In joint ventures, public and private actors assume co-ownership of system assets and co-responsibility for the delivery of services. The public and private sector partners can either form a new company (as in the Cartagena example in Box 8.2), or share ownership of an existing company. Joint ventures create a new entity to implement various types of project structures. For example, the government may award the (jointly owned) firm a service, build-operate-transfer (BOT) or concession contract, depending on the service requirements.
Joint ventures provide a vehicle for governments, businesses and others to pool their resources and generate shared returns by solving local infrastructure issues. Under joint ventures, government remains the ultimate regulator but is also an active shareholder in the operating company. From this position, it may share in the operating company's profits and help ensure the wider political acceptability of its efforts. The private sector partner often has the primary responsibility for performing daily management operations.
Under the joint venture model, both the public and the private sector partners are responsible for investments. Joint ventures require that both parties accept the idea of shared risk and shared reward. Each must be willing to make quantifiable contributions throughout the project development and implementation process. Different approaches to financing can be used depending on the nature of the services to be performed - varying from contracts calling for limited technical services to those delegating broader responsibilities.
Among the strengths of joint ventures is their ability to combine the advantages of the private sector - dynamism, access to finance, knowledge of technologies, managerial efficiency and entrepreneurial sprit - with the social responsibility, public health/environmental awareness, local knowledge and job generation concerns of the public sector. Under a joint venture, both the public and private sector partners have invested in the company and therefore both have a strong interest in seeing the venture work. This can allow for better conflict management. Full responsibility for investments and operations gives the public and private sector partners a large incentive to make efficient investment decisions and to develop innovative technological solutions, since any gains in efficiency will directly increase their joint returns. Early participation by the public and private sector partners allows for greater innovation and flexibility in project planning; helps ensure that both the partners are able to optimise their goals; and can also help reduce the transaction costs associated with more traditional tendering processes.
The major weakness of joint ventures is that the government's continuing regulatory responsibilities may lead to a conflict of interest in both maintaining public accountability and maximising returns to the venture. This can increase the risk of political interference and reduce potential gains from private sector management. Private sector organisations also tend to focus on profit, governments on process. These differences (detailed in Chapter 6) are often manifested in the timetables each sector considers reasonable, and can create barriers during project development. Despite the advantages of working together towards partnerships, early dialogue between the public and private parties involved in some joint ventures may lead to alternative public tender procedures, such as direct negotiation. Improperly managed, this can raise concerns about transparency and corruption in the selection of partners, affect political acceptability and hinder additional private sector investment.