The Determinants of Performance in Building Infrastructure in Transition Economies
30 Pages Posted: 24 Jun 2008
Date Written: March 2008
We investigate how contract specificities affect the performance of municipal infrastructure projects in transportation, district heating, water and waste water, and solid waste. Using data from projects financed by the European Bank for Reconstruction and Development (EBRD), we look at the effect of involving private parties with different degrees of risk, and at the effect of involving public parties other than the respective municipality. In particular, central authorities may provide a sovereign guarantee for the funds lent by the bank. We construct two types of performance measures. First, timeliness of the projects is measured by (i) the total length of delays, (ii) the delays between signing and disbursement of funds, and (iii) the occurrence of political disruptions of the project. Second, to measure financial and commercial performance, we look at whether or not (iv) financial covenants and (iv) covenants about tariffs for infrastructure use were reached. We find that private participation without commercial risk (for instance, works or turnkey projects) tends to increase project performance. Private participation with commercial risk has no significant effect on project performance. Sovereign guarantees reduce delays but also decrease financial discipline. These effects are robust against potential selection effects, which we control for through instrumental variable regressions.
Keywords: public private partnerships, contracts, sovereign guarantee, risk sharing
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