Optimizing Investment8

Many other countries have utilized infrastructure funds to attract private capital. These funds may provide debt, equity, subordinated debt or a combination of each. Some are dedicated to specific sectors. These funds have been especially attractive because expert investors familiar with the provision of public infrastructure manage them. They can bid on projects at a relatively low cost and with lower economic return. They may also consider smaller projects than the typical $100 million plus projects normally attractive to investment banks. These infrastructure funds serve to accumulate pools of money from retail and institutional investors that would otherwise not invest in providing public services.

The adoption of user fees in conjunction with private finance can be a controversial course of action. What they do achieve, however, is a revenue stream that is essential to attracting private capital and a way to ensure that those who benefit most from the service pay for it. Aside from the critical importance of political support in imposing user fees, they are most appropriate when:

  There is a clearly defined user

  There is a demonstrable value applied to the user

  Fees can be linked directly to costs

  The fee is set at a cost recovery rate equal to the users' perception of the value added

Shadow tolls or fees paid by the government based on usage may be an appropriate strategy to transfer usage risk and mitigate the public's resistance to user fees. This model has been used for several road projects in the UK as well as the Fredericton-Moncton Highway.

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8  See also "Private Finance for Public-Private Partnerships", November 2000.