Transport funding and financing: a conceptual overview of theory and practice

Transport projects require high capital and operational costs. To finance them, it is crucial to determine who will ultimately pay for the service and who will provide the resources to implement it. The first aspect, usually known as funding, has to do with the ability of the project to capture the benefits and transform them into an ongoing revenue stream over the life of the project. The second, commonly known as infrastructure financing, refers to the ability of investors to mobilize resources to finance the capital cost of the project. This chapter makes a classification of the most relevant funding and financing mechanisms, studying their implications in social welfare, equity, and financial sustainability. It also describes the project finance technique and shows the most important financial sources. The chapter ends with a reflection on the social benefits of funding and financing transport investment projects, along with some policy recommendations.