The Government's support to the private partner, in a PPP project, aimed at enabling the partner to arrange finance, works to a project's advantage. Internationally, there are certain instruments that allow public participation in project finance and these instruments range from revenue enhancements to equity guarantees. However, these instruments need to be used with an element of caution.
a. Equity guarantees are a mechanism under which the public entity provides the concessionaire with an option to be bought out at a price that guarantees a minimum return on equity.
b. Under debt guarantees, the public entity pays for any shortfall related to principal and interest repayments by the private partner. The Government could also guarantee re-financing of the project.