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Financing of Infrastructure Projects:
The Role of a Project Finance Counsel
Presentation by
Mohit SarafPartner
Luthra & Luthra
Law Offices
8/7/2019 Presentationon_infrastructure_project_finance
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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
Role of a Project Finance Counsel
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
Role of a Project Finance Counsel
(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 Agreement
Security
Documents
Concession
Agreement
Consents
Government
Construction
Contract
Market Risks
Offtake
Agreement
Operating and
Maintenance
Agreement
Promoters Supplier
Offtaker
Finance Risks
Supply
Agreement
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 potentiallyopen-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 ofBanks 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