Posted on: Apr 28th, 2022

What is Project Preparation?

There is a great need for sustainable urban infrastructure that is resilient to climate change impacts. In 2017 and 2018, city climate finance averaged just USD 384 billion annually, a fraction of the estimated USD 4.5 to 5.4 trillion needed (CCFLA 2021b). Despite the urgency and growing investor appetite for low-carbon infrastructure investments, a lack of bankable projects limits increased investments from public and private financiers. Projects that reduce greenhouse gas emissions or adapt to climate change impacts have unique challenges that lead to a greater need to thorough preparation to attract financing (GPRBA 2018). Project Preparation is the process of defining, studying, refining, and developing an infrastructure project concept to the point that it becomes bankable, raising implementation financing from public or private sources.

A project is bankable, whether from public or private sources, when its risk-return profile meets investors’ criteria. Key criteria include probability of success, sufficient estimated cash flows to cover costs and produce returns that meet investor expectations, and whether the project will be implemented by a creditworthy entity. Though the assessment of whether a project is bankable may differ between specific financiers, they all need confidence that the regulatory, environmental, social, and economic factors are unlikely to prevent the project from being completed (Rana 2017; GPRBA 2018). Bankability is influenced by project level, city level, and national level factors (Nassiry, Nakhooda, and Barnard 2016).

Enabling environments and capacity development are critical to cities’ ability to prepare bankable projects but are not usually considered part of project preparation. A supportive enabling environment and well-developed capacity will make it easier to prepare bankable projects but will not guarantee bankability. Conversely, a project can be made bankable despite a poor enabling environment and weak capacity. Project preparation, enabling environment, and capacity development are all closely linked and positively reinforce each other, but address distinct roadblocks to project bankability and implementation, and have distinct support needs (World Bank 2021).

Project preparation primarily takes place in four stages: concept/design/scoping, pre-feasibility, feasibility, and structuring and transactions. Each stage addresses different impediments to bankability and builds on the previous stage. The activities within each stage will be different depending on the specifics of a project and enabling environment.