Improving the 'bankability' of infrastructure projects

Improving the 'bankability' of infrastructure projects

What is the role of project preparation in improving the 'bankability' of projects?

Many potential infrastructure projects in developing countries struggle to secure financing, due to poor preparation and packaging of project proposals

  • In international development it is becoming clear that the reasons for the shortage of delivered infrastructure projects go beyond the need for policy and gover¬nance reforms. Nor is the key problem a lack of funding, as might be expected

  • Instead, it is the lack of packaged, bankable projects – project proposals with enough time and money already invested, to establish that they are financially viable from the standpoint of a financier. This points to a need for more and better project preparation

  • Many project proposals are backed only by out-of-date engineer¬ing studies, with little additional analysis or preparation. The projects need more preparation and packaging; but such preparation is expensive and takes time

  • Private operators and commercial lenders have money to do their own due diligence on projects for which bankability has been reasonably established - but little to spend on preliminary assessments of bankability
  • A project's bankability can be determined only after establishing its feasibility in terms of social, economic, financial, technical, environmental, and administrative factors. Project development normally involves pre-feasibility and feasibility studies to assess these factors

  • But these studies need to be accompanied by conceptualisation, and consen¬sus building around a project's purpose and objectives. And these may need to be linked to required legal, regulatory and policy reforms in the relevant sector, to make the project effective

  • Many project proposals that are socially or economically desirable may not be bankable, no matter how well prepared and structured, if they incorporate poor engineering designs
"A lack of proper project planning that flows from a poor feasibility study has been found to be a major contributor to the failure of projects." (Reside, 2007)

Careful preparation and feasibility studies will lead to 'bankable' infrastructure projects

A good feasibility study contains these modules, done in parallel and interactively:

Supply and demand: market for the service

Technical/engineering/procurement: options, choices, costs

Financial: cash flow, financing, return on investment

Economic: the CBA; can include 'shadow prices' for externalities, such a CO2e emissions

Social: the positive and negative impacts on the well-being of the 'target', and other affected, people

Environmental: impact on the environment? The social and environmental questions should be asked from the start, as opportunities to be included in the scope; not just asked at the end, as risks, in 'compliance' mode. For 'bankable' good practice, see: www.equatorprinciples.org

Key institutional 'success' questions:finally:

  • Such scoping/feasibility studies undertaken prior to project initiation, need to be reviewed,. Not just before setting the budget at the start, but also at 'gateways' through the project implementation, to ensure the project remains sustainable and bankable

  • Clients/governments and donor agencies should work together on this, making sure that an appropriate budget is set and is monitored during implementation to deliver a sustainable project

  • Knowledge can further be built by auditing projects and sharing the results, so as to learn lessons from any mistakes or omissions. This can feed into making future project proposals more bankable

  • It is important to educate all those who are involved, as to why such careful preparation and feasibility studies are necessary. Working together, with common best practice systems and procedures in place, the project will be sustainable and therefore bankable

Useful links:

www.worldbank.org: Projects & Operations; Data & Research www.eclac.orgwww.nclo-vol.org.uk
CIDB (2010) Project Gateways for control, see: CIDB Infrastructure Gateway System – STAGES