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Felix I. Lessambo
International
Project Finance
The Public-Private
Partnership
International Project Finance
Felix I. Lessambo
International Project
Finance
The Public-Private Partnership
Felix I. Lessambo
New Britain, CT, USA
ISBN 978-3-030-96389-7 ISBN 978-3-030-96390-3 (eBook)

https://doi.org/10.1007/978-3-030-96390-3
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
Nature Switzerland AG 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
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retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
the publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
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Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Acknowledgments
Writing a book is always a challenge. However, writing a book on

International Project Finance, a more daring intellectual exercise.
I would like to thank my astoundingly supportive friends who
motivated me all along the project, knowing my dedication to the
subject and thought I am more than able to complete this project:
Dr. Marsha Gordon, Dr. Linda Sama, Dr. Lavern A. Wright, Dr. Lester
Reid, Yanick Gil, and Jerry Izouele.
Last but not least, thank you to all the original readers of this book
when it was in its infancy. Without your enthusiasm and encouragement,
this book may have never been ready.
v
Contents
1 Introduction to Project Finance 1

1.1 General 1
1.2 Characteristics of Project Financing 3
1.3 Public-Private Partnership Framework 6
1.3.1 PPP Policy 6
2 Project Financing and Direct Conventional Financing 11
2.1 General 11
2.2 Corporate Finance 11
2.3 Traditional Procurement 12
2.4 Project Finance 13
2.5 Advantages and Disadvantages of Project Finance 14
2.5.1 Advantages 14
2.5.2 Disadvantages 15
2.6 Evolution of Project Finance 16
2.6.1 The Extractive and Oil Industry 16
2.6.2 The Natural Resource Industry 17
2.6.3 The Power Industry & Beyond 18
3 Sources of Project Funds 19
3.1 General 19
3.2 Sources of Funds 19
3.3 Project Financing Participants 26
3.4 Public–Private Partnerships 29
3.5 Structuring Project Finance 29
vii
viii CONTENTS
4 Bankability 33
4.1 General 33
4.2 Bankability Assessment 34
4.2.1 Certainty of Revenue Stream 34
4.2.2 Risk Factors 36
4.2.2.1 Political Environment 36
4.2.2.2 Economic Environment 37
4.2.2.3 Legal System 37
4.2.2.4 Regulatory Framework 37
4.2.2.5 Environmental Risk 38
4.2.2.6 Project Specificity 38
4.2.2.7 Project Financial Structure 39
4.2.2.8 Third-Party Risk Allocation 39
4.2.2.9 Contract Agreement 40
4.3 Bankability Tradeoff 40
5 Public Procurement: Laws and Regulations 43
5.1 General 43
5.2 Public Procurement Legal Framework 44
5.3 Principles of Public Procurement 45
5.3.1 Transparency 45
5.3.2 Integrity 46
5.3.3 Efficiency 46
5.3.4 Fairness 47
5.3.5 Openness 47
5.3.6 Competition 48
5.3.7 Accountability 48
5.4 Public Procurement Cycle 48
5.4.1 Competitive Tendering 48
5.4.2 Pre-qualification of Bidders 49
5.4.3 Processing and Evaluating Bids 49
5.4.4 Making Award Recommendations 50
5.4.5 Negotiating Contracts 50
5.4.6 Contract Award Letter and Signing
the Contract 50
5.5 Public Procurement Laws in the United States, EU,
and China 50
CONTENTS ix
5.5.1 Public Procurement Laws in the United

States 50
5.5.2 Public Procurement Laws in the European
Union 53
5.5.3 Public Procurement Laws in China 55
6 Assessment of Project’s Viability and Analytical Tools 57
6.1 General 57
6.2 The Procurement Process 58
6.3 The Six Assessment Areas 58
6.3.1 Project Identification and PPP Screening 58
6.3.2 Appraisal and Preparation Phase 59
6.3.3 Structuring and Drafting Phase 59
6.3.4 Tender Phase 60
6.3.5 Contract Operational Management 60
6.3.6 Contract Finalization Management 61
6.4 The Analytical Tools: Infrastructure Prioritization
Framework 61
6.4.1 Infrastructure Prioritization Framework 61
7 The Identification and Management of Risks 65
7.1 General 65
7.2 Identification of Projects: Project Cycle 65
7.3 Risk Assessment 69
7.3.1 Risk Identification 70
7.4 Risk Allocations 77
7.4.1 The Project Sponsor 78
7.4.2 The Lenders 78
7.4.3 The Contractor 78
7.4.4 The Suppliers 78
7.4.5 The Customers 79
7.4.6 The Project Company 79
7.4.7 The Governments 79
8 The Project Finance Contractual Arrangement 81
8.1 General 81
8.2 PPP Types 81
8.2.1 Build–Operate–Transfer (BOT) 81
8.2.2 Build–Own–Operate–Transfer (BOOT) 82
8.2.3 Buy-Build-Operate (BBO) 83
x CONTENTS
8.2.4 Build–Own–Operate (BOO) 83

8.2.5 Build–Own–Operate–Transfer (BOOT) 83
8.2.6 Design–Build 84
8.2.7 Design–Build–Finance 84
8.2.8 Design–Construct–Maintain–Finance
(DCMF) 85
8.2.9 O & M (Operation & Maintenance) 85
8.2.10 Lease-Purchase 85
8.2.11 Turnkey Contract 85
8.3 Bidding and Award Procedure 86
8.4 PPP Contract Clauses 87
8.4.1 PPP Contracts Under Various Legal Systems 87
8.4.2 PPP Key Contractual Terms 88
8.4.2.1 Force Majeure 88
8.4.2.2 Material Adverse Government
Action 94
8.4.2.3 Change of Law 94
8.4.2.4 Termination of Contract 95
8.4.2.5 Governing Law and Dispute
Resolution 98
9 Alternative Dispute Resolution 99
9.1 General 99
9.2 Advantages and Disadvantages of ADR 100
9.2.1 Benefits of ADR 100
9.2.2 Disadvantages of ADR 101
9.3 Forms and Types of ADR 102
9.3.1 Adjudicative ADR 102
9.3.2 Evaluative ADR 104
9.3.3 Facilitative ADR 105
9.4 International Platforms 106
9.4.1 The ICSID 107
9.4.1.1 Functions 107
9.4.1.2 Composition of Arbitral
Tribunal 107
9.4.1.3 Applicable Rules of Law
and Conduct of the Arbitration 108
9.4.1.4 Arbitration Award 108
9.4.2 The International Chamber of Commerce 109
CONTENTS xi
9.4.2.1 ICC Functions 109

Tribunal 110
9.4.3 The Arbitration Institute of the Stockholm
Chamber of Commerce (SCC) 113
9.4.3.1 The SCC Functions 114
Tribunal 114
9.4.4 The Hong Kong International Arbitration
Centre (HKIAC) 117
9.4.4.1 The HKIAC Missions 117
Tribunal 117
9.4.5 The Singapore International Arbitration
Centre 120
Tribunal 120
9.4.6 The Cairo Regional Centre
for International Commercial
Arbitration 122
Tribunal 123
xii CONTENTS
10 Project Finance Governance 127

10.1 General 127
10.2 OECD Principles for Public Governance of PPP 127
10.3 Quality Infrastructure Investment Principles 129
10.4 PPP Governance Paradigm 131
10.4.1 Traditional Public Administration 131
10.4.2 New Public Management 131
10.4.3 Collaborative Governance 132
10.4.4 Private Governance Approach 132
11 International Project Finance and Corruption 133
11.1 General 133
11.2 Forms of Corruption 133
11.3 Fighting Corruption Within World Bank
Group-Financed Projects 138
11.3.1 Effects of Corruption on Projects Finance 139
11.3.2 Corruption in the Extractive Industries 140
11.3.3 Example: Extractive Industries
Transparency Initiative 140
12 Infrastructure Projects Finance 143
12.1 General 143
12.2 Substantial Project Financing 143
12.2.1 Water and Sanitation Project 143
12.2.1.1 Human Right to Water
and Sanitation 144
12.2.1.2 Water and Sanitation PPP 145
12.2.2 Transportation and Telecommunications
Projects 149
12.2.2.1 Transportation 149
12.2.2.2 Telecommunications 154
12.2.3 Climate and Energy 158
12.2.3.1 Climate Change 158
12.2.3.2 Energy Power 160
13 Public Fiscal Risk Assessment Model 165
13.1 General 165
13.2 Understanding the Fiscal Metrics 166
13.3 PPP Accounting and Reporting 166
13.3.1 Budgeting 167
CONTENTS xiii
13.3.2 Accounting 167

13.3.3 Reporting PPPs in Public Deficit and Debt 168
13.4 Assessment of Fiscal Risk 168
13.5 Performing the Sensitivity Analysis 170
14 Cases Study 173
14.1 General 173
14.2 Successful Stories 173
14.2.1 Breaking New Ground: Lesotho Hospital
Public-Private Partnership—A Model
for Integrated Health Services Delivery 173
14.2.1.1 Conclusion 182
14.2.2 Ukraine: Providing Safe Harbors
for Ukraine’s Economic Growth 182
14.2.3 Senegal—A Road Leads to Economic
Opportunities 185
14.2.4 China (1997): The Greenfield Project
to Install Modern Medium-Density
Fiberboard Plants 186
14.3 Unsuccessful PPP 188
14.3.1 Liberia Education Advancement
Programme (LEAP) 188
14.3.2 The New Paris Courthouse 191
14.3.3 International Airport
of Chinchero—Cuzco 194
Glossary 199
Bibliography 203
Index 211
Acronyms
AAA American Arbitration Association

AALCO Asian-African Legal Consultative Organization
ARRA American Recovery and Reinvestment Act
ASPA Armed Services Procurement Act of 1949
BIT Bilateral Investment Treaty
BOO Build, Own, Operate
BOOT Build, Own, Operate, Transfer
BOT Build, Operate, Transfer
DBFO Design Build Finance Operate
EC Capital Expenditure
EU European Union
FAR Federal Acquisition Regulation
FARA Federal Acquisition Reform Act of 1949
FI Financial Intermediary
FIDIC International Federation of Consulting Engineers
FPASA Federal Property and Administrative Services Act of 1949
GPL Government Procurement Law (China)
HKIAC Hong Kong International Arbitration Center
IATA International Air Transport Association
IBRD International Bank for Reconstruction and Development
ICB International Competitive Bidding
ICC International Chamber of Commerce
ICSID International Center for Settlement of Investment Disputes
IDA International Development Association
IFC International Finance Corporation
IPSAS International Public Sector Accounting Standard
xv
xvi ACRONYMS
LCIA London Court of International Arbitration

LIB Limited International Bidding
MIGA Multilateral Investment Guarantee Agency
NASA National Aeronautics and Space Administration
NCB National Competitive Bidding
NPM New Public Management
OBA Output-Based
OBM Office of Management and Budget
OECD Organization for Economic Cooperation and Development
OFPP Office of Federal Procurement Policy
PCG Partial Credit Guarantee
PFRAM Public Fiscal Risk Assessment Model
PPP Public-Private Partnerships
PPPLRC Public-Private Partnership Legal Resource Center
PRG Partial Risk Guarantee
RFP Request for Proposal
SBD Standard Bidding Document
SCC Stockholm Chamber of Commerce
SIAC Singapore International Arbitration Center
SPV Special Purpose Vehicle
TPA Traditional Public Administration
WB World Bank
WBG World Bank Group
WTO World Trade Organization
List of Figures
Fig. 2.1 PPP versus Traditional Procurement (Source World Bank

