The financial performance of an innovative megaproject

Abstract

The financial structure of megaprojects, known in the literature as project finance, is characterized by the creation of a legally independent project company financed with a concentrated equity ownership and a high level of non-recourse debt. Research in this field may yield new ideas and theories about the existing theoretical framework on capital structure, stakeholder management and risk management. A case-study is analyzed in this paper: the financial performance of the first metro line in Seville (Spain). In spite of previous cost overruns in the construction stage, the present operation stage is considered successful from the point of view of social and financial profitability, whereby the risks have been theoretically transferred to stakeholders, as defined by Value for Money considerations. The objective of this study involves: first to determine whether this megaproject meets the expectations for which it was created in terms of hope of return of the shareholders, and the expectations of the economic and financial feasibility under a change of subsidy policies; and secondly to determine whether the conditions remain for not including the investment as public debt. This issue is crucial in a budgetary constraint context for the planning of future metro lines. By taking this first experience into account, this article also provides information for potential participants in the projects of the new metro lines, which are currently in the planning stage.