EUROPE - UK-based fund manager AMP Infrastructure claims to have developed a public-private partnership (PPP) model that adequately addresses the transfer of economic risk from the public sector to the private sector.
Despite an increase in PPP activity in markets such as Germany and the US, where they have been relatively uncommon until recently, a report by AMP points out that there is no agreed measurement of the benefits of PPP structures, and that the transfer of economic risk from the public to the private sector depends on largely absent accurate demand forecasts.
In a paper published earlier this week, the fund manager offers an alternative to new-generation PPPs that also expose private-sector purchasers to risks associated with project outcomes, including asset management risk.
The report says: "We anticipate a general trend for governments to increase the risk transfer to the private sector to enable deleveraging of their balance sheets, while not moving to full privatisation of these assets. This may require the development of new models of PPPs."
In the two-part model posited by AMP, the public sector takes the initial greenfield economic risk of the project, then subsequently sells or leases it back with brownfield development risk to the private sector in a second stage.
"This would mean the initial development would be on the government's balance sheet, but it would move off-balance sheet post the asset sale," the report said.
In this model, the government owns the asset until its economic performance can be reasonably measured - even if this takes several years after commissioning.
The report adds: "From an investor's perspective, the proposed asset sales would provide exposure to quantifiable risks and should restore confidence in those PPPs [that] involve the transfer of demand risk."
However, in addition to the time lag, it is unclear how the new hybrid model would address other issues raised by the report, including the political capital to be made out of opposition to PPP projects.
It also applies only to quasi-privatised state infrastructure assets - not to the corporate balance sheets likely to account for most assets coming onto the market.