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.

Starting of project-introduction

Staring of a project-Introduction”

The process through which the expected final product is achieved successfully in terms of time and finance with the co ordination and effect of group of resources can be called as the implementation of the project. The project can vary from product to product depending on the production of the final product. Whatever the product produced at the end it require a standard procedure which we call as project implementation procedures. To conceive a project the accurate estimation of the finance and resources are most essential. The final user of the product in the project is normally called as the owner of the project. The resources required for completion of the projects are deployed either by one company or group of companies are called as contractors of the project. The co ordination between the owner and the contractors during the implementation of the project including either in supply of technical knowhow required for the project or validating the technology supplied either by the contractors or themselves are called as project consultants. These three parties form important roles in the implementations of the project. To carry out the works of individual parties they sure require some mechanism through which their companies earn money. Hence all the companies make their own estimates in achieving their goals without slipping their responsibilities and make profit for the company. It is quite obvious the success of the project not only depends upon the accurate estimate of the owner but also the correctness of the estimates of their working partners like contractors and consultants.       

Owners Estimate: The cost estimates of owners/project consultants/and contractors varyfrom every ones point of view.. The cost estimate of the owner is of normally on a macro basis. Based on the previous experience of the cost incurred in other projects of the same nature and capacity, is considered as basic element for the cost estimates ,taking in to considerations of the escalation factor as per index , duration when the old project was implemented and the present one. Any project can be compared with the human body. Like we have different parts of the body even project have various elements starting from conception till production of the  end product. From inception the feasibility study whether the project is viable in terms of profit and run on long run. Followed by financial and check up of required inputs followed by rough estimate of the project. Many of the projects stops at this stage due to various reasons like UN availability of required in puts. Further progressing projects continue with project work like process engineering/design and engineering .Supply chain management group forms and construction in continuation with testing and commissioning. Even though there are many activities in a project the construction activity plays an important role since it falls on the tail end of the project .Whichever losses and finance for the company is to be managed by the construction group hence its role in project is most important

Even though many micro activities are involve in completion of a project it is worth it to list here the major activities which forms the prime part of a project. It may be an industrial project or others the following steps need to be full filled
1. Feasibility study

2. General estimation of the project

3. Financial tie ups

4. Development of HR and required team to carry out his project

5. Scheduling of the project

6.Tie up  with process engineering company

7.Tie up with design and detailed engineering company

8.Find out major eligible equipment manufacturers

9 Development of infra structure activities

10 To start on site work

11.Testing and commissioning

These are the major heads of activities required to complete the project in macro level. The details of which i shall explain in some other post While a company decided to go ahead with a product the location of the factory wherein the product is produced plays a very vital role. To start with the place must be easily approachable. Connected with near by cities by road/water or air. The infra structure facilities like electricity to operate the plant at competitive cost /one or few of the raw materials required to produce the end product is available either there itself or in the nearby locality. Ample empty space required for the construction of the factory including the place for future expansion. Availability of local force while construction of the factory and for further maintenance of the factory. Availability of construction hiring equipments in the nearby towns. Even though the above cite facilities are very much necessary  ,leading financial institutions and Banks for transaction on day to day basis throughout the starting and till completion of the project are also most important matter to be considered.

                                           To name a project is common for the procedure to identify the  production end products. But in industry it is differentiated by the name of the end product. For Example   power production industries call this project as Power plant project.  Production of chemicals are called chemical plants.  Manufacture of  petrochemicals are called as petro chemical project.  Like  wise other products like cement ,steel, textile, IT are named with their name as projects.

                                           Thermal power plants are most essential need in growing countries to fulfil their power requirements. Mostly Thermal power plants are constructed where sufficient quantities of coal are available in the place itself or in the nearby vicinity where from it can be easily transported. Depending upon the availability of other commodities and inputs the location of the Thermal power plant is decided. Even though there are other sources of power production Thermal power plants are widely used considering the cost of coal is cheaper. Except for few countries the coal cost is very much comparable with other fuels like Diesel/Naphtha etc. In countries like India wherein petrochemical fuels are of scarcity they wholly depend upon thermal power plants. Otherwise the construction cost and maintenance of Thermal power plants over a period of time works out to be most efficient compared to Diesel and other fuels. Countries like China  had already constructed and operating the power plants more than 1000 MW, countries like India still operate with 650 MW maximum . In recent past few 800 MW Thermal plants are under construction. Owing to the large requirement of power up to 30 million MW in future India has plenty of opportunities or the power companies from India and other countries to involve themselves in the development of India