F. GOVERNMENT SUPPORT Infrastructure projects have long gestation periods, and often are not
financially viable on their own. A feasibility study may reveal that a project is not
commercially viable or attractive to private investors but is economically and socially
desirable from long-term considerations. In such a situation, various options can be
considered for improving the project’s commercial viability and attractiveness. These
options may include government intervention of various types and provision of
incentives or subsidies. Government support is also well justified when a project can
generate substantial external benefits, which cannot be captured or priced by the
project operator. Social welfare is improved by undertaking such projects with
government support.
Government support may also be needed considering a fundamental problem
in infrastructure financing that arises due to a mismatch between the shorter duration
of market valuation time compared with the long life of many infrastructure assets.
Without government support, implementation of commercially unviable
projects is not possible. Government support may also be crucial in the early years
of PPP development in a country or in an untested PPP market. Without sufficient
government support, the private sector may not take much interest in such
situations. Subject to provisions in the government’s PPP policy framework or in
legal and regulatory framework, the commonly available government support
includes:
• Land
acquisition
• Capital grant and other forms of financial support
• Revenue
guarantee
• Foreign exchange risk
• Tax
incentives
• Protection against reduction of tariffs or shortening of concession period
• Loan
guarantee
• Relief in certain Force Majeure events
• Equity
