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Key Questions to Approaches to Infrastructure Project Financing

John Constance MSc in Project Management, University of Liverpool Introduction Project financing is long-term funding of industrial and infrastructure projects that has its complexities and challenges in structuring and management due largely to the amounts of capital invested and the number of participants and contracts. Esty and Sesia (2010) far-reaching overview to infrastructure project finance gives importance to the financing mechanisms selection and what infrastructure project managers should considered as regards to infrastructure financing approaches when preparing to start an infrastructure project. There are so many questions a project manager needs to get answered. The report from International Finance Corporation Office of the Compliance Advisor/Ombudsman OMBUDSMAN Assessment Report (2010) following complaint on the Mozal Aluminum Smelting project in Mozambique raises questions on social and environmental concerns and public outrage. The University of Texas in Austin Center for Energy Economics (2006) case study on the Chad--Cameroun Pipelines raises questions on government preparation of anticipated adequate resources and stakeholders expectations. And there can be questions about ownership structure alternatives, financing and resource development strategies, partnership and revenue management, regulatory constraints, and forecasts of civil crisis. The key issue here is what three key questions concerning methodologies to infrastructure project financing can project managers pose to themselves when about to commence an infrastructure project. This paper will address this issue. Question # 1 Will this infrastructure provide effective services to the Public? This covers Investment appraisal procedures, social and environmental concerns, the need for public hearings, and any possibility of the project not being considered for financing by any financier, as well as political, sovereign and counterpart risks and stakeholder communication and involvement. It determines if government, financiers and the general public will approve the project, This question addresses Vickerman (2009) concerns of regulatory constraints, as well as the discrepancies in regulatory collisions and the impact it will have on user benefits. These conflicts do lead to wider benefits impacts; and leaving this question unanswered can lead to problems of prices setting and net benefits. Question # 2

What will be the Project financing cost? The question provides answers to the project whole life costing, which Park (2009 p.1146) indicates include the life of the infrastructure design, function, cost-effectiveness, services, and physicality. This question also provides answers to what will be the project scope, time, budget, quality, contract type and its administration, as well as the projects leadership and team management and site work safety. It also provides answers to cost and anticipated sponsor of the several regulatory constraints, and the value of the cost investment and its effectiveness in providing public services. Question # 3 What will be the financial mechanism? This question provides answers to the project magnitude and complexity, how to incorporate private-sector companies in the project, what will be the role of project participants, what are the sources of cash and sponsor equity, debt, and the alternatives for the project ownership structure, and how to match financing structures, deal structures, and asset types, as well as determine and managing market risk and financing risk. According to Esty and Sesia (2010) answers to the determination of infrastructure financial mechanism helps decide the capital asset investment mechanism, the organizational characteristic of the project finance, and the approach to the nonrecourse description of the financing. Conclusion Infrastructure project financing can be tricky and complex based on the process of evaluating financing models that matched the project specifics, and maintaining the balance between providing the infrastructure and ensuring its services are cost effective and beneficial and accepted by the public. But if project manager pose the right questions and get the best and appropriate answers the results can lead to a successful project design, costing, financing, construction and operations.

Center for Energy Economics (2006) Case Study Chad-Cameroon Oil Pipeline [Online] Available from: Esty, B. & Sesia. A. (2010) An overview of project finance and infrastructure finance 2009 update, Course Pack

OMBUDSMAN ASSESSMENT REPORT (2010) [Online] Available from: df Park, S.H., (2009). Whole life performance assessment: Critical success factors, Journal of Construction Engineering and Management, 135 (11), pp. 1146-1161.