Risk, PPPs AND THE Public Sector Comparator

This paper argues that the “first generation” approaches to private investment in public infrastructure in the United Kingdom and Australia were inappropriate and socially costly. In most cases, the PPP approach involves an inappropriate allocation of risk between the public and private sectors, an excessive cost of capital, and an inappropriate bundling of risk through the use of a single private partner (or consortium) rather than separate contracting for separate project stages. Conditions under which a PPP approach is likely to be appropriate are considered. The main conclusion is that the PFI/PPP approach should be adopted only in special cases.