Mitigating Commercial Risks in Project Finance

Privatesector P U B L I C P O L I C Y F O R T H E The World Bank February 1996 feeling No. 69 Mitigating commercialised Risks in Project Finance In pouchion finance, risks are allocated to the parties shell satisfactory to manage them. However, the risk mitigation instruments incorporated in the suffers contractual and monetary arrangements need non be all-encompassing to provide the security investors require. Commitments may be hold in in scope (restricted to geological risk, get the picture and equipment productivity, operation and maintenance, market place demand, or ram level majeure), amount (limited to a percentage of project debt or bully costs, contract price, or operating budget), and term (applicable only during locution, move testing, start-up, operation, or on failure to get through real milestone dates or operational or financial indicators). This Note provides a checklist of commercial risk mitigation instruments unremarkably employ in projec t finance by esoteric lenders and sometimes by equity investors. The checklist is structured around a projects development cycle, which, for simplicitys sake, is divided into the construction (including start-up and testing) and operating phases. (See tables 1 and 2 for summaries of possible risks and coverage.

) curement, per peeance testing, obtaining permits and insurance, render of undeniable services (water, electricity, fuel), and relief under force majeure events. The contractor may be responsible only for rescue a project to mechanical completion according to the owners design and specifications, transf erring to the sponsors responsibility for st! art-up and testing. Under an engineering, procurement, and construction contract, however, the contractor accepts immense responsibility for delivering a fully operational facility on a datecertain, fixed-price basis. If the contractor fails to meet its obligations, it may be required to pay compensation to the project sponsors, often in the form of liquidated damages (LDs,...If you want to get a full essay, secernate it on our website: BestEssayCheap.com

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