1.1 What Is A Public Private Partnerships?
Despite a general level of consensus regarding what constitutes a PPP, there are variations in the way in which the concept has been defined. The variations in definitions of the concept can be traced to the political and economic consequences of PPPs, which makes their meaningâand, consequently, their desirabilityâsusceptible to different interpretations by diverse parties. For instance, the UK Labour government under Tony Blair reshaped the concept to fit into its political mandate.1 The Private Finance Initiative (PFI), which was originally a creation of the Conservative government, was readily embraced and re-energised by the Labour government because the government believed that it was the best way to secure improvements to public utilities promised by the party without adversely increasing the countryâs debt profile. This same scenario has been played out in varied ways in different countries and, as we shall see later, even in multilateral institutions around the globe. The political and economic stakes are very high and it is therefore unsurprising that different professions, countries and institutions manipulate the definition, ambit and use of PPPs to achieve their own specific ends.
It is interesting to explore the definitions of PPPs from the viewpoint of different institutions that are involved in PPP transactions around the world. These institutions tend to define the concept from the prism of the nature, extent and desired objective of their involvement in the PPP process. The differences between the objectives of these multilateral institutions perhaps best explain the reasons for the varying definitions employed by diverse institutions. More importantly for the purposes of this work, these various institutional definitions also help us distil the essential elements of PPPs.
According to the International Monetary Fund (IMF), âPublic Private Partnerships involve private sector supply of infrastructure assets and services that have traditionally been provided by the governmentâ.2 This definition looks at PPP from a historical perspective, stressing the novelty of the concept by contrasting it with traditional procurement. One crucial handicap of this definition is that it does not emphasize the partnership between the public and private sectors that is inherent in PPPs. This limitation in the definition is understandable when viewed against the backdrop that the IMF deals mostly with governments; therefore the lesser degree of elaboration on the relationship with the private sector is understandable.
In contrast with this definition is that offered by the Parliament of Australia which sees PPPs as âpartnerships between the public sector and the private sector for the purposes of designing, planning, financing, constructing and/or operating projects which would be regarded traditionally as falling within the remit of the public sector. Infrastructural projects such as roads and bridges are prime examplesâ.3 This definition goes a step further than the preceding definition as it not only underscores that PPP is based on partnership, but also breaks down the different components of a typical PPP project, from designing, financing, construction to actual operation. This is important because it is believed that it is the bundling of these components into a single process and placing it in the hands of a single private sector provider makes PPPs very attractive and ensures the attainment of value for money in projects.
The Canadian Council for Public Private Partnerships defines PPPs as âa cooperative venture between the public and private sectors built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewardsâ.4 This definition highlights two important components: The first is that it stresses on the cooperative nature of the partnership between the public and private sectors. Second, based on the cooperative nature of the partnership, it emphasizes that risks and benefits are shared between the parties. It is noteworthy that the word âappropriateâ is used in discussing the allocation of resources, risks and benefits between the parties. This is important because the success of PPP depends on how all these variables are allocated within the partnership so that the parties are only burdened with a level of risk which they can handle and receive the rewards that they deserve.
The National Council for Public Private Partnerships (US) defines a PPP as âa contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facilityâ.5 This definition highlights the legal and contractual nature of PPPs. Indeed, the relationship between the public and private sectors is more or less contractual in nature and evidenced in very detailed contractual documents.
The Organisation For Economic Cooperation and Development defines a public-private partnership as:
An agreement between the government and one or more private partners (which may include the operators and the financers) according to which the private partners deliver the service in such a manner that the service delivery objectives of the government are aligned with the profit objectives of the private partners and where the effectiveness of the alignment depends on a sufficient transfer of risk to the private partners.6
This definition, while accepting that the objectives and interests of the private and public sectors differ, underlines the need for the alignment of the objectives of the parties to the relationship and this meeting of interests is dependent on finding the right balance in the apportionment of risks between the parties.
According to the Public Private Infrastructure Advisory Facility (PPIAF) of the World Bank, âPPP is an agreement between a government and a private firm under which the private firm delivers an asset, a service, or both, in return for payments. These payments are contingent to some extent on the long-term quality or other characteristics of outputs deliveredâ.7 This definition seems to assume that the government always controls how payments are made to the private sector and is therefore able to benchmark payments to the quality or other characteristics of services provided. This may be true in some jurisdictions that mainly operate the availability payment model but not when private sector providers charge user fees directly from the public. As we shall see later in Chap. 8, the user fee model of payments presents its own challenges because it becomes difficult to find a balance, or even a correlation, between the quality of service and the payment the private sector party receives unless there are substitutes or alternatives available for the same service.
According to the UK Her Majestyâs Treasury, âPublic private partnerships (PPPs) are arrangements typified by joint working between the public and private sector. In the broadest sense, PPPs can cover all types of collaboration across the interface between the public and private sectors to deliver policies, services and infrastructure, where delivery of public services involves private sector investment in infrastructureâ.8 This wide definition seems to accommodate almost all transactions where there is collaboration between the private and public sector. This means that arrangements like privatization, for instance, will fall within the purview of this definition.9 The preference in this work, however, is to exclude privatization from transactions regarded as PPPs since it involves a complete transfer and ownership of the asset or infrastructure to the private sector party. This, as we shall see later, has legal consequences in relation to proprietorship and control of the asset.
Also, the concept of PPP is based on a high degree of partnership or collaboration between the public and private sectors. Privatisation does not however offer a sufficient degree of partnership between the parties to fit within the umbrella of PPPs. It must be stated, however, that broadness of this definition provides governments with the flexibility to capture a number of transactions that would otherwise have been excluded from the umbrella of PPPs; this is consistent with the view that characteristics or boundaries of transactions which constitute PPPs are not closed. For instance, the European Commission observed that PPPs are still evolving, and comprise divergent arrangements that may be adapted to suit the requirement of projects and project partners on a pragmatic basis.10
The Asian Development Bank (ADB) appears to have the most comprehensive definition and seems to sum up all the characteristics that have been pointed out in the previous definitions. According to the ADB:
âPublicâprivate partnership describes a range of possible relationships among public and private entities in the context of infrastructure and other services. PPPs present a framework thatâwhile engaging the private sectorâacknowledge and structure the role for government in ensuring that social obligations are met and successful sector reforms and public investments achieved. A strong PPP allocates the tasks, obligations, and risks among the public and private partners in an optimal way. The public partners in a PPP are government entities, including ministries, departments, municipalities, or state-owned enterprises. The private par...