Project Finance for the Transportation Industry

Public transportation in every city is supposed to be a sustainable mode of mobility.  While this may be the case in reality for some megacities, which have shown best practice examples of public transportation systems, the same cannot be said for some cities in developing countries, that are still struggling to implement an efficient system that satisfies people’s needs an continue to offer a poor service and decreasing investments in this sector.  Moreover, these systems around the world are still lacking the technology necessary for an efficient transportation system to exist and are facing numerous challenges, such as the increase in vehicle numbers and inadequate and poor management of road infrastructure. This raises the need to look for innovative perspectives to effectively address the transportation problems

[protected]Some of the most competent and successful models such as Singapore, Toronto, Paris, New York and Berlin rely on highly effective mobility systems. Incorporating the know-how of such models in the transportation systems of developing countries and hiring international firms to do the job would be very assertive.

Yet, improving the system cannot be accomplished simply based on national investment in developing countries or the support of private funds only. There are many contractual firms worldwide that combine both private and public budget and many economies worldwide allow a privately held foreign company to render their service prior the authorization of the government. This requires the formation of strategic alliances with international firms, consisting of a bilateral or multilateral agreement to carry out a common project, such as public transportation, and therefore allocating the different risks that such a project would imply, between national and overseas companies, which would have as main input the trespassing of technology to national firms and through their expertise would carry the operation and maintenance of the project.

Some financial constraints have been at the core of hindering the effective execution of establishing and maintaining public transportation systems. This is where the structure of Project Finance would come to play an important role. According to this model, a company belonging to the private sector would work through a Joint-Venture with a company of the public sector in order to carry out a project of national relevance for the country, such as the public transportation. The funds destined are normally from the private sector.

This type of association is a good alternative to finance public works destined to operate various services through concession contracts with the state and is also known as internationally Public Private Partnership; it can be a very good alternative for third world countries to develop big projects regardless of their debt capacity.

Financing contracts to obtain all the necessary means to carry out the project are usually put in place with banks. For this kind of international project finance, loans with the World Bank or the Inter-American Bank could be considered. The loan would then be repaid by the cash-flows generated by the project itself.

Whatever the transport model chosen for the cities, once it is restructured, it should follow the successful models that have been implemented in more developed countries throughout the world. Having achieved excellence in mobility, these models have become suitable and accurate services that seek to improve the life of its users. To achieve this goal international investment, specifically the implementation of project finance is an interesting alternative.[/protected]

2 Contributions To This Discussion “Project Finance for the Transportation Industry

  1. pjz

    When looking at the limited dollars municipalities and states in the USA, and in many places around the world, have to spend on infrastructure, the only alternative for developing transportation infrastructure is to look to the user to fund future projects. This is especially valid for infrastructure projects that benefit the flow of international trade. The major beneficiaries of international transportation nodes have been the US consumers who have seen a huge relative drop in the cost of consumer products they purchase every day. Adding a few cents to the cost of a flat screen tv, the price of which has dropped almost 50% in the last 10 years, will not impact the consumer’s purchasing decision but could cumulatively finance major transportation infrastructure projects that will pay large societal dividends far into the future.

  2. Wojciech BugajskiWojciech Bugajski

    That’s very interesting, but I would like to say that the most interesting and useful projects you can find in ITS. It means intelligent transport systems. What I can say about this? The name of Intelligent Transportation Systems was accepted for the first time at the World ITS Congress in Paris in 1994 and stands for systems, which encompasses a vast collection of various technologies (telecommunications, informatics, sensor and control technologies) and management techniques applied to transportation to make our lives safer, increase road capacity and reduce environmental impacts of transportation. More at: