Project finance in Asia: Governing variables of past, present, and future pf arrangements in power projects

Project finance (PF) market in Asia had been dominated by greenfield power project finance in 1990s prior to the Asian crisis. This greenfield PF structure was characterized by fixed priced power purchase agreements, foreign currency financing, and high dependency on export credit and multilateral agencies, guarantees and incentives. This paper presents variables that govern PF arrangements and analyzes them to explain why sponsors preferred such a common structural arrangement in PF in Asia, what variables resulted in this common structure's inability to withstand the Asian crisis, and whether a new PF structure will emerge in the future in response. Findings reveal that a PF arrangement is organized under a transaction specific structure and it is governed by variables attributed to institutional environment and transaction specific aspects. The institutional environment specific variables indicate the level of risk within PF transactions and result in particular security measures in PF in an unstable institutional environment like in Asia. As such, transaction specific variables are measures or responses to address the credit risk, which in effect causes different PF structures. These findings answer the above questions and provide a rationale for different PF arrangements in Asia.