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Valuing Governmental Support in Road PPPs

Author

Listed:
  • Carlos Contreras

    (Universidad Complutense de Madrid)

  • Julio Angulo

    (Partner at ICIS (International Center for Infrastructure Solutions))

Abstract

Every year more transport infrastructures are built under long-term contracts with private partners. When using public-private partnerships (PPPs), the amounts invested in the construction of such infrastructures may not be counted as public debt if certain conditions are met. But in PPPs, host governments often make payments and provide financial support, through various channels, generating direct and/or contingent financial liabilities. By using an option pricing-based model, this paper offers a method to quantify those liabilities for various forms of road PPPs. In particular, we focus on valuing debt guarantees, equity guarantees, and minimum revenue guarantees. Our method takes into account that in road infrastructures, the governmental payments are typically a function of the evolution of both inflation and traffic. We use an illustrative case for showing the magnitude of the contingent debt implied in such guarantees.

Suggested Citation

  • Carlos Contreras & Julio Angulo, 2017. "Valuing Governmental Support in Road PPPs," Hacienda Pública Española / Review of Public Economics, IEF, vol. 223(4), pages 37-66, December.
    • Handle: RePEc:hpe:journl:y:2017:v:223:i:4:p:37-66
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    References listed on IDEAS

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    1. Carlos Contreras & Julio Angulo, 2022. "Innovation and Tariff-adjustment Options in Public-private Partnerships," Hacienda Pública Española / Review of Public Economics, IEF, vol. 243(4), pages 51-81, December.

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    More about this item

    Keywords

    Option pricing; public-private partnerships; concessions contracts; contingent liabilities; public budget.;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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