When a PPP involves private finance, the investor typically has primary responsibility for developing the finance structure. Nonetheless, there are several ways in which the government may need to influence the financing structure.
At the most basic level, governments need to ensure that the project design is 'bankable'-that is, the project company is able to raise debt. Although the ability to raise debt is a necessary feature, too much debt can undermine risk-transfer, so governments may want to limit the amount of debt finance (leverage) allowed. More arcane but still important details include: how to manage risks in going from contract award to financial close; how to deal with the possibility of refinancing project debt; and how to define step-in rights for lenders and the government. These points are described in turn below.
Governments may also participate in the finance structure. Governments can provide debt, equity, or guarantees-either directly, or through government-owned financial institutions such as development banks and pension funds. Section 1.4.3: The Role of Public Finance in PPPs describes the role of this kind of public finance in PPPs.