A Joint Venture (JV) agreement is an alternative approach to a traditional PPP contract where the public-sector party and the private-sector party create a joint company for the provision of public services. Joint Stock companies, Public Interest Companies, Societe Mixte, etc. are used as distinct type of PPP, particularly where a clear purchaser-provider split cannot be delineated due to the complexity of the function and the need to protect the public interest.17 The JV company is typically a separate legal identity that carries out the common enterprise of the public and private partners. Both partners own the JV shares and place representatives in a board of directors.
In a JV each party brings its own expertise on a particular area of the project and risks are shared among the contracting parties. For example, the public-sector party may have more expertise in dealing with planning issues, while the private-sector party may have a technical advantage in designing issues. Being a shareholder in the JV, the public-sector party has greater input as regards to the management and outcome of the project compared to other PPP agreements.
The public-sector party in a JV shares not only risks but also rewards, i.e. profits. Since it holds a controlling interest in the company, it directly enjoys the benefits of the project for the JV. However, conflicts of interest and corporate governance problems may arise as long as the public sector is not only a JV shareholder but also the regulator of the sector in which the company develops. It may then happen that the public-sector party faces a trade-off between increasing the project's profits and safeguarding the public needs. For example, a representative of the public-sector party serving on the board of directors may find inconsistencies between her fiduciary duties to the JV and her responsibilities as public servant.
JV entails participants sharing ex-post the cost, risks and benefits that arise form the project while in PPP contract participants initially allocate risk, cost and benefit of the project ex ante by explicit contractual arrangement. 18 Consequently, JV seems to carry a higher probability of risk for the public sector. This assumption is true only in the case the contractual JV and not perused through a special purpose vehicle which can limit the liability of the contributing entity to the equity or debt provided.
Public participation in a JV (even limited in time) may, in specific circumstances, facilitate or reduce the cost the financing, and increase the flexibility of the deal. It may also facilitate the relation between the parties by fostering the reciprocal understanding, sharing of objectives and reducing the asymmetry of information. Moreover, especially in social infrastructure or in facility that include a public core serve such as hospitals, JV may facilitate the coordination and integration of public and private activity.
Hybrid PPP The sale of a majority or minority stock ownership in a public company, which involve a partial privatization, does not per se constitute a PPP.
| Public stake in a Special Purpose Vehicle (SPV) [Brazil: Lei 11.079, Art. 2] § 4 The Public Administration is forbidden from holding the majority of the voting capital of the special purpose company. § 5 The prohibition set forth in § 4 shall not apply to the possible acquisition of the majority of the voting capital of the special purpose company by a state-controlled financial institution, should the special purpose company default in its obligations under a loan agreement. Joint financing arrangement [Australia, New South Wales, Public Authorities (Financial Arrangements) Act 2005 (Cl.) 55A] (1) Activities that are joint ventures: 55 A (1) Activities that are joint ventures: For the purposes of section 22K of the Act (but subject to subclause (2)), an activity of a commercial nature that: (a) is entered into for the purposes of profit or gain, and (b) is carried on jointly by an authority and another person, and (c) involves a range of technical, managerial and financial resources or other assets in the form of jointly controlled operations, assets and entities (either within or outside of Australia, or both),"is prescribed as an activity that is within that section. (2) Excluded activities: 55 A (2) Excluded activities: For the purposes of section 22K of the Act, the following activities are prescribed as not being within that section (but only if the activity is carried on in New South Wales or is related to an activity carried on in New South Wales): (a) an activity carried on by two or more authorities but with no other person involved, (b) an activity carried on by an authority and an agency of the Commonwealth or of another State or Territory but with no other person involved, [NSW Treasury Circular 06/18 10 July 2006 explaining the new Clause (cl) 55A of the Public Authorities (Financial Arrangements) Regulation 2005] (1) Activities that are joint ventures: These include an activity of a commercial nature, for profit or gain, carried on jointly and involve a range of technical, managerial and financial resources or other assets in the form of jointly controlled operations, assets and entities. (2) Excluded activities (but only if the activity is carried on in New South Wales or is related to an activity carried on in New South Wales): (i) Joint ventures carried on exclusively by authorities under the PAFA Act; (ii) Inter-government (including other States/Territories/Commonwealth) joint ventures; Authorities are to evaluate which of their joint ventures are exempt from the Treasurer's approval, based on the above criteria. All other joint ventures requiring the Treasurer's written approval are to be submitted to NSW Treasury via the authority's Agency Relationship Manager. |
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17 FLINDERS, M. (2005) The Politics of Public-Private Partnerships, British Journal of Political and International Relations, vol 7, pp. 218
18 NEW SOUTH WALES TREASURY, "Submission to public accounts committee. Inquiry into Public-Private Partnerships", November 2005, pp.10