Artículo Cientíﬁco. Revista Académica Decisión Gerencial.

Vol. 4, No. 9, pp. 24-40, Enero-Junio, 2025.

ISSN:2953-6391

Edición Semestral.

A COMPARATIVE ANALYSIS OF PPP GOVERNANCE IN

SELECTED LATIN AMERICAN COUNTRIES: A

QUALITATIVE AND QUANTITATIVE APPROACH

José Luis Bonifaz Fernández 1*, jbonifaz@up.edu.pe ORCID 0000-0002-3348-5126

Recibido: 15-sep-2024, Aceptado: 20-dic-2024, Publicado: 01-ene-2025

Abstract

This paper aims to propose guidelines for an optimal relationship between a PPP unit and different entities that participate in

a PPP process, according to the size of the country and considering the phases of the PPP process. We evaluate the different

governance models of this type of alliances in the region. To this end, we analyze the role played in the PPP project cycle by

the main public actors (PPP units, Ministries of Finance, Contracting Ministries and the Development Bank). We also seek

to quantitatively analyze how the governance of PPPs influences the quality and quantity of projects through the incentives it

creates for different actors. After diagnosing and elaborating the guidelines based on the analysis of incentives in institutional

frameworks of selected countries, we tested the results considering the INFRASCOPE. This publication contains a ranking of

LATAM countries concerning their willingness to carry out PPPs and for this purpose uses variables such as Regulations and

Institutions, Project Preparation and Sustainability, Financing, Risk Management and Contract Monitoring, and

Performance Evaluation and Impact. This exercise involves using principal component analysis to assess the robustness of

the survey. To facilitate the analysis and interpretation, we standardized the scores of the factors assigned to each indicator

along the scale from 0 to 100. The result of the exercise indicates that Brazil and Chile are the countries with the best

governance conditions for PPPs. Peru, Costa Rica, Colombia, El Salvador and Mexico also have desirable levels of

governance.

Keywords: Concessions, PPPs, Governance, Principal Component Analysis..

1Universidad del Pacíﬁco, Perú

A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 25

1 Introduction

Infrastructure is one of the key drivers of sustainable and inclusive economic growth; because it is not only about

creating wealth, but also about meeting needs and generating long-term well-being for the majority of the population. The

infrastructure needs are enormous. Several estimates consider that, to close the infrastructure gap, Latin America and the

Caribbean should invest at least 5 % of GDP in infrastructure over an extended period of time (Prats, 2016) and to achieve

this goal, the participation of the private sector through Public-Private Partnerships (PPPs) is key.

Public-Private Partnerships are a contractual mechanism between the public sector and the private sector that aims to

provide a public asset or service, in which the private party assumes the risk of investment, construction, operation and

/ or maintenance, under State regulations. This system differs from the execution, operation and maintenance of a public

infrastructure when it is fully managed by the State and using public resources. That is, through the Traditional Public Works

(OPT) provision, the State assumes the cost of construction, operation, maintenance and rehabilitation of public works,

without resorting to any type of ﬁnancing from the private sector.

PPPs are complex long-duration contractual structures, with higher transaction and ﬁnancing costs than conventional

procedures. PPPs also require a trained government in matters of structuring, use and execution. This need for training can

be even more recurrent in regional or local administrations, where sometimes, the allocation of resources has an insufﬁcient

design to manage this type of contract and do not have sufﬁcient guarantees to make sustainable projects (CAF, 2018). In

addition, it should be noted that PPP projects are limited in terms of space and time, unlike indeﬁnite privatizations, which

can transfer an entire system to the private sector for an indeﬁnite period of time, while a PPP transfers to the private sector

certain responsibilities related to a project limited in terms of objectives, space and time. Latin American countries have

approached PPPs with different institutional arrangements. At the institutional level, Chile has a more centralized model: an

ofﬁce of the Ministry of Public Works promotes projects, coordinates their preparation and supervises their construction and

operation. In Peru, a private investment promotion agency (ProInversion) handles transactions and the promotion of PPPs in

all sectors. However, in the Peruvian and Chilean case, the scheme would be less centralized by delegating supervisory (and

regulatory) work to an independent regulatory institution that administer the contracts. In Colombia, the National Planning

Department oversees investment in all sectors, although they also have sectoral regulatory institutions (Prats, 2016).

The objective of this study is to propose guidelines for an optimal relationship between the PPP unit and the different

entities that participate in a PPP process, according to the size of the country and considering the phases of the PPP process.

Thus, this document aims to analyze the different governance models of PPPs for Colombia, Chile and Peru. To this end, we

analyze the role played in the PPP project cycle by the main public actors (PPP units, Ministries of Finance, Contracting

Ministries and Development Banking). We also seek to quantitatively analyze how the governance of PPPs inﬂuences the

quality and quantity of projects through the incentives it creates for the different actors.

This paper is divided into ﬁve sections. The ﬁrst section outlines the regulatory framework for Public-Private Partnerships

in Latin America. In the second section we discuss good practices in PPP governance. Finally, after carrying out the diagnosis

and elaborating the guidelines based on the analysis of incentives in institutional frameworks of selected countries, we

test the results considering the Infrascope. This publication contains a ranking of LATAM countries with respect to their

willingness to carry out PPPs; for this purpose, it uses variables such as Regulations and Institutions, Project Preparation and

Sustainability, Financing, Risk Management and Contract Monitoring, and Performance Evaluation and Impact.

This exercise involves the use of Principal Component Analysis (PCA) to assess the robustness of the survey . The

exercise consists of ﬁnding weights for each one of the variables in question with the objective of maximizing the variation

in the linear compound of these variables. In other words, this approach makes it possible to identify patterns in the data

and express the data to highlight their similarities and differences. Since patterns in the data can be difﬁcult to ﬁnd in high-

dimensional data, PCA can help to analyze the data.

