3.4.1. Stakeholders in project finance

The principle of sharing the project’s burden and chances is the key element of structuring project finance. Sharing the supply of the required resources (e.g. equity, know how) among the sponsors and sharing of risk among all project participants enables sponsors with limited resources (financial or experience, know how or other) to participate in the investment of large projects which they could otherwise hardly realize. On the other hand, complex contractual arrangements between all participants are required as one party relies on the performance of the other.

Contractual arrangements between the project participants shall give all parties confidence that risk associated with the project is controlled to an extend that ascertains with a sufficiently high probability the return of the individual party.

Illustration 10: Project participants in project finance⁴⁵

The contractual agreements shall fulfil the purpose⁴⁶.

1. The sponsors agree on a shareholders agreement which regulates the relationship amongst the sponsors, especially the risk sharing principle
2. SPE and lender agree on loan contracts based on the projects expected cash flow and risk
3. Insurers cover insurable risk
4. External parties evaluate the project contracts and economic evaluation and prepare a due diligence
5. SPE and off-taker enter into long term product off-take contracts
6. The government imposes restrictions or agrees to support in terms of subsidies, tax releases or other
7. SPE and operating company enter into an operating contract
8. A general contractor guarantees for project completion
9. SPE and supplier enter into long term feedstock supply

As all project participants have a motivation in the success of the project the contractual arrangements have to guarantee to the greatest possible extend the SPE’s ability to repay (debt) capital and to pay a return.

⁴⁵ According to Ferrostaal in-house data
⁴⁶ Ferrostaal in-house data,