PUBLIC-PRIVATE PARTNERSHIPS DEFINED
There are two globally accepted definitions of PPP’s or P3s
- The American Definition of PPPs, and
- The Canadian (with other countries other than America) Definitions
THE AMERICAN DEFINITION OF PPP
In America, the PPP’s are contractual relationships between the Public and the Private Sectors that brings together the strength of both parties to provide services or infrastructure in a cost effective manner. The Private Sector brings in innovations, technology and its resources while the Public Sector provides sufficient control and monitoring of these contracts. Therefore there is a thin line between PPPs and Privatization in America. As a matter of fact, it is used interchangeably. In other words PPPs provide sufficient control by the public while harnessing the management skills, technologies and financial resources of the Private Sector.
The ideals of PPPs within the American Concept and Definition are:
- The profit motive in Private sector does not necessarily force a reduction in the quality of Public Service because of level of Government control.
- The Private Sector can be become more accountable to the public because of the same Government control. Jobs are not necessarily lost in a partnership.
- Private Sectors can often bring useful management skills, technology and resources to a partnership
This is informed because of the less involvement of Government within the Public Sector delivery services in America.
THE CANADIAN (WITH OTHER COUNTRIES OTHER THAN AMERICA) DEFINITIONS
In Canada and other countries other than America PPPs are defined as:
“A cooporative venture between the public and private sectors, built on the expertise of each partner, that best meets, clearly defined public needs through the appropriate allocation of resources, risks and rewards.”
Therefore the concept of PPPs where Government involvement in Public
utilities and delivery of social services are high, can be seen within these
perspectives:
- It relates to the provision of public services or public infrastructure.
- It necessitates the transfer of risks between partners.
- The term “Privatization” is placed to the furthest point in the PPP spectrum where most or all assets are held by the private sector.
In view of the current economic realities of global financial meltdown coupled with dwindling oil prices; there are budget constraints at all levels of Government. It is obvious there should be an informed acceptance of this method of meeting the needs of the public. Happily, Nigerian Government particularly at the Federal level has embarked on PPPs and has passed the Infrastructural Concession and Regulatory Commission (ICRC) with its board already re-constituted.
See Act Establishing ICRC (This is a .pdf file, and it may take some time to open )
The bureau of Public Enterprises (BPE) through the act establishing them have been involved in concession, commercializing and outright privatization all in an effort to bring in the private sector to deliver efficient and cost effective services for public goods.
PPP MODELS
Public Private Partnerships span a spectrum of models that progressively engage the expertise or capital of the private sector.
- At one end, there is a straight contracting out as an alternative to traditionally delivered public services based on direct execution or labour.
- On the other end, there are arrangements that are publicly administered but within a framework that allows for private finance, design, building, operation and possibly temporary ownership of an asset.
COMMON MODELS OF PPP
1. Design – Build (DB) :
The private sector designs and builds often for a fixed price. The risk of cost overrun is transferred to private sector. Many do not consider DBs to be within the spectrum of PPPs. As a matter of fact, FEC recently has approved as an option, one of its modes of contract awards to fast-track its 2009 budget.
2. Operate and Maintain Contract (O & M) :
Private Operator under contract operates public owned assets for a specified term. But ownership remains with Public entity.
3. Design – Building – Finance – Operate (DBFO)
The private sector designs, finances and constructs a new facility under a long-term lease, and operates the facility during the term of the lease. The Private Partner transfers new facility to the public sector
4. Build – Own- Operate (BOO)
The Private Sector finances, builds, owns and operates a facility or service in perpetuity. The public constraints are stated in the original agreement and through on-going regulatory authority
5. Build – Operate – Transfer (BOT)
A private entity builds, operates and transfers ownership to the Public Sector after some years of operation.
6. Build – Own – Operate – Transfer (BOOT)
A private entity receives a franchise to finance, design, build and operate (and to charge user fees) for a specified period, after which ownership is transferred back to the Public Sector
7. Buy – Build – Operate (BBO)
Transfer of a public asset to a private entity usually under contract that the asset are to be upgraded and operated for a specified period of time Public control is exercised through the contract at the time of transfer.
8. Joint – Venture Operate (JVO) :
Public and Private entities form a joint venture equity and the private
entity operates the entity perpetually.
9. Concessioning :
Operate and Control an existing facility over an agreed term. Usually user fees are charged for these facilities with public control and monitoring.
10. Operation License:
A private operator receives a license of right to operate a public service usually for a specified term. This is often used in projects, solid minerals and oil & Gas Drilling
11. Outsourcing:
Public entities usually give out non-core operations of its activities to private entity to handle. Outsourcing is also termed “Privatization” in the U.S.A
12. Finance Only:
A private entity, usually a financial service company, funds a project directly or uses various mechanisms such as a long-term lease or bond issue.
The above models are common but not exhaustive under the PPP
KEYS TO SUCCESSFUL PPPs
1. Political Leadership
- Commitment from the top
- Most senior public officials must be willing to be actively involved in supporting PPP and taking a leadership role in developing each partnership.
- Political Leaders must play critical role in minimising misconception about the value to the public of an effectively developed partnership.
- There should be statutory foundation for the implementation of each partnership.
2. Public Sector Involvement
Once a partnership has been developed or established, the public sector must remain actively involved in the project or programme. Monitoring and evaluations are very relevant.
3. A Well thought-out plan
You must know what you expect of the partnership before hand. A carefully development plan (often done with the assistant of an outside expert in this field) will substantially increase the probability of success in a partnership. Plans should b extensive, detailed contract, clear description of responsibilities and should attempt to foresee areas respective responsibilities and a defined method of dispute resolution because not all contingencies can be foreseen.
4. A dedicated income stream
While the private partner may provide the initial funding for capital improvements, there must be a means of repayment of this investment over the long term of partnership. The income stream can be generated by a variety and combination of sources (fees, tolls, shadow tolls, tax increment financing or a wide range of additional options), but must be assured for a length of the partnership.
5. Communication with Stakeholders
More people will be affected in a partnership that just the public officials and the private sector partner. Affected employees, a portion of the public receiving the service, the press, appropriate Labour Unions and relevant interest groups will all have opinions and frequently significant misconceptions about a partnership and its value to the public. It is therefore important to communicate openly and candidly to these stakeholders to minimize potential resistance to establishing a partnership.
6. Selecting the right Partner
It is a known fact that the “lowest bid” is not always the best choice for selecting a partner. The “best value” in a partner is critical in a long-term relationship that is central to a successful partnership. A candidate’s experience in the specific area of partnership being considered is an important factor in identifying the right partner.
7. Enabling Environment
Low confidence due to social security situations will increase the risk of project development, resulting in higher cost of money and decreased viability of project. There is therefore the need for an enabling environment.
REMINDERS FOR PUBLIC OFFICIALS
Let us share James Cuorator’s 2002 real estate partnership quotes to the public officials; It must be a real partnership with shared burdens and shared rewards for both the public and the private participants.
- There must be real incentives for the private sector or they will not participate.
- The public sector must use its resources effectively and judiciously, focussing on projects where there can be success
- Keep it simple for the private sector by minimizing the bureaucratic procedures that can cripple a project.
- Remember that “Land is King”. It provides the public with the opportunity to control the projects.
- Public – Private Partnership are a necessary and important part of the process.
SEE ALSO
PPP in Nigeria, HOW FAR?: by Engr. Saidu Njidda, MBA,
Founder: FPPP Nigeria
(Click here) |
