So now that we have established the stakeholders on the project financing, let's see what the roles of each of these stakeholders are in project financing and what are the important characteristics here? So as I said to start with, the most important person or parties in project financing are the sponsors. First of all, clearly, do they have some experience? It's unlikely you're going to find a project that is carried out by a sponsor who doesn't have experience with the industry, but do they have relevant experience in the industry? And if they don't, how are they going to manage that lack of relevant experience? What do I mean by that? Well, they may be a power developer and they may have developed many power plants in northern Europe. And they decide to go and develop power plants in Africa. How are they going to manage the risk of going into a new country that they don't have a comfort with or a long relationship with? How are they going to manage that? You have a telecoms company that's selling telephone services, and they decide to get into the long distance cable business. Well, do they have the experience for that? Do they have the experience? And if not, how are they going to manage that? Do they have the management and financial capability to be able to manage the project? Projects don't magically appear out of nowhere. They have to have management and they have to have people with vision to be able to pull those projects together. Does the sponsor have that management? And also the financial capability to be able to carry the project through its development stage and then supervise it during its operation stage? Having the management and financial capability is a very important aspect to project finance that really is a very key component for a successful project. These sponsors are going to have to make equity contributions. Do they actually have the capacity to make that equity contribution and to leave that equity in the project during the duration that is expected from them from finances. There is no point in thinking about a project sponsor that has a 3-year investment time horizon and the project is meant to be a 15 or 20-year investment time horizon unless there's a clear plan of what's going to happen at the end of 3 years. So looking at the capacity is very important. And of course, the sponsors are looking for investment returns. So sponsors need to be satisfied with their investment return. If the investment return isn't there, then the sponsors may not be so happy. And if the sponsors are not happy, then project financiers are at a greater risk that the sponsors won't provide the management attention and the financial attention when it's required. What about the other contract parties? There are many other contract parties in project financing. Nearly all projects require some sort of construction. So who are the contract parties for construction? Have they had the experience to be able to build these sort of projects before? Do they have the capacity to be able to do that? There are suppliers for project financing, nearly every project, maybe not a wind farm or a solar energy farm. But nearly all projects have suppliers of some variety. They need to be able to have some sort of input. And somebody nearly always has to take the output. There's very few projects that don't have some sort of output that comes out of them. Somebody has to contract to either sell that output or to be a principal consumer of that output. Projects generally don't operate by themselves. Somebody has to operate them. It's possible that projects can develop their own management to operate their own project. But somebody has to bring those people together to be able to do that. How are they going to be hired? How are they going to to be put in the project? Or more commonly, who's going to contract to provide those people from the outside to be able to operate the project. Is there a technology in the project? And are the technology suppliers, first of all, is the technology likely to work? And are they likely to have a capacity and strength to be able to support the project during its development operating stages. All of these parties are essential parties for the allocation of risk, because you have a project, you're looking about allocating risk, and these contract parties are the key component to be able to allocate those risks. As I've said earlier, governments are involved in every project. They may be direct or indirect. They may just provide the overall legal and regulatory environment, in which case the relationship is very indirect. On the other hand, the government may be involved because it's a public sector concession, and the government is specifically giving out the concession. Or giving out the mineral reserves or the right to mine certain assets. So there may be a direct involvement with the government, but the government is always involved. They may have a direct financial benefit or they may not have a direct financial benefit, but they certainly have an interest in the project. The power industry, the telecoms industry, all have regulators that regulate the industry, and project financiers have to be fully understanding how the industry is regulated, and more to the point, how the industry is likely to be regulated in the future. It's the future cash flows that are going to pay the project financiers back and return their capital, and for sponsors, to give them their equity return. So it's important that one considers what the current regulations are, but what the likely future regulations are. So local populations and people such as NGOs also have a vested interest in projects. And they need to feel that they've got a stake in these projects and they've had an influence in these projects so that they have a vested interest in maintaining a successful long-term operations. Projects have environmental considerations. These are very much influenced by non-government organizations, NGOs. And they have driven the environmental framework for projects for quite some time. So projects have to not only comply with local environmental laws, but they have to be deemed to be satisfactory in the public domain, too. And NGOs are a very important aspect to project financing. They have driven project financiers to develop a system called equator principles, which we'll talk about later on. But the equator principles are a way that project financiers can have a formalae way of looking at project financings and to meet what are reasonable environmental goals. Consultants, advisors and lawyers, they provide the special guidance and advice necessary for successful projects. Financiers, we've talked quickly about financiers earlier on, but there are many other financiers other than banks and institutions, that finance project financings. There are export credit agencies. There are development banks. There are funds and institutions that are not just looking for financial returns, but they're looking for other sorts of returns. There are development institutions that are looking for development returns, and they're not looking necessarily for financial returns. They may be looking for return of their capital, but they're not looking for strictly financial returns. And, of course, there are export credit agencies whose interest is in fostering exports from specific countries to other countries. And the way of doing this is for them to provide funds or guarantees to projects to allow them to buy exports from some of these, especially OECD countries. So US EX-IM which is the Export–Import Bank of the United States, provides financings to projects, as long as the exports come from the US. And finally the rating agencies. As I talked about also just a little bit earlier on, people involved in project financing will find the missives published by export credit agencies and their method of analysis a very good way of formulating their views on project financing.
