The Seven Sins of Flawed Public-Private Partnerships

There are three stakeholders in a public-private partnership (PPP), (a) the government in office, (b) private firms (financial and non-financial) and investors (individual and institutional), and (c) final beneficiaries (taxpayers or users, present and future). The raison detre of PPPs is threefold: (i) to crowd in private firms and investors into projects that they will otherwise not undertake; (ii) to transfer to the private sector a significant part of the risks and costs that the government would otherwise fully absorb; and (iii) to ensure that the projects efficiency/quality is at least equal to that obtained if the government alone carried all costs and risks. Important (yet often ignored) implications follow. First, outsourcing (e.g., construction and maintenance) to the private sector does not by itself constitute a PPP if all risks and costs are, in one way or another, still borne by the government. Second, a PPP does not reduce total risk; it simply distributes it differently, involving private sector firms and investors. Third, the total costs borne by the final beneficiaries would be lower under a PPP (compared to a project whose costs and risks rest completely in the governments balance sheet) only if the PPP achieves efficiency gains; otherwise, what beneficiaries save in taxes they will pay in user fees, although, under a PPP, more of the costs would be assigned to direct beneficiaries/users, than to taxpayers at large. Fourth, that a PPP can provide (cash) budget relief may be a welcome corollary for the government in office but it is not a core objective of a PPP.

Bibliographic Details

Main Authors:	de la Torre, Augusto, Rudolph, Heinz
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	AUCTION, CONTINGENT LIABILITIES, CAPITAL MARKETS, FINANCIAL SERVICES, HOLDING, BROKERAGE, LIABILITY, ACCOUNTING, CHECKS, PUBLIC-PRIVATE PARTNERSHIPS, FUND MANAGERS, INTEREST, INSTITUTIONAL INVESTORS, LIFE INSURANCE, GUARANTEES, LONG-TERM FINANCE, SAVINGS ACCOUNTS, EXCHANGE, DISCOUNT RATE, CAPITAL BASE, LIQUIDITY, LONG-TERM LIABILITIES, FIXED ANNUITIES, CAPITAL STRUCTURES, REVENUES, CAPITAL STRUCTURE, REGULATOR, DEFAULT RISK, BONDS, LOAN, DISCOUNT, RENEGOTIATION, SUBSIDY, PRICE, SAVING, BENEFICIARIES, GOVERNMENT GUARANTEES, PENSION, CREDITOR, DISPUTE RESOLUTION, BUDGET, CONCESSION, LONG-TERM ASSET, MARKET LIQUIDITY, INVESTMENT HORIZONS, INSTITUTIONAL INVESTOR, PRIVATE CREDITOR, DISPUTE RESOLUTION MECHANISM, SAVINGS, PUBLIC-PRIVATE PARTNERSHIP, CONCESSION CONTRACT, CURRENCY, CONTRACT RENEGOTIATION, INFRASTRUCTURE PROJECT, CONTRACTS, PRIVATIZATIONS, OPTIONS, MARKETS, DEBT, RETURN, PUBLIC FINANCE, NEGOTIATIONS, LIFE INSURANCE COMPANIES, BREACH OF CONTRACT, LOANS, SECONDARY MARKET LIQUIDITY, RISK SHARING, PENSION FUNDS, FINANCIAL SYSTEM, DUE DILIGENCE, SUBSIDIES, FINANCE, TAXES, CONTINGENT LIABILITY, INVESTORS, SYSTEMIC RISKS, GOOD, JURISDICTION, PROCUREMENT, DISCLOSURE STANDARDS, SOVEREIGN RISK, FUTURE, GOVERNMENT GUARANTEE, CONFLICTS OF INTEREST, CONCESSIONS, BOND MARKET, CONTRACT, INFRASTRUCTURE BONDS, BIDS, BALANCE SHEET, MARKET, DEFAULT, INFRASTRUCTURE PROJECTS, LOCAL CURRENCY, FINANCIAL CONTRACTS, GOVERNANCE, RENEGOTIATIONS, INFRASTRUCTURE CONCESSIONS, INSURANCE, ECONOMIC DEVELOPMENT, GOVERNMENT BONDS, INTERESTS, INVESTOR, MISSING MARKET, MUTUAL FUND, INVESTMENT, RATES OF RETURN, BOND, COMMERCIAL BANKS, CONTRACTUAL OBLIGATION, INFRASTRUCTURE BOND, INFRASTRUCTURE FINANCE, FINANCIAL ASSETS, PRIVATE INVESTORS, BID, COORDINATION FAILURES, PROFIT, RESOLUTION MECHANISM, CONTRACT RENEGOTIATIONS, SUPERVISORY AGENCY, PENSION FUND, LONG-TERM INVESTORS, INSURANCE COMPANIES, LEVERAGE, EXCHANGE RATE, INSTITUTIONAL FRAMEWORK, SECONDARY MARKET, FINANCIAL SYSTEMS, LIABILITIES, LONG TERM FINANCE, OUTSOURCING, FINANCIAL SERVICES INDUSTRY, GUARANTEE, LONG-TERM ASSETS, UNDERDEVELOPED FINANCIAL SYSTEMS, EXCHANGE RATE REGIMES, FAIR PRICE, ASSET MANAGERS,
Online Access:	http://documents.worldbank.org/curated/en/2015/12/25674410/seven-sins-flawed-public-private-partnerships http://hdl.handle.net/10986/23595
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