When the wave of private infrastructure swept the globe in the early 1990s, a number of commentators pointed to earlier cycles of privatization and nationalization in infrastructure, and questioned whether this would last. These fears were credible: though investment in projects with private participation climbed rapidly through the mid-1990s, it fell just as swiftly from its peak in 1997 amidst a number of regional macro-economic crises. This decline was accompanied by some high profile cancellation of projects and questions about the benefits of private participation in infrastructure.
Trends in investments are only one side of the story. It is also important to look at whether the private sector is staying in the projects that it commences. Data from the World Bank-PPIAF Private Participation in Infrastructure Database shows that, by end 2006, about 5% of the projects in the database had seen such an exit. But this underestimates the impact that such cancellations can have. Aside from their notoriety, the fall-out from cancellation can have sustained impact on a countrys public-private-partnership program, both reducing the private sector confidence in government commitment to these long-term contracts, as well as government confidence that these arrangements are robust and deliver value for money to the taxpayers and consumers. Econometric analysis shows that the cancellation rate is nearly doubled by macro-economic shocks, ceteris paribus. Other significant factors in explaining cancellation include the sector and region in which the project is located, the existence of foreign sponsors and the quality of institutions. The present global financial crisis has greatly increased the cost, and reduced the availability, of financing for private infrastructure. This could lead to more cancellations, with medium- and long- term impacts for the role that these projects can play in meeting the infrastructure needs of developing countries.