CHAPTER 1
OVERVIEW OF PUBLIC PRIVATE PARTNERSHIPS (PPPs)
The PPP concept
A public–private partnership (PPP, 3P or P3) is a cooperative arrangement between one or more public and private sectors, typically of a long term nature. Governments have used such a mix of public and private endeavours throughout history. However, the past few decades has seen a clear trend towards governments across the globe making greater use of various PPP arrangements
Public-private partnerships between a government agency and private-sector company can be used to finance, build and operate projects, such as public transportation networks, parks and convention centres. Financing a project through a public-private partnership can allow a project to be completed sooner or make it a possibility in the first place.
PPP is a long-term contractual relationship between the public sector and the private sector for the purpose of having the private sector deliver a project or service traditionally provided by the public sector. PPP projects do not minimize the public sector’s responsibility to improve public services, only the methodology for its provision and procurement is different.
Breaking down ‘Public-Private Partnerships’
For example, a city government might be heavily indebted, but a private enterprise might be interested in funding the project’s construction in exchange for receiving the operating profits once the project is complete.
Public-private partnerships have contract periods of 25 to 30 years or longer. Financing comes partly from the private sector but requires payments from the public sector and/or
users over the project’s lifetime. The private partner participates in designing, completing, implementing and funding the project, while the public partner focuses on defining and
monitoring compliance with the objectives. Risks are distributed between the public and private partners according to the ability of each to assess, control and cope with them.
Payment for Public-Private Partnerships
Although public works and services may be paid for through a fee from the public authority’s revenue budget, such as with hospital projects, concessions may involve the right to direct users’ payments, as with toll highways. In cases such as shadow tolls for highways, payments are based on actual usage of the service. In cases involving wastewater treatment, payment is made with fees collected from users.
Benefits of Public-Private Partnerships
Private-sector technology and innovation help provide better public services through improved operational efficiency. The public sector provides incentives for the private sector
to deliver projects on time and within budget. In addition, creating economic diversification makes the country more competitive in facilitating its infrastructure base and boosting
associated construction, equipment, support services and other businesses.
Risks of Public-Private Partnerships
Physical infrastructure such as roads or railways involves construction risks. If the product is not delivered on time, exceeds cost estimates or has technical defects, the private partner typically bears the burden.
The private partner faces availability risk if it cannot provide the service promised. For example, the company may not meet safety or other relevant quality standards when running
a prison, hospital or school.
Demand risk occurs when there are fewer users than expected for the service or infrastructure, such as toll roads, bridges or tunnels. If the public partner agreed to pay a
minimum fee no matter the demand, that partner bears the risk.
Examples of Public-Private Partnerships
Public-private partnerships are typically found in transport infrastructure such as highways, airports, railroads, bridges and tunnels. Municipal and environmental infrastructure includes water and wastewater facilities. Public service accommodations include school buildings, prisons, student dormitories and entertainment or sports facilities.
Common terms used in PPPs
The following terms are used in the table:
• Public means that the public sector assumes wholly or predominantly this role or responsibility.
• Private by fee contract means that the private sector is remunerated by a predetermined fee; established at tender stage. Incentive payments may be included but will be a marginal
part of overall payment.
• Private by performance-based maintenance contract means that the private sector is paid based on the level of service of the highway infrastructure, generally comprising a standard availability fee with penalties for below-standard performance.
• Private by concession contract means that the private sector is paid based on user charges, availability payments or a mixture of both, as per the contract type PPP Success Drivers
a. Standardization:
PPP Models & Documentation that can be easily replicated (Feasibility analysis, risk allocation, RFPs, PPP Contracts, etc…).
b. Deal flow:
Quantity: Sufficient scale to justify a PPP strategy.
Quality: Determine which candidate is appropriate as PPPs; projects must be clear and bankable.
c. Leverage: create more opportunities to attract new finance using credit enhancements to reduce sovereign risk.
