A multi-dimensional financing appraisal framework for public infrastructure

This thesis aims to add to the toolkit of public infrastructure decision makers when they consider the range of approaches available for financing large-scale public infrastructure. To this end, the study develops a new appraisal framework for selecting a capital raising approach that is in the best interest of taxpayers. This framework is termed the Multi-Criteria Financing Appraisal (MCFA) framework. In contrast with well-established project appraisal methodologies, such as Multi-Criteria Analyses (MCA) and Benefit-Cost Analyses (BCA), the literature offers little guidance on how to select a public infrastructure financing approach. In fact, one of the cornerstones of financial theory, the Miller-Modigliani theorem (1958), states that the way in which projects are financed does not matter. The foundational principle adopted in this thesis, however, is that the way in which public infrastructure projects are financed is critical. Such a perspective effectively accords with the view that financial markets are imperfect, and therefore the net cost of financing differs by instrument. There is a multitude of innovative financing instruments and various economic and social factors, as well as a range of stakeholders with different and sometimes conflicting objectives that require consideration in selecting an optimum financing approach. Public infrastructure decision makers need to navigate through these intricacies and establish which combination of financing instruments, and in what proportions, will be optimal from a societal point of view. At present, however, there is no readily available and comprehensive financing appraisal framework that considers all the aspects involved. This thesis adopts an interpretive paradigm that relies on qualitative evidence, through exploratory and descriptive research, to address the research problem. The development of the framework relied on insights provided by a review of the status quo of financing appraisal approaches. The framework also incorporates elements of mainstream project appraisal methods, although these have been tailored specifically for the financing decision. It allows for the calculation of an effective cost of capital by instrument akin to the quantitative BCA method, while the intangible impact measures are appraised using a qualitative MCA approach, which, when combined, reveals an optimal financing approach. In sum, the framework developed consists of the concepts, classifications, criteria and impact assessment method required to perform an assessment of a range of financing approaches. Such a tool can help public infrastructure decision makers to appraise capital raising methods in a responsible, transparent and accountable fashion so as to consider the interests of both current and future generations.