distribution, tariffs are set aiming for an IRR between 7 and 10 percent for an efficient company. These returns suggest the IRRs we estimates are in the right ballpark.

Another possibility is to contrast our estimates with the opinion of experts. To this effect we conducted a survey with 24 experts, which included former authorities at the Ministry of Public Works and related ministries, private sector executives involved in investment decisions in the PPP sector and academics specialized in project evaluation.<sup>62</sup> The average IRR was 11.0% (median: 10.3%) with a relatively large dispersion (standard deviation: 2.8%).<sup>63</sup> These estimates are 3%-4% higher than the estimates from our benchmark model and very close to the estimates from our second robustness exercise (Table 9).

# **5. Conclusion**

There are several dimensions in which Chile’s PPP program has been successful, many of which have implications for the management of fiscal risk. First, most projects have suffered only relatively short delays, if any.<sup>64</sup> Second, the direct fiscal cost of guarantees has been small. Third, Chile innovated by introducing flexible term (PVR) contracts which have better risk allocation properties: They allow for contract flexibility with less risk of opportunistic renegotiation and the fiscal risks associated with these renegotiations. Fourth, the extent of contract renegotiations was significant before the 2010 reform but fell dramatically following the reform, mainly for two reasons: acts of government that justify a compensation were severely limited and additional works contracted during the concession term had to be procured in a competitive auction. Fifth, despite a major reform in 2010 that reduced the bias in favor of the private party in the original PPP legislation, interest in the PPP program by local and international investors has continued to be strong. Sixth, it emerged unscathed from the 1999 and 2008 recessions, without having an impact on the fiscal balance. Seventh, the infrastructure built under the PPP program had a positive impact on productivity.<sup>65</sup> Eighth, the PPP program was able to mobilize resources from domestic institutional investors to finance the projects. Ninth, the annual cost to society of having PPPs lies somewhere between 7% and 10% of total investment value and can be lowered by using PVR as the contract mechanism. Finally, we observe that there is a large variation in the return of projects, independently of the type of contract.

> 62 The experts we contacted,are: Marcela Allue, Eduardo Bitrán, Fernando Britos, Eduardo Contreras, Leonardo Daneri, Álvaro Fuentes, Andrés Gómez-Lobo, Aldo González, Luz Granier, Ignacio Guerrero, Cristina Holigue, Cristián López, Rodrigo Manzur, Edgardo Mimica, Ricardo Mogrovejo, Juan Carlos Muñoz, Raúl O’Ryan, Cristián Palacios, José Antonio Sanhueza, Jennifer Soto, Daniel Ulloa, Juan Vargas, Thomas Verbeken, Leonel Vivallos. The response rate was 20 out of 24.

63 We asked for separate estimates of the average IRR for concessions adjudicated between 1994 and 2004 and between 2004 and 2014. The average IRRs for the former and latter periods were 11.7% and 8.4%. The IRRs we report in the main text consider the weighted average of both estimates with weight proportional to the number of PPPs in each period.

64 This may be because the concession term begins immediately after adjudication and that in many cases, toll revenues can only be received after the projects is in operation. This creates strong incentives for building the projects as fast as possible. These incentives also apply under PVR contracts, since for these projects revenues are discounted to the date the project completes construction.

65 Chile, ranked 34 worldwide, has the highest Logistic Productivity Index (LPI) in Latin America (World Bank, 2018). And it outranks other countries in Latin America in the Infrastructure subindex, which is explained in part by the PPP program.

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