Joaquim Miranda Sarmento

Anatomy of Public-Private Partnerships: Their Creation, Financing, and Renegotiations

This paper presents the main reasons why public-private partnerships (PPPs) are adopted as well as the possible disadvantages for the public and private sectors. By means of two case studies on bridge construction and railway infrastructure (Fertagus and Lusoponte), we elucidate how a PPP is structured and financed. Furthermore, the two case studies illustrate how the renegotiation processes are conducted when the public-private contracts have to be altered and what determines (un)successful renegotiations.

Reforming traditional PPP models to cope with the challenges of smart cities

Growing urbanization trends, together with a greater environmental awareness, are transforming cities into game changers in the sustainability game. Cities are under pressure in both developed as well as developing economies. In developed countries, the challenge is to be able to tackle a lack of infrastructure, such as clean water and sanitation and mass transit transport systems. In developed countries, the challenges are distinct, but not less. There are growing needs for a renewal of infrastructures, such as water, transportation and energy systems, which deteriorate over time, and the related increasing challenges regarding the sustainability of the systems. Drivers of change include lower costs, greater levels of efficiency, better response to natural disasters (resilience), an ability to provide a good service, among others. Cities, regulators and operators are focused on improving innovation and develop truly smart cities and smart infrastructure. Public–private partnerships (PPPs) have been at the forefront of infrastructure development and management, however, questions exist regarding existing models which are usable for smart infrastructure. Our thesis is that existing models of PPP need to be significantly restructured, to be able to provide an adequate response to the smart infrastructure challenges and to be a driving force to make cities smarter. Greater flexibility is necessary, as is a profound change of the existing regulatory and procurement models, in order to ensure that the private sector will continue to have a pivotal role with regards to infrastructure, financing and management.

Cost Overruns in Public Sector Investment Projects

We analyze cost overruns in a large sample of public infrastructural investment projects in Portugal. The average cost deviation relative to the budgeted costs amounts to 24%. The large projects even have a higher cost deviation and a higher probability of cost overruns, which suggests that the public administration may not have sufficient expertise to forecast required investments and handle these types of projects. Cost overruns are more likely in election years, reflecting that politicians seem eager to speed up or conclude infrastructural investments, and thus, they inaugurate a new service to harvest political goodwill with the population. We document that cost deviations are reduced over time; however, this reduction does not appear to be the result of the new procurement laws but seem rather the result from the benefits of learning and increased fiscal constraints. A reduction in corruption positively correlates with cost deviations and the probability of cost overruns.

Understanding the patterns of PPP renegotiations for infrastructure projects in Latin America: The case of Brazil

The increased use of public–private partnerships (PPPs) around the world to build infrastructures and provide public services has led to several concerns. One of the main pitfalls of PPPs is an abnormal frequency of renegotiations, especially renegotiations occurring during the first years of contract. The Latin American experience has been the most relevant in terms of research on PPP renegotiations. Using the literature on PPP renegotiations in the Latin American context, this article focuses on the analysis and discussion of renegotiations. We use the experience from Brazil, at the State (region) level, of PPPs and renegotiations. From 2006 to 2016, Brazil developed 42 PPP projects in several sectors. From these, 27 were renegotiated at least once. We found a high number of renegotiations within a short period since the start of the contract for the first renegotiation to occur. The motives for renegotiations are mainly perceived from the public sector, particularly failure in planning, concept, and bidding. Electoral periods and the political connections of shareholders also have an impact on renegotiations. Based on the Brazilian experience, we drawn some policy implications.

Buy back PPPs

As Portugal is facing strong fiscal pressure, government spending on public-private partnerships (PPPs) in the road sector has become a main budgetary constraint. In this article, we show how the financial crisis has created a unique arbitrage opportunity that provides a solution to this problem. Since the private sector is in urgent need of liquidity, we suggest that the Portuguese government should use some of the bailout funds, borrowed at lower interest rates, to buy back the roads concessions, discounting future payments at the high interest rates currently charged to Portugal. For the roads already in operation, the purchase of the assets would significantly reduce future public payments and would also release money into banks and the economy. For the roads currently under construction, we propose that the government buys only the equity of these companies. That would also reduce future payments, and allow for the postponement or even cancelation of some of these projects, while granting private companies an exit from projects that they are no longer able to finance. This operation would save around half of PPP payments over the next 20 years.