1. Background

The financial feasibility assessment is a critical part in the project preparation stage. It provides information about the costs, expenses and sources of revenues, and gives an indication whether the project is self-sustaining or requires additional financial support in the form of grant to make it viable. In other words, financial feasibility helps determine whether the project will make sufficient revenues to offset all the costs incurred as well as allow for a reasonable return on investment for the private partner. Financial feasibility forms the basis for determining an appropriate project structure and eventually informs the preparation of bidding documents.

The financial feasibility assessment however, is an iterative process which is done during different stages in the project - during risk analysis, determining value for proposition, assessing whether or not to proceed with a PPP structure, etc.

Financial Feasibility Assessment answers:

• Solely on the basis of returns on investments, is the project possible through a PPP framework?

• Are financial returns from the project more than the investment cost?

• Are the project returns attractive for the private partner to participate?

• What revenue the private partner could share with the Government in case the project is attractive for private partnership?

• Does the project need funding assistance from the Government (grant/annuity) -if so, when and how much?

• Is the project feasible irrespective of the implementation option?

• What are the financial risks and their impact on the choice of PPP model?

• Is the project amenable to debt financing?

Financial feasibility assessment forms an input for dialogue with potential lenders and sector experts. It helps establish the financial sustainability of the project within the constraints of the sector in which it will operate. Further, it allows the public entity to make an informed decision about the most suitable procurement strategy for the project to meet the public services needs as well as protect stakeholder interests.

Financial feasibility assessment determines the financial structure/strategy for the project. The financing strategy or structure sets out the envisaged sources of funds the private investor may use to finance capital expenditure. The sources of funds may be debt, equity or Government support.