The Government may choose to provide funded support that does not give the Government an ownership interest, for which the Government does not charge interest and may not require reimbursement, often known as a contribution, subsidy or grant. The process for selecting which project will receive Government contributions should focus on the relative benefit of the project to the country given the amount of contribution required.
Similarly, it may be difficult to assess the amount of contribution for a given project that represents value for money. Many jurisdictions use competition to set the amount to be allocated, e.g. in India (see Box below) the procurement process uses the lowest Government contribution as the key criteria to select the winning concessionaire. Brazil, Colombia and Mexico use similar competitive pressure to identify the appropriate level of Government contribution to be provided. But this approach leads to some concern that politically motivated but unviable projects are being enabled through such contributions.29 Russia's Investment Fund allows the contracting agency to use a value for money analysis to set the level of contribution (using the competitive process to achieve additional advantages).
| Box 5.6: Russia's Investment Fund |
| The Russian Government allocates a line item in its national budget to support PPP and other regional projects with grants, managed by the Ministry of Regional Development, and referred to as the Investment Fund. These funds can cover up to 50% of the project capital cost, and are subject to a variety of rules and procedures on the condition of their allocation and use. To date, the Western High-Speed Diameter toll road (which reached financial close in mid-2012) is the most high-profile and largest recipient of Investment Fund contributions. |
Some countries run their contribution commitments through state owned enterprises (who can roll budgeting and commitments over from one year to the next), for example the public power utility is often used to pay such contributions for power PPPs. In Mexico, Fondo Nacional de Infrastructura (Fonadin-see Box 6.7) is funded through capital set aside by the Government and revenues from existing public toll roads. It granted over $1 billion worth of Government contributions to PPP projects during 2008-2009 alone.30
Russia (see Box 5.6) has created a nominal fund in order to establish rules and regulations applicable to Government contributions, but the funding comes directly from annual budget allocations rather than a stand-alone fund. Colombia has a special mechanism for future budget allocations, while Brazil treats Government contributions as "interest payments" to mitigate the risk that annual legislative budget approvals might be delayed or rejected.31
_________________________________________________________________________________________________
29 Ibid.
30 World Bank, Best Practices in Public Private Partnership Financing in Latin America: The role of subsidy mechanisms (2012).
31 Ibid.