From an organizational point of view, PPP units represent a way to delegate operational responsibilities regarding the provision of government services. While PPPs represent the most complex form of outsourcing government provision of public goods, the PPP unit is a devolved organization for the operational responsibilities.39 Based on the model of devolution of government responsibilities in the provision of surface transportation, the structure of a PPP unit may vary from that of an office in a ministry to a private corporation.
The institutional structure of PPP units worldwide reflects a number of priorities: the goals of the PPP unit, the existing administrative structure in that country/state and the level of development of the country/state's PPP market.
At the lowest level of devolution, PPP units are in a ministry, most often in the Ministry of Finance due to the centrality of the department to the entire government structure. For example, Infrastructure UK and Partnership Victoria are part of the Treasury Department. This situation may be found in developing countries too. India's PPP Cell is part of the Infrastructure Division of the Department of Economic Affairs, located within the Ministry of Finance. A special case is Japan, with its Private Finance Initiative Promotion Office within the Prime Minister's Office. Few countries place their PPP unit in a line ministry, usually a department in charge of infrastructure policy. For example, the Danish Enterprise and Construction Authority is within the Ministry of Business and Economic Affairs and the PPP Task force in Poland is in the Ministry of Infrastructure.40
Several countries or states have chosen to set up their PPP units as corporations, either publicly owned or with mixed ownership. For example, Partnerships BC is a company owned by the government of the Province of British Columbia with the Minister of Finance as its shareholder. Both the Czech Republic as well as Portugal's PPP units are similarly arranged. The German national PPP unit, Partnerships Germany (ÖPP Deutschland AG) is a mixed corporation. Created in November 2008, this unit is 60 percent owned by all the levels of government and 40 percent by a holding company. The holding company is 65 percent private and 35 percent public.41
The reasons for creating a PPP unit as a corporation are similar to the devolution of government responsibilities in infrastructure. The corporate structure allows for more political independence in comparison with ministries and public offices. In addition, the structure is more flexible in reacting to the changes on the PPP market. Another important reason is the higher potential to attract and retain employees with the necessary expertise in PPPs.42
Whether a corporation or government agency, the PPP units are funded by the government through the budget of the public agency, department, or ministry to whom they report. Even autonomous PPP units-such as Private Infrastructure Investment Management Center (PIMAC) in South Korea-are funded by its overseeing agency. However, user fees levied upon procuring agencies that get project support are also a source of income. PIMAC draws additional resources from this type of fees, whose level is regulated by the Ministry of Strategy and Finance. Partnerships Germany supports itself from user fees charged to the public entities to which it provides technical assistance.43
| PPP Canada: A National PPP Unit as a Corporation The choice of an institutional form depends on existing legal and government structures that accommodate the new PPP unit. For example, the Canadian government created its federal PPP unit as a crown corporation in 2008. Owned by the federal government but functioning as a business, PPP Canada reports through the Minister of Finance to Parliament.44 The corporation has an independent Board of Directors, formed by a Chairperson, the CEO, and six other private sector members. The Canadian government chose this institutional format based on the example of the Canadian provinces' PPP units, such as Partnerships BC and Infrastructure Ontario. Further, the corporate structure allows private sector oversight through the board of PPP Canada, higher administration flexibility and a business-like approach. A unique characteristic of PPP Canada is its P3 Canada Fund, part of a multi-billion Building Canada plan for public infrastructure. PPP Canada has a mandate to identify and advise on federal PPP projects, and to work with public authorities at provincial, territorial, municipal, and national level to support greater adoption of PPPs. The P3 Canada Fund, with a $1.2 billion, five-year budget, is the federal financial incentive to sub-national public authorities to consider PPPs. Any sub-national authority can apply for funding from the P3 Canada Fund in a variety of sectors: transportation, water, energy, security, solid waste, culture, sports, connectivity and broadband, maritime, aerospace, and tourism. The projects are selected based on merit, including Value for Money assessments, and the funding can take different forms, depending on the needs of the project. While the size of a project is not bound by any Fund condition, the Fund limits its financial contribution, together with any other direct federal financial assistance, to 25 percent of the direct construction costs of a project.45 This arrangement is similar to the idea in the United States for the creation of a national infrastructure bank.46 PPP Canada performs several functions. It creates policies and best practices for PPP management in Canada, which are optional for provinces and municipalities. Further, it works with provinces on their PPP best practices. PPP Canada's policy is not a standard, but allows variations, such as in the case of Value for Money assessments. The federal unit is also the first reviewer on projects submitted for funding to its P3 Canada Fund. The biggest function of PPP Canada is technical assistance, both to federal agencies that are interested in PPP projects and to projects receiving funding from P3 Canada Fund. The federal agencies are not obligated to engage the federal PPP unit if they are pursuing PPPs. However, PPP projects are rather new at the federal level and the federal entities still need to build capacity. PPP Canada can provide technical assistance to federal agencies, but the procuring agencies are ultimately responsible for the projects. PPP Canada has no authority to impose a standard on PPP management across all government levels, but the institution meets regularly with the provinces to share best practices and find areas for standardization. Dissemination of existing practice, especially to provinces and municipalities that are new to the PPP process, is more important for the federal PPP unit than mere standardization. Through this activity, PPP Canada educates public agencies about PPPs. While operational only for the last two years, PPP Canada is already in the third round of applications to its P3 Canada Fund. This rapid growth has been helped by the robust staffing of the institution, with about three dozen employees, grouped in three units: business development, analysis and technical assistance, and administration. |
A PPP unit may be located at the national or subnational level of government, depending on the government structure. Most of the PPP units surveyed in this study are in unitary government systems, so the PPP unit is only at the national level. The UK may present a possible exception in the future. While the UK is a unitary state, it has undergone substantial regional devolution since the 1980s. In February 2009, the Finance Committee of the National Assembly of Wales recommended the Welsh government to create a PPP unit.47
In federal systems, the states are often the first to experiment with PPP units. As in the United States, states are usually in charge of infrastructure development, so they are the most interested in alternative ways of project delivery.
