The Concept of PPP

Public-Private Partnership (PPP) is an innovative collaboration between the public and private sector, aimed at the delivery of infrastructure and/or provision of services by the private sector partner which has traditionally been provided by the public sector. This cooperation is based on the assumption that each party accepts the risks that it is best able to manage.

As an example, the risks associated with construction (i.e. cost and time overruns) or the delivery of services (i.e. the delivery of the services on time and at the standard set out in the contract), will be private sector risks as the private sector are in control of their delivery.

Adopting such a methodology means that significant risks are transferred from the public to the private sector and this transfer is one of the reasons that has led projects procured as PPPs to be delivered on time and on budget with the quality of public services delivered being maintained in a much greater proportion of the time than is the case with projects delivered using more traditional methods. In this way, the parties complement each other, with the Private sector and the Public sector taking on responsibility for the delivery of the tasks that they perform best. The division of tasks, responsibilities and risks under PPP enable the delivery of infrastructure assets and public service through the most cost effective method at the appropriate quality standards.

The delivery of PPPs requires a contract between a public sector authority and a private party, in which the private party finances and constructs infrastructure, and provides a public service using that infrastructure once it has been completed. It assumes substantial financial, technical and operational risk in the delivery of both the infrastructure and the services and only gets income from such delivery when the infrastructure has been completed and the services delivered to the standard set by the public sector partner in the PPP Contract, either from the public sector partner or users of the service.

In projects that require new infrastructure, the public partner may provide a capital subsidy to the project to make up the difference between the cost of the project and the present value of the income that can be received from it , so as to make the project financially viable. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or minimum income guarantees for a fixed time period. In all cases, the partnerships include a transfer of significant risks to the private sector, therefore minimizing risk (and therefore, cost), for the public entity. An optimal risk allocation is the main value generator for this model of delivering public service.