Vehicle for infrastructural development – Graphic Online

The need for infrastructural development continues to rise, but unfortunately, traditional governments’ borrowing has reached its limit.

Our roads, railways, ports, and power networks all have arms open for expansion and still, we fail to draw from the rich well of advantages that project finance bears within it.

Peter Drucker says, “The best way to predict the future is to create it.”

Developing countries should not just dream, but make the big picture of projects within their developmental plans come to light, by birthing it with the help of Project financing.

Project finance begins with the birth of a special purpose vehicle, a vessel created for one mission, carrying no history but the future it is meant to build.

Around this vessel, risk is carved and carefully assigned, each burden placed in the hands best suited to bear it, while the lenders rely not on the sponsor’s balance sheet but on the rising promise of the project’s own cash flows.

Its assets stand ring-fenced like a guarded garden, protected from external storms, and contracts weave themselves into a strong spine of agreements; PPAs, EPCs, O&M, binding every participant with precision and purpose.

High leverage becomes the scaffolding of ambitions, supported by long-tenor financing that matches the slow, patient rhythm of infrastructural development and before the first foundation is laid, detailed feasibility and rigorous due diligence polish the vision like a jeweller refining a gem, ensuring that what stands on paper can one day stand in concrete.

Capital

Project Finance fits the needs of developing countries because it brings capital without overburdening the government.

By shifting reliance from sovereign budgets to the project’s own cash flows, nations can build roads, power plants, water systems and ports even when public funds are limited.

The SPV, spoken about in the earlier paragraph, protects investors from economic noise while assuring governments that their national balance sheet remains untouched.

Risks are allocated to those best able to manage them; contractors handle construction risks, and off-takers secure revenue, making large projects bankable even in uncertain environments. 

High leverage and long-term debt make infrastructure affordable, spreading costs over decades instead of years. And the detailed due diligence demanded by the project finance introduces discipline, transparency and accountability, qualities that strengthen governance and attract more investment.

The true strength of project finance is revealed not just in theory, but in the projects it brings to life.

Below are examples that illustrate how this model turns ambitious ideas into functioning infrastructure.

• The Eastern Railway line project, valued at around $2.2 billion, being built under a “Build- Operate- Transfer” agreement. This means that a private corporation will build the railway from Accra to Kumasi, operate it for a few years to recoup its costs and then return it to the government.

• The Boankra Inland Port project is another PPP that aims to improve trade and transportation by developing an inland port for cargo.

• The Sankofa Gas project is an offshore oil and natural gas development in Ghana’s Cape Three Points led by Eni, Vitol and the Ghana National Petroleum Corporation (GNPC). It supplies around 180 million standard cubic feet gas per day, enough 180 million standard cubic feet of gas per day, enough to generate about 1,000MV of electricity for domestic use.

Project finance in developing countries carries not just funds but hope, discipline and structure, proving that with careful planning and shared risk, infrastructure can rise, economies can grow and dreams can come into being earlier.

The writers are an Mphil Finance student and a lecturer, respectively.