Lessons of project finance : principles and techniques for adaptation by the Czech State Fund for the Environment

The thesis of this report is that the environmental infrastructure projects being financed by the Czech State Fund for the Environment ("SFZP" or "the Fund") share many characteristics with the infrastructure improvements that have raised capital through project financing. This similarity suggests that the principles and methods of project finance might be employed in structuring the loans extended by the SFZP. However, the investments supported by the SFZP and those funded through project financing also show marked differences, size being perhaps the most striking. Project financing tend to be large, in the hundreds of millions and even billions of dollars. For the SFZP, on the other hand, a $1 million loan is large. The financing techniques devised for these huge projects cannot, of course, be applied in all their fullness and without modification to the SFZP"s portfolio. Still, particular elements of project financing can be adapted, and selected principles and techniques can help the SFZP to provide more capital to its clients. This report explains how. The report begins by defining project finance and goes on to describe how selected project financing techniques can help both the SFZP and its borrowers to achieve important goals. Next, the feasibility of using project financing techniques for SFZP is examined, followed by two brief case studies from the Czech Republic to illustrate the potential benefits of project financing. Finally, the report recommends steps that SFZP and USAID can take to capture the potential benefits of project financing. (Author abstract, modified)