Evaluating Public-Private Partnership Dynamics: the Kazakhstan Toll Road Case

Abstract

The holistic collaboration between the government and business through public-private partnerships (PPPs) is crucial in developing economies in transition. With the help of the PPP mechanism, emerging economies realize new and maintain existing social and economic infrastructure projects in education, energy, transportation, and healthcare. This lessens the funding burden on the state budget and attracts private investment and expertise into the economy. However, one of the critical tasks is to engage a suitable private partner with whom a long-term relationship can be built for mutual benefit. The most vital issue in establishing and maintaining the PPP collaboration with such a partner is related to the appropriate management of business risks. This study focuses on the success of an infrastructure project for a private partner by analyzing the critical risks inherent in PPP projects. The research uses system dynamics (SD) modeling, which qualitatively and quantitatively determines how each risk affects the project realization. The study examines the largest PPP project in Central Asia, the Big Almaty Ring Road. This toll road project is taken as a case to demonstrate the impact of the most critical risks on the success of the PPP projects. For the simulation, the “hard tolls” form, which is one of the popular payment mechanisms in the global PPP practice, is considered where the private partner bears most of the risks. The findings show the riskiness of such a payment mechanism in implementing toll road projects with existing traffic and tariffs under conditions of uncertainty typical for Kazakhstan and other similar developing countries.