Renegotiating Public-Private Partnerships

J.J. Miranda Sarmento, Luc Renneboog

Research output: Working paperDiscussion paperOther research output

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Abstract

The renegotiations of public–private partnership (PPP) contracts are commonly considered to be one of the pitfalls of PPPs, as they tend to undermine their (ex ante) efficiency. A renegotiation occurs when specific events change the conditions of a concession, frequently leading to a financial claim from the private sector on the public sector. This paper examines the Portuguese experience with PPP renegotiations by means of a unique panel data of 254 renegotiation events from 1995 to 2012. We find evidence of opportunistic bidding for PPP contracts, which is ex post – after the contract is won and the competition eliminated - leading to renegotiations to increase revenues. Renegotiations last on average 1.8 years. Majority governments are more prone to renegotiate and have more political clout to limit the renegotiation duration. There is no evidence of more renegotiations in election years or when there is a change in government. A better institutional framework, defined as a low country risk, a strong rule of law, and lower corruption, tends to reduce the probability of renegotiations. There is also evidence that at times of higher corruption, more renegotiations occur. The project’s leverage decreases the renegotiation duration. Strong initial bidder competition for a PPP contract leads to long subsequent renegotiations between the winning private party and the government.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages52
Volume2017-014
Publication statusPublished - 15 Mar 2017

Publication series

NameCentER Discussion Paper
Volume2017-014

Fingerprint

Renegotiation
Public-private partnerships
Government
Corruption
Institutional framework
Country risk
Elections
Private sector
Bidding
Revenue
Rule of law
Leverage
Panel data
Public sector
Concession

Keywords

  • publi-private partnerships
  • concessions
  • Renegotiations

Cite this

Miranda Sarmento, J. J., & Renneboog, L. (2017). Renegotiating Public-Private Partnerships. (CentER Discussion Paper; Vol. 2017-014). Tilburg: CentER, Center for Economic Research.
Miranda Sarmento, J.J. ; Renneboog, Luc. / Renegotiating Public-Private Partnerships. Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper).
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Miranda Sarmento, JJ & Renneboog, L 2017 'Renegotiating Public-Private Partnerships' CentER Discussion Paper, vol. 2017-014, CentER, Center for Economic Research, Tilburg.

Renegotiating Public-Private Partnerships. / Miranda Sarmento, J.J.; Renneboog, Luc.

Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper; Vol. 2017-014).

Research output: Working paperDiscussion paperOther research output

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AB - The renegotiations of public–private partnership (PPP) contracts are commonly considered to be one of the pitfalls of PPPs, as they tend to undermine their (ex ante) efficiency. A renegotiation occurs when specific events change the conditions of a concession, frequently leading to a financial claim from the private sector on the public sector. This paper examines the Portuguese experience with PPP renegotiations by means of a unique panel data of 254 renegotiation events from 1995 to 2012. We find evidence of opportunistic bidding for PPP contracts, which is ex post – after the contract is won and the competition eliminated - leading to renegotiations to increase revenues. Renegotiations last on average 1.8 years. Majority governments are more prone to renegotiate and have more political clout to limit the renegotiation duration. There is no evidence of more renegotiations in election years or when there is a change in government. A better institutional framework, defined as a low country risk, a strong rule of law, and lower corruption, tends to reduce the probability of renegotiations. There is also evidence that at times of higher corruption, more renegotiations occur. The project’s leverage decreases the renegotiation duration. Strong initial bidder competition for a PPP contract leads to long subsequent renegotiations between the winning private party and the government.

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Miranda Sarmento JJ, Renneboog L. Renegotiating Public-Private Partnerships. Tilburg: CentER, Center for Economic Research. 2017 Mar 15. (CentER Discussion Paper).