Jan

7

The opening of a Berlin airport has been delayed a 4th time, till at least 2014.

This captures an interesting phenomenon: How can one make large greenfield projects attractive to commercial capital? It seems to go one of two ways: Cost Plus / guaranteed minimum return: a free bonanza. Or equity discount rates that turn out to be totally wrong followed by massive overruns and investors taking a huge bath.

If you go back and look at Eurotunnel, Eurodisney, etc. all ran their costs over by a multiple. One can ask if Buffett is being chintzy about the Wright Brothers, but what is the right (Wright?) alternative?

The other huge problem with Private Finance Initiatives is the major agency issue of negotiating contracts to a deadline: public vs. private players. This one is never mentioned, however. Maybe because it is insoluble.


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