TABLE OF CONTENTS This ? chapter reviews the factors behind the recent rapid growth of project finance (cf. 2.1), its distinguishing features (cf. 2.2), and relationship with privatization (cf. 2.3), and also with other forms of structured finance (cf. 2.4). Finally, the benefits of using project finance are considered from the point of view of the various project participants (cf. 2.5).
The growth of project finance over the last 20 years has been driven mainly by the worldwide process of deregulation of utilities and privatization of public-sector capital investment. This has taken place both in the developed world as well as developing countries. It has also been promoted by the internationalization of investment in major projects: leading project developers now run worldwide portfolios and are able to apply the lessons learned from one country to projects in another, as are their banks and financial advisers. Governments and the public sector generally also benefit from these exchanges of experience.
Private finance for public infrastructure projects is not a new concept: the English road system was renewed in the 18th and early 19th centuries using private-sector funding based on toll revenues; the railway, water, gas, electricity, and telephone industries were developed around the world in the 19th century mainly with private-sector investment. During the first half of the 20th century, however, the state took over such activities in many countries, and only over the last 20 years has this process been reversing. Project finance, as an appropriate method of long-term financing for capital-intensive industries where the investment financed has a relatively predictable...
