Project finance has long-term characteristics and is usually used for projects that require long-term results, such as infrastructure, industrial projects and public services.

Launching from Ministry of Finance website (Ministry of Finance) RI, between interpretations project financing is to quote Benjamin Esty that involves the formation of a project company that is legally independent and financed with debt non-recourse for the purpose of investing in capital assets, usually with a single objective and limited time period.

“Project finance the usual characteristics are long term and commonly used for projects which takes a long time to get investment“said Assegaf Hamzah & Partners (AHP) Senior Partner Ibrahim Sjarief Assegaf at the 2023 Upstream Oil and Gas Legal Forum (FHHM) in Yogyakarta, Monday (9/10/2023).

AHP Partner Kanya Satwika and AHP Senior Partner Ibrahim Sjarief Assegaf.

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He gave examples of project results funded by Project Financing, such as infrastructure, industrial projects and public services. Through project financinga financial structure is used non-recourse or limited recourse. Where the debt and equity used to finance the project are repaid from the cash flows generated from the project.

There are 4 main features of a project financing in the form of projects limited to companies with special objectives; lenders depend on project cash flow for repayment; non-recourse or limited recourse to the project owner; as well as inclined projects large capital intensive and specialized.

“In the field oil and gas there really isn’t much (use project finance). Why? Because in the field mainstream oil and gas most projects it was financed by Equity or Corporate Finance. So maybe it’s not very familiar, except it is value“It’s very, very big,” continued AHP Partner, Kanya Satwika, on the same occasion that afternoon.

AHP partner Kanya Satwika.

He explained a number of projects that could be funded through project finance. For the mining sector, for example in terms of mining development; and development of smelting and refining (smelting and refining). Then, for the electric power sector such as conventional power plants such as gas and coal; and renewable energy.

Other examples in the transportation sector include airports; railway; Harbor; toll. Then on social infrastructure such as universities, hospitals, water treatment facilities. Lastly, the oil and gas (oil and gas) sector includes refineries (refineries), shipping, petrochemical plants, and gas pipelines.

Even though it sounds promising, he said, there are still a number of challenges that the company must pay attention to. Such as extensive financing periods, whether the cost of funds can be recovered, as well as establishing a structure bankable. Furthermore, there was something interesting from the discussion that afternoon, namely regarding the implementation of Presidential Decree (Keppres) no. 59 of 1972 concerning Acceptance of Foreign Credit in relation to Project Financing.

“The Presidential Decree is still in effect, but recently the government has started to be sensitive. Quite a lot are starting to be specifically excluded, but that’s sector specific or even projects certain. In general, it still applies. In terms of legal consequences in Presidential Decree no. 59 of 1972 right not clearly regulated, but if you look at the consensus of most legal practitioners unlucky will be raised on violations of the legal terms of the agreement,” said Ibrahim.