Fiscal effects and public risk in public-private partnerships
Built Environment Project and Asset Management
ISSN: 2044-124X
Article publication date: 18 November 2013
Abstract
Purpose
PPPs can impose important future public costs, while PPP government guarantees create explicit contingent liabilities similar to public debt obligations. The risk that arises from such partnerships must be transparently valued to assess a country's fiscal profile. The purpose of this study is to show that the notion of a PPP as a (set of) contingent claim(s) can also be used to value the PPP public risk.
Design/methodology/approach
Taking a finance perspective, the paper refers to more traditional cases of asset valuation, applies them to a PPP and compares more carefully different set-ups of a PPP. The paper introduces and analyzes the different scenarios that were at the government's disposal for executing a transport infrastructure project.
Findings
The findings reveal that, for the first years, the burden on the surplus or deficit will be less in the case of the PPP compares to typical public investment. Secondly, the net contingent PPP flows constitute the real effect on the deficit and correspondingly on the public debt and weaken the government's fiscal position. Finally, the paper attributes a specific price to the PPP public risk introducing CDS valuation with and without counterparty (government) default.
Originality/value
This study, by proposing a method to evaluate PPP risk, complements previous literature on PPPs, which touches upon issues mainly related to the description of PPP types, the effect of contingent commitments and the accounting classification of PPP assets.
Keywords
Citation
Sfakianakis, E. and van de Laar, M. (2013), "Fiscal effects and public risk in public-private partnerships", Built Environment Project and Asset Management, Vol. 3 No. 2, pp. 181-198. https://doi.org/10.1108/BEPAM-04-2012-0022
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited