Manajemen Keuangan Daerah 09

(1)

Manajemen Keuangan Daerah

Pertemuan ke-9

Project Finance dan Manajemen

Risiko Kredit

(2)

Overview Project Finance

Risiko kredit Pada Project Finance

Manajemen Risiko Kredit (Risiko Keuangan)

Analisis Arus Kas I (NPV dan IRR)

Analisis Arus Kas II (Arus Kas Individu)

Stress Testing/Simulasi

Manajemen Risiko Kredit (Risiko Politik)

(3)

(4)

Definisi Project Finance (PF)



A simple cash-flow stream

 Nilai dari PF tergantung dari pola arus yang dihasilkan dari proyek

individu dan nilai kolateral dari aset. Sumber arus kas dapat berasalh dari pembeli atau konsumen tunggal



Non- or limited-recourse

 An independent SPE is created to hold the project assets and to

integrate all legal contracts in an effective and efficient manner for

funding, building and operating a single purpose project. SPE is owned by one or a few sponsors and it is highly leveraged.



Alokasi Risiko

 PF digunakan untuk proyek besar, kompleks, dan berbiaya mahal

seperti yang terjadi pada sektor sumber daya alam dan infrastruktur, yang didalamnya terdiri dari beberapa kontrak legal antara supplier dan pembeli

(5)

Why PF Structure? Sponsors’ Motivation



Risk mitigation/Debt capacity

 By isolating the asset in a standalone project company, project finance

reduces the possibility of risk contamination, the phenomenon whereby a failing asset drags an otherwise healthy sponsoring firm into distress.

 The sponsor can preserve corporate debt capacity. 

To create asset specific governance structure

 Separate legal incorporation, which assumes a specific project and few

growth options, reduces both the cost of monitoring managerial actions and assessing performance, and wasteful expenditures and sub-optimal reinvestment.



Deterrent against strategic behavior by the third parties

 Sponsor can involve the critical parties for the project, including the public

sector, as shareholders to prevent future conflict.

 By involving international banks and multilateral agencies whose interest

is solely in cash-flow maximization by the project, the sponsor may prevent harmful action by the host government.

(6)

PF vs. Corporate Finance



Project Finance



Limited or non-recourse



Simple cash-flow structure

produced from one

independent waste asset



High-leverage at beginning,

but getting lower toward the

end of the debt repayment



Relatively a few layers of

debt and equity structure

(simple ownership)



Applied to projects attaining

a scale of economy



Corporate Finance



Full recourse



Complicated cash-flow

structure produced from a

set of various, replaceable

profit making projects



Leverage depends on a

company’s target capital

structure



Various layers of debt and

equity structure

(complicated ownership)



Applied to all profit making

(7)

Typical Structure of Conventional PF

Off-take purchaser Input supplier Operator Project company (SPE) Contractors Lenders

Sponsors Central/local_Government

Concession Authority Insurers Shareholders Agreement Equity Loan Agreement Debt Construction Agreement License/permit Concession Agreement Insurance Off-take agreement Supply agreement Operation/maintenance Agreement Power/utility Multilateral/b ilateral agencies Equipment suppliers

(8)

2. Credit Risks in Project

Finance

(9)

• Fire

• Flooding • Earthquake • Volcano • Disease

• Strike

• Insurrection • Terrorism • War Force Majeure Events Political Risks

• Corruption

• Legal/regulatory -irregularities • License/Permit • Concession • Taxes • Equity-holding • Currency -inconvertibility • Expatriation • Preemption/priority • Breach of contract

• Foreign worker limitation • Law enforcement

• Construction • Facility site • Equipment • Technology • Off-take • Input • Operation • Utility • Collateral

• Mineral reserves • Reporting accuracy Contractual Risks Commercial Risks Creeping Expropriation Outright Expropriation Natural Disaster

