Integrated Infrastructure Management

Integrated Infrastructure Management

 

Discuss on the write up giving your opinion and assessment of the write up, while raising two important questions to the writer related to project financing in infrastructure projects.

Introduction

Project finance is a vital cycle for any construction/infrastructure project. Definition of project finance is to create a new and legal independent company for the objective of financing a single-purpose megaproject (Esty & Seisa, 2010). Park (2009) showed clients, contractors and subcontractors had similar perception on the cost of the project as a critical factor. Hence, cost has direct impact to the process of project finance.

From the historical statistic, government is the main/solely party financing infrastructure project but the role and responsibilities of the government has changed since few times of global economy crisis especially the 2007/08 home-mortgage. This increased the difficulty to government body to raise/secure fund for financing large infrastructure projects which government bodies experience cut tax, low growth, high unemployment rate and so forth. Hence, different finance mechanisms have been created to finance infrastructure project. Public-private partner is one of mechanisms to bridge the gap where government doesn?t have budget in developing infrastructure projects.

Therefore, PM requires considering different aspects of the projects before moving to project finance cycle.

Q1: What is the goals and objectives of the project and the value of money of the project to all stakeholders.

PM should have a clear understand reasons behind project, the benefits of the project, risks of the projects, and factors impact the project. This can be classified as pre-feasibility study whether the project can bring more benefits over the invested money. Some of the activities required PM to analysis include evaluate all stakeholders perceptions through stakeholders analysis process, identify the impact of regulatory and environmental policies (Esty & Sesia, 2010), evaluate the possible values and benefits in order to have the maximum wider benefits, and the project return estimation risks. Esty & Sesia (2010) mentioned project loan is considerably riskier than corporate loans. Therefore, the better understand and evaluation all aspects can minimize uncertainties of the project. Besides that, Vickerman (2009) explained the problems, impacts and constraints of regulations in different regions and states create either positive or negative results to the value of the project and wider benefits for the end-users. Lastly, in CCT case study showed the project team didn?t perform effective environmental evaluation and end-users perceptions whether the tunnel is required and the toll fee is suitable for the majority, and overestimated the volume of vehicles per day (Pretorius & Ho, 2008). This will affect the ability in returning project loan.

Q2: What is the method will be used to ensure project performance and estimate cost?

PMs have the responsibilities in understanding the important of project performance. According to Park (2009) performance of project affected by eight different categories of factors, any factors perform below the expected/planned standard will have direct or indirect impact to the triple constraints of the project. It results cost overrun, delays or rework. Regardless what circumstances arise, it will cause increase in cost. Besides that, infrastructure projects require large amount of funds in construction phase and operation phase. Therefore, PMs play an important role to provide as detail as possible about the detail of investment will cost and how those costs are determined (Africon, 2008).

In eight classified factors, the risk plays a vital role in estimating cost. Uncertainties and imperfect information frequency occur in long-term projects and can lead to under/over-estimation. Thus, qualitative and quantitative risk analysis and assessment are required to identify and understand the potentials risks and opportunities, how there are managed, the potential financial exposure after risk management and the potential cost implications (Tan & Makwasha, 2010).

Q3: What is the suitable financial method to be used for funding the project?

Ownership of the infrastructure asset has direct implication on the financial strategy. In the Athens Ring Road case, the government needs to fulfill the European Monetary Union in order to maintain credit rating. This limits the ability of the government to finance the project; if the PM selects the government to raise the fund for financing the project it might results the downgrade of country?s credit rating. This will increase the finance interest rate (Allayannis et al, 2008).

While the PPPs approach is been selected for the project, the contractual agreement between government and private sector will be the significant factor in bearing construction risks, revenue risks, financial risks and control authority of the project. In PPP approach, private investors? cash flow profiles and financial methods are required to be considered. The financial health of private investor is important in maintaining the continuous funding process (Pretorius & Ho, 2008). Besides that, investors? firms existing debt will be another indicator for PM to identify the method to be selected in funding (Sawant, 2010).

In conclusion, both public and private parties require to have pre-tendering evaluation of the cost-benefits analysis (include tangible and intangible), creating collaborative strategy in locating an appropriate funding methods, and careful analysis and identify the risks in order to deliver maximum benefits to all stakeholders.

Reference

Africon. (2008). Unit costs of infrastructure projects in sub-saharan Africa. Retrieved from http://www.eu-africa-infrastructure-tf.net/attachments/library/aicd-background-paper-11-unit-costs-summary-en.pdf. Accessed 28/September/2013.

Allayannis, Y., Terlidis, M. & Eades, K. (2008) ?Athens Ring Road?, Course Pack

Esty, B. & Sesia. A. (2010) ?An overview of project finance and infrastructure finance ? 2009 update?, Course Pack

 

Park, S.H., (2009). ?Whole life performance assessment: Critical success factors?, Journal of Construction Engineering and Management, 135 (11), pp. 1146-1161

 

Pretorius, F. & Ho, M. (2008) ?Infrastructure Finance: The Sydney Cross City Tunnel?,

Course Pack

 

Sawant, R.J. (2010). The economics of large-scale infrastructure fdi: the case of project finance. Journal of international business studie, 41, pp. 1036-1055. Retrieved fromhttp://www.palgrave-journals.com.ezproxy.liv.ac.uk/jibs/journal/v41/n6/pdf/jibs200963a.pdf. Accessed 28/September/2013

 

Tan, F., & Makwasha, T. (2010). ?Best practice? cost estimation in land transport infrastructure projects. Australasian transport research forum 2010 proceedings, 29 September- 1 October 2010, Canberra, Australia. Retrieved from http://www.atrf.info/papers/2010/2010_Tan_Makwasha.pdf. Accessed 28/September/2013.

 

Vickerman, R. (2009) ?Appraising transport investments in a regulatory regime?, Journal

of Infrastructure Systems, 15 (4), pp. 273-277.

 

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