Risk factors in public-private partnerships of infrastructure in developing countries

Abstract

Since the 2008 global financial crisis, governments have been seeking strategic tools for sustainable development of infrastructure in developing countries and private sectors have tried to pave the new way of infrastructure business opportunity in developing countries. A number of studies and books focus on the Public-Private Partnerships (PPPs) as a breakthrough for the sustainable and efficient infrastructure development as a public service provision. The concept of PPPs stemmed from the public policy reform in the United Kingdom (UK)in 1980s which was introduced for the efficiency in public work by encouraging the private player to join the public work and investment. By the mid-1990s many governments experienced the pressure of fiscal deficits and increasing public debt burdens especially for large infrastructure. Furthermore, globalization has enlarged the role and function of private sectors after 1990s, the governments introduced PPPs to improve the value for money in public service delivery projects and to bring private finance to public service delivery. During the last decade, governments recognized that PPPs are the useful instruments and network to solve the matter of budgetary limits in accessing the private finance as well as in increasing efficiency of infrastructure investment by partnering with the private sectors. Engaging in a PPPs process ensures the enabling environment for PPPs. The key factors to determine are as follows: how to contract between public and private, how to allocate and manage the risks and sufficient and effective transfer of risk to the private partner. With this regards, government institutional factors such as regulatory quality, government effectiveness and market institutional factors like market system, for competition and efficient transactions are necessary for creating public-private partnerships. This dissertation describes the risks and contract types in infrastructure PPPs and suggests the analytical framework for risk factors in determining the contract types of PPPs. In the empirical part of this research, it has three hypotheses and takes the proxy variables of risks of infrastructure PPPs and builds the model to explain how different the significant risk factors are in three different types of PPPs for infrastructure in developing countries. PPPs have increasingly acknowledged as strategic tools for infrastructure investment and development from both public and private sides. In the last decade, the more private sectors develop and participate in the public works of infrastructure, the more business environment becomes enabling. This indeed has become more essential for infrastructure PPPs in developing countries, especially in case of Divestiture types. Greenfield types have diverse contract types whose shared risks are wider in range in comparison to the other types, and are significant in designing the structure of contracts and require more governmental institutional factors for sound management and operation of contracts. In conclusion, this empirical study proves hypotheses that developing countries with less business operational risks are more likely to have Divestiture types of PPPs

developing countries with less political and legal risks attract more Greenfield types of PPPs.