PROJECT FINANCE RISK MANAGEMENT FOR PUBLIC-PRIVATE PARTNERSHIP

The development of public-private partnership in Ukraine in recent years has become very important as an instrument of anti-crisis orientation. The real economic situa-tion objectively creates the preconditions for more effective use of this mechanism and institutes of public-private partnerships in order to ensure sustainable economic development, obtain new ones and improve the quality of public services provided to the population. The objective of the research is to identify the components of project finance risk management and to provide justification of effective and balanced sharing of risks between public and private partners as the prerequisite and the main principle of effective implementation of public-private partnership. The authors used the following research methods: systemic approach, theoretical and empirical methods of scientific knowledge. This paper examines types of investment project financing by banks based on public-private partnership. It defines the structure of public-private partnership according to sources of capital investment in the project vehicle. The paper identifies components of the risk management process in project finance. It proves that a balanced distribution of risks between the private and public partners is the key requirement and the primary principle of effective public-private partnership. In this way, the need for mobilization of additional financial resources for implementation of investment projects calls for extended cooperation of state agencies and banks as a part of the effort of economic crisis management.


INTRODUCTION
Over the past fifteen years, Ukraine has been lagging behind the developed countries by any definition, causing the national economy to lose its competitive edge. All of these effects are primarily due to insufficient funding, completely out of line with the trends prevailing globally. The trend has culminated in the current financial and economic crisis, with one its drivers being negative dynamics of in investment demand in the country.
Public-private partnership (PPP) may become one of the main channels to expand financial resources and raise money needed for development of the economy. Public-private partnership provides access to alternative sources of private capital and allows implementation of important and urgent projects, which, otherwise, would be impossible. The business and state relationship system, which exists in Ukraine, stipulates the necessity to form new partnership mechanisms based on the integration of state economy regulation principles directed at society development aims, tasks and priorities achievement, and business incentives. The potential of public-private partnership, its power and opportunities stipulate consistency, depth and reasoning of society modernization in the direction of knowledge-based economy development, efficiency of measured aimed at creating conditions for innovative and competitive business formation.

LITERATURE REVIEW
An important contribution to the study of the features of institutional environment and the implementation of public-private partnership made was by famous scientists, economists and experts, and in particular Akitobi (2007) Thus, Zapatrina (2011) emphasizes the uniqueness of the mechanism of PPP, which allows for additional funding and examines the problems of state investment support for the implementation of PPP. Among the Russian works, which are devoted to this theme, the works by Shakhmalov should be separately identified (2005), which contain a deep and systematic theoretical substantiation of the problems of interaction between entrepreneurship and the state. In the works of Varnavsky (2002), the main emphasis is placed on the feasibility of applying different forms of public-private partnership to enterprises of the national infrastructure. As to the rationale for the prospect of such a partnership, attention is drawn to the research by Efimova (2003) At the same time, many issues need further development. First of all, it concerns the financing of the knowledge economy in terms of its constituent elements. Public-private partnerships can become one of the tools that can implement knowledge economy development programs. Famous economists and specialists in the field of public administration such as Amunz (2005) However, despite a significant number of studies on the development and implementation of the concept of development of public-private partnership in Ukraine, little attention of the researchers is paid to the issue of preparedness and evaluation of financial opportunities for participation in public-private partnerships, in particular, the financial potential of public-private partnership and its use in the context of the financial policy of the state. Now, there were not developed generally accepted methodological approaches to assessing the financial potential of public-private partnership, and also determining its economic essence.
This aspect of the problem is of particular relevance to the domestic economy, because, based on data on financial potential, full information, both available and prospective, can be obtained on the totality of financial resources for PPPs.
Using data on available financial potential, it is possible to determine the optimal variant of the development of financial relations within the framework of the PPP and to realize certain tasks of the state's financial policy. Knowledge of the level, quality, dynamics of the financial potential of the PPP allows to identify internal reserves, wider use of financial incentives and ensuring a closer link between the planning indicators of the development of the territory and real possibilities for their implementation.
He creates important information for building new financial relations "the state -economic entities -financial organizations" and the solution of problematic issues related to the implementation of large socio-important tasks.
However, selective fragmentary approach to the outlined problem symbiosis is predominant, which makes their comprehensive solution impossible.

