Principles of Project Finance

To calculate the investors’ returns correctly the financial model should cover

the whole period from when the initial development costs on the project are in-

curred to the end of the project life, although for the purposes of the lenders the

model is only needed from Financial Close, with past expenditure on project de-

velopment being “day 0” figures. The project life is either the term of the Project

Agreement or the expected economic life of the project if it is not operating with

such a contract. A residual value of zero, with the whole of the Sponsors’ equity

having been repaid by the end of the project life, is normally assumed unless there

is good reason to the contrary.

The model is usually prepared on the basis of 6-month periods. During con- ...