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Public Private Partnerships (PPP) are viewed by the private sector as investment projects. An investment criterion, such as the internal rate of return (IRR), widely used by practitioners, is thus necessary in order to determine if the opportunity is sustainable from an economic point of view and worth pursuing. However, a cash flow may have multiple IRRs—is it appropriate in the context of PPPs to use this criterion? This paper provides a clear proposition to determine the potential number of real positive IRRs a cash flow may have, depending on the number of sign variations and the value of the net present value (NPV) calculated with a discount rate equal to 0 (NPV(r = 0)). This proposition can sometimes be used when other tests (such as Norstrom’s Criterion) are inconclusive to determine if a cash flow has a single real positive IRR. The proposition is generally met by the typical cash flow of a PPP project, validating the use of IRR as an investment criterion.

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No abstract

Public–private partnerships (PPP) are complex long-term arrangements used in public infrastructure, public services or public facilities projects. To ensure that PPPs transfer enough risk to the private sector, European directives first and member states’ national legal frameworks later have modified how these projects are treated in the event of early termination. This paper aims to analyze said changes to determine if they well serve the public interest. The analysis is done by mapping the different alternatives a granting authority has when confronted with a PPP early termination, as stated by the law. We illustrate our analysis with a case study: The Móstoles-Navalcarnero railway, a Spanish PPP project that came to early termination during the construction stage. For this project, we determine the options available to the granting authority with the old Spanish legal framework (in force at the time the project was awarded) and with the new Spanish legal framework.