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Global Determinants of Stress and Risk in Public-Private Partnerships (PPP) in Infrastructure

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  • Renato E. Reside, Jr.

Abstract

This study analyzes global stress in public-private partnerships in infrastructure investment. While project failures seldom occur, there are many stresses, such as broad political risk: the ability of the highest government executives to use discretion to make sweeping changes to investment rules or interventions in regulation that adversely affect a project’s market value. This includes protracted tariff freezing. However, this is usually only realized after other risks, such as currency risk, have materialized first. Thus, broad political risk can be controlled (one way to do this is to exert strong efforts to build local currency debt markets). Other causes of stress include opportunistic government behavior and price cap regulation, which may needs to be strengthened to adapt to crisis situations. Except for political risk guarantees, loans and equity from multilateral institutions have no effect on outcomes. Ironically, strong growth and rigid currency regimes before projects start to operate heighten risk, as they can lead to adverse selection of proponents and moral hazard in project design. While political risk guarantees lead to favorable outcomes in general, they are rarely utilized, suggesting that they may need to be re-engineered or marketed better to be more useful. Surprisingly, many of the World Bank’s indices of governance quality lead to perverse outcomes. Thus, new governance standards must be used to judge PPPs. Many suggestions for policy improvements are made.

Suggested Citation

  • Renato E. Reside, Jr., 2008. "Global Determinants of Stress and Risk in Public-Private Partnerships (PPP) in Infrastructure," DEGIT Conference Papers c013_032, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c013_032
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    File URL: http://degit.sam.sdu.dk/papers/degit_13/c013_032.pdf
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    References listed on IDEAS

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    1. Dailami, Mansoor & Leipziger, Danny, 1998. "Infrastructure Project Finance and Capital Flows: A New Perspective," World Development, Elsevier, vol. 26(7), pages 1283-1298, July.
    2. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024.
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    Cited by:

    1. Kokkaew, Nakhon & Oliveira Cruz, Carlos & Alexander, Derek, 2015. "The impact of rule of laws on the recovery of distressed PPP infrastructure Projects," MPRA Paper 77494, University Library of Munich, Germany.
    2. Argentino Pessoa, 2010. "Reviewing Public–Private Partnership Performance in Developing Economies," Chapters,in: International Handbook on Public–Private Partnerships, chapter 25 Edward Elgar Publishing.
    3. Lopes, Ana Isabel & Teixeira Caetano, Tânia, 2015. "Firm-level conditions to engage in public-private partnerships: What can we learn?," Journal of Economics and Business, Elsevier, vol. 79(C), pages 82-99.
    4. Renato E. Reside, Jr. & Amado M. Mendoza, Jr., 2010. "Determinants of Outcomes of Public-Private Partnerships (PPP) in Infrastructure in Asia," UP School of Economics Discussion Papers 201003, University of the Philippines School of Economics.

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