INTRODUCTION

Financing plan of a privately financed infrastructure projects (such as PPP projects funded through project finance route) refers to arrangements of funding for the project to meet the expenses incurred at various phases of the project lifecycle. The financing plans for the projects should ensure availability of sufficient financial resources to complete the project and the funding should be secured at the lowest realisable cost. Funding can be secured at the lowest realisable cost if the capital structure is highly leveraged, as cost of debt is lower when compared with cost of equity capital.

FINANCING PLAN – GENERAL CONSIDERATIONS

Designing an optimal financing plan satisfying the various perspectives requires consideration of various factors that could affect the financing plan. The formulation of the financing plan should begin with the estimation of the amount of fund requirements for the project. The majority of the funds required for the project are to meet the expenses towards the various project related activities associated with the construction phase of the project. The cost of the project facilities constitutes the biggest proportion of the project cost.

The drawdown of the loan starts at the beginning of the construction phase. With the drawdown, interest needs to be paid on project debt during the project construction phase. The project therefore needs to set aside fund to pay for the interest on the loan. Instead of this, the accrued interest during the construction phase can be capitalised towards the project cost, which is normally the standard practice in PPP projects. Besides, the interest the fees and other related expenses towards arranging the project financing should also be taken into account while estimating the project cost.

In addition to this, the other expenses that are incurred during the construction phase include the cash to cover salaries and other operating expenses prior to project completion and the initial investment in working capital. The amount of funds that will be required will be equal to the sum of the above-mentioned expenses. In case, if the project generates revenues from operation of the project during construction phase, then the amount of fund required will be reduced by amount of revenue generated during construction phase.