Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile

Public-private partnerships are used to procure public infrastructure. Despite involving private investors and concessionaires, they impact the public budget like traditional provision and create fiscal risks. This paper develops a conceptual frame...

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Main Authors:	Engel, Eduardo, Ferrari, Martín, Fischer, Ronald, Galetovic, Alexander
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2022
Subjects:	PUBLIC PRIVATE PARTNERSHIP ASSESSMENT PUBLIC INFRASTRUCTURE INFRASTRUCTURE FINANCING PRIVATE INVESTMENT CONCESSIONAIRES INFRASTRUCTURE INVESTMENT RISK ASSESSMENT RATE OF RETURN ON INFRASTRUCTURE FIXED TERM INFRASTRUCTURE CONTRACT VARIABLE TERM INFRASTRUCTURE CONTRACT INFRASTRUCTURE CONCESSION PPP FUNDING
Online Access:	http://documents.worldbank.org/curated/en/099103105182242099/IDU03141abed08e6804ace0906005e48a1332bfc http://hdl.handle.net/10986/37461

id	okr-10986-37461
recordtype	oai_dc
spelling	okr-10986-374612022-05-21T05:10:35Z Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile Engel, Eduardo Ferrari, Martín Fischer, Ronald Galetovic, Alexander PUBLIC PRIVATE PARTNERSHIP ASSESSMENT PUBLIC INFRASTRUCTURE INFRASTRUCTURE FINANCING PRIVATE INVESTMENT CONCESSIONAIRES INFRASTRUCTURE INVESTMENT RISK ASSESSMENT RATE OF RETURN ON INFRASTRUCTURE FIXED TERM INFRASTRUCTURE CONTRACT VARIABLE TERM INFRASTRUCTURE CONTRACT INFRASTRUCTURE CONCESSION PPP FUNDING Public-private partnerships are used to procure public infrastructure. Despite involving private investors and concessionaires, they impact the public budget like traditional provision and create fiscal risks. This paper develops a conceptual framework to assess whether and how public-private partnerships shift risks to concessionaires and financiers. It uses this framework to describe and assess the Chilean public-private partnerships program. The paper identifies renegotiations as the major source of fiscal risk, which involved additional investments, increasing the cost by about one-third over the original project cost estimates. The 2010 law reform on public-private partnerships introduced changes to the renegotiations regime and began the routine use of variable term contracts. Using contractual data, the analysis finds evidence suggesting that renegotiations fell dramatically. The paper also calculates the realized internal rates of return for 50 highway and airport public-private partnerships, using cash flow data for the entire public-private partnerships program, which started in 1991. The average internal rate of return is 6.8 percent, with averages of 9.1 and 3.1 percent for fixed and variable term public-private partnerships, respectively. The returns show a large dispersion, which suggests that infrastructure projects are intrinsically risky and private participation entails significant risk shifting from the budget to concessionaires and financiers. 2022-05-20T14:11:13Z 2022-05-20T14:11:13Z 2022-05 Working Paper http://documents.worldbank.org/curated/en/099103105182242099/IDU03141abed08e6804ace0906005e48a1332bfc http://hdl.handle.net/10986/37461 English Policy Research Working Papers;10056 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Policy Research Working Paper Publications & Research Chile
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	PUBLIC PRIVATE PARTNERSHIP ASSESSMENT PUBLIC INFRASTRUCTURE INFRASTRUCTURE FINANCING PRIVATE INVESTMENT CONCESSIONAIRES INFRASTRUCTURE INVESTMENT RISK ASSESSMENT RATE OF RETURN ON INFRASTRUCTURE FIXED TERM INFRASTRUCTURE CONTRACT VARIABLE TERM INFRASTRUCTURE CONTRACT INFRASTRUCTURE CONCESSION PPP FUNDING
spellingShingle	PUBLIC PRIVATE PARTNERSHIP ASSESSMENT PUBLIC INFRASTRUCTURE INFRASTRUCTURE FINANCING PRIVATE INVESTMENT CONCESSIONAIRES INFRASTRUCTURE INVESTMENT RISK ASSESSMENT RATE OF RETURN ON INFRASTRUCTURE FIXED TERM INFRASTRUCTURE CONTRACT VARIABLE TERM INFRASTRUCTURE CONTRACT INFRASTRUCTURE CONCESSION PPP FUNDING Engel, Eduardo Ferrari, Martín Fischer, Ronald Galetovic, Alexander Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile
geographic_facet	Chile
relation	Policy Research Working Papers;10056
description	Public-private partnerships are used to procure public infrastructure. Despite involving private investors and concessionaires, they impact the public budget like traditional provision and create fiscal risks. This paper develops a conceptual framework to assess whether and how public-private partnerships shift risks to concessionaires and financiers. It uses this framework to describe and assess the Chilean public-private partnerships program. The paper identifies renegotiations as the major source of fiscal risk, which involved additional investments, increasing the cost by about one-third over the original project cost estimates. The 2010 law reform on public-private partnerships introduced changes to the renegotiations regime and began the routine use of variable term contracts. Using contractual data, the analysis finds evidence suggesting that renegotiations fell dramatically. The paper also calculates the realized internal rates of return for 50 highway and airport public-private partnerships, using cash flow data for the entire public-private partnerships program, which started in 1991. The average internal rate of return is 6.8 percent, with averages of 9.1 and 3.1 percent for fixed and variable term public-private partnerships, respectively. The returns show a large dispersion, which suggests that infrastructure projects are intrinsically risky and private participation entails significant risk shifting from the budget to concessionaires and financiers.
format	Working Paper
author	Engel, Eduardo Ferrari, Martín Fischer, Ronald Galetovic, Alexander
author_facet	Engel, Eduardo Ferrari, Martín Fischer, Ronald Galetovic, Alexander
author_sort	Engel, Eduardo
title	Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile
title_short	Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile
title_full	Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile
title_fullStr	Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile
title_full_unstemmed	Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile
title_sort	managing the fiscal risks wrought by ppps : a simple framework and some lessons from chile
publisher	World Bank, Washington, DC
publishDate	2022
url	http://documents.worldbank.org/curated/en/099103105182242099/IDU03141abed08e6804ace0906005e48a1332bfc http://hdl.handle.net/10986/37461
_version_	1764487205162582016

Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile

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