Do public private partnership projects deliver value for money? An ex post Value for Money (VfM) Test on three road projects in Korea

The fiscal efficiency of Public Private Partnership (PPP) projects has been subject to much debate since PPP proliferated in Korea since 1997. The paper aims to determine the fiscal efficiency of three major PPP road projects signed between 1997 and 2005 and currently in operation. We perform an ex post value for money (VfM) test on the three PPP road projects to evaluate their performance in terms of fiscal efficiency. The results show only one of the three attained value for money greater than zero while other two did not. The analysis shows that the key reasons for the failure to deliver VfM are: (1) discount rates fell between the time of contract signing and the time of evaluation and (2) Treasury bond interest rates also dropped during the same period, which together undermined the fiscal efficiency of PPP. This does not mean PPP is not a viable alternative to public procurement. Rather, the findings highlight the importance of effective contract management that can mitigate the risk arising from the changes in project environment during the whole of contract period, such as the changes in Treasury bond interest rates and discount rates.