Effective legal, regulatory and contractual conditions are crucial for the success of PPPs, but such conditions can only perform successfully when they are based on and supported by a country's institutional framework. This institutional structure should aim at both facilitating PPP development and providing clear boundaries to protect the interests of all stakeholders.21 The institutional framework is crucial if the public sector is to change its role from that of a single provider of services to fulfilling the duties of an independent regulator and manager. A majority of OECD countries, including the ten new EU member states, realize this necessity and have developed various models of institutional frameworks (often called 'task forces' in the EU).
Three approaches to intervention are usually defined22, which depend on the degree of centralization of PPP institutions in a country's overall state structure:
• Highly centralized (for example, Canada);
• Highly decentralized (for example, France and Portugal); and
• Mixed centralized and decentralized (for example, Ireland, the UK, Italy and the Netherlands).
Box 1. Summary of recommendations for EU PPP policy formulation |
• 'To improve understanding of PPPs in the EU institutions, the Commission should set up a cross-EU PPP Group, supported by a small central unit, to co-ordinate activities affecting PPPs and assess the impacts which EU actions have on their development. |
• The EU should address the poor level of public sector institutional capacity and knowledge about PPPs in many member states by funding several initiatives, including studies on the actual benefits PPPs can deliver, the provision of training and the secondment of private sector specialists and civil servants to, and between, the PPP units of member states. |
• The EU should clarify the way that its directives, regulations and legislation interact with PPP procurements although, since PPPs are hard to define and vary greatly across Europe, a legislative approach from the Commission is neither practical nor desirable. |
• As the EU is open to private finance being used as a form of co-financing, it should assist member states to address the challenging issues involved in combining EU funding with private sector finance and PPPs, helping member states to implement pilot projects, from which practical guidelines can be produced'. Source: PwC Report (2004.) |
Canada's institutional framework for PPP facilitation has been recognized to be among the most centralized.23 The Ontario SuperBuild Corporation was created by government in 1999, in response to the Ontario Jobs Investment Board's Report and the province's growing infrastructure deficit. The SuperBuild Corporation is a $20 billion, five-year initiative that aims to address the province's infrastructure needs and meet the economic challenges of the new millennium. The indicated goals are to be met through the creation of PPPs. Under SuperBuild, a capital planning process is required whenever an institution develops an infrastructure project; this compares to previously, when the relevant institutions never carried out strategic planning. Ministries are required to take stock of the age, condition and value of capital assets; ministries must also project future capital needs. The same requirement is being applied to institutions, for example, universities and hospitals; they too must develop long-term capital asset plans as a condition for receiving provincial capital investment support. Ministerial approvals for capital plans must be referred to SuperBuild and then to the Cabinet Committee on Privatization and SuperBuild (CCOPS), which undertakes a strategic review and develops a capital plan for the government.
A highly decentralized model developed in Portugal and France. With this model, governments have not established any specific institutions to facilitate or co-ordinate delivery on numerous initial projects in both the roads and water sectors. PPPs are, however, becoming an important element of municipal planning in France and Portugal, thus the management of projects has very much been left to individual government departments and local authorities. 'Informal task forces' have been established, however, in order to advise on possible PPP forms, legal barriers and institutional structures.24 In France, the decentralized approach places the responsibility at the regional level and within the ministries concerned.25
Spain is similar to France, with decentralized governance established at the state level; this moves the possible PPP institutional and legislative developments to the city or regional level.26 With more and more cases of PPPs and a growing realization of the need for regulation, some form of central co-ordination may well develop in the decentralized PPP countries mentioned here, as has been the case in most other countries to date.
The United Kingdom, Ireland, Italy and the Netherlands have selected a more centralized approach by creating one dedicated national PPP unit. In the indicated range of centralization, these examples may be referred to as a mixed (centralized and decentralized) model. In a majority of cases, centralization is reflected in the creation of separate PPP unit in the country within a certain ministry with joint public and private participation. At the same time, there is a degree of decentralization to this approach, because separate units do not implement the projects (implementation is still the responsibility of the relevant department, agency or local authority).
In the Netherlands, a PPP Knowledge Centre has been established within the Ministry of Finance, staffed by representatives of the private sector and the Ministry of Finance and Economic Affairs.27 The main responsibilities of the unit are the dissemination of PPP knowledge and best practice, as well as promoting the use of PPPs. In Italy, a temporary government body has been established within the Economic Policy Committee, with joint representation of the Ministry of Public Works, Finance, Treasury and the private sector. The closely defined functions of the unit include encouraging private sector involvement, addressing deficiencies in the current legislative framework, advising contracting authorities on taking projects forward and the promotion of PPPs.
The Irish PPP institutional framework was developed using, to a great extent, that of the United Kingdom as an example. A central PPP unit, based in the Department of Finance, has been established as part of the Irish model. The unit does not deliver projects and, apart from providing best practice guidance, has a limited role in project support. The aims of the unit are, rather, to manage the PPP programme, national market development, national stakeholder engagement and national policy development in the area of PPPs.28
The model developed in the United Kingdom has evolved enormously since 1994 up until recently. During the early 1990s, a central body, The Private Finance Panel Executive, was established to develop policy and best practice, but with limited project delivery or support functions. The Labour government replaced that body with the Treasury Taskforce, which was located within the Treasury. Being staffed with the civil servants and private sector experts, this body had both policy development and project support roles. In 1999 the HM Treasury transformed the Taskforce with responsibility for policy dev elopment being assigned to the new Office for Government Commerce and the project support role to the new Partnerships UK, a joint venture company established by the Treasury and a number of private compnies holding a majority stake.29
In all the above listed cases, policymakers within the countries have realized the importance of placing experts within units to guide and manage the PPP process. At the beginning, such PPP units have focused particularly on developing capability, required legal and regulatory structures, market interests and pilot projects in order to test the value of PPPs. However, with time the focus has shifted towards assisting the selection of PPP opportunities, counselling and advice, ensuring value for money, attracting investors and above all maintaining political support and the trust of stakeholders.30
Conditions that will ensure success in the use of PPPs usually include strong political support, particularly in creating and managing suitable structures for policy development and procurement. The majority of models (the Irish experience, in particular) emphasize the necessity of stakeholders' co-operation if PPP development is to be effective. The key role of separate (central) PPP units is to create trust, in order to decrease risks and therefore costs, as well as to develop open and sustainable partnerships.
If it is to change from being a direct service provider to an independent manager, monitor and regulator, the public sector needs to establish a working institutional framework. All functions within this framework need to be carried out with an in-depth understanding of the motives of the private sector; in this way, the balance between these motives and safeguarding public interests can be achieved. Including members of the general public in the process of monitoring/supervision may ensure the sustainable success of PPPs, ensuring trust among all stakeholders.