For a number of countries, the response to the global economic crisis has not led to the introduction of completely new approaches but rather to the improvement of existing programs and initiatives. For example, India already had in place a Viability Gap Funding scheme (see Case in Point 3) to assist with the financing of important projects that are commercially untenable. In the United States, the existing TIFIA funding program (see Case in Point 1: TIFIA Funding in Chapter 3.1) has been expanded and the model used to develop Transportation Investment Generating Economic Recovery (TIGER) funds. In Canada, the P3 Canada Fund was launched (see Case in Point 2: PPP Canada).
There are also examples of governments responding to the crisis by removing known deterrents to private finance. For example, in Spain the government recently announced that they will assume the risk of the cost of land acquisition for road PPP projects.
There is also the question of how much finance may come from sovereign wealth funds (SWFs; see Chapter 3.4). It is estimated that total assets under SWF management are valued at US$3.5 trillion with funds representing half of those assets making some investment in infrastructure.3 Establishing the extent of the actual investment in infrastructure can be difficult because many SWFs do not report their holdings publicly. The Abu Dhabi Investment Authority (ADIA), one of the largest SWFs, has infrastructure investments representing between 1 percent and 5 percent of their portfolio.4 They recently acquired a 15 percent stake in Gatwick Airport from Global Infrastructure Partners.5 SWFs are also concentrated, by number and value, in Asia and the Middle East, where there is significant demand for infrastructure investment, so these funds offer a better geographic fit than pension funds do.
| Case in Point 1: IFC Infrastructure Crisis Facility |
| The International Finance Corporation (IFC) launched the Infrastructure Crisis Facility (ICF) in April 2009. It created a pool of both debt and equity financing for infrastructure projects in developing countries whose viability was threatened by liquidity problems caused by limited private participation resulting from the global economic crisis. In addition, funding is available for advisory services. By October 2009, pledges of US$4 billion had been made by International Financial Institutions (IFIs) for a debt pool, and the first loan had been made to a port project in Vietnam. This debt pool facility is managed by Cordiant Capital Inc. IFC provided US$300 million to the fund. DEG, the German development finance institution, has earmarked US$400 million to co-finance programs under the ICF, in addition to € 500 million set aside previously by KfW for the debt pool. PROPARCO pledged € 200 million to the ICF debt pool for projects in Africa, after earlier committing € 800 million in co-financing. The European Investment Bank (EIB) committed €1 billion in co-financing. |
| Case in Point 2: PPP Canada |
| In September 2009, the Government of Canada established PPP Canada to support the development of public-private partnerships (P3) by working with both public- and private-sector parties and to serve as a center of excellence and federal focal point for P3s. At the same time, they established a C$1.2 billion fund aimed at developing the market for projects procured by the public procurement partnership route or the alternative finance procurement route followed by some provinces. The amount of the funding support, in combination with any other direct federal assistance, may not exceed 25 percent of the project's direct construction costs. In addition, the level, form, and conditions of any funding support will vary depending on the needs of a given project. Eligible projects are for the construction, renewal, or material enhancement of public infrastructure that achieve value for the public, develop the P3 market, and generate significant public benefits. |
| Case in Point 3: Viability Gap Funding scheme in India |
| Overview India's Viability Gap Funding (VGF) scheme was established in 2006 for competitively bid infrastructure projects where the economic benefits could be demonstrated but the financial returns were below investor thresholds. The scheme provides funding in the form of grants to meet the gap for making a public-private partnership (PPP) project commercially viable. As of March 2009, 139 projects have been approved with a capital investment of Rs 118,830 crore (approximately US$25.97 billion) and a VGF commitment of Rs 38,993 crore (approximately US$8.52 billion). The sectors covered under the scheme include power, transportation (roads, railways, seaports, airports), water supply/sewerage, and international convention centers. The key features of the VGF scheme are that: • funding can take various forms, including but not limited to • funding is disbursed contingent on agreed milestones and • funding by the Government of India is limited to 20 percent of projects costs. If required, an additional 20 percent can be made available by the sponsoring Ministry or Agency. The Government of India funding will normally be a capital grant during construction; • funding is to be disbursed after the private-sector company • funding will be released in proportion to the disbursement • funding will be released through the lead financial institution. Financial overview A revolving fund of Rs 200 crore (approximately US$43.3 million) is provided by the finance ministry to the empowered institution. The empowered institution then disburses funds to the respective lead financial institutions and claims reimbursement at that point from the Ministry of Finance. An Empowered Committee in the Department of Economic Affairs will consider and authorize funds up to Rs 50 crore (approximately US$10.8 million), beyond which the approval of the finance minister will be required. |
