Return to equity, financial structure, and risk contracting in infrastructure projects
Abstract
Infrastructure projects, with private
participation, worth several hundred billions
of dollars, using some form of 'project
finance' are under consideration in many
emerging markets. These projects are made
bankable by extensive risk contracting. One
stumbling block in finalizing these projects is
the question of appropriate return to equity
investment.
This paper by Sidharth Sinha discusses
the relationship between risk contracting
arrangements and the return to equity and
financial structure. The main conclusion that
emerges is the need for competitive bidding
in the absence of an equity market for
'infrastructure type projects.' Governments
can help reduce the risk and required return
on equity investment by creating the
appropriate legal and regulatory framework
for reducing delays and uncertainties in
finalizing and implementing these projects
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