These are the founding documents of the project company and its sponsors, the investment agreement (for equity investments by sponsors, their timing and form), the project management contract (agreement for the management of the project company), the sponsor or the JV agreement (rights agreement, responsibilities and obligations of sponsors and their mutual relations). The project corporation is established by the proponent in accordance with the requirements of the governmental authority or acquired by that authority through the purchase of shares. Many of the standard financial documents used in a simple syndicated transaction are also required in a project finance transaction. Finally, project financing is a form of syndicated loan (see practice note: bilateral, syndicated and club agreements). In early PFI projects, it was common to have separate agreements for the different phases of the project, such as a development contract for the design and construction phase and an operation or facilities management contract for the operation phase. Nowadays, however, it is more common to have a single project agreement that covers all aspects of the project. Project Agreement: The main agreement for each PFI project governs the relationship, rights and obligations between the Administration and Projectco throughout the life of the project. It can also be called a concession contract. Service Contracts: Projectco enters into service contracts with service providers and transfers its service obligations under the Project Agreement to them.
As mentioned above, service providers provide guarantees in favour of the authority and the authority has rights to intervene in certain circumstances – again subject to the rights of lenders. Because there are so many documents in project funding required by different stakeholders, each of whom wants it created by their own lawyers, it inevitably seems that there are too many documents and too many lawyers. Despite the army of lawyers involved in the preparation of project documents, it is virtually certain that there will still be gaps due to missing regulations or documents, or that there will be overlaps due to duplicate provisions or documents. With legal teams for project developers, project developers, equity investors and government agencies, conflicts are guaranteed as they all have competing interests. Project Sponsor: The person who plays an active role in leading the project. The project promoter owns Projectco and receives profits, either through Projectco`s ownership or through management contracts, if the project is successful. The proponent often has to cover certain project liabilities or risks through guarantees or management or service contracts. The operator can be the project promoter, the project participants, the project company itself or a third-party professional operator. If the operator is the project proponent, stakeholder or contractor, the project company or one of its main stakeholders must retain responsibility for the operation and maintenance of the project. Learn more about operations and maintenance contracts.
Equity investors: lenders or project developers who do not expect to play an active role in the project. In the case of lenders, they will hold an interest in addition to the loan in order to obtain a higher return if the project is successful. In most cases, any equity investment is accompanied by an agreement that allows the equity investor to sell their shares to the project promoter if the latter wishes to leave the project. Similarly, the project promoter may have the option of buying back the shares. Construction Company: The contractor is one of the main parties to the project during the construction phase of the project. Typically, a contractor`s assignment is based on one of two models: Below are the typical security documents in project finance: However, offtake agreements are much more weighted than most project documents because they provide the financial guarantees lenders need to validate your cash flow projections. And every project finance provider in the world relies on offtake agreements for this reason. Without exception, the first glance that potential project proponents take at the project is the presentation of project documents. It is best to orchestrate project finance documents so that they leave any lender willing to participate.
A key element of project financing is risk sharing among participants, which allows project proponents to undertake larger and riskier projects than would otherwise be possible. We use project documents to assign this risk. Supply contracts essentially match offtake agreements to each other and ensure that they maintain a balance, as project output is largely dictated by offtake agreements. A supply contract is an important project financing document for projects that produce, refine or distribute fuels, electricity, natural gas and other similar feedstocks or utilities. They can also be used to require host country participation, significantly limiting the typical political risk of emerging market projects. One of the disadvantages of project funding documents is that they generally require oversight of project management and operations that are considered intrusive. In India, project financing is not very old. Project financing has become the instrument for the ever-changing need to fund projects on a stand-alone basis where the source of income is guaranteed over a period of time.
Since project funding is document-intensive, all agreements should be carefully drafted and negotiated to mitigate risks and protect the interests of all stakeholders. Deeds of concession are found in most projects involving a government or sovereign authority, such as infrastructure projects, and are always executed by a national, regional or local government. Learn more about concession deeds in the project financing documents. The Investment Agreement is the agreement between the Promoter and the Project Company on the Project Owner`s equity investment for certain amounts and at certain times according to the Project Company`s financial model. The investment agreement contains provisions that, if the promoter fails to provide equity, the letter of credit provided by the promoter as security for its obligations may be enforced by the lenders or the collateral provider. Project funding is vast and complex. Documents can be classified as follows: (a) project documents (design, construction, operation and maintenance documents of a project); and (b) funding records (documents used to finance and secure a project). Direct lender agreement: This is a tripartite agreement between the AMF, Projectco and the lenders in which the AMF undertakes to give lenders notice of the impending termination of the project agreement.
This agreement also gives lenders the opportunity to intervene, directly or through an agent, to resolve the termination event or to find another party acceptable to the Authority to assume Projectco`s rights and obligations under the Project Agreement.