RESULTS
Formation of the PPPs' Institute in Ukraine can increase the efficiency of all factors of expanded reproduction in fundamentally different basis; provide the innovation dynamics for the economic development; form the conditions for the effective use of intellectual capacity and development of intellectual capital; increase the level of innovation activity and business attraction. The world practice has developed an array of tools to enable public-private partnership vehicles to engage vari-ous financial and credit institutions in implementation of major investment programs via complex financing schemes (Bukhariev, 2009) ( Table 1).
In this way, bank financing and application of PPP models are most common, with best results achieved when combining these sources of funding. PPP looks appealing to banks since they have the leverage to asses and monitor projects. Implementation of bank-financed PPP investment projects involves the following forms of financing (Ovsyannykova, 2012; Evropeyskaya ekonomicheskaya komissiya Organizatsii Ob'edinennyih Natsiy, 2008), (Figure 1).
It should be noted that in recent practice, financing of public-private partnership projects is most commonly based on the principles of project finance, which (unlike corporate financing) provides for creditors having absolutely no or limited right of recourse against the partnership member entities, should there arise any problems with repayment of funds with regard to the project (Ryzhkova, 2012). Public-private partnership financing depends on the type of capital, affecting proceeds, the level of risks, project structure, loan terms (maturity, interest rates/fees, the need in foreign currency), the financial attractiveness of the project, etc. The next stage in development of public-private partnership suggests the use of the project financing arrangement with more involvement of financial institutions (banks) in the implementation of PPP. Project financing is most commonly used in those economy sectors that require heavy capital expenditure for their development, have long-term capital-intensive assets, long amortization and payback periods. In our view, the concept of project financing as a funding mechanism perfectly suits the needs of PPP projects, however, the classical definition of project financing has to be adapted to Ukrainian realities. The scheme is characterized by flexibility and effective management of external investments, equal sharing of risks and liabilities among the members. This will subsequently highlight the problem of effective use of funds in PPP financing, which calls for development of appropriate methodology of assessing the cost of state support and its feasibility analysis, as well as the use of financial instruments in certain PPP conditions. Based on the project financing structure, let us outline the sources of capital for the project vehicle, their features, upsides and downsides ( Table 2).
The financial structure of public-private partnership projects allows leverage of modern financial instruments that are widely used around the world; to implement investment projects to expand cooperation between public authorities and banks in the crisis management of the economy. The participation of banks and other financial institutions in PPP projects will: • ensure the project company the necessary amount of capital; • improve the quality of financial services institutions; • develop new mechanisms and schemes to attract funds, including borrower support; • formalize the rights of creditors with regard to timely debt repayment and service guarantees;

CORPORATE FINANCING
A combination of different forms of external investment in the project. Loan financing mostly comes as syndicated loans provided by commercial lenders or capital markets, while lending terms depend on the specifics of the project and country specifics: political stability, currency reserves for foreign currency loans and inflation rate

PRIVATE FINANCING
In equity financing, investment companies, venture firms, banks and construction companies, as well as the government or international organizations hold equity interest in the project company, that is the shareholders own the project company in proportion to their share in the capital, seeking to gain profit on invested capital as dividends paid following repayment of loan liabilities

