Great India

MB 00016
FUNDAMENTALS OF INFRASTRUCTURE PROJECT FINANCING
SET 1

Q1. Explain the concept of new infrastructure funds.

Private financing is needed to ease the burden on government finances; it will encourage better risk sharing, accountability, monitoring and management in infrastructure provision.

After decades of severe regulatory restriction, private enterpreneurship in infrastructure bounced back in two ways during the late 1980s-

 Through the privatization of state owned utilities &
 Through policy reforms that made possible the construction of new facilities in competition.

The principal new infrastructure entepeneurship are international firm seeking business in developing countries and operating often in association with local companies. These firms bring to bear not only their management expertise and technical skills, but also their credit standing and ability to finance investment in developing countries.

Construction conglomerates are active in toll road construction and in power projects. Some companies or group of companies also specialize in stand-alone infrastructure projects. Privatized telecommunication and electricity utilities in America and Asia are undertaking large and growing new investments; these are called green field projects.

Q1.b) What are the advantages and disadvantages of modern financing patterns?

Ans. 1b)

Infrastructure investment, 90% of it is derived from government tax revenues. The burden on public finance is enormous. Government has relied to varying degrees on foreign financing for infrastructure.

External financing is used primarily to import needed equipment because most infrastructure services cannot be exported and so do not directly generate the foreign exchange earnings necessary to repay foreign currency loans.

Limitations of the present system: -

 Difficulty to maintain accountability
 Leading to high costs of provision for the consumer
 Government have unlimited access to...