Law School Faculty Blog
5Nov/12

Unmasking Project Finance Risk

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Each year millions of foreign direct investment dollars in the Global South flow through project finance transactions. These transactions create large-scale energy and infrastructure projects, such as wind farms, coal mines, and roads. Even the “greenest” of these projects consistently produce deleterious effects on third parties and the environment. My article, “Unmasking Project Finance: Risk Mitigation, Risk Inducement, and an Invitation to Development Disaster?” published in the Texas Journal of Oil, Gas, and Energy Law, argues that project finance, as a method of financing infrastructure and energy projects, may play a significant role in producing the negative effects of international development.

Until now, much of the legal scholarship in the infrastructure development field has focused its attention on the complex mechanics of project finance, including understanding the ways in which project promoters utilize project finance to manage commercial and political risks. Much of the human rights and environmental advocacy related to negative development
outcomes is limited to seeking ex post facto relief. To date, very few scholars have delved into the intersection between these bodies of scholarship (project finance and human rights), and queried whether project finance transactions, ex ante, have a relationship to the externalities produced in large-scale development projects. My article squarely engages this inquiry, and argues that the methods commonly used by project developers to diffuse economic risk combine to undermine limits on risky behavior on the part of project developers and thereby lead to the externalization of risk.

Read “Unmasking Project Finance: Risk Mitigation, Risk Inducement, and an Invitation to Development Disaster?”

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