An Overview of Project Finance and Infrastructure Finance - 2006 Update

Posted: 24 Apr 2007


SUBJECT AREAS: project finance, infrastructure finance, financing, capital investment

This note provides an introduction to the fields of project finance and infrastructure finance, as well as a statistical overview of project-financed investments over the last five years - it is the fourth note in a biannual series dating back to 2000 but the first one to cover infrastructure finance. Examples of project-financed investments include the $4 billion Chad-Cameroon pipeline, $6 billion Iridium global satellite telecommunications system, 900 million A2 Toll Road in Poland, $1.4 billion Mozal aluminum smelter in Mozambique, and $20 billion Sakhalin II gas field in Russia. Globally, firms financed $328 billion of capital expenditures using project finance in 2006, up from $217 billion in 2001. Despite a few setbacks (e.g., in 1998 due to the Asian crisis and in 2002 due to crises in the U.S. power and telecommunications industries), the use of project finance has grown at a compound rate of 13% over the past 10 years.

The note begins by defining project finance and contrasting it with other well-known financing mechanisms such as asset-back securities and secured debt. The next section describes the evolution of project finance from its origins in the natural resources industry in the 1970s to the U.S. power industry in the 1980s, to a much wider range of industrial applications and geographic settings in the 1990s, and most recently to infrastructure finance (e.g., Public-Private Partnerships, 3P) in the 2000s. The third section provides a statistical overview of the project-financed investment over the last five years (2002-2006). It covers a variety of institutional details at the industry, project, and participant level. For example, it presents data on the average size of projects ($435 million) and their capitalization (71% debt-to-total capital) as well as league tables for project loans, project bonds, and advisory work. The final section discusses current and likely future trends including the rise of infrastructure finance, the increase in project re-negotiation and expropriation, and the evolution of financing sources and structures. This note can be used by itself to explain project finance or in conjunction with specific cases on project finance.

Suggested Citation

Esty, Benjamin C., An Overview of Project Finance and Infrastructure Finance - 2006 Update. HBS Publishing Case No.: 207-107, Available at SSRN:

Benjamin C. Esty (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

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