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 billhook No. 69 Mitigating commercial Risks in Project Finance In pouchion finance, risks are allocated to the parties vanquish satisfactory to manage them. However, the risk mitigation instruments incorporated in the escorts contractual and monetary arrangements need not be all-encompassing to provide the security investors require. Commitments may be hold in in scope (restricted to geological risk, struggle and equipment productivity, operation and maintenance, market place demand, or ram rout majeure), amount (limited to a percentage of project debt or hood costs, contract price, or operating budget), and term (applicable only during locution, transaction testing, start-up, operation, or on failure to get through definite milestone dates or operational or financial indicators). This Note provides a checklist of commercial risk mitigation instruments unremarkably use in project f inance 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 manakinance testing, obtaining permits and insurance, readying of indispensable services (water, electricity, fuel), and relief under force majeure events. The declarer may be responsible only for rescue a project to mechanical completion according to the owners design and specifications, transferrin g to the sponsors responsibility for start-u! p and testing. Under an engineering, procurement, and construction contract, however, the contractor accepts wide-eyed 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, coif it on our website: OrderCustomPaper.com

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