Profits and perils of public private partnerships
Around the world, cash-strapped governments are following the UK in turning to public-private partnerships to fund projects. No-one disputes the vast commercial potential for what may yet emerge as a new asset class. But deals are often fiendishly complicated and can provoke public doubts. Getting to grips with contract details is vital.
|Toll roads offer reliable cashflows to back PPP deals
but contracts need to be tightly drafted
The profits and risks of the public-private partnership (PPP) approach to building and operating infrastructure projects are apparent from the new A4 motorway, a major European artery from Germany, across southern Poland, to the Ukraine. The e80 million ($72 million) cost of upgrading the Krakov-Katowice section has been funded not by the cash-strapped Polish taxpayer but by the European Bank for Reconstruction&Development. Under a concession, the work was completed two years ago. Each hour thousands of cars and trucks using the A4 yield a rich revenue in tolls that flows steadily to the private operator and the Polish government.
The motorway's commercial success suggests that refinancing the deal in a way that appeals to institutional investors should be comparatively straightforward. That should also help open the Polish infrastructure market to much-needed international capital.