Project finance deals usually require some form of Governmental Essay

Project finance deals usually require some form of Governmental support. What Governmental or Legislature actions create better - Essay Example It can be well depicted from the definition provided by Benjamin C. Esty, which states that â€Å"Project finance involves the creation of a legally independent project company financed with equity from one or more sponsoring firms and non-recourse debt for the purpose of investing in a capital asset†3. Project financing include various features which in turn develops the entire process to be complex and multifaceted. Few of the major characteristics involved in project financing relates to the nature of the contract among the project company and the parties who are financially responsible for the completion of the project. Project financing also involves the legal agreement between the financially accountable parties and the project company, focussed on the availability of cash to assist the operational expenditures and fulfil the requirements of debt services in any circumstances. Another major attribute of project financing is that the process includes a legal consent from the involved parties which intends to secure the process of the project financially in case of any defaults arising even after the completion of the project. Thus, the process involves various risks in form of credit and commercial threats4. The basic features identifiable from the above provided description and definitions of project financing imply that it is a legal process and requires strong and effective regulatory interventions in its course to reduce the risks involved. This signifies the role of government to be quite significant in structuring the legislative actions concerned with minimisation of risks involved in project financing. However, in project financing, not only the regulatory frameworks, but other macro-economic factors also play crucial roles which can be controlled by governmental support. Based on this thought, the paper will intend to recognise and critically evaluate the governmental measures that can effectively support project financing in the modern day context. The Complex Structure of Project Finance With a general point of view, it can be stated that project finance intends to create an entity which is based on a special-purpose and aimed at the achievement of a particular goal, unlike any other commercial institution. For instance, an entity created with the aim to develop a power plant or a petrochemical unit or a toll road or even railways and operate it with the sole purpose for serving the state5. Thus, it is quite apparent that the purpose of project finances is predominantly broad which involves multiple facets and disciplines for its achievement. It is in this context that the structure of project finances are divided into two broad disciplines, i.e. the development of the project and finance. Both the disciplines are termed to be quite significant. The progress of the project deals with the functions performed by corporate players entitled to develop the project. Similarly, the finance discipline concentrates on the fu nding of the project representing the relationship between the financial lenders and the project development6. According to the experts, project financing is a complex process which involves mu