| Australia: A Federalist System of PPP Units The state of Victoria is a pioneer in PPPs, creating one of the first subnational units-Partnerships Victoria-in 2000. Victoria is Australia's most urbanized state, with 70 percent of its population concentrated in the Greater Melbourne Metropolitan area. Partnerships Victoria was established in the Commercial Division of Victoria's Department of Treasury and Finance. It is the PPP unit and the name of the state of Victoria's PPP policy. The PPP unit is a full service agency, providing all the functions of a PPP unit.48 Partnership Victoria was preceded by a 1980s PPP program created mainly to move a series of infrastructure projects out of the state's budget. In the 1990s, the focus changed towards risk transfer to the private sector and higher economic benefits from PPP projects. Building on this program and experience from the UK's Private Finance Initiative program, Partnerships Victoria was created with the goal of better infrastructure delivery, better financing options for the government, both in terms of amount and risk transfer, and more private competition for the PPP bids. Victoria requires that any infrastructure project proposed by state agencies to have a procurement analysis done early in the project planning process. This analysis has to consider alternative ways of delivery of the project considered, including a PPP option. The state PPP unit creates the policy framework for all the state agencies and provides standards ("guidance") on a series of elements of the procurement and management process, such as the state's risk position ("The Standard Commercial Principles"), the Public Sector Comparator in determining Value for Money or the use of the discount rate. The public agencies contracting PPPs have to follow these standards and any deviation from them needs strong justifcation.49 In addition, Partnerships Victoria provides technical assistance during contract management, but the initiating agency is responsible for implementing the PPP contract. An independent review of the activity of Partnerships Victoria in 2004 considered the program effective. Due to the short period of operation (three years when the review started), only eight PPP projects were reviewed, of which only two were operational. The review concluded that the state saved about nine percent, on average, by contracting these projects to the private sector in comparison with public sector procurement.50 Between 2002 and 2010, Partnerships Victoria PPP projects have accounted for approximately 10 percent of annual public investments. 51 Due to its early creation and successful operation, Partnerships Victoria became a model for other states interested in PPP units. South Australia modeled its PPP unit and policy on Partnerships Victoria as well as the New South Wales' Treasury Privately Financed Projects policy. Partnerships BC in Canada combines elements of the PUK and Partnerships Victoria.52 On the national level, Infrastructure Australia was created by federal legislation in 2008. This institution is not primarily focused on PPPs, but on the larger infrastructure system, needs and policy across all the levels of government in Australia. In addition, it evaluates and advises the Ministry of Infrastructure on projects submitted to Build Australia Fund, a fund created in 2009 to finance capital investments in infrastructure sectors, such as transportation, energy, communication, and water.53 This statutory independent body has a Council, formed by twelve members: five from the private sector, three from the federal level, three from the state level and one member representing the local governments. The Chair is Sir Rod Eddington, former CEO of British Airways, who chaired in 2006 a landmark report on reforming the UK transportation sector.54 The Council members are appointed by the Federal Minister for Infrastructure and Transport, to whom they report on Infrastructure Australia's operations.55 Through this Minister, the Council reports regularly to the Council of Australian Governments.56 Infrastructure Australia is funded through the Australian Department of Infrastructure and Transport and had an initial appropriation for three years.57 As part of its functions, Infrastructure Australia created a national PPP policy framework and a national standard for PPPs late 2008, together with the National PPP Forum. The National Public Private Partnership Policy and Guidelines range from procurement options, commercial principles for social infrastructure, to specifics on the Public Sector Comparator and the discount rate methodology. In addition, this new PPP policy establishes that the federal, state and territory governments will have to consider a PPP alternative for any project with a capital cost in excess of $A50 million.58 While Infrastructure Australia has no decision-making authority, the National PPP Guidelines were endorsed by the Council of Australian Governments. As a result, they replace all the PPP policy and standards implemented previously by the states and the federal government. However, the agency created a guide on how these national PPP guidelines apply to the federal government and each state and which deviations are allowed from the national standards.59 For example, the guidelines may not necessarily apply to federal national security projects. The federal government also retained its power over guidelines on the creation of the business case for PPPs by federal departments, agencies and commissions.60 Beyond PPP policy guidance and standardization, Infrastructure Australia promotes the Australian PPP market. It publishes a list of contracted PPPs, pipeline of PPP projects, and potential PPPs across Australia. As of November 2010, Australia had eleven projects in the PPP pipeline.61 Also in Australia the National PPP Forum, a ministerial forum of all the Australian levels of governments (federal, state and territories), works in conjunction with Infrastructure Australia on PPP policy and PPP promotion.62 |