The growth in the use of public private partnerships (PPP) for infrastructure funding in the period 1990-2000 is described. In western Europe, PPP has become attractive at a time when the financial return on projects is at an historic low, rendering some projects such as new motorways, railway lines and replacment rolling stock not viable. A private investor requires a rate of return from a project that will cover the rate of return of money invested in the financial market plus a margin for risk and also a profit margin. A public operator will not require a profit margin. Projects with a low rate of return will require a public subsidy which may amount to a large proportion of the cost of the project. From a financial point of view, scarce public resources may be more effectively invested in projects with a high rather than a low rate of return. Issues relating to the social return from projects are discussed. If private operators are no more efficient than public operators, it is always more expensive for the State to award a concession for public infrastructure to a private enterprise. If private operators are more efficient, the additional expense entailed by their use may become a gain for public finances, and the lower the financial profitability of the project the higher the probability of such a gain being realised. It is not considered inconsistent that private operators be awarded projects with very low rates of return in that such a course of action can both lower public expenditure and increase the social return on the project. For the covering abstract for this conference see ITRD E128114.
Abstract