Project Finance: Fundamental Elements and Critical Issues
29 Pages Posted: 9 May 2019
Date Written: August 29, 2011
Abstract
In 1859 Ferdinand de Lesseps and his Suez Canal Company started what was considered at the time as an impossible infrastructural project, linking the Mediterranean with the Red Sea. Ten years and countless intricacies later, the Suez Canal opened for business. The project’s characteristics were precarious international financing, technical and political difficulties, unexplained cost variations and mediocre business results. If these bear the hallmarks of pure project finance, then probably the Suez Canal can be considered as its prototype.
This Paper is neither a technical nor a financial analysis of the Suez Canal project. It unfolds emphatically from this historical juncture because the characteristics and issues pertaining at the time are those still prevailing today. The technology, the formalities and the language of financing as well as the legal niceties of the relationships might have suffered progressive format changing, yet the underlying mechanics have remained unaltered.
Central to the Paper’s objective is the assessment and management of the various risk/return factors and how this impinges on the motivation of the various participants of the project. Risk is thus considered as the leading fundamental element which may, or may not lift off the project from its drawing board.
The second part of the Paper deals with contemporary thematic issues affecting the use or non-use of project finance. It considers that the credit crisis, the very recent sovereign bankruptcies, regulatory constraints and socio-economic considerations have given a new definition to project finance.
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