Changing Perceptions of PPP Risk and Return: The Case of Brownfield Concessions

Abstract

In the early 1990s, brownfield concessions served briefly as the flagship of the global public–private partnership (PPP) movement. They were highly recommended by donors and multilateral development banks (MDBs) as ideal solutions to many of the problems facing infrastructure utilities in poor countries. In 1996 and 1997, brownfield concessions were the fastest growing form of PPP. But the Asian financial crisis in 1997 brought a sudden halt to this growth in popularity, and the contract form has never really recovered its early momentum. Why were brownfield concessions so popular in the early 1990s and why did that popularity diminish so quickly? Why did greenfield projects go on to dominate the PPP markets in all developing countries? This article attempts to answer these questions by clarifying the role of bilateral development agencies and MDBs in the rise of brownfield concessions, and explaining why the risk–reward perceptions of private investors subsequently changed so rapidly in the late 1990s.

TOPICS: Fixed income and structured finance, legal/regulatory/public policy, emerging