Publication: Mitigating Commercial Risks in Project Finance
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Published
1996-02
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2012-08-13
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In project finance, risks are allocated to the parties best able to manage them. However, the risk mitigation instruments incorporated in the project's contractual and financial arrangements need not be all-encompassing to provide the security investors require. Commitments may be limited in scope, amount, and duration. This Note provides a checklist of commercial risk mitigation instruments commonly used in project finance by private lenders and sometimes by equity investors. The checklist is structured around a project's development cycle: the construction phase and the operating phase. During the construction period, three main groups of instruments are used to mitigate risk: contractual arrangements and associated guarantees, contingency funds and lines of credit, and private insurance. The instruments most commonly used to mitigate risk during the operating period are: contractual arrangements, contingency reserves, cash traps, insurance, and risk compensation devices.
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“World Bank. 1996. Mitigating Commercial Risks in Project Finance. at a glance. © World Bank. http://hdl.handle.net/10986/11635 License: CC BY 3.0 IGO.”
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