8.29 As set out above, many project finance banks have withdrawn from long-term lending or are offering loans at high rates to cover their own cost of funds. As a result PF2 encourages the use of alternative debt sources. There is still a role to play for banks in PF2 although, in some cases, this may require focussing on a different product offering.
8.30 Some banks are still able to offer long-term finance at affordable rates due to their funding strategy or country of origin. Where this is the case we expect that a bank loan product could still provide healthy competition to alternative financing solutions. Should banks' funding costs reduce in future and they choose to re-enter the long-term loan market, we expect the same to be true.
8.31 Banks and other financial institutions have also started to develop other propositions to support infrastructure financing which may complement institutional investment. These include:
• construction risk and other guarantees where some investors are still averse to such risks;
• mezzanine facilities to enhance credit quality of senior debt;
• short-term working capital or bridging facilities; and
• controlling creditor and trustee role where institutional investors value the experience of banks operating in this capacity.
8.32 Government supports the development of these and other alternative products and continues to encourage a variety of financing solutions to promote efficiency in infrastructure delivery and financing.