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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.

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