Government support in the form of equity is sometimes used to offset equity requirements from private investors, maintain control by the Government over certain project decisions or obtain access to information about the project company that would normally be difficult to achieve. However, Government equity contributions raise particular challenges for Governments and investors:
• conflict of interest-where the Government is on both sides of the concession agreement, private investors will be concerned that when difficult decisions must be made, Government will be incentivized in a manner different than the commercial priorities of the project.
• decision processes-Government procedures are often a poor fit with good corporate governance, for example voting procedures, appointing board members, and selecting management.
• management and monitoring of Government shareholding-often, Government staff are not familiar with private corporate governance and are unlikely to be able to protect the Government's interests amongst corporate shareholders.
| Key Messages for Policy Makers |
| • Contingent support can be a powerful instrument, but • the risk borne by the Government must be assessed honestly and managed carefully, • taking too much risk away from private lenders or enabling reduced equity investment, or over-protecting investors, limits the private investors' "skin in the game", so when crisis befalls the project, the investor and lender may be less motivated to help. |