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Project Finance Advantages And Disadvantages

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PPP projects are generally financed using project finance arrangements. In project finance, lenders and investors rely either exclusively (“non-recourse” financing) or mainly (“limited recourse” financing) on the cash flow generated by the project to repay their loans and earn a return on their investments. This is in contrast to corporate lending where lenders rely on the strength of the borrower’s balance sheet for their loans.
It is important to stress that the project finance structure should be designed to optimise the costs of finance for the project. It should also underpin the allocation of risks between the public and private sectors as agreed in the PPP contract. In particular, the project financing should ensure that financial and …show more content…

PPPs have been used to deliver infrastructure assets in the education, transport, defence and health sectors.

Exhibit 3.1: Definition of PPPs
A PPP is an arrangement in which the private sector participates in the supply of assets and services traditionally provided by the government. However, the literature on PPPs has not reached consensus on a precise definition (cf. Hemming, 2006; IMF, 2004; OECD, 2008; European Commission, 2004; Standard and Poor’s, 2005; EIB, 2004). For the purposes of this paper, the term PPP covers arrangements usually characterized by the following:
1) An agreement between a government and one or more private partners whereby the private partner(s) undertakes to deliver an agreed upon quantity and quality of …show more content…

Firstly, PPPs enable the public sector to harness the expertise and efficiencies that the private sector can bring to the delivery of certain facilities and services traditionally procured and delivered by the public sector. Secondly, a PPP is structured so that the public sector body seeking to make a capital investment does not incur any borrowing. Rather, the PPP borrowing is incurred by the private sector vehicle implementing the project and therefore, from the public sector 's perspective, a PPP is an "off-balance sheet" method of financing the delivery of new or refurbished public sector

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