[2019]) 13
Fig. 3.1 Role of World Bank in PPPs (Source World Bank [2017]) 30
Fig. 3.2 Typical PPP project structure (Source World Bank [2017]) 31
Fig. 4.1 PPIAFF—enabling infrastructure investment (Source
World Bank) 34
Fig. 6.1 PPP process cycle (Source World Bank Group [2020]) 59
Fig. 7.1 Identification of project cycle (Source World Bank) 66
Fig. 13.1 GFS—Government Finance Statistics (Source Fact
Sheet, Government Finance Statistics [GFS], Statistics
Department, IMF [2009]. http://www.imf.org/ext
ernal/pubs/ft/gfs/manual/comp.htm) 169
xvii
List of Tables
Table 3.1 Infrastructure finance instruments 20

Table 4.1 Example of bankability—tradeoff in Sheffield highways
PF 41
Table 13.1 Risk category 170
xix
CHAPTER 1
Introduction to Project Finance
1.1 General
The origins of project finance date back to the thirteenth century, when
the financing of a mining operation was structured not unlike todays’
methods. In 1299 A.D., the English Crown financed the exploration
and the development of the Devon silver mines by repaying the Floren-
tine merchant bank, Frescobaldi, with output from the mines.1 In the
seventeenth century, another form of project finance emerged with fund
sailing ship voyages with Investors providing financing for trading expe-
ditions on a voyage-by-voyage basis. Upon return, the cargo and ships
were liquidated and the proceeds of the voyage split among investors.2
Over centuries, project financing has evolved into primarily a vehicle
for assembling a consortium of investors, lenders, and other partici-
pants to undertake infrastructure projects that would be too large for
individual investors to underwrite. To date, project financing, as an alter-
native to conventional direct financing, is a well-established technique
for large capital-intensive projects. Finnerty defines project finance as
1 John W. Kensinger and John D. Martin (1993): Project Finance: Raising Money the
Old-Fashioned Way. In Donald H. Chew, Jr. (Ed.) The New Corporate Finance: Where
Theory Meets Practice (p. 326). New York: McGraw-Hill.
2 Kensinger and Martin (1993): Project Finance- Raising Money the Old fashion Way.
McGraw-Hill.
© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2022
F. I. Lessambo, International Project Finance,
https://doi.org/10.1007/978-3-030-96390-3_1
2 F. I. LESSAMBO
the raising of funds to finance economically separable capital investment

projects, where the project cash flow serves as the source of funds to
service loans and provide returns on the equity invested in the project.3
The OECD defines project finance as the financing of long-term infras-
tructure, industrial, extractive, environmental, and other projects/public
services (including social, sports, and entertainment PPPs) based upon a
limited recourse financial structure where project debt and equity used
to finance the project are paid back from the cash flow generated by the
project (typically, a special purpose entity (SPE) or vehicle (SPV)).4
Project finance helps finance new investment by structuring the
financing around the project’s own operating cash flow and assets,
without additional sponsor guarantees. Project financing involves non-
recourse financing of the development and construction of a particular
project in which the lender looks principally to the revenues expected to
be generated by the project for the repayment of its loan and to the assets
of the project as collateral for its loan rather than to the general credit of
the project sponsor. Thus, the technique is able to alleviate investment
risk and raise finance at a relatively low cost, to the benefit of sponsor
and investor alike.5 Prior to World War I, private entrepreneurs built
major infrastructure projects all over the world. During the nineteenth
century, ambitious projects such as the Suez Canal and the Trans-Siberian
Railway were constructed, financed, and owned by private companies.
However, the private sector entrepreneur disappeared after World War I
and as colonial powers lost control, new governments financed infrastruc-
ture projects through public sector borrowing. The state and the public
utility organizations became the main clients in the commissioning of
public works, which were then paid for out of general taxation. After
World War II, most infrastructure projects in industrialized countries were
3 J.D. Finnerty (2013): Project Financing: Asset-Based Financial Engineering, 3rd

edition, New York: Wiley.
4 OECD (2015): Infrastructure Financing Instruments and Incentives (p. 13). https://
www.oecd.org/finance/private-pensions/Infrastructure-Financing-Instruments-and-Incent
ives.pdf.
5 IFC (2009): Lessons of Experience No. 7: Project Finance in Developing Countries,
Chapter 1-importance of project finance, https://www.ifc.org/wps/wcm/connect/public
ations_ext_content/ifc_external_publication_site/publications_listing_page/lessonsofexperi
enceno7.
1 INTRODUCTION TO PROJECT FINANCE 3
built under the supervision of the state and were funded from the respec-
tive budgetary resources of sovereign borrowings. In 1978, the United
States passed the Public Utility Regulatory Act (PURPA) and established
a private market for electric power. In so doing, the United States paved
the way for the growth of project financing in many other industrial
countries. Similarly, recent large-scale privatizations in developing coun-
tries aimed at strengthening economic growth and stimulating private
sector investment have given further impetus to project finance struc-
turing. In the 1990s as a means of financing projects designed, to help
meet the tremendous infrastructure needs existing in both developed and
developing countries, project financing almost replaced the traditional
financing model that prevailed for centuries. Perhaps the most prolific
use of project financing has been in the UK, where something called
the “Private Finance Initiative” (PFI) has been used. PFI was started in
1992 and has been managed by the British government as a systematic
public-private partnership program.
1.2 Characteristics of Project Financing

• Capital-intensive
Project financings are often large-scale projects that require a great

amount of debt and equity capital, from hundreds of millions to billions
of dollars. A World Bank study in late 1993 found that the average size of
project financed infrastructure projects in developing countries was $440
million.
• Highly leveraged
Project financing transactions are highly leveraged with debt accounting

for usually 65–80% of capital in relatively normal cases.
• Long-term
The tenor for project financings can easily reach 15–20 years.
4 F. I. LESSAMBO
• Non-recourse or limited recourse financing
The project company is the borrower. Since these newly formed enti-
ties do not have their own credit or operating histories, it is necessary for
lenders to focus on the specific project’s cash flows. That is, “the financing
is not primarily dependent on the credit support of the sponsors or the
value of the physical assets involved.” Thus, it takes an entirely different
credit evaluation or investment decision process to determine the poten-
tial risks and rewards of a project financing as opposed to a corporate
financing. In the former, lenders place a substantial degree of reliance on
the performance of the project itself. As a result, they will concern them-
selves closely with the feasibility of the project and its sensitivity to the
impact of potentially adverse factors. Lenders must work with engineers
to determine the technical and economic feasibility of the project. From
the project sponsor’s perspective, the advantage of project finance is that
it represents a source of off-balance sheet financing.
• Controlled dividend policy
To support a borrower without a credit history in a highly leveraged

project with significant debt service obligations, lenders demand receiving
cash flows from the project as they are generated. This aspect of project
finance recalls the Devon silver mine example, where the merchant bank
had complete access to the mine’s output for one year. In more modern
major corporate finance parlance, the project has a strictly controlled
dividend policy, though there are exceptions because the dividends
are subordinated to the loan payments. The project’s income goes to
servicing the debt, covering operating expenses, and generating a return
on the investors’ equity. This arrangement is usually contractually binding.
Thus, the reinvestment decision is removed from management’s hands.
• Economies of scale and externalities
Projects financed, in infrastructure may lead to natural monopolies such

as highways or energy supply (i.e., Inga Project), which exhibit increasing
returns to scale and can generate social benefits. Though the direct payoffs
to an owner of an infrastructure project may be inadequate for costs to
be covered, nonetheless, the indirect externalities can still be beneficial for
the economy as a whole. Such social benefits are fundamentally difficult

to measure.6
• Numerous participants
These transactions frequently demand the participation of numerous

international participants. It is not rare to find over ten parties playing
major roles in implementing the project. The different roles played by
participants are described in the section below.
• Allocated risk
Because many risks are present in such transactions, often the crucial
element required to make the project go forward is the proper alloca-
tion of risk. This allocation is achieved and codified in the contractual
arrangements between the project company and the other participants.
The goal of this process is to match risks and corresponding returns to the
parties most capable of successfully managing them. For example, fixed-
price, turnkey contracts for construction, which typically include severe
penalties for delays put the construction, risk on the contractor instead
on the project company or lenders. The risks inherent to a typical project
financing and their mitigants are discussed in more detail below.
• Costly
Raising capital through project finance is generally costlier than through

typical corporate finance avenues. The greater need for information,
monitoring and contractual agreements increase the transaction costs.
Furthermore, the highly specific nature of the financial structures also
entails higher costs and can reduce the liquidity of the project’s debt.
Margins for project financings also often include premiums for country
and political risks since so many of the projects are in relatively high risk
countries. Alternatively, the cost of political risk insurance is factored into
overall costs.
6 OECD (2015): Infrastructure Financing Instruments and Incentives (p. 10). https://
ives.pdf.
6 F. I. LESSAMBO
1.3 Public-Private Partnership Framework

There is no single, model PPP framework. A government’s PPP frame-
work typically evolves over time, often in response to specific challenges
facing its PPP program. In the early stages of a program, the emphasis
may be on enabling PPPs, and creating and promoting PPP opportu-
nities. Once several PPPs have been implemented on an ad hoc basis,
concern about the level of fiscal risk in the PPP program may be the
impetus for strengthening the PPP framework. Often the initial phase of
this iterative process involves introducing PPP-specific institutions, rules,
and procedures to ensure PPP projects are subject to similar discipline as
public investment projects.
1.3.1 PPP Policy

The first step for any government in establishing a PPP framework is to
articulate its PPP policy. PPP policy is used in different ways in different
countries. PPP policy is meant to explain how to mean the government
intent to use PPPs, the course of action, and the guiding principles for
that course of action. A PPP policy would typically include:(i) PPP ratio-
nale/program objectives, (ii) PPP program scope, and (iii) implementing
principles and governance arrangements.
• PPP Rationale
There are various rationales for governments to adopt PPP as a method

for the procurement of public services. Enhancing private sector involve-
ment in economic development seems to be the main rationale for PPP.
Other rationales include:
– PPP enables the public sector to reduce its borrowing figure and the
projects will be financed using private sector capital.
– PPP provides efficient use of resources for delivering public services.
– PPP allows the public sector to enjoy value for money in the long-
term, as the private sector is not only providing the financing but
also operating the PPP facilities for the benefit of the public.
– PPP enables the public sector to provide services at a lower price.
• PPP Scope
The scope of the PPP framework indicates the types of projects for which
the framework applies. As such, the scope is generally defined by juris-
diction, sector, size, and contract type. The scope of the PPP has to
be established during the process of strategic planning. The scope of
the public-private partnership must be considered in terms of geograph-
ical area and service requirements. However, the regulatory framework
is another aspect through which the parameters of the partnership must
be defined. In terms of geographical area, the scope needs to be defined
with regard to both the nature of the project (e.g., if the service to be
provided is water supply, waste management, and so on) and the objec-
tives of the decision-maker. Projects often deliver improved value for
money if the scope of the contract is increased to provide greater possi-
bilities for innovation and economies of scale. However, other projects
may be sufficiently large and/or complex to the degree that there exist a
number of sub-options to the PPP. These options may relate to the sepa-
ration of a business by function or geographical area. For example, if the
government is considering the use of a PPP to provide integrated waste
management services in a particular region, it could use a number of area-
based contracts or separate PPP contracts for waste collection and waste
treatment/disposal. Where such sub-options exist, the costs and benefits
of each sub-option need to be appraised in monetary and non-monetary
terms and the preferred option identified in the PPP assessment.
• PPP Implementation Principles
The implementation of public-private partnerships can be challenging in

developing economies. The shortage of government financial resources,
public sector inefficiencies, uncertainties in contractual environment,
public and private partners’ capacity deficiencies, weak political willing-
ness, and administrative bottlenecks are hurdles to a proper implementa-
tion of PPP. Efficient PPP requires:
– Public authority and private companies must act as partners. To

achieve this close relationship, both parties must build trust based
on each partner’s credibility,
8 F. I. LESSAMBO
– Engaging all stakeholders that are either directly involved in the PPP
project or directly or indirectly affected in the short and/or long
run,
– Ensuring clear accountability mechanisms;
– Ensuring transparency, including in public procurement frameworks
and contracts;
– Ensuring participation, particularly of local communities in decisions
affecting their communities;
– Ensuring effective management, accounting, and budgeting for
contingent liabilities, and debt sustainability;
– Alignment with national priorities and relevant principles of effective
development
• PPP Governance Arrangements
The OECD has set forth the following principles for the governance of
PPP7 :
– The political leadership should ensure public awareness of the rela-

tive costs, benefits, and risks of public-private partnerships and
conventional procurement. Popular understanding of public-private
partnerships requires active consultation and engagement with stake-
holders as well as involving end-users in defining the project and
subsequently in monitoring service quality.
– Key institutional roles and responsibilities should be maintained.
This requires that procuring authorities, Public-Private Partnerships
Units, the Central Budget Authority, the Supreme Audit Institution,
and sector regulators, be entrusted with clear mandates and sufficient
resources to ensure a prudent procurement process and clear lines of
accountability.
– Ensure that all significant regulation affecting the operation of
public-private partnerships is clear, transparent, and enforced. Red
tape should be minimized and new and existing regulations should
be carefully evaluated.
7 OECD (2012): Recommendation of the Council on Principles for Public Governance of

