Parties to a project finance?

PROJECT COMPANY
The project company is the legal entity that will own, develop, construct, operate and maintain the project. The project company is generally an SPV created in the project host country and therefore subject to the laws of that country


PROJECT SPONSOR
The project sponsor is the entity that manages the project. The sponsor generally becomes equity owner of the SPV and will receive any profit either via equity ownership (dividend streams) or management contracts (fees). The project sponsor generally brings management, operational, and technical experience to the project. The project sponsor may be required to provide guarantees to cover certain liabilities or risks of the project. This is not so much for security purposes but rather to ensure that the sponsor is appropriately incentivized as to the project’s success.
BORROWER
A project may in fact have several ‘borrowers’, for example, the construction company, the operating company, suppliers of raw materials to the project and purchasers (off-takers) of the project’s production.
FINANCIAL ADVISER
The project sponsor may retain the services of a commercial or merchant bank to provide financial advisory services to the sponsor. The financial adviser theoretically will be familiar with the project host country and be able to advice on local legal requirements and transaction structures to ensure that the loan documentation and financial structure are properly assembled.
THE LENDERS
The large size of projects being financed often requires the syndication of the financing. The syndicated loan exists because often any one lender individually does not have the balance sheet availability due to capitalization requirements to provide the entire project loan. Other reasons may be that it wishes to limit its risk exposure in the financing or diversify its lending portfolio and avoid risk concentration.
TECHNICAL ADVISER:
Technical experts advise the project sponsor and lenders on technical matters about which the sponsor and lenders have limited knowledge (oil, mining, fuel, environmental). Such experts typically prepare reports, such as feasibility reports, for the project sponsor and lenders, and may monitor the progress of the project.
LAWYERS:
Project finance lawyers provide legal experience with specific experience of project finance structures, experience with the underlying industry and knowledge of project contracts, debt and equity documents, credit enhancement and international transactions.
Project finance lawyers provide advice on all aspects of a project, including laws and regulations; permits; organization of project entities; negotiating and drafting of project construction, operation, sale and supply contracts; negotiating and drafting of debt and equity documents; bankruptcy; tax; and similar matters.
EQUITY INVESTORS:
These may be lenders or project sponsors who do not expect to have an active management role as the project goes on stream. In most cases, the equity investment is combined with agreements that allow the equity investor to sell its equity to the project owner if the equity investor wishes to get out. Third party investors normally look to invest in a project on a much longer time scale than a contractor who in most cases will want to sell out once the construction has reached completion.
CONSTRUCTION COMPANY:
Since most project financings are infrastructural, the contractor is typically one of the key players in the construction period. Construction can be either of the EPC or ‘turnkey’ variety. EPC, or engineer, procure, and construct, is when the construction company builds the facility as per already designated specifications. Turnkey, on the other hand, is when the contractor designs, engineers, procures and constructs the facility, assuming all responsibility for on-time completion. In both cases, it is important that the construction company selected has a track record of successful project management and completion.
REGULATORY AGENCIES:
Projects naturally are subject to local laws and regulations. These may include environmental, zoning, permits and taxes. Publicly owned projects also will be subject to various procurement and public contract laws. It is important to ensure that a project has received the entire requisite per- missions and licenses before committing financial resources. In many markets, such ‘roadblocks’ may require extensive and time-consuming preparation for applying for the requisite government permission followed by indeterminate waiting.
EXPORT CREDIT AGENCIES:
Government-supported export financing includes pre-export working capital, short term export receivables financing and long term financing. ECAs play important roles in infrastructure and other projects in emerging markets by stimulating international trade. They normally provide low cost financing arrangements to local manufacturers who wish to transport their technology to foreign lands. ECAs also provide political risk insurance to projects.
HOST GOVERNMENT:
The host government is the government of the country in which the project is located. The host government is typically involved as an issuer of permits, licenses, authorizations and concessions. It also might grant foreign exchange availability projections and tax concessions. In some projects, the host government is an owner of the project, whether majority or minority, or will become the owner of the project at the end of a specified period, such as in a build-own-transfer (BOT) structure. It might also be involved as an off-take purchaser or as a supplier of raw materials or fuel.
CONSTRUCTION CONTRACTORS:
These include the engineers and contractors responsible for designing and building the project. Any or all of these parties may be contractually part of the financing. The contractor is the entity responsible for construction of the project; to the extent construction of a facility is a part of the overall project. It bears the primary responsibility in most projects for the containment of construction-period costs.
SUPPLIERS:
Suppliers provide raw materials or other inputs to the project, since sup- ply arrangements are key to project success, project sponsors and lenders are concerned with the underlying economic feasibility of supply arrangements and the supplier’s ability to perform the contracts. Closely linked to inputs are the matter of appropriate transportation links and the ability to move the requisite materials or machinery through customs.
PURCHASERS:
In large infrastructure projects, the project company will seek in advance to conclude long term agreements to sell the good or service being produced by the project (e.g. selling coal to electric power plants). This is known as an ‘off-take agreement’. The output purchaser provide a crucial element of the credit support for the underlying financing by seeking to stabilize the acquisition of the raw materials over time and protect itself from market volatility. Such support can be seen as a credit enhancement (such as guarantees) to make the project more attractive to the financing banks.
LEASING COMPANIES:
If capital allowances are available for the writing-down of plant and machinery or other assets, the project structure might involve one or more financial leasing companies. Their role will be to lease out assets to the project company in return for a rental stream. In addition to the tax advantages are the financial ones of keeping the assets off the project company’s balance sheet.
INSURERS:
The sheer scale of many projects and the potential for incurring all sorts of liabilities dictates the necessity of arranging appropriate insurance arrangements. Insurers therefore play a crucial role in most projects. If there is an adverse incident affecting the project then the sponsor and the lenders will look to the insurers to cover them against loss.