Dealing with Public Risk in Private Infrastructure

Abstract

This volume reports on the findings of a conference on managing government exposure to private infrastructure projects. The transfer of risk to private operators should lead to the development of new infrastructure, improvements in the operation of existing infrastructure, and a reduction in budgetary subsidies. Yet it also raises problems for governments. Infrastructure privatization in the developing world has frequently been accompanied by extensive residual risk-bearing by governments, which threatens to vitiate its efficiency benefits and confront future governments with large financial liabilities. To solve these problems governments need to institute policies that make investment attractive even in the absence of extensive guarantees. With these policies in place, developing country governments should be able to restrict their risk-bearing to certain political and regulatory risks over which they have direct control. When governments do provide guarantees they should attempt to measure the costs of these guarantees and improve the way they treat them in their accounts and budgets. Measurement and budgeting are critical to improving decisions about whether to provide guarantees, to improving project selection and contract design, and to protecting governments from unknowingly entering into commitments that might jeopardize future budgets.

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