Infrastructure project finance: concessions, availability payments and public counterparties

Two revenue models, two risk profiles

Under an availability-payment concession, the authority pays the project company for keeping the asset available to an agreed standard, whether or not the public uses it heavily. Demand risk stays with the public sector, and the lender's exposure becomes largely the authority's credit and the operator's performance.

Under a user-pays concession — most toll roads, some ports — the project earns from actual traffic or throughput. That is a genuine market risk, so lenders size debt against conservative demand forecasts and expect a larger equity cushion.

Read the termination regime early

Concession contracts eventually address what happens if the project company defaults, if the authority defaults, or if the contract ends for convenience. The compensation payable in each case effectively sets the lender's recovery in a downside scenario.

A concession with weak or discretionary termination compensation can be unbankable however good the traffic study is. This is worth resolving with the authority before a facility is negotiated, not after.

Public counterparty and sovereign considerations

Where the payer is a ministry, municipality or state utility, the analysis extends to budget appropriation, payment history and the legal enforceability of the contract. Guarantees from a sovereign, or cover from a multilateral development bank or export credit agency, can move a deal from unfundable to competitively priced.

Pre-close checklist

Infrastructure files stall on the same handful of items.

• Full land assembly — title, expropriation orders or long leases across the route or site.
• Environmental and social clearance, including resettlement where applicable.
• Permits and licences held by the project company, not by an affiliate.
• A construction contract with defined liquidated damages for delay.
• Independent engineer's review of cost and programme.
• Operations and maintenance arrangements for the whole concession term.

Staged drawdown against milestones

Infrastructure facilities are almost never advanced in one payment. Funds are released in tranches as independently certified milestones are met, which protects both sides: the lender is not funding an unbuilt asset, and the sponsor is not carrying interest on money it cannot yet deploy.