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

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  • Engel, Eduardo

    ()
    (Yale University)

  • Fischer, Ronald

    ()
    (University of Chile)

  • Galetovic, Alexander

    ()
    (Universidad de los Andes, Chile)

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.

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Bibliographic Info

Paper provided by European Investment Bank, Economics Department in its series EIB Papers with number 2/2010.

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Length: 30 pages
Date of creation: 17 Dec 2010
Date of revision:
Handle: RePEc:ris:eibpap:2010_002

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Keywords: Fiscal accounting; PPP premium; Project finance; Renegotiations; Revenue guarantees; Special Purpose Vehicule;

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References

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  1. Valila, Timo & Mehrotra, Aaron, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports, European Investment Bank, Economics Department 2005/1, European Investment Bank, Economics Department.
  2. Douglas Sutherland & Sonia Araujo & Balázs Égert & Tomasz Kozluk, 2009. "Infrastructure Investment: Links to Growth and the Role of Public Policies," OECD Economics Department Working Papers 686, OECD Publishing.
  3. Rossi, Alessandro & Canpolongo, Francesca & Bichisao, Guido, 2002. "Hedge Accounting Within Ias 39," Economic and Financial Reports, European Investment Bank, Economics Department 2002/2, European Investment Bank, Economics Department.
  4. Hurst, Christopher & Uppenberg, Kristian, 2000. "Investment Issues In South-Eastern Europe," Economic and Financial Reports, European Investment Bank, Economics Department 2000/2, European Investment Bank, Economics Department.
  5. Ferreira, Luisa & Vanhoudt, Patrick, 2002. "Catching The Celtic Tiger By Its Tail," Economic and Financial Reports, European Investment Bank, Economics Department 2002/1, European Investment Bank, Economics Department.
  6. Fidrmuc, Jan, 2001. "Democracy in transition economies: Grease or sand in the wheels of growth?," ZEI Working Papers B 09-2001, ZEI - Center for European Integration Studies, University of Bonn.
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Citations

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Cited by:
  1. Emily Poole & Carl Toohey & Peter Harris, 2014. "Public Infrastructure: A Framework for Decision-making," RBA Annual Conference Volume, Reserve Bank of Australia, in: Alexandra Heath & Matthew Read (ed.), Financial Flows and Infrastructure Financing Reserve Bank of Australia.
  2. Julie De Brux & Frédéric Marty, 2014. "IPPP - Risks and opportunities An economic perspective," Post-Print, HAL halshs-00990951, HAL.
  3. Lin, Justin Yifu, 2013. "Global infrastructure initiative and global recovery," Journal of Policy Modeling, Elsevier, Elsevier, vol. 35(3), pages 400-411.
  4. Luciano Greco, 2012. "Imperfect Bundling In Public-Private Partnerships," "Marco Fanno" Working Papers, Dipartimento di Scienze Economiche "Marco Fanno" 0147, Dipartimento di Scienze Economiche "Marco Fanno".
  5. Moore, Alexander & Straub, Stephane & Dethier, Jean-Jacques, 2013. "Regulation, renegotiation and capital structure : theory and evidence from Latin American transport concessions," Policy Research Working Paper Series 6646, The World Bank.
  6. Marco Buso, 2014. "Public-Private Partnership: Information Externality in Sequential Investments," "Marco Fanno" Working Papers, Dipartimento di Scienze Economiche "Marco Fanno" 0176, Dipartimento di Scienze Economiche "Marco Fanno".
  7. Pekka Leviakangas & Pekka Kess & Jaakko Kujala, 2013. "Investment Analysis in Public-Private-Partnership Projects: Any Common Ground for Public and Private Investors?," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress, ToKnowPress.
  8. Byoun, Soku & Xu, Zhaoxia, 2014. "Contracts, governance, and country risk in project finance: Theory and evidence," Journal of Corporate Finance, Elsevier, Elsevier, vol. 26(C), pages 124-144.
  9. Torsten Ehlers & Frank Packer & Eli Remolona, 2014. "Infrastructure and Corporate Bond Markets in Asia," RBA Annual Conference Volume, Reserve Bank of Australia, in: Alexandra Heath & Matthew Read (ed.), Financial Flows and Infrastructure Financing Reserve Bank of Australia.

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