Economic Evaluation of PPP in the Water Sector: Financial CGE Approach

Authors

1 Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

2 Faculty of Engineering, University of Isfahan, Isfahan, Iran

Abstract

Value for money assessment is used in Iran to select appropriate projects for partnership with the private sector by public-private partnership contracts. However, this method merely focuses on the direct effects on the project's level and ignores the economic and social impacts and indirect national and regional impacts. This method also is limited to selecting discount rates and tax position adjustments. It ignores both the benefits users receive from increasing the quality of services through public-private partnerships and the project's financing methods. So ignoring these problems can lead to significant errors in assessments. Therefore, the present paper aims to use a complementary approach to make decisions about investing by public-private partnership method in one of the country's infrastructures of water resources development. In this regard, the effect of building, financing, and operation of the desalination project and water transfer from the Persian Gulf to industry and mine sectors in the southeastern provinces of the country by a public-private partnership model and using the recursive dynamic FCGE model to Iran's economic growth simulate and compare it to the traditional procurement model. Based on the results, it has no economic justification if the project is financed in the traditional procurement model (through increasing tax revenues) and financed through public-private partnerships (through the capital market) without increasing the productivity rate. In other words, this project is economically justifiable only if implemented by a public-private partnership contract and increases productivity by at least 0.01% during the operation period.

Keywords