Advances in Project Financing

Advances in Project Financing

Transportation projects, mainly toll roads, dominated the numbers and the
value of projects in high income & developing countries.

For middle & low income countries, independent power projects are
likely to be an important focus for future project financing.

Water & environmental infrastructure is another growth area projects are
being undertaken in middle income countries.

A public private partnership has made possible the construction of a
chemical waste treatment & disposal facility south of Jakarta in
Indonesia.
Jakarta in Indonesia A public private partnership has made possible the
construction of a chemical waste treatment & disposal
facility.
The countries of East Asia &
the Pacific Rim
Biggest users of standalone, limited recourse projects
in the next decade.
China Estimated to have as many as fifty projects under way
Adapting Project Finance Techniques

Differences in project, country & sectoriel characteristics influences…
1. The availability of finance
2. The instruments of risk allocation
3. The degree & nature of government involvement

The main sectoral divide is between toll roads & all other projects.

Toll road financing requires greater government involvement than do other
infrastructure projects.

Factors which effect the availability of project finance are …
1. Project Size
2. Risks in projects
3. Credibility of contractors
 Project Size

In middle income countries, average project sizes are more than 25 %
smaller. The interface is that transaction costs in middle income countries
are lower, making smaller projects more feasible.

Large projects can create serious problems in low income countries.
Hum River Project in Pakistan The country’s first private power project.
After completion – the largest private power facilities
in the world
Sri Lankan Power Project Example of private infrastructure investment
Small project (44 megawatts) & foreign & local
entrepreneurs involved are technically.
 Credible contracts

Project financing is a key mechanism for initiating a process of change in
countries or sectors with limited track records in private infrastructure
provision.

The Philippines – Privately financed power projects.

Philippines now have an extensive and sophisticated, legal and
administrative environment for independent power sophisticated, legal and
administrative environment for independent power projects.

An important additional element of contractual effectiveness is the
mechanism for resolving disputes.

Contracts for the Hopewell Shajiao C Power station in China were drawn
up using Honk Kong law.
Example to Toll Roads
Mexico 4000 KM of new toll roads at a cost of $ 10 billion
Malaysia Most expensive public private project in the developing world
North south Toll Motorway
China Planning may ambitious toll roads
123 KM $1 billion – Guangzhou Shenzen superhighway – Cut through
the heart of fast developing Guagdong Province

Shadow Tolls – Tolls paid from government revenues on the basis of
traffic flows

The Mexican toll road program illustrates the dangers of launching a
major initiative with multiple objectives and insufficient preparation.

Argentina has developed an extensive system of private concessions in
which tolls are charged to finance maintenance.
Institutions & Instruments for Resource Mobilization
 Sources of Funds

Synergistic links can develop between private infrastructure projects &
domestic financial intermediation through capital markets.

The financing of infrastructure projects improves appraisal capabilities &
expands risk diversification possibilities for local commercial banks, equity
& bond markets and institutional investors such as insurance companies &
pension funds.