Public Private Partnerships

Public Private Partnerships

The Worldwide Revolution in Infrastructure Provision and Project Finance

Darrin Grimsey and Mervyn K. Lewis

This path-breaking book considers the recent trend for governments to look increasingly to private sector finance, provided by private enterprises constructing and managing public infrastructure facilities in partnership with government bodies.

Chapter 6: Issues in Public Private Partnerships

Darrin Grimsey and Mervyn K. Lewis

Subjects: economics and finance, financial economics and regulation, public finance, public sector economics


INTRODUCTION This chapter examines a number of issues regarding the value-for-money test and the public interest test for PPPs. The questions examined include: 1. Is the fully integrated or ‘bundled’ PPP structure an efficient solution? 2. Can PPPs be good value for money when the government can always borrow more cheaply than the private sector? 3. What is the basis of the value-for-money test used for implementing PPPs? 4. Should the discount rate used for value-for-money tests be a risk-adjusted rate or a riskless rate? 5. Does the available evidence suggest that PPPs have delivered value for money? 6. How is uncertainty to be handled? 7. In what ways should PPPs be accounted for? 8. Can PPPs adequately provide for the public interest? 9. What factors make for a successful PPP? Following an examination of these questions, the chapter ends with a case study of a recent PPP/PFI hospital project in the UK that illustrates some of the issues involved in determining whether a PPP offers value for money. But first we look at the development of the business case, for it is at this stage that many of the issues first surface. THE BUSINESS CASE Formulating a business case enables the government to form a view on the applicability of a partnership approach before significant resources are spent on developing the detailed specifications of the project. As part of this process, the project is fully appraised and risks and costs are identified to develop a cost–benefit analysis and...

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