Valuing Governmental Support in Road PPPs

Carlos Contreras () and Julio Angulo ()
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Carlos Contreras: Universidad Complutense de Madrid
Julio Angulo: Partner at ICIS (International Center for Infrastructure Solutions)

Hacienda Pública Española / Review of Public Economics, 2017, vol. 223, issue 4, 37-66

Abstract: Every year more transport infrastructures are built under long-term contracts with private partners. When using public-private partnerships (PPPs), the amounts invested in the construction of such infrastructures may not be counted as public debt if certain conditions are met. But in PPPs, host governments often make payments and provide financial support, through various channels, generating direct and/or contingent financial liabilities. By using an option pricing-based model, this paper offers a method to quantify those liabilities for various forms of road PPPs. In particular, we focus on valuing debt guarantees, equity guarantees, and minimum revenue guarantees. Our method takes into account that in road infrastructures, the governmental payments are typically a function of the evolution of both inflation and traffic. We use an illustrative case for showing the magnitude of the contingent debt implied in such guarantees.

Keywords: Option pricing; public-private partnerships; concessions contracts; contingent liabilities; public budget. (search for similar items in EconPapers)
JEL-codes: H54 H63 H68 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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