Financing infrastructure with project bonds: The case of the European Project Bond Initiative

Abstract

Infrastructure faces a global lack of investment, that is observable in every region of the world, including the European Union. Even though private investment in infrastructure is made possible with public-private partnerships, that are implemented more and more in the world, the large supply of capital does not meet yet the demand for infrastructure. This market failure has been analyzed by literature as the combination of inappropriate risk-sharing structure of the infrastructure projects and the lack of expertise in infrastructure finance from both public and private sectors. The European Project Bond Initiative, launched in 2011, aims to remediate to these hurdles and to promote access to capital market for infrastructure investments, through a credit enhancement mechanism for project bonds. This thesis will examine to what extent the European instrument facilitate private investments in infrastructure. Analyzing the projects carried out during the pilot phase of the European Project Bond Initiative, this thesis finds that the EPBI improves the risk-sharing and increases infrastructure expertise. However, impact on the highly risky projects remains to be tested.