The
selection of bankable projects is essential if PPP projects involving Project
Finance are to become a success. However since "bankable" depends largely
on the constraints and opportunities of both the definition of the project
and the environment in which this project is to be implemented, there are
either no bankable projects, or all projects can be considered as bankable.
For example,
if the private sector has to fund development, land acquisition and construction
costs on the basis that it has to take all the planning risks and can recover
the investment only through raising tolls even though tolls are capped
and all projections indicate that traffic would be low, there will probably
be no project that is bankable. If, on the other hand, the public sector
takes all the planning risks, pays cost overruns and agrees to repay the
private sector through a cost plus fee system, virtually all projects may
be considered bankable.
Bankability
is therefore determined by how the project is defined (e.g. starts after
land has been acquired by public sector following the completion of the
planning process) and the constraints that are imposed, or the incentives
that are provided, in respect of the implementation through the Concession
Contract or Regulations. This means that many projects could be made bankable
if well defined and if the environment provides sufficient incentive.
The process of selecting
bankable projects, therefore, comprises selecting projects that can
be given a serious chance of success by providing sufficient incentives
through Government support
and Regulations,
whilst keeping these incentives within acceptable limits and in line
with risk transfer objectives.
An approach
that could be used in structuring a bankable project is provided in
Module 2 - Finance.
