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Public-Private Partnerships: the Next Generation of Infrastructure FinanceP3
Fitch Ratings

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Prepared by FITCH, this technical paper investigates infrastructure requirements in developed and developing nations and finds that they are beginning to exceed available financing resources. This funding gap has lead to widespread acceptance that the private sector, in partnership with the public sector, might have to play a larger role in infrastructure financing. This role could be active - in the form of project sponsorship - or passive - in the form of an institutional bond investor. This paper sees more promise in the latter role. A 'new generation' of public-private partnerships (P3s) is described, wherein project credit risk is pooled through infrastructure banks and layers of credit enhancement are added to engage domestic debt markets. The role of the private sector in such arrangements is to act as the financial engineers, creating enhanced investment vehicles and stimulating the efficient use of capital. For such partnerships to truly succeed, host countries will need to promote a relatively stable macroeconomic environment, develop a legal and regulatory framework for infrastructure projects, and foster the development of a domestic debt market. Until such conditions have been achieved, multilateral and development banks will still have a significant role to play in project financing.

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