The Economics of Public-Private Partnerships: Theoretical and Empirical Developments PDF
Preview The Economics of Public-Private Partnerships: Theoretical and Empirical Developments
Stéphane Saussier · Julie de Brux Editors The Economics of Public-Private Partnerships Theoretical and Empirical Developments The Economics of Public-Private Partnerships Ste´phane Saussier (cid:129) Julie de Brux Editors The Economics of Public-Private Partnerships Theoretical and Empirical Developments Editors Ste´phaneSaussier JuliedeBrux IAESorbonneBusinessSchool IAESorbonneBusinessSchool Paris,France Paris,France CITIZING Paris,France ISBN978-3-319-68049-1 ISBN978-3-319-68050-7 (eBook) https://doi.org/10.1007/978-3-319-68050-7 LibraryofCongressControlNumber:2017959881 Translation from the French language edition: E´conomie des partenariats public-prive´, © De Boeck 2015.AllRightsReserved. ©SpringerInternationalPublishingAG2018 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. 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Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Foreword The history of partnerships between the public and private sectors for providing public services goes as far back as the history of the public sector itself. Broadly speaking,thefirstexperiencesofpublic–privatepartnershipsonrecorddatebackto antiquity.Eversincethen,andateverystageofacountry’s,aregion’s,oracity’s history,whenthechoiceofsuchapartnershiphasbeenmade,ithasbeentheresult ofvariousfactorswhicharenowwelldocumented.Suchachoicehasensuedfrom expectedconstraints(mostoftenfinancingconstraints,eitherprivateorpublic.But oftentheyhavealsobeentheresultofconstraintsassociatedwithpublicaccessto certain technologies or skills), from preferences (out of political or operational pragmatism, or as a result of ideology), from the rejection of the most extreme productionmethods(eitherpurelyprivateorpurelypublic)blamedforquantityor quality rationing or by higher costs of service, or from a reaction to governance choices (in some cases to fight corruption, collusion, or political capture but in otherstofacilitatesuchperversionsofpublicchoicemechanisms). However, our conceptual and analytical understanding of how important the origin of this decision-making process really is, and of the sheer diversity of the scopethepartnershipcantake,hasamuchshorterhistory.Itisarguablynotmuch longer than 30 years. It all started with a generation of outstanding researchers whose names and contributions are crucial to any theoretical or applied research focusingonthosepublic–privatepartnerships.Thegenerationinquestionincludes Akerlof,Baron,Hart,Klemperer,Laffont,Maskin,McAfee,McMillan,Meyerson, Milgrom,Riley,Sappington,Stiglitz,Tirole,Vogelsang,andWilliamson(toname but a few). To this day, their 1980s’ research still serves as a framework for our collective understanding of the incentives underlying the various stages of any interaction between the public and private sectors in this type of contractual agreement. Ifthesestagesarebetterknowntoday,itistoalargeextentthankstothisinitial body of work, but also to developments in the fields of game theory and contract theory,aswellastoalongseriesofsubsequentempiricalcontributionswhichhave come to refine, expand, clarify, and test the theoretical analyses of the 1980s and v vi Foreword early 1990s. This research highlights the efficiency conditions at each recurring stagesinthetimelineofpartnerships,fromthemomentwhenthedecisiontostarta collaborationismadebyapoliticianorcivilservanttothepointwhentheservice, asset,orinvestmentthepublicadministrationisseekingtoprocureisdelivered. Oncethedecisiontocollaboratehasbeenmade,thefirststageofitsimplemen- tation consists in detailing specifically what will be the subject of a contract between the two parties and estimating how consistent these specifications are with the demand side. This initial estimate aims to provide a first assessment of theconsistencybetweenthetotalcostsofthevariouspossiblespecificationsandthe expectedfinancingstructure,particularlyitsdistributionbetweenthetaxpayersand thedirectbeneficiariesofthepublicservice(thetwoobviouscontributorstopublic finance). Then comes the time to organize a call for tenders and to draw up the regulationstowhichallinvolvedpartieswillbesubject,aswellastheirrespective rights and obligations. At this point, decisions must be made