Project Finance Strategies

T o o l k i t  f o r P u b l i c - P r i v a t e P a r t n e r s h i p s i n r o a d s & H i g h wa y s

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Module

1

Module

2

Module 2 : Key components

Updated march 2009

Finance

For some road projects which are tolled, a gap exists between the socio-economic

benefits and the financial profitability, often called a ‘Viability Gap’. This needs to

be filled by the public sector in order to attract private investors. This is possible

through direct subsidies, fiscal incentives and guarantees.

When direct subsidies are given to the private investors, generally the PPP contract is

given to the bidder that claims the least subsidy since this criterion is usually given a

high score in the tender evaluation process.

Fiscal incentives can help the PPP project to reach a financial equilibrium, lowering the

profit taxes of the concessionaire in the beginning of the contract for instance.

Guarantees are contingent liabilities from the general budget but are only triggered if

some future event under the contract does not occur e.g. traffic does not reach a certain

minimum level.

Traffic is an important determinant of feasibility, although not the only factor. It is

generally considered for normal highway construction standards, that the traffic threshold

for a PPP project to be financially viable is 10,000 vehicles per day for a Greenfield

project and 6,000 vehicles per day for a Brownfield project.

Some roads are important for socio-economic development in low trafficked areas roads

and if governments seek to finance these projects, they will have to give strong public

sector support.

Use of private finance

Analyzing and developing the financing scheme should always be performed after the

socio-economic analysis, including the evaluation of:

• The overall cost of the project including construction or rehabilitation costs,