Lessons of Experience No. 4: Financing Private Infrastructure
This report articulates the lessons of IFC's experience in mobilizing financing for private infrastructure projects in the developing world. It discusses the issues involved in arriving at workable project structures, the approaches available to countries that want to pursue this route, and the obstacles that may arise. The report includes country case studies.
136 pages | © 1997IFC | ISBN 0-8213-3822-6
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INTRODUCTION
Private investment in the basic infrastructure of developing countries has accelerated over the past three years. Despite many obstacles, billions of dollars worth of investments are now taking place on a privately funded basis in power generation, telecommunications, ports, roads, bridges, water supply and other areas of activity critical to the living standards of the world's poorest peoples. The International Finance Corporation (IFC) has been closely involved with the growth of private infrastructure in the developing world through the provision of financing and advisory services. Since financing its first private infrastructure transaction in 1966, IFC's Board has approved $3.1 billion to help finance 148 projects costing $29 billion in 40 developing countries. Much of this activity has occurred in recent years, however, with almost half of IFC's financing commitments being approved in the two years to June 1996. IFC has also been active in providing advisory assistance to governments on areas ranging from privatization of state-owned utilities to reform of the policy and regulatory framework for investment. An important conclusion to emerge from this review of IFC operational experience is that the efficiency of private infrastructure provision depends very much on the policy and regulatory environments that are created by governments. At each stage of a project's life cycle (which will usually include bidding, negotiation, financial closure, construction and operation), government agencies play a fundamental role that can mean the difference between success and failure. The quality of the enabling environment, perhaps more so than country risk or income levels, will determine much of the pace at which private infrastructure is implemented in the coming years. Financing Private Infrastructure is one of a set of publications on private sector development that IFC is releasing in its Lessons of Experience series. Other publications in this series include reviews of IFC's experience with privatization, investment funds and leasing companies in emerging markets. Since its formation in 1956, IFC has been providing loan and equity finance to private sector investments in developing countries, sharing full commercial risks without recourse to government guarantees for loan repayments. Strong growth in the 1990s has enabled IFC to play a leading role in areas that are newly opening to the private sector.
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