about implementing the various commitments and about oversight and penalty imposition in case of noncompliance with regulations, and the efforts necessary to ensure a successful collaboration—particularlyitsconsistencywiththeinitialdecision—mustbeantic- ipated. This stage also involves carrying out a more precise assessment of the financial andeconomic consistency between the cost of the rights and obligations specifiedunderthefinalcontractandtheirfinancing,includingfinancingcostsfor both the public and private sectors. The next stage consists in implementing the decisionandoverseeingtheprocess,generallythroughregulatorymechanismsthat oftenleavesignificantroomforsubjectivity,asnoteverythingcanbeprovidedfor under the contract, which is necessarily incomplete. It also involves taking into accountthepossibilityofanecessity—oratleastadesire—onthepartofoneofthe partiestorenegotiatecertainprovisionsofthecontract.Andthisseriesofpredict- ablestagesoccurswithinaninstitutionalcontextthatcanbedelineatedandsetup priorto,during,orafterpartnershippreparationandimplementation. Asawhole,thetheoreticalandempiricalliteraturethathasallowedforadeeper understandingofeachofthesestagesconstituteswhatProfessorSaussierhascalled the economics of public–private partnerships. Although rich and fruitful, this literature suffers from a major problem. It is largely perceived as too difficult to understandbystakeholdersoutsideofacademiaand/orthefieldofeconomics.This perceptionisnotunreasonablegiventhatthisisanincrediblyextensive,heteroge- neous, somewhatfragmented,andoftenverycomplexliterature.Themain conse- quenceofthisisthatatbest,theresultsofthisresearchfilterinviainterviewsorless technicalarticlespublishedinthegeneralpress,whichcansometimesbereductive. Butamongtheoperatorsofpublic–privatecollaborations—thegroupwhichcould benefitmostfromlessonsdrawnfromthisresearch,themostwidespreadreactionis simplyoneofrejection. The book you are reading makes it unacceptable to reject such knowledge on accountofitbeingtoodifficulttograspforanyonewithatrueinterestinPPPswho iseagertomakesurethatexpertisefurtherstheinterestsofthecommunityinstead of serving mere ideological choices or needs arising from political, financial, or institutional constraints. What this book accomplishes is no small feat, as it Foreword vii managessimultaneouslytosynthetizeanextensiveliteratureinarigorousmanner andto“translate”itintoalanguagemadesimplerbytheabsenceofajargonwhich otherwise so often characterizes it. This book perfectly illustrates how to dissem- inate technical academic knowledge in such a way that it can be put to direct use (ifpossible)andsubmittedtoinformedcriticism(asopposedtoblindanddogmatic) whennecessary.Thereisnodoubtthatitwillhaveamajoroperationalimpact,both among experts in charge of preparing the legal material for contracts and among civil servants responsible for making key decisions at each stage of partnership implementation. This book is also a small gem from an academic point of view (although not actuallysmallperse,asitisratherlong),inthatitcoverseveryessentialaspectof thesubjecttowhicheconomistshavecontributed.Eachchapterprovidesathorough literaturereview,thusallowingacademicreaderstogetquicklyuptodateinthekey dimensions of the subject. It will most likely be adopted by many professors as a referencebookforcoursesintheeconomicsofregulationandcompetition,public economics,orcontracttheory. All in all, very few books manage to target such a large audience in such a technical field. The authors of this book have risen brilliantly to the challenge. Public service users and taxpayers will undoubtedly be its main beneficiaries. Indeed, one cannot read it without considering how much is still left to do in order to adjust our use of an instrument that has the potential to be immensely usefulbutisalsofarmoresensitivetomanipulation,incompetence,andignorance than politicians and economic operators are willing to admit, in Europe or else- where. ECARES,Universite´ Librede AntonioEstache Bruxelles Brussels,Belgium Contents Introduction:TheEconomicsofPublic–PrivatePartnerships. . . . . . . . 1 JuliedeBruxandSte´phaneSaussier PartI Definitions,ScopeandEconomicAnalysisofPPPs AnEconomicAnalysisofPublic–PrivatePartnerships. . . . . . . . . . . . . 17 JeanBeuve,Ste´phaneSaussier,andJuliedeBrux RegulatoryInstrumentsforPublic–PrivatePartnerships. . . . . . . . . . . . 