Private financing also brings greater commercial and technical due diligence to an infrastructure project during the procurement phase. This due diligence is carried out by the equity partners in the project consortium and also by the lenders, who sometimes provide over 80 per cent of the project financing requirements. Lenders receive a fixed rate of interest on their money, but they tend to have much more funding at stake than equity providers. In turn, this tends to result in more stringent due diligence standards on the part of lenders than on the part of equity investors.8 Each lender usually has its own set of commercial, technical, and legal due diligence advisors on each project.
Lenders continue to monitor the progress of the project after financial close. Moreover, significant changes to the project after financial close usually require approval from the lenders. This is one of the factors that make it more costly to introduce major contract variations after the start of the project.
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8 Lenders' claims to interest and capital repayments have priority over the claims of the equity providers (i.e., the private partner). The latter assume higher risks than lenders and therefore expect higher returns.