Typically 10-25% of a PPP's capital costs are funded by equity or subordinated debt from the Provider's shareholders, and the balance from external debt finance. Apart from the EIB itself, debt finance may be provided by commercial banks or, in some cases, by the bond market.
In most PPP transactions, the physical asset, e.g. a road or a school, cannot be pledged as security and, as noted above, the Provider is usually an SPV. Security for the debt funding therefore cannot be based on either the Provider's balance sheet or the value of physical assets. Instead, project finance techniques are employed, based on the project's cash flow. This takes account of the risks assumed under the PPP Contract, combined with limitation of these risks through the various sub-contracts. Limitation of risk is important to enable the Provider to raise a high ratio of external debt for the project, which - since debt is assumed to be cheaper than equity - reduces the cost of the project to the Promoter.