5 ways to understand and describe your project

How proper understanding and description impacts your project development and financing strategy

Mar 12, 2025

If you’ve been following Notes on Project Development since January 8, 2025, you will have explored the importance of defining a clear project vision and understanding your “why” for pursuing projects in your sector. We’ve also covered:

✔ Differences between project finance and corporate finance.
✔ Organizing internal teams for efficient project development.
✔ Strategic prioritization for attracting project financing.
✔ The role of a Project Development and Financing Office (PDFO) in ensuring successful execution and investor confidence.

This edition focuses on how to better align your project to investor thinking - starting with proper description or classification of your project.

Understanding how projects are classified is essential for defining project development approaches, risk management strategies, and financing structures (project or corporate financed)

Knowing what type of project you are doing or correctly classifying your project helps you - the developer –

✔ Improve efficiency with project development.

✔ Set the baseline for project risk analysis and mitigation that improves project viability.

✔ Determine which investors to target.

✔ Better understand what investors and financiers will require in advance.

There will always be sectoral nuances and differences, but there are ways of describing project characteristics regardless of sector.

In this edition, I highlight 5 of these sector agnostic ways and how understanding them supports your project development and financing strategy.

Each of these 5 ways describes differences between 2 main categories.

Your project would likely fall under or closely resemble one of the two.

So, your project is:

Either a greenfield or brownfield project

A greenfield project is a completely new development, a new site, starting everything from scratch.

A brownfield project involves upgrading or expanding an existing asset.

Project Development Focus:

Greenfield: Involves site selection, feasibility studies, environmental approvals, and permitting.
Brownfield: Focuses on assessing existing infrastructure and planning upgrades with minimal disruption.

Capital Expenditure & Revenue Streams:

Greenfield: Requires high upfront investment and revenue generation starts only post-construction.
Brownfield: Requires lower investment, benefiting from existing revenue streams.

Project Risk Profile & Mitigants:

Greenfield: Risks include construction delays, cost overruns, and demand uncertainties.
Brownfield: Risks involve integration challenges and asset deterioration.

Why the Distinction Matters:

Greenfield projects require higher initial investment but create new infrastructure.
Brownfield projects carry lower development risks and can generate quicker financial returns.

Either a linear or site-based project.

Linear projects typically involve infrastructure that extends over a significant distance, such as roads, railways, pipelines.

Site Based Projects are concentrated in a specific location, such as power plants, factories, logistics centers.

Project Development Focus:

Linear: Requires route planning, land acquisition, and stakeholder negotiations (e.g., roads, railways, pipelines).
Site-Based: Involves site-specific approvals, engineering design, and facility integration (e.g., power plants, airports).

Capital Expenditure & Revenue Models:

Linear: High costs due to long-distance construction; revenue comes from network usage (e.g., tolls).
Plant/Site-Based: Costs are concentrated in one location; revenue is based on facility output (e.g., energy sales).

Project Risk Profile:

Linear: Faces larger environmental risks, more resettlement or livelihood restoration requirements, and inter-jurisdictional regulatory and geographical risks.
Site-Based: Risks relate to technology reliability and operational performance, depending on scale – may also need large resettlement or livelihood restoration

Why the Distinction Matters:

Linear projects demand long-term and stakeholder coordination across many locations, while site-based projects focus on operational efficiency and maximising stakeholder engagement in one area.

Either a social or commercial project.

Social Projects are primarily undertaken to deliver a public service or achieve public good or social benefits, although they may involve private sector participation and could provide some return.

Commercial projects are primarily driven by the generation of a return for investors. There are high expectations of the revenue and offtake potential of the sites, though there may be other public good impacts as well.

Funding Models & Motivations:

Social Projects: Driven by public service needs and impact first, funded by revenues or subsidies from government budgets, grants (e.g., public schools, public hospitals, public parks).
Commercial Projects: primarily profit-driven, with strong revenue potential, needing little or no govt revenue guarantees (Seaports, airports, industrial power plants).

Risk & Performance Evaluation:

Social: Exposed to political risks and policy changes. Success is measured by public benefit, which is often indirect and harder to quantify, though services are essential.
Commercial: Faces market risks and competition. Success is measured by profitability and ROI.

