A guidebook on public-private partnership in infrastructure

Foreign exchange risk: 
One of the serious concerns in the minds of investors 
relates to foreign exchange risk. The revenues generated by most infrastructure 
projects are primarily in local currency. But a large part of debt servicing and other 
payments are often made in a foreign currency. The government may undertake 
measures to limit the investor’s risk from foreign exchange fluctuations. Where 
foreign exchange fluctuations exceed a certain defined limit (say, 20 per cent), a part 
of losses due to such fluctuations may be offset through modifications of tariff rates, 
government subsidies, adjustment of the concession period or other provisions. 
Tax incentives: 
PPP projects may qualify for various tax incentives offered by the 
government. These incentives may include: 
• Exemption from registration tax on the acquisition of real estate; 
• Exemption from, or application of a lower rate of value added tax for 
infrastructure facilities or construction of those facilities;
• Reduction of, or exemption from various appropriation charges; 
• Recognition of a certain percentage of the investment as a reserve to be 
treated as an expense for the purpose of computing corporate taxes; 
• Allowing the project company to issue infrastructure bonds at a concessional 
tax rate on interest earned; and 
• Exemption of capital equipment from import taxes and duties.
Protection against reduction of tariffs or shortening of concession period: 
Another incentive is protection from a reduction of tariffs or the concession period if 
the project developer is able to reduce construction costs below those estimated in 
the agreement. In fact, such a provision provides an incentive for early completion of 

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A Guidebook on Public-Private Partnership in Infrastructure
 
 
a project. However, this implies that there would be no adjustment if construction 
costs exceed the original estimate. This would be a disincentive to delay completion 
of a project.