At an APEC conference29 in 1996 it was discovered that a major financing issue for the power sector was not a lack of funds, but in fact a lack of bankable30 projects. Eight years later anecdotal research shows that the challenge of developing bankable projects still exists. This section will address that challenge and provide a review of the basic steps necessary to develop and assess the financial viability of a project31 including the development of a cash flow model, financial analysis, and a sensitivity analysis.
Before developing a financial appraisal it is important to understand what is meant by a financial appraisal and how it differs from an economic appraisal. A financial appraisal measures only cash flow and any items that can have a financial impact on those cash flows. In contrast, an economic appraisal considers not only the financial impact, but also any external benefits and costs to stakeholders - regardless of whether or not impacts have a monetary value. For example, a financier will not look at the time saving or economic benefits that a new bridge or road will provide to a local economy, but instead focus on traffic projections and revenue and what expenses will the project have and what factors can impact either those revenues or expenses.
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28 See Appendix 1 - Financial Models for a financial analysis and model based on a fictitious toll-road project.
29 Malhotra A., "Private Participation in Infrastructure: Lessons from Asia's Power Sector" Finance & Development December 1997
30 Bankability refers to a projects ability to raise financing
31 See Appendix 6 - Sample Financial Information requirements for a detailed list of information that financiers may request in order to assess a project.