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 9: PPPs in Emerging Markets

Darrin Grimsey and Mervyn K. Lewis

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


INTRODUCTION Previous chapters have explored the potential benefits of PPPs to infrastructure services delivery in the context of developed countries. Benefits seem likely to come from providing the private sector operator with the appropriate set of incentives. An arrangement in which the private entity is given the responsibility – and the risks – associated with project design, finance, construction, operations and maintenance, but is remunerated only if services are delivered on time and to a satisfactory standard, does this. Under the PPP the private contractor is left free to innovate in project design and to strike an appropriate balance between construction costs and maintenance levels, and the payment and abatement mechanism provides a strong encouragement to minimize lifetime costs, avoid delays in construction and commissioning, and undertake adequate maintenance. Evidence has been presented earlier which shows that such gains appear to have been obtained in many projects, and that the returns being received by project companies are not excessive in view of the risks and uncertainties involved. Infrastructure investment in developing countries and transition economies1 takes place in a very different environment. What Miller and Lessard (2001) describe as ‘institutional risks’ are at their greatest in emerging economies, for in these countries laws and regulations are incomplete and subject to change. The ability to make investments and repay debts depends on law and regulations that govern the appropriability of returns, property rights, and contracts, and while some countries are governed under constitutional frameworks and the rule of law, others are not. Sovereign...

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