PPP Development Stage – Financing (Investments)
12.3 Who is involved?
Groups that are involved in a project’s financial performance
can be divided on three groups:
- A. Finance users;
- B. Finance providers
- C. Consultants and advisors
A. Users of financial funds
- Private sector;
- Public sector
- Joint venture of the two above
B. Potential providers (sources) of
The public and private sectors can act both as users and providers
of financial funds for a joint project or by themselves from
their own sources. Alternatively, it is possible to raise money
from the market. Funds from international sources are also available
for development projects. Therefore, there are five major sources
- 1. The public sector can finance the project
from public funds.
- 2. The private partner is often viewed as the
most desirable investor in PPP projects.
- 3. Financial and credit institutions:
a. Banks and other providers of debt finance lend a specified amount
of money in exchange for a promise that that the money will be
repaid on a specified scheduled with a payment of their profit.
b. Equity investors purchase ownership shares in a private
firm in the expectation of benefiting from the firm’s
profit over time.
c. Guarantors and other insurers agree
to pay money to identified parties if a specified event
occurs in exchange for payment of an up-front premium.
- 4. Bilateral donors (or donor countries)
via aid agencies can provide grants. They give money away with
no expectation to repayment, but with the requirement that it
should be used to achieve specified goals.
- 5. International finance institutions (IFIs), also known
as a multilateral development banks (MDBs), are multilateral
lending institutions that provide resources for development
at a lower then commercial rate of return. Among the most
active international development lenders are:
World Bank <www.worldbank.org>
Asian Development Bank (ADB) <www.adb.org>
African Development Bank (AFDB) <www.afdb.org>
Development Bank of Southern Africa (DBSA) <www.dbsa.org>
European Bank for Reconstruction and Development (EBRD) <www.ebrd.org>
European Investment Bank (EIB ) <www.eib.org>
Inter-American Development Bank (IADB) <www.iadb.org>
International Finance Corporation (IFC) <www.ifc.org>
International Development Association (IDA) < www.worldbank.org/ida>
Middle East Development Bank (MEDB)
Islamic Development Bank (ISDB) <www.isdb.org>
North American Development Bank (NADB) <www.nadb.org >
C. Consultants and advisors
Governments usually lack the full range of expertise within
their civil service institutions to carry out substantial
economic, financial, technical or legal processes, nor the
capacity to coordinate such activities and expertise. Even
where earlier PPP projects have helped build up a body of skilled
staff, the staff is unlikely to have the full range of skills needed
to see through every aspect of the process. Thus, well-qualified
consultants and experts could provide support and assist
in all key processes. This is the stage where saving on consultants
may cause significant problems down the road.
One of the best sources of advice will often be other people
who have gone through similar processes – and can provide
insight on what is easy, what is difficult and what is critical.
The following experts are frequently invited for financial consultations:
- a project development advisor;
- international technical consultants;
- legal advisors; and
- investment management experts.
With reference to investment financing, these experts could
be engaged to:
- prepare financial projections;
- determine the bankability of the project;
- prepare the information memorandum and prospectus;
- undertake sales promotion;
- draft bidding documents; and
- drafting contracts.
Who is involved?
◊ Public sector
◊ Private sector
◊ Consultants and advisors
◊ Donor countries
◊ International Finance Institutions