Private-Sector Participation in Infrastructure Projects and Value for Money: Economic and Financial Impacts

Abstract

Private-sector participation in infrastructure projects has gained worldwide acceptance as a way of ensuring more efficient and effective projects and of supplementing public financing. However, few studies have comprehensively focused on the possible impacts of private-sector participation, including changes in multiplier effects, economic benefits and costs, and the tax effects and transfer between local and central governments. The aim of the present study was to develop a comprehensive system of estimating the various impacts caused by changes in the scheme of public works or procurement of public services and evaluating the final impacts on stakeholders in the society. After establishment of a general flow system of money and benefits in the case of an infrastructure project by identification of the relationships between the stakeholders, tools were installed into the system to estimate the amount of financial flows, including tax and subsidy, under an alternative public finance institution and a project scheme. As a case study, a road project adhering to the design, build, finance, and operate scheme was compared with one adhering to the conventional scheme. The results of the case study indicate that value for money evaluation depends to a significant extent on the viewpoint and the scope of the analysis and that the difference between evaluations can be substantial. In addition, the results demonstrate the necessity of public finance transfer between central and local governments to ensure that the project is more efficient and effective with the participation of the private sector.