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Public Private Partnerships: A licence to print money … or value for money?

Author - Raymond Turner


 


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Abstract

It is often considered that a Public Private Partnership (PPP) is a licence to print money for the private entity and that the state receives a price which does reflect the value of the underlying public asset.

This paper explores key concepts that underpin and define the nature of PPPs and how such partnerships have emerged and evolved as a means of project funding. The relationship between the underlying asset and the ownership of the derived benefit from the consumption of the public asset is explored to illustrate how the same asset can represent different values.

A PPP results in a legally binding contractual agreement between autonomous bodies, private consortia and funding entities to establish special purpose vehicles (SPV) in order to deliver public services to society. This paper addresses the definitions of key terms that are used and introduces a model to illustrate the different meaning of value to each of the stakeholders.

The author raises a number of questions in order to provoke an informed debate about what is the value of a PPP. Often, the perception is that the state sells off public assets at a fraction of the real value of that asset. The author reviews the different methodologies for evaluating an asset and questions whether these proxy models are applied appropriately?

The paper critiques the use of certain decision-making tools such as Cost-Benefit Analysis (CBA), Net Present Value (NPV) and Discounted Cash Flow (DCF) in determining the value of a public asset. The assumptions and criteria associated with these tools are presented and reviewed with respect to the life of a public asset such as a PPP project which may be 25–30 years or even older.

The author briefly reviews the different perspectives of the different stakeholders and introduces the concept of the ‘Polygon of perceived value model of a public asset (P)’. This proposed model is to illustrate that the value of the same asset is different depending on the perspective of the various stakeholders.

The author is seeking to develop a robust financial model which can be applied in a European context. This initial paper is the beginning of both qualitative and quantitative research into different areas such as the current PPP guidelines; financial models and regulations for PPPs that are applied in the different EU member states.

Keywords: Public Private Partnerships; Value for Money


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