Building Competence. Crossing Borders.

Public Private PartnershipsDefinitions and Trends

Reto Fausch, lic.rer.publ.HSG, dipl. Hdl. reto.fausch@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 efficiencySource: 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.