Enhancing Bankable & Sustainable Infrastructure
Jan 27, 2017
Based on the global policy framework trends and outlook, there is increased attention from sponsors, lenders and other stakeholders on the infrastructure sector. This includes emphasis on clean energy and power, bio-chemicals, clean water, smart grid, smart cities, high-speed rail, ports and related advanced infrastructure areas.
Accordingly, commercial market emphasis and investment focus is being directed upon specific infrastructure sectors and segments, value chains and asset classes which are applicable to existing assets as well as brownfield and greenfield projects. A multitude of business revenue models and investment structures are being considered including, but not limited to, Private-Public-Partnerships (PPPs), project finance, “tolling” mechanisms, establishment of dedicated infrastructure bank(s), private equity investment, pension funds, bond financing, and government loan guarantees.
Starting with the conceptual phase of feasibility and subsequent commercial activities prior to financial closure, various infrastructure projects are inherently dependent upon key elements that potentially enhance both bankability and sustainability.
As part of the stakeholders’ overall strategy and planning process, based on cooperative involvement, an infrastructure and segment specific Master Plan document is required to provide a macro-level framework for more detailed analysis. This Plan should be supported by a comprehensive commercial market assessment and analysis covering; supply; demand; tariffs and pricing; elasticity of demand; regulatory framework and policy; limitations and conditions of existing infrastructure; end-customer segmentation, demographics, purchasing power and creditworthiness; alternative and competing scenarios and; other related areas.
Based on the outcome of the macro-level Master Plan study, generic infrastructure projects and design configurations can be identified for further conceptualization and evaluation. Such evaluation includes; screening of suitable and viable proven technologies; development of budgetary estimates of capital expenditures (CAPEX) and operating expenditures (OPEX); determining variable/fixed capacity costs; estimation of the project’s net present value (NPV); and modeling over the project’s economic life. This methodology provides a definitive basis for identifying a group of the most likely generic projects and configurations for subsequent screening and ranking.
Subject to location specific considerations such as fiscal, financial, environmental and socioeconomic factors, detailed project feasibility can be undertaken covering; environmental impact studies, financial proforma analysis to determine a project’s profitability via internal rate of return (IRR), return on equity (ROE), debt service coverage ratio (DSCR), payback period and break-even capacity); lifecycle cost analysis; and financial sensitivity / scenario analysis. In addition, the following evaluations are required; technical and commercial due diligence; risks and mitigation analysis; structuring of transactional contracts with low risk and creditworthy customers; project development and execution plan; project financing and; facilities operations, management and maintenance plans. Upon completion, detailed project shortlisting and selection can be undertaken to determine potentially viable projects for development, execution and operations. Further, as part of any capital investment process, both sponsors and lenders must define a definitive exit strategy via merger and acquisition (M&A), strategic sale, initial public offering (IPO), or other options.
Nexant supports a variety of global sponsors, lenders and other stakeholders on their projects with our value-added professional services in the role of technical and/or market consultant. Nexant has extensive experience working with the financial community to support obtaining funding and financing for projects, including direct experience with export credit agencies (ECAs), multilateral agencies (MLAs), development banks, and similar organizations. This work has resulted in successful project development of well over US$100 billion. In addition, Nexant works directly with the private banking sector and venture capital sources, which are also involved in financing proposed projects. Nexant understands and has repeatedly met the requirements of these funding organizations over many decades of work.