ABSTRACT
This chapter deals with role played by governments and government agencies in guaranteeing project debt, as equity investors and as clients procuring the service sought to be delivered by the project. Government guarantees could ensure availability of debt funding for the project, while also helping lower the cost of borrowing, and while retaining the efficiency brought in by the private partner. Some analysts have observed that provision of such guarantees induces a moral hazard, wherein project managers assume risks they would otherwise not have accepted. According to Farrell, the possibility of encountering agency problems in project finance structures rises with the increasing number of stakeholders. Government equity ownership through public agencies provides adequate control on project operations to ensure that social objectives and superior quality of services are not sacrificed in the quest for private profits. Governments play a major part in projects as equity holders, lenders, guarantors, regulators, facilitators and even as customers in some cases.