2 Literature review

A ﬁrst study by Andrés et al (2007) evaluates the governance of regulatory agencies in the electricity sector in Latin

American and Caribbean (LAC) countries. The authors develop a regulatory governance index and rank all agencies in LAC

countries. The index is an aggregate number of the assessment of four key governance characteristics: autonomy, transparency,

accountability and regulatory tools. Through this evaluation, the authors identiﬁed a country’s particular shortcomings with

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26 Bonifaz Fernández

respect to governance and indicated the necessary improvements. They conclude that the region shows an overall design

of good governance of its regulatory agencies, however, the implementation of the independent regulator model still faces

several challenges. This is particularly evident in political autonomy and in the informal aspects of governance, where the

region shows the highest number of countries with the lowest scores.

For his part, Prats (2016), analyze how the governance of PPPs inﬂuences the quality of projects through the incentives

that it creates for different actors. This paper concludes that the governance of PPPs must be used to promote PPPs as

an instrument to improve the scope and efﬁciency of public investments through the conjugation of the design, ﬁnancing,

construction and operation, and maintenance phases of an infrastructure. Engel et al (2014), explain that PPPs are an

intermediate alternative between the public or private provision of services. They also try to explain the advantages and

disadvantages that PPPs have compared to public and private provision, away from the ideological biases that usually

accompany these discussions. To this end, they make a broad review of both theoretical and empirical researches, and the

experiences that exist in several countries with different levels of development. In this sense, this work has two speciﬁc

objectives: 1) it attempts to classify projects and development conditions of the countries for which public provision, PPP or

private provision, is better; 2) issues recommendations on the preparation of PPP contracts between the government and the

private ﬁrm, as well as the correct way to treat them in public ﬁnances.

Khallaf et al (2018), point out that PPPs involve a variety of project governance structures which have in common

the long-term contractual period between multiple public and private entities. The authors state that the uncertainty of the

duration of a long-term contract, coupled with multi-stakeholder involvement are a challenge for the development of risk

strategies for PPPs. Therefore, they explain, it is necessary to systematically frame the risks associated with these projects

and explore their dynamics. These risks often arise due to the organizational dynamics of interactions between stakeholders

in various risk scenarios. In this paper, a methodology is proposed to systematically identify risks in PPP projects, model

the organizational dynamics associated with interactional risks using game theory, and simulate these models to observe a

range of potential outcomes. The authors note that the proposed combined approach can help planners prepare for a variety

of complex and uncertain scenarios and enable stakeholder management in PPP projects.

Casady et al (2017) aim to develop a deeper understanding of the public sector governance challenges associated with

PPP agreements. For this purpose, they apply a "New Governance"framework and an institutional theory perspective to the

study of PPPs. As a result, this paper identiﬁes that the effective and efﬁcient execution of PPPs depends on the maturity

of institutions, which represent legal, normative and cultural-cognitive rules and processes in society. Several early adopters

of PPP projects, including Australia, Canada, and the United Kingdom, have developed mature PPP markets. The United

States lags far behind these jurisdictions in the number and timing of PPP projects delivered. Therefore, the authors note

that the future expansion of PPPs in the United States requires further institutional development, characterized by elaborate

and standardized judicial and regulatory rules, and procedures that govern the interaction between public and private actors.

The authors conclude that the use of PPPs in infrastructure delivery is more prevalent if public sector governance accelerates

institutional maturity in the ﬁeld.

2.1 Incentives of the PPP regulatory framework in Latin America

The main hypothesis of this study is that the incentives of agents in the governance model in a PPP process are not

correctly aligned with the aim of providing adequate public assets and services. In addition, these incentives do not ﬁt the

phases of the PPP process.

The agency theory provides us with a tool to analyze the incentives of actors in the PPP process and to verify if they

are aligned with the objective of providing better public services and infrastructure to a country. Thus, one of the decisive

elements to achieve a successful public policy lies in the good governance of the project, given how incomplete the contracts

tend to be (Grossman and Hart, 1986).

The methodological approach based on agency theory starts from an incentive analysis of the regulatory framework in a

group of countries (Colombia, Chile and Peru) based on a diagnosis. To carry out this diagnosis, we have to make the following

questions to each phase of the PPP process:

• What is the institutional structure of PPPs?

• How does the institutional framework assign roles and competencies to different actors?

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A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 27

• What are the incentives or controls contained in this institutional framework and how do they promote the objective of

expanding coverage and efﬁcient management of services?

• What is the role of the regulation, the comptroller’s ofﬁce and the governing body to implement or modify the incentive

scheme?

• What are the problems faced by the policies implemented? What other regulatory instruments could be successfully

implemented within the existing institutional framework?

The answers to these questions provide information about the PPP institutional performance. Based on this information,

it will be possible to develop regulatory policy guidelines to achieve increases in coverage and quality of service. These

guidelines should identify the problem posed by the regulatory framework, the available regulatory instrument and the speciﬁc

objective that is expected to be achieved with the implementation of the regulatory measures proposed in the guidelines.

2.2 What is the institutional structure of PPPs?

Annex 1 summarizes the different types of PPP governance for Colombia, Chile and Peru. Likewise, the awarding entity

is usually a ministry, subnational government or public entity; with the exception of Chile where the Ministry of Public Works

centralizes the awarding of PPPs.

