Mapping the evolving complexity of large hydropower project finance in low and lower-middle income countries

The structure and key actors involved in large hydropower project financing in low and lower-middle income countries (LICs and L-MICs) has changed considerably over the past 50 years. Exclusively publicly funded hydropower projects, typically financed by the host country government with support from multilateral development banks (MDBs), have become less common, while public-private-partnerships (PPPs) and new forms of bilateral finance arrangements have become more prevalent. However, purely privately financed projects with no public or MDB finance remain unusual in large hydropower projects in LICs and L-MICs. This paper traces the evolution and complexity of hydropower financing from the early 1970s to the present day, showing how the types and roles of various actors have changed over time and how new types of financing packages have surfaced to meet the growing need for large energy infrastructure projects in LICs and L-MICs. It focuses on the three most commonly used models of hydropower project financing in LICs and L-MICs: fully public finance, PPPs, and new bilateral finance. Examples from LICs and L-MICs are used to illustrate the ‘typical' features of each financing models, as well as their strengths and limitations. Projects developed through PPPs often involve a complex mix of investors and lenders from both public and private sectors, as well as guarantees from MDBs and other risk mitigation measures. New forms of bilateral financing arrangements signal a return to ‘simpler' financing models akin to the fully public projects in the pre-2000s, but typically involve a different type of contractual arrangements and sources of origin. Although ‘new' bilateral finance is issued by many countries, including some OECD countries, the predominant position of China in this field has resulted in ‘new' bilateral finance often being referred to as ‘Chinese finance'