Principles of Project Finance

then a lower rate for the next y car kilometres, and eventually payment may

be zero for the top band of usage). This structure serves two purposes:

• The first band of payment, which is based on a relatively low level of us-

age risk, covers the Project Company’s operating costs and debt service

(this may be split into two bands).

• The second band of payment provides the equity return to the investors

(again this may be split into bands providing a basic return and a bonus

return).

• Once usage has exceeded the level from which payments cover operating

costs, debt service and equity return the government’s liability is capped

(i.e., the marginal cost to the public sector above this level is zero).

As with a “real” toll project, the Project Company may ...