Chapter 8

Project Finance and PPPs

§8.1 Introduction

The recent growth of PPPs is closely linked to the financing technique known as ‘project finance’, itself a relatively recent development. An understanding of project-finance techniques and their application in PPPs is therefore necessary when considering policyrelated financing issues in PPPs.

Project finance is a method of raising long-term debt financing for major projects. It is a form of ‘financial engineering’, based on lending against the cash flow generated by the project, and depends on a detailed evaluation of a project’s construction, operating and revenue risks, and their allocation between investors, lenders, and other parties through contractual and other arrangements. As such, ...

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