TABLE OF CONTENTS Project finance is subject to several types of risks. It is useful therefore to look at these risks by category and identify their salient features and characteristics.
Each project finance participant has a different perspective on risk, often based on the role it is playing in the overall project financing structure. This perspective will obviously impact the participant s appetite for risk. The view of risk moreover is subjective and based not only on economic factors but on characteristics relating to the financial condition of the participant. A particular risk, event or condition that is unacceptable to one party may be considered manageable and routine by another. The identification of risks and knowledge of the participants is therefore essential if a project financing is to be assembled successfully. We will therefore consider the risk perspective of each participant in a project financing.
The project sponsor s objectives are based on the very reasons the project finance exists. Due to the complexity of project financings, the sponsor is interested in several objectives, such as limiting further development costs, minimizing transaction costs, recovering development stage expenses and earning construction, management, or similar fees to fund project company construction activities for the project. And in the long term, the sponsor is motivated with the cash flow generation potential of the project. The sooner the project financing comes on stream, the sooner the sponsor benefits from the revenues generated. Thus, the sponsor would want to mitigate any risks which might delay or prevent...
