Project financing risks mitigation instruments
Abstract
Project financing risks mitigation instruments
Project financing provides an efficient allocation of risks between key counterparties of project initiatives, which are best suited and have the most appropriate instruments to cover this risks. The study of structural and operational principles of project financing risk management instruments: contractual arrangements and associated guarantees (turnkey (engineering, procurement, and construction) agreement, contractual structures of the operating period: offtake / procurement agreements, operation and maintenance agreement), contingency funds, cash trap, risk compensation devices, derivative contracts and insurance – allowed to reveal specifics of their application and assess their implication for mitigation the project financing risks and for success of the project financing initiatives.
Keywords: project finance, risk management, project financing risks, turnkey (engineering, procurement, and construction) agreement, put-or-pay contract, take-or-pay contract, operations and maintenance agreement, debt service coverage ratio, cash trap