Chile has had great success in developing its PPP portfolio. Since 1994, the Government has established a solid institutional framework, well-developed procedures to identify, evaluate and tender projects and financial markets well-placed to provide financing for PPP projects. But even such a successful program involved extensive Government guarantees and protections for investors in the early days, including guarantees from multi-laterals and credit wraps from monoline insurers.32
| Box 5.8: Lessons from London Underground-The Importance of Private Liability |
| The London Underground project involved three parallel concessions to run different metro lines. Two of these "infracos" could claim additional funds if total cost increases exceeded 50 million pounds sterling ($80 million), the third if it exceeded 200 million pounds sterling ($320 million), giving it a powerful incentive to make savings in order to offset any cost increases, rather than seeking additional payments from London Underground. This has encouraged a considerable level of innovation by the third "infraco". Source: House of Common, Transport Committee, "The London Underground and the Public-Private Partnership Agreements," Second Report of Session 2007-08, HC 45 (January 2008). |
Government guarantees tend to be "partial", as blanket guarantees are generally less than effective, as they create perverse incentives for the beneficiary not to manage the risk well and should be avoided in most cases.
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32 IMF, Public Private Partnerships, 2004.