Question

What is the difference between project finance for public works projects like the Big Dig and purely private project finance like Euro tunnel? What guidelines should be used to help distinguish the two? How would you classify the Mozal Project? Is this a public or private project? Must contain 400 words or more.

Answer 1

Answer:

The key difference between project finance for public works projects like the Big Dig and purely private project finance like Euro tunnel is that public work project are financed such that they debt and equity will be paid back by the revenue generation from the project in future. Thus the equity and debt of the public financed project will be paid back by the revenue that will be generated post the project go live and revenue generated during the operations of the project. The private project finance is the process of financing the project by the financing organization and the private project organization will make the re-payment to the financing organization based on the installments or payment terms agreed between the two parties or from the revenue generation/ cash flow generation from the project. Thus it will not depend upon the revenue generation model after project goes live.

Public work project Big dig is financed such that its financed amount i.e. equity and debt will be paid back by the revenue generated by the Big dig project’s operation for the duration. The Big dig revenue generation will be paid back to the financing organization till the financed debt and equity is paid back.

Euro Tunnel project is the private project where financing body had financed it and the payment will be paid back to the financing body as per the agreed terms by the Euro Tunnel project organization after they get receives the project fund from their client or customer for whom the project is executed. The private project gets financed based on the balanced sheet of the private operator who is executing the project.

The guidelines should be used to help distinguish the two as below

• The private project financing is based on the corporate level of the private project operator.
• The private project financing is based on the balanced sheet status of the private project operator.
• The public work project is financed off of the balanced sheet of the project operator. It is based on the government needs and potential of revenue generation.
• The financial assessment of the private project operator/organization based on which they are eased for repayment of the financing

We would classify the Mozal Project as a private sector project funding. This is private sector project. This is the project related to aluminum production. This is the largest aluminum producer project in Mozambique and it I the biggest private sector project in the nation.