Factors influencing finance on IPP projects in Asia: A legal framework to reach the goal Abu Naser Chowdhury * , Chotchai Charoenngam 1 Construction, Engineering and Infrastructure Management, School of Engineering and Technology, Asian Institute of Technology (AIT), P.O. Box-4, Pathumthani 12120, Thailand Received 9 May 2007; received in revised form 22 January 2008; accepted 31 January 2008 Abstract To capture faster economic growth in power sector, concerned efforts from the government for developing an appropriate legal frame- work is essential. It should be noted that government’s involvement in independent power producer (IPP) project is a prerequisite for its development which eventually has significant influence on the financial structure of a project. This research discusses and identifies var- ious issues that the government needs to deal with from selected case studies. Four IPP projects in Asia from India, Pakistan, Indonesia and China are evaluated and examined. The issues examined are related to Sovereign support policy, involvement of financial institutions and export credit agencies, purchase agreements, and credit enhancement mechanism. This study constitutes an attempt at providing a competitive strategy that will help government to develop a legal framework for IPP project financing. Ó 2008 Elsevier Ltd and IPMA. All rights reserved. Keywords: Government guarantee; Independent power producer; Project company; Public private partnerships; Sovereign support 1. Introduction The role of power sector becomes vital for the economic development of a country [1]. Especially, in Asia, govern- ment considers this issue very critically in economic view- point but failed to make credible promise due to political instability and financial constraints. Government can affect private infrastructure investment as a financier, supplier, customer, competitor, or regulator [2]. Government’s involvement can occur in federal, state or even local level which influences the investment policy for infrastructure. Any element in a country’s policy framework that jeopar- dizes financial structure becomes a stumbling block for investor consortia, making project either more expensive or simply impossible because of increased risk. In many developing countries, therefore, successful implementation of financial structure requires careful review of business environment for investments and, if necessary, reform of policy framework underlying it. New financial structures often need to be designed, laws need to be amended and/ or new legislation created and adopted, and regulatory oversight functions must be established and strengthened. According to Gonzales [3], a careful structuring of terms and conditions of the financing deals could pave a way to the formulation of a workable model. A consistent regula- tory policy is therefore required even with multiple changes of government parties. In public private partnership (PPP) project, though most of the stakeholders are from private side and may be one or two bodies from public side such as Central Government, State Government and/or govern- ment owned agency, but they have profound role and can influence financial structuring. The role and involvement of government in financial structure of PPP project can be best understood from the Fig. 1. 0263-7863/$34.00 Ó 2008 Elsevier Ltd and IPMA. All rights reserved. doi:10.1016/j.ijproman.2008.01.011 * Corresponding author. Tel.: +88 01713002789/+66 8 51149141. E-mail addresses: naser_eng@yahoo.com, nchowdhury@ait.ac.th (A.N. Chowdhury), chot@ait.ac.th (C. Charoenngam). 1 Tel.: +66 2 524 5538. www.elsevier.com/locate/ijproman Available online at www.sciencedirect.com International Journal of Project Management 27 (2009) 51–58