PROJECT FINANCE AND

SWISS CHALLENGE
PRESENTED BY
AYUSH GATTANI
Roll NO. 1499
PROJECT FINANCE

 Project finance is the long-term financing of Economically

independent (separable) infrastructure and industrial projects either
on non-recourse or limited recourse basis based upon the projected
cash flows of the project rather than the balance sheets of its
sponsors.
 Eg. – Bengaluru Airport, Euro Tunnel, Sethu Bridge.
 FEATURES
 Capital Intensive
 Long term
 Highly leveraged
 Independent entity with finite life
 Off-Balance Sheet
 Non-recourse or limited recourse financing
 Controlled dividend policy
 Many participants
 PARTICIPANTS
 Host countries
 Project sponsors
 Contractor
 Operator
 Supplier
 Customer
 Commercial banks
 Multilateral agencies
 Insurers
 Legal Advisers
 CONTRACTUAL FRAMEWORK

 Engineering, procurement and construction Contract

 Operation and maintenance agreement
 Concession deed
 Shareholders Agreement
 Off-take agreement
 Supply agreement
 Loan agreement
 Inter-creditor agreement
 Pledge Agreement
 RISKS

 Construction and Completion Risk

 Operating Risks
 Demand Risk
 Force Majeure and Change in Law
 Political and Regulatory Risk and Expropriation and Nationalization Risk
 Environmental Risk
 Social Risk
 Tenor and Refinancing Risk
 Currency Exchange Risk
 Interest Rate Risk
 RISK ALLOCATION

 Guarantee
 Insurance – Casualty and Political risk
 Hedging and Futures Contracts
 SWISS CHALLENGE

 A Swiss Challenge is a method of bidding, often used in public projects, in

which an interested party initiates a proposal for a contract or the bid for a
project. The government then puts the details of the project out in the
public and invites proposals from others interested in executing it. On the
receipt of these bids, the original contractor gets an opportunity to match
the best bid.
 Ravi Development vs Shree Krishna Prathistan & Others (2009(8) SCALE 96)
 Many states (Andhra Pradesh, Madhya Pradesh etc) in India are using this
method of awarding contracts for roads and housing projects. Several
states (Rajasthan, Maharashtra etc) included it in their infrastructure
development acts.
 PROCESS

Submission of Unsolicited Proposal

Approval of Preliminary proposal

Negotiation

Bidding, Counter Proposal & Award