E. R. Yescombe

The Architecture of Infrastructure Investment: Addressing Structural Complexities in Project Finance
“A highway, a bridge, a navigable canal…may in most cases be both made and maintained by a small toll upon the carriages which make use of them: a harbour, by a moderate port-duty upon the tonnage of the shipping which load or unload in it…When the carriages which pass over a highway or a bridge, and the lighters which sail upon a navigable canal, pay toll in proportion to their weight or their tonnage, they pay for the maintenance of those public works exactly in proportion to the wear and tear which they occasion of them. It seems scarce possible to invent a more equitable way of maintaining such works.” Much may have changed in the field of infrastructure investing since Adam Smith wrote the foregoing passage in his seminal Wealth of Nations, but massive public works such as toll roads, canals, and tunnels still require the mobilization of considerable sums. Whereas such funding in the past was primarily secured via long-term government finance, nowadays financing large-scale, capital-intensive ventures depends to a significant extent on private funding. For the purposes of obtaining project finance, the venture or project itself is, for all intents and purposes, constituted as an entity separate and unique from the juridical existence of its promoters. The Channel Tunnel, the North Sea oil fields, and innumerable power generation projects have all been funded via private-sector lending. The forces of deregulation and privatization, as Yescombe points out in his book, Principles of Project Finance, have been the catalysts for the aforementioned shift in infrastructure finance.

In dealing with the topic of project finance, Yescombe, a former banker, not only presents a detailed discussion of the entire project financing process, but also demonstrates an intimate knowledge of the risks involved in extending funding to projects which are often subject to perils, such as political instability in emerging economies, unpredictable cost overruns, and offtake problems, that are not commonly found in ‘regular’ business undertakings. Because infrastructure finance often necessitates the involvement of a multitude of parties from both the public and the private sector, the proper structuring of an infrastructure venture and its attendant financing is particularly important, especially in view of the complexities involved in dealing with the requirements of various stakeholders. For both the practitioner of project finance and those wishing to be initiated into its mysteries, Yescombe’s book should serve as a lucid, detailed, and readable overview.… (mehr)