ENACT - Design Appropriate Contractual Relationships
Overview
Background & policy context:
The increasing involvement of the private sector - mostly in Public-Private Partnerships (PPP) - in the provision of assets and/or services previously provided directly by the states raises significant questions about the application of socially optimal pricing schemes such as Social Marginal Cost (SMC) pricing. Private engagement entails allowing adequate rates of return in a purely financial perspective, which is too often incompatible with SMC pricing principles.
Objectives:
The aim of the ENACT project is two-fold:
- to assess the extent to which the introduction of SMC pricing obligations may hinder or not the further development of PPP schemes in the transport sector;
- to devise ways to incorporate such obligations in PPP schemes while, at the same time, taking advantage of the positive aspects that such partnerships can have.
Methodology:
In a first step, the ENACT project will leverage on existing research on the issues of SMC pricing and Second-Best alternatives (optimal mark-ups for cost recovery).
The second step will consist of analysing the PPP phenomenon under the light of Incentive and Contract Theory, and the impacts that SMC pricing might have in terms of the informational and incentive structures of PPP contracts.
The third step will be to focus on financial markets, and on the impacts that SMC calculation and pricing have on the perception of risk and the demanded rates of return.
From this theoretical framework, the development of a simulation tool will permit to assess the following six case studies:
- Case Study A: Italian motorways;
- Case Study B: Tagus river rail crossing;
- Case Study C: Varna and Burgas airports;
- Case Study D: Munich airport;
- Case Study E: Lisbon Area motorway concessions;
- Case Study F: Orkdalsvegen.
The primary objective of the case studies is to identify and analyse the implications of the possible application of SMCP in PPP’s and to discuss available alternatives of PPP design for a successful introduction of SMCP in the transport undertakings. The diversity of the case studies will permit to capture a fairly wide variety of PPP types and contexts, covering roads, railways and airports.
The results of the project will serve as the basis of a set of Guidelines to establish a Common European Policy/Regulatory Framework for socially optimal SMC pricing obligations in Public-Private Partnerships in the provision of transport infrastructure and/or services.
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