Introduction to

Project Finance
PRESENTED BY:

Dr. Amit Hedau,

Asst. Professor, NICMAR
Table of Meaning of Project
Project Finance

Contents Project finance Vs Corporate Finance

Advantages and Disadvantages of Project Finance
 Meaning of Project &
Its Features
01. Definition Features Features Features
Project Finance is the Long Term Financing Project must generate Project has a finite life
structured Financing of a of a Specific Project sufficient cash flow for debt
special economic entity—the
SPV, or special-purpose repayment and dividend.
vehicle, also known as the
project company—created by
sponsors using equity or
mezzanine debt and for which Project Company is a Debt is secured by assets of
the lender considers cash Special Purpose Vehicle project company (SPV)
Flows as being
the primary source of loan (SPV)
reimbursement, whereas
assets represent only
collateral..
Need of Project Financing
• Alternative 1 – Balance Sheet Financing.

• Alternative 2 –
• Project Financing using SPV.

Project finance is classified as a non-recourse type of financial structure.

 Project Finance
01 Advantages 02 Disadvantages
1. Complexity of the process due to the increase in the
1. Allows the promoters to undertake projects without exhausting their
number of parties and the transaction cost.
ability to borrow amount for traditional projects.
2. Expensive as the project development and diligence
2. Limits financial risks to a project to the amount of equity invested.
process is a costly affair.
3. Enables raising more debts as lenders are sure that cash flows from the
3. Litigious with regard to negotiations.
project will not be siphoned off for other corporate uses.
4. Complexity due to lengthy documentation.
4. Provides stronger incentives for careful project evaluation and risk
5. Requires broad risk analysis and evaluation to be
assessment.
performed.
5. Facilitates the projects to undergo careful technical and economic
6. Requires qualified people for performing the
review.
complicated procedures of project finance.
6. Eliminates the dependency on alternative nature of funding a project.
7. Obligations regarding the trust fund account need to
7. Facilitates the arrangement of liability financing and credit
clearly specify.
improvement, accessible to the project but unavailable to the project
8. Higher level of control which might be exercised by
sponsor.
the banks, which might bring conflict with the
8. Enables the diversification of the project sponsor’s investments to
businesses or contract.
reduce political risk.
9. Gives more incentive for the lender to cooperate in an atmosphere of a
troubled loan.
10. Enables to have prolonged credit opportunities.
11. Matches specific assets with specific liabilities.
 Stages in Project in Financing
1 2 3
Pre-Financing Financing Post Financing
1. Arrangement of Finances 1. Timely Project Monitoring
1. Identification of the Project Plan
2. Loan or Equity Negotiation 2. Project Closure
2. Recognizing and Minimising the Risk
3. Documentation and Verification 3. Loan Repayment
3. Checking Project Feasibility
4. Disbursement

LIFE CYCLE OF PROJECT: From Project Idea to CP &

CA
Types of Contract
in PPP Projects
PRESENTED BY:

Dr. Amit Hedau,

Asst. Professor, NICMAR
 1. Meaning and Features of Project Contract

2. Structure of Project Contract

3. Need and Importance of Project Contract

4. Types of Contract

Table of A. Shareholders Agreement

B. State Support Contract

Contents C. OMDA Agreement

D. Loan Agreement

E. EPC Contract

F. Turnkey Construction Contract

G. Purchase and Sales Agreement

H. Raw Material Supply Agreement

 Project Contract
Definition
Features
A project contract is a legal
1. Offer and Acceptance
agreement between two or
more parties that will be 2. Scope of Work
working on a project that 3. Contract Price
outlines the obligations,
4. Condition Precedents (CP)
duties, and expectations of
both parties. 5. Risk Sharing
 Structure of Project Contract
Contractual and Financing Structure of National Highway 1 Panipat–Jalandhar Toll
Road Project
Need and Importance of Project
Contract
PWD ends up paying Rs244cr for Rs2.36cr works, contractor se ..
Types of Contract in
Project Finance
Shareholders Agreement

A corporation that has multiple shareholders is inevitably going to need

an agreement that outlines what happens when one of those
shareholders wants to leave the corporation, sell his or her shares, or
take on more business partners.
At a basic level, a shareholders agreement sets out the rights,
restrictions and obligations of each shareholder relative to one another,
and sets out the rules of the game in the event of an exit or dispute.
Right of First Refusal
in Shareholders
Agreement:

A Case of Ambani
Brothers
State Support Agreement
CHENNAI: The much-awaited Maduravoyal-Chennai Port elevated corridor project would be constructed at a cost of
Rs 5,770 crore. A memorandum of understanding would be signed between the National Highways Authority of India
(NHAI), the Navy, Chennai Port and the Tamil Nadu government, finance minister Palanivel Thiyagarajan announced
on Friday.
The projec was conceived in 2010 by the then DMK government headed by M Karunanidhi. The project commenced in
September 2010. It was aimed at easing the city traffic and free movement of freight fro and to the port.

However, it was stalled after the AIADMK came to power in 2011 as then chief minister J Jayalalithaa opposed the
project, stating that it would have an adverse impact on environment and also result in flooding the residential areas.
The government had also defended its decision pointing out that 14km out of the 18.3 km of the elevated expressway
would fall on the river Cooum. The pillars were erected on the river.

