Five tools to attract private finance to public infrastructure projects

7 Dec 21

Private capital is vital to meeting a global demand for sustainable infrastructure that cannot be tackled by the public sector alone.

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US dollars - Photo: iStock

US Dollars. Image credit: iStock

 
Many governments are turning to massive infrastructure packages to drive recovery from Covid-19.
 
Institutional investors, traditionally wary of infrastructure projects, are showing an increased appetite for opportunities in the sector as well as a desire to climate-proof their portfolios.
 
Unlocking private finance requires a policy framework designed to attract investment along with means of strengthening projects’ financial viability by transferring some of the risk to the public sector.
 
The OECD has identified some of the key instruments used to de-risk infrastructure investment in the G20:

Co-investment (equity fund)

Public actors co-capitalise an unlisted fund alongside private investors, and the fund provides equity for projects. Fund-level co-investment is mainly seen in developed economies, with renewables projects based on established technologies such as wind and solar being the largest recipients.

Cornerstone stakes

Investment by a public actor amounting to a majority equity stake, used to attract other investors. Provided mainly by green investment banks, it draws in private money for technologies that are underserved or commercially less well established, such as energy efficiency.

Loans

Most commonly provided by national development banks, primarily to fund renewable energy projects, such as wind-power plants.

Revenue guarantees

A promise by a government or public authority to pay for the core product to ensure revenue cashflow for a project.

Political risk insurance

A guarantee by a public actor to indemnify in the case of political risks, such as currency inconvertibility or expropriation.

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