PURPOSE

The project sponsor must produce and analyze the financial information necessary to decide whether the proposed project is viable. This information will be needed by those financial institutions and equity investors considering participation in the project, for the purpose of determining whether to lend to, or invest in, the project company. In some circumstances, it must also be distributed to other important project participants, such as the host government and major off-take purchasers, so that these entities can verify that the project is viable.

CONSTRUCTION BUDGET

A major foundation for the economic analysis of the project is the anticipated cost of constructing the project. The construction budget is the estimate of these costs, including development costs; site acquisition; the construction contract price; construction permit costs; start-up costs, including fuel and other inputs needed to conduct performance testing at the end of the construction period; and interest payable to lenders during the construction period (so-called IDC, or interest during construction).

OPERATING BUDGET

Similarly, the operating budget is an estimate of the costs necessary to operate the project. These costs include management fees, fuel, raw materials, operator fees, labor costs, insurance, disposal costs, and similar operating expenses.

DEBT SERVICE

The debt service costs are typically analyzed as a separate category of costs. These costs include interest, fees, and other amounts payable to the lender. The amortization of principal is also analyzed.