2.3 How does the institutional framework assign roles and competencies to different actors?

In the case of Colombia, as shown in Appendix A, the awarding authority is any government agency and there is

no speciﬁc PPP unit, however, there is the National Planning Department (DNP) whose fundamental objectives are the

preparation, monitoring of implementation and evaluation of policy results, general plans, programs and projects of the

public sector. Then there is the National Infrastructure Agency (ANI), whose internal organization to address the projects

was successful. However, the increased in activity derived from the large number of projects to be managed, both public and

private initiative, has led to the capacity of the ANI to become too small, resulting in delays in processing. Another problem

is the limited decision-making capacity of the ANI’s intermediate positions, which in some cases has generated bottlenecks

in project management (Vasallo, 2017).

The ANI was created as a technically sound entity, but only dedicated to national transport projects. Vasallo (2017)

points out that another problem identiﬁed is the fact that the program was too large and was launched in such a short period

of time that the national ﬁnancial system was not sufﬁciently prepared to address this new model due to lack of capacity and

experience. The national banks had little experience in project ﬁnance because the projects of the previous three generations

passed on little risk to the private sector and the loans were too short-term. This aspect shows that for a program to be

successful, it is not only necessary that the public sector does things well, but that the private sector is sufﬁciently prepared.

From this, it is concluded that there are overlaps between the different institutions (DNP, the ANI, the Ministry of Finance

and Public Credit, the National Council for Social and Economic Policy, and the Higher Council for Fiscal Policy) to achieve

their objectives. The fact that there is not a single awarding authority and several PPP units, often generates deﬁciency in the

structuring of PPP projects, which causes accumulation of balances and problems in executions, which represents greater

times, costs and investments with deﬁciencies in quality.

In Chile, the General Directorate of Public Works Concessions of the Ministry of Public Works (MOP) is the awarding

authority and the PPP unit. The General Directorate of Public Works Concessions is the area in charge at ministerial level

of providing, preserving and improving public infrastructure works and services within the framework of public-private

partnership. The Public Infrastructure Concessions Program developed by the MOP pursues three fundamental objectives:

Raising private resources to help ﬁnance the development of future public works; outsourcing of the construction and

operation of public infrastructure works, seeking optimal levels of services for which users are willing to pay; and the release

of public resources to direct them to projects and programs of high social proﬁtability. Moreover, the Ministry of Public

Works controls PPP projects; while the National Public Investment System (SNIP) is in charge of the evaluation of these

projects.

In general, these institutions are aligned in their functions to give ﬂuidity to PPP projects by improving the concession

process in Chile. This country has improved its PPP institutional framework, the stability of a speciﬁc PPP agency and the

resources for project preparation. These project preparation resources are usually found within the speciﬁc PPP agency and

are essential for promoting PPPs among sectoral ministries, which may lack specialized staff or expertise. On the other

hand, it should be noted that Chile does not have a national investment plan or strategy. The planning of public investment

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28 Bonifaz Fernández

is developed from the ministries according to the identiﬁed investment needs. Each of the ministries develops plans and

strategies with different temporalities. An example of this type of plan is the Chile 30/30 Plan prepared by the Ministry of

Public Works or the Energy 2050 Plan of the Ministry of Energy.

In Peru we have four PPP regulatory agencies which are Ositran (transport), Osiptel (telecommunications), Osinergmin

(energy and mining) and SUNASS (water and sanitation). The functions of each of these entities are to supervise, regulate,

regulate, supervise, sanction, resolve disputes and address complaints related to the activities or services that involve the sector

in charge of each of them. For its part, the PPP unit is the Agency for the Promotion of Private Investment (ProInversion),

responsible for the direction of policies and training of other public authorities, the promotion of PPPs, technical support in

the implementation of projects and their award.

2.4 What are the incentives or controls contained in this institutional framework, and how do they promote the objective of

expanding coverage and efﬁcient management of services?

One of the incentives that are contained in the Colombian institutional framework is ﬁnancing. In these projects, the

ﬁnancing risk is entirely assumed by the concessionaire, and its obligation is also to obtain the ﬁnancial resources – both

debt and equity – necessary to meet the obligations stipulated in each contract. There is another incentive which is the trafﬁc

guarantee; for example, in 4G concession contracts they have built-in contingencies to mitigate trafﬁc risk. Each contract

establishes a minimum value of the present value of project trafﬁc revenue (VPIP). In the event of an expected trafﬁc drop,

the ANI will pay the concessionaire the difference between the actual revenue and the VPIP agreed in years 8, 13, 18 and,

if applicable, in year 29 of the concession. On the other hand, if the concessionaire reaches the VPIP before the end of the

minimum term, he must continue to operate the road until year 25, receiving only a percentage of the total toll income.

Then there is the term of the contract that varies between a minimum of 25 and a maximum of 29 years. If the

concessionaire has not reached the VPIP by year 25, the term of the contract will be extended until the ﬁrst of: (a) four

additional years and (b) the date on which the VPIP is reached. If the VPIP is not reached during the term of the contract,

including the possible extension of the contract, the contract will end in year 29 and the concessionaire will be compensated

through the corresponding payment for termination, for the part of the VPIP that did not materialize.

As mentioned above, the institutional and regulatory system of PPPs in Colombia is fragmented, and that can generate

some problems such as the delay in the execution of these projects, this due to the lack of synchrony between the various

parties.

Chile, for its part, points out that the works will be carried out at the sole risk of the concessionaire, and it is for him to

face as many disbursements as necessary until their total completion, whether they come from fortuitous event, force majeure,

or any other cause. The Treasury will not be responsible for the consequences derived from the contracts concluded by the

concessionaire with the builders or suppliers. However, the Treasury will contribute to the payment of damages caused by

fortuitous events, if so, established in the bidding conditions.

The bidding rules must explicitly indicate the service levels required for the exploitation stage, their respective indicators

and the sanctions. The Ministry of Public Works will be responsible for inspecting and monitoring the concessionaire’s

compliance with its obligations, both in the construction phase and in the exploitation phase of the work. In case of

non-compliance, the Ministry may impose on the concessionaire the sanctions and ﬁnes established by the regulations and

the bidding rules.

In turn, during the term of the concession contract, the Ministry of Public Works may require the concessionaire to

deliver information related to the subcontracts it has concluded and certain information related to its accounting, business

management and customer service systems in order to verify the proper performance of the concession. The background

received must be kept under reservation. The refusal or unjustiﬁed delay in the delivery of the required background and the

delivery of inaccurate or unreliable information will be sanctioned with the ﬁnes established in the regulations.

In the case of Peru, as part of the mechanisms that protect the grantor from possible breaches of the concessionaire,

contractual guarantees are incorporated to make the responsibility of the concessionaire effective and protect the grantor in an

adequate and sufﬁcient manner. Thus, these guarantees generate the appropriate incentives to encourage the concessionaire to

act in the desired way, in order to fulﬁll its commitments and the object of the contract. There are two types of guarantees

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A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 29

that the concessionaire grants to the grantor: the guarantee of faithful fulﬁllment of construction of works and the guarantee

of faithful fulﬁllment of the contract.

In this way, if the dealer does not comply with the respective guarantees stipulated in the contract, then he will

be sanctioned with a penalty. The penalty scheme of the contract must be based on an incentive scheme, in which the

penalties are greater than the generation of illicit beneﬁts that the concessionaire may incur if it fails to comply with the

obligations established in the contract. The penalties established in the contracts must be detailed considering the following

characteristics: description of the penalty, amounts of the penalty, criterion of application and form of veriﬁcation, term of

rectiﬁcation, as it is consistent with the nature of the obligation, stage or phase in which the penalties are applied (design,

construction, operation and maintenance).

Thus, the Contract must deﬁne reasonable deadlines to make the payment of penalties. However, in the event that the

concessionaire does not make these payments within the established deadlines, the contract must provide for the total or

partial execution of the guarantees of faithful compliance in force to cover the amount of the penalties imposed, ﬁxing the

obligation of the concessionaire to restore these guarantees. Likewise, the penalties must be imposed without prejudice to the

fact that the concessionaire must comply with the other obligations at its expense, or compensate the damages caused to third

parties as a result of non-compliance. Penalties should relate only to breaches of contractual obligations.

On the other hand, Peru has made progress in recent years in consolidating jurisdictions and strengthening competencies

with respect to the institutional framework for PPP. Adequate regulations are now in place to overcome existing problems with

PPPs, including a lack of coordinated procedures, ministerial-level know-how and clear procurement.

2.5 What is the role of the regulation, the comptroller’s ofﬁce and the governing body to implement or modify the incentive

scheme?

In Colombia, a large part of the management, regulation and supervision of projects is carried out by the National

Infrastructure Agency (ANI). The ANI must request a series of technical reviews, approvals and requirements from different

governing and approval entities before it can begin the bidding process. This coordination between different entities was

characterized by a high level of transparency and led to an improvement in the bidding and awarding process of the projects

(Vasallo, 2017). That ANI also fulﬁlls the role to implement or modify the incentive scheme in PPP projects; moreover, it

generates standard speciﬁcations that gave rise to very little conﬂict.

On the other hand, we have the National Planning Department of Colombia (DNP), this entity is also in charge of

supervising, regulating and planning PPP projects. The DNP is an administrative department that belongs to the executive

branch of the government and reports directly to the Presidency of the Republic. The DNP coordinates work for the

formulation of the National Development Plan with ministries, territorial authorities and administrative planning regions.

It also coordinates the inclusion of relevant comments by the National Planning Council (CNP), the National Council for

Economic and Social Policy (CONPES) and other civil society actors. Likewise, the investment programs prepared by

Ministries, administrative departments, the Comptroller’s Ofﬁce, the Attorney General’s Ofﬁce, the Prosecutor’s Ofﬁce and

other national entities are reviewed by the DNP, which registers viable programs in the Bank of National Investment Programs

and Projects, which are then executed on the basis of the General Budget of the Nation.

There is also the Ofﬁce of the Comptroller General of the Republic of Colombia, whose function is to monitor the ﬁscal

management of the administration to the entities that manage funds or assets of the Nation, evaluate the results obtained,

examine the reasonableness of the ﬁnancial statements of the subjects of ﬁscal control, generate a culture of control of the

patrimony of the state and of public management, establish the ﬁscal responsibilities and impose the corresponding pecuniary

sanctions, as well as the other actions derived from the exercise of ﬁscal supervision

In the case of Chile, in terms of its role in modifying or implementing the incentive scheme, the Ministry of Public

Works (MOP) may impose on the concessionaire that does not comply with its obligations the ﬁnes provided in the bidding

conditions, both during the construction and operation phases. In addition to this, the Ministry of Public Works may modify

the characteristics of the works and services contracted in order to increase the service levels and technical standards

established in the bidding conditions. As a result, it must ﬁnancially compensate the concessionaire, where appropriate, for

the additional costs incurred by the concessionaire in this regard.

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30 Bonifaz Fernández

On the other hand, ﬁnes or penalties applied by the MOP must be paid by the concessionaire within 30 days of the date

of their written notiﬁcation. If the concessionaire does not comply with the sanction imposed, within the established period,

the MOP will make the guarantees effective, without prejudice to the other actions that may apply. Then, there is also the

ﬁgure of the tax inspector, who is in charge of supervising that the work is built in a timely manner, as indicated in the bidding

conditions. The ﬁscal inspector must ensure that the detailed engineering and construction projects of the works comply with

current regulations and the instructions issued by the technical departments of the MOP. Then, in the operation phase; the tax

inspector is responsible for the management and supervision of the contract and its service levels.

