In this chapter we will review experience with private financing of infrastructure, in particular the experience of private-sector involvement in the implementation and operations of large transport infrastructure projects. The focus will be on whether private-sector involvement may help to deal with the institutional shortcomings of the conventional approach identified in Chapter 8, and thus to improve accountability, including enhancing risk management and overall project performance.

Private megaproject financing

During the nineteenth century, private capital played an important role in the development of infrastructure, in particular for investments in railways. Then, in the twentieth century, public financing became much more common, including financing with private capital secured with a government guarantee. The latter type of financing has been particularly common in developing countries, where the international development financing institutions have played a major role in the financing of infrastructure investments. Such institutions normally lend against a sovereign guarantee.

During the last ten to fifteen years, there has been a resurgence of interest in private financing and also increased mobilisation of private capital for infrastructure. One reason is increased fiscal pressures on most governments with a resulting shortage of public funds. Other reasons relate to the types of problem described in Chapters 2-4, for instance the large cost overruns typical for many major infrastructure projects, leading to a desire to: (i) shift the risks of projects from taxpayers to capital markets; and (ii) promote private and entrepreneurial initiative in infrastructure projects, including in the design and development of projects.