Forfaiting : an alternative financing model to project finance for PPPs?

Abstract

Project finance which is primarily used to finance public private partnerships (PPPs) has faced deteriorating credit conditions during the financial crisis. This has ultimately decreased the competitiveness of PPPs compared to traditional public procurement. This study aims to find out in how far and under which conditions the forfaiting model which is predominantly used in Germany can be an alternative financing model for PPPs. For this purpose both models were compared to identify each model’s advantages and disadvantages. Furthermore, analyzing the financing patterns of PPPs in German building construction from 2002 to 2013 allowed further conclusions about the feasibility of forfaiting. It was found out that most of the German PPPs are financed by forfaiting. However, large projects are preferred to be financed by project finance. With the outburst of the financial crisis there was an evident increase in financing under forfaiting. Credit and market conditions related to project finance worsened considerably. Hence, it is assumed that projects initially planned to be financed by project finance have been dropped and/or alternatively financed by forfaiting. Overall it was found out that forfaiting is an alternative financing model for PPPs, not only in times of crisis.