Public–Private Partnerships (pp. 1–14). https://legalinstruments.oecd.org/public/doc/
275/275.en.pdf.
– All investment projects should be prioritized at senior political level.

As there are many competing investment priorities, it is the respon-
sibility of the government to define and pursue strategic goals.
The decision to invest should be based on a whole of government
perspective and be separate from how to procure and finance the
project. There should be no institutional, procedural, or accounting
bias either in favor of or against public-private partnerships.
– Carefully investigate which investment method is likely to yield
most value for money. Key risk factors and characteristics of specific
projects should be evaluated by conducting a procurement option
pre-test. A procurement option pre-test should enable the govern-
ment to decide on whether it is prudent to investigate a Public-
Private Partnerships option further.
– Transfer the risks to those that manage them best. Risk must be
defined, identified and measured, and carried by the party for whom
it costs the least to prevent the risk from realizing or for whom
realized risk costs the least.
– The procuring authorities should be prepared for the operational
phase of the public-private partnerships. Securing value for money
requires vigilance and effort of the same intensity as that neces-
sary during the pre-operational phase. Particular care should be
taken when switching to the operational phase of the public-private
partnerships, as the actors on the public side are liable to change.
– Value for money should be maintained when renegotiating. Only
if conditions change due to discretionary public policy actions
should the government consider compensating the private sector.
Any re-negotiation should be made transparently and subject to the
ordinary procedures of public-private partnership approval. Clear,
predictable, and transparent rules for dispute resolution should be
in place.
– Government should ensure there is sufficient competition in the
market by a competitive tender process and by possibly structuring
the Public-Private Partnerships program so that there is an ongoing
functional market. Where market operators are few, governments
should ensure a level playing field in the tendering process so that
non-incumbent operators can enter the market.
– In line with the government’s fiscal policy, the Central Budget
Authority should ensure that the project is affordable and the overall
investment envelope is sustainable.
10 F. I. LESSAMBO
– The project should be treated transparently in the budget process.

The budget documentation should disclose all costs and contin-
gent liabilities. Special care should be taken to ensure that budget
transparency of Public-Private Partnerships covers the whole public
sector.
– Government should guard against waste and corruption by ensuring
the integrity of the procurement process. The necessary procurement
skills and powers should be made available to the relevant authorities.
CHAPTER 2
Project Financing and Direct Conventional

Financing
2.1 General
Project finance is the process of financing a specific economic unit that the
sponsors create, in which creditors share much of the venture’s business
risk and funding is obtained strictly for the project itself.1 Project finance
is generally structured to maximize tax benefit and to assure that all avail-
able tax benefits are used by the sponsors or transferred to the extent
possible to another party through a partnership, lease, or vehicle.2 Project
finance differs from traditional finance where the primary source of repay-
ment for investors and creditors is the sponsoring company, backed by its
entire balance sheet, not the project alone.
2.2 Corporate Finance

Corporate finance deals with the financing and investment decisions set
by the corporations’ management in order to maximize the value of the
1 João M. Pinto (2017): What Is Project Finance. Investment Management and

Financial Innovations, Vol. 14, Issue 1, 200.
2 Katharine C. Baragona (2004): Project Finance. Global Business & Development Law
Journal, Vol. 18, Issue 1, 141.

Switzerland AG 2022
https://doi.org/10.1007/978-3-030-96390-3_2
12 F. I. LESSAMBO
shareholders’ wealth.3 In traditional corporate finance, the primary source

of repayment for investors and creditors is the sponsoring company,
backed by its entire balance sheet, not the project alone. Although cred-
itors will usually still seek to assure themselves of economic viability of
the project being financed so that it is not a drain on the corporate
sponsor’s existing pool of assets, an important influence on their credit
decision is the overall strength of the sponsors balance sheet, as well as
their business reputation. If the project fails, lenders do not necessarily
suffer, as long as the company owning the project remains financially
viable. Corporate finance is often used for shorter, less capital-intensive
projects that do not warrant outside financing. The company borrows
funds to construct a new facility and guarantees to repay the lenders from
its available operating income and its base of assets. However, private
companies avoid this option, as it strains their balance sheets and capacity,
and limits their potential participation in future projects. Project financing
is different from traditional forms of finance because the financier princi-
pally looks to the assets and revenue of the project in order to secure and
service the loan. Project finance is usually for large, complex, and expen-
sive installations such as power plants, chemical processing plants, mines,
transportation infrastructure, environment, media, and telecoms.4
2.3 Traditional Procurement

Traditional procurement can be defined as a comprehensive process by
which designers, constructors, and various consultants provide services for
design and construction to deliver a complete project to the client.5 In
traditional public procurement, the government manages a set of inde-
pendent short-term contracts: with banks and investors for procuring
project finance; with construction firms for developing the asset; and
with operating firms for operating the asset. The government is ulti-
mately responsible for designing, financing, constructing, operating, and
3 Stefan Cristian Gherghina (2021): Corporate Finance. Journal of Risk & Financial
Management, MDPI.
4 Basel Committee on Banking Supervision (2001): Working Paper on the Internal
Ratings-Based Approach to Specialised Lending Exposures (p. 2), BIS.
5 Molenaar, K., Sobin, N., Gransberg, D., Tamera McCuen, T.L., Sinem Korkmaz, S.,
and Horman, M. (2009): Sustainable, High Performance Projects and Project Delivery
Methods. The Charles Pankow Foundation and The Design-Build Institute of America.
2 PROJECT FINANCING AND DIRECT CONVENTIONAL FINANCING 13
Fig. 2.1 PPP versus Traditional Procurement (Source World Bank [2019])
managing the asset, although it hires private companies to do these on

its behalf. In a PPP, the government signs one long-term contract with
the private partner (often established as a special purpose vehicle, SPV).
The SPV is responsible for providing an infrastructure asset and services in
line with the contract specifications agreed to with the government. Then,
the private partner manages a set of contracts with banks and construc-
tion and operating companies; the government ensures that the asset and
services provided are in line with the performance specifications agreed to
in the PPP contract (Fig. 2.1).
2.4 Project Finance

In corporate finance, the sponsoring company typically procures capital by
demonstrating to lenders that it has sufficient assets on its balance sheets,
to use as collateral in the case of default. The lender will be able to fore-
close on the sponsor company’s assets, sell them, and use the proceeds
to recover its investment. However, in project finance, the repayment
of debt is not based on the assets reflected on the sponsoring compa-
ny’s balance sheet, rather on the revenues that the project will generate
once it is completed. Project finance greatly minimizes risk to the spon-
soring company, as compared to traditional corporate finance, because
the lender relies only on the project revenue to repay the loan and cannot
14 F. I. LESSAMBO
pursue the sponsoring company’s assets in the case of default. In addition,

transferring responsibility to the private sector for mobilizing finance for
infrastructure investment is one of the major differences between PPPs
and traditional procurement. Where this is the case, the private party
to the PPP is responsible for identifying investors and developing the
finance structure for the project. In project finance, a team or consor-
tium of private firms establishes a new project company to build own and
operate a separate infrastructure project. The new project company to
build own and operate a separate infrastructure project. The new project
company is capitalized with equity contributions from each of the spon-
sors. In contrast to an ordinary borrowing situation, in a project financing
the financier usually has little or no recourse to the non-project assets of
the borrower or the sponsors of the project.6 The project is not reflected
in the sponsors’ balance sheets.
2.5 Advantages and Disadvantages

of Project Finance
2.5.1 Advantages
Project finance offers a means for investors, creditors, and other unrelated
parties to come together to share the costs, risks, and benefits of new
investment in an economically efficient and fair manner. Project finance
can provide a strong and transparent structure for projects, and through
careful attention to potential risks, it can help increase new investment
and improve economic growth.
Project finance reduces the cost of capital for the project and allows
a higher amount of debt to be used, which generates bigger tax savings.
Project finance transactions allow the reduction of funding costs when
compared with traditional sources of funds. The rates charged on project
finance loans are often lower than the rates charged on non-project
finance loans.
Finally, yet importantly, because the debt is non-recourse to the spon-
sors, the project leaders have to claim against the other assets of the
6 Benjamin C. Esty (2003): The Economic Motivations for Using Project Finance
(p. 10), HBS. https://faculty.fuqua.duke.edu/~charvey/Teaching/BA456_2006/Esty_F
oreign_banks.pdf.
sponsors. That is, sponsors do not expose themselves to the risk of finan-
cial distress in the event the project has trouble. Although creditors’
security will include the assets being financed, lenders rely on the oper-
ating cash flow generated from those assets for repayment. Depending
upon the structure of project financing, the project sponsors may not be
required to report any of the project debt on its balance sheet because
such debt is non-recourse or of limited recourse to the sponsor.
2.5.2 Disadvantages
A project finance project needs to be carefully structured to ensure that
all the parties’ obligations are negotiated and are contractually binding.
Financial and legal advisers and other experts may have to spend consid-
erable time and effort on this structuring and on a detailed appraisal of
the project. These steps will add to the cost of setting up the project and
may delay its implementation. Moreover, the sharing of risks and bene-
fits brings unrelated parties into a close and long relationship. A sponsor
must consider the implications of its actions on the other parties associ-
ated with the project if the relationship is to remain harmonious over the
long-term.
Since project finance structuring hinges on the strength of the project
itself, the technical, financial, environmental, and economic viability of the
project is a paramount concern. Anything that could weaken the project
is also likely to weaken the financial returns of investors and creditors.
Therefore, an essential step of the procedure is to identify and analyze the
project’s risks, then to allocate and mitigate them. Such risks are many and
varied. Some may relate to a specific subsector, others to the country and
policy environment, and still others to factors that are more general. Last
but not least, a complex financing mechanism can require significant lead
times. Project finance is expensive to arrange as it involves establishing
the project company, forming a consortium of equity-holders and lenders,
gaining agreement to a complex set of contractual arrangements between
the parties involved, and arranging costly documentation.
16 F. I. LESSAMBO
2.6 Evolution of Project Finance

