1. Introduction
The public sector provides financing for the vast majority of infrastructure services. The government analyzes, chooses, and implements policies intended to improve infrastructure delivery, increase access to financing, reduce waste and corruption, and develop the information and data to manage infrastructure effectively and efficiently. Public-private partnerships in infrastructure (PPP) are one of the tools in a policymaker's arsenal.5 PPP, in this paper, means any contractual or legal relationship between public and private entities aimed at improving and/or expanding infrastructure services.
The decision to adopt PPP must be political, first. The government must consider the political and social implications of PPP and whether there is sufficient political will to implement PPP. Next, consideration needs to be given to the institutional, legal and regulatory context - the extent to which government institutions have the needed skills and resources, the financial and commercial markets have needed capacity and appetite, and laws and regulations encourage or enable PPP - and whether changes need to be made to the institutional, legal and regulatory climate in order to provide the right context for PPP. Once these basic issues have been addressed, those designing the PPP solutions available to policymakers must consider the most commercially and financially viable and appropriate structures. This must involve consideration of cost benefit, value for money, the sources of finance, the commercial arrangements, the nature of investors and government participants, and a variety of other circumstances that need to be addressed in the design of appropriate PPP structures. This latter process is where a robust classification model can help.
For too long the methods available for structuring the involvement of the private sector in the provision of infrastructure services has been constrained by the confusing lack of a common terminology. We use terms such as privatization, divestiture, concession, lease, affermage, BOT, BOOT, ROT, BOO, ROO, DBO, RBO, DCMF, BTL, RTL, BTO, RTO, DBFO, PFI, outsourcing, delegation of services, management contract, operation and maintenance contract, service contract, operating contract, performance contract and the list goes on. Yet there is no clear agreement on what these terms mean. Each term can be used for a number of different structures. These different terms become even more confusing across national and regional divides, and as between different sectors.
Box 1: The Mighty Concession The term "concession" is used globally for a number of different purposes. At its most basic, the term means the grant by a government of a right to provide a service or to use an asset, for example the grant of the right to exploit natural resources located on or under a particular plot of land. It is also used to refer to different PPP structures. In Russia, a "concession" is a federal government structure whereby the project company builds a facility, transfers it to the grantor and operates it over a long period. In France, also defined by law, it means giving a private entity the right to use government owned assets for their maintenance, operation and management over a period. The French model does not usually involve a significant investment obligation of the concessionaire. In Brazil, a managed concession is one where the concessionaire runs public assets and earns its revenues from tariffs charged to consumers, while a sponsored concession includes a payment by the grantor to top up the revenue stream. In Chile the concession is used for refurbishing and building toll roads and for the privatization of the water sector. The water concessions in Manila involved the transfer of existing assets to the project company, as well as a large amount of existing debt, with the project company responsible for operation, maintenance and expansion of the system and delivery of services to consumers. And, of course, in the extractive industries (e.g. oil, gas and mining) it means having the right of extraction in a given area, usually against a royalty paid to the government. The word "concession" is the most common and probably the least precise of the PPP terminology. |
The lack of clear terminology has limited the development of PPP, and has made the study of PPP more complicated. It makes comparing structures (in particular in different countries and sectors) more difficult, as similar structures often use different terminology, while dissimilar projects may use similar terminology. By creating a common terminology, more work can be done adopting the lessons learned from one sector or region to projects of a similar design in another sector or region. It will also simplify dialogue between policymakers and practitioners, allowing them to express ideas and complex structures in simple, common terminology.
This paper proposes a methodology for 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. It also discusses in further detail why some of these characteristics are so important, and why other characteristics commonly thought to be essential to PPP have not been used.
Box 2 For ease of reference:
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The entity that undertakes the delivery of infrastructure services can take a number of forms and goes by different names, such as The paper is organized as follows: this section 1 introduces the need for categorization and describes the model. Sections 2-6 provide a more detailed discussion of each of the key elements of the model:
• New or existing business (section 2)
• Construction obligations (section 3)
• Private financing (section 4)
• Service delivery (section 5)
• Source of revenues (section 6).
A seventh section shows how the model would be applied to a series of case studies.
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5 This paper will not describe PPP projects in detail. For further discussion of PPP and the nature of the project structures often encountered in such projects, see Delmon, Private Sector Investment in Infrastructure: Project Finance, PPP Projects and Risk (2009).