Project financing in Finland
Project finance is gaining importance in Finland at the same time as private and international investors become more active in Finnish energy and infrastructure projects.
You may meet some confusion when “project financing” is discussed in Finland. Most investment projects in Finland are financed in ways that rely in one way or the other on the balance sheets of the investors. Strictly non-recourse financing facilities are still a newcomer in Finland.
Finnish financing institutions have long been reluctant to enter the project financing market. In recent years, substantial movement has occurred, though. This has come mostly from two directions.
Banks have engaged in providing project financing for large PPP projects (public-private partnerships, which is also a new concept for Finland), most prominently the E18 motorway from Turku to Vaalimaa, which was the prime pilot project for a PPP structure in Finland. Additionally, project finance was applied for the construction of wind power facilities in the period of time when sales revenues were secured by a generous feed-in tariff scheme.
These were cases in which there was practically no risk with regard to the project’s revenue. Time will tell how Finnish financers position themselves when project revenues are not guaranteed by the state. So far, we can still observe a rather cautious approach, with a tendency to break up the non-recourse model in favor of hybrid solutions involving at least some degree of recourse to the project sponsors.
International finance markets
Foreign banks, in particular from Central Europe, have shown a strong interest in the Finnish project financing market in recent years. They have successfully financed a number of projects, especially in the wind power sector.
For project owners in Finland, including international institutions in the search for project financers has the benefit of greatly enlarging the circle of possible partners as compared to the fistful of banks available in Finland. Increased competition is likely to lead to better financing terms. It can often be observed that foreign banks, stemming from well-established experience in project financing, offer better interest rates and act less conservative in the evaluation of project risks.
Of course, involvement of foreign banks has the potential to lead to increased complexity of the financing project for both sides. However, the increase in complexity will remain small and be outweighed by the benefits of increased competition if the financing package is well prepared by the owner before potential financers are approached.