Project finance has evolved from its beginnings in the natural resources
industry in the 1970s, to the US power industry in the 1980s, to a
much wider range of industry applications and geographic locations in
the 1990s and 2000s, and most recently to infrastructure finance in the
2010s.7
2.6.1 The Extractive and Oil Industry

Developing countries have long used grants and concessional finance
(from the World Bank and others) to develop infrastructure. The exces-
sive cost of natural resource exploitation led some of them to consider
PPP as an alternative to ordinary financing. More and more developing
countries are entering into Resource Finance Infrastructure agreements
with lenders. Under an RFI arrangement, a loan for current infrastruc-
ture construction is securitized against the net present value of a future
revenue stream from oil or mineral extraction, adjusted for risk. The
revenues for paying down the loan, which are disbursed directly from
the oil or mining company to the financing institution, often begin a
decade or more later, after initial capital investments for the extractive
project have been recovered. Angola postwar reconstruction was financed
mainly through RFI deals. Later on, the RFI mode of contracting was
used in several other African countries—predominantly by Chinese banks,
including China Development Bank, but recently also by Korea Exim
Bank for the Musoshi mine project in the Democratic Republic of Congo
(DRC). The infrastructure component of an RFI transaction can be struc-
tured as a government procurement project, with 100% government
ownership, or in any number of other ways consistent with a public-
private partnership (PPP) transaction. Thus, the success of a specific RFI
transaction depends on proper structuring and implementation. Whereas
RFI has stood as a model for a while, developing countries have recently
embraced the PPP as a more appropriate financing model for their devel-
opment. The PPP model leaves more room for government involvement
both initially and over time. This model is frequently used where a project
7 Jakob Müllner (2017): International Project Finance: Review and Implications for
International Finance and International Business. Management Review Quarterly, Vol. 67,
97–133.
finance model transaction has been considered, but will not work because
of the need to fill a gap in project risks that only the government can
fill. Because of the many ways it can be applied, it is a very flexible
model. From natural resource exploitation, many developing countries
have extended the recourse to PPP in other areas.
2.6.2 The Natural Resource Industry

Developing countries are entering into PPP arrangements as a means to
manage and preserve their natural resources such as water and forests. For
instance, On September 5, 2016, the Eranove Group signed an agree-
ment protocol with Côte d’Ivoire for the financing, design, construction,
operation, and maintenance of a thermal combined cycle power plant
of 390 MW.8 As lead arranger and overall coordinator, the Interna-
tional Finance Corporation (IFC) negotiated all the debt financing which,
besides IFC, is provided by the African Development Bank (AfDB),
the Netherlands Development Finance Corporation (FMO), the German
Cooperation Bank (DEG), the Emerging Africa Infrastructure Fund
(EAIF), and the OPEC Fund for International Development (OPEC
Fund). In 2018, the IFC arranged a Euro 303 million financing package
to Eranove, a French industrial group that manages several water and
electricity assets, for the construction and operation of a new 390 MW
natural gas plant in Ivory9 Coast. Several financing agreements have been
signed between the project developer, the pan-African group Eranove; the
International Finance Corporation (IFC), the World Bank Group’s private
sector financing arm; and the government of Ivory Coast. The facility,
which will be built as part of a public-private partnership (PPP), will inject
390 MW into the Ivorian national power grid. The project will result in
the construction of a combined cycle power plant, i.e., producing elec-
tricity through two turbines. With such a process combining steam and
natural gas, CO2 emissions are divided by two compared to an ordinary
thermal power plant. The new power plant will support public policies
aimed at facilitating access to electricity in Ivory Coast and meeting
national and regional electricity needs generated by strong economic
8 https://www.eranove.com/en/africa/atinkou/.
9 IFC (2016): Eranove, Côte d’Ivoire. https://disclosures.ifc.org/#/projectDetail/SII/
39096.
18 F. I. LESSAMBO
growth. The group specializing in the production of electricity and

drinking water will operate the Atinkou power plant for a period of
20 years, in accordance with the agreement signed with the Ivorian
government in December 2018. Eranove considers that its plant will be
able to supply around 1 million households in Ivory Coast. Up to 2,500
people will be employed during the construction phase of the Atinkou
combined cycle power plant.
2.6.3 The Power Industry & Beyond

Many countries have adapted energy policies and laws to encourage
investment in renewable energy (RE) sources. Renewable energy projects
rely on a number of legal contracts: the power purchase agreement (PPA),
which governs the sale and purchase of power, and other contracts such as
land use agreements, supply agreements, installation agreements, O&M
agreements, and implementation agreements. Many countries both devel-
oped and developing are funding their renewable energy projects through
PPP financing. In the Anglo-American world, project finance came to
prominence in the mid-twentieth century in the United States where it
was used to finance mining and rail companies. In the 1980s, project
finance evolved or expanded its scope to finance the construction of
natural gas projects and power plants in Europe and in North America
following the 1978 Public Utility Regulatory Policy Act.10 Since then, a
bulk of project finance projects involve the power or energy sector. The
power sector is a fundamental building block for economic advancement
in any country. Power is a critical input for the successful growth and
functioning of a country’s economy, across all its sectors, and thus for job
creation. Electricity demand is closely correlated with GDP growth and
other socio-political advancements. As such, power investments demon-
strate a clear and quantifiable economic return upon completion and
commissioning of the financed power projects, with a resultant multiplier
effect on the broader economy.11 These transactions require substantial
and long-term investments which have long repayment periods. They
often require highly technical and specialized knowledge and expertise
to prepare and implement.
10 https://www.publicpower.org/policy/public-utility-regulatory-policies-act-1978.
11 Asghar, Zahid (2018): Energy—GDP Relationship: A Causal Analysis for the Five
Countries of South Asia. Applied Econometrics and International Development, Vol. 8,
Issue 1, 167–180.
CHAPTER 3
Sources of Project Funds
3.1 General
The financing of PPP combines equity, loans, and government grants.
The initial equity investors, who develop the PPP proposal, are typically
called project shareholders. Typical equity investors include project devel-
opers, engineering or construction companies, infrastructure management
companies, and private equity funds. Lenders to PPP projects in devel-
oping countries include commercial banks, multilateral and bilateral
development banks and finance institutions, and institutional investors
such as pension funds and insurance companies. Projects’ shareholders
often have an incentive to finance a PPP with a high ratio of debt
to equity—that is, to achieve high advantage. Conversely, governments
often provide more protection to debt investors than to equity investors,
providing a further incentive for high leverage.
3.2 Sources of Funds

Project finance comes from a variety of sources: equity, debt, and govern-
ment grants. Project sponsors, government, third-party private investors,
and internally generated cash provide equity. Equity providers require
a rate of return target, which is higher than the interest rate of debt
financing. This is to compensate the higher risks taken by equity investors
as they have junior claim to income and assets of the project. Lenders

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20 F. I. LESSAMBO
of debt capital have senior claim on income and assets of the project.
The other sources of project finance include grants from various sources,
supplier’s credit, etc. Government grants can be made available to make
PPP projects commercially viable, to reduce the financial risks of private
investors, and to achieve socially desirable objectives such as to induce
economic growth in lagging or disadvantaged areas. Many governments
have established formal mechanisms for the award of grants to PPP
projects. Where grants are available, depending on government policy
they may cover 10–40% of the total project investment (Table 3.1).
Generally, debt finance makes up the major share of investment needs
(usually about 70–90%) in PPP projects. The common forms of debt are.
• Syndicated Commercial Loans
Table 3.1 Infrastructure finance instruments
Source OECD analysis drawing on OECD (2015b)

3 SOURCES OF PROJECT FUNDS 21
Syndicated commercial loans are funds lent by commercial banks and

other financial institutions and are usually the main source of debt
financing. Put differently, a commercial loan is a debt-based funding
arrangement between a business and a financial institution such as a bank.
It is typically used to fund major capital expenditures and/or cover oper-
ational costs that the company may otherwise be unable to afford. In
general, banks provide or finance project finance transactions. Bank loans
provide several advantages over bonds or other structured instruments
as (i) banks provide an important monitoring role; (ii) projects finance
need gradual disbursement of funds, and bank lending has the required
flexibility; and (iii) projects finance are relatively more likely to require
debt restructurings in unforeseen events, and banks can quickly negotiate
restructurings with each other.1 In the banking model of infrastructure
finance, banks underwrite loans for infrastructure projects, hold them on
their books, and service the loan through maturity. Increasingly, loans
are being originated by a lead underwriting bank, or a consortium of
banks, and syndicated among financial institutions and investors. The lead
underwriting bank collects fees for arranging the deal, or fees are shared
depending on level of participation in the syndicate.2 However, as a result
of the constraints imposed by Basel III, the appetite of banks to partici-
pate in the longer-term tenors required by project financing has lessened.
The limited availability of long-term commercial funding for projects has
slowed the momentum of the project finance sector in recent years. With a
diminished group of banks willing to commit to the longer-term financ-
ings demanded by sponsors required by the economics of the project,
appetite for tenors in excess of 15 years has been tepid since the outbreak
of the financial crisis in 2008 and the introduction of more onerous Basel
III requirements. Bank loans have the lowest level of risk on the project
finance debt risk scale: They are senior debt instruments and are usually
secured to a sufficient extent by collateral. The amount of the loan is
1 Esty, B., and Megginson, W. (2003): Creditor Rights, Enforcement, and Debt Owner-
ship Structure—Evidence from the Global Syndicated Loan Market. Journal of Financial
and Quantitative Analysis, 689–721.
2 Weber, Barbara, and Alfen HH (2010): Wilhelm: Infrastructure as an Asset Class:
Investment Strategies Project Finance and PPP, Wiley Finance Series.
22 F. I. LESSAMBO
related to the liquidation value of the asset and in its ability to generate
cash flow to service debt payments.
• Bridge Finance
Bridge financing is a short-term financing arrangement (e.g., for the

construction period or for an initial period) which is generally used until
a long-term financing arrangement can be implemented. In other words,
bridge financing is a form of temporary financing intended to cover a
company’s short-term costs until the moment when regular long-term
financing is secured. Thus, it is named as bridge financing since it is like
a bridge that connects a company to debt capital through short-term
borrowings. In most cases, bridge financing sources are from invest-
ment banks and venture capital institutions in the form of either debts
or ownership contributions. Bridge loans have higher interest rates than
permanent loans, typically LIBOR plus 3–4%. Because they are intended
for the short term, the loan term is only six months, though some lenders
are willing to extend this term longer for a fee equaling one or two
“points.” There are no prepayment fees. Mostly, there are two types of
bridge finance:
(i) Debt Bridge Financing
One option with bridge financing is for a company to take out a short-
term, high-interest loan, known as a bridge loan. Companies who seek
bridge financing through a bridge loan need to be careful, however,
because the interest rates are sometimes so high that it can cause further
financial struggles.
(ii) Equity Bridge Financing
Sometimes companies do not want to incur debt with high interest. If

this is the case, they can seek out venture capital firms to provide a bridge
financing round and thus provide the company with capital until it can
raise a larger round of equity financing (if desired). In so doing, the
company offers the venture capital firm equity ownership in exchange for
several months to a year’s worth of financing. The venture capital firm

will take such a deal, if they believe the company will ultimately become
profitable, which will see its stake in the company increase in value.
• Bonds and Other Debt Instruments
Bonds are long-term interest-bearing debt instruments purchased either

through the capital markets or through private placement (which means
direct sale to the purchaser, generally an institutional investor). Bonds
can be structured to have long-term maturities that extend over the life
of long-term assets. Bonds financing can be obtained through either
private-placement debt or public markets through registered corporate
and government bonds.
• Stapled Financing
Stapled financing is a pre-arranged financing package for the project,

