An Overview of Project Finance and Infrastructure
9-207-107
REV: OCTOBER 1, 2007
BENJAMIN C. ESTY
ALDO SESIA, JR.
An Overview of Project Finance and Infrastructure
Finance—2006 Update
This note provides an introduction to the fields of project finance and infrastructure finance as well as a statistical overview of project-financed investments over the last five years. Examples of project-financed investments include the $4 billion Chad-Cameroon pipeline, $6 billion Iridium global satellite telecommunications system, €900 million A2 Toll Road in Poland, $1.4 billion Mozal aluminum smelter in Mozambique, and $20 billion Sakhalin II gas field in Russia.a Globally, firms financed $328 billion of capital expenditures using project finance in 2006, up from $217 billion in 2001.
In the United States, firms financed $47 billion of capital expenditures using project finance in
2006. In comparison with other financing mechanisms in the United States, the project-finance market was smaller than the $1,085 billion corporate bond market, $1,051 billion mortgage-backed security market, $1,250 billion asset-backed security market, $401 billion tax-free municipal bond market, and
$229 billion equipment-leasing market. Yet compared with that of financing mechanisms for new or start-up companies, the amount invested in project companies was larger than the $43 billion raised through initial public offerings (IPOs) and the $41 billion invested in new firms by venture capital funds.1 Private sector firms have historically used project finance for industrial projects such as mines, pipelines, and oil fields. Beginning in the early 1990s, private firms also began to finance infrastructure projects such as toll roads, power plants, and telecommunications systems.b According to a World Bank study, global investment in new infrastructure assets will be $369 billion per year from 2005 to 2010, with 63% going to projects in developing nations.2 Much of this investment will occur in Asia and Africa. Indonesia
REV: OCTOBER 1, 2007
BENJAMIN C. ESTY
ALDO SESIA, JR.
An Overview of Project Finance and Infrastructure
Finance—2006 Update
This note provides an introduction to the fields of project finance and infrastructure finance as well as a statistical overview of project-financed investments over the last five years. Examples of project-financed investments include the $4 billion Chad-Cameroon pipeline, $6 billion Iridium global satellite telecommunications system, €900 million A2 Toll Road in Poland, $1.4 billion Mozal aluminum smelter in Mozambique, and $20 billion Sakhalin II gas field in Russia.a Globally, firms financed $328 billion of capital expenditures using project finance in 2006, up from $217 billion in 2001.
In the United States, firms financed $47 billion of capital expenditures using project finance in
2006. In comparison with other financing mechanisms in the United States, the project-finance market was smaller than the $1,085 billion corporate bond market, $1,051 billion mortgage-backed security market, $1,250 billion asset-backed security market, $401 billion tax-free municipal bond market, and
$229 billion equipment-leasing market. Yet compared with that of financing mechanisms for new or start-up companies, the amount invested in project companies was larger than the $43 billion raised through initial public offerings (IPOs) and the $41 billion invested in new firms by venture capital funds.1 Private sector firms have historically used project finance for industrial projects such as mines, pipelines, and oil fields. Beginning in the early 1990s, private firms also began to finance infrastructure projects such as toll roads, power plants, and telecommunications systems.b According to a World Bank study, global investment in new infrastructure assets will be $369 billion per year from 2005 to 2010, with 63% going to projects in developing nations.2 Much of this investment will occur in Asia and Africa. Indonesia