January 14, 2011
Competitive Enterprise Institute Report Examines Limitations of PPPs
Public/private partnerships to build, operate, and maintain surface transportation projects can bring a number of benefits, but the most popular form of such agreements fails to adequately divide financial risk between private companies and governments, according to a report released Tuesday by the Competitive Enterprise Institute.
CEI's study, "The Limitations of Public/Private Partnerships -- Recent Lessons from the Surface Transportation and Real Estate Sectors," states officials should strive for a middle ground when dividing financial risk between public and private partners, BNA reported.
The most popular PPPs in the transportation sector are concession agreements -- long-term leases of infrastructure to private companies that control the revenue but are responsible for maintenance costs, while the public sector retains ownership.
CEI analyst Marc Scribner, the report's author, argues that concession agreements do a poor job of dividing financial risk between the private and public sectors.
"Government officials are more likely to agree to a PPP project if they are able to retain ownership in the long run without taking on the financial and construction risks," according to the report. "This is a serious problem."
Transferring all financial risk to the private sector while the public sector still retains ownership of the infrastructure only increases overall costs, Scribner contends. But leaving too much financial risk with governments increases the odds of cost overruns, delays, and project suspension, his report states.
Collaboration between governments and the private sector is expected to be a major focus of newly installed House Transportation and Infrastructure Committee Chairman John Mica, R-Florida, who will be drafting a long-term highway and transit program reauthorization this year. Mica has been a strong backer of private-sector investment in surface transportation projects.
The Competitive Enterprise Institute is a Washington-based nonprofit public policy organization dedicated to the principles of free enterprise and limited government. Its 30-page report is available at bit.ly/CEIPPP.
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