Resource for Infrastructure Deals
“Resource for infrastructure” deals are a new source of financing for infrastructure development in resource rich countries. The transaction involves a package where “(i) the government grants a resource development and production license to a private developer, and (ii) the government receives infrastructure pursuant to a financing mechanism linked to a resource activity.”
Under a resource financed infrastructure arrangement a loan to finance the infrastructure is secured against the net present value of a future revenue stream from oil or mineral extraction, adjusted for risk. Loan disbursements for the financing of the infrastructure construction usually start shortly after the investment contract for the resource for infrastructure deal is signed, and are paid directly to the construction company to cover construction costs. The revenues for paying down the loan, which are disbursed directly from the oil or mining company to the financier, often begin a decade or more later, after initial capital investments for the extractive projects have been recovered. The grace period for the infrastructure loan therefore depends on how long it takes to develop the mine or oil field, the size of the initial investment and on the rate of return.
Source: World Bank Guide on Resource Financed Infrastructure (2014).