TABLE OF CONTENTS Introduction System of Project Financing Project Viability Project Financing Risks and their Allocation Security

Arrangements Legal Structure Sources of Funds Conclusion and Future Prospects Case Study CHAPTER 1: INTRODUCTION 1.1 Role of Infrastructure in Development It is now well recognized that a countrys development is strongly linked to its infrastructure strength. Infrastructure helps determine a countrys ability to expand trade, cope with population growth, reduce poverty and a host of other factors that define economic and human development. Good infrastructure raises productivity and lowers production cost, but must also expand fast enough to accommodate growth. The precise links between infrastructure and development have been subject to extensive debate. The link between infrastructure and economic growth has been studied extensively in literature, the World Bank report (1994) of the World Bank for instance. The results show that infrastructure development can have a significant impact on the economic growth. For low-income countries basic infrastructure such as water, irrigation and to a lesser extent transportation are more important. As the economies mature into a middle-income category, their share of power and telecommunications in the infrastructure and investment increases. An estimate however shows that a 1% increase in infrastructure stock* is positively associated with a corresponding growth in GDP across countries. Infrastructure is a necessary but not a sufficient condition for growth. Adequate complements of other resources must be present as well. In developing countries like India, infrastructure development and financing has largely been the prerogative of the government. Since infrastructure is typically a natural monopoly, the government considered it necessary to keep control of the same, in public interest. The success and failure of infrastructure to meet the needs of the people is largely a story of the governments performance. In the case of India, the government has taken great strides in improving the infrastructure stock of the nation since independence. However, when compared to developed countries we still have a long way to go. For instance, per capita power consumption in India is a meagre 282 KWH

compared to 18,117 KWH for Canada. The situation has worsened in the 90s with frequent revisions being made to the eighth plan document owing to the governments inability to bear the cost of infrastructure anymore. The simple truth is that public money is no longer sufficient to meet the burgeoning needs of the nation in line with its economic aspirations. Reluctantly, therefore the government has to throw open the doors to private participation in infrastructure.