The money needed before the project can raise money

A sponsor may be seeking a large construction facility while lacking the smaller amount needed to make the project ready for assessment. The missing work can include technical studies, environmental assessment, commercial analysis and negotiated project documents.

These activities cost money before the main asset generates revenue. They also determine whether a financing conversation can progress beyond an attractive concept.

AFC’s project-development approach explicitly addresses the preparation stage, including eligible third-party development costs. Its criteria and current process need to be assessed for each opportunity.

Give preparation its own budget

A development budget should identify the questions each assignment will answer, the deliverable expected and the decision it will support. Spending on a study has little value if its scope does not resolve the uncertainty holding the project back.

Sequencing matters. There may be little reason to commission detailed engineering before a fundamental commercial or site-control question has been addressed. Equally, circulating a financing request before those questions are understood can waste the attention of prospective partners.

Early capital also carries risk

Development expenditure may fail to lead to a financeable project. Anyone funding it needs to understand that possibility, their rights and how a successful outcome would be rewarded.

Our view is that sponsors should distinguish a request to develop the opportunity from a request to construct it. The investor audience, risk profile and evidence available can differ substantially.

That distinction can make a large project more manageable. The immediate task becomes a defined programme of work that moves the opportunity towards a meaningful decision, with clear responsibility for its cost and delivery.