_11 Why Infrastructure Financing Facilities Often Fall Short of Their Objectives_

# **III. CROSS-COUNTRY EXPERIENCE WITH INFRASTRUCTURE FUNDS/FACILITIES**

26. The following tables present a survey of twelve government sponsored funds/facilities for which more detailed information was available, and an overview of their respective design parameters. Table 3 provides information on nine financing facilities that focus on promoting private participation in infrastructure. Table 2 entails information on three other government financing facilities of which two were designed to support export activities and one was aimed at promoting capital market development.

27. _Ownership/Management Structure of Facilities._ Regarding the ownership structure of the facilities contained in both tables, nine facilities are owned by the public sector while three have mixed, i. e. public and private ownership. While government funds may be justified to provide "transitional" and "catalytic" support to infrastructure, their intended limited life span was not reflected in their legal structure. Only two of the publicly owned funds were set up as shell companies that can easily be dismantled. The rest were established on a more permanent basis, i. e. either as non-bank financial institutions or as part of an existing government-owned bank.<sup>20</sup> The majority of facilities were also managed by the public sector, reflecting the fact that the decisions made by the fund have potential fiscal implications and can therefore not completely be handed over to the private sector.<sup>21</sup> 28. _Instruments offered by Facilities._ The variety of instruments offered by the facilities shows that they were targeted at different sectors and thus at projects that faced different impediments in attracting private capital. Nevertheless, half of the funds offered blunt direct funding instruments-including junior equity, and mezzanine financingwhich suggests that government concluded the lack of long-term finance to be a major impediment to attracting private investment. Only half of the funds offered contingent instruments that can-if structured correctly-be more specifically targeted at commercial, financial and political risks that private investors may be unwilling to assume. For example, in one case, the facility offered refinancing commnitments aimed at financial market interruption risk.

29. _Funding Base._ The World Bank supported the majority of the funds-nine out of twelve-and almost all of the funds relied on government financing which may be a reflection of their developmental focus. Out of twelve funds, only one intended to raise additional money from the capital markets.

> 20 As the Colombian case later will show, housing the facility in a government owned bank may give rise to a set of problems that is linked to the differing objectives of the institutions. While the facilities may have clearly defined developmental objectives, public banks, in general, overall pursue commercial objectives. The difference in objectives will have repercussions on the pricing of the instruments. While the facility **may** want to price access to the instruments at levels that encourage their usage, public banks may want to price the instruments at levels that not only insulates them as much as possible against commercial risk but also allow them to make a profit.

> 21 As will be discussed in greater detail later, the public sector should rely on the technical expertise of the private sector by hiring consultants that provide support on technical issues. But it needs to reserve the right for itself to make the final decision to mitigate the risk of conflict of interests.