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

Best practices in Public-Private Partnerships financing in Latin America
methods and validated by independent third parties. In the
case of difficulty in taking risks by investors and financiers, the
participation of governments and multilateral agencies would
be important to ensure feasible projects.
Regarding guarantee funds, which are created to cover partial
or full government payment obligations, these have not
been used enough. This may be due to a lack of incentives to
promote their use, since they are available after the PPP award,
and do not internalize the potential benefits in the bids nor
cover construction risks. On the other hand, the presence of
close substitutes may cover the risks.
In contrast, contractual guarantees have been most effective in
achieving financial access to PPP projects. For instance, Chile,
Colombia and Peru have implemented a variety of contractual
guarantee schemes.
Moreover, PPPs subsidies have served to ensure net economic
gains and financial viability of projects. In the case of Mexico
and India, programs have been created based on grant
funding. In Brazil and Colombia, the program works on the
basis of budgetary appropriations by project. Funds for the
subsidies have worked better than budget appropriations for
each project, mainly because they promote transparency and
demonstrate to investors the government’s commitment in the
approval process.
However, subsidies only make sense if policies are designed
to maximize the value generated by each dollar of subsidy.
To this end, policy design criteria should be considered, such
as: sources of funding, eligibility criteria, amount of subsidy,
method of payment, and administration of the grant. It is
recommended to consider the market mechanisms (actions)
to set the amount of subsidy in order to minimize the amount
that the government has to pay. Also, evaluations on the use
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