Comments on Public Private Partnerships

1
Comments onPublic Private Partnerships

• Balázs Romhányi
• Hungarian Ministry of Finance

2
Important points in the paper

1. The PPP-idea is theoretically meaningful
2. But in practice full of traps
3. Field of government activity matters
4. Budget rules and procedures matter

3
Can we agree on accounting rules?

• Main accounting options
• Pure cash flow accounting
• Cost of investment up front and service
  distributed
• Full present value up front
• Accounting rules have to depend on the role of
  the deficit indicator
• The role is not to measure something but to give
  politicians the right incentives to run sound
  fiscal policy
• Answers
• NO, because the economies are different
• YES, because politicians are all alike
• Further options ..

4
Can PPPs be used as a legitimate commitment
device?

• Politicians prefer new projects
• Social spending is rigid downwards
• Politicians only react if there is no room left
• Answers
• Yes it can because otherwise high VfM will be
  crowded out by social spending
• No because two harms dont make good and it
  invites lobby groups
• Only if
• Full transparency
• Stable social preferences (25 years!)

5
Can affordability be analyzed without the revenue
effects?

• Why do we analyze projects by assuming exogenous
  growth if the very aim of the projects is to help
  growth?
• Answers
• YES, because we only compare PPP with pure
  government investments
• NO, but it has to, because
• Too much uncertainty
• Invites opportunism
• NO and NET present value should be calculated
• Further options

6

• THANK YOU