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

Author - Raymond Turner


 


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2 What is a PPP?

PPPs are defined in many different ways depending on which country and/or local authority is using a PPP to deliver a project.

According to the Guidelines of the National Department for the Irish Government (see http://www.ppp.gov.ie), a PPP is an arrangement between the public and private sectors (consistent with a broad range of possible partnership structures) with clear agreement on shared objectives for the delivery of public infrastructure and/or public services by the private sector that would otherwise have been provided through traditional public sector procurement.

A particular arrangement or project may constitute a PPP where the following key characteristics are present:

  • shared responsibility for the provision of the infrastructure or services with a significant level of risk being taken by the private sector, for example, in infrastructure projects, linking design and construction with one or all of the finance, operate and maintain elements
  • long-term commitment by the public sector to the provision of quality public services to consumers through contractual arrangements with private sector operators
  • better value for money and optimal allocation of risk, for example, by exploiting private sector competencies (managerial, technical, financial and innovation) over the project’s lifetime and by promoting the cross-transfer of skills between the public and private partners.

(National Development Finance Agency; see http://www.ndfa.ie)

PPP refers to the agreement between a public body and a private entity in order to deliver a public service in an economic, efficient and effective manner to the public user. The term is believed to have originated from the USA, however the concept has its origins back to seventeenth-century Europe where individuals were granted concessions to operate canals in France and roads in the United Kingdom (UK). The concept dates even further back in other countries such as Asia and Africa (Grimsey and Lewis 2005). PPPs evolved from a policy implemented by the Conservative government in the UK in 1992 called the Private Finance Initiative (PFI). The succeeding Labour government developed the concept in order to deliver public services and goods. The view adopted was that by combining the perceived experience and expertise of the private sector in its ability to deliver projects successfully to satisfy a public need, the public would receive better value at a lower cost (Yescombe 2007).

The common practice is to establish a special purpose vehicle (SPV) which will be a legal, corporate entity in its own right. Usually the private consortium establishes a SPV to create, operate, manage and maintain the platform for delivery of the public service. The ownership of the SPV is usually a combination of any or all of the partners, such as the public agency, the project promoters, the private consortium and the financing partner. The objective of the SPV is either to create an asset to deliver a public service or to transfer an existing asset in order to deliver a public service. The intention is that the public receives what is termed, and measured as VfM, i.e. the tax-payer receives better value for their money.

PPPs can be a concession or a licence granted by the state to a private entity to operate an asset or deliver a service for the benefit of the members the public. The theory implies that this type of arrangement is a ‘win-win-win’ for the government, the public and the private consortium. PPP agreements enable the use of public assets by the SPV to deliver better VfM.


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