Download - Government Financial Support and Ppps
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GovernmentFinancial Support
and PPPsDavid Duarte Arancibia [email protected]
Head of Contingent Liabilities and PPPs
Ministry of Finance - Chile
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Why a PPP requires fiscal
support?
Because the PPP project is not attractive for the private sector An economic infrastructure is not profitable enough
Government is the purchaser of the services
Because involve high risk
The private sector is not willing to bear
The private sector requires an high risk premium
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Ways for fiscal supportFunds
Equity
Direct payments (subsidies, shadow tolls, availabilities
payments)
Contingent
Guaranties (debt, exchange rates, interest rates, revenues,
commodity price, etc)
Insurances
Indemnities (cost overruns, revenue shortfall)
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Ways for fiscal supportOther ways for government support
State of lawFinancial markets regulations
Low country risk
Promoting private initiatives
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Fiscal support has to be Correctly designed
Efficient Effective
Sustainable
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Designing Correct project selection
Project has a positive CBA Procurement maximize VfM
Every fiscal support has an specific objective
Be sure that guaranties are not used to replace fiscal payments
Temptation exist, because guaranties are no reflected ontraditional account systems
Is not possible (or it is very expensive) to provide by the
private counterpart
Guaranties, many times do not allow to financial markets to
make a accurate risk assessment
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Designing
Use estimated values (not expected) Hopefully estimations should be done or reviewed by an
independent area of government
Take in account correlations
GDP/Traffic GDP/Interest rates
Traffic/Cost
Has to create correct incentives or at least not perverse
incentives
Risk or risk cost (at least a part) has to be allocated at the side
that can manage it
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Efficiency Projects with high risk requires higher risk premium
High risk premium are expressed into high prices Higher tolls or higher government payments
Wrong decisions are not affordable by the private sector but
for the government, the patrimonial cost is divided between
taxpayers Tolls represents a bigger fraction of the taxpayers income
than the potential cost for the government of bear the risk
In this case is efficient to allocate the risk at the government
side
Be sure that risk allocation is based in economic efficiency,
not by accounting issues (Eurostat)
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Effective
A country is in a better fiscal position if it do grant aguaranties than if it not do that
In some cases guaranties has no effect in the private sector
assessment of the project
Private sector develop better/efficient ways to bear a risk
Charge a fee for the guaranties is a way to encourage to the
private counterpart to make an accurate assessment of the
need
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Sustainable Government has to be able to afford the cost
Stocks of commitments has to be monitored Cash flows has to be estimated
Contingent liabilities are difficult to be estimated
Techniques as Montecarlo or Black-Scholes are very useful
All information has to be disseminated
Most of fiscal commitments involved in a PPP are off the balance
Subsidies are not debt, the payments commitments has to be
published
Contingent commitments has to be include (estimated payments,
VaR analysis, models used, etc)
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Sustainable Contracts has to be transparent by public opinion
Performance reports has to be available Level of commitments has to be congruent with the fiscal
planning
Investment trough PPPs is off budget, so is not constrained for
fiscal rules Additional rules are required, specific for PPP investment
Long term planning (more than 4 years)
Permanent involvement of the MoF in the projects and
programs (check & balance) PPP agency should not be allocated at the MoF
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Recommendations to avoid
fiscal surprises Correct project selection (CBA, VfM)
Realistic times Good base studies
Specialized advisory
Permanent supervision
Transparency (contracts, agreements, fiscal commitments,
etc)
Disseminate information
Contingent liabilities management Assess risk transfer
Make sound economic decisions
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GovernmentFinancial Support
and PPPsDavid Duarte Arancibia [email protected]
Head of Contingent Liabilities and PPPsMinistry of Finance - Chile