The economics of infrastructure finance: Public-Private Partnerships versus public provision

Eduardo Engel, Ronald Fischer and Alexander Galetovic ()
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Alexander Galetovic: Universidad de los Andes, Chile

No 2/2010, EIB Papers from European Investment Bank, Economics Department

Abstract: 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.

Keywords: Fiscal accounting; PPP premium; Project finance; Renegotiations; Revenue guarantees; Special Purpose Vehicule (search for similar items in EconPapers)
JEL-codes: G32 H54 R42 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-12-17
New Economics Papers: this item is included in nep-cfn, nep-lam, nep-ppm and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Working Paper: The economics of infrastructure finance: Public-private partnerships versus public provision (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eibpap:2010_002

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