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Module 3 - 12 Financing (Investments)


12.1 What are the objectives?
12.2 What are the key processes?
12.3 Who is involved?
12.4 What are the key steps?
12.5 What are the key issues?
12.6 What are the key issues relating pro-poor PPPs?
Further guidance

Key Questions:


 
 
 
 

Related Tools:


11 Selecting options
13 Financing (cost recovery)



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 financing

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 of financing:

  • 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

 



 
     
  S T A R T P A G E  
  Module 1 - Before PPPs  
  01-Starting Out  
  02-Strategic Planning  
  Module 2 - Preparation Stage  
  03-Planning & Organising  
  04-Collecting Information  
  Module 3 - PPP Development Stage  
  05-Identifying Constraints  
  06-Defining Objectives  
  07-Defing Parameters (Scope)  
  08-Establishing Principles  
  09-Identifying Partners  
  10-Establishing Partnership  
  11-Selecting Options  
  12-Financing (Investment)  
  13-Financing (Cost Recovery)  
  14-Preparing Business Plans  
  15-Regulating the PPP  
  Module 4 - Implementation  
  16-Tendering & Procurement  
  17-Negotiating & Contracting  
  18-Managing PPPs  
  19-Monitoring & Evaluation  
  20-Managing Conflict  
  21-Capacity Development  
  Contact Information