The Government may want to provide a vehicle (an "intermediary") to provide financing for infrastructure projects and an intermediary for institutional investors who could or would not invest directly in projects. Such an intermediary is often created through state owned enterprises, which provide a convenient nexus between public, government support and commercial, private context. Such an intermediary can help:
• use Government and donor funding, to leverage private sector funding
• reduce the transaction costs represented by Government and donor funding by creating a wholesale mechanism
• increase transparency and consistency of Government support by establishing an entity with governance mechanisms and operational guidelines establishing rules of the game
• allow private sector salary scale to attract suitably skilled and expert staff and create a centre of expertise based on larger volumes of transactions, with commercial selection criteria
• use the leverage available through a financial institution to increase the amount of support made available from a limited capital base.
| Box 6.4: Chilean Infrastructure Bonds |
| Chile successfully tapped the bond market for project finance debt through infrastructure bonds amounting to an average of USD 1 billion a year during 1996-2001. This situation was aided by Government revenue guarantees and even foreign exchange guarantees in certain cases and political and regulatory risks were mostly insured by DFIs. |