Project Finance for Business Development

CHAPTER 11Project Due DiligenceA Pillar of Viability and Financeability

A good part of the project evaluation is done in the project development stage and summarized in the feasibility study. As a project moves along the assessment process, new data and information is obtained, additional analyses and evaluations are performed, and when the decision to move forward is made, the due diligence takes place. The due diligence is paid by the sponsor(s) and done primarily for the benefit of lenders, but sponsor(s) and other project stakeholders benefit from it and may be involved to some degree to ensure that the proposed project structure meets their objectives.

The intent of the feasibility study is to provide a common understanding of project particulars to participants and specify items they are committed to after financial close. The project due diligence is a thorough investigation to confirm data, information, and representations made before entering into project agreements leading to financial close. It is an extension of the feasibility study and its focus is on identifying missing information, validating analyses and evaluations performed, and establishing that the risk management and security package are complete and adequate to ensure project bankability.

The due diligence is performed to give the funding sources a critical, independent, and objective assessment of the project's viability and provide a reasonable comfort level concerning risk assessment and mitigation ...