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Project Finance and Private Public Partnership in financing logistics infrastructure. Arturo Capasso
Università degli Studi del Sannio
Introduction
Finance scholars acknowledge a clear-cut distinction between corporate finance and project finance. The two techniques are considered as basically different approaches to the problem of raising debt to fund capital investments. In corporate finance lenders assess the creditworthy of a whole company, evaluating the going concern, the full range of projects in place, and the cautional value of all the assets. The amount to lend and the risk-spread are decided on a global evaluation of the firm’s economic and financial situation. In project finance, the goal is the implementation of a specific project. Lenders typically finance a special purpose vehicle for the development and construction of a particular project, looking to cashflows and project’s assets as sources of payment for their loans, rather than to the credit ratings of the project sponsors. Historically project finance was widely used in financing transport and logistics infrastructure, like railways or channels. More recently, in the past decades, there has been a new wave of global interest: large amounts of debt have been raised to finance projects like motorways, distriparks, maritime ports, intermodal logistic platforms. These infrastructures are built, owned and operated by special purpose vehicles (SPV), organized for that single project and financed mainly by debt. In many cases, SPVs are not wholly owned by private investors since governments, public authorities and international organizations take equity stakes in them, creating private-public partnerships (PPP). This brief note will not explore all the technical aspects of project finance, that have been extensively covered by academic scholars and practitioners in a wide literature on this subject . The focus here is on a few particular issues, related to the adoption of project financing techniques for transport and logistics infrastructure projects. Therefore the first section highlights the project financing as a tool to avoid a possible market failure in logistic infrastructure industry. The second section illustrates the project financing as an approach potentially capable to exploit the positive externalities, produced by an infrastructure, to enhance the funds available for its financing. Eventually, the third section describes those situations where the project is not financially sustainable but nonetheless, recognizing its importance for the community, the government (local or central) decide to support the project. In these cases the project financing could be developed as a private-public partnership.

Project finance and market risk allocation in logistics infrastructures According to a widely accepted definition, project finance is the financing of long-term infrastructure, industrial projects and public services, based upon a non-recourse or limited recourse financial structure, where project debt and equity used to finance the project are paid back from the cashflows generated by the project itself. To raise large amount of debt on a non-recourse (or limited) recourse basis , the contractual structure of the project have to be properly designed to reduce the credit risk at a reasonable level, in line with the lenders’ requirements. Considering that debt represents the largest part of the invested capital, it is sensible that lenders, and their advisors, call for substantial efforts to ensure that the risks associated with the project are reduced or eliminated as far as possible. Project financing is essentially an exercise in risk allocation and risk mitigation. Identifying the project's risks and then analyzing, allocating, and mitigating them are the basis of project financing. Project risks must be allocated amongst the project stakeholders, including in this definition all the players who have a specific interest in the...
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