IFC's Experience in the Transport Sector

• Between fiscal years 1990 and 2005, IFC made 125 transport commitments supporting projects with a capital value of $14 billion, investing $2.2 billion for its own account andmobilizing $1.4 billion of B-loans.¹ On average, transport investments have accounted for about 6 percent of IFC commitments.
  
  
• Since 1998, when IFC made transport a priority as part of a strategy to support infrastructure generally, it has succeeded in increasing its transport investments in absolute terms and as a proportion of the portfolio. Two-thirds of IFC transport investment has been in the Latin America and the Caribbean Region.
  
  
• Transport projects have achieved a significantly higher proportion of positive development outcomes compared with other sectors in IFC. Their economic sustainability, environmental and social impacts, and contribution to private sector development have been particularly strong.²
  
  
• Though profitable, the returns on IFC’s investments in transport projects have been lower than average. This reflects a number of factors, including IFC’s instrument mix, slower than expected growth in traffic, strong competition from other transport operators, economic crises, and changes in government policy.

• Growth in traffic may be slower than forecast. Traffic or volume forecasts prepared by sponsors may have an upward bias, possibly as a result of the competitive pressure to win a concession and possibly to make the project more attractive to investors. In practice, actual throughput can be lower than forecast or require a longer growth period to reach target levels. Hence, the income generated may not be sufficient to service the company’s loans, and/or equity income for investors will be delayed (depressing rates of return). On the other hand, the benefits of improved services, faster journey times, and increased safety are realized immediately by users and the economy.
  
  
• There may be competing transport infrastructure. Many projects are expected to thrive by offering new, more efficient infrastructure and services to customers. Container ports are a good example of an unexpected and strong competitive response from existing nearby ports, which may be state owned or privately operated. Competition may take the form of substantially lower—often unsustainable—tariffs or customer tie-in arrangements, and while it may not last for an extended period of time, it can adversely affect IFC-supported projects in the early years of operation and cause financial stress. Customers, however, benefit straightaway from reduced prices and in the longer term from improved services.
  
  
• Concession contracts may not provide the private operator with the protection envisaged. Robust traffic projections and strong sponsors may not be enough to mitigate the negative impact of major changes in government policy, particularly in a country where the legal and regulatory framework is not well developed. Although concession contracts may allow the private operator to raise charges to end users to protect it from inflation or devaluation, such terms may be unenforceable if they are politically unpalatable, for example, at a time of economic crisis.