Evaluating the risks of public private partnerships for infrastructure projects

Abstract

In many countries, limitations upon the public funds available for infrastructure have led governments to invite private sector entities to enter into long-term contractual agreements for the financing, construction and/or operation of capital intensive projects. For the public procurer, there is an obvious need to ensure that value-for-money has been achieved. To the project sponsors, such ventures are characterised by low equity in the project vehicle and a reliance on direct revenues to cover operating and capital costs, and service debt finance provided by banks and other financiers. Risk evaluation is complex, requiring the analysis of risk from the different perspectives of the public and private sector entities. This paper analyses the principles involved, drawing on practical experience of evaluating such projects to present a framework for assessing the risks, and using as illustration a case study of a waste water treatment facility in Scotland which is typical of most PPP projects.