Public-Private Partnerships in Highways in Transition Economies

Abstract

In many countries the private sector has been involved in financing infrastructure through concessions under a public-private partnership (PPP) program. PPP projects, however, are somewhat underutilized in countries with transition economies, where financing gaps are significant and growing, and there seems to be enormous potential for more private-sector involvement in the financing and operation of highway assets in such countries. The reasons for the low rate of private financing of roads in transition economies include relatively low traffic volumes, lack of appropriate legal frameworks, economic and political instability, and the consequently high perception of risk. As traffic increases on key roads, new legislation is enacted, and institutions and economic growth become more sustainable: it is likely that this sector of transition economies will become more attractive to private investors. This paper reviews the legal framework required for attracting private capital for PPP projects, possible steps that could allow a country to launch a PPP program for highways, the concept of greenfield and road maintenance concession programs, public-sector comparators, competitive selection of concessionaires, and the use of partial risk guarantees to mitigate risks. It also summarizes potential applications of the World Bank Toolkit for PPP in Highways as an instrument to help decision makers and practitioners screen potential PPP projects and define the best approach for a specific country.