2 - Country Studies

Summary

In this chapter, we analyze the experience of four countries that have used PPPs extensively: the United Kingdom, Chile, the United States, and China. Each case highlights one of the shortcomings that have plagued PPPs around the world. Britain’s Public Finance Initiative shows how a PPP program can be used to sidestep budgetary limits by using off-balance-sheet finance. Chile’s concession program illustrates how pervasive renegotiations can put in doubt the legitimacy of a relatively successful PPP program. PPPs in the United States show how they can be used to anticipate spending. Finally, China’s vast PPP program in infrastructure exemplifies, by defect, the importance of the rule of law and institutions for the sustainability of PPPs. Our analysis sets out the basic principles of each PPP program, describing its history and scope and providing a general evaluation of the programs. The purpose of this chapter is to illustrate the shortcomings of PPPs, setting the stage for the conceptual analysis in the chapters that follow.

United Kingdom

The Private Finance Initiative (PFI) has become an important part of public investment in the United Kingdom. As of March 2011, the total estimated capital value of PFI projects across the United Kingdom was £52.8 billion. By March 2011, 698 projects had reached financial close with 630 projects in operation. They include projects in transport, education, health, prisons, defense, leisure, housing, courts, technology, and government offices. Twenty percent of spending was made in health, 25 percent in transport, 15 percent in education, and 15 percent in defense, with the remaining 25 percent distributed among projects in other areas. The future government obligations associated with this investment amount to £239 billion, with a present value, discounted at an annual rate of 3.5 percent, of £165 billion. This last sum includes not only the capital payments, but also the cleaning, catering, and maintenance expenses (the latter are referred to as operating expenses or “opex”) associated with running these assets (H. M. Treasury, 2011).