Public Private Partnerships Definitions and Trends

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Public Private PartnershipsDefinitions and Trends

• Reto Fausch, lic.rer.publ.HSG, dipl. Hdl.
  reto.fausch_at_zhaw.ch

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Outline

• Defining Public Private Partnerships (PPPs/3Ps)
• Developments and trends
• A Swiss point of view

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Projected infrastructure investment
Source Deloitte (2006) Closing the
Infrastructure Gap.
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Reasons for implementing PPPs

• Infrastructure gap
• Fiscal crisis of the public sector
• Need of new financial instruments
• Off balance sheet financing (Maastricht Criteria)
• Improving efficiency
• Increased complexity of government tasks (overlap
  between the public and private sector)

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PPPs by country and sector (1)
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PPPs by country and sector (2)
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Definitions (1)

• PPP is a form of cooperation between public
  authorities and the world of business which aim
  to ensure the funding, construction, renovation,
  management or maintenance of an infrastructure or
  the provision of a service. (European Union
  Green Paper on Public-private Partnerships and
  Community Law on Public Contracts and
  Concessions)
• A PPP is an agreement between government and a
  private partner(s) (that may include the
  operators and financiers) according to which the
  private partner(s) delivers the service in such a
  manner that the service delivery objectives of
  government are aligned with the profit objectives
  of the private partner(s) and where the
  effectiveness of the alignment depends on a
  sufficient transfer of risk to the private
  partner(s). (OECD)

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Definitions (2)

• PPPs refer to arrangements where the private
  sector supplies infrastructure assets and
  services that traditionally have been provided by
  the government. In addition to private execution
  and financing of public investment, PPPs have two
  other important characteristics there is an
  emphasis on service provision, as well as
  investment, by the private sector and
  significant risk is transferred from the
  government to the private sector. PPPs are
  involved in a wide range of social and economic
  infrastructure projects, but they are mainly used
  to build and operate hospitals, schools, prisons,
  roads, bridges and tunnels, light rail networks,
  air traffic control systems and water and
  sanitation plants. (IMF)
• Any scenario under which the private sector
  assumes a greater role in the planning,
  financing, of a transportation facility
  compared to traditional procurement methods.
  (United States Federal Highway Administration
  Public-Private Partnerships Website)

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Definitions (3)

• Criteria of PPPs
• Public service
• At least one private and one public partner
• Provision of an economic service / output
• Shared accountability
• Bundling of resources (synergies)
• Shared risk
• Long-term, process oriented cooperation
• Increase of efficiency

Source BOLZ et al. (2005)
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Defintions (4)
Source Bennett et.al.(2000) in
Bult-Spiering-Dewulf (2006)
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Definitions (5)

• General characteristics of PPP
• Involves two or more actors (government
  business)
• Partners are principals who can act on their own
• Continuity of relations (contracts based on
  trust, negotiation and dialogue)
• Willingness to invest in partnership
  (material/non-material)
• Establish separate organisational structures,
  define objectives, tasks, financial platform and
  responsibilities.
• Shared responsibility for outcome
• Source Peters (1997) and Andersen (2004) in
  Bult-Spiering-Dewulf (2006)

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Trends in PPP discussion (1)

• Institutionalisation
• Expansion to other sectors
• From project to portfolio management
• From single-function to integrated project PPPs
• From project to more policy-based partnerships
• Public sector needs the skills to develop
  successful relationships and to deal with changes
  (long term VFM)
• Efficient selection procedures

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Trends in PPP discussion (2)

• Contract management public sector needs to be an
  intelligent client
• Contract evaluation tools
• Performance monitoring and sanctioning
• Contractual changes, re-negotiation of contracts
• Refinancing issues
• Contingency planning
• Contract termination threat
• Ensuring efficiency throughout project life time

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Trends in PPP discussion (3)

• Research on functioning of partnerships,
  partnership development communication cultural
  differences
• Value for money appraisal (improved
  methodologies?)
• Studies on new forms of arrangements / credit
  guarantee financing (UK) / public public
  partnerships (?)
• Empirical studies on performance of PPPs
• Accounting and reporting of PPPs (see
  presentation Prof. Andreas Bergmann)

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The Swiss Case

• Tradition of public private cooperation /
  partnerships in policy making
• PPPs following international definitions are
  hardly known
• Transfer from other countries (D,F) and
  adaptation
• Reasons slowing PPP implementation
• Low financial pressure, highly developed
  infrastructure
• Fear of loosing independence
• Complexity of legislation/political system, small
  size public sector entities
• Attitude towards service public and debts
• Institutional and cultural framework (high
  private participation)

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References

• Bolz, U. (2005) Public Private Partnerships in
  der Schweiz.
• Bult-Spiering, M., Dewulf, G. (2006) Strategic
  issues in Public-Private Partnerships. An
  international perspective.
• Deloitte (2006) Closing the Infrastructure Gap.
  The Role of Public Private Partnerships.
• Ehrensperger, M (2008) Erfolgsvoraussetzungen von
  Public Private Partnership im öffentlichen
  Hochbau.
• European Investment Bank (2005, Vol. 10, no. 2)
  Innovative financing of infrastructure the role
  of public-private partnerships Lessons from the
  early movers.
• Gremsey, D., Lewis, M.K (2005) The Economics of
  Public Private Partnerships
• PricewaterhouseCoopers (2005) Delivering the PPP
  promise. A review of PPP issues and activity.
• Institute for Public Policy Research/Commission
  on Public-Private Partnerships (2001) Building
  better partnerships.