Many governments turn to PPPs because they recognize that more investment in infrastructure is needed, but the government cannot 'afford' to undertake additional infrastructure projects through traditional public procurement. Although this is one of the most common motivations for using PPPs, it is also among the most debated. The extent to which PPPs genuinely enable governments to increase spending on infrastructure depends on the nature of the project in question, and of a government's particular funding and financing constraints.
Some types of PPP can help increase the funding available for infrastructure-that is, bring in more revenue to pay for infrastructure services, including:
• Increased revenue from user fees-by introducing user charges, or reducing leakage in the collection of charges. For example, the N4 Toll Road in Mozambique and South Africa was developed as a toll road under a PPP, since neither government had the funds to invest otherwise. Cross-subsidies from the South African side to the Mozambican side helped make tolls affordable to users [#93, pages 9-10]
• New revenue streams from greater asset utilization. Raising revenues from alternative uses for infrastructure assets can reduce the cost of the infrastructure to government or users.
Governments can also implement user charges, collect revenues effectively, or find innovative alternative uses for infrastructure-as described in Engel, Fischer, and Galetovic's paper PPPs: When and How [#74, pages 7-13]. PPPs therefore do not increase the resources available for infrastructure over the alternative of traditional government provision if users are charged the same for the service and those charges are collected. However, the authors also note that governments can find it difficult to charge users a cost-reflective tariff for publicly-provided services.
Some governments use PPPs as a financing mechanism to overcome short-term cash budget constraints, by spreading the capital cost of a project over its lifetime. Governments implementing cash-based accounting systems recognize the entire capital cost of infrastructure as expenditure when it is incurred, even if it is in practice financed by borrowing. PPPs, by contrast, create cash outflows over time-a PWC paper on PPPs illustrates how the payment profile for a PPP differs from that of a traditionally-financed project [#208, pages 17-19]. This can enable governments facing short-term cash budget constraints to undertake infrastructure investment sooner. This accounting advantage for PPPs disappears under a full accrual accounting system, in which capital investments are depreciated over time.
Finally, PPPs may be able to help governments to overcome public sector borrowing constraints. Governments often face a borrowing constraint-which may arise from prudent public financial management policies-that means that even commercially viable, fully 'user pays' infrastructure projects cannot be implemented in the public sector. Under a PPP the project is financed by private sector rather than public sector borrowing, which may in some circumstances enable a government to overcome this constraint (although as noted in the following section, such projects typically create contingent liabilities that may also affect the sustainability of the government's debt and fiscal position).
Engel, Fischer, and Galetovic's paper [#74, page 9] suggests the extent to which PPPs can help relieve borrowing constraints depends on the nature of the constraint. PPPs can help relieve short-term liquidity constraints, enabling commercially viable user pays PPPs to be built. Engel, Fischer, and Galetovic argue, however, that PPPs are less likely to help when a government cannot borrow because it is considered insolvent-in this case, it may be difficult for the government to credibly enter into a long-term contract giving up a potential source of future revenue, so a PPP may not be considered viable by investors. On the other hand, in a 2011 paper on Chile's PPP Experience, Fischer describes how multilaterals' involvement in a PPP can improve the credibility of the government's commitment to the contract-increasing the potential of PPP to help governments overcome debt constraints [#97, pages 17-18, and 27-28].
The extent to which using PPP can enable governments to overcome borrowing constraints also depends on how the PPP is accounted for. As described in Section 2.4.4: Fiscal Accounting and Reporting for PPPs, while international norms and standards continue to evolve, PPP assets and liabilities are increasingly recognized in the government's accounts and financial statistics. In this case, financing of PPPs would be subject to the same constraints as public borrowing for infrastructure projects.