The Committee's research identified that while the term 'public private partnership' (PPP) has been in general use since the 1990s, there is no widely agreed, single definition or model of a PPP.
The term covers a range of different structures where a private sector consortium delivers a public infrastructure project and/or service. Concession based transport and utilities projects have existed in some countries for many years, particularly in France, Italy and Spain, with revenues derived from payments by end users, for example road tolls. The United Kingdom's private finance initiative (PFI) expanded this concept to a broader range of public infrastructure, and combined it with the introduction of services being paid for by the public sector rather than by the end users.
The use of PPPs has now spread to many countries and depending on the country and the politics of the time, the term can cover a spectrum of models. These models range from relatively short term management contracts with little or no capital expenditure; concession contracts that may encompass the design and build of substantial capital assets along with the provision of a range of services and the financing of the entire construction and operation; joint ventures where the private and public sectors jointly finance, own and operate a facility; and partial privatisation where there is a sharing of ownership between the public and private sectors.
The private funding of public infrastructure usually relates to a business relationship between the public and private sectors. Such relationships are usually long term and underpinned by a detailed commercial contract regime, under which the partnership delivers public services (the outputs) that the contract specifies in detail. The public sector obligations are detailed in documents or contracts that cover the risks to be shared and the desired policy outcomes.
The Victorian Department of Treasury and Finance defined a PPP project in much narrower terms, as 'a contract for a private party to deliver public infrastructure-based services'.31 This definition explicitly excludes outsourcing or other service delivery arrangements where no capital investment is required. A PPP project in Victoria may, therefore, involve the design, construction, financing, maintenance, and, in some cases, operation of public infrastructure or public facilities by the private sector under a long term contract.
The Committee's inquiry revealed that private financing of public infrastructure through PPPs covers a range of different options and techniques. Partnerships Victoria defines PPP projects more specifically in terms of contracts.32
• with a value of $50 million or more;
• that integrate design, construction, operation and maintenance over the life of the asset, in a single project package;
• that focus on services rather than on assets;
• with scope for significant allocation of risk to the private sector;
• that provide opportunity for innovation and transfer of risk to a third party; and
• that provide business opportunity and sufficient capable private sector parties to create an effective and competitive bidding process.
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31 Department of Treasury and Finance, Partnerships Victoria Guidance Material, Practitioners Guide, June 2001, p.4
32 Department of Treasury and Finance Partnerships Victoria Guidance material, Overview, July 2006, p.8