Company plans for investment for built from scratch. There is no existing building or infrastructure in a greenfield project.
Company carryout Conceptual Design or Feasibility Study to evaluate investments from various perspectives, e.g.
technical, social, legal, financial, market, and organizational.
Financial feasibility can be measured based on the Internal Rate of Return (IRR) and Net present value (NPV). Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. By contrast, the internal rate of return (IRR) is a calculation used to estimate the profitability of potential investments (usually projects get take-off, if IRR is around 13% and NPV is positive).
Other less popular methods are Ratio methods, Payback methods, Accounting methods.
How Project Financing happens?
- International agencies (The World Bank, International Finance Corporation, area development banks, etc)
- Governments;
- Commercial banks;
- Institutional lenders;
- Money market funds;
- Commercial finance companies;
- Individual investors;
If the feasibility study is rated positive, the evaluation will continue by the FEED.
Company engage the reputed project management consultant organiz for conducting FEED (Front End Engineering Design) means Basic Engineering which is conducted after completion of Conceptual Design or Feasibility Study. At this stage, before start of EPC (Engineering, Procurement and Construction), various studies take place to figure out technical issues and estimate rough investment cost and baseline schedule of project execution and completion.
Normally a FEED deliver positive conclusions, it is very rare that a FEED leads to negative conclusions. FEED helps for the final investment decision.
Final Investment Decision will be made only when the company has completed the financing and defined its dividend strategy for the year to come and will be made by the Board of the company based on the proposal of the Executive Committee.
Company apply for regulatory approvals/environment clearance to Clearance Authority/Ministry for setting-up the greenfield project.
Once project gets approvals from the clearance authority, company acquires hectares of land for the project (100 hectare =1 sq km), obtain the consent to establish and operate' from the Water and Air Pollution Control Boards, approval of construction activity and building plan, clearance from the civil aviation department, clearance for storage of explosives/ hazardous chemicals/ (if any) and other statutory bodies. Usually, these activities are taken care by Liaisoning officials of company through any third party consultancy.
EPC (Engineering, Procurement and Construction) contractors are finalized.
Construction Site preparation starts with the geotechnical report, site clearing,excavation, grading (levelling) and compaction.
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