• Expropriation • Confiscation • Nationalization

War & Civil Disturbances

Financial Risks

Market Risks

• Interest rate • Exchange rate • Inflation rate • Labor cost

• Product market • Input market • Salvage cost

Project Finance Credit Risks Overview

Civil

Movements • Environment • Human rights • CSR

• Religion • Nationalism • Globalization

(10)

3. Credit Risk Management

(Financial Risks)

(11)

3.1 Cash Flow Analysis I

(NPV and IRR)

(12)

(1 + r )

Net Present Value (NPV) I

Tahun

Arus Kas Bersih

Arus Kas Keluar

Perjanjian Keuangan (Closing)

Sank costs

t = 0 t = 1

t = 2

t = 5 t = 10 t = 20 t = 30 t = 40

Present Value

Present value arus kas keluar t=2

Present value arus kas masuk pada t=10

PV =

- CF

₂

PV =

CF

Contoh

Sank cost tidak

mempengaruhi nalisis arus kas sebab tetap akan terpengaruh oleh

keputusan investasi

(13)

(1 + r)

CF

(1 + r )

-

CF

=

-

CF

+ + +

-

_{(1 + r )}

CF



+ +



+

(1 + r)

CF

(1 + r )



Net Present Value (NPV) II

1 2 10

=

Σ

t = 0

CF

Present value arus kas keluar pada t=2

Present value dari kas masuk pada t=10

PV

=

CF

PV

=

CF

10     



PV

=

-

CF

0 Present value arus

kas keluar pada t=0 Negative karena merupakan arus kas keluar

Positive karena merupakan arus kas masuk

Present value dari arus kas masuk dan arus kas keluar (arus kas bersih) adalah:

NPV = PV

+ PV

+



+ PV

As long as this value is positive, the project will produce more cash than necessary to repay debt and dividend.

(14)

Net Present Value (NPV) III



Implikasi

 NPV Positif: proyek akan menghasilkan nilai lebih banyak dari nilai yang

dibutuhkan untuk membayar hutang dan dividend untuk pemegang saham sehingga proyek dengan NPV positif sebaiknya diterima

 NPV 0: proyek akan menghasilkan nilai yang sama dengan nilai hutang

dan dividend yang digunakan untuk mendanai proyek

 NPV Negatif: proyek tidak dapat menghasilkan kas yang cukup untuk

membayar biaya modal kepada kreditur dan pemegang saham

 Kelemahan NPV adalah hanya menghasilkan nilai absolut

 Investasi $1 million dan $1 thousand secara teoritis dapat menghasilkan NPV

yang sama

(15)

(1 + r)

Internal Rate of Return (IRR)



Metode

 IRR tingkat diskonto yang mengasumsikan NPV=0



Implication

 IRR is useful when investors assess the project against their hurdle

rate, which is a cost of capital.

 IRR > Hurdle Rate: the project will produce more cash than the necessary

amount to repay debt and deliver dividend to shareholders.

 IRR = Hurdle Rate: the project will produce the exact amount of cash to

compromise investors’ cost of capital.

 Weak points of IRR

 It applies the project’s IRR to the reinvestment of cash in flows

 When there are more than one change from cash out-flow to cash-in flow, or

from cash-in flow to cash out-flow in the projection, the value of IRR are more than one: calculator would simply indicate “error”

IRR =

Σ

= 0

t = 0

CF

(16)

Future value of all cash in flows

Present value of all cash out flows

Modified Internal Rate of Return (MIRR) I

Year

Free cash flow

Cash out flow

Financial Agreement (Closing)

Sank costs

Present Value

Future Value

(1 + MIRR) =

← Cost of capital

Cost of capital →

(1 + r ) 1 t

(17)



Method

 MIRR is defined as the discount rate that forces the present value of

cash in flows (CIF) to equal the present value of cash out flows (COF).



Implication

 MIRR is better than IRR because it reinvest the cash-in flow by using the

cost of capital which is more realistic. Thus, MIRR tells more accurate profitability of the project.

