Given their very nature and application, the definition of a “Public Private Partnership” (PPP) varies. Broadly, PPP’s are a contractual framework that enables government to work with the private sector to provide public services or infrastructure. This cooperation can be achieved at each or every stage along the life cycle of the project, including financing, construction and operation of the project. Although the private sector has been working with the public sector for many years, PPP’s represent a formalised framework that governments are increasingly applying to develop their relationships with the private sector.
The success of this practice is based on the premise that in many cases, the private sector is able provide a higher level of innovation, better access to finance and expertise in delivery of the service than government. If structured and managed correctly, over the life of the project, the PPP will provide value for money and cost the government less than if it had undertook the project itself. It will also allow the private sector to bear some of the financing and operating risk of the project (and earn a commercial return on this investment).
A Public Private Partnership should not be thought of as a “privatisation” or quasi-privatisation. Privatisation, by definition, is the transfer of ownership of state assets to private hands. Notwithstanding any regulatory and legislative requirements, how that privatised entity is managed and operates is then outside the scope of any further government responsibility.
This is not the case with PPP’s. While it can be said that the role of government changes, government still plays a major role. In all cases, it is responsible for a project’s output specifications and in many cases, paying for the services produced by the private sector. Payment however, is based on delivery of the contracted service to the specified requirements. Ideally, a PPP allows a government to utilise the private sector to deliver public services or infrastructure that the government requires, in a manner that is more cost effective and innovative than a purely government approach.
1.1 Typical PPP Frameworks
Public Private Partnerships and their structures depend on many varying factors, often individual to each situation. Table 1 provides a broad outline of typical PPP relationships.
Table. 1 Type of PPP’s
PPP Contractual RelationshipDescription
Build and TransferThe government specifies the required outcomes and functionality, but is not necessarily prescriptive in how this is achieved. The private sector bears the risk and the asset is transferred to government to operate upon completion. Operate and MaintainAn existing government asset is managed by the private sector. The contractor will be responsible for operating and maintaining the asset while providing the services to the customer. Design Build OperateA combination of the Design & Construction and Operate and Maintain. The Private contractor is also responsible for financing the projects construction. Upon completion and either before or after commissioning, the government buys the asset. The management stays with the contractor but government retains ownership. Build Own Operate TransferThe private partner is responsible for financing the entire lifecycle of the project (design, construction, operations and maintenance) and owns and operates the project through a concession period. In addition, the private partner bears all commercial risk. The asset is then turned over to the government at the end of an agreed term Build Own Operate. As above, except private partner retains ownership of asset. Government agrees only to purchase services for a fixed period. Lease Own OperatePrivate Partner leases an existing asset from the government for a specified time period. The asset may require refurbishment but no new assets are...