Then there is the Ofﬁce of the Comptroller General of the Republic of Chile, whose main function is to control

the legality of administrative acts and safeguard the correct use of public funds. The ofﬁce of the Comptroller has the

objective of verifying that public institutions act within the scope of their powers, respecting legal procedures and efﬁciently

and effectively using public resources. However, the comptroller’s ofﬁce of this country should pay close attention to

complementary PPP contracts, given that these contracts are not published and there is often little publicly available

information on project expansions through this modality.

In the case of Peru, the Ministry of Economy and Finance indicates that the PPP contract must establish the criteria, rules

or procedures applicable to prepare the technical ﬁle, the ﬁnal engineering study, the detailed engineering or the deﬁnitive

technical speciﬁcations for the execution of the project in order to guarantee compliance with the Service Levels established

in the Contract.

Thus, the contract must contain clear rules for the preparation of the technical studies of the project, while recognizing

that: i) the design risk lies with the concessionaire and ii) the main objective is the achievement of the service levels

established in the contract. Thus, under the context of implementing or modifying the incentive scheme, it is pointed out

that the contract must establish penalties to the concessionaire if it fails to comply with the obligations derived from it. The

penalty of breaches allows an efﬁcient allocation of contract risks, ensuring and preserving the contractual balance existing

at the closing date. As mentioned above, the penalty scheme of the contract must be supported by an incentive scheme, in

which the penalties are greater than the generation of illicit beneﬁts that the concessionaire may incur if it fails to comply

with the obligations established in the contract. It should be noted that penalties should relate only to breaches of contractual

obligations. Consequently, violations will not be incorporated into administrative rules established in the law.

The Ofﬁce of the Comptroller General of the Republic, in accordance with its organic law, exercises prior control

over operations, bonds, guarantees and other guarantees granted by the State, including draft contracts, which in any way

compromise their credit or ﬁnancial capacity, whether they are negotiations in the country or abroad. Then, as a result of this

work, a previous report is issued that constitutes a technical document, the result of the veriﬁcation and analysis process of

the supporting documentation presented by the entity. In this sense, the PPP regulations specify that the previous report of the

Comptroller General of the Republic regarding the ﬁnal version of the Public-Private Partnerships contract can only refer to

those aspects that compromise the credit or ﬁnancial capacity of the State (Tirado, 2017).

2.6 What are the problems faced by the policies implemented?

One of the problems observed in the policies implemented in the governance of PPPs was that in some countries the

awarding authority and the PPP unit is the same, causing an increase in activity derived from the large number of projects to

be managed for the same entity. In that sense, the capacity of the entity in charge becomes limited, which generates delays in

the processing.

In other cases, it has been seen that the institutional environment for PPPs is fragmented: there is no speciﬁc PPP unit or

there is no PPP unit at all. There is no speciﬁc body that sets policies or oversees the entire system, i.e., there is no centralized

PPP unit, which is one of the main weaknesses and the main challenge that should be addressed in the next years. This

fragmentation has created obstruction in the efﬁcient planning and effective delivery of projects.

Additionally, there are cases in which there is a lack of an online registration for the projects and the PPP agency does

not periodically review the performance of the projects and this generates inefﬁciency in the system. Then, there are also

cases where countries lack a project development fund and a national infrastructure plan.

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A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 31

Another problem detected in the policies implemented is the lack of transparency. For example, in the case of Peru,

regulations do not require the publication of bidding documents, and even after invoking public information laws, some of the

information may still remain undisclosed. Another problem that has been found in the policies implemented is that there are

countries that do not guarantee fair compensation for investors in case the Government terminates the contract early.

2.7 What other regulatory instruments could be successfully implemented within the existing institutional framework?

Agency theory provides us with a tool to analyze the incentives of actors in the PPP process and to verify if they

are aligned with the objective of providing better public services and infrastructure to a country. Thus, one of the decisive

elements to achieve a successful public policy lies in the good governance of the project, given how incomplete the contracts

tend to be (Grossman and Hart, 1986).

For their part, Engel et al. (2014) offer ambitious recommendations on the desirable institutions and governance to

implement successful PPP projects. Thus, they propose four different independent agencies: a planning agency, an external

council, a superintendence or regulator of the contract and a panel of experts for the renegotiations of contracts.

1) Planning agency: The principle of planning establishes that the State and its organs must prioritize and guide the

development of PPPs. The principle of planning is contrary to improvisation. Thus, for example, large infrastructure

and public service projects should not be hastily developed by the design of a current authority, but as part of a multi-year

planning developed previously (Nalvarte, 2017). The function that a planning agency must perform is to design, evaluate

and select projects before awarding the contract. Also, as mentioned above, it must be composed of a public body.

2) External council: The role to be performed by the external council is to review the cost-beneﬁt evaluations. This council

must be composed of experts external to the public sector and without links with the bidding companies, multidisciplinary

(economists and engineers).

3) Superintendence o contract regulator: The Superintendence of the Public-Private Partnership has to ensure compliance

with the contract, monitor performance standards and service quality, and provide information to users and the public

once the contract is awarded. This agency is the one that must tender and contract the project, as well as verify the receipt

of the assets. In addition to this, it must monitor the evolution of the works, the exploitation and their quality, in addition

to drafting the contract management manual. Then, the PPP Superintendence must also have a steering committee; which

will be responsible for making strategic decisions of the work and operation. This steering committee must be composed

of the management of the superintendence of the PPP and the management of the company. Likewise, the Superintendence

of PPPs must have a technical committee, which will be responsible for making operational decisions of the work and

operation. This technical committee must be composed of the technicians of the superintendence of the PPP and the

company.

4) Panel of experts for the renegotiations of contracts: The contract regulator must have a group of independent experts in

which its main function is to resolve conﬂicts between the superintendence and the company and review the renegotiations.

