Financial closure

The financial closure of the project is an arrangement to be done by the owner of the project before start of the project and to meet the financial requirements of the project from the beginning until commissioning and start of production of the project. Normally the project takes off its full momentum on completion of the financial closure since parties involved in executing the projects are secured of their money for the responsibility entrusted to them. .Project finance is the long-term of finance of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors. Usually, a project financing structure involves a number equity investors and group of investing banks or other lending institutions that provide loans  to the operation of the project..Commonly while the bankers and lending institutions provides the loan the borrower cannot be heldresponsible for any amount in excess of the security for the loan, even if the value of such  security falls below the level it  had been anticipated for it at the time of the allotment of  loan , which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or credit worthiness of the project sponsors, a decision in part supported by financial modeling  The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given legal claim of theproperty to secure the payment of a debt or the satisfaction of an obligation   on all of these assets and are able to assume control of a project if the project company has difficulties complying with the loan terms.

Generally, a special purpose entity  is created for each project, thereby protecting other assets owned by a project owner from the damaging effects of a project failure. As a special purpose entity, the project company has no assets other than the project. In order to satisfy the lending companies or lending banks it becomes most important from the owner for their  Capital contribution to show that their company is financially sound and capable to take up the project. In general project financing has been most commonly used in the, transportation, telecommunications industries as well as sports

The  most important component of the project finance is to analyses the elements of  risk involved in the project. A project may be subject to a number of technical, environmental, economic and political risks. Particularly in developing countries and emerging markets the elements of risks are high "Several long-term contracts such as used to align incentives and deter opportunistic behaviour by any party involved in the project.  The patterns of implementation are sometimes referred to as "project delivery methods .Further the risks cannot be born only by owner can be distributed among number of parties involved in the project along with sharing the profit of the project with parties taking part in the project by sharing it with  construction, supply, off-take and concession agreements, along with a variety of joint-ownership structures. There are several parties in a project financing depending on the type and the scale of a project. The most usual parties to a project financing are;

1.   Sponsor (owner of the project)

2.   Lending institutions  and banks lending loans

3.   Financial Advisors

4.   Technical Advisors

5.   Legal Advisors

6.   Debt Financiers

7.   Equity Investors

8.   Regulatory Agencies

9.   Multilateral Agencies

The lending institutions and financing Banks do not hand over the entire finance of the project in a single stage. The finance required for the project is released on stages so that the project progresses in proper way and can be finished on schedule.

A riskier or more expensive project may require limited recourse financing secured by a surety from sponsors. Limited recourse lending was used to finance maritime voyages in ancient Greece and Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and was widespread in the US oil and gas industry during the early 20th century. However, project finance for high-risk infrastructure schemes originated with the development of the North Sea oil fields in the 1970s and 1980s. Such projects were previously accomplished through utility or government bond issuances, or other traditional corporate finance structures.

The new project finance structures emerged primarily in response to the opportunity presented by long term power purchase contracts available from utilities and government entities. These long term revenue streams were required by rules implementing PURPA, the Policy resulted in further deregulation of electric generation and, significantly, international privatization following amendments to the Public Utilities Holding Company Act in 1994. The structure has evolved and forms the basis for energy and other projects throughout the world.