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

Author - Raymond Turner


 


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5 The polygon of perceived value of a public asset

Each stakeholder uses their own methodology and tools to evaluate an asset. It is the same asset but it represents a different value to each stakeholder. In the example of a simple PPP agreement between a government, a public consumer, a private company and a lending bank, the value of a public asset is illustrated in Figure 4.

Figure 4 illustrates that value of the same public asset, P, which has different values to each of the different stakeholders and is calculated differently. The amount of each Value (Vi) represents the perceived value to each stakeholder. The area of each Vi is different depending on the evaluation methodology applied. If the number of stakeholders changes, so does the number of sides of the polygon as represented in Figure 5.

The value of the public asset may also change in value to each of the stakeholders over time as is illustrated in Figure 6.

Therefore the value of the same public asset is different to each of the stakeholders depending on what evaluation method is used and depending on the stakeholder’s perspective. Equally Figure 5 can be adapted to represent the different perceived benefits and also costs – as illustrated in Figures 7 and 8 – for each of the respective stakeholders.

What is important to note is that the value is not equal to the total quantitative net benefits, nor equal to the costs of creating an asset. The value may be greater and over the lifetime of the asset the value may decay or depreciate to a residual value whilst extra costs may be incurred to maintain the asset in order to derive continued benefits for the users.

For example what value would a married couple place on a house? Depending on what stage of their lives they are in, the value may be different. If they have young children, it may be important to the couple that there are schools close by and that there are amenities such as parks and shops in the neighbourhood.

The size of the house may be important to the couple. The layout of the house may be important. In other words there are a number of different things associated with the house that determine the value of the house to the couple, and subsequently what price the couple will pay for the house.

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