Why the Distinction Matters:

Social projects prioritize social impact and accessibility over returns and often need government subsidies to be viable, while commercial projects focus on optimising financial returns from revenues collected from use of the asset.

Either a private-sector financed PPPs or an affermage.

Infrastructure projects are either fully private sector-led or are in a public-private-partnership (PPP).

While there are various models of PPPs, two broad ways of viewing them are the level of involvement of the private sector in financing and risk sharing with the government.

Private Financed PPPs typically involve significant upfront capital investment by the private partner in public assets. More risk and reward sharing between the government and the private partners.

Affermage a French word that describes a contractual arrangement between the public sector and a private sector operator, who is ONLY responsible for operating and maintaining the project company but is not required to finance it or make large investments in it.

Project Development & Risk Allocation:

Private sector-financed PPPs: More detailed studies, risk allocation and mitigating measures, more and stronger underlying contracts depending on the roles assumed by the private sector partner in designing, building, and operating public infrastructure.
Affermage: The main risk to manage is the operating quality of the asset and the penalties for non-performance assumed by the private sector party. All other risks, including commercial risks are borne more fully by the government.

Investment & Revenue Streams:

Private Financed PPPs: Require private sector partner to provide capital into developing, building, operating and maintaining the asset. Private sector return is driven by an agreed profit-sharing mechanism, the strength of demand/offtake and may sometimes be cushioned by minimum revenue guarantees by the government.
Affermage: Private operators collect service fees for revenue collection and remittance, plus overseeing maintenance of the assets. Subject to performance/ penalty clauses - The government bears most of the risks . The private sector party is only there as a cost to the project, the provide no financing.

Why the Distinction Matters:

Private sector finance PPPs require high private-sector investment, sharing ownership gains and risks between the government and private sector, while affermage allows governments to retain full asset ownership, while the private party collects fees to maintain the site.

Either a resource/product-based or service-based project

Resource/product-based projects are centered around the extraction and conversion of natural resources and raw materials in finished or semi-finished products (Mining projects, oil fields and refineries, Agro-processing zones, factories)

Service-based projects focus on providing a service to customers or the public. Roads, Seaports, airports, a mobile-phone network, power plants.

Project Development Focus:

Resource/product based: Availability of raw material, off take contracts and technology for extracting, processing and storing the products. Managing wastes and effluents from production, mitigating environmental impacts during the lifetime of the project.
Service-Based: Efficiency in service delivery, deploying suitable technologies to achieve service levels optimally, mitigating impacts during construction, offtake and end user demand,

Revenue Models & Risk Exposure:

Resource-Based: Defining off-take is harder due to volatility in commodity prices. Risks relating to depletion of mined strategic resources or volatility of supply if bought from suppliers
Service-Based: Revenue is contract-based (e.g., power purchase agreements, berthing agreements for seaports), providing more stability to pricing mechanisms, subject to government interventions in pricing.

Why the Distinction Matters:

Resource projects face both off-taker and commodity pricing risks, while service projects face off-taker risks with less volatility in pricing.

Bringing It All Home:

Why properly describing or classifying your projects matters

Classifying projects is crucial for:

Determining project development strategies: Seeing how the projects must follow unique pathways from idea to execution based on what classes it falls under.
Shaping financing needs: Different classifications require distinct funding models.
Managing risks effectively: Project type dictates risk exposure and mitigation strategies.
Guiding investor due diligence: Lenders assess projects based on classification-specific criteria.
Targeting investors: The type of project and the scale of investments should inform which type of investors are interested in projects of certain characteristics.

A clear understanding of project classification improves decision-making at every stage, from development to financing.

It allows

✅ Tailored Development Strategies: Each project type requires a customized approach to planning and risk management.

✅ Better Risk Management: Identifying key risks early helps implement targeted mitigants and financial protections.

✅ Stronger Investor Confidence: Understanding the classification better defines risks and potential returns, and which type of investors the developer should be targeting as best fit for the project.

Don’t go to a for-profit private equity firm or a commercial bank to raise capital for a project that is heavy on social impact and limited on revenue; The Rockefeller or the Gates foundations may be better for that.

Next week’s edition will go into further detail on how these distinctions affect development approaches, capital expenditure, potential revenue, risk profile and mitigation, investor due diligence, and financing instruments.

Discussion about this post

Ready for more?