In project finance, risks are allocatedto the parties best able to manage them.However, the riskmitigation instruments incorporated in the project'scontractual and financial arrangements need not beall-encompassing to provide the security investors require.Commitments may be limited in scope, amount, and duration.This Note provides a checklist of commercial risk mitigationinstruments commonly used in project finance by privatelenders and sometimes by equity investors.The checklist isstructured around a project's development cycle: theconstruction phase and the operating phase.During theconstruction period, three main groups of instruments areused to mitigate risk: contractual arrangements andassociated guarantees, contingency funds and lines ofcredit, and private insurance.The instruments mostcommonly used to mitigate risk during the operating periodare: contractual arrangements, contingency reserves, cashtraps, insurance, and risk compensation devices.
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