Political Risk Insurance in a Project Finance deal

An Excel template and manual on how to estimate the cost of Political Risk Insurance in your project finance models

by FinExMod
Financial modelsFollow 111

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Description
A private sector has a great deal of vulnerability when it comes to political risk. Political risk can come under the below scenarios but not limited to these risks:

- Political violence; war and civil disturbance
- Currency inconvertibility and transfer restriction that limits equity to convert or - Transfer dividends or lenders to receive their debt service.
Government nationalization or any discriminatory measures that makes it impossible to operate the project.

Any of the above changes will disrupt the base case model and projections and therefore is a risk that needs to managed.

This manual and template discusses the key issues with PRI (Political Risk Insurance) in the context of a project finance transaction.

It will mainly deal with:

- What is Political Risk Insurance?
- Who can  benefit from PRI coverage?
- How much does PRI coverage cost?

Please note that there's no formula fit all when it comes to calculation of PRI premium. However, if you don't have any visibility on the PRI and you haven't yet approached any PRI provider, then you can use this template as a first step in just getting the PRI into your model. However as you progress, you need to make sure that the way you have modelled the PRI premium complies with your insurer.

This Best Practice includes
1 PDF manual and 1 Excel template