Credit enhancement and its risk factors for IPP projects in Asia : an analysis by network theory

Abstract

Credit enhancement is absolutely essential for financing Independent Power Producer (IPP) projects in Asia particularly for countries whose sovereign credit rating is on non-investment grade and foreign investment is difficult to achieve. In IPP project, due to lots of agreements among varies parties, it is hard to clearly visualize the roles of these agreements. Examples are: What credit enhancement factors are most influential to minimize the associated risks of IPP projects? Why are they powerful? What are their roles? Who are less powerful and what are the obstacles that cause them less powerful? A research is conducted to identify the credit enhancement factors for IPP projects in Asia. IPP professionals validated 27 out of 28 identified credit enhancement factors, and five factor groupings were made through factor analysis. Afterwards, network theory is applied to find the unanswered questions, which by graphical and mathematical representations show that the host government's credit enhancement, MDBs, ECAs and other parties’ credit enhancement are prominent and of great importance to handle the associated risks of IPP projects in Asia.