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Characteristics of infrastructure projects They are highly capital intensive The involves huge sunk cost They have a long operating life Mostly infrastructural project in India are owned and governed by government of India requirement but for the massive requirement of fund encouragement of private sector given priority. Private initiative in infrastructural project may give many form .projects that are design to provide significant social objective such as low cost urban transportation system suited for traditional govts ownership.
On the other hand for commercial projects private participation is given priority. A careful scrutiny is necessary for the infrastructure project because it is different from the conventional projects. A careful planning is necessary for evaluating the project for both the areas of projects evaluation of financing project is much more importance for getting economic of scale. For a project financer it is important to know the risk associated with the project construction and operation. Ownership and operations are separable and variety of models are exists for different characteristics project and regulation.
Ex An electricity generation project which is the private sector builds owns and operates for certain period of time called (the concession period)and finally transfer back to government. this concept is called BOOT( build, owned operate and transfer) for a road project a private company build the road ,operate it during the concession period and finally transfer to the government. Without actually owing the same this system is called as BOT ( build operate and transfer)
The SPV enters into contractual arrangements with project contractors, off takers ,operators ,governments and project lenders would not have any fall back on the resources/asset of the sponser.If the SPV fails to meet debt servicing obligation the project sponsors would have certain obligation to lenders. Infrastructure projects can be financed at a relatively higher gearing (debt-equity)ratio via conventional project
Projects contracts
To start any projects so many contracts are made like shareholders agreement, EPC contract, project loan agreement and contract.
The essence of project finance is web of contracts meant to ensure that all parties work in concert for the success of the project, to distribute risk efficiently and to prevent the abuse of monopoly power. At the time of investment all the information's are not duly informed like why all the project company participate in the equity of the company and why the company heavily depend on Debt.