Best Practices in PPP Financing Latin America - e-Institute - World ...

Best practices in Public-Private Partnerships financing in Latin America
Subsidies for PPPs may be structured in different ways. One
option for governments to provide subsidies is to execute
cash payments (upfront) in order to cover the project
capital expenditures. When the project is implemented,
the government may carry out regular payments to private
companies, based on the availability and quality of services
under the Agreement. A third option is for the government to
pay a fee per user.
In theory, subsidies to PPPs help ensure that projects produce
a net economic profit or a social profit, and are financially
feasible. In this regard, many infrastructure projects can create
public benefits that are not reflected in the prices that users
are willing to pay.
Guzmán pointed out that subsidies make sense if there
are policies or programs designed to maximize the value
generated by each dollar of the subsidy. For this reason, some
policy design criteria should be taken into account, such
as: source of resources, eligibility criteria, subsidy amount,
expenditure mode, and subsidy management.
Subsidies may be financed with the creation of special funds
or with budget appropriations. In the case of Mexico 7 and
India 8 , a Program has been created based on Subsidy Funds. In
Brazil 9 and Colombia 10 , the Program functions on the basis of
budget appropriations (See Table N.6)
7. Initial capitalization. With assets of infrastructure funds existing but
obsolete (FARAC and FINFRA).
8. Initial capitalization of the funds with resources of the national government.
(US$ 335 million).
9. Annual Budget. Payments are classified as payments of interests and,
therefore, are not subject to annual legislative approval. Legislative approval
is required to cancel payments.
10. Annual budget. Long-term payments to which Colombia commits are
approved by CONFIS and CONPES—entity determining the strategic
importance of every project.
- 60 -