Project Finance
PROJECT FINANCE
Project Finance
Project Finance PRI can be provided for both Equity and Debt financing structures for a Project.
The coverage consists of:
- Nationalisation,
- Expropriation,
- Confiscation,
- Forced Abandonment,
- Forced Divestiture,
- Embargo,
- Export Licence cancellation,
- Operating Licence cancellation,
- Blockade,
- Selective Discrimination,
- Political Violence and War (including Civil War).
Project Finance PRI cover is usually applicable to projects that have no guarantee from an off-take agreement, such as a power purchase agreement (PPA) with, or direct payment/performance risk on, the relevant foreign government.
Where a foreign government does have a contractual obligation to pay monies or perform a continuing obligation (whether directly or through a government agency), then the PRI coverage would normally be extended to what is known as Extended PRI.
Extended PRI is available for Project Finance.
Project finance is the financing of a project, usually non-recourse:
- based solely on the earnings of the project as a stand-alone economic entity;
- with repayment of the debt only from the cash-flows generated by the project; and
- supported by security confined to the assets, contracts and revenues of the project.
- Project finance is used extensively for mining projects.
- If the project is in an emerging market country where the project risk is acceptable to lenders/investors but the sovereign risk is of concern, PRI can be the solution.
The maximum tenor for PRI available from the private insurance market is currently 15 years (with greater liquidity up to 10 years). CRI is usually provided for tenors of no more than 5 years, although some insurers may consider providing cover for 7 years or longer.
PRI is generally available for all countries provided they are not subject to sanctions (whether by the U.N., the U.S.A., the E.U. or the national government of the relevant insurer); insurance premiums will reflect the relevant sovereign risk, the tenor of the policy, the record of previous claims and recoveries in the relevant country, the nature of the underlying asset / project, and the current use of the insurer’s available country limits.
There are many insurance companies and Lloyds syndicates that underwrite PRI and CRI policies; those with a Standard & Poor's credit rating of A+ or better (or equivalent) are usually acceptable for policies with long tenors, and a rating of A may be acceptable for tenors of up to 3 years.
