Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy
Many private infrastructure projects mix regulation that subjects the private company to considerable risk, a government or regulator that is reluctant to see the company go bankrupt, and high leverage on the part of the company. If all goes well,...
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| Format: | Policy Research Working Paper |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/04/3568949/avoiding-customer-taxpayer-bailouts-private-infrastructure-projects-policy-toward-leverage-risk-allocation-bankruptcy http://hdl.handle.net/10986/14300 |
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okr-10986-143002021-04-23T14:03:20Z Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy Ehrhardt, David Irwin, Timothy ACTUAL COSTS AIRPORTS ASSETS BANKRUPTCY BONDS BOOK VALUE COST SAVINGS CPI CREDIT RATINGS DEBT DEPRECIATION DISCOUNT RATE ELECTRICITY EVASION EXPECTED VALUE FORECASTS GROWTH PROJECTIONS INFLATION LAWS LICENSES MARKET VALUE MATURITY NOMINAL PRICES OIL OPERATING LEASES OPERATING RISK PRESENT VALUE PRIVATE SECTOR PRIVATIZATION PRODUCERS PROFITABILITY PROVISIONS PUBLIC TRANSPORT REGULATORY POWERS ROADS SAVINGS SEWAGE TAX TELECOMMUNICATIONS TRANSACTIONS COSTS TRANSPORT TREASURY UTILITIES VALUE ADDED WORKING CAPITAL RISK ALLOCATION RISK BANKRUPTCY SHAREHOLDERS EQUITY DEBT PROBLEMS FINANCIAL LEVERAGE PRICE INCREASES TAX SYSTEMS PRIVATE SECTOR INVESTMENTS MITIGATION PRIVATE OWNERSHIP Many private infrastructure projects mix regulation that subjects the private company to considerable risk, a government or regulator that is reluctant to see the company go bankrupt, and high leverage on the part of the company. If all goes well, equityholders make a profit, debtholders are repaid, customers pay no more than they expected, and the government is not called on to bail the company out. If all goes badly enough, however, the prospect of bankruptcy will loom. Unwilling to see the company go bankrupt, however, the regulator will have to permit an unscheduled price increase, or the government will have to inject taxpayers' money into the firm. In other words, the combination means customers and taxpayers bear more risk than would appear from the regulations governing the private infrastructure project. The authors examine how these problems have played out in five cases. Then they describe how governments and regulators can quantify the extent of the problems and, using option-pricing techniques, value the customer and taxpayer guarantees involved. Finally, the authors analyze three options for mitigating the problem: making bankruptcy a more credible threat, limiting the private operator's leverage, and reducing the private operator's exposure to risk. The authors conclude that appropriate policy depends on the tax system, the feasibility of enforcing bankruptcy, and the benefits of risk transfer from taxpayer to the private sector. 2013-07-01T15:36:41Z 2013-07-01T15:36:41Z 2004-04 http://documents.worldbank.org/curated/en/2004/04/3568949/avoiding-customer-taxpayer-bailouts-private-infrastructure-projects-policy-toward-leverage-risk-allocation-bankruptcy http://hdl.handle.net/10986/14300 English en_US Policy Research Working Paper;No.3274 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACTUAL COSTS AIRPORTS ASSETS BANKRUPTCY BONDS BOOK VALUE COST SAVINGS CPI CREDIT RATINGS DEBT DEPRECIATION DISCOUNT RATE ELECTRICITY EVASION EXPECTED VALUE FORECASTS GROWTH PROJECTIONS INFLATION LAWS LICENSES MARKET VALUE MATURITY NOMINAL PRICES OIL OPERATING LEASES OPERATING RISK PRESENT VALUE PRIVATE SECTOR PRIVATIZATION PRODUCERS PROFITABILITY PROVISIONS PUBLIC TRANSPORT REGULATORY POWERS ROADS SAVINGS SEWAGE TAX TELECOMMUNICATIONS TRANSACTIONS COSTS TRANSPORT TREASURY UTILITIES VALUE ADDED WORKING CAPITAL RISK ALLOCATION RISK BANKRUPTCY SHAREHOLDERS EQUITY DEBT PROBLEMS FINANCIAL LEVERAGE PRICE INCREASES TAX SYSTEMS PRIVATE SECTOR INVESTMENTS MITIGATION PRIVATE OWNERSHIP |
| spellingShingle |
ACTUAL COSTS AIRPORTS ASSETS BANKRUPTCY BONDS BOOK VALUE COST SAVINGS CPI CREDIT RATINGS DEBT DEPRECIATION DISCOUNT RATE ELECTRICITY EVASION EXPECTED VALUE FORECASTS GROWTH PROJECTIONS INFLATION LAWS LICENSES MARKET VALUE MATURITY NOMINAL PRICES OIL OPERATING LEASES OPERATING RISK PRESENT VALUE PRIVATE SECTOR PRIVATIZATION PRODUCERS PROFITABILITY PROVISIONS PUBLIC TRANSPORT REGULATORY POWERS ROADS SAVINGS SEWAGE TAX TELECOMMUNICATIONS TRANSACTIONS COSTS TRANSPORT TREASURY UTILITIES VALUE ADDED WORKING CAPITAL RISK ALLOCATION RISK BANKRUPTCY SHAREHOLDERS EQUITY DEBT PROBLEMS FINANCIAL LEVERAGE PRICE INCREASES TAX SYSTEMS PRIVATE SECTOR INVESTMENTS MITIGATION PRIVATE OWNERSHIP Ehrhardt, David Irwin, Timothy Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy |
| relation |
Policy Research Working Paper;No.3274 |
| description |
Many private infrastructure projects mix
regulation that subjects the private company to considerable
risk, a government or regulator that is reluctant to see the
company go bankrupt, and high leverage on the part of the
company. If all goes well, equityholders make a profit,
debtholders are repaid, customers pay no more than they
expected, and the government is not called on to bail the
company out. If all goes badly enough, however, the prospect
of bankruptcy will loom. Unwilling to see the company go
bankrupt, however, the regulator will have to permit an
unscheduled price increase, or the government will have to
inject taxpayers' money into the firm. In other words,
the combination means customers and taxpayers bear more risk
than would appear from the regulations governing the private
infrastructure project. The authors examine how these
problems have played out in five cases. Then they describe
how governments and regulators can quantify the extent of
the problems and, using option-pricing techniques, value the
customer and taxpayer guarantees involved. Finally, the
authors analyze three options for mitigating the problem:
making bankruptcy a more credible threat, limiting the
private operator's leverage, and reducing the private
operator's exposure to risk. The authors conclude that
appropriate policy depends on the tax system, the
feasibility of enforcing bankruptcy, and the benefits of
risk transfer from taxpayer to the private sector. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Ehrhardt, David Irwin, Timothy |
| author_facet |
Ehrhardt, David Irwin, Timothy |
| author_sort |
Ehrhardt, David |
| title |
Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy |
| title_short |
Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy |
| title_full |
Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy |
| title_fullStr |
Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy |
| title_full_unstemmed |
Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy |
| title_sort |
avoiding customer and taxpayer bailouts in private infrastructure projects: policy toward leverage, risk allocation, and bankruptcy |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/04/3568949/avoiding-customer-taxpayer-bailouts-private-infrastructure-projects-policy-toward-leverage-risk-allocation-bankruptcy http://hdl.handle.net/10986/14300 |
| _version_ |
1764430155495768064 |