Contractual Documentation in Project Finance and the Need for Connectivity

Description

ABSTRACT

Contractual Documentation in Project Finance and the Need for Connectivity

Abimbola Oluwasuyi*, Olusegun O. Onakoya**, and Olusegun Gbede***

Project finance cannot be done in isolation. It draws a series of participants to the projects and, therefore, culminates into different types of agreement reached by investors or parties. The agreements are geared at serving series of purposes, such as bankability, risk control mechanisms, guarantees in relation to the projects, and offering a medium of privity of contract for other parties who ordinarily would not have been privy to the agreements. The parties to project finance will require that their relationship be memorialised and specified. There are series of connected agreements which will be documented and may be linked to the main financing agreement by the parties. These agreements tend to define the obligations of the participants, their roles in the venture, and the allocation of risks. The agreements which are negotiated are required, forming part of the documentation in a project finance. These agreements specify the roles of the parties and the relationship or link to the project. This article examines the roles of these agreement, clearly stating their impacts and contribution to project finance. It makes a case for the coordination of the complexities stemming from the agreements to avoid extemporaneous effects that can jeopardise the essence of a project finance scheme.

Keywords: Project finance, Privity of contract, Financing agreement.

INTRODUCTION
Project finance involves multiple parties from different backgrounds, with the project company operating as the focal point or links in the variety of contracts entered by the parties.₁ It may draw parties from different countries to ensure that the project is successfully financed and the parties’ needs are met. Participants in project finance may include lenders from commercial banks in host and foreign countries, multilateral financial institutions, bilateral development institutions and other security services providers.₂

The realisation of the objectives of project finance lies mainly on the way the terms and conditions and the process governing the project finance are structured and are made to conform with the laws that may affect the parties, the projects and other stakeholders that are connected to the project. The risks inherent in the project such as construction, operation, political and market risks will need to be distributed among the stakeholders.₃ The importance of memorialisation of the parties’ duties…

* National Health Service, NHS, London, United Kingdom.
** Faculty of Law, University of Ibadan, Nigeria.
*** School of Business & Law, University of East London, United Kingdom.

1. Marco Sorge, ‘The Nature of Credit Risk in Project Finance’ (2004) 4 BIS Quarterly Review 91, 94.
2. John Niehuss, International Project Finance in a Nutshell (West Academic Publishing 2015) 180.
3. Rod Morrison, The Principles of Project Finance (Routledge 2012) 1.

THE GRAVITAS REVIEW OF BUSINESS & PROPERTY LAW VOL.12 NO.3