Defining public private partnerships

APUBLIC Private Partnership is defined as a long term contractual agreement between public and private sector entities specifically targeted towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the public sector.

Compared with traditional procurement models, the private sector entity assumes a greater role in the planning, financing, design, construction, operation and maintenance of public infrastructure facilities.

In most instances, these PPP arrangements are built around the expertise and capacity of the project partners and are based on a contractual agreement, which ensures appropriate and mutually agreed allocation of resources, risks, and returns.

Usually project risk is transferred to the party best positioned to manage it.

What is important to note, however, is that entering into a PPP contractual arrangement does not necessarily imply reduced service delivery responsibility and accountability of the Government.

The partnership still remains a public infrastructure project committed to meeting the critical service needs of citizens. As such, the Government also remains accountable for service delivery, price certainty, and cost effectiveness, that is value for money, of the partnership.

The above implies that under a PPP contractual arrangement, Government remains actively involved throughout the project’s life cycle and its role gets redefined as one of facilitator and enabler, while the private partner plays the role of financier, builder, rehabilitator and operator of the service or facility.

The Government is also expected to contribute assurance in terms of stable governance, citizen’s support, financing and also assumes social, environmental, and political risks. On the other hand, the private sector player brings along operational efficiencies, innovative technologies, managerial effectiveness, access to additional finances, and construction and commercial risk sharing.

Origins of PPPs

PPPs are not new. They have been around for a few centuries now. According to Asian Development Bank, in the 16th and 17th century France, roads and bridges were concessioned for tolls in return for maintaining the routes.

Canals were built and water was collected and distributed under concessions. By the 1820s, there were six private water companies operating in London. At the beginning of the 19th century, nearly all the waterworks in the United States of America were private. Electricity utilities in the 19th century in Brazil, Chile, Costa Rica, and Mexico were private entities. In Argentina, Brazil and Uruguay, private developers from Britain, France, and the USA built and operated many of the early railways in the 19th and 20th centuries.

In recent years, however, PPPs have assumed a very important role in infrastructure financing and development in many parts of the world. Pressure to change the standard model of public procurement arose initially from concerns about the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s. Governments sought to encourage private investment in infrastructure, initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditures.

The idea that private provision of infrastructure represented a way of providing infrastructure at no cost to the public has now been generally abandoned. However, interest in alternatives to the standard model of public procurement persisted. In particular, it has been argued that models involving an enhanced role for the private sector, with a single private-sector organisation taking responsibility for most aspects of service provisions for a given project, could yield an improved allocation of risk, while maintaining public accountability for essential aspects of service provision. ◆ Dr Mugano (Ph.D) is an Author and Expert in Trade and International Finance. He has successfully supervised four Doctorate candidates in the field of Trade and International finance, published over twenty — five articles and book chapters in peer reviewed journals.