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

Author

Listed:
  • Engel,Eduardo
  • Ferrari,Martín
  • Fischer,Ronald
  • Galetovic,Alexander
Abstract
Public-private partnerships are used to procure public infrastructure. Despite involving privateinvestors and concessionaires, they impact the public budget like traditional provision and create fiscal risks. Thispaper develops a conceptual framework to assess whether and how public-private partnerships shift risks toconcessionaires and financiers. It uses this framework to describe and assess the Chilean public-private partnershipsprogram. The paper identifies renegotiations as the major source of fiscal risk, which involved additionalinvestments, increasing the cost by about one-third over the original project cost estimates. The 2010 law reform onpublic-private partnerships introduced changes to the renegotiations regime and began the routine use of variableterm 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-privatepartnerships, 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 termpublic-private partnerships, respectively. The returns show a large dispersion, which suggests that infrastructureprojects are intrinsically risky and private participation entails significant risk shifting from the budget toconcessionaires and financiers.

Suggested Citation

  • Engel,Eduardo & Ferrari,Martín & Fischer,Ronald & Galetovic,Alexander, 2022. "Managing the Fiscal Risks Wrought by PPPs : A Simple Framework and Some Lessons from Chile," Policy Research Working Paper Series 10056, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10056
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    References listed on IDEAS

    as
    1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, February.
    2. Eduardo Bitran & Sebastián Nieto-Parra & Juan Sebastián Robledo, 2013. "Opening the Black Box of Contract Renegotiations: An Analysis of Road Concessions in Chile, Colombia and Peru," OECD Development Centre Working Papers 317, OECD Publishing.
    3. Fay, Marianne & Martimort, David & Straub, Stéphane, 2021. "Funding and financing infrastructure: The joint-use of public and private finance," Journal of Development Economics, Elsevier, vol. 150(C).
    4. Eduardo Engel & Ronald D. Fischer & Alexander Galetovic, 2020. "When and How to Use Public-Private Partnerships in Infrastructure: Lessons from the International Experience," NBER Chapters, in: Economic Analysis and Infrastructure Investment, pages 333-364, National Bureau of Economic Research, Inc.
    5. Engel,Eduardo & Fischer,Ronald D. & Galetovic,Alexander, 2014. "The Economics of Public-Private Partnerships," Cambridge Books, Cambridge University Press, number 9781107035911, September.
    6. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications - Books, The World Bank Group, number 15024.
    7. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October.
    8. Vergara-Novoa, Cristian & Sepúlveda-Rojas, Juan Pedro & Alfaro, Miguel D. & Soto, Pablo & Benitez-Fuentes, Paulo Andrés, 2020. "Analysis of revenues, costs and average costs of highway concessions in Chile," Transport Policy, Elsevier, vol. 95(C), pages 114-123.
    9. Engel, Eduardo M.R:A. & Fischer, Ronald & Galetovic, Alexander, 2019. "Soft budgets and endogenous renegotiations in transport PPPs: An equilibrium analysis," Economics of Transportation, Elsevier, vol. 17(C), pages 40-50.
    10. Nicolás Campos & Eduardo Engel & Ronald D. Fischer & Alexander Galetovic, 2021. "The Ways of Corruption in Infrastructure: Lessons from the Odebrecht Case," Journal of Economic Perspectives, American Economic Association, vol. 35(2), pages 171-190, Spring.
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