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Public-private partnership

Literature review by APRN

Carlos Maningat

on 12 August 2011

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Transcript of Public-private partnership

Partnership (PPP) Definition of PPP IMF: “...arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided by the government.”

World Bank: "A PPP involves a sharing of risk, responsibility and reward, and is undertaken in those circumstances when there is value for money benefit to the taxpayers.

ADB: "...range of possible relationships among public and private entities in the context of infrastructure and other services...Increasingly, PPPs may also include nongovernment organizations (NGOs) and/or community-based organizations (CBOs) who represent stakeholders directly affected by the project." General criteria for PPP: (Grimsey and Lewis, 2004) 1) the involvement of two or more parties, at least one of which is a public body

2) existence of an enduring relationship among parties as signified in a contract

3) sharing of responsibility, resources and/or expertise, and risks *analysis were based on specific PPP cases in the global North, particularly in Europe E.S. Savas (2005) said that PPP is “particularly malleable as a form of privatization” as it falls under the different privatization strategies. He also acknowledged that the use of “public-private partnership” as a term “is sometimes a useful phrase because it avoids the inflammatory effect of “privatization.” A Literature Review Typical Participants 1) Public sector procurer (government, local government units and agencies, state-owned entities)
2) Special Purpose Vehicle (SPV) or the project company/ consortium
3) Financiers (debt financiers, equity financiers, etc.)
4) Subcontractors
5) Other parties such as advisers, insurers, rating agencies I. Overview of PPP
a. Definition
b. Modalities
c. Arguments in favor of and against PPPs
d. Scope and trends
II. Impact Assessment of PPP projects
a. Impact assessment studies
b. Impact assessment tools
III. Response to PPPs by civil society groups Why PPP? PPP modalities 1) a contractual agreement defining the roles and responsibilities of the parties

