Riskeness of public-private partnership concept

Abstract

Insufficiently functioning infrastructure (whether agricultural, healthcare or transport) is one of the biggest obstacles to general economic development of any economy. The use of the public-private partnership (PPP) concept is very tempting for any government as it represents an extra-budgetary source for the investments' financing. It allows participation of the private sector in various projects ranging from agricultural irrigation to the highway construction. It brings its capital, know-how and experience for financing, construction, operation and maintenance of the service standardly provided by the public sector. This paper lists all standard sources of public infrastructure funding. Considering the differing conditions and possible profitability for various countries, general or project-dedicated government bonds were evaluated and proposed to be the most advantageous extra-budgetary alternative source of funding. In case the public sector has enough credibility for a successful bonds' issuance, it is financially advantageous to use raised money for the capital expenses of the construction project instead of the more expensive private capital's involvement. Two case studies of the currently ongoing PPP projects were used to prove its higher expensiveness in comparison to the economical results of the bonds' issuance. Assessing most important known aspects and problematic issues of the PPP concept and comparing it to the other usual sources and methods of financing, this paper confirms the hypothesis of the PPP's overall higher complexity and expensiveness.