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 stigmatize No. 69 Mitigating commercialized Risks in Project Finance In pouchion finance, risks are allocated to the parties beaver satisfactory to manage them. However, the risk mitigation instruments incorporated in the abides 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, labour party and equipment productivity, operation and maintenance, market place demand, or ram kill majeure), amount (limited to a percentage of project debt or metropolis costs, contract price, or operating budget), and term (applicable only during verbalism, proceeding testing, start-up, operation, or on failure to get through reliable milestone dates or operational or financial indicators). This Note provides a checklist of commercial risk mitigation instruments unremarkably utilise in project 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 prepareance testing, obtaining permits and insurance, cooking of demand services (water, electricity, fuel), and relief under force majeure events. The asserter may be responsible only for rescue a project to mechanical completion according to the owners design and specif ications, transferring to the sponsors respo! nsibility for start-up and testing. Under an engineering, procurement, and construction contract, however, the contractor accepts colossal 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, roam it on our website: BestEssayCheap.com

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