1. PROJECT FINANCE Caiaphas Mwanakwale Habasonda
(MA (Econ), BA (Econ & Business Administration) & Bachelor of Laws (LLB) /
INTEL-SOFT FINANCE LIMITED

2. COURSE OBJECTIVES Conceptualize Project Finance
Know the Project Finance Cycle
Know Financial Instruments used in project Finance
Understand the Due Diligence Process
Identify Sources and Uses Of Funds
Identify, assess & treat risk

3. COURSE OUTLINE SYLLABUS Concepts in Project finance
Rationale for Project Finance
Stakeholders
Project Finance Cycle
Due Diligence Process
Financing Instruments/Options
Project Characteristics, Risk Analysis/Mgt
Public Private Partnerships

4. RECOMMENDED READINGS

5. WHAT IS A PROJECT? A GUIDE TO THE PROJECT MANAGEMENT BODY OF KNOWLEDGE (PMBOK GUIDE) FOURTH EDITION) PROJECT MANAGEMENT INSTITUTE p6.
A temporary endeavor undertaken to create a unique product, service or result
“Temporary” connotes a definite beginning and end; not short duration/not apply to product service or result; outcomes often outlast project
End reached when
Project objectives achieved
Project terminated cos objectives will/can not be met

6. PROJECT FINANCE DEFINED
Finance Invested in a project
Non-recourse: dependent on creditworthiness of sponsors
Not Collateral-based
Cash-flow driven
Gati S Project Finance in Theory and Practice

7. PROJECT FINANCE DEFINED
The International Project Finance Association (IPFA) : “The financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project.”

8. RATIONALE FOR PROJECT FINANCE
Facilitation of Project Development
Public Debt Reduction
Reduce/Eliminate Impact on Balance Sheet (Limited Recourse/Non-Recourse)
Optimization of Risk Allocation (Structured Finance)
Management of Project Costs (Fixed Time/ Fixed Price/Lump Sum Contract)
Value for Money
Optimization of Return on Investment
Attraction of Private Sector in Public Goods & Services Investment

9. DISTINCT FEATURES
DEBTOR is a project company (SPV), financially and legally independent from sponsors;
LENDERS have limited or no recourse to sponsors after project completion
PROJECT risks are allocated equitably among all parties involved-risks allocated to contractual parties best able to control/manage them

10. DISTINCT FEATURES
CASHFLOWS generated by SPV must be sufficient to cover operational costs, service debt in terms of capital and interest
COLLATERAL-given by the sponsors to lenders as security for receipts and assets tied up in managing the project

11. KEY TERMS IN PROJECT FINANCE
The Project
Project Sponsor/Promoter/Developer
Government (Concession/PPP)
Special Purpose Vehicle (SPV)-Investment Vehicle
Equity Provider(s)-Returns
Lenders-Terms/Conditions & Debt Service Capacity
Off-taker (Buyer) Contract(s)
Supply Contract(s)
Engineering, Procurement, Construction( EPC) Contract(s)
Operation & Maintenance (O & M) Contract
Insurance
Cash Flow
Security or Collateral Packaging

12. National Development Strategy Post Implementation Evaluation
THE PROJECT CYCLE
National Development Strategy
Identification
Preparation
Appraisal
Approval
Implementation
Monitoring
Post Implementation Evaluation

13. BASICS OF PROJECT DEVELOPMENT

14. PROJECT STRUCTURE
Givers
Non Givers

15. ADVISORS Financial Technical Legal Marketing Environmental Social
Insurance
Others

16. ROLE OF ADVISORS Expertise Experience Network Credibility
Work Load Reduction
Blame Game / Punch Bags
Time Management
Project Management
Process Management

17. PROJECT ENVIRONMENT Political Economic Social Technological
Legal and Regulatory
Environment

18. ALTERNATIVE I CORPORATE INANCE
Alternative -Corporate Financing (on-balance sheet)
New Project incorporated into existing corporate structure
All assets/Cash-flows from existing entity, guarantee additional credit
All residual assets/cashflows can be used as source of repayment for new/old creditors

19. ALTERNATIVE II PROJECT FINANCE
Off-balance Sheet
New Project incorporated-Separate Economic, legal and Financial entity
Assets/Cash-flows of SPV, completely not available at all or available to creditor claims on a limited recourse basis
Failure of project limited to SPV
Existing shareholders not affected by project failure

20. DISADVANTAGES OF PROJECT FINANCE
Legal, Technical, Insurance and other advisors need a long time to evaluate project
Transaction Costs High-typically 5-10% of total Investments Costs
Cost of Monitoring the project in process extremely High
Lenders expected to charge significant costs in exchange for taking on greater risk

21. ADVANTAGES OF PROJECTFINANCE
High level of risk allocation-possible to support higher debt-equity ratio than otherwise-hence higher equity Internal rate of return
Accounting wise, contracts between sponsors and SPVs are essentially commercial guarantees;
Collateral limited to assets of the project; does not extend to those of sponsors which could be available, in case further recourse were needed.
SPV makes possible complete isolation of the Sponsors from project financing, hence risk in case of failure

22. MAIN DIFFERENCES BETWEEN CORPORATE AND PROJECT FINANCE
FACTOR
CORPORATE FINANCE
PROJECT FINANCE
Guarantees for Financing
Assets of Borrower (already in place)
Project Assets
Effect on Financial Elasticity
Reduction of financial elasticity for Borrower
No, or heavily reduced effect on sponsors
Accounting Treatment
On-balance Sheet
Off-balance Sheet
Main variables underlying the granting of financing
Customer Relations
Solidity of balance sheet
Profitability
Future Cash flows
Degree of Leverage Utilized
Depends on effect on borrowers balance sheet
Depends on cash flows generated by the projected. Leverage usually higher

23. SOURCES
Gatti, S (2008) Project Finance in Theory and Practice, Elsevier Inc. London.
Project Management Institute Inc., (2008) A Guide to the Project Management Body of Knowledge (PMBOK), Fourth Edition, Project Management Institute Inc. Pennsylvania
Malumo, S Appraisal of Infrastructure Projects with Private Sector Participation, Presentation made to SADC DFI Participants, Gabarone, Botswana 2012   .

24. The End