Liability Cost of Government Guarantees in Highway Concession Projects: Case of the Salvador–Itaparica Bridge
Publication: Journal of Infrastructure Systems
Volume 28, Issue 2
Abstract
Public-private partnerships (PPPs) are adopted worldwide to provide public infrastructure yet may present problems due to the multiple uncertainties embedded in this class of projects. Therefore, in order to attract private investment, some form of mitigation of risks may be required. These risk mitigation mechanisms may take many forms and place contingent liabilities and financial burdens on the government budget that must be adequately priced. This article analyzes the case of the Salvador–Itaparica Bridge system concession project under the real options approach and compares the results with publicly available government reports on the project. Our results indicate that the expected cost of the State of Bahia government’s contingent liabilities is undervalued by a factor of five and that the guarantees provided were excessive as they resulted in the total elimination of demand risk to the concessionaire. This article contributes to a better understanding of the effects of risk-mitigating mechanisms for private investment in infrastructure projects and the importance of adequately calibrating and pricing these contingent government liabilities.
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Data Availability Statement
The all data that support the findings of this study are available online and are referenced in this paper. The spreadsheets with all calculations realized in this study are available from the corresponding author upon request.
Acknowledgments
The authors acknowledge the support of the Foundation for Research Support of the State of Rio de Janeiro–FAPERJ (Grant E-26/202.868/2018) and the Brazilian National Council for Scientific and Technological Development–CNPq (Grants Nos. 303908/2018-1 and 406198/2018-7).
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Published In
Journal of Infrastructure Systems
Volume 28 • Issue 2 • June 2022
Copyright
© 2022 American Society of Civil Engineers.
History
Received: Apr 15, 2021
Accepted: Jan 28, 2022
Published online: Mar 17, 2022
Published in print: Jun 1, 2022
Discussion open until: Aug 17, 2022
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