The NHAI resumed the project after the TN government signed a state support agreement (SSA) for the project in
December 2016.
State Support Agreement
State Support Agreement
means the agreement
entered into amongst the
Government and the
Concessionaire for
provision of support,
backup, assistance and
services required from
Government in Uttar Pradesh government
signs state support agreement
connection with the with Noida International
Project. Airport
OMDA Agreement
______and JVC have
entered into
an Operation,
Management and
Development
Agreement (hereinafter
the OMDA) whereby
they have agreed upon
the terms and conditions
upon which the JVC shall
operate, finance and
manage the asset.
Loan Agreement

A loan agreement is a formal

contract outlining important
counterparty information Loan Agreement between ADB and Soma Isolux NH

and responsibilities, as well One Toll Way Private Limited for the expansion (to
six lanes) of the National Highway 1 Panipat–
as credit terms like the loan
Jalandhar Toll Road Project.
amount, the type of loan
being extended, the
repayment schedule, and the
interest rate.
Power Purchase Agreement
A power purchase
agreement (PPA), or
electricity power agreement,
is a long-term contract
between an electricity
generator and a customer,
usually a utility, government
or company. PPAs may last
anywhere between 5 and 20
years, during which time the
power purchaser buys
energy at a pre-negotiated
price.

Material Supply Agreement
it is a sale agreement where
one party agrees to sell and
the other agrees to buy
definite goods of economic
value.
Few Terms of Raw Material Supply
Agreement
1. Sale, third party sales whether allowed
2. Non-Competition
3. Non-Solicitation.
4. Quality.
5. Shipping, Packaging and Formalities
6. Inspection of Goods and Records
7. Seller’s Warranties
8. Validity of the Agreement.
9. Statutory Requirements
10.Legal Remedies and termination
11.Indemnification
12.Independent Contractors
13.Assignment
Role of Legal and Technical
Advisor in Project Finance
PRESENTED BY:

Dr. Amit Hedau,

Asst. Professor, NICMAR
 1. Role of Lawyers

Table of A. Forming Group of Sponsors

Contents
B. Industrial Development of Project

C. Project Financing

D. Maintenance of Project Financing

2. Role of Technical Advisor

 Importance of Legal Issues in
Project Financing
The Issue of Developing Airport
Financing of Bullet Train Project by Indian Railways
Green Field Air Port Project
 Role of Lawyers in
Project Financing
Understanding the basics of Project Finance is extremely important for a Lawyer to work upon the Legal due
diligence in Project Finance. The nature of project finance work also means that lawyers in this field gain a huge
amount of knowledge in Finance, Contract Drafting. Lawyers will be involved in not only the negotiation and
drafting, but will also be expected to review and comment upon the documentation being drafted by attorneys
located in each other jurisdiction applicable to the transaction. As a result, Lawyers are often required to
understand key documentation issues with the client. Attorneys also spend a great deal of time reviewing the
agreements applicable to a project, in order to prepare detailed due diligence report for the client. The purpose of
such due diligence reports is to advise the clients on contingent liabilities and legal risks associated with a project
that would be substantial to an investment or a lending decision. Given the technical nature of the project
agreements, Lawyers will be expected to take the information in coordinating input from the various technical,
financial, insurance and market consultants hired by the clients to assist in the due diligence and documentation
process.
Forming Group of Sponsors
01 Objective
02 Objective
To create the best possible Appointment of To obtain the best result for
legal basis for developing the one Legal Advisor itself in financial and
project so that future to represent the contractual terms when
contractual partners (lenders SPV structuring the project as a
but also the project joint venture.
company’s suppliers and
purchasers of goods or
services) see it as a solid and
cohesive venture
 Industrial Development of
Project
When speaking of industrial development of the project, this in fact refers to making the
necessary preparations to begin construction work but not construction itself. This is because
01
the necessarySubfinancing
headline is not yet available; in fact, work will begin when structuring the deal,
is complete. Typically this development stage concerns the project documents:

In this stage the project company sets up contracts and obtains permits and other legal papers
required to realize the necessary works and to operate in accordance with the aims of the
project. At this stage, the project company lawyers usually perform the task of drawing up a
complete list of these documents and finalizing and/or obtaining them.
 Project Financing
At this stage the project is almost entirely in the hands of lawyers. More than any other
document, the credit agreement is a contract that requires highly specialized lawyering.
Decisions Sub
of headline
a business nature required from the principal actors (arrangers and project
01
company’s sponsors) are the guidelines around which the credit agreement is fashioned.
This then becomes the control document for the entire project. In the early stages, a specific
project finance deal is above all an industrial idea regulated by a financing contract, which
will then provide most of the financial resources to realize the project itself.
Maintenance of Project Financing
This is the last step where the role of lawyer comes to an end. The project lawyer has to
maintain the relationship with various stakeholders of the project and express his opinion
01 Sub headline
on legal issues arising during various stages of the project.
Role of Technical Advisor (Independent
Engineer) in Project Finance

1. Initial Due Diligence Reporting

2. Monitoring Realization of the Project (Engineering and Construction)
3. Assistance at the Time of Project Acceptance
4. Monitoring Operations Management
Contact
Information
PHONE NUMBER
937 310 54 28

EMAIL ADDRESS
ahedau@nicmar.ac.in
 Thank you!
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