Discount rates in PPP projects, survey of literature and the Portuguese case

• Autor(a) principal: Santos, Alexandre Marques dos
• Data de Publicação: 2014
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/16638
• topic: Public-Private Partnership; Discount rate; Portuguese case; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

This dissertation has five main purposes. First, to gather literature on the discount rates used by public entities and governments to assess PPP projects. Second, to typify descriptively the models used to calculate these discount rates. The most used models are: the Social Time Preference rate (STPR), the Social Opportunity Cost of Capital (SOCC), a weighted average between STPR and SOCC, and the long-term government bond. Third, to compare the usage in different countries and to analyze implications of different usage in Portugal. In order to analyze these implications in Portugal, several discount rates are calculated using these previous methods. Then, these are used to discount the future payments regarding the 36 PPP projects operating in Portugal. The differences in the NPVs are analyzed. Amongst the major results, if one used the SOCC method there would have been a lighter burden to the State. Fifth, the Portuguese case in PPPs is carefully discussed. The debate on payments to PPPs and the discount rate issue is addressed. The fact that PPPs allow shifting financial responsibilities to the future, linked with the lack of a risk assessment to the contracts led to the enormous burden to the State. Since 2003, the Portuguese legal rate is fixed at 6.08%, based on the 10-year government bond, and by today there is no update. Therefore, this dissertation suggests a new rate. When discounting PPP payments, the risk-free rate adjusted for systematic risk should be used, whereas if the project is done entirely by the public sector we recommend the risk-free only.