Viability of private sector involvement in infrastructure project development in developing countryiability of private sector involvement in infrastructure project development in developing country

Abstract

Since public infrastructures underpin economic and social development, infrastructure project development is essential for the sustainable growth of a country. In many developing countries, large scale infrastructure projects are undertaken through conventional public procurement, using bilateral and/or multilateral funding. On the other hand, the financial capacity and practical project management know-how of the private sector is an attractive option for the government for the sustainable construction of new infrastructures from the macro aspect. For example an infrastructure development financed by the private sector is off-balance sheet, enabling the government to invest more public funds for social projects. The more popular index used for evaluating the economic feasibility is the Economic Internal Rate of Return (EIRR). The calculation of the EIRR does not capture the feasibility or viability of a project when the private sector is involved in its development because the realistic financial and other risks are not sufficiently assessed and incorporated into the analysis. This paper aims to present a framework to assess the viability of public infrastructure projects reflecting the various risks involved in a project by quantifying and incorporating them to the cash flows and the financial analysis.