Private Infrastructure Projects Research Articles

Infrastructure financing in Africa

We explore current development and constraints on infrastructure financing in Africa. We examine how infrastructure development in African countries affects ownership and capital structure choices of private and public–private partnership infrastructure projects. Using data from 33 African countries over 17 years, our findings suggest that infrastructure projects in African countries with better infrastructure development tend to have more private investment, more long-term investment, and they tend to use more debt financing, including more commercial debt, and less equity in their capital structure. For the least developed African countries, where debt financing is scarce, equity investment is vital for infrastructure financing.

Оценка значимости агломерационных эффектов на юге Сибири

Agglomeration effects are an essential element of business decision-making on the location of projects, but in the eastern territories of Russia their significance and influence are questioned. The southern industrial belt of Siberia, including the Omsk, Novosibirsk, Tomsk, Kemerovo, Altai and part of the Krasnoyarsk region, has a combination of development characteristics that can contribute to the manifestation of agglomeration forces. The aim of the study was to obtain quantitative estimates of the impact of the agglomeration effects on the development of the region. The study was based on information about enterprises presented in the SPARK-Interfax database for the period 2019–2020. The analysis methods included maps representing the spatial distribution of the average for the municipalities level of output and profit of the enterprises, as well as an econometric analysis of the influence of the factor of remoteness from the regional capital on the performance of the firm. Regression estimates for individual regions confirmed the importance of agglomeration effects either for revenue or for the profitability of enterprises. Average estimates for enterprises of the entire South Siberian macro-region showed a significant contribution of the agglomeration effects to both output and profit, reducing the distance to the regional center by 2 times increases revenue by 1.6%, and profits by about 5.1%. Confirmation of the significance the of agglomeration forces and their positive impact on the economic and financial characteristics of business in the regions of southern Siberia are the arguments in favor of initiating and implementing public and private infrastructure projects that might improve the transport network and reduce barriers for the interaction of enterprises and population

Оценка влияния агломерационных факторов на экономическую активность (микроэкономический анализ)

While agglomeration effects are an essential element of the economic environment determining the decision-making on the capacity allocation and implementation of infrastructure projects, their impact in the East of Russia is questioned. Development conditions of Novosibirsk oblast can have a contradictory effect on agglomeration forces. The paper aims to obtain quantitative estimates of the impact of agglomeration effects on enterprise performance by analysing the SPARK-Interfax database for 2019. To this end, the visualisation of the spatial distribution of the sample data, average output and profit characteristics was performed. Additionally, the econometric analysis of the influence of agglomeration factors on enterprise performance was conducted. As a result, the microeconomic analysis showed a statistically significant impact of agglomeration effects on the productivity of firms in Novosibirsk oblast. A two-fold increase in the distance to the regional capital leads to a reduction in output and profitability of enterprises by 3.5 %. This finding supports the development and implementation of private and public infrastructure projects. The analysis demonstrated a higher differentiation of profit indicators in cities, as well as a significant drop in performance and efficiency of companies located in the immediate neighbourhood of the regional capital. The revealed patterns characterising the heterogeneous functioning of Novosibirsk economy can be considered by regional and local authorities when making decisions to support and develop business.

AIIB at Three: A Comparative and Institutional Perspective

AbstractThe Asian Infrastructure Investment Bank (AIIB) joined the field of multilateral development banks (MDBs) in 2016 as a US$100 billion international financial institution, providing finance for public and private infrastructure projects in Asia. AIIB has been created with the experience of existing MDBs with an aim of innovating for the future. AIIB's establishment is compared here with the origin stories of major MDBs—all born in a mix of geopolitics and development needs. AIIB's policy and strategy framework has continued to be filled out in its first three years, supporting its approved portfolio of over US$8 billion in 45 investment operations. Innovative features in its otherwise classic MDB governance structure are also in operation, such as AIIB's non‐resident board, streamlined decision‐making and uniquely detailed oversight arrangements. For the future, factors that have affected other MDBs may also affect AIIB. Cycles in the global economic and financial environment and shifts in international relations and geopolitics will have an impact on AIIB's members. Institutional governance and leadership have been another source of uncertainty for some others. Time will tell how well AIIB's unique blend of old and new will enable it to serve its mandate and its clients around the world.

A comparative study of early contractor involvement and project alliancing

The advantages of integrating construction knowledge into design development have long been recognised by the construction industry. Early contractor involvement and project alliancing are two recent relational contracting labels that have been largely utilised in the Australian construction industry for the public and private infrastructure projects over the last few years. Although both models are classified as collaborative form of procurement, there are some substantial different requirements in project management behaviours and working relationships between these models. This paper contributes to this area by comparing these two models through in depth interviews with experts. The findings suggest that the change in relationship; gaining greater control through trust, price certainty and contract formality together in different stages of the project; lesser extent and length of senior level managers involvement in the project; and reluctance of contractor to contribute in innovation before the construction stage, are the key project management behaviours.

Analyzing the risk factors of private–public partnerships for water supply projects using fuzzy synthetic evaluation: a case study of Iranian water supply projects

Abstract To compensate for the lack of funds for investment in private sector and infrastructure projects, governments may propose public–private partnerships (PPPs) to be able to use share capital and establish the necessary infrastructure of the country. The current study was undertaken to identify and determine the risk factors in PPPs for water supply projects in Iran. After identifying the risk factors using failure mode and effect analysis (FMEA), the risk priority number of each was assessed. This identified the most critical risk factors, which were then categorized into experimental, legal, financial, and technological subcategories. The fuzzy synthetic evaluation (FSE) technique and FMEA method were then blended and the FSE technique was modified for measuring the overall risk level. The computational results show that the levels of risk were ranked as follows (highest to lowest): financial, experimental, technological and legal. The level of risk in the financial subcategory was 6.11, in the experimental was 6.05 and in the technological and legal was 5.94 and 5.83, respectively. The overall risk level in PPPs for Iranian water supply projects considering linguistic variables as the criteria was 5.98, which is high. This level of risk confirms the applicability and suitability of the model.

Delivering Public Private Infrastructure Projects Using Integrated Project Delivery and Trending Technology

Delivering Public Private Infrastructure Projects Using Integrated Project Delivery and Trending Technology

Innovative financial intermediation and long term capital pools for infrastructure

Purpose Developing countries are increasingly looking to private sector investment for infrastructure development. Successful development of private infrastructure projects, however, depends on adequate availability of long-term debt to complement private sector equity. As domestic bond markets in many emerging countries are not very deep, availability of long-term debt funding for infrastructure has been limited. Recently, a new form of financial intermediation has emerged in India with the creation of infrastructure debt funds (IDFs) to create capital pools for long-term debt funding. This paper aims to analyse the effectiveness of IDFs for financing infrastructure projects. Design/methodology/approach This paper uses a case study approach. The case studies were written using both secondary and primary information. Secondary information was obtained from various sources such as policy papers, websites and other published sources. Primary information was obtained from interviews with the top management of three IDFs. Information obtained from multiple sources was triangulated for consistency and correctness. Findings IDFs have emerged as an effective intermediation mechanism for attracting long-term capital by offering a new investment product with appropriate risk-adjusted returns. For the fund seekers, IDFs are able to provide long-term capital at lower rates and higher flexibility. Unlike commercial banks, IDFs are able to add value to the projects apart from funding by periodic monitoring of the projects. Practical implications Creating new forms of financial intermediation can help in reducing the financing gap for infrastructure projects, especially in emerging countries. Originality/value IDFs have been analysed from a perspective of financial intermediation. The effectiveness of IDFs in bridging the funding shortfall has been evaluated from multiple perspectives.

