Public-private partnerships (PPPs) are vital in the world of infrastructure today. According to the World Bank, building modern, sustainable, and reliable infrastructure is critical for meeting the rising aspirations of billions of people around the globe—and for addressing the climate change challenge. Infrastructure investment helps raise economic growth rates, offers new economic opportunities, and facilitates investment in human capital.
The numbers are stark: about 800 million people live without electricity; 2.2 billion people lack safely managed drinking water service. Congested and inadequate ports, airports, and roadways are a drag on growth and trade.
Public-private partnerships (PPPs) can be a tool to get more quality infrastructure services to more people. When designed well and implemented in a balanced regulatory environment, PPPs can bring greater efficiency and sustainability to the provision of public services such as energy, transport, telecommunications, water, healthcare, and education. PPPs can also allow for better allocation of risk between public and private entities.
This article by Brickstone Africa reviews various publications on Public-private partnerships (PPPs), highlighting key facts and insights.
7 Key Facts about Public-Private Partnerships
According to the World Bank, the financial crisis of 2008 onwards brought about renewed interest in PPP in both developed and developing countries. Facing constraints on public resources and fiscal space, while recognizing the importance of investment in infrastructure to help their economies grow, governments are increasingly turning to the private sector as an alternative additional source of funding to meet the funding gap.
Today, 789 million people live without electricity, 2.2 billion people lack access to safe drinking water, and 4.2 billion lack modern sanitation services. To address these gaps, the public and private sectors need to work together.
While recent attention has been focused on fiscal risk, governments look to the private sector for other reasons like exploring PPPs as a way of introducing private sector technology and innovation in providing better public services through improved operational efficiency; incentivizing the private sector to deliver projects on time and within budget; and imposing budgetary certainty by setting present and the future costs of infrastructure projects over time.
The following are key facts about public-private partnerships:
According to Investopedia, public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks, parks, and convention centers. 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.
Partnerships between private companies and governments provide advantages to both parties. Private-sector technology and innovation, for example, can help improve the operational efficiency of providing public services. The public sector, for its part, 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.
According to the World Bank, well-structured PPPs bring private capital for investment, private-sector expertise, and commercial management incentives needed for enhancing service provision to users. Therefore, private sector financing provides two key functions in a PPP. First, it complements public sector financing and allows projects to go forward that otherwise would have been discarded due to fiscal constraints. Second, it creates an incentive mechanism aligning private and public interests.
Transferring responsibility to the private sector for mobilizing finance for infrastructure investment is one of the major differences between PPPs and traditional procurement. Where this is the case, the private party to the PPP is responsible for identifying investors and developing the finance structure for the project. However, it is important for public sector practitioners to understand private financing structures for infrastructure and to consider the potential implications for government.
Public-private partnerships are unique to some extent, but many share common characteristics such as service orientation, whole life costing, risk allocation, long-term relationships, and transparency. Service-oriented because they focus on delivering infrastructure projects that meet the needs of society, while they involve whole life costing as the cost of a project considered over its entire life cycle, including design, construction, operation, and maintenance. Long-term relationships are also a feature of PPPs as they can last for many years. They require careful management to ensure that they deliver value for money and meet the needs of society. Transparency is key to ensuring that PPPs are accountable and that the public interest is protected.
While PPPs can cover a range of projects across various sectors, there are several that are most associated with these types of initiatives. For example, transportation, power and energy, water and wastewater, telecommunications, healthcare, education, and social infrastructure. In delivering effectively across these sectors owever, careful planning and management are required to ensure that they deliver value for money and meet the needs of society.
There are various PPP contract models based on funding and which partner is responsible for owning and maintaining assets at different stages of the government project. This includes: Design-build (DB), Operation and maintenance contract (O&M), Design-build-finance-operate (DBFO),Build-own-operate (BOO), Build-own-operate-transfer (BOOT), Buy-build-operate (BBO), Build-lease-operate-transfer (BLOT), and Operation license.
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