Private Investors for State Projects: Shadow Budgets or a Necessity?

Does the private financing of infrastructure projects result in greater profitability, or is this just a way of getting around the debt cap? Alfons Weichenrieder, University of Frankfurt, suspects that – despite the fact that Public Private Partnerships (PPP) may make a lot of sense in individual cases – in many instances the priority is circumventing public debt ceilings, rather than creating optimal contractual conditions. In the choice of PPP instruments the emphasis should be on the efficiency of provision in public infrastructure and services, and not on circumventing budget rules and shifting the cost burden into the future. Greater transparency could be achieved by complementing fiscal accounting with double-entry bookkeeping and appropriate provisions for future commitments arising from PPPs. Another instrument would be the adaptation of budget rules. The European Convention, whereby the Maastricht relevance of PPPs depends on whether the business risk is taken by the private partner, is not very plausible. Ignoring a future burden on the public budget merely because it will definitely occur is not a very convincing principle. However, there is a great deal in favour of charging the provisions for future payment commitments arising from PPP contracts to the control account; and for introducing similar regulations in the Länder. According to Markus Kerber, Confederation of German Industry, public-private partnerships are currently the only possible way to tap institutional capital for infrastructure investments on a timely basis. In his opinion, such partnerships make it possible to achieve higher levels of investment than would be possible in the framework of conventional projects due to the fact that debts can be repaid over a longer period of time. In his view, this does not represent a shifting of debts to future generations. There is also no evidence that public-private partnerships constitute shadow budgets. Such partnerships help to link the two aims of the federal government: “breaking even” and “more investment in infrastructure.”