The Role of Transnational Corporations in Infrastructure in Developing Countries. Background Paper and Liiterature Survey

During the 1980s and 1990s, given an increasingly disappointing performance of many state-owned monopolies, an old paradigm of the provision of infrastructural services by state-owned enterprises (SOEs) had been replaced by a new one, that is, the private provision of infrastructure services. The new paradigm was manifested by the deregulation of service markets and massive privatization (or so called commercialization) of SOEs in developed in and many developing and transition countries. In privatizing infrastructure, many countries turned to foreign investors for participation in sales of SOEs (especially countries in Latin America and Africa as well as transition countries) or for undertaking greenfield investment (Asia). FDI in infrastructure, especially in telecommunication and electricity, surged during the 1990s, fuelling FDI in general and further increasing the role of services in worldwide FDI. Foreign involvement in some infrastructure industries (roads, railways, airports and airport management, water and waste management) has taken the form of non-equity arrangements (such as concessions, leases or BOT arrangements) that go unrecorded by FDI statistics. Ten years after the infrastructure FDI peak, reports on disillusionment and disappointment with many projects on the part of all stakeholders ― foreign investors, governments and the public ― multiplied. The period of cooling of and perhaps reflection followed. FDI subsided, partly because many countries completed privatization programmes and there were few new candidates to initiate new privatizations and, partly, because of greater caution of stakeholders. Investors (both TNCs and financiers ― large projects are often financed by consortia) lost some appetite for investment in infrastructure. Governments were caught between huge investment needs, far exceeding the capacity of the public purse, and disappointment of parts of populations with expensive and often unaffordable (though in most cases better than before) services, especially for the poor. The paper examines various forms of TNC involvement in infrastructure in host countries, including non-equity forms, and documents the growth and decline of FDI in infrastructure. It then discusses positive and negative consequences of FDI for developing and transition countries, offering an explanation for discontent surrounding FDI in infrastructure services. Noting that TNCs participated in over 85% of private infrastructure projects in the developing world, the paper concludes by reviewing policies to benefit from FDI in infrastructure and to address concerns related to this FDI.

Sustainability Back at the Ranch

Sustainability continues to be a desired outcome of public and private infrastructure projects around the world. Often a triple bottom line assessment is applied in the planning stages of a project to ensure that actions taken today will benefit future generations on multiple levels ‐ environmentally, economically, and socially. And sometimes sustainability is built into a project in ways that are not visible on the surface.

Risk Management Strategies for Privatized Infrastructure Projects: Study of the Build–Operate–Transfer Approach in East Asia and the Pacific

Private–public partnerships have been adopted for the development of public infrastructure to meet the growing demand for public services. Many Asian countries have used the build–operate–transfer (BOT) approach to develop public infrastructure projects. However, the potential benefits of undertaking a BOT project are accompanied by corresponding risks from the private sector’s perspective. The objectives of this study are (1) to identify and discuss major risks inherent in the East Asia and Pacific regions, and (2) to propose risk management strategies for future BOT projects to be successful. This paper reports the results of five case study analyses undertaken to review their primary risks and mitigated methods. In addition, this paper proposes some strategies for future BOT projects. Two main categories of risks were analyzed: general risks and project-specific risks. Risk management strategies were suggested for each category of risk. The main finding of this study indicates that the private sector cannot be the only participant in risk management. The host government’s active support is the most essential factor for the profitability and economic viability of a BOT project in the East Asia and Pacific regions.

Impact of private equity investments in infrastructure projects

Private financing of infrastructure projects is commonly seen in many countries today. In recent years, many private infrastructure projects have also attracted investment from Private Equity (PE) firms. Though there have been instances of PE investment in infrastructure even in the past, the growth has been substantial in recent years. This paper analyses the role of PE investments in infrastructure financing. The findings are based on an analysis of 2821 infrastructure projects that were announced during 1990–2009. It was found that projects with PE investment were larger when compared to projects that did not have PE investment, indicating that that PE investment helped in successfully financing larger projects. Our analysis also indicated that PE investment in infrastructure is more frequently seen in developed countries as compared to developing countries. In developing countries, the number of sponsors is higher in projects with PE investment without any corresponding increase in project size. This indicates that PE investors have helped in sharing the project risk among a larger group of investors, thereby reducing the risk faced by the individual sponsors.

