What Are The Uses Of Project Finance?
Project finance techniques have enabled projects to be built in markets using private capital. These private finance techniques are a key element in scaling back government financing, a central pillar of the current ideological agenda whose goals are well articulated by Grover Norquist, a US Republican ideologue and lobbyist, who says ‘I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.’
On the basis of such ideological agendas and lobbyists’ machinations are the macroeconomic policies, upon which project finance feeds, made, thus transferring the control of public services from the electorate to private, unaccountable and uncoordinated interests.
Such agendas make project financing a key method of using private capital to achieve private ownership of public services such as energy, transportation and other infrastructure development initiatives. The goal ultimately is to make government irrelevant and achieve a two-tier society where government panders to the marginalized and infrastructure development and exploitation are handed over to private capital, free from the encumbrances of electoral mandates. Some of these sectors include:
■ Energy Project finance is used to build energy infrastructure in industrialized countries as well as in emerging markets.
■ Oil Development of new pipelines and refineries are also successful uses of project finance. Large natural gas pipelines and oil refineries have been financed with this model. Before the use of project finance, such facilities were financed either by the internal cash generation of oil companies, or by governments.
■ Mining Project finance is used to develop the exploitation of natural resources such as copper, iron ore, or gold mining operations in countries as diverse as Chile, Ghana and Australia.
■ Highways New roads are often financed with project finance techniques since they lend themselves to the cash flow based model of repayment.
■ Telecommunications The burgeoning demand for telecommunications and data transfer via the Internet in developed and developing countries necessitates the use of project finance techniques to fund this infrastructure development.
■ Other Other sectors targeted for a private takeover of public utilities and services via project finance mechanisms include pulp and paper projects, chemical facilities, manufacturing, hospitals, retirement care facilities, prisons, schools, airports and ocean-going vessels.
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