Abstract
As government indebtedness has risen at all levels globally, it has become necessary to find viable infrastructure financing alternatives. This paper offers insight into Public-Private Partnerships (PPP) and their alternative financing approaches. PPP is a general term that implies the private sector's involvement in delivering public services in partnership with public owners.
Project risks can be optimized by allocating risks to the parties that can influence their outcomes most effectively (Arrow, 1974). PPP proponents argue that private sector companies are highly skilled in building and operating large infrastructure projects, and public sector owners can benefit from transferring engineering, construction and operation risks to private sector partners under PPP contracts. On the other hand, PPP opponents argue that private sector capital is motivated by short term profits and PPPs generally increase the infrastructure costs for the public. The success and failure of risk optimization and project financing depend on the details of the deal that has been closed under the PPP contract.
No single PPP model is proven to be successfully applicable to a wide range of projects. In order to negotiate and construct the right model for a project, the participants need to understand the basic underlying principles of PPP risk allocation and financing structures.
Author: Attila Boydak
