Book contents
- Frontmatter
- Contents
- Preface to the Third Edition
- Preface to the Second Edition
- Preface to the First Edition
- PART ONE AN INTRODUCTION TO PROJECT FINANCE
- PART TWO RISK IDENTIFICATION, ALLOCATION, AND MITIGATION
- CHAPTER TWO PROJECT FINANCE RISKS
- CHAPTER THREE PROJECT FINANCE CROSS-BORDER RISKS
- CHAPTER FOUR PROJECT FINANCE COMMERCIAL RISKS
- PART THREE PROJECT FINANCE STRUCTURES
- PART FOUR TECHNICAL, POLITICAL, AND ECONOMIC FEASIBILITY
- PART FIVE PROJECT FINANCE DOCUMENTATION
- PART SIX CREDIT ENHANCEMENT
- PART SEVEN DEBT AND EQUITY FINANCING
- PART EIGHT COLLATERAL
- PART NINE PROJECT SPONSOR AND INVESTOR AGREEMENTS
- PART TEN SPECIAL TOPICS IN PROJECT FINANCE
- Appendix A A Checklist of Due Diligence Considerations for a Project Financing
- Appendix B UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects
- Project Finance Terms, Abbreviations, and Acronyms
- Select Bibliography
- Index
CHAPTER TWO - PROJECT FINANCE RISKS
from PART TWO - RISK IDENTIFICATION, ALLOCATION, AND MITIGATION
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface to the Third Edition
- Preface to the Second Edition
- Preface to the First Edition
- PART ONE AN INTRODUCTION TO PROJECT FINANCE
- PART TWO RISK IDENTIFICATION, ALLOCATION, AND MITIGATION
- CHAPTER TWO PROJECT FINANCE RISKS
- CHAPTER THREE PROJECT FINANCE CROSS-BORDER RISKS
- CHAPTER FOUR PROJECT FINANCE COMMERCIAL RISKS
- PART THREE PROJECT FINANCE STRUCTURES
- PART FOUR TECHNICAL, POLITICAL, AND ECONOMIC FEASIBILITY
- PART FIVE PROJECT FINANCE DOCUMENTATION
- PART SIX CREDIT ENHANCEMENT
- PART SEVEN DEBT AND EQUITY FINANCING
- PART EIGHT COLLATERAL
- PART NINE PROJECT SPONSOR AND INVESTOR AGREEMENTS
- PART TEN SPECIAL TOPICS IN PROJECT FINANCE
- Appendix A A Checklist of Due Diligence Considerations for a Project Financing
- Appendix B UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects
- Project Finance Terms, Abbreviations, and Acronyms
- Select Bibliography
- Index
Summary
RISK
What is risk? It has been defined as “uncertainty in regard to cost, loss, or damage.” Uncertainty is the important aspect of the definition. Project finance abhors it.
An important part of the successful closing of a project financing is the risk structuring process. It is during this process that risks are identified, analyzed, quantified, mitigated, and allocated so that no individual risk threatens the development, construction, or operation of the project in such a way that the project is unable to generate sufficient revenues to repay the project debt, pay operating expenses, and provide an attractive equity return to investors. This is done primarily through the contracting-out process – allocating risks among parties in contract form. In the following chapters, which make up Part 2 of this book, the risk structuring process will be examined.
Risks in a transnational project financing may be classified into two general categories: transnational and commercial. Subclassification is made for each risk in these two categories in the chapters dedicated to them. Beyond this classification system, risks can be examined at the participant level, identifying the risks most important to each.
By itself, risk identification is only a starting point. The processes of risk analysis and management are important next steps in structuring a successful project. The methods available to manage these risks (transfer to another participant by contract; mitigating the risk by sharing equity ownership with an entity that can reduce the risk; risk minimization and loss prevention; and credit enhancement), singularly or in combination, are discussed in the following chapters.
- Type
- Chapter
- Information
- The Law and Business of International Project FinanceA Resource for Governments, Sponsors, Lawyers, and Project Participants, pp. 27 - 38Publisher: Cambridge University PressPrint publication year: 2007