MODULE 7.

INTRO TO PROJECT FINANCING IN o Remuneration through user fees,

THE PRIVATE SECTOR availability payments (govt pays fixed
fees to private operator)
Reference 1: Project Finance Video
o No public funds are disbursed during
Project Finance the construction phase – spread
throughout lifetime of the project once
 Non-recourse loans and obligations
operational
o Creditors are relying only to the
SPV to repay the loan Duration
o Financial obligations are
o Relationship between the government
recourse only to the project
and private sector continues after the
company, they are non-
construction of the project
recourse to the investors of the
o Private sector is responsible for
project
operating it for a set number of years
o Special Purpose Vehicle (SPV)
(more than 20 yrs)
o Company will borrow a lot of
o Asset rights revert back to public
money to buy assets but the
authority after set number of years
obligation to return the loan
stays on the level of the Output vs Input
company, not on the investors
o Requirements are defined based on
 Cash Flow-based
output – what we want to achieve
o Basis of valuation is cash flow,
(traditional – input – how to achieve
not collateral
what we want)
o Project must operate to
o Project specifications for road infra
generate cash
might include road surface quality
 Allocation of Risks
rather than specific details of
o Strong network of contracts
construction
o Counterparties must be reliable
o Provide the private sector with the
and experienced
opportunity to deliver innovative
o Proven technology
solutions for delivering public services
Public-Private Partnership
Risk Allocation
 A long-term contract between a private
o Risks are shared among public and
party and government entity, for the
private partners
provision of public services and/or
o Private sector usually supports
development of public infrastructure, in
construction and operational risks
which responsibilities and rewards are
shared Benefits of PPP

Funding Sources  Private capital – finance projects that

are not feasible in the government due
o Private sector is financing the project,
to budget constraints
expecting to gain profit out of the
 Efficiency gains
investment
 Creation of long-term solutions
  Risk transfer to the private sector

Limitations of PPP

 Not suitable for all projects (does not

work well in sectors with rapid change
unless there is long-term predictable
need
 Complex/high transaction cost
 Lack of local private sector capacity
 Political and social sensitivity
 Limited flexibility – hard to modify
project specifications once awarded

Mega Manila Infrastructure Roadmap