developed by the government, and provided to bidders during the tender
process. The winning bidder has the option, but not the obligation, to
use the financial package for the project. Stapled financing is common
in Mergers and Acquisition deals and has been used for infrastructure
projects.
• Equity Finance
Equity finance refers to all financial resources that are provided to firms
in return for an ownership interest. Investors may sell their shares in the
firm/project, if a market exists, or they may get a share of the proceeds if
the asset is sold. They are crucial in the financing of infrastructure invest-
ments as the providers of risk capital to initiate a project or refinancing.
Listed shares are indirect participation rights in corporations, projects,
and other entities; investors hold minority positions with limited ability
to influence management. Unlisted shares often confer direct ownership,
24 F. I. LESSAMBO
control, and operation of the corporate entity or project asset due to

concentrated shareholder positions and closer ties to managers.3
• Mezzanine Loan
Mezzanine debt is a type of privately placed subordinate loan or bond

unique to project finance or private equity investments, often with equity
participation. Mezzanine debt can be interest-bearing instruments that
include a share in the value growth of the project or interest-only
instruments. Payment in kind (where debt payments would be delivered
through equity offerings) features are increasingly being used. Mezzanine
loans are subordinate tranches of debt often used in project finance to
provide credit enhancement for senior debt tranches. Mezzanine is higher
risk and pays higher yields than senior issues and often includes equity
participation.4
• Hybrid Instruments
Hybrid instruments deserve to be mentioned as a distinct finance instru-

ment—because despite the fact that they are essentially debt instruments,
they often possess both equity- and debt-like characteristics. Subordinated
loans and bonds are the chief category in this section and can be part of
a corporate finance structure or project finance.
• Pension Funds
Pension funds have long-term liabilities on their balance sheets in the

form of future pension payments. To avoid a mismatch of maturities
between the two sides of their balance sheets, pension funds need to invest
in long-term assets. Thus, the long-term nature of infrastructure invest-
ments suits the investment profile of pension funds, and their returns,
3 OECD (2015): Infrastructure Financing Instruments and Incentives, p. 10, https://

ives.pdf.
4 OECD (2015): Infrastructure Financing Instruments and Incentives, p. 1, https://
ives.pdf.
which tend to keep up with inflation, help hedge pension funds’ liabilities
that are also inflation-prone. Additionally, pension funds are interested in
diversifying their portfolios to lower the volatility of their returns. Infras-
tructure investments can be attractive when the correlation between their
anticipated returns and those of traditional assets is low.
• Government Grants
Governments can provide financial support to the private partner in the

PPP in various forms: guarantees, subsidies, equity injection, tax amnesty,
or a contribution in kind.
• Under a debt guarantee, the government guarantees the repayment

of part or all of the debt of the SPV to finance the investment under
the PPP.
• Subsidies can be provided as lump-sum payments, or they may be
linked to the volume produced and sold by the private partner:
– The lump-sum subsidy is recorded as a one-off payment from

the government. It is an outflow from and cost for the govern-
ment and an inflow or revenue to the private partner.
– The volume-based subsidy is calculated from a subsidy amount
per unit and the volume consumed. These payments constitute
a periodic outflow from and cost for the government, and a
periodic inflow or revenue to the private partner.
• An equity injection is a contribution from the government to finance

the project company, which may require a cash outflow.
• The government might grant the private partner a tax amnesty,
exempting it from certain taxes, for example, to reduce the private
partner’s cost of business or to reduce service cost for users.
• Governments often provide contributions in kind to the project
company. These include the transfer of existing assets or the right
to use government assets temporarily, for example, the right to
use the ground around a public infrastructure, such as a road, for
commercial exploitation.
26 F. I. LESSAMBO
3.3 Project Financing Participants

• Project Sponsors or Owners
The sponsors are the generally the project owners with an equity stake
in the project. It is possible for a single company or for a consortium to
sponsor a project. Because project financings use the project company as
the financing vehicle and raise non-recourse debt, the project sponsors
do not put their corporate balance sheets directly at risk in these often
high-risk projects. However, some project sponsors incur indirect risk
by financing their equity or debt contributions through their corporate
balance sheets. To further buffer corporate liability, many of the multi-
national sponsors establish local subsidiaries as the project’s investment
vehicle.
• Project Company
The project company is a single-purpose entity created solely for

executing the project. Controlled by project sponsors, it is the center of
the project through its contractual arrangements with operators, contrac-
tors, suppliers, and customers. Typically, the only source of income for
the project company is the tariff or throughput charge from the project.
The amount of the tariff or charge is generally extensively detailed in
the off-take agreement. Thus, this agreement is the project company’s
sole means of servicing its debt. Often the project company is the project
sponsors’ financing vehicle for the project (i.e., it is the borrower for the
project). The creation of the project company and its role as borrower
represent the limited recourse characteristic of project finance. However,
this does not have to be the case. It is possible for the project spon-
sors to borrow funds independently based on their own balance sheets
or rights to the project. When a project is located in a high-tax country,
and the project company in a lower-tax country, it may be beneficial for
the sponsor to locate the debt in the high-tax country. The company
maximizes its interest tax shields in so doing.
• Contractor
The contractor is responsible for constructing the project to the tech-

nical specifications outlined in the contract with the project company.
These primary contractors will then sub-contract with local firms for
components of the construction. Contractors also own stakes in projects.
• Operator
Operators are responsible for maintaining the quality of the project’s

assets and operating the power plant, pipeline, etc. at maximum effi-
ciency. It is not uncommon for operators to also hold an equity stake
in a project. Depending on the technological sophistication required to
run the project, the operator might be a multinational, a local company,
or a joint venture.
• Supplier
The cost of the input usually drives the project’s competitiveness. The
supplier provides the critical input to the project. If only a few firms domi-
nate the supply of a critical factor of production relative to the number
of potential customers, a project, absent mitigating factors, could be at
higher risk because the supplier is in a better position to dictate terms
of sale. Projects that rely on fixed and dedicated transportation systems,
such as pipelines or rail lines, to deliver necessary inputs, may have few
substitutes available.
• Customer
The customer is the party who is willing to purchase the project’s output,
whether the output be a product (electrical power, extracted minerals,
etc.) or a service (electrical power transmission or pipeline distribution).
The goal for the project company is to engage customers who are willing
to sign long-term, offtake agreements.
• Multilateral Agencies
The World Bank, International Finance Corporation, and regional devel-

opment banks often act as lenders or co-financiers to important infras-
tructure projects in developing countries. In addition, these institutions
often play a facilitating role for projects by implementing programs to
28 F. I. LESSAMBO
improve the regulatory frameworks for broader participation by foreign

companies and the local private sector. In many cases, the multilateral
agencies are able to provide financing on concessional terms. The addi-
tional benefit they bring to projects is further assurance to lenders that
the local government and state companies will not interfere detrimentally
with the project.
• Export Credit Agency
Because infrastructure projects in developing countries so often require

imported equipment from the developed countries, contractors to
support these projects routinely approach the export credit agencies
(ECAs). Generally, the ECA will provide a loan guarantee or funding to
projects for an amount that does not exceed the value of exports that
the project will generate for the ECA’s home country. ECA participa-
tion has increased rapidly. In just four years, ECA involvement in project
finance has risen from practically zero to an estimated $10 billion a year.
Again, ECA participation can bolster a project’s status and give it a certain
amount of de facto political insurance.
• Legal Advisers
Legal advisers play a role in assembling project finance transactions given

the number of important contracts and the need for multi-party nego-
tiations. Legal advisers also play a role in interpreting the regulatory
frameworks in the local countries. From the outset, the project sponsors
might work with a financial adviser, e.g., commercial bank, investment
bank, or independent consultant, to structure the financing for the
project.
• The Trustee
The trustee is typically responsible for monitoring the project’s progress

and adherence to schedules and specifications, usually working with
the independent engineer to coordinate fund disbursements against a
project’s actual achievement.
• Insurance Companies
The risk transfer contracts that we described earlier have the effect of
transferring many of the project risks from the project sponsor to the
other parties to the project. Further risks are transferred by a variety of
insurance contracts, such as completion insurance, insurance against force
majeure, and insurance against political risks.
3.4 Public–Private Partnerships

A public–private partnership is a long-term contract between a private
party and a government entity, for providing a public asset or service, in
which the private party bears significant risk and management responsi-
bility and remuneration is linked to performance.5 Well-structured PPPs
bring private capital for investment, private sector expertise, and commer-
cial management incentives needed for enhancing service provision to
users.6 Most PPP projects present a contractual term between 20 and
30 years; others have shorter terms; and a few last longer than 30 years.
PPPs have been used in a wide range of sectors to procure different kinds
of assets and services (Fig. 3.1).
3.5 Structuring Project Finance

