This article presents a critical review of the Basel II regulatory framework for specialized lending and especially project finance. It deals with two key issues related to the development of a rating model for project finance risk: (1) The author criticizes the current bank and rating agency approaches to assessing credit risk in project finance, and (2) he evaluates one possible way to construct a rating model with project finance rating data according to the Basel II Accord. The article explains why the proposed model is different and better then than existing ones.