39 LisaCheverandAudeLeLannier TheEvolutionofFinancingConditionsforPPPContracts: StillaPrivateFinancingModel?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Fre´de´ricMarty PartII AnEmpiricalAnalysisofPPPs TheRelativeEfficiencyofCompetitiveTendering. . . . . . . . . . . . . . . . . 113 LaureAthiasandLisaChever RenegotiatingPPPContracts:OpportunitiesandPitfalls. . . . . . . . . . . 135 JeanBeuve,AudeLeLannier,andZoe´ LeSqueren ComparativePerformancesofDeliveryOptions:EmpiricalLessons. . . 163 MiguelAmaral,EshienChong,andSte´phaneSaussier HorizontalandVerticalAgreementsinPPPs. . . . . . . . . . . . . . . . . . . . . 203 JohnMooreandCarineStaropoli ix Introduction: The Economics of Public–Private Partnerships JuliedeBruxandSte´phaneSaussier 1 Infrastructure Needs Call for More Public and Private Investments Investment commitments in H1 2016 for private infrastructure projects in low-to- middle-incomecountriestotaledUS$29.5billionacross103projects.LatinAmer- icanCountries(LAC)captured43%oftheglobaltotalfollowedbyEastAsiaand Pacific(EAP),with34%;SouthAsia(SAR),12%;Sub-SaharanAfrica(SSA),4%; and Europe and Central Asia (ECA) and the Middle East and North Africa (MENA),both3%(seeFig.1). Infrastructureinvestmentneedstobesubstantiallyincreasedinmanydeveloping and emerging economies in order to support more rapid economic growth. AccordingtotheOECD(2015),totalglobalinfrastructureinvestmentrequirements by 2030 for transport, electricity generation, transmission and distribution, water, andtelecommunicationsarenolessthanUSD71trillion.Thisrepresents3.5%of theannualWorldGDPfrom2007to2030. Focusing on transport, SSA is expected to meet the fastest average annual growthrate(over11%).AsiaPacificisexpectedtobe,byfar,thelargesttransport infrastructure market, with investments increasing from $557 billion per year to nearly$900billionperyearin2025(PWC2015).Inthispartoftheworld,Chinais J.deBrux(*) IAEParis-SorbonneBusinessSchool,Paris,France BusinessAdvisoryBoardatUnitedNationsEconomicCommissionforEurope,Geneva, Switzerland CITIZING,Paris,France e-mail:[email protected] S.Saussier IAEParis-SorbonneBusinessSchool,Paris,France e-mail:[email protected] ©SpringerInternationalPublishingAG2018 1 S.Saussier,J.deBrux(eds.),TheEconomicsofPublic-PrivatePartnerships, https://doi.org/10.1007/978-3-319-68050-7_1 2 J.deBruxandS.Saussier US$ Billion* Number of Projects 200 600 180 500 160 140 400 120 100 300 80 200 60 40 100 20 0 0 2000 2002 2004 2006 2008 2010 2012 2014 H1 2016 EAP ECA LAC MNA SAR AFR # of projects * Adjusted by US CPI Fig. 1 Total investment in energy, transport, and water by region. Source: World Bank, PPI ProjectDatabase animportantplayer:Recently,Chinalaunchedmorethan1000PPPprojectsworth $317.75 billion (“China invites private investors to help build $318 billion of projects,” Reuters, May 25, 2015—http://www.reuters.com/article/us-china-econ omy-infrastructure-idUSKBN0OA07R20150525). Even if transport investments are projected to increase at an average annual rate of about 5% worldwide over theperiodof2014–2025(seeFig.2),investmentsexpectedininfrastructurearefar lowerthanwhatisneeded. Inadditiontothoseeconomicinfrastructureneeds,theneedsforsocialinfrastruc- turesarealsoofprimaryimportance.Socialinfrastructurestypicallyincludeassets thataccommodatesocialservicessuchasschools,universities,hospitals,prisons,and communityhousing.Theydonotaimatsupportingdirectlyeconomicactivity,even ifefficientpublicservicesmayattractforeigninvestmentsandincreaseproductivity. Whatever the kind of infrastructure required, needs are important and public authorities face high financial constraints. That is why, in order to meet these objectives, there is a widespread recognition that greater private involvement in infrastructureisneeded,asgovernmentscanhardlybridgethegrowinginfrastruc- turegapthroughtaxrevenuesandaidalone.Althoughpublic–privatepartnerships (PPPs)shouldnotbeviewedasafinancingtool,theyareoftenpresentedasawayof continuing to invest in infrastructure even in financially constrained periods. Pri- vate involvement is also frequently presented as a way to optimize productive efficiency while delivering a high level of service. This is typically the kind of issues that will be discussed all along this book, supported by scientific research evidence,withoutdogma.
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