The project finance structure underlying PPP projects is a response
to the agency problem that arises from the differing and conflicting
interests of various parties involved in an infrastructure project. In the
case of PPP project finance structure, a complex series of contracts
and financing arrangements distributes the different risks presented by a
project among the various parties involved in the project, including spon-
sors and investors, lenders, contractors, suppliers, and the government. In
many cases, the project company retains ownership of the project assets.
Thus, project finance must be carefully structured and provide comfort
to its financiers that it is economically, technically, and environmentally
feasible, and that it is capable of servicing debt and generating finan-
cial returns commensurate with its risk profile. The private party to most
5 World Bank (2017): Public–Private Partnerships, Reference Guide, p. 14, World Bank
Document, 122,038-WP-PUBLI-PPPReferenceGuideVersion.pdf.
6 Idem.
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morning, at five o'clock, to put the regiment through it very tolerably.
But this was rather sharp work upon all concerned; for the grand
review was to take place at 11, a.m.—the Major was quite hoarse—
and a new card had to be finely written out for the General.
The review came off admirably—the Major (his voice cleared by the
yolks of eggs) was not often wrong; at least this was not observed,
and it did not signify, as both officers and men had fully determined
to do well, not only on the Major's account, but on their own.
At the long wished-for conclusion, the General came solemnly
forward, and in front of the regiment, really covered the blushing, but
exhausted, Major with praises and honourable acknowledgments,
and approbation of his own and the corps' most admirable
performances.
On the return of the Adjutant from the field, he, as in duty bound,
waited upon his Commanding officer. "I suppose, poor —— made a
very pretty business of it to-day?" "A most admirable review; and I
have, upon no occasion, ever seen the regiment do better; so much,
so, that the General expressed in the strongest terms his admiration
of our day's performance!"
This was quite enough, but the symptoms of the Lieutenant-
Colonel's attack of bilious fever, were not alleviated by the account of
the Major's unlooked-for success. Such were the men to whom the
command of our regiments was too often confided, and who
generally contrived to render soldiers indifferent to events, and
reckless in their conduct.
I had the luck to be stationed in the West of Ireland under a General,
who considered that nothing tended so effectually to make first-rate
soldiers, as to accustom them to prolonged exposure, under arms, to
deluges of rain, and to all kinds of weather; and certainly in that part
of Ireland, there was no want of his favourite specific—rain. I must,
however, at the same time acknowledge, that of this he himself took
ample doses. Two other regiments, and the one to which I belonged,
and a body of cavalry and artillery, formed his brigade; and the more
gloomy and threatening the weather, the more certain were we of a
repetition of the General's admired refrigerant system, for his
practice in this line was extensive and unwearied; we had frequently,
on such occasions, to take up favourite positions, and to make long
and fatiguing excursions, over high sand-hills, which were some
miles distant from our cantonments. But, notwithstanding this
excellent treatment, our soldiers did not become a whit the more
water-proof; and many of them most provokingly went into hospitals
with violent pains in their backs, bones, &c. and which, to the
General's surprise, often terminated in fever.
How differently were Sir Thomas Brisbane's kindly feelings evinced
for those placed under his care (indeed Sir Thomas Picton always
wished his commanding officers to act in the same manner). No
officer commanding a corps was allowed, under any pretence, to
keep his men unnecessarily under arms, especially after a march. As
soon as the soldiers reached their cantonments, or ground of
encampment, they were ordered to be instantly dismissed, and
allowed to go into their quarters or tents to take off their
accoutrements, knapsacks, &c. so that they might as soon as
possible recover from the fatigues of the march; for keeping men
standing, after being heated, till they became chilled, was always
found to be injurious to their health.
After the troops came down the river Plata from Buenos Ayres, we
were kept in what our Generals chose to denominate, barracks afloat
—that is to say—in transports off Monte Video. One of these great
officers came unexpectedly on board our head-quarter ship, which
was certainly kept in fine order. The moment he set his foot on deck
he called for the officer of the day, who happened to be also the
senior officer on board, and ordered him to show him all over the
ship. I believe he must have been surprised at the man-of-war style
adopted, and at the extreme cleanliness and regularity of every thing
(for even in spite of the remonstrances of the masters of the
transports, as to their decks being ruined, the soldiers were kept
constantly rubbing away with the holy stones), at all events, he found
no fault, but unfortunately in passing the ship's coppers, he thought
fit to demand what was in them, and being told rice for the soldiers'
dinners, he, with great dignity and gravity, inquired of the alarmed
officer the quantity of rice in them? The unlucky wight, not knowing
well what to say, and being fully aware, that to betray ignorance
upon such important points, was an unpardonable crime, answered
at once, about 1000 pounds—terrible mistake, at least the
threatened consequences were terrible—for this worthy coadjutor of
General Whitelock, in an instant, set upon the unlucky miscalculator
of boiled and unboiled rice, and declared that he had never met with
such a downright ignorant blockhead in all his life; for the hold of the
ship (and she was 700 tons burden) could not contain that quantity
when boiled; "and now, Sir," continued this great commander, "I shall
take care to make you suffer for such ignorance and inattention to
your duty, and shall report your conduct upon this occasion to the
Horse Guards, in order to have your promotion stopped." Whether
he kept his word or not I cannot tell; but I am rather inclined to
believe, that he had other matters to occupy his attention, on his
return to England, which came more home to himself.
I could bring many more examples of this kind forward, but I must no
longer occupy the reader's attention with such frivolous matters.
But it is impossible to show in a more satisfactory manner, what was
the state of a British army in the field than by giving, as I intend to do
after a few observations, a letter from his Grace the Duke of
Wellington to the Generals commanding divisions and brigades; yet,
I trust it will not be deemed presumptuous if I venture to say that the
real causes of irregularities and bad conduct on the part of soldiers,
are not always perceived or ascribed even by men of the greatest
talents and experience to the proper sources; but having, in the
retreat from Madrid and Burgos, which is that alluded to by his
Grace, had much to do with the part of the rear-guard under Sir
Edward Pakenham, who then commanded the 3rd division of
infantry, during the absence of Sir Thomas Picton, and having also
seen a good deal on many other occasions, I hope I may be
considered authorized to remark, that owing to the admirable
management and unwearied exertions of Sir Edward Pakenham, the
conduct of the division on that retreat was, I may say, tolerably good,
except upon the night after we left Madrid; when many a pig was
slain in the woods, and the lives of the staff and other officers of the
division and brigades seriously endangered in their endeavours,
under a sharp fire of musketry, kept up at these animals, to put a
stop to such disorderly conduct on the part of the soldiers, as
actually left the division, from the hunt having become almost
general, at the mercy of the French, had they known what we were
about; for they were close at hand, and must have wondered what
could have occasioned the uproar and firing in our camp. But what
occurred, day after day, during the retreat amongst the numerous
disorderly stragglers from the several divisions, some of whom, in
spite of all that could be done, occasionally fell into the hands of the
enemy, most clearly evinced very bad conduct on the part of the
troops, and also a want of management somewhere; but the
irregularities, his Grace laments, were comparatively nothing to what
occurred in the retreat to Corunna. In this instance, also, the
weather, as usual in Spain, in the month of November, was very
severe, so much so, that some men who had been barely able to
reach the resting, or rather halting place for the night, which was,
perhaps, an open ploughed field, become quite a swamp from the
rain, were in the morning found dead, from the effects of cold, wet,
and want of sufficient food, much of which, from those having charge
of it, not knowing in what direction to move, had gone astray; and in
one instance, we, as rear-guard, obtained a supply of biscuit, by
taking a quantity of it off the hands of a conductor of a brigade of
mules, who, in a few minutes more, had he not been prevented,
would have led them in amongst the enemy.
After the troops from Madrid and Burgos met, the army, when there
were roads running nearly parallel to each other, marched generally
in two columns; but I must say matters were not always well
managed, and we had no properly organized police, who could have
promptly, when necessary, enforced discipline, for what were a few
provosts with their infantry guards, generally accompanying the
baggage? The columns sometimes unfortunately and probably
unavoidably, came into contact with each other on the same road,
occasioning a certain degree of confusion, which afforded
opportunities for some of the soldiers to escape from under the eyes
of their officers, however watchful they might be, and to become as
usual irregular; and at other times the columns (probably also
unavoidably), considering the state of the weather, the nature of the
country, and the then bad roads, were at times too far asunder, and
the communication not having been kept up as it should have been
by either our cavalry or infantry, the army became liable to sudden
and unlooked for events; and in one instance of this kind, I believe it
was, that one of our generals was taken by a French patrole, that
through mistake, occasioned by the rain, and a hazy state of the
atmosphere, and a want of proper precaution on our part, had
actually contrived to get in between our columns, certainly not very
much to our military credit.
When his Grace's letter reached us after the retreat, the feeling of
the officers commanding brigades and corps was, that, in this
instance, if nothing were said about the pig hunt, the 3rd division,
although a few of its soldiers had fallen into the hands of the enemy,
did not deserve the censure pronounced against the army in general;
and it was thought right that Sir Edward Pakenham should be waited
upon, in order to induce him to point out this to Lord Wellington, for
they were besides hurt at the implied superiority of the French in
even making fires and in quick cooking. Sir Edward, however, soon
settled the matter, by declaring in his usually laconic manner, that
"he would do no such thing," and adding, "let whoever the cap fits
wear it."
They all knew well in what this supposed superiority of the French
lay, for the truth was, they never hesitated to turn a town or village
inside out, if it suited their purposes, or to pull down a house, or half
a dozen of them, if necessary, so as to get dry wood for their fires,
whereas our people had to be marched regularly under officers for
beef, bread, water, and wood, and they had seldom any thing else
for it, but to cut down, bring in, and use the green branches of trees
as fuel to cook with. This accounts for the observable difference
between the two armies, for when our soldiers occasionally, and
when not a tree was to be seen, got a house or two to burn, which
were always paid for, they could then cook as quickly as their
practised foes.
"Sir, Frenada, Nov. 28th, 1812.
"I have ordered the army into cantonments, in which I hope that
circumstances will enable me to keep them for some time, during
which the troops will receive their clothing, necessaries, &c. which
are already in progress by different lines of communication to the
several divisions and brigades.
"But besides these objects I must draw your attention in a very
particular manner to the state of discipline of the troops. The
discipline of every army, after a long and active campaign, becomes
in some degree relaxed, and requires the utmost attention on the
part of the general and other officers to bring it back to that state in
which it ought to be for service; but I am concerned to have to
observe that the army under my command has fallen off in this
respect in the late campaign to a greater degree than any army with
which I have ever served, or of which I have ever read. Yet this army
has met with no disaster; it has suffered no privations, which but
trifling attention on the part of the officers could not have prevented,
and for which there existed no reason whatever in the nature of the
service; nor has it suffered any hardships, excepting those resulting
from the necessity of being exposed to the inclemencies of the
weather at a moment when they were most severe.
"It must be obvious however to every officer, that from the moment
the troops commenced their retreat from the neighbourhood of
Burgos on the one hand, and from Madrid on the other, the officers
lost all command over their men. Irregularities and outrages of all
descriptions were committed with impunity, and losses have been
sustained which ought never to have occurred.
"Yet the necessity for retreating existing, none was ever made in
which the troops made such short marches; none in which they
made such long and repeated halts, and none in which the retreating
armies were so little pressed on their rear by the enemy. We must
look therefore for the existing evils, and for the situation in which we
now find the army to some cause, besides those resulting from the
operations in which we have been engaged.
"I have no hesitation in attributing these evils to the habitual
inattention of the officers of the regiments to their duty, as prescribed
by the standing regulations of the service, and by the orders of this
army.
"I am far from questioning the zeal, still less the gallantry and spirit of
the officers of the army, and I am quite certain, that if their minds can
be convinced of the necessity of minute and constant attention to
understand, recollect, and carry into execution the orders which have
been issued for the performance of this duty, and that the strict
performance of this duty is necessary to enable the army to serve
the country as it ought to be served, they will in future give their
attention to these points.
"Unfortunately the inexperience of the officers of the army has
induced many to consider that the period during which an army is on
service is one of relaxation from all rule, instead of being, as it is, the
period during which of all others every rule for the regulation and
control of the soldier, for the inspection and care of his arms,
ammunition, accoutrements, necessaries, and his field equipments,
and his horse and horse appointments, for the receipt and issue and
care of his provisions, and the regulation of all that belongs to his
food, and the forage of his horse, must be most strictly attended to
by the officers of his company or troop, if it is intended that an army,
and a British army in particular, shall be brought into the field of
battle in a state of efficiency to meet the enemy on the day of trial.
"These are points then to which I most earnestly intreat you to turn
your attention, and the attention of the officers of the regiments
under your command, Portuguese as well as British, during the
period in which it may be in my power to leave the troops in their
cantonments. The commanding officers of regiments must enforce
the orders of the army, regarding the constant inspection and
superintendance of the officers over the conduct of the men of their
companies in their cantonments, and they must endeavour to inspire
the non-commissioned officers with a sense of their situation and
authority, and the non-commissioned officers must be forced to do
their duty, by being constantly under the view and superintendance
of the officers. By these means the frequent and discreditable
recourse to the authority of the Provost, and the punishments by the
sentence of courts-martial will be prevented, and the soldiers will not
dare to commit the offences and outrages, of which there are too
many complaints, when they know that the officers and non-
commissioned officers have their eyes and attention turned towards
them.
"The commanding officers of regiments must likewise enforce the
orders of the army, regarding the constant real inspection of the
soldiers' arms, ammunition, accoutrements, and necessaries, in
order to prevent at all times the shameful waste of ammunition, and
the sale of that article, and of the soldiers' necessaries. With this
view, both should be inspected daily.
"In regard to the food of the soldier, I have frequently observed and
lamented in the late campaign, the facility and celerity with which the
French soldiers cooked, in comparison with those of our army.
"The cause of this disadvantage is the same with that of every other
description, the want of attention of the officers to the orders of the
army, and to the conduct of their men, and the consequent want of
authority over their conduct. Certain men of each company should
be appointed to cut and bring in wood, others to fetch water, and
others to get the meat, &c., to be cooked; and it would soon be
found, if this practice were daily enforced, and a particular hour for
seeing the dinners, and for the men dining named, as it ought to be,
equally as for the parade, that cooking would no longer require the
inconvenient length of time which it has lately been found to take,
and that the soldiers would not be exposed to the privation of their
food at the moment at which the army may be engaged in operations
with the enemy.
"You will, of course, give your attention to the field exercise and
discipline of the troops. It is very desireable, that the soldiers should
not lose the habit of marching; and the divisions should march ten or
twelve miles twice in each week, if the weather should permit, and
the roads in the neighbourhood of the cantonments of the division
should be dry. But I repeat, that the great object of the attention of
the general and field officers must be, to get the captains and
subalterns of regiments to understand and perform the duties
required of them, as the only mode by which the discipline and
efficiency of the army can be restored and maintained during the
next campaign.
"I have the honour to be, &c. &c.
(
Signed) "Wellington.
"To the Officer commanding — Division."

