Comments on Public Private Partnerships Balázs Romhányi Hungarian Ministry of Finance

Important points in the paper The PPP-idea is theoretically meaningful But in practice full of traps Field of government activity matters Budget rules and procedures matter What is important in the paper? the PPP-idea is theoretically meaningful private sector efficiency whole of life perspective value added can override higher financing costs on the private side but practically full of traps market imperfections (e.g. shallow supply side) incomplete contracts because of great uncertainty difficulties in measuring and demarcation of risks and responsibilities high stake very long term field of government activity matters infrastructure is better than pure public goods budget procedures matter both value for money and affordability has to be tested introducing budget rules and procedures is a logical answer but might invite opportunism compromising either VfM or affordability

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: ..

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 don’t make good and it invites lobby groups Only if: Full transparency Stable social preferences (25 years!) …

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: …

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