Project funding refers to the process of obtaining financial resources for the purpose of implementing a specific project or initiative. This can come from various sources, including government grants, private investors, and loans, among others. The goal of project funding is to provide the necessary capital to start, sustain, and complete the project, with a return on investment as the ultimate outcome. The allocation of funds is usually determined by the scale and scope of the project, as well as the availability of financial resources.
There are several parties in a project financing depending on the type and the scale of a project. The most usual parties to a project financing are:
Sponsor (typically also an Equity Investor)
Lenders (including senior lenders and/or mezzanine)
Off-taker(s)
Contractor and equipment supplier
Operator
Financial Advisors
Technical Advisors
Legal Advisors
Equity Investors
Regulatory Agencies
Multilateral Agencies / Export Credit Agencies
Insurance Providers
Hedge providers
Project development is the process of preparing a new project for commercial operations. The process can be divided into three distinct phases:
The most common project finance construction contract is the engineering, procurement and construction (EPC) contract. An EPC contract generally provides for the obligation of the contractor to build and deliver the project facilities on a fixed price, turnkey basis, i.e., at a certain pre-determined fixed price, by a certain date, in accordance with certain specifications, and with certain performance warranties. The EPC contract is quite complicated in terms of legal issue, therefore the project company and the EPC contractor need sufficient experience and knowledge of the nature of project to avoid their faults and minimize the risks during contract execution.
The terms EPC contract and turnkey contract are interchangeable. EPC stands for engineering (design), procurement and construction. Turnkey is based on the idea that when the owner takes responsibility for the facility all it will need to do is turn the key and the facility will function as intended. Alternative forms of construction contract are a project management approach and alliance contracting. Basic contents of an EPC contract are:
Description of the project
Price
Payment (typically by milestones)
Completion date
Completion guarantee and Liquidated Damages (LDs):
Performance guarantee and LDs
Cap under LDs