The following provides a categorization methodology for public-private partnerships3 in infrastructure (PPP), classifying the different design options for PPP based on their most salient elements, those characteristics fundamental to the nature of PPP and therefore the character of the project in question. Lack of an agreed categorization methodology has created confusion and limited the ability to cross-fertilize, learning lessons from different regions and sectors who use different terminology, making it difficult to know, without in-depth analysis, if the structures being used are similar or not.
There is no universal norm as to the most appropriate approach to PPP. That analysis needs to be made on a country-by-country, sector-by-sector and project-by-project basis. The model is therefore not meant to be normative, i.e. it does not identify which PPP option would be the most appropriate, most efficient or most effective nor does it try to be comprehensive (nor uncontrovercial). Instead, it serves three key purposes. It:
• facilitates the task of practitioners when seeking to identify relevant lessons learned from other projects, sectors, countries, legal systems and cultures;
• helps mapping, referencing and analytical studies by providing a practical, descriptive nomenclature; and
• assists in the description of a given PPP structure, e.g. for policy or decision makers without the confusion of political, nationalistic or cultural labels often associated with other terminology.
For example, when technical experts need to discuss PPP options with policymakers, using this classification model will facilitate the process by avoiding misunderstandings associated with tired or misused vocabulary. Equally, when designing PPP structures to fit the needs of a given country, sector or project, the design team will want to take advantage of the lessons learned from similar exercises. The model will help the application of lessons learned from other similar structures across the globe by identifying commonalities amongst those structures and enabling the design team to utilize good practice associated with the relevant elements of those structures.
The classification model addresses five key parameters that may or may not be relevant to any given PPP project. These parameters identify the most fundamental characteristics of a PPP project.
1. New or existing business - taking over existing revenues, customers, assets or employees represents a different risk profile than a new business.
2. The nature of project company construction obligations - implementing a significant construction program carries with it a host of construction and performance related risks that will be essential to understanding the role of the project company.4 This obligation differs fundamentally if it is a new build, or the refurbishment of existing assets.
3. The need for the project company to mobilize significant private funding ab initio - where the project company is required to mobilize private finance for any significant up-front costs (including fees, acquisition of assets and construction costs), the risk profile for the project company and the influence of the financiers will alter fundamentally the nature of the project.
4. The nature of the project company's service delivery obligations - refers to the extent to which the project company is delivering services directly to consumers "User" or only to a single user, such as the utility "Bulk". Delivery of services to a large number of consumers represents a more complex context for the project company, and its financiers.
5. The source of the project revenue stream - the source of the revenue stream influences the certainty, size and nature of that revenue stream, e.g. the collection risk associated with the revenue stream and the likelihood that the obligor will be available to pay on its obligations. "Fee" refers to a single or small number of purchasers of the offtake or service, while "Tariffs" refers to collection of revenues from a large number of consumers or users.
The Classification Model | ||||
Business | Construction Obligations | Private Funding | Service Delivery | Source of Revenues |
For example, a project where the project company builds a new power plant, operates it and sells the power to the local utilities, would be a New-Build-Finance-Bulk-Fee. The refurbishment of an existing hospital, financed by the project company, where the project company does not provide clinical services, but instead makes the refurbished hospital available to the local health authority for a fee and the grantor delivers clinical services out of the hospital. This project would be a New-Refurbish-Finance-Bulk-Fee. The management of an existing water company and refurbishment of assets, financed by the grantor, with revenues collected from the consumers, would be an Existing-Refurbish-User-Tariffs. The management of an existing waste management plant for the local utility with no capital expenditure, but an up-front concession fee, with revenues from anyone wanting to deposit waste at the facility, would be an Existing-Finance-Bulk-Tariffs.
______________________________________________________________________________
3 This paper uses a broad definition of PPP to be relevant across the largest sample of projects.
4 For ease of reference, this paper refers to the "grantor" as the public initiator of the project and the "project company" being the private company undertaking the project.