The Private Financing Component in Public-Private Partnerships

Many policy-makers and public-private partnership (PPP) practitioners view access to private financing as the main motivation for developing infrastructure projects through PPP contracts.

Instead of using public money—which may or may not be available— to build a road or power plant, for example, using private money to finance infrastructure projects allows projects to be implemented without delays, possibly freeing up public resources for other projects. Particularly, since the 2008 financial crisis, many governments face serious budget restrictions and/or (self-imposed) public debt constraints, which limit the amount of public resources available for infrastructure development. Under such conditions, leveraging private capital through PPPs to develop much-needed infrastructure can be an attractive alternative.

However, the role of private financing is only half of the story behind PPPs. The other, and arguably more important, half is what we call value for money (VFM). A well-structured PPP has the potential to cost less and bring more value to the public than a conventionally delivered project. To understand how PPP projects generate VFM, we need to understand the value drivers in PPPs.

This paper was funded by the Danish International Development Agency (DANIDA).