2) sensible risk-sharing among the public and the private sector partners

3) financial rewards to the private party commensurate with the achievement of pre-specified outputs. (2008) Sectors covered by PPP *Most of existing literature use PPP and Private Sector Participation (PSP) interchangeably. MRT Blue line (Bangkok) is a PPP Photo credit: Wikipedia "PPP phenomenon" PPP today represents a global phenomenon that is promoted by the international financial institutions and governments PPP arrangements are increasingly being used on a wide array of infrastructure assets and social services. Transport
Telecommunications Health
Waste management Infrastructure PPPs are being applied in both developed and developing countries, from Latin America to Asia Pacific, under varying legal frameworks. Objective of the literature review:
Identify the rationale behind PPPs and its current scope and trends
Examine impact assessment studies on PPP
Verify the lack of studies that provide a well-balanced impact assessment of PPPs on different sectors and communities in the Asia-Pacific region Government Debt financiers Multilaterals Consultants Contractors End-users Employees CSOs Private consortium Gassner, K., A. Popov and N. Pushak (2007) Dwivedi, G. (2010) Gutierrez, C. and M. Aquino (2008) Engel, E. et. al. (2011) Farlam, P. (2005) World Bank, ADB, EIB, IMF and national PPP units Nordveit, B. (2005) Riess, A. (2005) Education International (2009) Unison (2005) Hall, D. (2008) Mabizela, M. (2005) IMF's three modalities the private sector designs, builds, owns, develops, operates and manages an asset with no obligation to transfer ownership to the government 1 2 the private sector buys or leases an existing government asset with no obligation to transfer ownership back to the government the private sector designs and builds an asset, operates it, and then transfers it to the government when the operation contract ends 3 Build-own-operate (BOO) Build-develop-operate (BDO) Design-construct-manage-finance (DCMF) 1 2 Buy-build-operate (BBO)
Lease-develop-operate (LDO)
Wrap-around addition (WAA) 3 Build-operate-transfer (BOT)
Build-own-operate-transfer (BOOT)
Build-rent-own-transfer (BROT)
Build-lease-operate-transfer (BLOT)
Build-transfer-operate (BTO) Finlayson (2008), a senior evaluation specialist of the ADB, identified the design-build-finance-operate (DBFO) concessions as the “primary form of PPP,” which is “relatively new in emerging economies, but it is becoming increasingly important in countries such as India.” E.S. Savas (2005), a known pioneer of privatization, acknowledged that the use of “public-private partnership” as a term “is sometimes a useful phrase because it avoids the inflammatory effect of “privatization.” UN (2002):
PPP is a "strategic necessity rather than a policy option” representing a “unique and flexible solution to implement infrastructure projects.” European Commission (2003):
“PPPs present...the ability to raise additional finance in an environment of budgetary restrictions, make the best use of private sector operational efficiencies to reduce cost and increase quality to the public, and the ability to speed up infrastructure development.” ADB:
1) PPP effective in helping governments respond to the increasing demand for infrastructure-related services;
2) PPPs can help governments do more with less;
3) PPPs contribute to enhanced efficiency in delivering services. Efficiency “Experiences with many PPP projects show that public sector resources are not freed but are sucked into PPPs for private profits, due to private sector inefficiencies, unaccountability and risk-averse behaviour.” - (Dwivedi, 2010) PPPs “combine public money and resources to produce private profit and disproportionately small public benefit.” - (Oppenheim and MacGregor, 2004) Financial crisis greatly increases the risk of infrastructure PPPs, which will be borne out by the government - (Education International, 2009) Scope: water sector in India, Philippines Scope: LatAm Infrastructure Using PPPs incur huge wastes and inefficiencies as a procurement route - literally billions of pounds of public spending wasted that could
have been used to build the public infrastructure that Scotland needs. - (UNISON, undated) Scope and Trends The idea of PPP is not new. 1700s 2010 2000 Contracting of private companies to develop toll roads and bridges in US and Britain (Grimsey and Lewis, 2004) 1990s Private Finance Initiative (PFI) in UK 1997 “Public-Private Partnerships: The Enabling Environment for Development” -Title of a report by the UN Secretariat "...productive interaction with the private sector may be used to reinforce responsiveness, transparency, impartiality, objectivity and accountability as major professional values of the civil service. 2002 Extensive use of PPPs for infrastructure in Europe Use of Build-Operate-Transfer in Asian countries PPP activity in Asia reached its peak then drastically declined following the Asian financial crisis (ADB, 2008) 1980s (published in Bangkok Post, Jan. 1, 2010) PPP coverage (1997-2007) Hongkong Efficiency Unit (2003) Global PPP investments Cuttarree, V. and C. Madri-Perrott (2011) PPP projects in East Asia and the Pacific Source: World Bank, PPIAF database PPP "marketplace" *PPPs in China accounted for more than half of the total PPP projects from 1996 to 2008 in Asia-Pacific based on World Bank’s PPI database. UN:
PPP is a "strategic necessity rather than a policy option” representing a “unique and flexible solution to implement infrastructure projects.” 2003 Guidelines for Successful PPPs released by European Commission Key trends:
> Institutionalization of PPPs
> Financialization of PPPs
> Forging of regional consensus on PPPs, especially in Europe and Asia 1992 “Public Private Partnerships for Decent Work” published by the ILO 2009 Structural adjustment program 2008 UK Treasury created The Infrastructure Finance Unit (TIFU) with the objective of lending to PPP projects on the same terms as commercial lenders (Farquharson and Encinas, 2010) New Public Management (NPM) European PPP Expertise Center came up with remedial guidelines for PPPs in light of the crisis PPPs are recognized as integral to the realization of aid effectiveness (OECD) UN published "A Global Compact for Development" 2007 Seoul Declaration on PPPs for Infrastructure Development in Asia and the Pacific "...need to enhance or create an environment that is conducive to private sector participation in the provision of infrastructure facilities and services.” Jakarta Declaration on PPPs - asserts the need to create an enabling legislative, regulatory and procedural environment for PPPs amid the impacts of the crisis. PPPs in Europe and Central Asia region suffered the most, as activity contracted by 40 percent in terms of investment and 22 percent in terms of PPP projects in 2009 compared with the previous year (World Bank) There are 44 provincial/ national PPP units across the globe (India has 21 PPP units) An article posted on the Guardian cited a European Services Strategy Unit report saying that more than 1,000 PPP projects have generated some 10 billion pounds in 240 equity transactions. 2009 UK Treasury created The Infrastructure Finance Unit (TIFU) with the objective of lending to PPP projects on the same terms as commercial lenders International Finance Corporation (IFC), for instance, created a global “equity fund” and a “loan financing trust” to support PPPs IFC contributed $300 billion to the equity fund (Hall and Lobina, 2009) (Farquharson and Encinas, 2010) PPP activity generally declined across major regions in the aftermath of the global financial crisis except for South Asia "...decline is not surprising given the more difficult financial and investment environment that came with the full onset of the global financial crisis” 2010 World Bank in PPI data update 95 PPP projects delayed - Burger et. al. (2009) PPPs have been recognized as integral to the realization of aid effectiveness (OECD) ILO published “Public Private Partnerships for Decent Work” August 2011 | Bangkok, Thailand Jakarta Declaration on PPPs signed by 16 countries asserts an enabling legislative, regulatory and procedural environment for PPPs amid the impacts of the crisis
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