 MIRR > Hurdle Rate: the project will produce more cash than the necessary amount to repay debt and deliver dividend to shareholders.

 MIRR is better than IRR because it allows more than one changes in

plus and minus signs in cash flow projection.

Σ

_{(1 + r )}

=

CIF

(1 + r )

Modified Internal Rate of Return (MIRR) II

(1 + MIRR)

FV of cash in flows

t = 0

_COF

t t = 0 N

(1 + MIRR)

Σ

N - t

PV of cash out flows =

(18)

Σ

(1 + r)

Σ

Profitability Index (PI)



Method

 PI is another way of using NPV by dividing PV of future cash flow by initial

investment.



Implication

 PI tells the relative profitability of the project by indicating the value of the

future cash flows par dollar of initial investment. When PI > 1, the project should be accepted. When PI = 1, this basically means NPV = 0 and MIRR = Hurdle Rate.

PI = =

PV of future cash flows

_{Initial investment}

t = 4

CF

(1 + r )

t t = 0

CF

(1 + r )

Σ

PI = =

PV of future cash flows

_{Initial investment}

t = 1

CF

Generally:

For the example cash flow projection:

(19)

$100 $500

Comparing two projects with NPV and IRR

-$1000 $100 $300 $400 -$1000 $600 $400 $300

Project A

Project B

NPV: $78.82 IRR: 14.5% MIRR: 12.1% PI: 1.08

NPV: $49.18 IRR: 11.8% MIRR: 11.3% PI: 1.05

Cost of capital: 10% Cost of capital: 10%

t t $200 $100 $300 $400 -$100 $0 NPV r %

5% 10% 15%

7.2% 11.8% 14.5% $49.18

$78.82

A conflict between NPV and IRR when: (1) Project size differences exist

(2) Timing differences exist below crossover rate.

Take NPV rather than IRR. The logic is That NPV selects the project that adds most to shareholder’s wealth.

Project A Project B

Crossover rate

(20)

NPV of FCF for the entire project life NPV of FCF during the life of the debt

Annual debt service (principal and interest payments)

Other Important Indicators



Debt service coverage ratio



Loan life coverage ratio



Project life coverage ratio



Debt-to-equity ratio

=

Outstanding debt

Annual FCF

Outstanding debt

Outstanding equity Outstanding debt

(21)

or

NPV

=

-

CF

+ + +





Decreasing Debt/Equity Ratio

 For calculating NPV for a project within a company or for a company’s

valuation, generally WACC (weighted average cost of capital) is used.

 In case of project finance the outstanding debt constantly declines and

debt/equity ratio keeps changing throughout the project life.

NPV

=

-

CF

+ + +



+

[1 + (R

+ β

x R

)]

NOPAT

+ tK

D

NOPAT

+ tK

D

[1 + (R

+ β

x R

)]

(1 +

WACCn

)

CF

(1 +

WACC2

)

CF

(1 +

WACC1

)

CF

Issues on Cost of Capital I

1 2 n

in which weight of debt is constantly adjusted

WACC = (weight debt x cost debt)(1 – T) + (weight capital x cost equity)

1 2

[NOPAT: Net Operating Profit After Tax, t: tax rate, KD: debt cost,

D: debt outstanding, Rf: risk free rate, βa: asset beta, Rp: risk premium] _{Tax shield}

adjustment

(1 +

WACC

)

CF

(1 +

WACC

)

CF

(1 +

WACC

)

CF

NPV

=

-

CF

+ + +

1 2 

+

(22)

Issues on Cost of Capital II



Reliability of CAPM in Project Finance Situation

 Both NPVP1 and NPVP2 in the previous slide involve the concept of

CAPM (capital asset pricing model) to get debt, equity and asset beta, which would not work appropriately in case of project finance for several reasons:

 A country where project is located may not have integrated/efficient market  Data would be not available for market risk premium

 An ideal instrument represents the risk free rate would not be available  CAPM may not able to incorporate all risks associated with the project  CAPM does not consider asymmetric down side risks

 Required return on debt may different between construction and operating

periods

 What if there is single purchaser located in other country? 