The Duke of Wellington in this letter again accuses the officers of
being, in a great measure, the cause of irregularities, by their neglect
of duty; nevertheless, I still venture to attribute the bad conduct of
the soldiers more particularly to what I am convinced was the chief
cause, viz. the description of men they had to deal with. As a proof of
this, we find what follows in a general order, dated Vizar, 28th
February, 1810. "No. 6. The Commander of the Forces draws the
attention of the soldiers of the army to the consequences of the
crimes committed by the soldiers thus ordered for execution, under
the sentence of a General Court-Martial. Cornelius McGuire, of the
27th regiment, and George Chambers, of the 88th regiment,
committed a crime, which the Commander of the Forces is
concerned to observe is too common in this army; they robbed and
ill-treated an inhabitant of this country, whom they met on the road; a
crime which the Commander of the Forces is determined in no
instance to forgive.
"The soldiers of the army have been invariably well treated by the
inhabitants of Portugal, and the frequent instances which have
occurred of their being robbed and ill treated, and of murder being
committed, by soldiers who straggle from their detachments on a
march, are a disgrace to the character of this army, and of the British
nation.
"The Commander of the Forces is therefore determined, in every
instance of the kind, that may occur, to have proof adduced of the
crime committed, and the sentences of the General Courts-Martial,
whatever they may be, shall be carried into execution.
"The Commander of the Forces is concerned to observe, that the
crime committed by John McDonough, private in the 58th regiment,
is no less common in this army, than robbery and murder, and in
respect to this crime, (repeated desertion) he is equally determined
to carry into execution, the sentences of the General Courts-Martial,
whatever they may be."
We again find in a general order, dated Coimbra, 30th September,
1810, that four soldiers of the 45th regiment were found guilty, and
sentenced to be executed, for stopping on the highway, assaulting,
and robbing some Portuguese inhabitants, at, or near the bridge of
St. Euphemia; and which sentence was confirmed by his Excellency
the Commander of the Forces, but who was, as will be seen by what
follows, pleased to pardon them. "No. 3. Although the Commander of
the Forces has long determined that he will not pardon men guilty of
crimes of which the prisoners have been convicted, he is induced to
pardon these men in consequence of the gallantry displayed by the
45th regiment on the 27th instant. (Battle of Busaco.) He trusts that
this pardon will make a due impression upon the prisoners, and that
by their future regular and good conduct, they will endeavour to
emulate their comrades, who have, by their bravery, saved them
from a disgraceful end."
I have already stated, that our soldiers certainly possess one
redeeming quality, which is undaunted courage in battle; but how
lamentable it was constantly to find that this was so much marred by
irregularities and crimes, which invariably and instantly followed the
most brilliant displays of it. As an instance of this, I beg to say, that
upon the night of the storming of Ciudad Rodrigo, I was in the
trenches with the 45th regiment, which was destined to lead the
assault of the main breach. Whilst waiting for the hour fixed upon for
this purpose, an order arrived from Sir Thomas Picton, to form a
forlorn hope. The officers commanding companies were therefore
called together, and desired to bring to the head of the column, six
men from each for the purpose. They soon returned, but to my
surprise, unaccompanied by a single soldier, all of them declaring,
that every man present volunteered for the pre-eminence, and they
wished to know how they were to act, for that the oldest soldiers
claimed it as their right. Well might officers be proud of such men,
who could evince such a spirit with the breach, I may say, yawning
for their destruction. The moment for the assault had however
arrived—no time could be spared—the officer commanding knew not
well what to do, when the Captain of Grenadiers, (now Major Martin)
who was there dreadfully wounded, put an end to all difficulties, by
requesting permission to lead as he stood with his company at the
head of the column. This was very reluctantly acquiesced in, but
there was no time to make any other arrangements, and thus the
regiment advanced rapidly, but compactly and in perfect order,
towards the breach.
The outer edge of the ditch was soon reached. The 45th, stoutly
supported by the 88th and 74th, the other fine corps composing the
leading brigade, jumped in upon bags of hay thrown there by the
sappers. At that instant a very loud and prolonged explosion took
place, seemingly at the foot of the breach, which, providentially, the
regiment had not then reached. This did not, even for a moment,
stop their progress, and the rugged breach was ascended under a
most destructive fire from all points. Many brave men had already
fallen. The enemy's fire continued to be most ruinous, and to our
horror we saw that the breach was completely cut off, and that there
was no possibility of advancing or descending into the city. The left
was first tried, but in vain; and although the loss of officers and men
of the brigade, but especially of the leading regiment was very great,
yet no one supposed that retracing our steps could even be thought
of. I had just made my way back, but with great difficulty, from the left
of the breach, when I met General McKinnon, who commanded the
brigade, and who had, by some means or other, contrived to get
through the dense crowd below; and though I tried, amidst the
uproar, to make him understand how we were situated, and that we
could not gain ground to the left, yet he seemingly did not
understand me, and went on in that direction. Whilst thus situated,
another and a most dreadful explosion took place, which shook the
ramparts like a powerful earthquake, and destroyed General
McKinnon and most of those who had followed him. A short but
fearful pause insued, when Brigade-Major Wylde suddenly
appeared, coming greatly animated from the right, and pointing in
that direction; all followed him with loud cheers, and I will venture to
say, that he was the first man, who that night entered Ciudad
Rodrigo. In their hurry in falling back from the breach, the French
had not had time to remove a few planks laid across the cut to our
right, and more were found on the other side; and thus by unflinching
and persevering gallantry on the part of the leading brigade of the
3rd division, under a most appalling fire, the city was carried.
I make no remarks upon the gallantry of those employed at the
smaller breach, but undaunted courage was unquestionably
displayed upon this occasion by the soldiers; but all the corps
engaged immediately broke away in search of plunder and liquor, or
with the intention of enjoying themselves in every kind of irregularity
and excess, and that too in spite of the utmost exertions of their
officers, who could not for a moment be supposed capable of
countenancing their atrocities.
I found myself again with the 45th regiment, which had in so noble a
manner volunteered the forlorn hope, and had led so gallantly into
the breach. A great part of the regiment had been got together, by
the officers' exertions, in a large building in which they posted
themselves immediately after the city was gained. The officers had
begun to flatter themselves, and even to say to each other, that the
corps would surely in this instance gain great credit for its proper
behaviour; but while some watched one door, and all thought they
had the soldiers secure for once, and out of harm's way, they almost
all contrived to escape by another, and the officers, however
zealous, had nothing for it, but to arm themselves with patience and
resignation. Nevertheless several of them were ordered out into the
streets to endeavour to bring back the stragglers, but the horrors
witnessed, and which could not by any means be prevented, were
beyond belief or description. I well remember, looking on in dismay,
at a party of these madmen, belonging to all the corps engaged,
sitting round a table, in a large house, carousing, singing, cheering,
and firing off their muskets. The windows were all open, so that we
could see every thing that was going forward, for the house was in a
blaze about them. I called aloud, and did every thing possible to
induce them to come out, but all in vain; they neither listened to me,
nor to several other officers who were equally exerting themselves to
save them, and we even ran great risks of being shot by these idiots,
who continued drinking, singing, firing and cheering, and in which
delightful occupations, I saw that they were most cordially joined by
some of the French garrison.
This noise, however, and the reports of their muskets suddenly
ceased; the roof of the building had fallen in, and they were all
swallowed up amidst the ruins!
These wretched men were, I conclude, returned by their regiments
as killed in the assault of the fortress.
Lord Wellington, I have reason to believe, ordered the 45th regiment,
(then under the command of the present Major-General Sir Leonard
Greenwell,) such was his opinion of their firmness, at the battle of
Fuentes d'Onor, to receive in line, and without forming square, the
enemy's cavalry then advancing in force towards them, if they should
venture to charge. The experiment was not, however, made, for the
French, I conclude, observing such a steady determined front
presented to them, thought it wiser to retire, especially as they were
at the time suffering severely from our cannon; but I have no doubt,
as to what would have been the result, had they ventured to charge;
yet this, if even successful, could not have been compared to the
splendid achievement of the 5th regiment, in the famous retreat of
the 3rd division from Elbodon to Guinaldo, in which I saw that corps
receive the charge of the French cavalry steadily and firmly; to my
delight and astonishment, however, they in turn charged them, and
drove them down the hill with considerable loss. The 5th and 45th
were, perhaps, as steady under arms, and as well conducted
regiments as any in the army; yet I have seen both led away at
sieges, and upon other occasions, when opportunities presented
themselves, like the rest. I feel, however, that I ought here to give
Lord Wellington's orders issued immediately after the retreat alluded
to.
"G.O. Richosa, 2d October, 1811.
"No. 3. The Commander of the Forces is desirous of drawing the
attention of the army to the conduct of the 2d battalion, 5th and 77th
regiments, and the 21st Portuguese regiment, and Major
Arentschild's Portuguese artillery, under the command of the Hon.
Major-General Colville, and of the 11th Light Dragoons and 1st
Hussars, under Major-General Alten, in the affair with the enemy on
the 26th ult. These troops were attacked by between thirty and forty
squadrons of cavalry, with six pieces of cannon, supported by a
division consisting of fourteen battalions of infantry, with cannon.
"No. 4. The Portuguese artillerymen were cut down at their guns
before they quitted them; but the 2nd battalion, 5th regiment,
attacked the cavalry which had taken the guns, and retook them. At
the same time the 77th regiment were attacked in front by another
body of cavalry, upon which they advanced and repulsed them.
"No. 5. While these actions were performed, Major-General Alten's
brigade, of which there were only three squadrons on the ground,
were engaged on the left, with numbers infinitely superior to
themselves. These squadrons charged repeatedly, supporting each
other, and took above twenty prisoners; and notwithstanding the
immense superiority of the enemy, the post would have been
maintained, if the Commander of the Forces had not ordered the
troops to withdraw from it, seeing that the action would become still
more unequal, as the enemy's infantry were likely to be engaged in
it, before the reinforcement ordered to the support of the post could
arrive.
"No. 6. The troops then retired with the same determined spirit, and
in the same good order with which they had maintained their post—
the 2nd battalion, 5th regiment, and 77th, in one square, and the
21st Portuguese regiment in another, supported by Major-General
Alten's cavalry and the Portuguese artillery. The enemy's cavalry
charged three faces of the square of the British infantry, but were
beaten off; and finding from their repeated fruitless efforts, that the
brave troops were not to be broken, they were contented to follow
them at a distance, and with firing upon them with their artillery, till
the troops joined the remainder of the 3rd division, and were
afterwards supported by a brigade of the 4th division.
"Although the 21st Portuguese regiment were not actually charged
by the cavalry, their steadiness and determination were conspicuous,
and the Commander of the Forces observed with pleasure the order
and regularity with which they made all their movements, and the
confidence they showed in their officers.
"No. 7. The Commander of the Forces has been particular in stating
the details of this action in the general orders, as, in his opinion, it
affords a memorable example of what can be effected by steadiness,
discipline and confidence. It is impossible that any troops can, at any
time, be exposed to the attack of numbers relatively greater than
those which attacked the troops under Major-General Colville, and
Major-General Alten, on the 25th of September; and the Commander
of the Forces recommends the conduct of those troops to the
particular attention of the officers and soldiers of the army, as an
example to be followed on all such circumstances.
"No. 8. The Commander of the Forces considers Major-General
Alten and Major-General Colville, and the commanding officers of
the regiments under their command, respectively, viz. Lieutenant-
Colonel Cummings, Lieutenant-Colonel Arentschild, Lieutenant-
Colonel Broomhead, Major Ridge, and Colonel Bacellar of the 21st
Portuguese regiment, and the officers and soldiers under their
command to be entitled to his particular thanks, and he assures
them that he has not failed to report his sense of their conduct in the
action of the 25th September to those by whom he trusts it will be
duly appreciated and recollected."
His Grace the Duke of Wellington very rarely bestowed such public
praise upon any part of his army; yet how strange it was that soldiers
who could, in the presence of their officers, behave so bravely and
merit such encomiums should, when out of their sight, act so
recklessly. I do not hesitate in saying that the officers of the army
deserved more credit for whatever was found deserving of
commendation in their men than was usually allowed them. It was of
old a common saying that, "with French officers and English soldiers
the world might easily be conquered." Whatever slur this may have
been intended to convey against British officers, it certainly no longer
exists, and it could be easily proved that they are now second to
none; and all they want is a superior description of men to act with,
which the United Kingdom can easily furnish, and a better system for
their guidance—a system which would allow them to treat those
placed under them as beings endowed with reason, and not as mere
pieces of machinery.
The castle of Badajoz, after three unsuccessful attempts, was at last
carried chiefly through the wonderful exertions, persevering zeal and
gallantry of the officers of the 3rd division, several of whom had
waited, according to orders, just before the assault, upon Sir James
Kempt, then one of its generals of brigade, when a plan of the castle
was shown to them, and much pains taken to point out what was to
be overcome in order to capture it; and it must have been obvious to
those officers, that retreating, when once under the walls of the
castle, was quite impossible, and this clearly shows that the idea of a
false attack could never have been entertained; indeed it was talked
of and considered by many of us as an enterprise fit only for the
knight-errants of old.
To these explanations, and to the extraordinary perseverance and
gallantry of the officers, I have always chiefly attributed the taking of
the Castle of Badajoz by the 3rd division. But in giving what follows, I
cannot avoid again calling the reader's attention to the praises so
justly due to the officers, and also to the soldiers for undaunted
courage in following them; and I regret to say, to the censure, the
next moment, so well deserved by the latter. It may be asked, why I
persevere in making such severe remarks upon the conduct of our
soldiers? I readily answer, that my only motive is to induce the
country, if possible, to employ hereafter such men, as can be called
out in the way I have proposed in our armies, and not the inferior and
most difficult to be restrained part of our fine and warlike population.
"G.O. Camp before Badajoz, 7th April, 1812.
"No. 1. The Commander of the Forces returns his thanks to the
general officers, officers and soldiers of the 3rd, 4th, and light
divisions, to the Royal engineers and artillery, and to the Portuguese
artillery, for their persevering patience and laborious industry, and the
gallantry which they have uniformly manifested throughout the late
siege of Badajoz.
"In thanking them for the uncommon gallantry displayed last night in
the assault of the place, under the most trying circumstances, the
Commander of the Forces must include among those the general
officers, officers and soldiers of the 5th division."
"G.O. Fuente Guinaldo, 16th May, 1812.
"No. 1. The Commander of the Forces has great satisfaction in
communicating to the army the following extract of a letter from the
Earl of Liverpool, one of his Majesty's principal Secretaries of State,
dated Downing-street, 28th April, 1812:—
'His Royal Highness has commanded me to express to your
Lordship the sense he entertains of the great services rendered to
this country, and to her allies, by the reduction of Badajoz.
'The Prince Regent has perused with most sincere regret the long
list of brave men who have suffered in this memorable siege, and
particularly in the assault of Badajoz, on the night of the 6th instant.
Never, perhaps, was immoveable intrepidity more imperiously
required, and never was it more conspicuously and more gloriously
displayed.
'The great proportion of officers of high rank who have bled in this
tremendous conflict, affords an affecting proof of the zeal with which
they pointed out the path of victory to their willing followers.
'The Prince Regent desires that your Lordship will receive his Royal
thanks for your conduct throughout these important and arduous
operations; and likewise that you would convey his thanks, in the
most public manner to the general officers, the officers of engineers
and artillery, and to all the officers, non-commissioned officers and
soldiers, (both British and Portuguese) employed under your
command, at the siege of Badajoz, for their distinguished services on
this occasion, in which their superiority has been so unequivocally
and nobly manifested.'"
But we must now, I am sorry to say, turn to the other side of the
picture:—
"G.O. Camp before Badajoz, 7th April, 1812.
"No. 4. The regiments of the 5th division are to return to their
bivouac by regiments, as soon as Lieutenant-General Leith will think
proper, excepting the Royal Scots and 9th regiment, which are to
remain in Badajoz as late this day, 'till the soldiers will have been
turned out of the town and order will be restored."
"After General Order. 7th April 1812.
"No. 1. It is now full time that the plunder of Badajoz should cease,
and the Commander of the Forces requests that an officer and six
steady non-commissioned officers may be sent from each regiment,
British and Portuguese, of the 3rd, 4th, 5th and light divisions into the
town to-morrow morning at five o'clock, in order to bring away any
men that may be straggling there.
"No. 2. The Commander of the Forces has ordered the Provost-
marshal into the town, and he has orders to execute men he may
find in the act of plunder after he shall arrive there."
"G.O. Camp before Badajoz, 8th April, 1812,
at 11 o'clock, p.m.
"No. 1. The rolls must be called in camp every hour, and all persons
must attend till further orders.
"No. 2. Brigadier-General Power is ordered and held responsible that
no British or Portuguese soldiers, except those belonging to the
place, or having a passport from a field-officer, shall go into Badajoz
till further orders.
"No. 3. The Commander of the Forces is sorry to hear that the
brigade in Badajoz, instead of being a protection to the people,
plunder them more than those who stormed the town.
"No. 6. The Commander of the Forces calls upon the staff officers of
the army and the commanding and other officers of regiments, to
assist him in putting an end to the disgraceful scenes of
drunkenness and plunder which are going on at Badajoz.
"No. 7. The Provost-marshal of the army, and the Assistant Provosts
of the several divisions, are to attend there to-morrow at daylight and
throughout the day.
"No. 8. Brigadier-General Power is requested to place 50 men, with
officers in proportion, on guard at the gate of Elvas, and another of
the same number at the breaches; and to prevent soldiers from
entering the town, or from quitting it with bundles of any description.
"No. 9. British and Portuguese soldiers are forbid to go into Badajoz,
and the Provosts are to punish those they may find there as being
guilty of disobedience of orders, unless they have a pass signed by a
field officer, or the commanding officer of the regiment."
This must surely open the eyes of the most incredulous as to the
behaviour of our army; but even long before the Peninsular war the
conduct of the British soldiers, wherever they had an opportunity of
breaking loose, was much to be deplored, indeed nothing can show
this more strongly than the following extracts from a modern
publication, and for the correctness of which I think I could answer,
from what I myself saw in South America.
"We took the cannon and turned them on the fugitives, after which
we pursued them into Maldonado, and sweeping from house to
house, were in five minutes masters of the town. Then followed a
scene of barricading and plunder, such as I have no words to
describe. While some ran to fill up the ends of the streets with
barrels, cars, and household furniture, others broke into wine and
spirit stores, or ranged through the dwellings of the inhabitants,
carrying destruction and terror into all their quarters. For our
commandant gave his people three hours license, and never surely
did men make better use of the opportunities afforded them. It was in
vain that the officers flew from cellar to cellar, knocking in the heads
of casks, and pouring out the contents into the streets. The soldiers if
they could not get at liquor elsewhere, dropped their canteens into
the kennel and were soon in a state which set all subordination and
discipline at defiance. It was well for us that the Spaniards did not
think of returning to the attack. If they had done so, we should have
been cut to pieces almost without resistance." We again read in the
same publication, "Meanwhile the few among our people who were
fit for duty, took the out-posts, and the rest slept where they had
fallen down: some in houses, some in the streets, but all in a state of
helpless intoxication. Under such circumstances, the night was, to
those in command, an anxious one."
I think it must now be allowed, that the object I have in view has
been effected; and that I have brought forward sufficient to sanction
my entertaining a hope, that the plans I have proposed for calling out
men for our regular army may be deemed worthy of notice; and I
also trust that after what I have shown to be the conduct of our
soldiers, in spite of the utmost exertions of their officers, the idea of
enlisting men at low bounties for the militia will be well considered
before it is adopted.

