ProjectFinance and Sustainable Development in theGlobal South

Abstract

This chapter explores the dominant mechanism for financing energy development projects — project finance — and argues that the assumptions supporting its prevalent use are ill suited for sustainable development in the Global South. This critique aligns itself with the growing chorus of voices calling for a retrenchment of neoliberal development, more active engagement by the state, and greater community involvement in development choices. The chapter begins with an explication of project finance. This introduction provides an overview of much of the literature that lauds project finance as a mechanism to hedge and reduce developer economic risk. The section also underscores the key features and assumptions of project finance. The second part of the chapter introduces a case study involving the development of wind energy resources in rural Oaxaca, Mexico, one of the windiest places in the world. Drawing on this case study, the final section explores many of the ways in which project finance may undermine sustainable development in Oaxaca. The section revisits the assumptions underlying project finance, and suggests that these assumptions may be inconsistent with the goals of sustainable development. Thus, the chapter argues, project finance, as a mechanism for financing energy projects in the Global South, may need to be substantially altered or altogether abandoned as the prevailing financing mechanism for projects designed to meet the goals of sustainable development.