An Escrow Agreement is an agreement that is entered into by the private partner, lenders' representative, public entity and the bank which has been designated as the Escrow Bank. The objective is to control and regulate all project related accounts and financial flows as per the requirement of the project and in support of the project. The Escrow Agreement ensures that there is no mixing up of the project-related cash flows and that the various stakeholders' business activities and fund flows, including those of the private partner, are kept strictly separate.
The Escrow Agreement provides detailed instructions to the Escrow Bank on receipts and more importantly on the payments and the terms of payments under various categories. A series of sub-accounts in the Escrow Account will cater to these requirements. The concept of escrow provides additional confidence to the lenders and is intended to enhance their potential contribution to the PPP project (subject to project viability and debt coverage assessments).
Monies and properties received by the Escrow Bank are regarded as being held in trust by the Bank and is segregated from other funds and properties of the Bank (i.e. these shall not be considered as assets of the Bank). All deposits and withdrawals for payments related to the project are to be undertaken through the Escrow Account under the Escrow Agreement.
The agreement provides for permissible withdrawals from the escrow account and the priority of such withdrawals to different categories of stakeholders.