General Studies · Project Finance and Infrastructure Risk
In regulated infrastructure sectors, 'regulatory lag' refers to the delay between a change in a project's input costs and the subsequent adjustment of tariffs by the regulator. From a project lender's perspective, significant regulatory lag is a critical risk because it:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1prevents the project from participating in secondary market bond trading or refinancing.
- 2leads to an immediate and mandatory dilution of the promoter's equity stake in the SPV.
- 3causes temporary cash flow mismatches that can jeopardize timely debt servicing.✓
- 4reduces the total depreciation that can be claimed over the asset's life under tax laws.
Correct answer
causes temporary cash flow mismatches that can jeopardize timely debt servicing.
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