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International Project Finance: The

Public-Private Partnership Felix I.

International Finance: New Players and Global Markets

Fintech Regulation and Supervision Challenges within

Financial Statements: Analysis and Reporting 1st ed.

Financial Statements: Analysis, Reporting and Valuation

The U.S. Banking System: Laws, Regulations, and Risk

Private Capital Investing: The Handbook of Private Debt

Countering Cyber Threats to Financial Institutions: A

Financing Nature-Based Solutions: Exploring Public,

ISBN 978-3-030-96389-7 ISBN 978-3-030-96390-3 (eBook)

Writing a book is always a challenge. However, writing a book on

1 Introduction to Project Finance 1

5.5.1 Public Procurement Laws in the United

8.2.4 Build–Own–Operate (BOO) 83

9.4.2.1 ICC Functions 109

10 Project Finance Governance 127

13.3.2 Accounting 167

AAA American Arbitration Association

LCIA London Court of International Arbitration

Fig. 2.1 PPP versus Traditional Procurement (Source World Bank

Table 3.1 Infrastructure finance instruments 20

Introduction to Project Finance

© The Author(s), under exclusive license to Springer Nature 1

the raising of funds to finance economically separable capital investment

3 J.D. Finnerty (2013): Project Financing: Asset-Based Financial Engineering, 3rd

1.2 Characteristics of Project Financing

Project financings are often large-scale projects that require a great

Project financing transactions are highly leveraged with debt accounting

• Non-recourse or limited recourse financing

• Controlled dividend policy

To support a borrower without a credit history in a highly leveraged

• Economies of scale and externalities

Projects financed, in infrastructure may lead to natural monopolies such

the economy as a whole. Such social benefits are fundamentally difficult

These transactions frequently demand the participation of numerous

Raising capital through project finance is generally costlier than through

1.3 Public-Private Partnership Framework

1.3.1 PPP Policy

There are various rationales for governments to adopt PPP as a method

• PPP Implementation Principles

The implementation of public-private partnerships can be challenging in

– Public authority and private companies must act as partners. To

• PPP Governance Arrangements

– The political leadership should ensure public awareness of the rela-

7 OECD (2012): Recommendation of the Council on Principles for Public Governance of

– All investment projects should be prioritized at senior political level.

– The project should be treated transparently in the budget process.

Project Financing and Direct Conventional

2.2 Corporate Finance

1 João M. Pinto (2017): What Is Project Finance. Investment Management and

© The Author(s), under exclusive license to Springer Nature 11

shareholders’ wealth.3 In traditional corporate finance, the primary source

2.3 Traditional Procurement

managing the asset, although it hires private companies to do these on

2.4 Project Finance

pursue the sponsoring company’s assets in the case of default. In addition,

2.5 Advantages and Disadvantages

2.6 Evolution of Project Finance

2.6.1 The Extractive and Oil Industry

2.6.2 The Natural Resource Industry

growth. The group specializing in the production of electricity and

2.6.3 The Power Industry & Beyond