2.1 An increasing number of governments are turning to the private sector to provide services hitherto delivered by the public sector. The motives for pursuing public private partnerships (PPPs) vary from fiscal opportunism, simply seeking to replace public finance with private finance, to a genuine desire to seek lower costs, both for taxpayers and consumers, or improved services.
2.2 There is no single accepted international definition of what a PPP is. In many countries the core of PPP programs are projects that are for services traditionally provided by the public sector, combine investment and service provision, see significant risks being borne by the private sector, and also see a major role for the public sector in either purchasing services or bearing substantial risks under the project. PPPs are therefore more than service contracts although some would include these in their definition of PPPs. A number of governments have developed definitions of what constitutes a PPP (Box 1). Developing a definition can facilitate the implementation of a process of oversight by clearly indicating which projects should fall under a given process, as was the case in South Africa.
2.3 In shifting from more traditional methods of service provision, governments need to adapt both their skills and their processes to ensure that PPP programs deliver what is expected. The cornerstone of this is ensuring that PPPs that proceed are those which represent priority projects and that are best done through the PPP route rather than through traditional public procurement. Much of this will hinge on an assessment of the extent of and benefits of risk transfer to the private sector, and an understanding of the residual risks and future payment obligations borne by the government. Once the project is under implementation, the government then has to fulfill a contract management and oversight role to ensure that services are delivered and both sides live up to expectations.
2.4 Factors outside government are also important. A successful PPP program presupposes that the private sector has the right skills and capabilities as well as access to long-term finance in local currency for projects where this is needed. Effective dispute resolution procedures are also essential, including informal and rapid procedures for interim adjudication backed up by arbitration. Moreover, decisions reached in this way have to be respected by the courts.
| Box 1: PPPs - Some Definitions |
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Most countries embarking on PPP programs have attempted to provide some form of definition of what a PPP is. Brazil's new PPP law defines, in its Article 2, that public private partnership contracts are agreements entered into between government or public entities and private entities that establish a legally binding obligation to manage (in whole or part) services, undertakings and activities in the public interest where the private sector is responsible for financing, investment and management. Ireland defines PPPs as any arrangement made between a state authority and a private partner to perform functions within the mandate of the state authority, and involving different combinations of design, construction, operations and finance. In South Africa, a PPP is defined in law as a contract between a government institution and a private party where the latter performs an institutional function and/or uses state property, and where substantial project risks are passed to the third party. The UK's Private Finance Initiative (PFI), where the public sector purchases services from the private sector under long-term contracts is the best known component of that country's PPP program. However, there are other forms of PPP used in the UK, including where the private sector is introduced as a strategic partner into a state-owned business that provides a public service. | ||
| Box 2: Encouraging policy-makers and government officials to use PPPs |
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At the federal level, the P3 Office, located in Industry Canada (a federal government department that promotes Canadian industry), has played the role of promoter and resource center. One of the main purposes of the P3 Office, with six full-time professionals at the peak of its activity, was to actively promote the idea of PPPs among politicians and officials in the provinces and to provide information - and counter misinformation - about PPPs. They do not engage in project-specific advice, as expertise about how to develop PPPs was expected to flow naturally to wherever it was demanded, diffused largely by consulting firms. The main obstacle instead was a lack of political will and the need for a new policy direction in some of the provinces, and this is where the P3 Office could play a useful role. In addition, they found that there was a demand for information about PPPs from the Canadian engineering industry, which wanted to prepare themselves well to compete in this market both in Canada and internationally. Another important role of the P3 Office has been to educate federal officials about PPPs. The main responsibility for PPPs lies with the provinces, but federal policies can either hinder or facilitate PPP programs at the provincial level. | ||