1. Financing of Infrastructure Projects:
The Role of a Project Finance Counsel
Presentation by
Mohit Saraf
Partner
Luthra & Luthra
Law Offices

2. Overview What is Project Finance? Role of a Project Finance Counsel
Public Private Partnership
Financing
Risk Matrix
Project Finance Requirements Requirements
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
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
L&L/NLS

5. Role of a Project Finance Counsel (Cont’d)
Structuring of Project Vehicle
Tax Structuring
Ensuring regulatory and statutory compliances
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
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
L&L/NLS

8. Construction & Operation Risks
Finance Risks
Market Risks
Lenders
Promoters
Supplier
– Credit Agreement
– Security Documents
Shareholder’s Agreements
Supply Agreement
Offtaker
Offtake Agreement
Project company
Insurances
Insurers
– Concession
Agreement
– Consents
Operating and Maintenance Agreement
Construction Contract
Government
Contractor
Operator
Construction & Operation Risks
L&L/NLS

9. Risk Matrix Completion Risk Technological Risk Supply Risk Market Risk
Financial Risk
Political Risk
Environmental Risk
Force Majeure Risk
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
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 consents unduly
Consents should inure to project and not just to project company
Government Support Agreements
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.
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 for force majeure
Compensation for termination must repay debt
Concession should survive enforcement of security
Transferability of concession on security enforcement
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
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
L&L/NLS

16. Project Finance Requirements - Supply Contract
Security of supply and remedy for interruptions
Take or Pay obligation
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
L&L/NLS

18. Security Why Security? Security Package Direct Agreement Key contracts
Physical assets
Revenue
Insurance
Direct Agreement
Cure & Step in Rights
Substitution
L&L/NLS