Project Finance
is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project, and debt is repaid using the cashflow generated by operation of the project, rather than the general assets or creditworthiness of the project sponsors.
Do banks create the "project debt" = credit that finances the project or not? Or am I imagining that?
It's not the same Chinese that build and that buy the output
What difference does it make? They are all arms of the State to a greater or lesser degree.
But that's the problem. The builder does not want to be paid only if the project is complete, or if it performs, or if the market price is high enough. It wants to be paid the agreed price, full stop. Why do you insist on making it takes risks it does not want to take??
I already said up-thread that if a builder needs his costs paying because he cannot afford to invest then that's fine: development credit will be necessary.
But an agreed profit margin, with an "open book" approach and consensual partnership negotiation, can and should be "invested" so the contractor has "skin in the game" and a stake in the outcome.
When the project is complete he gets a proportional share in the flow of property rentals, energy, or other production, and he is free to sell this proportional "Equity Share" off on the open market in the same way he could sell off equity in a PFI -except that forward production should be considerably "cleaner" and easier to value and more attractive than shares in the net profits or a PFI company.
That's why Income and Royalty trusts are so popular in Canada.
Anyway, I'm tired of going over the same ground. I should know better: I shouldn't expect you to agree with what is in effect an existential criticism.
As you will know, I believe that the deficit basis of "Money as Debt" is simply unsustainable and that the global economy is in the process of breaking down terminally in the face of the conflict between finite resources and infinite monetary claims upon them.
I believe that I have identified an "emerging" alternative enterprise model to the current "broken" ande conflicted mixtures of debt and equity.
I aim to demonstrate this by working with like-minded people to develop and implement pilot schemes and build upon them.
So I'll just leave it at that. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Hmmm...a click too fast. I am imagining that. The SPV issues both debt and equity.
OK, point taken: that means the form of banking you practise is not as a credit intermediary.
Which is fine: I have no difficulty with banking as a profession. It's credit intermediation which is the problem.
But you could still use a simpler SPV. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
development credit will be necessary
So one entity will have to put their skin in the game.
Now we have another entity with skin in the game.
The first: the financiers; the second: the builders.
Jerome suggests that the investors (the financiers) want a different thing to the contractors. The contractor wants "cash on delivery"--hence the investment. The investors want "the product", which they guess (they gamble, maybe a very educated guess) that the product will be worth more than the contractor charged to build the means of production.
He says: if you don't pay the contractor upon completion, you won't get any contractors.
Contractors refuse to put their skin in the game. They don't gamble. They build a thing and get paid just as soon as part a) of the thing is built; and then part b). Or maybe they agree to build the whole thing before getting paid, so that's their risk--and, he's saying (if I'm reading this right--) that they don't want to go any further.
Okay, you say, so we need "development credit" to pay off this contractor. That's what the financiers offer.
Where does that credit come from? A person, people, organisation or organisations with money (no matter where the money came from originally--let's pretend their mobsters looking to launder some drug cash--the nephew of a capo is big on "the green thing" and another capo was talking about how his garden's gone crazy and this global warming shit, we should take notice--so they decide to launder launder, and when the money's clean they invest it in a wind farm.
So there's your money. The contractor builds and gets paid off. The product appears and the dirty money is now making clean money and renewable energy.
You think it is advantageous for both parties to take the same risk. Or have I got that all wrong?
You think it is better for the financiers to become partners rather than owners. You think it is better for the contractor to become an owner rather than an "odd jobber".
?
%:8) Don't fight forces, use them R. Buckminster Fuller.
