If properly developed and executed, PPP projects offer the following types of potential benefits to sponsors of transportation infrastructure projects:
• Additional resource capability and capacity;
• Accelerated project delivery;
• Reduced costs and increased efficiency;
• Risk transfer or sharing with private provider team;
• Quicker access to new technology and innovative techniques; and
• Increased ability to hold project delivery team accountable for project performance.
Exhibit 55 arrays the potential benefits and risks to the public sponsor and private partner, respectively. This exhibit shows the complementary nature of the potential advantages of using PPP approaches. It also shows to which partner the various project risks are likely to be most sensitive.
Exhibit 55 - Potential Benefits and Risks of PPP Approaches by Partner
| Potential Benefits to Public Sponsor • Reduced financial constraints/increased financial capacity • Expedited project initiation and faster delivery • Access to innovative techniques and specialized expertise • Integration of project development and delivery with life-cycle cost incentives • Greater choices in project approaches • Increased competition and accountability • Risk transfer to entity better able to manage | Potential Risks to Public Sponsor • Transaction/administrative costs to procure and monitor PPPs • Taxation constraints • Moral hazard • Control over transportation assets and toll rates • Public acceptance • Compensation and termination clauses • Environmental/archeological clearance • Permitting costs • Right-of-way costs |
| Potential Benefits to Private Partner • Higher rate of return compared to conventional project delivery approach • Greater control over assets/operation/user fees • Lower life-cycle costs • Increased revenues from financial transactions • Opportunity to apply best practices and new technology to increase productivity and meet performance standards at lowest life-cycle costs • Opportunity for value capture from direct users and indirect beneficiaries | Potential Risks to Private Partner • Change in law • Economic shifts • Public acceptance/protectionism • Currency/foreign exchange • Political support/stability • Moral hazard • Project development/maintenance costs • Project delivery schedule • Financial feasibility/traffic & revenue levels • Liability for latent defects • Prohibition against non-compete clauses • Compensation/termination clauses • Transparency requirements |
Experience from other countries which have long used PPPs for transportation infrastructure projects shows that the structure and delivery methods selected are highly dependent on the following features:
• Enabling statutes and regulations;
• The capabilities of all members of the PPP to execute their roles and responsibilities;
• Flexibility and a proactive approach to identifying and resolving issues that arise during the project planning, development, and implementation phases;
• Underlying taxation arrangements that may lower the cost of the project; and
• The ability of capital markets to deliver financing structured to suit each PPP project.
The case studies and cameos contained in the two companion reports illustrate how significantly these issues can vary and therefore should be addressed on a project-by-project basis. Particularly important are potential risks arising:
• When state or local transportation agencies attempt to implement PPPs for the first time;
• Where legal authority to use PPP approaches is not clearly defined; or
• There is strong political, community, or institutional opposition.