about infrastructure projects and its features, financing.

1. Financing infrastructure projects

2. Infrastructure projects
Infrastructure includes the production of economic services from
utilities(electricity, gas, telecommunications and water) and transport
works(roads, bridges, urban transit system, seaports, and airports) and is
central to promote economic activity.
Internal facilities of a country that make business activity possible, such
as communication, transportation, and distribution networks, financial
institutions and markets, and energy supply systems counts to be
infrastructure projects.
Features of infrastructure projects:
• Highly capital-intensive
• Huge sunk cost
• Long operating life

3. Key parties in an infrastructure project with responsibilities
• Project sponsor: responsibilities of project sponsor in making an infrastructure
project a real are
responsible for converting a concept into a project and have a role in setting up a
project vehicle
Identifying and recruiting right managerial talent to implement and run the project
Providing a clear mandate to management on their expectations
Subscribing to a significant proportion of equity in the project vehicle

4. Cont.…
• Project vehicle: the responsibilities of project vehicle in implementing a project
are
Delivering a bankable project during the financing phase
Implementing the project
Operating it in a manner that is financially viable
Selecting and appointing all the project contractors
Negotiate and execute the contracts
Raise the financing
Supervise construction and commissioning
Operates the project either directly or through an Operation &
Maintenance(O&M) Contractor

5. Cont.…
• Project lenders: project lenders are responsible for
Providing debt to finance the construction of the project. Typically a group of
project lenders, led by a “lead Bank”, determines a bankable project cost and in
consultation with the SPV and the project sponsor a “Means of Finance” to
finance the same
Disburses debt
Performs a monitoring role during the construction phase,
On commissioning monitors the performance and operation of the project till all
debt is repaid

6. Cont.…
• EPC contractor: responsibilities of EPC Contractor are
Designs the project
Procures all the engineering skills and equipment to construct the project
Raises all the project facilities
Ensures that test and trial-runs are completed
Finally commission the project
the key objective of this party is to deliver a project as per predefined specifications,
within a certain cost and time frame. It also provides performance guarantee to the
SPV’s. It may choose to subcontract certain portion of assignment

7. Cont.…
• O&M Contractor: they are responsible for
Operating and maintaining the plant in line with the industry best practices
Performance parameters that need to be achieved during operations are defined in
an O&M contract and they provide managerial skills and operations experience to
achieve the possibly surpass the agreed parameters

8. Cont..
• Government:
Government is the key project party.
It provides a concession to the SPV to set up the project and ensures that a proper
legislative and regulatory framework exists that allows the SPV to compete on a
level playing field along with existing companies, in the same field.

9. Project configuration
• Project sponsors have to follow the following arrangements while
implementing infrastructure projects:
Projects are implemented in a Special Purpose Vehicle which is
distinct corporate entity incorporated with the objective of
implementing and operating the project. Risk associated with the
project are rising-fenced and do not flow back to the sponsor entities.
Project sponsor take an equity stake in the SPV. The minimum stake
could be in the range of 15-30% of the project cost and is referred to
the sponsors’ contribution

10. Cont.…
The SPV enters into contractual arrangements with the project contractors, off
takers, operators, government, and project lenders(project parties). In non-recourse
project financing project lenders would not have any fall back on the assets of the
sponsors if the SPV fails to meet debt servicing obligations, but in the case of
limited-recourse financing project sponsors would have certain contractual
obligations towards project lenders. Other parties do not have re-course to the
project sponsors
Infrastructure projects can be financed at a relatively higher gearing

11. Public-Private Partnership (PPP)
• Public-private partnership (PPP) is a funding model based on a contractual
arrangement between a public agency (national, state or local government) and
a private sector entity. Through this agreement, the skills and assets of each sector
(public and private) are shared in delivering a service or facility for the use of the
general public.
• PPP arrangements are useful for large projects that require highly-skilled workers
and a significant cash outlay to get started. They are also useful in countries that
require the state to legally own any infrastructure that serves the public.
• Key model in PPP:
Design-Build (DB):The private-sector partner designs and builds the infrastructure
to meet the public-sector partner's specifications, often for a fixed price and also
assumes all the risk

12. Cont.…
Operation & Maintenance Contract (O & M): the private sector partner operates a
publicly owned assets for a specified period of time but public partner retains the
owner
Design-Build-Finance-Operate (DBFO):private-sector partner designs, finances
and constructs a new infrastructure component and operates it under a long-term
lease and transfer on completion to the public sector
Build-Own-Operate (BOO):The private-sector partner finances, builds, owns and
operates the infrastructure component in perpetuity(permanently).
Build-Own-Operate-Transfer (BOOT): The private-sector partner is granted
authorization to finance, design, build and operate an infrastructure component
and transfer ownership after completion of specified time.
Buy-Build-Operate (BBO): This publicly-owned asset is legally transferred to a
private-sector partner for a designated period of time.

13. Cont..
Build-lease-operate-transfer (BLOT):The private-sector partner designs, finances
and builds a facility on leased public land When the lease expires, assets are
transferred to the public-sector partner.
Operation License: The private-sector partner is granted a license or other
expression of legal permission to operate a public service, usually for a specified
term.
Finance Only: The private-sector partner, usually a financial services company,
funds the infrastructure component and charges the public-sector partner interest
for use of the funds.