Objectives and Rationale of the Study

This study aims to:

• Estimate the factors that account for the greatest level of stress in infrastructure projects with PPP, over a long horizon;
• Explain and analyze the severity of risks, based on their observed impact on project outcomes;
• Determine which countries offer the safest and riskiest medium- to long-run environments for PPP investments;
• Determine the best role for MFIs in PPP;
• Use the analysis of global outcomes and econometric results to further refine definitions of risk (particularly political risk); explain how several manifestations of political risk evolve; determine how political risk is correlated with other risks; and describe how it leads to adverse project outcomes; and
• Analyze the role of domestic vs. foreign investors in PPP.

The study is global in scope, since many of the risks involved are global or regional in nature.

For this study, stress is defined as a situation where private sector proponents have exited, or are contemplating exit from a project. Information on stress was derived from the World Bank's Private Participation in Infrastructure (PPI) dataset, which was used as the source for much of the data used in the estimation. This global dataset contains project-specific information on a large number of projects classifiable as PPP, including the total value of investment, sector, sub-sector, type of transaction, and multilateral participation. It covers projects which achieved financial closure from 1984 up to the present. The data is cross-sectional, with projects classified according to their current status (i.e., whether they are operational, distressed, canceled, or concluded). Although the data is cross-sectional, it contains temporal information that can also be used in analysis. Because the sample period spans the emergence of PPP in the late 1980s, through the Asian and Argentine crisis, and beyond, the sample includes many projects that have undergone the most tumultuous experiences in PPP, as well as the periods of consolidation that followed. The PPI dataset is augmented by country-specific macroeconomic data and, where available, additional project-specific data such as country growth and exchange rate information.

The data has limitations, however. Information on bid and tendering procedures, and the criteria for awards are not available for most projects. Also, owing to the lack of complete global data, other forms of stress are not included in the empirical analysis, such as the incidence of renegotiations around the world. ¹

Analyzing project stress in PPP projects is vital because the benefits of privatization are contingent on projects working smoothly: concessions having ample resources to realize their investment requirements, for instance, or toll roads being properly maintained, or seaports and airports serving commercial and passenger customers efficiently. Project stress is clearly a major factor behind the inconsistent quality of privatization outcomes.

Analyzing and addressing stress also helps stakeholders enhance PPP's attractiveness as an investment, by minimizing the fiscal and social impacts of poorly designed and managed projects.

Download this Paper [ PDF 269.4KB| 58 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.