When Public-Private Partnerships Make Sense: Two Basic Observations

He was the Director of the Center for the Study of Federalism at Temple University and the founder and president of the Jerusalem Center for Public Affairs. [...] In many early cases, the concessionaire or lessee assumes the revenue risk in that it is expected to recover its costs with the tolls collected from the highway users, while in other later cases the government assumes the revenue risk and makes payments to the concessionaire that are based on the days and hours the road is available to users rather than the tolls that users pay. [...] But in Canada the controversy over 407-ETR sparked a sensitivity to the need to incorporate public interests in toll setting, including the option of compensating the concessionaire with availability payments so that the government enjoyed the discretion but also bore the financial consequences of setting tolls. [...] Early in the decade of the noughts, for example, there was a backlash against privatization of utilities in many developing countries that was fuelled by the perception that the distribution of the benefits and costs of the privatization was too unequal. [...] And perhaps most obvious, the risk decreases the shorter the term of the contract, since it is easier to foresee the near than the distant future.