7 - Renegotiations
Published online by Cambridge University Press: 05 September 2014
Summary
A striking fact of PPP concessions is that they are routinely renegotiated. For example, Guasch (2004) examines nearly 1,000 Latin American concession contracts awarded between the mid-1980s and 2000; he finds that 54.4 percent of those in transportation (including roads, ports, tunnels, and airports) and 74.4 percent of those in the water industry had been renegotiated. When Mexico privatized highways in the late 1980s, Mexican taxpayers had to pay more than $8 billion (U.S. billion) after renegotiation of the initial contracts. In Chile, 47 out of the 50 Chilean PPP concessions awarded by the Ministry of Public Works between 1992 and 2005 had been renegotiated by 2006, and one of every four dollars invested had been obtained through renegotiation (see Engel et al., 2009).
One might think that renegotiations occur mainly in emerging economies, where governance is weak. They are also pervasive in developed countries, however, as Gómez-Ibáñez and Meyer (1993) documented more than two decades ago. For example, three of the four highway concessions awarded in France in the early 1970s went bankrupt after the 1973 oil shock and were bailed out by the government. Similarly, several of the 12 highway concessions awarded in Spain in the 1970s had higher costs than anticipated, while traffic was lower than expected, causing three highways to go bankrupt and the remaining contracts to be renegotiated. Spain seems to be a serial subsidizer of PPPs at the expense of the public: in November 2010, all political parties agreed that it was necessary to bail out, among others, the seven PPP highways running into Madrid.
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- The Economics of Public-Private PartnershipsA Basic Guide, pp. 122 - 131Publisher: Cambridge University PressPrint publication year: 2014
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