PPP'S

Question 1

How are PPP’s funded and how is the typical procedure

Answer 1

• Funded through a combination of user fees and government transfers.
• Typically the private company finances,builds, operates and maintains the project
• contract duration between 20-40 years and after concession period asset reverts to the government

Question 2

why do governments choose PPP’s?

2

Answer 2

1) avoiding budgetary constraints (bc doesnt affect the nations budget deficit, but allos investing in infrastructure)
2) ideological reasons (inefficient public sector and full privatization not feasable)

Question 3

what are the benefits of PPP compared to traditional public procurement?

4

Answer 3

efficiency gains arising from:
* lower operational costs bc PPPs encourage non-contractual investments
* avoiding bureaucracy costs
* filtering out bad investments (private comp would not invest in a project where user fees might not cover the operating expenses)
* fewer and shorter construction delays

Question 4

what is a major issue of PPP’s and why does it arises?

Answer 4

Renegotiation, arising from
1) poor project design,
2) oportunistic behavior
3) officials’ desire to increase infrastructure spending
4) outright corruption

Question 5

Why are PPP’s risky for the concessionaires?

Answer 5

costly renegotiations and exogenous demand risks (again leadind to renegotiations)

Question 6

how coud the demand risk be eliminated?

Answer 6

flexible-term contract in which the company collects a fixed amount of user fees (in PV)

Question 7

how did Chile reformed its contracts for transport PPP’s?

Answer 7

by adopting PVR (present value of revenue).
independent technical panel to review and approve major renegotiations and tender out all major expansions of the Original Project

strong governance structure essential for fully gaining the PPP benefits