Sources of funding for project development vary by type of project, but the most common sources of project development financing are:
1. The host government various agencies' project funding budgets
2. Assignment of host government human resources and in kind contributions 3. Private capital, project developers, and sponsors
4. Sovereign loans and credits from development banks 5. US Agency for International Development
6. Sovereign loans and credits from development banks 7. Grants from trust funds and donor programs
Project development costs are high and vary not only by project type and size, but also by the skills of project participants, funding source, and host country economic
development. High project development costs are due to acquisition of expertise residing in advisors and consultants, contacts with host government authorities, rigorous analyses and the due diligence effort, the identification of project risks and their effective
mitigation, and the lengthy contract drafting and negotiation process of contracts.
MacKinzie and Cusworth (2007) estimate project feasibility costs around 2.3% of total project costs. However, estimates of project preparation range from 5% to 10% depending on timing, definitions, and other project parameters. As an example, the Infrastructure Consortium for Africa (2014) reports the following estimates:
1. Average Africa regional projects: 7%
2. World Bank estimate: 5% to 10%
3. Ifraco Africa projects: 10%
Success factors for project development are factors that create a solid foundation for a project to achieve key project stakeholder expectations; that is, to satisfy everyone's interests and needs in an effective manner. Remember, the main objective of project development is to create the conditions for:
1. Accurate assessment of project characteristics via the technical evaluation and the feasibility study
2. Thorough identification, analysis, evaluation, risk allocation and mitigation 3. Ensuring the long term project economic viability
4. Obtaining efficient project financing to allow timely and on budget completion 5. Value creation and adequate returns to all project participants
From the host country perspective, the best project development strategy is to plan and structure an infrastructure project that meets its needs with minimal environmental
impacts and maximum social benefits. Successful project development also requires the principle of value for the money to be operative and that approvals, processes and
procedures are closely followed. From the sponsor's perspective, project success is judged by close strategic, portfolio, and operational project fit; the NPV created, an acceptable IRR, strong debt ratios, and project company ability to make payment of dividends.
Value for the money (VFM) is a principle used by public entities to assess if they obtain maximum benefit from the goods and services they procure or provide given their resource constraints. It also evaluates the cost of goods and services and takes into account considerations of quality, cost, resources expanded, timeliness, and convenience to judge if they produce good value.
Effective project management is crucial for successful project development and in order for the objectives of successful project management to be realized, a number of pre conditions need to be satisfied, such as:
1. Planning, organizing, and assigning a project team early on and staffing it with associates possessing the right skills and qualifications
2. Considering the opportunity costs of doing and not doing a project. These costs are often ignored, but are crucial in new business development decisions
3. Developing clear and effective processes that help form the project plan 4. Selecting an appropriate project delivery strategy and vehicle
5. Scrutinizing cost and revenue forecast assumptions, models, and scenarios used and developing realistic project feasibility assessments
6. Objectively assessing project schedules, expected deliverables, critical paths, dependencies, and risks to the project
7. Creating participant consensus and obtaining buy in and political support
8. Ensuring all around unimpeded communication, coordination, cooperation, and collaboration is prevalent
CHAPTER 7
Participants and Responsibilities Activities and Deliverables
The stakeholders in project financings are the sponsor(s), the customer or host country government ceding agency, the debt and equity investors, the project company, the
offtaker or user of the project company's output, and the supplier of production inputs to the project company. Other project participants are external advisors and consultants, the construction contractor, the technology and equipment provider, the export credit agency (ECA) of equipment origin and multilateral agencies, and the operations and
management (O&M) company. The sponsor's or developer's project team usually consists of the project manager under a project executive and representatives from sales and
marketing, the CFO and treasury, business development, engineering and technology, legal, and the project finance organization (PFO) that draws from internal and external groups to perform necessary functions.
In infrastructure projects there are numerous tasks that need to be performed, and several participants with different interests, objectives, and project finance skills and experiences; as well as an overlap of roles and responsibilities carried out over complex and lengthy processes. Different projects require different assignment of participant roles and responsibilities that vary by sponsor, host country government authority, and
organizational and project finance capabilities. Hence, the need for clearly delineated roles and assigned responsibilities to the project core project team and other participants.
Besides a clear specification of roles and responsibilities, a key requirement is
coordination of tasks and cooperation and collaboration to produce required deliverables to move the project forward.
To appreciate the need for the project participants' roles to coalesce with the
responsibilities of the core project team, Figure 7.1 helps to conceptualize the required coordination to incorporate their outputs and deliverables into the overall project finance process. A complete inventory of project participant roles and functions is lengthy and requires superior project management skills and a PFO capable of helping the project manager coordinate internal and external processes, activities, and deliverables.
Figure 7.1 Participants in Typical Project Finance
In the sections that follow, the roles and responsibilities of participants are logged in sufficient detail to give a good picture of the effort involved in the monumental task of coordinating participant outputs into the project team main process. The undertakings, events, and activities associated with each participant's charter and how participants carry out their responsibilities are shown in the sections that follow: Section7.1 deals with the project team and its roles; Section 7.2 discusses the roles of the host government; and Section 7.3 addresses the many roles of the project sponsor(s).
Section 7.4 reviews the roles of the project company while Section 7.5 describes the crucial roles of the project lenders, and Section 7.6 lists the roles of different external advisors and consultants. Section 7.7 shows the roles of unilateral and multilateral institutions,Section 7.8 enumerates the roles of the engineering, procurement, and construction (EPC) contractor and Section 7.9 identifies the roles of the technology and equipment providers.
Section 7.10 discusses the roles of the project company's offtaker and suppliers and lastly, Section 7.11 deals with the roles of the O&M company.