Breaking Down Factors of Public-Private Partnership in Urban Rail

Abstract

In recent years, Latin America has experienced a rapid urbanization process, which leads to the increase of transportation demands in their main cities. In light of this, governments are working to enlarge infrastructure in the transport sector. However, some limitations such as the availability of public funds for enormous investment in these projects make it impossible for the government to promote new projects. These constraints have led some countries to develop agreements with private partners in order to promote new delivery methods such as Public-Private Partnerships (PPP) in the transport sector. This new approach has been used in different regions including Latin America. Peru, with its urban rail project - Lima Urban Rail - is using one of the schemes of PPP, but with peculiar characteristics that have not permitted to finish the project since 1986. Other countries, such as Argentina and Brazil, have already had a history of PPP in the same sector, but with discouraging results. PPP also carries many new challenges for transportation projects. Thus, achieving success in this area and specifically knowing what influences the success of PPP projects, is not a straightforward task. In other words, this research aims to know the path to achieve success in PPP projects in Latin America through the study of the most influential factors. Therefore, considering this motivation, this research first studies the theory of Public-Private Part- nership (PPP). In this context, the analysis of the benefits and detriments of PPP are examined in detail in order to understand the issues that first hinder the success in these projects. Moreover, the definition of success in our environment is defined in relation to the different phases of the project (Contract Success, Implementation Success and Post-Implementation Success). This is particularly important because it allows us to create a new theoretical framework of the most important factors that influence the success of a PPP project. In other words, a set of factors related to the context and to the project itself are extracted by theory providing the creation of a framework of important factors in PPP. They served as input for evaluation through the different cases of studies. Thus, in order to evaluate this framework, we examinated four PPP cases in the urban rail or subway sector in Latin America. These cases correspond to subways/urban train of the cities of Rio de Janeiro, Sao Paulo, Buenos Aires and Lima. This analysis was focused on the study of the relevant factors which can produce or disturb successful projects in Latin America. Moreover, the review of the main characteristics produced important reflections on our work. First, the Latin American plan lacks a long-term vision for the durability of their projects. Most of the Latin projects failed to provide an acceptable quality of service after some years of implementation. Transport failures embrace problems in the frequency of the trains, bad maintenance of stations and poor security personel. Some of the sources of these issues are encountered on the lack of funding guarantees to support the durability of the project and the poor monitoring system of some PPP units. Secondly, three factors were found as critical in all the phases of a PPP project: Institutional & Legal Environment, Political & Socio-Economic Environment and Risk Allocation. The Institutional & Legal Environment of Latin countries is characterized by the lack of transparency law, independent judicial system but with some progress in unifying PPP laws. The Socio-Economic Environment is distinguished by the volatility which can reach long periods of economic growth but also long periods of unexpected economic crisis. The Risk allocation is still a challenge that can affect the total duration of a project. Thirdly, a new set of framework which fits in the Latin environment was contrasted, making real recommendations for the Peruvian government and general suggestions for Latin governments. These findings gave new light upon the success of PPP projects in Latin America. Among the most important recommendations in order to achieve success, we can advise the Peruvian government to create a new guarantee fund in order to deal with possible economic crisis. The Peruvian economy can be very changeable and thus the government should be prepared to face any probable economic risks. Moreover, the congress should also work on establish a new transparency law in PPP projects. The information of all the phases of the project should be opened to public in relation to the different phases of PPP. Public participation is important on the acceptance of high-investment projects, thus it should be included in the process of the projects. Furthermore, an independent monitoring system for the long-term of the project is a “must”. The research showed that the long-term duration of a PPP project in Latin America can not be easily achieve due to the lack of monitoring methods through the life of the project. Additionally, we also suggest to the Latin governments to see PPP as a new model for the market. Some of the projects are done independently without looking at previous experience and thus the same mistakes are made. Projects can be an example of new ones, creating a new market for other cities. Finally, government should also give some incentives or penalties in order to deter private parties from strategic behavior, providing stimulus to accomplish their goals. These are feasible recommendations in the specific Lima case and general Latin projects, however it will also depend predominatly on the commitment of the parties to overcome the detriments of PPP projects. Taken the definition of “success”, emphasizing on the context-related factors and risk allocation and using our created framework, recommendations based on the most important factors influencing the different parts of the projects are put forward, aiming at building up an efficient transport environment for Latin America and in the case of Lima.