presentationoninfrastructureprojectfinance-110316073340-phpapp02

7/27/2019 presentationoninfrastructureprojectfinance-110316073340-phpapp02

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Financing of Infrastructure Projects:The Role of a Project Finance Counsel

Presentation by

Mohit SarafPartner

Luthra & Luthra

Law Offices


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L&L/NLS 2

Overview

What is Project Finance?

Role of a Project Finance Counsel

Public Private Partnership Financing

Risk Matrix

Project Finance Requirements Requirements


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L&L/NLS 3

What is Project Finance ?

There is no strict definition but as per the international

practice the definition below could be used

Project Finance is financing the development or

exploitation of a right, natural resource or other asset

where the bulk of the financing is not be provided by any

form of share capital and is to be repaid principally out of

revenues produced by the project in question


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L&L/NLS 4


Risk allocation and mitigation through Negotiation and Documentation

among the project participants

Minimizing residual risk with the SPV

Balancing conflicting interests of various project participants

Achieving successful Financial Closure by ensuring fulfillment of

Project Finance requirements


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L&L/NLS 5


(Contd)

Structuring of Project Vehicle

Tax Structuring

Ensuring regulatory and statutory compliances


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L&L/NLS 6

Public Private Partnership

Structures

Build Operate Transfer (BOT)

Build Own Operate Transfer (BOOT)

Build Transfer Operate (BTO)

Build Own Operate (BOO)

Design, Construct, Maintain & Finance (DCMF)

Design, Build, Finance & Operate (DBFO)

Disinvestment


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L&L/NLS 7

Financing

Project Financing vs. Balance Sheet Financing vs. Asset

Financing

Project Financing Source of Finance

Commercial Banks

Financial Institutions

Export Credit Agencies & Multilateral Agencies

Capital Market


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L&L/NLS 8

Lenders

Shareholders

Agreements

Project company

Credit AgreementSecurity

Documents

Concession

Agreement

Consents

Government

Construction

Contract

MarketRisks

Offtake

Agreement

Operating and

Maintenance

Agreement

Promoters Supplier

Offtaker

Finance Risks

SupplyAgreement

OperatorContractorConstruction &

Operation Risks

Insurances

Insurers


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L&L/NLS 9

Risk Matrix

Completion Risk

Technological Risk

Supply Risk

Market Risk

Financial Risk

Political Risk

Environmental Risk

Force Majeure Risk


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L&L/NLS 10

Project Finance Requirements

Hate surprises; will not accept risks which are either

incapable of proper assessment or which are potentially

open-ended in their effect

No change in law risk

No discriminatory taxation

Minimise risk-dumping on project company No liability for consequential loss

Contracts must survive enforcement of Banks security


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L&L/NLS 11

Project Finance Requirements -Consents

Consents must last for duration of project

Regulators should not be able to vary the terms of consentsunduly

Consents should inure to project and not just to project

company

Government Support Agreements


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L&L/NLS 12

Project Finance Requirements -Promoters

All equity contributions to be provided up-front

Promoters to provide cover for cost overruns

Promoters to provide cover for gaps in undertakings

including insurance.


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L&L/NLS 13

Project Finance Requirements -Concession Agreement

Terms of concession fixed for life of project

No unduly onerous terms on project company

Extension of term forforce majeure

Compensation for termination must repay debt

Concession should survive enforcement of security

Transferability of concession on security enforcement


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L&L/NLS 14

Project Finance Requirements -Construction Contract

Turnkey fixed price contract

Fixed completion date Force majeure, price increases and completion must back

to back with concession agreement

Adequate liquidated damages for late completion

Performance Guarantees


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L&L/NLS 15

Project Finance Requirements -Operation & Maintenance Contract

Proper incentives to run project properly and profitably

including penalties for failure to meet targets

Ability to remove operator for poor performance


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L&L/NLS 16

Project Finance Requirements -Supply Contract

Security of supply and remedy for interruptions

Take or Pay obligation


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L&L/NLS 17

Project Finance Requirements -Off-take Agreement

Full pass-through of capital and variable costs

Foreign exchange protection

Take or Pay obligation

Credit enhancement including Government Guarantees


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L&L/NLS 18

Security

Why Security?

Security Package

Key contracts Physical assets

Revenue

Insurance

Direct Agreement Cure & Step in Rights

Substitution