Stakeholders in Project Finance

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From the course by Columbia University

Construction Finance

365 ratings

Columbia University

Construction Finance

365 ratings

Course 4 of 4 in the Specialization Construction Management

The final course of the specialization expands the knowledge of a construction project manager to include an understanding of economics and the mathematics of money, an essential component of every construction project. Topics covered include the time value of money, the definition and calculation of the types of interest rates, and the importance of Cash Flow Diagrams.

From the lesson

Project Finance

Professor Bob Dewing discusses project finance and provides an overview of Global Project Finance. The roles of stakeholders in project finance is reviewed in depth.

Global Project Finance Overview and by Sector8:25

Stakeholders in Project Finance6:00

Stakeholder Roles9:48

Principles of Project Financing8:54

Risk and Risk Allocation16:16

Categories of Risk Allocation7:23

Sponsor Perspectives - Structuring and Documentation11:54

Completion Risks / Government Perspectives15:23

Contract Parties9:54

Contracts and Agreements17:32

Meet the Instructors

Ibrahim Odeh, Ph.D., MBA
Instructor, Department of Civil Engineering and Engineering Mechanics, Columbia University
Director of Research and Founder, Global Leaders in Construction Management

Who are the stakeholders in project finance?

I name them here.

Clearly the first stakeholder in project finance, is sponsors.

The people that put the project together.

The people who want to see the project successful.

The people who had the idea to bring it to fruition.

The sponsors are the key component of project finance.

But project financing are big contractual arrangements and there's a lot of contract

parties in project financing and they're the second biggest set of stakeholders.

The government is always involved in project financing whether it's

directly by the direct legal agreement with the project, or

they provide the overall legal environment.

For the project to occur but there will always be a government,

involvement either directly or indirectly in every project.

Some projects have regulators to specifically regulate the industry and

others are just dealing with regulators that deal with commerce overall.

One should not overlook the stakeholders that some of these are ancillary to.

The good project finances are certainly aware of other stakeholders and

project financing.

So these would be things like, people like local populations.

Project are always within an environment and it's important that the local

population is considered as one of the stakeholders in project financing.

Non government organizations are a key component in project financing.

Some of these have official roles other of them have unofficial roles,

but non government organizations,

environmental organizations are very key in stakeholder in many projects.

We all in the project finance industry are very clever but

we certainly don't know everything about everything and

there aren't a large amount of consultants involved in project financing.

Some of these consultants and advisors are very industry specific and

some of them are a more project financial in general.

So you would have expect if you had a an oil or gas project you would

have a consultant that would apply what those reasonable and oil and gas prices.

If you have a mining project, some would have to apply the price of the mineral or

the value of the mineral would like.

Need to be over time.

And there are some of these advisers and

consultants that are much broader than that.

If you have a, and every project does, have a model that

models the cash flows in project finance you will very often have a model auditor

and they of course are across all different industries.

But they review the model, the cash flow model, which is used as a basis and

I'll talk about this later on but the cash flow model to be able to,

have all the interested parties know exactly how the project's going to work.

Project financing are a collection of documents at the end of the day

the lawyers other people who draft the project financing.

It's they are choosing and having a good lawyer representing each of

the individual parties as a key [INAUDIBLE] project financing and

there is a [INAUDIBLE] skill that goes with this and there's such a firms and

law firms and individuals that specialize in both project financing and

sometimes specific industry in project financing.

And having those good and competent people on your team are certainly one

of the great, marking points of whether you're going to be successful in project.

Or not. And of course this is project finance so

there are clearly financiers.

We'll talk more about these people later on but

the major project financiers are banks.

This has been a banking industry product for

a very long period of time although now capital markets and

institutional investors are beginning to take a much bigger and

more dominant role in some of this segments going forth.

I never expect to see the banks replaced in this industry because,

they have the ability to manage a project develop over a period of time.

But certainly institutions, investors, insurance companies and

pension plans are becoming bigger players in this industry [INAUDIBLE] often

there are trustees, especially when there's public debt or institutional debt.

Somebody has to manage the cash flows and

represent lenders, so there are often trustees in projects and

finally especially in projects that have a wide distribution.

There are Rating Agencies.

Rating Agencies, Publish and Project Finance Criteria and

a Publish Regular Project finance [INAUDIBLE] to the market

helping people design and manage their projects and

also pointing out to project financiers what an assailant

issues that they should be thinking about as they develop future projects.

So every project financing has multiple stakeholders.

And a good project financier is somebody

who is probably going to represent one of those stakeholders, but

is aware that all of those other stakeholders are involved in the project.

And at the end of the day,

project financing is about producing a tractable form of documents and

contractual arrangements, where all of the counterparties.

Happy and satisfied.

And it's all about making the trade off so that all the counter parties

can be satisfied and the casual and the projects are successful.

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