7.5. Other Considerations regarding the Project Company's Financial Structure that Influence the PPP Project-Contract.

In addition to basic concerns about ‘bankability’, governments have other points of concern regarding the private financial package that will influence the project contract structure. These have specific implications in the tender process regulations (RFP) and more especially in the contract drafting.

7.4. Other Forms of Public Participation in the Financial Scheme or Intervening in Commercial Feasibility [97]

Grant financing (or pure co-financing) is not the only way to increase affordability and/or the commercial feasibility and bankability in PPP projects. There are other instruments (revolving, such as public loans or “co-lending”) and techniques (which may be referred to as de-risking or as credit enhancement[98]). The former may help to fill a gap in the availability of finance while the latter may increase the accessibility to market finance.

7.3. Co-financing as a Mix of Public Traditional Finance/Procurement and Private Finance.

The government may seek to financially support a project when it is an economically viable user-pays project, but the projected revenue on the basis of use is not enough for the project to be commercially viable. Another reason is to keep the price of services provided by the assets at a level socially/politically acceptable for the population. This is referred to as Viability Gap Funding, and it has been explained in section 2.2.

7.2. Financial Structure: Categories, Instruments and Sources (fund suppliers) — Financial Strategy of the Sponsor/Private Partner [81]

7.2.1. Sources of Funds

The two main types of funds raised by a project company, as in any corporate finance structure, are debt and equity.

Debt may be in the form of loans or bonds. Equity may be take the form of pure equity or capital shares, and quasi-equity products (junior or subordinated debt, mezzanine debt, and so on); these are senior to the equity shares, but subordinated to the (senior) debt or main debt.

7. How a Private Finance PPP Project is Financed: Where the Money to Pay Construction Costs Comes From

 

BOX 1.22: An Initial Clarification: Funding versus Financing

Financing is defined in this PPP Certification Guide as the source of money required up-front to meet the costs of constructing infrastructure. Financing is typically sourced by the government through surpluses or government borrowing (for traditional infrastructure procurement) or by the private sector raising debt and equity finance (for PPPs).