The topic of this essay is project finance. Although it is considered to be a relatively new method of finance, its roots go back to the late 1920's when it was invented to initially provide American wildcatters with longer - term production finance. During the 1930's and 1940's improved engineering techniques were developed, which improved to ability to forecast recovery of oil reserves. banks, which also employed some technical staff applied these techniques, and were thus able to give oil production loans in excess of three years. Or, in other words, they accepted the risk that revenues from oil production would enable the borrower to repay the loan only out of the cash generated by this project. The creditworthiness of the borrower was irrelevant. Nowadays, project finance is not only limited to the petroleum sector, although this sector and other natural resource industries still remain leading users of project finance. A significant part of the project finance market is accounted for by power and other private infrastructure projects. Another significant feature of project finance is, that project finance has nowadays nothing to do with capital constraints, for major international mining, energy or power projects are developed by some of the world's largest companies. Risk management aspects which speak in favour of using project finance are gaining importance. (Compare: Pollio, Page 87) Concerning the structure of this essay, it will start off by giving some basic definitions and characteristic features of project finance. This chapter will be followed by a description of possible applications of project finance. After that, stages of project finance will be outlined. As this essay mainly concentrates on risks and problems that can occur when investments are project financed the following chapter will deal with that. Besides, special problems concerning the Basel II accord will be outlined, and methods how to judge upon risks and minimize the project's risk exposure will be explained. In the last chapter, some examples of project financed investments will be outlined.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Basic definitions and characteristics
- Applications
- Stages of Project finance
- Planning stage
- Construction stage
- Run-up stage
- Operating stage
- Divestment stage
- Identifying and Managing Project Risks
- Identifying Project Risks
- Managing Project Risks
- Static methods
- Dynamic methods
- The influence of the Basel II Accord on Project finance
- Examples of project finance
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay aims to provide a comprehensive overview of project finance, a financing method that has evolved since the late 1920s, initially used in the oil industry. The essay explores its application beyond the energy sector, specifically in power and private infrastructure projects, and delves into the crucial aspects of risk management in this context.
- Definition and characteristics of project finance
- Applications of project finance in various industries
- Stages involved in project finance
- Risk management strategies in project finance
- Influence of the Basel II Accord on project finance
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the concept of project finance, tracing its origins and highlighting its importance in sectors beyond petroleum, such as power and infrastructure projects. It emphasizes the growing significance of risk management aspects in project finance.
- Basic definitions and characteristics: This chapter explores various definitions of project finance, emphasizing the crucial elements of non-recourse or limited recourse financing, where lenders rely on project cash flow and asset value for repayment. It also outlines the key characteristics of project finance, including separability of the project from its investors, long-lived capital-intensive projects, cash flow predictability, and finite projects with finite lives.
- Applications: This chapter discusses the various applications of project finance across different industries, highlighting its increasing popularity in private sector involvement in public infrastructure projects.
- Stages of Project finance: This chapter outlines the different stages involved in project finance, including planning, construction, run-up, operating, and divestment. Each stage presents unique challenges and opportunities for managing risk.
- Identifying and Managing Project Risks: This chapter focuses on identifying and managing risks associated with project finance. It delves into static and dynamic methods for risk management, highlighting the significance of the Basel II Accord in shaping risk management practices.
Schlüsselwörter (Keywords)
Project finance, non-recourse financing, limited recourse financing, risk management, Basel II Accord, Special Purpose Vehicle (SPV), infrastructure projects, power projects, cash flow, capital-intensive projects, debt service, credit risk, project stages, planning, construction, run-up, operating, divestment.
- Quote paper
- Christian Herbst (Author), 2004, Project Finance, Munich, GRIN Verlag, https://www.grin.com/document/39903
