Background
International
Project finance typically involves multiple parties from different
jurisdictions with conflicting interests that must be protected and obligations
that must be clearly defined. The structure of project finance loan can be
limited recourse or non-recourse to the project sponsors. The underlying
rationale is to distribute risk among the participants involved. In cross
border transactions, it is important to anticipate and properly analyze the possible
risk the project could be expose to in the host state and identify solutions
that can be used to mitigate or eliminate the impact of the risks. In order to
mitigate or reduce the risks associated with jurisdictional issues, clauses
should be incorporated in the contract agreements between the counter parties
at different phases of the project. The contracts include- Sponsor
Support Agreement, Loan Agreement, Collateral Security Agreement, Power
Purchase Agreement (PPA), Engineering Procurement and Construction (EPC)
Agreement, Operations and Maintenance Agreement (O & M), Fuel Supply
Agreement, Concession Agreement, Management Agreement, Joint Venture Agreement
and Shareholders' Agreement. The following issues and questions can be
identified from the above scenario:
1.
What are the applicable laws and institutional
framework that will govern the project in the host country?
2.
What structure should the business transaction take?
3.
What will be the currency of the transaction since the
financier and project will be based in different jurisdictions?
4.
What is the profitability of the project?
5.
What is the structure of the project loan?
6.
What is the political history of the host country?
7.
What are the other risks to be considered in that
jurisdiction and how can the project be secured from such risks?
Possible
approaches to address these issues are discussed below: