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Project Risk Analysis in Finance

This document discusses project risk and its relevance in project finance. It defines project risk analysis as a systematic process to estimate the probability and consequences of risks. It then outlines various types of project risks like country risks, pre-construction risks, construction risks, feedstock and logistics risks, and operations risks. These risks can negatively impact lenders and sponsors if not properly identified and managed through effective risk management plans.

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Blesson Perumal
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32 views11 pages

Project Risk Analysis in Finance

This document discusses project risk and its relevance in project finance. It defines project risk analysis as a systematic process to estimate the probability and consequences of risks. It then outlines various types of project risks like country risks, pre-construction risks, construction risks, feedstock and logistics risks, and operations risks. These risks can negatively impact lenders and sponsors if not properly identified and managed through effective risk management plans.

Uploaded by

Blesson Perumal
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Project Risk & it’s relevance in

Project Finance
Project Risk Analysis
It’s a systematic process to estimate the level of
risk
It involves estimating the probability of
occurrence and consequences of occurrence and
converting the results to a corresponding risk.
The approach used depends upon the data
available and requirement levied on the project
level.
Project Risk analyses are often based on detailed
information that may come from a variety of
techniques, including but not limited to:

• Analysis of plans and related documents


• Experience and Interviewing
• Relevant lessons learned studies
• Results from tests
Project Finance
Project finance is the long-
term financing of infrastructure and industrial
projects based upon the projected cash flows of
the project.

It’sa type of structured financing solution used


to finance capital intensive projects where
lenders have recourse (the legal right to demand
compensation or payment) primarily to the
revenue stream of the project they are financing
Relevance of Project Risk
There are Key risk categories which highlight the
relevance of project risk in Project Finance. They are
mainly:-

 Country Risks
 Pre- Construction Risks
 Construction Risks
 Feedstock & Logistics Risks
 Operations Risk
Country Risk
 
 Risk of expropriation, confiscation and nationalization

 Potential for civil wars and domestic unrest

 Currency risks due to depreciation or exchange


restrictions

 Key personnel safety and security risks


 Pre-Construction Risks

 Technology selection risk

 Design risk

 Environmental and regulatory stringent permitting


requirements

 Social and community related risks

 Inadequate financing strategy


Construction Risks

 Lack of pre-completion guarantees in the form of Letter


of Credits, Bonds, Performance Guarantees, etc

 PoorEPC Contractor performance, including


completion delays and cost over-runs

 Social and environmental disturbances


 Feedstock and Logistics Risks

 Lack of firm volume, price and term commitments from


off-takers

 Poor contractual compensation for termination

 Unstable feedstock supply


Operations Risks

 Poor
track-record and financial creditworthiness of the
O&M Contractor

 Lack of familiarity with the technology used

 Unscheduled mechanical shutdowns due to poor


maintenance strategy

 Environmental non-compliance
Conclusion
 The prominent risks mentioned, can negatively impact
the lenders and the project sponsors when financing
capital projects via project finance arrangements.

 The identification of risk in early stage should serve for


establishing strong and effective risk management plans
prior financing approval.

- Thank You -

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