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Financial Management and Analysis of Projects : 3. Preparing and Appraising Investment Project : 3.4. Forecasting
3.4.6. Preparing Financing Plans
3.4.6.1.
The project Cost estimate table will
provide as its bottom line, the total financing required for a project.
It is essential that the means of financing this total expenditure
is specifically defined in the appraisal report. The illustration
and discussion of the financing plan for a project to be implemented
by a revenue-earning enterprise usually consists of a summary—all in current terms-of:
- the
project financing requirements and the external sources of finance
from the cash flow statement
- other
capital and incremental working capital expenditures occurring
during the project development period
- incremental
and initial operating costs to be incurred during the implementation
period, to be financed out of either project capital funding,
or from local budgetary provisions
- net
income from any ongoing operations, and
- debt
servicing.
3.4.6.2.
In a nonrevenue-earning entity, where there
are rarely any internally generated sources of funds, project financing
is usually not related to the future financial performance of the
entity. In such cases, the illustration and discussion of the financing
plan would be confined to the project only and set out with the
discussion on project costs.
3.4.6.3. The text of an appraisal
report requires a discussion of the financing plan. In the case
of a nonrevenue-earning project, this is normally an extension of
the discussion of the Cost Estimates. In the case of a revenue-earning
project to be implemented by an executing agency, a summary financing
plan may be included after the Project Cost Estimates table. A detailed
discussion on the financing plan (with a comprehensive table showing
the financing plan, where necessary) should be included as part
of the Financial Analysis Chapter. The following items should be
covered, with detailed explanations, where necessary, in an appendix
to the report: (i) any cofinancing arrangements; (ii) availability
of internal funds, referenced as necessary to the cash flow statements;
(iii) the self-financing ratio, particularly when this is to be
incorporated in an operating covenant; (iv) equity contributions;
(v) terms of loans, including interest rates (or onlending rates,
where applicable), grace periods, repayment periods, incidence of
foreign exchange risk, guarantee fees, and interest during construction;
and (vi) the dependability of the financing plan in terms of firm
commitments that have been received, the progress of negotiations
where loans or equity contributions have not been finalized, the
availability of additional sources of funds in the event of cost
overruns or lower-than-expected generation of internal funds, and
a sensitivity analysis relating to the latter items.
3.4.6.4.Funds from all principal sources
should be identified as line items in a financing plan. Funds sources
should be set out in terms of foreign and local currencies, using
the US dollar as the foreign currency, and grouped in the table
under local and foreign sources, including ADB loans, funds from
other foreign lenders and donors, local loans, local equity including
government grants and subsidies, and internally generated funds.
3.4.6.5. In cases where the EA is
conducting an ongoing operation, as in the case of a public sector
enterprise, it may, or may not, be generating sufficient funds from
ongoing operations to support these activities. It is, therefore,
advisable to include in the financing plan either the net funding
through the period of the financing plan that the agency will generate,
or the additional funding needs that it will require, to operate
and maintain its existing and new facilities. The sources of additional
funding should be identified, for example, subsidies from government.
The financing plan should contain an explicit reference to any contributions
to investment to be made by the agency during implementation, with
specific reference to the acceptability to ADB of a policy of deficit
funding by government, including any policy that, in effect, contributes
to the capital investment of the EA.
3.4.6.6.
The following is an example of a typical
summarized Financing Plan.
| |
Local Currency |
Foreign Exchange |
Total |
% |
| Funds Required |
|
|
|
|
| Proposed Project |
|
|
|
|
| Capital expenditures |
0.00 |
0.00 |
0.00 |
|
| Operating expenditures |
0.00 |
0.00 |
0.00 |
|
| Financial charges during development |
0.00 |
0.00 |
0.00 |
|
| TOTAL PROJECT REQUIREMENTS |
0.00 |
0.00 |
0.00 |
100% |
| |
|
|
|
|
| Sources of Funds |
|
|
|
|
| Proposed ADB loan |
0.00 |
0.00 |
0.00 |
|
| Other loans |
0.00 |
0.00 |
0.00 |
|
| Equity or capital contributions |
|
|
|
|
| Government |
0.00 |
0.00 |
0.00 |
|
| Other sources |
0.00 |
0.00 |
0.00 |
|
| Subsidies for operations |
0.00 |
0.00 |
0.00 |
|
| Internal cash generation |
0.00 |
0.00 |
0.00 |
|
| TOTAL SOURCES |
0.00 |
0.00 |
0.00 |
100% |
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3.4.5. Disbursement Profiles | Next
3.4.7. Computing Incremental Project Cash Flows |
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