PROJECT FINANCING
The loan is repaid from the cash flow generated by the vehicle and secured by the current assets and future project revenues.  • engage state-owned banks to lending and investment in national projects; • stimulate attraction of credit resources by municipal enterprises, in particular under publicprivate partnership agreements; • develop new mechanisms and schemes to attract funds include support for the borrower; • decide the rights of creditors in terms of guarantees for timely repayment; • involve state-owned banks to lend and invest in national projects; • stimulate attraction of credit resources by utilities in particular by agreements of publicprivate partnership.
Financial institutions (banks) are most affected by financial risks. Financial risk is first of all about reliability of funding sources involved in implementation of the project, as well as restrictions emerging both at the time of the financial closing of the deal and throughout the project cycle. This risk may incur higher project costs and have a key impact on financial viability of the project.
PPP has a fundamental difference from the usual model of funding of development by pooling national or local governments resources and those of private businesses. Mutual risks management by the PPP parties is a key factor allowing them to capitalize on the financial leverage produced by this type of cooperation. It is a balanced distribution of risks between the private and public partners that is the key requirement and the main principle of PPP effectiveness ( Figure 2).
One of the main directions of state financial support PPP may be to stimulate bank lending, in particular, on the basis of public-private partnership. Project financing accommodates different financial instruments, while certain government guarantees are meant to ensure a significant inaflow of investments into the infrastructure sector. Project financing mechanism allows to combine different financial instruments and certain guarantees of the state should provide a significant influx of investment in infrastructure.
Obviously, one of the main methods to deal with the problems of public-private partnership financing should be the development of state programs for the Ukrainian banking sector. Among such measures of high priority one can include the following: • allocation of investment, financial and loan recourses with priority on creation of jobs in information-intensive areas of the real sector (high-tech production, new energy industry, infrastructure projects); • opening credit lines for financially sound financial institutions and companies; • creation of the system of temporary insurance of all bank deposits; • creation of conditions for "new blood infusion" into the banking system by enabling access to purchase of shares of commercial financial institutions; Demand risks associated with current demand for services, when the actual demand for services may prove to be lower than expected Assets depreciated cost risks associated with future market prices for assets being the object of public-private partnership DISTRIBUTION OF RISK SAMONG PARTNERS These risks are shared among the parties according to their ability of their most effective management, that is each partner assumes tasks and responsibility it can handle best and with minimum risks • Loan maturity, as well as availability of refinancing options for short-term loans.
• Availability of a grace period sufficient to deal with the problem of short revenues during the construction phase.
• Interest rates: сonsidering the fixed income flow, the scope of project financing makes flat rate loans a more viable option.
• Hedging cost (if interest-rate, currency or other risks are managed by hedging).
• Credit risks of key project stakeholders, including any existing thirdperson guarantees, bonds or guarantee commitments.
• Currency exchange rate fluctuations.
SYNDICATED LENDING Several banks pool together their resources to form a banking syndicate to provide for the borrowers' investment SECURITIZATION OF BANK ASSETS By selling assets, the bank receives financial resources and decreases financial risk exposure.

REFINANCING
Changes in the financial structure of the project without any changes in economic relations between the public and private sectors.

PROJECT FINANCING
Source: compiled by the authors.
• formation of a system crisis institutes for: consulting, marketing costs optimization, staff training for work in new economic conditions; • partial nationalization of "problem" banks; stimulation of structural changes in business (Hubarieva, Chmutova, & Maksimova, 2016; Mushchynska, 2010); In this way, bank financing and application of PPP models are most common, with best results achieved when combining these sources of funding. Today, Ukraine has a record of participation of lenders participation in implementation of national projects based on public-private partnership (see Sppendix, Table A), and the effectiveness and results of these projects have proven that investment projects need to be developed and implemented with participation of lending agencies, including banks.

CONCLUSION AND PROSPECTS FOR FUTURE RESEARCH
Considering the scarce availability of public funds, lack of own funds to finance capital-consuming PPP, the government should focus on incentives to stimulate bank lending as one of the primary measures of financial support of PPP on the part of the public sector, in particular, lending based on public-private partnership arrangements. The financial structure of public-private partnership projects allows leverage of modern financial instruments that are widely used around the world.
Participation of Ukrainian financial institutions in PPP projects will not only provide project vehicles with required amount of funding, but also help the institutions themselves to reach the next level in terms of quality and volume of their services. Project financing accommodates different financial instruments, while certain government guarantees are meant to ensure a significant inflow of investments into the infrastructure sector.
In this way, the need for mobilization of additional financial resources for implementation of investment projects calls for extended cooperation of state agencies and banks as a part of the effort of economic crisis management. In order to give banks better incentives for cooperation with local authorities to increase the scope of financing of public facilities it is necessary to develop new mechanisms and schemes to attract funds, including borrower support; formalize the rights of creditors with regard to timely debt repayment and service guarantees; engage state-owned banks in lending and investment in national projects; stimulate attraction of credit resources by municipal enterprises, in particular under public-private partnership agreements.