There are legal, social, economic, political and administrative issues involving PPPs. The government has responsibility in addressing a wide range of issues in PPPs if a country has to run a successful PPP programme. Private participation in infrastructure development requires the government to continue to play a key role in planning, policy formulation and regulatory matters. Further, in order to promote private participation, the government needs to implement a series of economic, financial and legal reforms which only it can initiate. In these respects, the major responsibilities of government are in:
| • Formulation of a PPP policy framework • Creation of an enabling environment • Establishment of an administrative mechanism • Promotion of good governance • Addressing the social and political concern of PPP projects • Capacity-building in the public sector | Responsibilities of government |
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These responsibilities are discussed in the following paragraphs.
| Policy framework. Formulation of a policy framework is an important step towards building an enabling environment for PPPs. The existence of a clear framework can remove ambiguities and uncertainties about government’s intention to PPP development. Such a framework may have two parts: the first part on common matters to all PPPs such as objectives, principles and general policy guidelines; and the second part on issues specific to each sector (see section VI C). Social objectives can be incorporated in the policy framework as well as in legal and regulatory regimes. | Broad contents of policy framework |
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The roles of public and private sector should be clearly defined in the framework. Private sector friendly policies can be formulated and their implementation needs to be coordinated across all sectors and at all spatial levels. It is also important to include in the framework (and follow) certain core principles of good governance namely transparency, accountability and participatory approach in decision making to promote PPPs. Formulation of a policy framework is also important in view of the fact that many aspects of it can be turned into legal and regulatory instruments.
The policy framework may also make clear reference to government’s position on the following important matters:
• Market and sector structure (see below and Chapter VI C)
• Type of partnerships, joint venture with the public sector
• Government support (equity participation, any type of grants, subsidies and other fiscal incentives, loan guarantee, sovereign guarantee to honour contracts, land appropriation, resettlement and rehabilitation, compensation for contract termination etc)
• Unsolicited proposals
• Authority of local governments.
| Enabling environment. The creation of PPP-enabling environment is one of the main responsibilities of the government. Often, the entire regulatory and legislative frameworks are incomplete, outdated and poorly integrated across sectors. The deficiencies of the regulatory and legislative framework; imperfections in market and sector structure; and prevailing unfavourable general perception and understanding about PPP and absence of clear policies on the role of private and public sectors are the main reasons for the existing environment not being conducive to PPP in many countries. In many cases, the existing regulatory environment may also be conservative and too restrictive and may not be favourable for undertaking PPPs. In order to address these issues, many governments have considered enacting new legislations or suitably amending the existing ones to address these nagging issues. | Why an enabling environment is needed |
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| More often than not, the existing market and sector structure is not conducive to PPPs. Lack of relevant market regulation leads to monopoly and sector inefficiencies.19 In fact, sector inefficiencies can be major deterrents to private participation in infrastructure. For example, the existence of barriers such as public monopoly and distortion in the pricing of competing transport modes is a serious problem for the motivation of the private sector to invest in the transport sector in many countries. To address these problems, liberalization of the market and removal of sector inefficiencies can be initiated. In many ways the pricing problem has been viewed as an issue of political economy and may need to be resolved. In some sectors such as transport and water and sanitation, technological changes have been less pronounced and political barriers to reform can be strong. The government has a major responsibility to redress these barriers. | Sector and market reforms |
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| Administrative mechanism. Formulation of rules and clear guidelines defining the administrative process involved in project implementation is necessary to overcome the administrative difficulties faced by the bureaucracy. Establishment of procedures for various tasks and administrative approval from competent authorities at different stages of project implementation process are also necessary in running a successful PPP programme. Streamlined administrative procedures reduce uncertainties at different stages of project development and approval and enhance investors’ confidence in a PPP programme. | Purpose and benefit |
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Good governance. Promotion of good governance20 based on certain generally accepted core principles is a major responsibility of the government. These core principles include: accountability, transparency, fairness, efficiency, participation, and decency. Considering these core principles into consideration it can be said that the good governance in PPPs would require the following:
• A fair and transparent rule-based administrative process by which projects are developed and procured by governments;
| • Fair incentives to all stakeholders and fair return to all partners taking into account their level of involvement and assumption of risks; | Requirements of good governance in PPPs |
• A widely representative participatory decision-making process that takes into account concerns of all concerned stakeholders including those who may be adversely affected, and an acceptable dispute resolution mechanism that assures continuation of services and prevents the failure of projects;
• An arrangement for project delivery that ensures efficient utilization of human, financial, natural and other resources without sacrificing the need of future generations;
• An arrangement that improves human security and ensures public security and safety, and environmental safety; and
• An arrangement for the improvement of essential public services without harming or causing grievance to people and for which public officials are responsible to society.
| Social and political concerns. Often, there are concerns if all sections of society can benefit from PPP projects. To address these concerns, policies and regulations guaranteeing equitable distribution of benefits may be considered by the government. Providing support to pro-poor PPP projects can be also considered by the government. Promotion of pro-poor PPP projects through incentives and technical assistance can be a part of the government’s policy framework to address some of the social and political concerns. | Social and political concerns in PPPs |
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There is also a general belief that involvement of the private sector results in higher prices, fewer jobs, and that the profit motivation of the private sector may not be in line with the social objectives of a country. There may also be lack of political will and many governments may not be very supportive of the PPP concept. If PPP programmes in a country are to succeed, these issues need to be addressed by the government. Further discussion on these concerns is presented in Section D of this chapter.
| Capacity-building. The concept of partnership is not always well understood by the bureaucracy, often because of the lack of capacity and absence of clearly defined rules and regulations. The lack of capacity in the public sector can be a major obstacle in PPP development in many countries. Skills of a diverse nature, from project identification and economic evaluation to financial and risk analysis to contract document preparation, procurement, contract negotiation and management are required in administering a PPP programme. The government needs to consider suitable capacity-building programmes in developing necessary skills of its officials involved in PPP project development and implementation. | Lack of capacity in the public sector |
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19 See further discussion on this issue in Chapter VI.
20 Governance has no automatic normative connotation. However, typical criteria for assessing governance in a particular context might include the degree of legitimacy, representativeness, popular accountability and efficiency with which public affairs are conducted.
Source: The Governance Working Group of the International Institute of Administrative Sciences, 1996 as cited in <http://www.soc.titech.ac.jp/uem/governance/work-def.html>
The Economic Commission for Europe (ECE) has developed “Guidebook on Promoting Good Governance in Public-Private Partnerships”, which is available at <http://www.unece.org/ceci/publications/ppp.pdf>.