A framework to secure finance for public private partnership (PPP)/private finance initiative (PFI) projects / Yati Md. Lasa

The Public Private Partnership (PPP)/Private Finance Initiative (PFI) has been implemented as an effective procurement route for the development of economic and social infrastructure. The PPP/PFI provides various benefits by transferring certain responsibilities and risks from the public sector to a capable and carefully selected private company through the creation of a Special Purpose Vehicle (SPV); alleviating the instantaneous burden on public sector budgets by spreading the costs over the asset lifecycle; and demanding high-level financial investment for the SPV throughout the duration of the PPP/PFI project. The high financial demand of PPP/PFI imposes the SPV to secure an enormous source of funding and long-term financial commitment prior to receiving revenues in the operational phase. Nevertheless, difficulties in obtaining project financing led to a lack of participation by the private sector. Financiers are generally reluctant to provide long-term financing for PPP/PFI projects as they suffer from limited liquidity and visibility. In addition, the lack of participation is attributed to the unfavourable financial market conditions, lack of available banks offering long-term financing, and less attractive lending terms that hinder private companies from obtaining capital funding. Therefore, the aim of this study was to develop a framework to secure finance for PPP/PFI project based on six objectives, which were to explore the current state of financing for PPP/PFI projects; investigate driving factors in financing PPP/PFI projects; determine key credit factors to secure finance for PPP/PFI projects; identify sources of financing for PPP/PFI projects; establish access to secure finance for PPP/PFI projects; and validate the framework developed. Mixed methods of quantitative and qualitative research of data collection were adopted. Empirical data was gathered using questionnaire surveys and case studies (semi-structured interviews) conducted among PPP/PFI stakeholders. The data analysis was carried out quantitatively (descriptive and inferential statistical analysis utilising Statistical Package for Social Science (SPSS)) and qualitatively (thematic content analysis utilising ATLAS.ti software). The findings from the research were used to develop a framework to secure finance for PPP/PFI projects which was validated by expert panels. The results indicated four critical components to secure PPP/PFI projects financing, namely driver factors, key credit factors, sources of financing, and secure financing. The results established that external environmental factors and the roles of government have significant influence in driving success of obtaining PPP/PFI project funding. Based on the thematic content analysis, two groups of key credit factors, namely project attributes and company attributes were revealed critical to secure finance for PPP/PFI projects. Also, this research successfully identified two optional sources of financing for project through the conventional or Islamic project finance. Finally, the access to secure finance for PPP/PFI projects was measured by maximising debt capacity, minimising profit/interest rate, and appropriate tenure of debt prior financial close. The research output sought to facilitate the PPP/PFI key players, particularly public authorities, consultants, and SPVs by simplifying the flow of securing financing for PPP/PFI projects.