Governments may provide finance directly to a PPP, in the form of loans or upfront grant subsidies. These can be critical for project viability, where revenue projections show that the project is not likely to be financially viable without government funding. Capital contributions can also reduce the project's costs to the government, by making finance available at better terms than would otherwise be possible. For example,
• In the United States, the Transportation Infrastructure Finance and Innovation Act (TIFIA) established a flexible mechanism for the United States Department of Transport to provide loans (as well as loan guarantees) directly to private and state project shareholders for eligible projects. The credit assistance is offered on flexible terms, and typically takes a subordinated position, which in turn makes it easier to attract more private capital [#267, Chapter 4]
• India's Viability Gap Fund uses funds appropriated from the national budget to provide upfront capital subsidies for PPP projects, as described in Box 2.8: Viability Gap Fund in India. The Indian government's guidelines on financial support for PPP in Infrastructure [#135] provide more information.
The willingness of the public sector to provide funds can also act as a signal to help build confidence of private investors. For example, after the 2008 financial crisis, the United Kingdom's Treasury recognized several infrastructure projects could have difficulty raising debt and were in danger of being scrapped. The Treasury created the Treasury Infrastructure Finance Unit (TIFU) to lend at commercial rates to PPP projects that were unable to raise enough commercial bank finance. The unit funded one major project in April 2009: the Greater Manchester Water project. According to a United Kingdom National Audit Office report [#254, page 8], the Treasury's willingness to lend improved market confidence, and as of July 2010, 35 further projects had been agreed without public lending.