Managing Contingent Liabilities in Public-Private Partnerships: Practice in Australia, Chile, and South Africa
Governments that use public-private partnerships (PPPs) to build infrastructure usually acknowledge contingent liabilities. Examples include contingent liabilities regarding early contract termination, or debt and revenue guarantees. Governments can face difficulties as they consider whether or not to assume these liabilities, and how to value, monitor, and limit liability. This report reviews how governments in Australia, Chile, and South Africa have tackled these problems, and explores whether other governments (such as governments with less administrative capacity) should adopt comparable practices. All three countries rely on careful project preparation, competitive bidding, and a review of proposed PPPs by a specialized unit in the Ministry of Finance. Other governments that want to improve the management of contingent liabilities associated with PPPs might adopt similar policies, including a multi-stage review of PPP proposals by people in the Ministry of Finance who have expertise in PPPs and fiscal management; quantification of certain contingent liabilities, especially when quantification is likely to influence the decision whether to incur the liability; and publication of PPP contracts and summary descriptions of their financial implications. The adoption of modern accrual accounting helps, but raises larger considerations than the management of PPP-related contingent liabilities.