The applicability of public-private partnership contracts for infrastructure projects as a function of their specificity

Abstract

The Crimean bridge, as Russia’s largest infrastructure project, can be considered a marginal case of the relative effectiveness of public financing without the involvement of private partners. According to the formalization employed, the implementation of this project through market coordination leads to additional costs due to the rising level of specificity. The increase in these costs is not linear and is more intensive than growth in the level of specificity. Introduction of an NPV-efficiency assessment tool into the analysis allows us to prove a limiting reduction of this interval for considering the risk profile of the project under consideration. Reserves required due to the risk of rising budget expenditures due to the project’s scale actually does not exist according to these reasons: increases in the discount rate is more intensive than the rise of negative expectations; the rise of additional equity premiums is more intensive than the rise of the risk-free rate itself. Thus, the Crimean bridge project should be considered a marginal case of the relative effectiveness of direct state funding comparing PPP scheme.