Principles of Project Finance

§11.1 MITIGATION OF POLITICAL RISKS

If a project’s political risks are not sufficiently mitigated in the ways described

in Chapter 10 to satisfy private-sector lenders, the Project Company may be able

to obtain:

• Guarantees or insurance for political risks (“political risk cover”), thus leav-

ing private-sector lenders with only the commercial risks on the project (e.g.,

project completion)

• Guarantees or insurance that cover all risks, both political and commercial,

thus leaving lenders to provide finance with no risk on the project itself (“full

cover”)

• Direct loans to the Project Company from public-sector (national or multi-

lateral) lenders that are prepared to accept political risks not acceptable to

private-sector lenders; such entities may also accept the commercial risks in-

volved in the project and thus take the full risk on the project, or require these

to be wholly or partially covered by commercial bank guarantees.

Similarly, political risk cover may be obtained by investors (but obviously not

cover for commercial risks).

The main sources of political risk cover, full cover, or direct loans are:

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• Export credits (i.e., guarantees or insurance to lenders or direct loans to the

Project Company) tied to export sales to the Project Company (cf. §11.3),

Chapter 11

Political Risk Guarantees,

Insurance, and Finance

217

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Information and data on the ECAs, IFIs, and other organizations discussed in this chapter can gen-

erally be found on their websites, links to which are maintained at www.yescombe.com.