The crux of the Government's Guiding Principle of "Appropriate Public Control/Ownership" lies in the definition of "appropriate". While the risk of full privatization (i.e. selling the control and ownership of an asset outright to the private sector) is considerable, at the other end of the spectrum, there is much less benefit in developing infrastructure using a simple design-build or operations and maintenance contract. Such schemes off-load few risks to the private sector, and therefore offer comparatively fewer long-term benefits.
The concession or design-build-finance-operate model has become one of the most popular P3 options around the world, especially involving assets with a direct revenue stream. Such schemes usually keep the ownership of the asset in government hands while offering the private partner access rights and some form of control during the term of the agreement. This allows the private partner the ability to meet its obligations as well as satisfy the needs of lenders, who require some asset control in return for favourable financial terms. Finally, should the private partner default, its rights are terminated and the control of the assets returns to the government.
In the case of long-term contracts, where the benefits and risks can be significant, there are several important mechanisms that can balance these two competing factors:
1) A reasonably established security, such as a bond or other formal security, will ensure a financial cushion should a contract default arise. Given the financial obligation on the part of the private partner with such requirements, it also ensures that only financially stable companies become preferred proponents.
2) Clear and realistic performance criteria ensure that the asset is well maintained and operated throughout the course of the agreement.
3) One or multiple renewal dates give both parties the option to walk away, but may also avoid a costly re-tendering process.
4) Contract language should anticipate changes in government, legislation, economic conditions and revenue streams.