Private Sector Participation in Infrastructure Development: A Non-Resident Infrastructure Fund in Bangladesh

Infrastructure is considered as the engine of growth for an economy with possibilities of high return for the investors. However, in Bangladesh the infrastructure sector has been suffering a lot due to fund shortage. Bangladesh is one of the highest remittance recipient countries in the world, but the current saving schemes of the country are not enough to attract the non-resident Bangladeshis (NRB). In this situation, an NRB Infrastructure Fund (NIF) can be established, where NRBs will invest in private infrastructure projects like toll roads, private power plant, land and seaport etc. In 2004, the Government prepared the Private Sector Infrastructure Guidelines (PSIG) that emphasized formation of NRB funds for infrastructure sectors. Except for three general mutual funds for NRB under Investment Corporation of Bangladesh (ICB), there has been no other initiative. The viability of the fund remains far below the expectations. This paper proposes an NRB fund for private infrastructure development with option to trade the shares in the local market. The fund will be used for a longer period of time in the company in compliance with the infrastructure project parameters. The paper also provides some technical and commercial proposals for forming such a fund in the country and examines its impacts on the economy as a whole.

Fostering Labor Rights in Developing Countries: An Investors’ Approach to Managing Labor Issues

While private sector investment plays a key role in fostering sustainable economic development in developing countries, respect for internationally recognized worker rights is also a vital component. The paper presents a methodology to assist investors in large-scale private infrastructure and other industry sector projects to utilize internationally recognized core labor rights and related standards for fostering sound labor management. The methodology involves due diligence or analysis of labor conditions and subsequent supervision and monitoring of performance and promotes the use of best practices to complement existing minimum requirements. Case study examples are presented and challenges in applying the approach are discussed.

Modelling and assessment of critical risks in BOT road projects

Over the years, many private sector participation (PSP) models have been evolved for infrastructure procurement and the Build‐Operate‐Transfer (BOT) model is one of the most common approaches used for the same. Private infrastructure projects under BOT arrangement have a complex risk profile and to a considerable extent, the success of any BOT project is influenced by the degree to which various project risks are managed. The major steps involved in risk management of a project are risk identification, risk assessment and the processes of prioritization and response to the risks. The conventional risk assessment approaches may not be effective in privatized infrastructure projects because of the fact that, they have very long project lifecycle with many country and sector specific risk factors. The assessment of complex risks is often a difficult task when past data on similar risks are not available. In this research, a risk probability and impact assessment framework based on fuzzy‐fault tree and the Delphi method is proposed. The framework includes extensive scenario modelling of critical risks in projects and systematic processing of professional judgement (subjective knowledge) of experts and is developed and demonstrated in the context of critical risks in Indian BOT road projects. Detailed scenario modelling of most critical risks such as traffic revenue risk, delay in land acquisition, demand risk and delay in financial closure are also presented. The proposed risk assessment framework is generic and can be applied with appropriate modifications to suit any complex developmental project where past data is inadequate for risk assessment.

A taxonomy for construction terms in privatized‐infrastructure finance: supporting semantic exchange of project risk information

There is an increasing need for effective flow of information between the various participants in privatized infrastructure projects particularly between construction companies and financial institutions. A taxonomy is developed for relevant concepts in the domain of privatized‐infrastructure finance. The taxonomy is an attempt to create information interoperability between the construction and financial industries. The taxonomy models the concepts of a privatized‐infrastructure finance into six main domains: processes, products, projects, actors, resources and technical topics (technical details and basic concepts). The taxonomy was designed to be consistent with Open Financial Exchange (OFX). It was developed through the analysis of 10 case studies and involvement in project development and interaction with industry experts. The taxonomy was validated through interviews with domain experts, and through the analysis of two independent case studies. A prototypical semantic web‐based portal for communicating project risks was developed to in order to illustrate the use of the taxonomy. Project partners are able to post and view risk items and their status in this portal, observe who is handling them, be aware of what decisions have been made to manage them and what lessons learned are available to address these risks.