What to do?

(23)

3.2 Cash Flow Analysis II

(Individual Cash Flows)

(24)

Analysis of Individual Cash Flows

Free Cash Flow (FCF)

Year

Sales revenue

Year

Input cost Operating cost Taxes

Net investment (in maintenance) Construciton

costs

FCF used for NPV

(IRR) analysis

Anatomy of FCF

for project finance

(25)

Construction I



Construction contracts

 Fixed price contract (high premium/low risk, payment based on progress)  Turn-key contract

 The contractor accepts full responsibility for delivering a fully operational

facility on a date-certain, fixed price basis.

 EPC contract (engineering, procurement, and construction contract)  Cost plus fee contract (low premium/high risk, frequent payments)  Cost plus fee contract with maximum price and incentive fee

(26)

Construction II



Major risks I

 Increase in construction cost (cost over-run)

 Unavailability of sufficient funds to complete construction

 Inability to the project company to pay increased debt service during

operation, even if funded by debt

 Risk mitigation

 Turn-key contract

 Contractual undertakings—infusion of additional equity, standby equity

participants, contingency tranche in construction loan, standby cost over-run funding agreements

 Escrow funds, contingency account  Delay in completion

 Increase in construction costs and in debt service costs

 Delay in the scheduled flow of revenue to cover debt service and expenses  Breach of project contracts, such as fuel supply or off-take

 Risk mitigation

 Turn-key contract

 Stated milestones tied to construction loan contract

(27)

Construction III



Major risks II

 Project performance at less guaranteed levels

 Breach of off-take contract/decrease in project revenue  Increase in maintenance costs and input/utility costs  Inability to the project company to repay debt

 Risk mitigation

 Performance liquidated damage to cover the loss

 Third party guarantees such as letter of credit or performance bond (payment

bond), when financially weak contractors

 Bid bond/warranty bond/retention bond



Other risks

 Site acquisition and construction related facilities  Equipment, building material, and utility supply  Labor/environmental issues

 Force majeure risks  Risk mitigation

 All risk contractor’s riks insurance

(28)

Off-take Purchase I



Off-take agreements

 Take-or-pay contract (a form of unconditional guarantee)

 the purchaser is required to pay for a certain amount (fixed cost), even the

product is not delivered. The rest of the amount (variable cost) will be paid if the purchaser wants to buy.

 Take-and-pay (a form of conditional guarantee)

 the purchaser required to pay for a certain amount (fixed cost) for the

product delivered, when the product meets the contract quality requirements.

 Long-term sales agreements (obligation to purchase)

 typically one- to five-year agreement for the purchase and sale of specified

quantities of the project’s output. The purchaser has the obligation to

purchase the contract quantity only if it is produced and delivered, and meet the contract quality requirements.



Off-take purchaser’s financial strength



Market for product or service (in the long run)

(29)

Off-take Purchase II



Merchant project (Merchant facility)

 Merchant facility is a project finance without off-take contracts

 Cash flow fully relies on the market for project output and forecasts of

future market conditions (revealed to market risks).

 The analysis of market risk is similar to that used in any business model

(price, supply and demand).

 Risk mitigation

 Linking inputs and outputs  Reserve funds

 Cash calls

 Subordination of project costs to debt services  Hedging strategies

 The commodity supplier as project partner

(30)

Input



Major risks

 Increase in input costs  Risk mitigation

 Supply-or-pay contract  Fixed amount contract

 Requirements contract (cap/floor)  Output contract

 Subordination of project costs to debt services



Other issues

 Delay in completion of transportation facilities  Availability of supply

 Disruption of transportation  Title and risk of loss

 Force majeure



Financial strength of supplier

(31)

