PPPs have grown in both developed and developing countries, motivated by the opportunity to stimulate investment in a world constrained by access to capital; lack of skills and capacity to build, manage and operate infrastructure facilities and risk. In 2012 the OECD estimated there was a $US2 trillion gap in funding for global PPPs. The main way in which genuine value can be created from a PPP is by transferring risk to the party which is best able to manage it and having them take ownership of that responsibility. But, that’s not all. Private sector innovation, incentives and expertise in commercial management can all help create value for money.
Evaluation of a PPP’s potential to create value for money is potentially a complex issue, especially dealing with the question of residual risk and who owns it. Forms of PPP take on added importance and complexity whether they are straight service or management contracts or more complex leases, joint ventures, Build-Operate-Transfer, Build-Own-Operate or other arrangements. They have been used most frequently in infrastructure projects. More recently PPPs are being seen as having broader potential including, for example, enhancing participation in global value chains.
Since the GFC of 2008 the appetite for PPPs has waned slightly with concerns about costs, flexibility and transparency. Nevertheless, the financing gap still exists and the rewards from higher real investment are beyond dispute.
What can we do to mobilize PPP activity and improve expected outcomes?
PPP Project Cycle design, development and management.
Feasibility study and independent public sector comparator analysis, including identification of the optimal level of risk transfer.
Needs analysis and estimation of willingness to pay for services.
Regulatory and legislative review and preparatory drafting.
Provision of procurement plans and transaction and project services.
Enhance transparency and clarity of risk ownership, accountability and governance.
Approach to Public Private Partnerships.
Our approach to PPPs is that they lend themselves to inclusion in and evaluation through a robust risk management framework. They offer significant opportunity through transfer of risk to the party best able to manage that risk. Sometimes that is the private sector, sometimes it’s the public sector. PPPs can generate benefits by mobilization of private sector’s management & commercial expertise, innovation and incentive systems. Improved accountability and transparency of costs and project work practices is required by both public and private participants. When the PPP is undertaken correctly it can improve access to private sector capital and result in an overall increase in country investment.
PPP Examples
● Risk management practices along value chains. www.nccarf.edu.au/publications/food-security-risk-management-and-climate-change
● Preliminary PPP value for money estimate of bridge in East Africa.
● Corporate finance for PPPs.
● PPP impact on national investment.
● Development of value chain policies for government, industry and companies with PPP support.
Interesting links for PPPs.
http://www.oecd.org/gov/budgeting/49945473.pdf
http://www.infrastructureaustralia.gov.au/public_private/ppp_policy_guidelines.aspx