The One Belt One Road (OBOR) initiative in China is an estimated $5 trillion infrastructure program spanning across Asia, the Middle East, Europe, and Africa.

Almost 70 countries and international organizations have signed up for the mega-infrastructure project, focused mainly on transport and energy including: roads, railways, bridges, ports, power plants and gas pipelines.

OBOR has created vast opportunities for construction companies focusing on infrastructure projects. With so many OBOR projects routinely launching, the question looms: how can companies best structure their project management and obtain finances to begin these projects?

OBOR and public-private partnerships

While some of the larger-scale projects will be funded by government-to-government grants, other projects will leverage traditional export credit models, such as buyer and supplier credits. The two most common forms of financing are: EPCs (engineering, procurement and construction) and PPP’s (public-private partnerships—a contractual arrangement between a public agency and a private sector entity).

EPC financing:

Despite the EPC financing structure’s increasing popularity, EPCs still face numerous challenges:

• Funding: Potential shortfalls in funding contributes to sluggish economic growth.
• Political: Countries face a tenuous landscape of conflicting political and geopolitical perspectives and regular administration changes.
• Legal uncertainty: Underdeveloped and complex legal systems both pose precarious obstacles.
• High competition: International organizations and alliances challenge EPC funding.

PPP financing:

Because EPCs face numerous challenges, many companies have turned to PPP financing instead. A PPP project is created by the government and a private company; both of whom will invest in the project until it’s finalized. Once the project is complete, the government will transfer the project “lease” over to the private company to maintain. This type of financing provides numerous structural, economic and legal benefits including:

• Equity interest: PPP models support foreign investment in their projects in the form of equity stakes.
• Infrastructure gaps: Many oil-based companies in the Persian Gulf & wider Middle East regions are looking to invest in infrastructure projects for equity gains – the perfect fit for a PPP project.
• Legal impediments: Host nations want to maintain ownership and control of their infrastructure programs and avoid legal restrictions.
• Joint ventures: PPPs are one of the more convenient and workable project models for contractors interested in pursuing international joint ventures.
• Project financing: The PPP model is increasingly becoming more refined, robust, and financially lucrative.