Operation



Major risks

 Increase in operating costs

 Excessive equipment replacement and unscheduled maintenance  Poor productivity of labors, incorrect assumptions of required labor  Increase in utility costs

 Risk mitigation

 Performance guarantees (liquidated damage)

 Fixed price operation and maintenance contract (very rare)  Cost plus fee operation and maintenance contract

 Cost plus fee contract with maximum price and incentive fee 

Other risks

 Force majeure risks  Risk mitigation

 All risk operator’s risk insurance



Financial strength of the operator

(32)

Exchange/Interest/Inflation Rate



Currency and exchange risks

 Loan agreement

 Loan disbursements (construction loan and term loan)  Principal repayment and interest repayment

 Availability of swap markets  All other agreement

 Export and import of equipment, input, out-put, operating costs  Cash flow will be affected depends who takes the risks and covers



Interest rate

 Incorrect interest rate projections can severely affect the ability of the

project revenue to service debt by



Inflation rate

 Risk allocation

 Cash flow projection

(33)

Collateral I



The “blanket” lien

 The blanket lien covers all the assets of the project company, including real

(unmovable) and personal (movable), tangible and intangible.



Project cash flow

 A security interest in the cash flows generated by the project under long-term

off-take agreements.

 Accomplished through a cash collateral account in which off-take purchaser pays

all payments into the account established by the lenders.

 Offshore accounts/escrow accounts



Ownership interests

 Pledge of ownership interests  Voting trust



Negative pledges

 An agreement under which the project company will not create, directly or

indirectly, any security interest, lien or encumbrance in its assets for the benefit of any other entity.

(34)

Collateral II



Personal (movable) property

 Intangible assets

 Permits, licenses and concessions  Contracts

 Insurance proceeds  Surety bonds

 Guarantees

 Liquidated damages  Political risk insurance  Accounts

 Disbursement agreement

(35)

Collateral III

 Review the contracts to verify that they are each assignable under the country’s law.

 In the event of a foreclosure, the contracts will only have value to the lender if they can be assumed by the lender and later assigned to a purchaser of the project.

 Other issues

 Types of liens allowed  Local formalities

 Denomination of lien in local currency  Priority of lien (perfection)

 Enforcement  Foreclosure

(36)

Equity and Dividneds



Timing and certainty of equity contribution

 A part of equity contributions to the project company may be planned

after the financial closing. Some funds may be injected with construction draw-downs, or await investment until project completion.

 Risk mitigation

 Condition precedents in loan agreement  Covenants in loan agreement



Some conditions for dividend payments

 Requirement to replenish before dividend payments  Reserve (contingent) account

 Off-shore account

 Financial covenants: a financial covenant limiting the dividend payments

to a certain level

(37)

Permit/License/Concession



Status

 Permits already obtained and in full force and effect

 Permits routinely and mandatorially granted on application and fulfillment

of applicable criteria and that would not normally be obtained before construction (before loan agreement)

 Other than above



Risks

 Unable to operate/termination of project  Damage payments

 Different policies between central and local governments  Permit vocation, additional permit requirements

 Risk mitigation

 Integrated management of all necessary permits: apply, obtain, maintenance,

renew processes

(38)

(39)

Basics of Risk Analysis Techniques I



Three stages of risk analysis techniques

1. Sensitivity Analysis: a linear relation between a cash flow factor and

NPV

2. Scenario Analysis: estimate probabilities of each individual cash flow

on the basis of base-case, best-case, and worst-case scenario, which in turn provides mean and standard diviation of NPV

3. Monte-Carlo Simulation: obtain expected NPV and standard deviation

from randomly selected scenarios based on the probability distribution of each cash flow factors

(40)

Sensitivity Analysis I



Method



Sensitivity analysis is a risk analysis technique that tells how

much NPV will change in response to given changes in one

cash flow factor with other factors held constant.

