liquidity, and manage the cash and funding risks. Before investing in district cooling or any large-scale project, organizations need to assess the projects capital costs. The optimum timing and milestones of the construction need to be scrutinized. Decisions on the debit/equity portions of the project, assessment of the risks involved as well as the securities that are offered to the lenders also need to be considered. Organizations need to ask themselves, what are the expected returns of the project and will they be able to meet the set commitments and objectives. District cooling, an infra structure business, requires a large financial commitment from the district cooling providers prior to commencement of operation. The advance investment allows for the construction and installation of the pipe network and cooling plant, after which the service will commence through a long-term contract with developers spanning 20-25 years. Advance agreements with developers are essential to mitigate risks to the cooling provider, specifically if the project is delayed or decommissioned. At times the agreement protects the cooling provider commercially, however they remain exposed to other risks. The developer is obliged to pay fixed rates to the cooling provider starting from a set date in the agreement, even if construction of the building is delayed. Developers see this obligation as unreasonable, why should they pay for a service which they cannot receive because construction is delayed? Who is at fault, the cooling provider who has honored their commitment to have the service ready for the contracted date, or the developer who mishandled their financial management? From an operational structure point of view, district cooling providers and developers need to always monitor the working capital requirements, manage short term and long term cash projections, invest excess cash in short term investments, ensure proper risk mitigation on cash flow and the currency/interest rate exposures, ensure receivable collection terms are reasonable and shortened as much as possible, ensure to have good credit terms with contractors and utility providers, and have the right mix between cash and bank credit lines. Effective and efficient planning and financing management is vital and imperative not only to the district cooling providers but also to the customers and developers to maximize their savings and benefits, increase shareholders value, and encourage investments in such sustainable technologies.

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