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Fiscal Risks from Early Termination of Public-Private Partnerships in Infrastructure (English)

Public-private partnerships (PPPs) in infrastructure provision have expanded around the world since the early 1990s. Well-structured PPPs can unleash efficiency gains, but PPPs create liabilities for governments, including contingent ones. This paper assesses the fiscal risks from contingent liabilities from early termination of PPPs in a sample of developing countries. It analyzes the drivers of early termination and identifies systematic contractual, institutional, and macroeconomic factors that can help predict the probability that a PPP project will be terminated early, using a flexible parametric hazard regression. Using the probability distributions from the regression analysis, it simulates scenarios of fiscal risks for governments from early termination of PPPs in the electricity and transport sectors, adopting a value-at-risk approach. The findings indicate that the rate of early terminations decreases with direct government support, greater constraints on executive power, and the award of the PPP by subnational governments; it increases with project size and macro-financial shocks. The simulations show that fiscal risks from infrastructure PPP portfolios are not negligible in some countries, reaching as high as 2.8 percent of GDP. A severe macro-financial shock substantially increases the estimates, with the value at risk the year after the shock 11–20 times larger.

Details

  • Author

    Herrera Dappe,Matias, Melecky,Martin, Turkgulu,Burak

  • Document Date

    2022/03/15

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS9972

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2022/03/15

  • Disclosure Status

    Disclosed

  • Doc Name

    Fiscal Risks from Early Termination of Public-Private Partnerships in Infrastructure

  • Keywords

    private participation in infrastructure; fiscal risk; contract period; per capita growth rate; information and communication technology; japan international cooperation agency; private financing of infrastructure; crisis in emerging market; legal ownership of asset; municipal solid waste data; financing need; ordinary least squares regression; missing value; baseline hazard function; value at risk; bayesian information criterion; direct government support; water and sewerage; exchange rate crisis; case of default; breach of contract; Special Purpose Vehicle; risk of distress; amount of investment; Check and Balances; billion people; nominal exchange rate; law and economics; public private; local currency market; emerging market finance; annual depreciation rate; shares of contract; exchange rate shock; exchange rate risk; Contingent Government Liabilities; state-owned enterprise; transport infrastructure investment; urban water utility; net present value; public-private partnership finance; debt equity; chain of event; state-owned utilities; method of valuation; state-owned utility; Rule of Law; sale of share; share of capital; consumer price index; risk of default; public infrastructure service; power purchase agreement; rate of depreciation; management of infrastructure; management infrastructure; accrual accounting system; private sector player; allocation of risk; investment in road; number of connections; degrees of freedom; degree of competition; private party; private parties; expected loss; hazard rate; active portfolio; banking crisis; contingent liabilities; contingent liability; government revenue; financial closure; private sponsor; investment commitment; debt crisis; recovery rate; investment amount; equity sale; macroeconomic shock; Private Equity; Toll Road; fiscal cost; treatment plant; private finance; Small Hydro; efficiency gain; water utilities; hazard model; electricity sector; probability distribution; capital grant; incomplete contract; survival analysis; contract terms; Direct Subsidies; direct subsidy; project finance; executive power; equity financing; institutional variables; physical asset; private investment; transportation infrastructure; macroeconomic crisis; survival function; high probability; standard error; investment ratio; institutional factor; Energy Sector; debt finance; budget constraint; fiscal constraint; government guarantee; electricity distribution; entire contract; public entity; foreign currency; financing information; public provision; transition period; econometric estimation; survival probability; negative coefficient; macroeconomic factor; project size; analysis period; portfolio size; quantitative method; middle-income economy; value exposure; international arbitration; investment growth; currency mismatch; cumulative investments; estimation result; contract termination; constant rate; partial divestiture; fiscal resource; initial contract; local saving; standard for method; implicit liability; input price; Power Generation; currency depreciation; finance strategy; regression results; last resort; political risk; positive coefficient; project selection; political competition; delta method; variance-covariance matrix; different practice; missing data; financial statement; government contract; annual series; value use; quality improvement; defaulted loan; financial information; Active Transport; disputed territory; research agenda; private operator; leverage ratio; total debt; implicit guarantee; local problem; sectoral distribution; outstanding debt; transactions cost; equity owner; market practice; imputation process; database records; financial crisis; government default; future investment; contract design; private provision; finance infrastructure; contract cancellation; infrastructure provision; government spending; infrastructure asset; political determinant; private company; risk allocation; investment need; transportation research; annual investment; risk base; base cas

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Citation

Herrera Dappe,Matias Melecky,Martin Turkgulu,Burak

Fiscal Risks from Early Termination of Public-Private Partnerships in Infrastructure (English). Policy Research working paper,no. WPS 9972 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/750981647367854667/Fiscal-Risks-from-Early-Termination-of-Public-Private-Partnerships-in-Infrastructure