Infrastructure Public-Private Partnerships: Risk factors and agents’ participation

Abstract

Infrastructure investments are essential to achieve economic prosperity, promoting growth and enhancing well-being. Any infrastructure project is a long-term and complex project, particularly due to the specific nature of the assets and because it involves numerous stakeholders with different interests and objectives. In such conditions, uncertainty and risks are emphasized. Financing infrastructure is particularly challenging given the amount of funds required that are mostly sunk costs. An attractive mechanism, in the governments’ perspective, is to use Public Private Partnerships (PPP) and Project Finance techniques. Multilateral Development Banks (MDB) assume an important role on the raise of funds. Besides their primary lending function, another relevant role emerges - risk reduction. Public entities encourage private sector involvement in infrastructure particularly through PPP. These partnerships are used to reduce the infrastructure gap and accelerating the delivery of public assets and services with clear advantages over traditional methods of procurement. Theoretically, economic reasons may be presented supporting PPP. Portugal has a long history using PPP but there are very few papers on the field. In this dissertation, the Portuguese experience is presented with a focus on five projects. In addition, a model to access the relative operational performance of the SCUT concessions is developed using Data Envelopment Analysis. PPP are particularly relevant to developing and emerging countries where the less stable environment emphasizes risks. Different country’s risk factors affect PPP arrangements, conditioning the investments intensity and the participation of the private agents, as well as, of MDB. To explore these issues, an empirical analysis is performed using PPP data from 1990-2007. The results indicate the dominance of the economic conditions and of the legal framework, to explain the agents’ participation in PPP and, MDB’ participation is higher for riskier countries, confirming the mechanism of risk reduction.