CAPM-Based Valuation of Financial Government Supports to Infeasible and Risky Private Infrastructure Projects

Driven by acute fiscal problems and disenchantment with the performance of publicly delivered quality services, many governments in both industrial and developing countries are now relying on the private sector to deliver infrastructure services. In the context of private infrastructure financing, the provision of governmental support is not uncommon. The present paper discusses the theoretical framework of the valuation of the financial impact of support on the cost of debt, cost of equity, the expected return on equity (ROE), and the project's net present value (NPV), based on the capital asset pricing model (CAPM) within a single-period context. Special focus is placed on a minimum revenue guarantee, a direct cash subsidy, and a subsidized subordinated debt. This paper shows that a guarantee reduces the cost of debt and can increase or decrease the cost of equity depending on the leverage, while a subsidy increases only the cost of equity. A subsidized subordinated debt increases both the cost of senior debt and the cost of equity. For all cases, all the supports improve the NPV because the expected increase of ROE can more than sufficiently offset any change in the cost of equity. This paper is of interest to academics because it provides the theoretical analysis of how a support can affect the rates of return expected by debt and private equity investors from risky and, probably, infeasible privately financed infrastructure projects. Practitioners, particularly those from the public sector, can also benefit from research findings that may inform decision makers about what support to provide.

Private Sector Participation in Infrastructure Investment

rivate participation in the provision of infrastructure is less than was once expected, particularly in developing countries. Some reasons for this are identified in this paper. It is argued that the problem of dealing with market power in the provision of infrastructure services is similar to that of other forms of procurement in the presence of long-lived and immobile assets employed specifically to produce an item or service. From this perspective, comments are offered on the inhibitors to private participation and on features of contract design that might limit impediments to private investment in this sector. P The financing required for infrastructure services in East Asia and the Pacific over the next five years was recently estimated at over US$300 billion, with the bulk of this needed in China (see van der Linden, 2004). The figure will now be even larger following the 2004 Boxing Day Tsunami. The construction of new assets and the renewal of existing assets are both required. With private sector support, these tasks could be met more efficiently. Yet flows of private investment into the infrastructure sectors of developing countries peaked in 1997 and have declined ever since — the turning point explained in part by the Asian financial crisis (Harris, 2003). There has also been a high rate of renegotiation of contracts, suggesting that the structure of the arrangements has been an important contributor to the reconsideration by private investors of these types of projects. Harris (2003) refers to a ‘widespread pessimism’ about private infrastructure projects. Some of the issues in the provision of infrastructure services, including the risk of the abuse of market power and the value of separation around the key bottleneck element in the supply of infrastructure services, are reviewed in the next section. How the private sector might contract with the government is then examined and the case for a complementary relationship between regulatory institutions and the use of contracts is made. Options are presented for the operation of the regulatory process, with special attention to rules on price setting. The final section summarises some implications for designing policy on private sector participation in infrastructure, with particular attention to the situation in developing countries.

Channel Tunnel Rail Link: financing and risk transfer

The £5·2 billion Channel Tunnel Rail Link is one of the world's largest public–private infrastructure projects ever undertaken. This paper describes the innovative funding and risk-sharing arrangements that were developed to lower the cost of capital—and maintain risk transfer to the private sector—despite the initial failure of Eurostar to meet revenue forecasts and the later failure of Railtrack. It could serve as a model for the future public–private procurement of major transport infrastructure projects worldwide.

Channel Tunnel Rail Link: financing and risk transfer

The £5·2 billion Channel Tunnel Rail Link is one of the world's largest public–private infrastructure projects ever undertaken. This paper describes the innovative funding and risk-sharing arrangements that were developed to lower the cost of capital—and maintain risk transfer to the private sector—despite the initial failure of Eurostar to meet revenue forecasts and the later failure of Railtrack. It could serve as a model for the future public–private procurement of major transport infrastructure projects worldwide.