Increasingly, governments have looked to attract private finance for investments in roads. Private finance brings about new dimensions in financing transportation infrastructure as well as new partners around the table. Sources of private finance are equity, the capital held by a company's shareholders or sponsors, or debt, the capital provided by lenders. For both types of private finance international and domestic markets exist.
Private investors apply a project finance approach to road investments: their commitments rely on the performance of the project. The revenues generated over the lifetime of the project need to cover the costs of the initial investment, maintenance and operation and provide for a profit margin in order to make a project "bankable". In case of a 100% privately financed project, revenues can come from direct user charges like tolls. When financing is jointly undertaken by public and private partners, they can come from shadow tolls (an amount per vehicle paid by the client authority), from periodical payments paid by the client authority related to performance (annuity scheme), or a mixture of these.
Read more in the gTKP Finance & Economics Topic Information Sheet on Private Finance.
- Mor, N. and Sehrawat, S., Sources of Infrastructure Finance, Institute for Financial Management and Research, Centre for Development Finance, Working Paper Series, India, 2006.
- Fisher, G. and Babbar, S., Private Financing of Toll Roads, RMC Discussion Paper Series 117, World Bank, 1996.
- World Bank/ICA/PPIAF, Attracting Investors to African PPPs, A project preparation guide, World Bank, 2009.
- Noel, M. and Brzeski, W. Jan, Mobilizing Private Finance for Local Infrastructure in Europe and Central Asia, An Alternative Public Private Partnership Framework, World Bank, 2005.
- Halpern, Ricardo and Patrick Malone, Overview of World Experience in Private Financing in the Roads Sector, World Bank ECSIN Working Paper no 2, 1999.
- Hamilton, Michael J, Privately Financed Road Infrastructure: A Concession Company's Point of View, May 1996
- Caroline Visser, Introduction to Private Finance for Roads, presented at Senior Road Executive Course, Module 1: Road Finance and Road Fund Management, University of Birmingham/International Road Federation, 2009.