Business plan and project financing

The current trend across the utility sector is towards privatization and making use of private sourced investment capital. Whether or not this is the best way to invest in utility services is an issue in itself and was not discussed in any detail in this lecture. The fact is at the present there is a belief that using private capital is in someway more efficient and more effective than using traditional public sector borrowing routes. There are some aspects about the process of obtaining project finance that are clearly good business practice and of benefit.

The need for new investment is not usually difficult to identify, although historically there are clear examples where investment in utility infrastructure has been made for reasons other than the needs of the business. Such examples are projects that are designed to create employment when wider economic considerations override the pure business needs. In principle, there is nothing to say against this practice other than it is incompatible with competition and it can also be self defeating if the utility has to carry the repayment costs and debt service, which is usually the case.

When raising project finance it is important to have a plan or strategy for the future of the business to show to potential lenders. This is usually called a "Business Plan" and can take several forms depending on the business and its circumstances. This Business Plan is fundamental in terms of planning the future of the business but is absolutely essential if you are to obtain access to project finance. Potential lenders will want to see that the utility managers have a,