Financial closure of urban infrastructure projects refers to the process of securing the necessary funding for the successful completion of a project. It is the point at which all financial arrangements for the project have been agreed upon and made legally binding.
In India, financial closure for urban infrastructure projects can be achieved through a combination of government funding, public-private partnerships (PPP), and external commercial borrowings (ECBs). The allocation of funds and the specific financing mechanisms used vary depending on the nature and scale of the project.
The government may provide funds through various means, such as the allocation of budget, the release of grants, or tax exemptions. PPPs involve the collaboration between the government and private sector entities, with the latter providing funding in exchange for a share in the revenue generated by the project. ECBs involve borrowing from foreign sources such as international financial institutions or banks. The process of financial closure involves negotiating and finalizing the terms and conditions of financing, including the source and amount of funds, the repayment schedule, and the collateral requirements.
Financial closure is defined as a stage when all the conditions of a financing agreement are fulfilled prior to the initial availability of funds. Financial closure is attained when all the tie ups with banks/financial institutions for funds are made and all the conditions precedent to initial drawing of debt is satisfied.
In a Public Private Partnership (PPP) project, financial closure indicates the commencement of the Concession Period. The date on which financial closure is achieved is the appointed date which is deemed to be the date of commencement of concession period.
In order to give a uniform interpretation for the term financial closure, Reserve Bank of India has provided the following definition. For Greenfield projects, financial closure has been defined as “a legally binding commitment of equity holders and debt financiers to provide or mobilise funding for the project. Such funding must account for a significant part of the project cost which should not be less than 90 per cent of the total project cost securing the construction of the facility”.
It is important to ensure financial closure for urban infrastructure projects as it provides the necessary resources for the successful completion and maintenance of the project.
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Professional Practice unit 5.pdf
FD Planning Community Forum Discussion
- Community Participation Process in planning
- Appreciation of decision-making processes
- Process in relation to varied consultancy assignments of planning
- Project Financing Need Assessment
- Projects Financing : Sources of funds
- The disposition of funds in urban development projects
- Planning for project Financing
- Project Monitoring and Criteria for decision making
- Project monitoring : Parameters and Tools of Control
- Use of Network Analysis in Project Monitoring
- Reporting and Corrective Actions
- Resource management and project reporting
- Project Evaluation- Methods, tools, time frame and results
- Project Cash Flows
- Principles of Cash Flow Estimation
- Project Benefits
- Financial closure of project
- Presentation of evaluation findings
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