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1.3.2 Availability of Finance

There is a risk of funding not being available at financial close or only being available at a significantly worse price (margin and fees) and conditions (including debt service cover ratio [DSCR] or maximum term) than anticipated. This risk is generally to be assumed by the private partner.

However, governments should proactively work to mitigate this risk in advance by doing a proper appraisal (including market tests as described in chapter 4).

In some countries and circumstances, this may be handled by requesting that finance be fully arranged in advance of the bid submission. This is not realistic in EMDE countries, and it should be noted that generally this also has the danger of decreasing the competition if existing availability is limited. This is because lenders will then likely work on an exclusive basis with a bidder, or the government may consider this necessary to preserve the integrity of the bidding process[9].

Another way that governments, especially in EMDE countries, can mitigate that risk is to provide access to financing provided by public financial agencies and/or by negotiating in advance with MDBs to grant or prepare the availability of multilateral financing for the successful bidder.

In some countries and in specific projects, governments are assuming the entire risk of financing through a directly managed funding competition.

[9]
Chapter 1 contains a discussion about this matter in “Requiring financial
package up front or Requiring financial package up front or allowing for post-award
negotiations”.

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