The ability of a project to raise finance is often called bankability. 'Bankable' really means that a project can attract not only equity finance from its shareholders, but the required amount of debt. Delmon's chapter on bankability [#58, Chapter 4] and Farquharson et al's chapter on PPP financing [#95, pages 54-57], both describe the factors banks will consider in deciding whether to lend to a project.
For a project to be bankable, lenders need to be confident that the project company can service the debt. Under a project finance structure, as described in Section 1.4.1: Finance Structures for PPP, this means operating cash flows need to be high enough to cover debt service plus an acceptable margin. It also means that the risk of variation to the cash flows must be highly likely to stay within the margin. Lenders therefore carefully assess project risks, and how these risks have been allocated between the parties to the contract.
If too much risk has been allocated to the private party, lenders will reduce the amount they are prepared to lend until the margin of cash flow over debt service is acceptable. When this happens, more equity will be needed. At the same time, the project company needs to be expected to generate high enough returns to compensate its equity-holders for their level of risk.
From the government's perspective, the key considerations for ensuring bankability are therefore the technical and financial viability of the project, and appropriate risk allocation. Section 3.2: Appraising PPP Projects provides guidance on assessing financial viability of a potential PPP project. Section 3.3: Structuring PPP Projects provides guidance and tools for practitioners on risk allocation.
Moreover, lenders and shareholders both have incentives to reduce their risks and maximize their return. This means that in structuring the PPP, the government undertakes a difficult balancing act-ensuring the project is bankable, while resisting pressure for the government to accept more risk than necessary.