42. Government's sometimes attempt to use PPPs to stimulate the economy in less developed or rural areas. This is often politically motivated and the number of jobs to be created may be cited among the benefits of the project. However, PPPs do not work as engines to spur economic growth. Rather, they should respond to established need, or imminent growth (A Roadmap for Funding Infrastructure, OECD/ITF 2012). This is especially true when the private-sector party's revenues are a function of user fees in a concession-type PPP. Demand must be well-quantified and predictable in order for a private party to consider facing traffic or volume risk in a concession PPP. This may not be possible in cases where the PPP is motivated by a desire to stimulate economic activity in a less-developed area. Even if private parties are interested, the economics of these projects will be challenging as the lower levels of expected traffic/use and/or lack of demand information will be factored into a higher bid price.
43. As an alternative to a concession agreement, a government could choose to build infrastructure in a less developed area through an availability-based PPP. In theory, an availability-based PPP could be located anywhere as lack of demand will not impact the private partner's economics given that revenue will come from the state regardless of traffic or volume levels. However, this begs the question of why a government would build an asset and commit to pay for it over the long-term when demand is not certain.
44. All too often political motivations and interference drive the choice of location. Location should be chosen based on the business case and economics of a particular site supported by rigorous quantitative studies conducted prior to tendering. This is especially true for concession-based PPPs. Selecting a site on any basis other than economic justification lowers the probability of project success. If a site is selected on a non-economic basis, the government should acknowledge that this will entail a cost and provide a mechanism to mitigate the increase in risk, for example, cross-subsidisation by other facilities or minimum payment guarantees.
45. It is true that PPPs can promote economic development to the extent that they provide infrastructure or services that facilitate trade and commerce. This is one of the primary reasons governments build infrastructure. It is also true that a number of short-term construction jobs and a lesser number of long-term operational and maintenance jobs may result from a project. But this has nothing to do with PPP procurement and would be equally true of infrastructure procured through more traditional public means. In fact, given that value for money due to greater efficiency is a key justification for PPPs, it is arguable that public-procurement would likely result in more jobs being created.