Conceptual Framework and Recent Trends in Project Financing

Project financing is a non-recourse financing which provides leverage, contractual structure, creates a special purpose vehicle and considers the revenue generated by the project not the general assets of the business at the time of financing. Project financingtechnique is prominently used for mines, toll road, pipeline, power station, hospital and other infrastructure projects. Past studies show that the Public-Private-Partnership, Take-out Finance, BondFinance, Securitisation, Viability Gap Funding, and Infrastructure SPV are the prominent project finance structures being used now a day. The foremost advantage of project financing is that it is a nonrecourse financing which results in high leverage for the firms. It also helps in distributing the risk and provides efficient returns in comparison to conventional financing techniques. The shortcoming of project financing is that it is a time consumingprocess which is relatively expensive. Also, the transactions of project financing are very complex in comparison to traditional corporate financing. With the impact of privatization, deregulation and spread of globalisation project finance has emerged as a keyfinancing technique throughout the world. A year wise analysis of the project finance investment shows that in the year 2004 project finance investment rose by 466.59% over 1994. Region-wise analysis ofproject financing in the world shows that Western Europe and North America contributed nearly 53% of the total investments in the year 2000 but it was reduced to 36% only by the year 2004. Sector-wiseanalysis shows that Power sector accounted for maximum project finance followed by Infrastructure, Oil & Gas, Petrochemicals and Telecom etc. The study further reveals that project finance is catching up steadily in India because of emphasis given toinfrastructure given to infrastructure by the government. At present nearly 300 PPP projects are going on in the country.