-5% 5% 10% 15% 20% -10%

-15% -20%

Deviation from Base-Case Value (%) NPV ($)

$ 0

Unit sales price

NPV based on the originally estimated unit sales price NPV when unit sales price goes up by 15%

NPV when unit sales price goes down by 20%

(41)

Sensitivity Analysis II



The slopes of the lines indicate how sensitive NPV is to changes in

each individual cash flow.



Relatively small error in estimating individual cash flow with steeper

slope leads to a large error in estimating project’s NPV.

-5% 5% 10% 15% 20% -10%

-15% -20%

Deviation from Base-Case Value (%) NPV ($)

$ 0

Unit sales price

Estimated values of cash

flow factors Price growth rate

Sales quantity

Asset beta

Utility price Input price

Input price growth

Operating costs

Construction costs

NPV breakeven analysis

Original NPV value

(42)

Sensitivity Analysis III



Implication

 Sensitivity analysis is a powerful technique to understand which factors

need to be more accurately examined to reduce the entire credit risk. 

Weak Points

 Sensitivity analysis does not incorporate a concept of probability  It can deal with only one cash flow for each analysis



NPV Breakeven Analysis

 NPV breakeven analysis examines a value of each factor which makes

NPV exactly zero.

(43)

Scenario Analysis I



Method



Scenario analysis examines a set of scenarios under tha

assamption that each scenario occurs with a certain probability

 Example 1: sales price would drop by 6% with 25% probability for worst case scenario.

 Example 2: operating cost would be reduced by 2% with 25% probability for best case scenario.



Then obtain base-case, best-case, and worst-case NPV and

calculate mean NPV and standard deviation to (roughly)

estimate the magnitude of the risk inherent to the project.



Implication



Scenario analysis is very useful technique to grasp the worst

case situation of the project (by assuming 1.0 correlation).

(44)

Scenario Analysis II



Simplified illustration of scenario analysis process

Standard Deviation of NPV

Expected NPV (mean value)

Base-, best-, and worst-case scenarios of each cash flow

Slot in all base-, best-, and worst-case scenarios of each cash

Excel Sheet NPV ($) $0 50% 40% 30% Probability (%)

FCF from best-case scenario FCF from base-case scenario FCF from

worst-case scenario

Mean value

20% 10%

(45)

Monte Carlo Simulation

 Simplified illustration of monte-carlo simulation process

Probability distribution of each cash flow and correlations between them

Randomly picking up scenarios

NPV ($) $0

10% 8% 6% 4% 2% Probability (%)



Simplified illustration of probability distribution of NPVs

NPVs probability Distribution

Standard Deviation of NPV

Expected NPV (mean value)

(46)

4. Credit Risk Management

(Political Risks)

(47)

Mechanism of Political Risks for PF

A large standing out asset Potential foreign exploitation Natural resources/ infrastructure War/civil disturbance Political interest Weaker negotiating power Irreversible Investment Civil interest Easily attract people’s attention Potentially high utility bills Potential environmental damage Outright expropriation Creeping expropriation Civil movement

• Political shift • Corruption • Violation of law • High profit

• Rival company

• Natural disaster

• Environmental problem • Increased input costs • Inefficient operation • International relation

(48)

Useful Documents

 Project Fiannce: Introductory Manual on Project Finance for Managers of PPP

Projects, National Treasury, South Africa

 Although this document is prepared for public-private partnership (PPP) managers, it provides a

good overview of project finance credit analysis, by addressing the general structure of a project, funding alternatives, investor profiles, and the criteria investors will consider. Also, it contains good illustrations for cash flow analyses. (46 pages)

 Available at:

http://www.finint.ase.ro/Masterate/Masterat_Alexandra/Bibliografie/Project_Finance_Manual.pdf

 Tools for Project Evaluation, Nathaniel Osgood, 2004

 Detailed and clear explanation on time value of money, the concept of discounting, and NPV

and IRR methods, with cases. (41 slides)

