There are many important economic, social, political, legal, and administrative aspects, which need to be carefully assessed before approvals of PPPs are considered by the government. PPPs have various limitations which should also be taken into account while they are being considered. The major limitations include:
• Not all projects are feasible (for various reasons: political, legal, commercial viability, etc.).
• The private sector may not take interest in a project due to perceived high risks or may lack technical, financial or managerial capacity to implement the project.
• A PPP project may be more costly unless additional costs (due to higher transaction and financing costs) can be off-set through efficiency gains.
• Change in operation and management control of an infrastructure asset through a PPP may not be sufficient to improve its economic performance unless other necessary conditions are met. These conditions may include appropriate sector and market reform, and change in operational and management practices of infrastructure operation.
• Often, the success of PPPs depends on regulatory efficiency.
| IMPORTANT CHARACTERISTICS OF PPP PROJECTS • Promise of better project structure and design. • Allows better screening of projects. A bad project is a bad project no matter whether it is implemented by the public or the private sector. • Better choice of technology based on life-cycle costing. • Better service delivery, especially if performance based payment is considered. • Better chances of completion on time and within the budget. - Risk of default. - Project risks can easily turn into government risks. - Various liabilities on government (direct and indirect). - A long-term contract management system needs to be in place. - An administrative mechanism and special skills in the government are required to develop and implement PPP projects. |
There can be underlying fiscal costs and contingent liabilities of PPPs on the government that may arise in the medium- and -long-term. These underlying fiscal costs and contingent liabilities on the government should be given due consideration when a PPP project is considered.