Project financing is the long-term financing of infrastructure and industry projects based on projected projected cash flows from the project, not the sponsors` balance sheet. Typically, a project financing structure includes a number of equity investors known as „sponsors“ and a „union“ of banks or other credit institutions that provide loans for the transaction. In most cases, these are non-refundable loans, secured by project assets and fully paid from project cash flows and not from the general assets or solvency of the proponents, a decision that is supported in part by financial modelling; [1] see project funding model. Funding is generally provided by all project resources, including revenue-generating contracts. Project proponents have a pledge right for all these assets and can take control of a project if the project company has difficulty meeting the loan terms. Project financing documents that define loan terms for project financing and govern the relationship between lenders and the project company are the loan agreement. Since project financing still includes the construction of the project, the loan contracts contain construction financing terms that determine how the loan can be contracted on the basis of the progress of construction, calculation and the taxation of interest and commissions on the basis of outstanding loans and customary provisions in a social or real estate loan contract. It is a simple declaration that does not cover mining, shipping and supply contracts related to the importation of coal (which, in itself, could be more complex than the financing regime), nor contracts for the supply of energy to consumers. In developing countries, it is not uncommon for one or more public bodies to be the main consumers of the project and distribute the „last kilometre“ to the consumer population. The corresponding sales contracts between the government authorities and the project may include clauses guaranteeing a minimum rate of removal and thus guaranteeing a certain level of turnover.
In other sectors, including road transport, the government can collect road tolls and revenues, while providing the project with a guaranteed annual amount (as well as clearly defined upside and downside conditions). This will minimize or eliminate the risks associated with transportation demand for project investors and lenders. Supply agreements essentially compensate for offtake agreements and ensure that they maintain a balance, as project production is largely dictated by offtake agreements.