Sunday, April 3, 2016

Are institutions good travellers in PPPs?

In their excellent book The Economics of Public Private Partnerships, Chilean economists Engel, Galetovic and Fischer, three of the best experts in this topic in the world, make a number of proposals to improve the performance of this type of contracts to build and maintain infrastructures, and to provide services over them, as in motorways and similar projects. Recently they teamed up with one of the best Spanish experts in the topic, Ginés de Rus, to write a report about motorway PPPs in Spain. One of the chapters of the Chilean economists' book is devoted to the governance of these concession contracts. They believe that one of the problems they have is that all the stages of one of these contracts is governed by agencies inside the same ministry, the Public Works department. They propose to replace this structure by at least three agencies as independent from government as possible: one to select the project, another to enforce the contract and a panel of experts to adjudicate controversies in renegotiations. For Spanish motorways they propose the same solution. In Spain, motorway PPPs have been very controversial, because they have been renegotiated several times since they were first used in the 1970s. Motorway PPPs in Spain have not avoided white elephants and the allocation of risks has always been controversial. After the fiasco (because of demand overestimation and cost underestimation) of a set of motorways around Madrid in the recent past, some judicial decisions may oblige the national govern to pay several billion euros to bail out the concessions. This has become a distributive problem between shareholders, users and taxpayers, not very different from the problem of the tariff deficit in energy that the government had to fix two years ago. But in any distributive problem it is difficult to delegate it to technocratic experts, who should decide in an accountable way on complex issues on which most society agrees. Additionally, Spain is not a centralized isolated small country like Chile, but a large decentralized democracy that belongs to the European Union. The report co-authored by de Rus acknowledges that some of the problems with PPPs in Spain are due to this institutional complexity, which will hardly be fixed by creating independent agencies at the national level. The governance of PPPs is a complex problem, and more debate is needed. Another good presentation of the issues was given by French economist Stéphane Straub some months ago in a conference in Barcelona.

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