This panel must be composed of experts external to the Government and without links to the bidding companies. In

addition, it must be multidisciplinary (economists and jurists).

3 Methodology

After carrying out the diagnosis and elaborating the guidelines based on the analysis of incentives in institutional

frameworks of selected countries, it is proposed to test the result considering the Infrascope. This publication contains a

ranking of those willing to carry out PPPs and uses for this purpose variables such as Regulations and Institutions, Project

Preparation and sustainability, Financing, Risk management and Contract monitoring and Performance Evaluation and impact.

This exercise involves the use of principal component (PCA) analysis to assess the robustness of the survey . The

exercise consists of ﬁnding weights that are given to each of the variables in question, according to the principle that the

objective is to maximize the variation in the linear compound of these variables. In other words, this approach makes possible

to identify patterns in the data and express the data to highlight their similarities and differences. Since patterns in data can be

difﬁcult to ﬁnd in high-dimensional data, PCA can help analyze the data.

Following Andrés et al (2007), we will use PCA to jointly consider the information provided by the Infrascope

components and generate orthogonal components. Factor scores are then calculated for each of the variables, and these scores

will be used to calculate governance.

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32 Bonifaz Fernández

3.1 Infrascope: methodology and data

In 2021, the methodology for the development of the Infrascope was updated by the research team of The Economist

Intelligence Unit in consultation with the Inter-American Development Bank (Infrascope, 2022).

The Economist Intelligence Unit then selected a series of predetermined weights that are considered appropriate for the

calculation of the overall index. These weights are not intended to represent a ﬁnal judgment on the relative importance of the

indicator. Modeling and weighting of indicators and categories in the index yield scores from 0 to 100 for each country, where

100 represents the highest quality and performance and 0, the lowest. Overall scores are calculated according to a neutral

weighting scheme, which means that all categories and indicators have the same importance in the combined score.

Tabla. 1. Component weighting

Category Weight

Regulations and institutions 20 %

Project Preparation and Sustainability 20 %

Financing 20 %

Risk Management and Contract Monitoring 20 %

Performance Evaluation and Impact (Ex-post) 20 %

Source: Infrascope (2022)

3.2 PPP Governance Ranking

As a ﬁrst exercise, we will evaluate the governance of PPPs in Latin American and Caribbean countries, considering their

overall performance in each of the Infrascope variables (regulations and institutions, project preparation and sustainability,

ﬁnancing, risk management and contract monitoring, and performance evaluation and impact).

Table 2 presents the results of the 2021 Infrascope. According to this analysis, Brazil, Chile, Uruguay, Colombia and

Peru are in the top ﬁve places in the overall ranking. Brazil improved its overall score in relation to 2020, going from position

5 to position 1; while the other four countries had a decrease in their scores. Despite such a decline, Uruguay rose from 7th to

3rd in the rankings.

Overall, Peru’s performance was uneven across categories: it ranked second in Project Preparation and Sustainability, and

fourth in Financing, but ranked in the bottom half of Risk Management and Contact Monitoring, and Evaluation Performance

and Impact, and eighth in Regulation and Institutions. Chile and Paraguay obtained the highest results in the Regulations and

Institutions category. Chile led the region in this category, just 3.6 points away from the perfect score and with the highest

or second highest score for any other category in the index. According to the Infrascope report (2022), Chile stands out in

terms of the maturity and depth of its ﬁnancial environment for PPPs; it also has the best practices for monitoring contracts

and leads the region in terms of regulatory or government risk. In 2019, Chile’s regulatory framework was ranked as the

second best in the region and showed a slight improvement since 2017. In 2017 Chile replaced the previous concessions body

(created in 1996) with the new General Directorate of Public Works (DGOP). The DGOP board of directors was selected

through a competitive process and has already issued guidelines facilitating unsolicited PPP proposals from the private sector.

Brazil was the only country in the top ﬁve of the overall ranking in the bottom half of the Regulations and Institutions category.

The Regulations and Institutions category recorded the highest average score. This category measures a country’s

regulatory and institutional frameworks for private participation in infrastructure through 4 subcategories: enabling regulatory

environment and political support for PPPs, an agency dedicated to PPPs, competitiveness and openness in biddings,

and fairness and openness to changes in contracts. These indicators measure speciﬁc aspects of the legal, regulatory and

institutional framework, including the existence of a speciﬁc framework for PPPs, the existence of a speciﬁc PPP agency, the

existence of resources and funds to prepare projects, transparency around PPP reporting, PPP selection criteria, procedures

for handling unsolicited proposals, among others. In this category, Chile and Paraguay are in ﬁrst and second place

respectively. The Project Preparation and Sustainability category examines the processes that guide projects and evaluates

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A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 33

the incorporation of sustainability considerations into projects. This category comprises four subcategories: project selection,

project preparation and support, efﬁciency of project preparation and social, and environmental sustainability. The countries

that present the best performance in this category are Brazil, Peru and Mexico.

Financing is the category that examines ﬁnancial frameworks and facilities that support infrastructure development,

project ﬁnancing, and ﬁnancial sector maturity. This category includes three subcategories: the structure and sources of

ﬁnancing, the level of access to ﬁnance, and the macro environment. Risk management and contract monitoring comprises the

subcategories of risk allocation, national monitoring and reporting, disaster risk, and government risk. Finally, Evaluation

Performance and Impact evaluates ex-post aspects of PPP projects: the maturity and quality of projects, the impact on

infrastructure quality, and environmental and social impact. In these three categories Brazil and Chile lead the ranking, in

ﬁrst and second place respectively. With the exception of Risk Management and Contract Monitoring, where Chile ranks ﬁrst.

