What Is Meant by Public Private Partnership

A key aspect of many infrastructure P3s is that most of the pre-financing is provided by the private sector. The way in which this funding is provided varies considerably from country to country. For P3s in the UK, bonds are used rather than bank loans. Although there is no formal consensus on a definition, the term has been defined by important entities. Public-private partnership (PPP) is a funding model for a public infrastructure project such as a new telecommunications system, airport or power plant. The public partner is represented by the government at local, state and/or national level. The private partner can be a private company, a public company or a consortium of companies with a specific area of expertise. Do you finance or structure public-private partnerships in the infrastructure sector? A public-private partnership (PPP) is often defined as a long-term contract between a private party and a government agency for the provision of a public good or public service in which the private party has significant risk and management responsibility (World Bank, 2012). It is based on the recognition that the public and private sectors each have certain advantages over others in the performance of certain tasks.

Private sector responsibilities could include financing, planning, construction, operation, management and maintenance of the project. Proponents of P3 argue that the risk posed by P3 is successfully transferred from the public sector to the private sector and that the private sector is better managed of risks. As an example of successful risk transfer, they cite the case of the National Physics Laboratory. This deal eventually caused the collapse of the construction company Laser (a joint venture between Serco and John Laing) when the cost of the complex science lab that was eventually built was much higher than expected. However, the lack of safeguards for investor rights, trade secret laws, public spending on public infrastructure and the ability to generate basic income from user fees have made it difficult to implement public-private partnerships in countries in transition. The World Bank`s Public-Private Infrastructure Advisory Forum seeks to mitigate these challenges. [8] In the UK, it has been found that many private financing initiatives have significantly exceeded the budget and have not provided good value for taxpayers, with some projects costing more than they are completed. An in-depth study by the UK`s National Audit Office[56] concluded that the private funding initiative model has proven to be more expensive and less effective than public funding in supporting hospitals, schools and other public infrastructure. Public-private partnerships involve collaboration between a government agency and a private company that can be used to finance, build and operate projects such as public transport networks, parks and convention centres.

Funding a project through a public-private partnership can allow a project to be completed earlier or make it possible in the first place. Public-private partnerships often involve tax concessions or other operating revenues, protection against liability or partial ownership rights over nominally public services, and ownership by the private sector, for-profit enterprises. A 2008 report by PriceWaterhouseCoopers argued that comparing public and private lending rates is not fair because there are “restrictions on public borrowing,” which may mean that public borrowing is too high, and therefore PFI projects can be beneficial by not taking debt directly from state books. [51] The fact that PPP debt is not recognized as debt and remains largely “off-balance-sheet” has become a significant problem. If the PPP project and its contingent liabilities are kept “off balance sheet”, the actual costs of the project remain hidden[52]. According to the International Monetary Fund, it should not be easy to determine whether PPP-related assets and liabilities should be included in the balance sheets of general government or private enterprises[53]. According to a 2018 UN report [46], “private financing is more expensive than public funding in terms of cost, and public-private partnerships can also entail high design, management and transaction costs due to their complexity and the need for external advice”[54]. In addition, negotiations on issues other than traditional procurement can lead to project delays of several years.[55] While long-term infrastructure projects make up the majority of P3 projects worldwide, there are other types of public-private partnerships that are suitable for different objectives and actors. In the broadest sense, a partnership is any enterprise or institutional association in which a joint activity takes place.

A PPP exists when one or more public organisations agree to act jointly with one or more private organisations. PPPs include public sector partnerships with businesses and civil society organisations, including community-based organisations, voluntary organisations and non-governmental organisations (NGOs). Not to be confused with lower overall project costs, value for money is a concept used to evaluate offers from P3 private partners against a hypothetical public sector benchmark that approximates the cost of an entirely public option (in terms of design, construction, financing and operation). .