Professional Documents
Culture Documents
4.risk Management
4.risk Management
4.risk Management
1. Sponsor
2. Lenders-Construction & Permanent
3. Contractor
4. Operator
5. Technology owner
6. Feedstock supplier
7. Output purchaser
8. Governments-Host and Others
9. Equity investor
10.Multilateral and bilateral agencies
Each PF participant has a different perspective on risk
allocation. Only by understanding risk perspective of
participants, can its appetite for risk acceptance be
understood.
What is Risk?
Uncertainty in regard to cost , loss
or damage.
Uncertainty is the most important
aspect.
Project finance abhors uncertainty.
Risk-Different Perspectives
An event or set of circumstances that
should it occur, will have an effect on
achievement of the project objectives.
Projects involve number of parties and
inter-acting activities (Areej house) .
Each activity carries risks which may
exert impact to some extent, upon the
cost, time and quality.
Requires a risk management system
which involves identification, analysis
and response.
What is a lender worried about ?
That he will not get back his interest and
principal.
Why may this happen?
Because the project does not generate the
budgeted cash flows in the budgeted time.
Why may this happen?
List the factors which could effect project
cash flows
Failure to identify a major risk or
requiring a wrong party to assume or
control a particular risk can result in:
1. Delays in project construction and
operation schedule. (Time and cost
overrun)
2. Revision of transaction documents at
additional cost.
3. Project company not able to repay the
lenders.
4. Ultimately loss or abandonment of the
Risk Management Process
Risk management process
What?
Why?
How?
Risk Management Process-What?
An important part of the successful closing of
project finance , where risks are identified,
analyzed, quantified, mitigated and
allocated .
Identify each material risk associated with the
design, construction and operation of the project.
Determine which participant is best able to bear
each risk and how each participant can do so.
In general terms, risks are allocated to the party
best able to control the risk or influence its outcome
(Risk Transfer).
In return for risks allocated, a party will demand
compensation that is consistent with the magnitude
of the risk assumed.
Risk Management Process-Why?
No single risk threatens the
development , construction or
operation of the project , thereby
hampering its ability to generate
sufficient revenues for debt servicing,
operating expenses and attractive
return to investors.