Assessing contingent liabilities in public-private partnerships (PPPs)

Sfakianakis, Emmanouil and van de Laar, Mindel (2012). Assessing contingent liabilities in public-private partnerships (PPPs). UNU-MERIT.

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  • Sub-type Working paper
    Author Sfakianakis, Emmanouil
    van de Laar, Mindel
    Title Assessing contingent liabilities in public-private partnerships (PPPs)
    Publication Date 2012
    Place of Publication Maastricht, NL
    Publisher UNU-MERIT
    Pages 19
    Abstract Public-private partnerships (PPPs) can impose important future cost on the government, which in turn create obligations similar to public debt obligations for financing infrastructure investment. Apart from that, government guarantees, typical in PPP contracts, constitute explicit contingent liabilities. The risk that arises from such guarantees must be transparently valued to assess a country's fiscal profile. In this study, we aim to show that the notion of a PPP as a (set of) contingent claim(s) can also be used to value the PPP public risk. Valuing contingent claims in this manner is important, as it allows us to compare more carefully different set-ups of a PPP. We introduce and analyse the different scenarios that were at the Chilean government's disposal for executing a transport infrastructure project. Our findings reveal that, for the first years of a PPP programme, the burden on the surplus or deficit will be less in the case of the PPP compared to typical public investment. Secondly, the net contingent PPP flows constitute the real effect on the deficit and correspondingly on the public debt and weaken the government's fiscal stance. Finally, we attribute a specific price to the PPP public risk introducing CDS valuation with and without counterparty (government) default.
    Keyword PPP
    Guarantees
    Public finance
    CDS valuation
    JEL H40
    Copyright Holder UNU-MERIT
    Copyright Year 2012
    Copyright type All rights reserved
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