Tabla. 2. Infrascope 2021

Source: Infrascope (2022)

3.3 Using principal components analysis

The second exercise is more complex and involved the use of principal component analysis (PCA) . Principal component

analysis develops a composite index by objectively deﬁning a real value function on the relevant variables. The principle

of this method is that when different characteristics are observed over a set of events, the characteristic with the greatest

variation explains a greater proportion of variation in the dependent variable compared to a variable with less variation. As

mentioned before, the use of PCA in this exercise is important because it can identify patterns in the data and express the data

to highlight their similarities and differences; also, once that these patterns are found, PCA compresses the data by reducing

the dimensions, without losing much information.

We use PCA to jointly consider the information provided by the ﬁve governance indicators provided by the Infrascope

(2022) and generate orthogonal indices to measure the governance of PPPs in Latin American countries. Then, we calculate

factor scores for each of the countries and compare their governance. As a ﬁrst step, we calculate the matrix of correlations of

the data.

Tabla. 3. Correlation matrix

Regulation Project

Preparation Financing Risk

Management

Performance

Evaluation

Regulation 1 0.7503 0.7914 0.8236 0.7152

Project Preparation 0.7503 1 0.7748 0.7705 0.6855

Financing 0.7914 0.7748 1 0.8705 0.6793

Risk Management 0.8236 0.7705 0.8705 1 0.7211

Performance Evaluation 0.7152 0.6855 0.6793 0.7211 1

Source: Own elaboration.

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34 Bonifaz Fernández

From Table 3, we observed that the variables with the highest correlation are risk management and ﬁnancing (0.8705),

followed by risk management and regulation, with a correlation coefﬁcient of 0.8236. The correlation between regulation and

ﬁnancing has a coefﬁcient of 0.7914; while the correlation between project preparation and ﬁnancing has a coefﬁcient of 0.

7748. The variables with the least correlation are performance evaluation and project preparation (0.6855), and performance

evaluation and ﬁnancing with a correlation coefﬁcient of 0.6793.

As a second step, we calculate the spectral decomposition of the correlation matrix; that is, we will ﬁnd the eigenvalues

and eigenvectors of the correlation matrix. In this sense, we have that the eigenvalues are: 4.038, 0.362, 0.266, 0.211 and

0.124. The eigenvectors or coefﬁcients of the components (factors) are:

Tabla. 4. Principal component coefﬁcients

Factor 1 Factor 2 Factor 3 Factor 4 Factor 5

Regulation 0.4526971 0.07316787 -0.33204869 0.81014 -0.15208104

Project Preparation 0.4408951 0.14878894 0.87531163 0.1119274 0.06910293

Financing 0.4572943 0.37200314 -0.18291384 -0.4809836 -0.62264989

Risk Management 0.4650063 0.22003415 -0.2985507 -0.2592346 0.76093295

Performance Evaluation 0.4187217 -0.88640112 -0.03135655 -0.1805482 -0.07337781

Source: Own elaboration.

The linear functions of the principal components are:

Y1= 0,4526971Z1+ 0,4408951Z2+ 0,4572943Z3+ 0,4650063Z4+ 0,4187217Z5

Y2= 0,07316787Z1+ 0,14878894Z2+ 0,37200314Z3+ 0,22003415Z4−0,88640112Z5

Y3=−0,33204869Z1+ 0,87531163Z2−0,18291384Z3−0,2985507Z4−0,03135655Z5

Y4= 0,81014Z1+ 0,1119274Z2−0,4809836Z3−0,2592346Z4−0,1805482Z5

Y5=−0,15208104Z1+ 0,06910293Z2−0,62264989Z3+ 0,76093295Z4−0,07337781Z5

As a third step, we determine how many factors (principal components) we can use in our analysis. Figure 4 and Table 5

provide us with this information in this regard.

Figura. 1. Scree plot

Source: Own elaboration

Figure 4 shows a drastic change in the slope from the second component. This indicates that only the ﬁrst component is

signiﬁcant, that is, only the ﬁst component explains a large proportion of the variance. For a better illustration of this matter,

we look at Table 5; in which we quantitatively represent the percentages of variation explained by each component:

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A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 35

Tabla. 5. Percentage of explained variance for each component

Factors Eigenvalues Explained variance

% Cumulative %

1 4.038 80.75 % 80.75 %

2 0.362 7.24 % 87.99 %

3 0.266 5.32 % 93.31 %

4 0.211 4.22 % 97.53 %

5 0.124 2.47 % 100.00 %

Source: Own elaboration.

Table 5 presents the estimated factors and their eigenvalues. This table shows that the ﬁrst factor explains 80.75 % of the

total variation. The percentage of explained variance by the other components is negligible. The information shown in Table

5 is in accordance with the interpretation of Figure 4. After these results, we decide to keep the ﬁrst component and reject the

others. That is, instead of using the original ﬁve variables, we will only use the ﬁrst component.

On the other hand, the following table presents the matrix of correlations between the principal components and the

original variables.

Tabla. 6. Correlations between the principal components and the original variables (in absolute values)

Factor 1 Factor 2 Factor 3 Factor 4 Factor 5

Regulation 0.9096449 0.04401173 0.17129034 0.37203719 0.05345194

Project Preparation 0.88593 0.08949909 0.45153748 0.05139993 0.02428761

Financing 0.9188825 0.22376624 0.09435777 0.22088006 0.21884281

Risk Management 0.934379 0.1323543 0.1540101 0.11904723 0.26744517

Performance Evaluation 0.8413751 0.53318542 0.01617556 0.08291237 0.0257901

Source: Own elaboration.

