The price of project finance loans for highways

Abstract

Public Private Partnerships (PPP) have been among the preferred methods for building, operating, and financing highway projects. With PPP comes a higher cost of capital, which, under the theoretical economic rationale for PPP development, is recovered through greater operational managerial efficiency - thus delivering value for money. This paper addresses the cost of financing highway projects, particularly the spreads of project finance loans. The authors attempt to identify which variables related to the project, loan, and macroeconomic context, have a greater impact on spreads, and how they impact on the final spread. To examine the relationship between spreads and variables, this research used a data set of 22 PPP projects in the highways sector in Portugal, with a total of 63 loans, awarded between 1990 and 2010.