Pitching for Railway Investment?
As railway experts working for the World Bank, Martha Lawrence and Nicolás de León de Mariá engage with many client countries that are looking to expand or upgrade their railway systems. For Global Railway Review, Martha and Nicolás explain that whenever a railway investment is pitched to them, their first question is always: “What are your trains going to carry?” They ask this question because it is fundamental to railway financing.
Railways are very capital intensive and increasingly need to attract financing from the private sector to ensure success. That is why the World Bank recently updated its Railway Toolkit1 to include more information and case studies on railway financing. Here, in a nutshell, are the key lessons about railway financing from this update.
What is financing?
Financing is the process of converting future cash flows into money that can be used for investment now. Let’s look at a typical railway investment project. The project requires a big investment up-front. Over time, the project has revenues and operation and maintenance costs. The revenue is (hopefully) more than the operating cost, so the project generates positive cash flows and profit over time. Financing is the mechanism for converting the profits from later years into money that can be available now, so that the railway can make an investment. Financing is not free money – it must be paid back, with interest or dividends added.
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