Using Project Finance to Fund Infrastructure Investments

7804 WordsSep 14, 201232 Pages
USING PROJECT FINANCE TO FUND INFRASTRUCTURE INVESTMENTS Throughout most of the history of the industrialized world, much of the funding for large-scale public works such as the building of roads and canals has come from private sources of capital. It was only toward the end of the 19th century that public financing of large “infrastructure” projects began to dominate private finance, and this trend continued throughout most of the 20th century. Since the early 1980s, however, private-sector financing of large infrastructure investments has experienced a dramatic revival. And, in recent years, such private funding has increasingly taken the form of project finance. The principal features of such project financings have been the…show more content…
This encouraged the formation of stand-alone power producers able to borrow large sums on the basis of the long-term power purchase agreements they had entered into with electric utilities. Since these projects do not directly involve a government or a government agency, they are somewhat beyond the scope of this article. So are projects in Australia, which have primarily been in extractive industries rather than in infrastructure. In the U.K. by contrast, the government has been directly involved in a growing number of infrastructure projects since it announced in 1992 the establishment of the Private Finance Initiative (PFI). The PFI is designed to involve the private sector in the financing and the management of infrastructure and other projects. Private finance has so far been used principally for transportation projects such as the £320 million rail link to Heathrow airport, the £2.7 billion Channel Tunnel Rail Link, a £250 million scheme to build and maintain a new air traffic control center in Scotland, and projects worth more than £500 million to design, build, finance, and operate (DBFO) trunk roads. But the potential scope of the PFI is wide. Over 1,000 potential PFI projects have been identified, and the government has signed contracts to build and maintain such diverse

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