Thus, the additional ﬁnancial liability that Sponsors incur may become very
signiﬁcant in the absence of an EPC Contract.
Furthermore, the deﬁnition of “completion” in such cases has to be carefully
considered. It usually involves not just physical completion of the project, but a
demonstrated ability to operate as projected over a sustained period of time.
§8.6 ENVIRONMENTAL RISKS
The environmental aspects of a project may raise various contractual, legal,
and wider political risks. The possibility of preexisting pollution at the site will be
an issue under the EPC Contract (cf. §8.5.4), and the EPC Contractor is of course
required to construct the project to meet environmental standards on emissions,
etc. (cf. §7.1.8).
Even if the Project Company has obtained the necessary Permits to construct
and operate the project, it may still remain at risk from changes in law relating to
environmental aspects of the project (e.g., emissions) that require extra capital ex-
penditure (cf. §10.6).
Most public-sector lenders, such as the World Bank and European Investment
Bank, have their own environmental standards mandated by their members (i.e.,
state shareholders) and may require these to apply to projects even if local law
does not require this. In the worst case this could put the Project Company into de-
fault under the ﬁnancing if it violates these standards, even though it is not break-
ing the law in the Host Country.
Even if the Project Company is acting within the local law, it may still be at risk
on wider political grounds. Public opposition to the project may cause the gov-
ernment to reconsider its obligations under a Project Agreement or Government
Support Agreement. Similarly, the lenders themselves may ﬁnd themselves under
attack in their home countries for supporting a project that is perceived to be en-
vironmentally damaging; some lenders apply general environmental requirements
to all their loans.
Sponsors and lenders cannot rely only on keeping within the law of the Host
Country; they need to consider whether any environmental aspects of the project
leave them at risk of opposition to construction or operation of the project indi-
rectly discouraging lenders from getting involved with it. An EIA (cf. §7.4.1) is
an important part of the due diligence that should reduce any lender concerns.
§8.7 OPERATING RISKS
Once the project has been completed and is demonstrated to be operating to
speciﬁcation, a new risk phase begins, that of long-term operation. Even if the
Project Company has hedged many of its risks through a Project Agreement, some
§8.7 Operating Risks 155