 Available at:

http://ocw.mit.edu/NR/rdonlyres/Civil-and-Environmental-Engineering/1-040Spring-2004/AB F26C4A-8572-498D-ACE3-98D2E8AD0685/0/l3prj_eval_fina2.pdf

 Thought process during the project initiation pahse, H. Griesel, 2004

 An excellent summary of project finance risks in the mining sector. (6 pages)  Available at: http://www.platinum.org.za/Pt2004/Papers/237_Griesel.pdf

 Glossary of Project Finance Terms, Foster Wyatt Training, 2003

 Useful glossary for project finance. (12 pages)

(1)

Scenario Analysis I



Method



Scenario analysis examines a set of scenarios under tha

assamption that each scenario occurs with a certain probability



Example 1: sales price would drop by 6% with 25% probability for

worst case scenario.



Example 2: operating cost would be reduced by 2% with 25%

probability for best case scenario.



Then obtain base-case, best-case, and worst-case NPV and

calculate mean NPV and standard deviation to (roughly)

estimate the magnitude of the risk inherent to the project.



Implication



Scenario analysis is very useful technique to grasp the worst

case situation of the project (by assuming 1.0 correlation).

(2)

Scenario Analysis II



Simplified illustration of scenario analysis process

Standard Deviation of NPV

Expected NPV (mean value)

Base-, best-, and worst-case scenarios of each cash flow

Slot in all base-, best-, and worst-case scenarios of each cash

Excel Sheet

NPV ($) $0

50% 40% 30% Probability (%)

FCF from best-case scenario FCF from base-case scenario FCF from

worst-case scenario

Mean value

20% 10%

(3)

Monte Carlo Simulation



Simplified illustration of monte-carlo simulation process

Probability distribution of each cash flow and correlations between them

Randomly picking up scenarios

NPV ($) $0

10% 8% 6% 4% 2% Probability (%)



Simplified illustration of probability distribution of NPVs

NPVs probability Distribution

Standard Deviation of NPV

Expected NPV (mean value)

(4)

4. Credit Risk Management

(Political Risks)

(5)

Mechanism of Political Risks for PF

A large

standing out

asset

Potential

foreign

exploitation

Natural

resources/

infrastructure

War/civil

disturbance

Political

interest

Weaker

negotiating

power

Irreversible

Investment

Civil

interest

Easily attract

people’s

attention

Potentially high

utility bills

Potential

environmental

damage

Outright

expropriation

Creeping

expropriation

Civil

movement

• Political shift

• Corruption

• Violation of law

• High profit

• Rival company

• Natural disaster

• Environmental problem

• Increased input costs

• Inefficient operation

• International relation

(6)

Useful Documents



Project Fiannce: Introductory Manual on Project Finance for Managers of PPP

Projects, National Treasury, South Africa

 Although this document is prepared for public-private partnership (PPP) managers, it provides a good overview of project finance credit analysis, by addressing the general structure of a

project, funding alternatives, investor profiles, and the criteria investors will consider. Also, it contains good illustrations for cash flow analyses. (46 pages)

 Available at:

http://www.finint.ase.ro/Masterate/Masterat_Alexandra/Bibliografie/Project_Finance_Manual.pdf



Tools for Project Evaluation, Nathaniel Osgood, 2004

 Detailed and clear explanation on time value of money, the concept of discounting, and NPV and IRR methods, with cases. (41 slides)

 Available at:

http://ocw.mit.edu/NR/rdonlyres/Civil-and-Environmental-Engineering/1-040Spring-2004/AB F26C4A-8572-498D-ACE3-98D2E8AD0685/0/l3prj_eval_fina2.pdf



Thought process during the project initiation pahse, H. Griesel, 2004

 An excellent summary of project finance risks in the mining sector. (6 pages)  Available at: http://www.platinum.org.za/Pt2004/Papers/237_Griesel.pdf



Glossary of Project Finance Terms, Foster Wyatt Training, 2003

 Useful glossary for project finance. (12 pages)