GENERALLY

Selection of the form of business organization for the project company is an important step in project development. The type of entity selected affects many aspects of project development and financing, such as the drafting and negotiation of the project documentation and the regulatory permitting process.

For example, permits granted to the project sponsor and later transferred to a new project company may no longer be valid in some jurisdictions. This is because the ownership of the project has changed. Also by example, a project contract that prohibits assignment of the contract from one entity to another may preclude a later transfer to the entity that will actually operate as the project company. Thus, the project company, whatever the form, should be organized as early in the development process as possible to avoid these concerns.

Where to organize the project company is also an important consideration: under the laws of the host country or under the laws of the project sponsor's organization. In making this determination, the advantages and disadvantages of each country's laws should be examined, as well as the tax treatment of the entity.

PRE-DEVELOPMENT ACTIVITIES

Generally

Before a project sponsor begins full development of a facility, a thorough examination of its feasibility is undertaken. During this period, both technical and financial feasibility are evaluated. To make this analysis worthwhile, a fair amount of time and resources must be invested. The factors considered in a feasibility study are discussed in detail in Chapter 8.