Financing Infrastructure Project

7/28/2019 Financing Infrastructure Project

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Concept of infrastructure project

Characteristics of infrastructure projects

They are highly capital intensive

The involves huge sunk cost

They have a long operating life

Mostly infrastructural project in India are owned andgoverned by government of India requirement but forthe massive requirement of fund encouragement of

private sector given priority. Private initiative ininfrastructural project may give many form .projectsthat are design to provide significant social objectivesuch as low cost urban transportation system suited

for traditional govts ownership.


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On the other hand for commercial projects privateparticipation is given priority.

A careful scrutiny is necessary for the infrastructure

project because it is different from the conventionalprojects. A careful planning is necessary forevaluating the project for both the areas of projectsevaluation of financing project is much moreimportance for getting economic of scale.

For a project financer it is important to know therisk associated with the project construction and

operation. Ownership and operations are separable and

variety of models are exists for different

characteristics project and regulation.


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ExAn electricity generation project which is the

private sector builds owns and operates for certain

period of time called (the concession period)and

finally transfer back to government. this concept is

called BOOT( build, owned operate and transfer) for

a road project a private company build the road

,operate it during the concession period and finallytransfer to the government.

Without actually owing the same this system is

called as BOT ( build operate and transfer)


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Aspects of infrastructure financing

Typical project configuration

Key project priorities

Project contracts

Financial structure and corporate governanceFinancing a power project

Financing telecommunication projects

Managing risk in private infrastructure projectsPublic private partnership


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Typical projects configuration

Due to the complexity of the risk project sponsors

are tended to follow some simple arrangement while

implementing some projects.

Projects are typically implemented in special purpose

vehicle. which is a distinct corporate entity incorporatedwith the objective of implementing and operating the

project. This ensures that risk associated with the project

are ring fenced and do not flow back to the sponsor entities.

Project sponsor take an equity stake in the SPV .the

minimum stake could in the range of 15-30 percent of the

project cost and is referred to as the sponsors contribution.


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The SPV enters into contractual arrangements with

project contractors, off takers ,operators

,governments and project lenders would not have

any fall back on the resources/asset of the

sponser.If the SPV fails to meet debt servicing

obligation the project sponsors would have certain

obligation to lenders. Infrastructure projects can be financed at a

relatively higher gearing (debt-equity)ratio via

conventional project


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Key project prioritiesA projects moves from the developing to matured

stage so several parties are get involved in theprojects. Like financial advisor, project lender,EPC

contractor, o and M contractor. Government.


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Projects contracts

To start any projects so many contracts are made

like shareholders agreement, EPC contract, projectloan agreement and contract.


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nanc a structure an corporategovernance

The essence of project finance is web of contracts

meant to ensure that all parties work in concert for

the success of the project, to distribute risk

efficiently and to prevent the abuse of monopoly

power. At the time of investment all the information's are

not duly informed like why all the project company

participate in the equity of the company and whythe company heavily depend on Debt.

Financing Infrastructure Project

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