Table 2: Approaches taken by various state infrastructure banks and their impact on infrastructure financing
| Bank | Remit for infrastructure finance | Impact on infrastructure financing |
| Describing itself as a "transition bank," the EBRD was established in 1989 to support the financing of projects in Central Europe and Central Asia that serve the transition to market economies and pluralistic democratic societies. It is owned by 61 countries as well as the European Community and European Investment Bank. It has a capital base of € 20 billion and supports infrastructure projects in a range of sectors including transport, environment, energy, and shipping. It primarily supports projects in the private sector. | It is difficult to establish a precise number for the amount spent on infrastructure as it is spread across a number of sectors. In 2008, the EBRD provided the following funding: 1. Municipal and environmental infrastructure: €279 million 2. Transport: € 660 million | |
| Established in 1983 by the South African government, the DBSA plays a number of roles to support the funding of physical, social and economic infrastructure in South Africa and the Southern Africa Development Community region. These roles are described as Financier, Partner, Advisor, Implementer, and Integrator. Its portfolio is split approximately 75:25% between public-sector projects and infrastructure funded through private-sector intermediaries. | It is difficult to establish a precise number for the amount spent on infrastructure as it is spread across a number of sectors. In 2009, the DBSA provided total funding, both equity and loans, of Rand 9.3 billion creating a total portfolio of Rand 20.48 billion. Of this, approximately 15% went to road and drainage projects, 8% to other transport, and 21% to water projects. | |
| The BNDES is a federal public company established in 1952 linked to the Ministry of Development, Industry and Foreign Trade. It aims to provide long-term financing to enhance Brazil's development and the competitiveness of Brazil's economy, including large-scale industrial projects and infrastructure. In the infrastructure sector, much of its current focus is aimed at the energy sector, including renewables, logistical bottlenecks including access to ports, expanding the telecommunications network, and developing urban infrastructure. | It is difficult to establish a precise number for the amount spent on infrastructure as it is spread across a number of sectors. In 2008, BNDES' total disbursements were R$92.2 billion, of which R$35.1 billion (38%) went to the infrastructure sector. This includes R$13.8 billion to roads/highways and R$8.6 billion to electric power. | |
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| KfW is owned by the Federal Republic (which also guarantees it) and Lander (federal states) of Germany. It was established in 1948 as part of the post-war reconstruction effort. Today it describes itself as a promotional bank and it supports economic, social, and ecological development in Germany and worldwide as is an advisor to the German federal government. | While KfW is not solely focused on infrastructure, lending to the sector does form a part of its remit. It is difficult to establish a precise number for the amount spent on infrastructure as it is spread across a number of sectors and banks within its group. It lends to all types of infrastructure across the globe. For example, in 2008 it committed a total of € 340 million to invest in renewable energies (other than large-scale hydro), which was more than the World Bank in the same period. It also plans to lend a total of € 3 billion for municipal and social infrastructure in Germany in 2009 and 2010.
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| The SBI is the largest commercial bank in India, both in terms of its geographic reach and its balance sheet size. It is a public-sector bank with the Government of Indiahaving a majority shareholding (approximately 60%). It is listed on Indian stock exchanges.
| As with other banks it is difficult to establish precise numbers of lending to the infrastructure sector. However, this was primarily done through SBI's Project Finance SBU. This unit completed the following lending in 2008 and 2009 (see Table 3): In 2009, the SBI established a US$1.04 billion private equity fund with Macquarie Capital, with the IFC a minority shareholder and cornerstone investor, to invest in infrastructure in India.6 The SBI also topped the 2009 Project Finance International League Tables as the Global Initial Mandated Lead Arrangers, having arranged US$19.9 billion for 37 deals in 2009.7
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1 EBRD website: http://www.ebrd.com and the EBRD Annual Report 2008.
2 DBSA website: http://www.dbsa.org and DBSA Annual Report 2008/09.
3 BNDES website: http://www.bndes.gov.br and Annual Report 2008.
4 KfW website: http://www.kfw.de and Annual Report 2008.
5 SBI website: http://www.statebankofindia.com .
6 Macquarie website: http://www.macquarie.com.au ; Macquarie Press Release 2009.
7 PFI 2010, p. 48.
| "The question for state or national infrastructure banks is whether their aim is to substitute private finance or provide an additional source of finance either to wholly fund projects or fund alongside commercial providers." - Richard Abadie, Partner, PricewaterhouseCoopers LLP |