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Raise the skill and competency level of project finance organizations


Project Finance for Business Development helps readers understand how to develop a competitive advantage through project finance. Most importantly, it shows how different elements of project finance, such as opportunity screening and evaluation, project development, risk management, and due diligence come together to structure viable and financeable projects-which are crucial pieces missing from the current literature.


Eliminating misconceptions about what is really important for successful project financings, this book shows you how to develop, structure, and implement projects successfully by creating competitive advantage. By shedding light on project finance failures, it also helps you avoid failures of your own.


* Offers a roadmap for successful financing, participant roles and responsibilities, and assessing and testing project viability


* Considers project finance from a broad business development and competitive advantage


* Provides a strategic decision-forecasting perspective


* Delves deeper than existing treatments of project finance into decisions needed to create and implement effective financing plans


Helping readers develop, structure, and implement projects successfully by creating competitive advantage, this book is a useful tool for project sponsors and developers, helping them structure and implement projects by creating competitive advantage.

Project Finance for Business Development

Preface xiii





Acknowledgments xvii





About the Author xix





Chapter 1 Introduction: Why Project Finance for Business Development? 1





1.1 Origins of Project Finance 5





1.2 Project Finance Advantages and Disadvantages 6





1.3 Corporate and Structured Versus Project Finance 7





1.4 The Project Finance Market 8





1.5 Why a Business Development Approach to Project Finance? 10





1.6 Structure of the Book 13





1.7 Use of the Book to Maximize Benefit 16





Chapter 2 Overview of Project Finance: The Nature of the Beast 19





2.1 Project Taxonomy 22





2.2 Project Finance Phases 23





2.3 Key Elements of Project Finance 25





2.4 Ownership and Financing Structure Considerations 27





2.5 Primary Project Finance Activities 29





2.6 Common Misconceptions and Myths 32





Chapter 3 The Record of Project Finance: Lessons to Avoid Failures 35





3.1 The Record of Project Finance Deals 37





3.2 Reasons for Project Failures 40





3.3 Lessons Learned 56





Chapter 4 Project Financing Processes: Roadmaps for Successful Financing 61





4.1 Variants of Project Financing Processes 63





4.2 Nature of Project Financing Processes 66





4.3 Activities in Project Finance Processes 68





4.4 Milestones of Project Finance Processes 73





4.5 Successful Project Finance Process Characteristics 75





Chapter 5 Project Finance Organizations: Built for Competitive Advantage 79





5.1 The Need for PFOs 81





5.2 Business Definition of PFOs 82





5.3 PFO Skills and Qualifications 98





5.4 PFO Challenges 102





5.5 PFO Performance Evaluation Measures 107





5.6 Characteristics of Successful PFOs 108





Chapter 6 Project Development: Viability and Financeability Essentials 113





6.1 Project Development Prerequisites 116





6.2 Prefeasibility Assessment 117





6.3 Project Definition 118





6.4 Technical Design and Assessment 119





6.5 Feasibility Study 120





6.6 Due Diligence 122





6.7 Project and Financial Structures 124





6.8 Agreements and Negotiations 126





6.9 Project Marketing and Raising Financing 128





6.10 Development Costs and Success Factors 130





Chapter 7 Participants and Responsibilities: Activities and Deliverables 133





7.1 Roles of the Project Team 136





7.2 Roles of the Host Government 137





7.3 Roles of Project Sponsors 138





7.4 Roles of the Project Company 140





7.5 Roles of the Lenders 140





7.6 Roles of Advisors, Consultants, and Insurers 142





7.7 Roles of Multilateral and Unilateral Institutions 148





7.8 Roles of the EPC Contractor 150





7.9 Roles of Technology and Equipment Providers 151





7.10 Roles of Project Offtakers and Suppliers 152





7.11 Roles of the O&M Company 153





Chapter 8 Project Finance Forecasting: Ensuring Sound Decision Making 155





8.1 What Is a Good Forecast? 157





8.2 What to Forecast and Sources of Forecasts 159





8.3 Forecast Assumptions 161





8.4 Project Forecasting Process 163





8.5 Project Demand Analysis 170





8.6 Forecasting Methods and Techniques 172





8.7 Forecast Sanity Checks 179





8.8 Causes and Consequences of Forecast Failures 180





8.9 Forecast Monitoring and Realization Planning 182





Chapter 9 Project Contracts and Agreements: Critical to Project Finance 185





9.1 Structure, Prerequisites, and Costs of Contracts 188





9.2 Contract Development and Negotiation Process 189





9.3 Common Project Finance Contracts 191





9.4 Challenges of Project Finance Contracts 195





9.5 Project Contract Success Factors 197





Chapter 10 Project Risk Management: Crucial for Project Success 199





10.1 Objectives and Importance of Risk Management 200





10.2 Types of Project Risks 202





10.3 Sources of Project Risks 207





10.4 Risk Management Undertakings 209





10.5 Risk Management Process 210





10.6 Risk Management Instruments and Mitigants 214





10.7 Risk Management Benefits, Challenges and Success Factors 220





Chapter 11 Project Due Diligence: A Pillar of Viability and Financeability 225





11.1 Due Diligence Costs and Benefits 227





11.2 Host Country and Industry Due Diligence 230





11.3 Technical Due Diligence 231





11.4 Environmental Due Diligence 232





11.5 Commercial Due Diligence 233





11.6 Legal Due Diligence 234





11.7 Financial Due Diligence 235





11.8 Operational Due Diligence 237





11.9 Risk Management Due Diligence 239





11.10 General Areas of Due Diligence 240





11.11 Report, Assessment, and Quality Characteristics 241





Chapter 12 Funding Sources and Programs: Essential Knowledge and Alliances 245





12.1 Official Project Finance Sources 247





12.2 Private Sources and Instruments 255





12.3 Benefits of Official Funding Source Participation 260





Chapter 13 Structuring Project Finance: How Everything Comes Together 263





13.1 Elements of Project Financing Structuring 266





13.2 Equity and Debt Investor Requirements 268





13.3 Decisions from SPC Ownership to Financing Structure 270





13.4 Determinants of Project Financing 277





13.5 Amalgamation of Financing 279





Chapter 14 Project Financial Model: Assessing and Testing Financeability 283





14.1 Uses of the Financial Model 286





14.2 Financial Model Inputs 288





14.3 Financial Model Calculations and Outputs 290





14.4 Properties of Good Project Financial Models 294





Chapter 15 Trends Impacting Project Finance: Opportunities and Threats 299





15.1 Major Relevant Megatrends 302





15.2 Megatrend Sources and Characteristics 304





15.3 Demographic Trends 305





15.4 Technology and Industry Trends 307





15.5 Trends Impacting the Government Sector 308





15.6 Trends Impacting Sponsors and Investors 310





15.7 Trends Impacting Funding Sources and Financing 311





15.8 Analysis of Trends and Their Impact 313





Chapter 16 Project Finance: A Source of Competitive Advantage? 319





16.1 Sources of Competitive Advantage 322





16.2 Manifestations of Competitive Advantage 323





16.3 Creating Competitive Advantage 326





16.4 Competitive Advantage Reality Check 330





Appendix A Common Project Finance Abbreviations 339





Appendix B Commonly Used Project Finance Definitions 343





Bibliography 353





Index 359