According to Table 6, the ﬁrst factor has a high correlation with all variables. The correlation between the ﬁrst principal

component and Risk Management is the highest (0.934379), and indicates that factor 1 retains 93.44 % of information from

the fourth variable (Risk Management). Then, its correlation with Financing is 91.89 %, followed by its correlation with

Regulation (0.9096449). In the same way, the correlation between the ﬁrst factor and Project Preparation (0.88593), and

its correlation with Performance Evaluation (0.8413751) are also good, this means that the ﬁrst factor retains 88.59 % of

information from the second variable (Project Preparation) and 84.14 % of information from the ﬁfth variable (Performance

Evaluation).

Additionally, we observed that the highest correlation presented by the second principal component is 53.32 % with the

ﬁfth variable. On the other hand, the correlations between the other principal components with the variables are less than 50 %.

The conclusion reached is that the ﬁrst principal component retains almost all the information of the original variables,

as shown above in Figure 4, Table 4, Table 5 and Table 6.

4 Results

To facilitate the analysis and interpretation of the results, we normalized the scores of the ﬁrst principal component

assigned to each indicator along the scale of 0 to 100 . This is presented in Table 7, where higher values indicate greater

governance in a given factor. The countries selected for this study are Brazil, Chile, Peru, Colombia, El Salvador, Costa Rica

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36 Bonifaz Fernández

and Mexico.

Table 7 indicates that Brazil and Chile are the countries with the best governance conditions in terms of Regulations and

Institutions, Project Preparation and Sustainability, Financing, Risk Management and Contract Monitoring, and Performance

Evaluation and Impact; since they have a score greater than 98 points. Colombia also has high governance conditions,

obtaining a score of 82.31 points.

Although Peru, Costa Rica, El Salvador and Mexico have diverse scores, they are considered to have desirable governance

conditions, since they are above 50 points. On the other hand, Nicaragua, Trinidad and Tobago, Venezuela and Barbados

are below 50 points, which reﬂects signiﬁcant governance deﬁcits in the indicators of Regulations and Institutions, Project

Preparation and Sustainability, Financing, Risk Management and Contract Monitoring, and Performance Evaluation and

Impact.

Tabla. 7. Standardized scores of the ﬁrst principal component for each country

Rank Country Factor 1

1 Brazil 100

2 Chile 98.63

3 Uruguay 83.74

4 Colombia 82.31

5 Peru 77.54

6 Panama 74.72

7 Costa Rica 73.77

8 El Salvador 68.81

9 Guatemala 67.95

10 Dominican Republic 67.70

11 Mexico 66.34

12 Jamaica 63.37

13 Honduras 62.62

14 Ecuador 52.62

15 Argentina 51.97

16 Nicaragua 44.92

17 Trinidad and Tobago 12.44

18 Venezuela 0.05

19 Barbados 0

Source: Own elaboration

5 Discussion

This study analyzes the different governance models of Public-Private Partnerships in the region for a group of selected

countries. To this end, the role played in the PPP project cycle by the main public actors (PPP units, ministries of Finance,

contracting ministries and the Development Bank) was analyzed. In this sense, we observed that in some countries the

awarding authority is any government agency; also, many of these countries do not have a speciﬁc PPP unit. This could

generate some discrepancies in terms of the elaboration of the projects. In other cases, we observed that a single entity is the

contracting authority and also the PPP unit; this could generate problems if there is an increase in activity due to the large

number of projects to be managed, both public and private initiative, which would lead to the capacity of the entity to become

too small for the volume of work it faces, resulting in process delays.

On the other hand, some regulatory instruments that were applied by the countries can still be implemented. For example,

as contracts usually have a long-term term validity, they will not be able to regulate all future situations or events that may

occur during their validity. Therefore, care should be taken to ensure that contracts are ﬂexible enough to be able to adapt to

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A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 37

the new context, without this implying altering their nature or the economic-ﬁnancial balance.

Moreover, one objective of information transparency is to reduce levels of corruption. To do this, the general public must

be assured about probity, service standards and the costs associated with contracts. It also fosters competition and makes

it easier for the market to be better informed to build trust in all the actors involved. As the projects involve social and

environmental aspects and considerations of interest to citizens, it is advisable to increase transparency and the dissemination

of information. For their part, contracts should have dispute resolution mechanisms that help ensure that discrepancies or

conﬂicts between the parties are resolved quickly and efﬁciently. This would avoid the interruption of public services and the

continued provision of public infrastructure. Due to the complexity and long term of the contracts, they tend to be incomplete,

which creates a space for differences in the interpretation and understanding of the clauses of the contractual agreement

between the grantor and the concessionaire.

6 Conclusions

Finally, a quantitative evaluation of PPP governance in the selected Latin American countries was made, analyzing the

trend of the region in terms of ﬁve dimensions: Regulations and institutions, Project Preparation and Sustainability, Financing,

Risk Management and Contract Monitoring, and Performance Evaluation and Impact. For this exercise we used Principal

Component Analysis (PCA) to create an index, composed of the governance variables with the highest variance. The results

show that Brazil, Chile and Colombia have the best governance conditions for PPPs. In addition, Peru, Costa Rica, El Salvador,

and Mexico also have desirable levels of governance, given that they are above 50 points. Finally, Nicaragua, Trinidad and

Tobago, Venezuela and Barbados are the only countries that show governance deﬁcits.

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A COMPARATIVE ANALYSIS OF PPP GOVERNANCE 39

Appendix

Appendix A: Governance of PPPs in the selected countries

Tabla. 8. Governance of PPPs in the selected countries

Source: CAF (2019). Own elaboration.

Tabla. 9. Governance of PPPs in the selected countries - Continuation

Source: CAF (2019). Own elaboration.

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40 Bonifaz Fernández

Tabla. 10. Governance of PPPs in the selected countries - Continuation

Source: CAF (2019). Own elaboration.

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