1. LEGAL AND REGULATORY ASPECT OF
PROJECT FINANCE
A Project Management Assignment
Submitted to
Dr. Asif Akhtar
Department of Business Administration
FMSR
Aligarh Muslim University
Aligarh
2013-2014
Submitted by
Gagan Varshney
12MBA-08
2. Section 1: Introduction
Every project finance is a subject to some law & regulations, so that
1. Decisions can be taken unanimously.
2. Plan can be made accordingly.
3. Helps in making different provisions so that possible actions can be taken on time
according to the situations.
4. Every party get to know their duties. Hence proper allocation of work.
Section 2: Current Trends
Today, Project finance rules has been made more strong in order to bring the certainty &
stability and clearing any confusions regarding the rules so that important decisions can be
taken in no time. Rules are being made in such a way that no one can take the benefit of any
hole in the laws.
Section 3: Working Model
3.1 Typical Project Configuration
Projects are typically implemented in a special Purpose Vehicle (SPV), which is a distinct
corporate entity incorporated with the objective of implementing & operating the project.
Project sponsors take an equity stake in the SPV.
The SPV enters into contractual arrangements with project parties.
3.2 Key Project Parties
Project Sponsors: Responsible for converting a concept into a project, setting up a project
vehicle, recruiting right managerial talent, and subscribing a significant proportion of
equity.
Project Vehicle: Appoints contractors, negotiates & executes the contracts, raises the
financing.
Project Leaders: Provides debt. Typically a consortium of project lenders, led by a ”Lead
Bank”.
EPC Contractor: Designs the project, procures all the engineering skills & equipment to
construct the project.
O&M Contractors: Responsible for operating & maintaining the plant in line with
industry best practices.
3. Government: It is a key project party. It provides a Concession to the SPV to set up the
project and ensure that a proper legislative & regulatory framework exists that allows the
concerned SPV to compete on a “level playing field”.
3.3 Project Contracts
Some of the fundamental provisions of key project contracts are given below:
Shareholders Agreement
An aggrement between all of SPV’s shareholders, including Project Sponsors that establishes:
1. Shareholding pattern
2. Shareholder’s representation in management
3. Minority protection rights
4. Decision making process in certain reserved matters
5. Proposed pattern of cash calls and remedies available against Funding Defaults by one
shareholder
6. Shareholder’s Exit Process
EPC Contract
An agreement between the SPV and the EPC contractor that establishes:
1. The EPC contractor’s sole responsibility in designing plant/facility according to
specifications laid down in the contract
2. Guaranteed & Minimum Performance parameters.
3. Responsibility of the contractors to rectify the plant if it fails to meet Guaranteed
performance parameters.
Project Form Agreements
An agreement between the SPV & the project lenders that establishes:
1. Certain Conditions Precedent on fulfilment of which an approve loan is drawable by
SPV.
2. Amount of loan approved.
3. Loan tenor, repayment obligations, interest rates
4. Security & credit enhancements
O&M Contracts
An agreement between the SPV & O&M contractor that establishes:
1. To ensure the project’s availability
2. Maintenance obligations
