Where infrastructure projects have large public externalities, some level of direct financial support from the government may be appropriate.

A number of financing mechanisms are available for infrastructure projects, and for public-private partnership (PPP) projects in particular. The Government may choose to fund some or all of the capital investment in a project and look to the private sector to bring in expertise and efficiency.

Tax Issues

A host country's tax laws can have a direct impact on the profitability of a public-private partnership project and so need to be considered by the potential service provider/ investor and the host government to ensure that the project is viable. Some of the issues relating to taxation that an investor as well as the government will be interested in are:

• is the tax system stable?

• what categories of taxation will the project company and the sponsors be liable to? (service tax, income tax, tax on dividends, etc.)

A key motivation for governments considering public-private partnerships (PPPs) is the possibility of bringing in new sources of financing for funding public infrastructure and service needs. This section provides an introduction to financing projects.