The economics of infrastructure finance: Public-private partnerships versus public provision (original) (raw)

The economic or infrastructure finance: Public-Private Partnership versus public provision

2010

We examine the economics of infrastructure finance, focusing on public provision and Public-Private Partnerships (PPPs). We show that project finance is appropriate for PPP projects, because there are few economies of scope and because assets are project specific. Furthermore, we suggest that the higher cost of finance of PPPs is not an argument in favour of public provision, since it appears to reflect the combination of deficient contract design and the cost-cutting incentives embedded in PPPs. Thus, in the case of a correctly designed PPP contract, the higher cost of capital may be the price to pay for the efficiency advantages of PPPs. We also examine the role of government activities in PPP financing (e.g. revenue guarantees, renegotiations) and their consequences. Finally, we discuss how to include PPPs revenue guarantees and the results of PPP contract negotiation in the government balance sheet.

Public-Private Partnership and Financing the Development of National Infrastructure

Social, Economic, and Environmental Impacts Between Sustainable Financial Systems and Financial Markets, 2020

The chapter contains a methodology for formalized evaluation of the model of replacement of budget funds by private investment in the public infrastructure PPP projects for the purpose to ensure public finance sustainability. It can manifest itself only if the state could create appropriate conditions for private investors, including institutional players as its partners. The latter means primarily the stable formal institutional conditions for private investors, low transactional costs, attractive financial parameters, that could bring the ratio of budget and private financing of public infrastructure PPP projects to more than 1 to 1. It has become evident that accelerated development of many public infrastructure PPP projects is hampered by two factors: (1) inadequate institutional support for the design process itself and (2) absence of state-prepared acceptable financial models of public infrastructure PPP projects regarding the division of risks of infrastructure projects and d...

The value of public private partnerships in infrastructure

This paper makes three claims. First, in contrast to Public-Private Partnerships (PPP) in many other industries, infrastructure contracts can be conditioned on the delivery of roads and railways of appropriate user quality. This eliminates one of the concerns in the literature of the welfare properties of PPPs. Second, the bundling of investment and maintenance into one single rather than several separate contracts may provide a way to bypass rigidities and contract incompleteness in PPP contracts. Third, having a private concessionaire organising the funding of a PPP project’s investment costs may increase financing costs. This is, however, balanced by the fact that it also enhances the agent’s commitment in long-term incomplete contracts. Taken together, these conclusions point to the possibility of using PPP as an instrument for improving the construction industry’s dismal productivity performance.

A Comparative Analysis of PPP Financing Mechanisms for Infrastructure Projects

PPP International Conference 2013 Body of Knowledge Public Private Partnerships University of Central Lancashire, Preston, UK 18-20 March 2013 ISBN: 9781901922912, 2013

Determining the most appropriate form of finance for Public Private Partnerships (PPP) is a difficult task for the public sector. This paper compares and contrasts the various forms of finance available for PPP projects. As a result of this comparative analysis it is proffered that during the procurement preparation process the characters of the infrastructure projects need to be aligned to ensure that they lead to an appropriate PPP financing mechanism. Several PPP financing mechanism have been reviewed. It is suggested the review presented in this paper can assist the public sector to choose the appropriate PPP financing mechanism for their particular circumstances.