The term "public-private partnership" describes a range of possible relationships among public and private entities in the context of infrastructure and other services. Other terms used for this type of activity include private sector participation (PSP) and privatization. While the three terms have often been used interchangeably, there are differences:
• PPPs present a framework that-while engaging the private sector-acknowledge and structure the role for government in ensuring that social obligations are met and successful sector reforms and public investments achieved.
A strong PPP allocates the tasks, obligations, and risks among the public and private partners in an optimal way. The public partners in a PPP are government entities, including ministries, departments, municipalities, or state-owned enterprises. The private partners can be local or international and may include businesses or investors with technical or financial expertise relevant to the project. Increasingly, PPPs may also include nongovernment organizations (NGOs) and/or community-based organizations (CBOs) who represent stakeholders directly affected by the project.
Effective PPPs recognize that the public and the private sectors each have certain advantages, relative to the other, in performing specific tasks. The government's contribution to a PPP may take the form of capital for investment (available through tax revenue), a transfer of assets, or other commitments or in-kind contributions that support the partnership. The government also provides social responsibility, environmental awareness, local knowledge, and an ability to mobilize political support. The private sector's role in the partnership is to make use of its expertise in commerce, management, operations, and innovation to run the business efficiently. The private partner may also contribute investment capital depending on the form of contract.
The structure of the partnership should be designed to allocate risks to the partners who are best able to manage those risks and thus minimize costs while improving performance.
• PSP is a term often used interchangeably with PPPs. However, PSP contracts transfer obligations to the private sector rather than emphasizing the opportunity for partnership. In the mid to the late 1990s, there was a slowdown in public-private contracting in infrastructure sectors, which was largely precipitated by a social backlash against the perceived preference for the private sector over the public sector in delivering infrastructure services in developing countries. To some degree, the social backlash was rooted in confusion between PSP and privatization. Some PSP schemes were overly ambitious and the social agenda was overlooked, leading to legitimate public concerns. The critical analysis of PSP experience has led to the design of a new generation of transactions, which are now more commonly known as PPPs.
• Privatization involves the sale of shares or ownership in a company or the sale of operating assets or services owned by the public sector. Privatization is most common and more widely accepted in sectors that are not traditionally considered public services, such as manufacturing, construction, etc. When privatization occurs in the infrastructure or utilities sectors, it is usually accompanied by sector-specific regulatory arrangements to take account of social and policy concerns related to the sale, and continuing operation of assets used for public services.
Sectors in which PPPs have been completed worldwide include:
• power generation and distribution,
• water and sanitation,
• refuse disposal,
• pipelines,
• hospitals,
• school buildings and teaching facilities,
• stadiums,
• air traffic control,
• prisons,
• railways,
• roads,
• billing and other information technology systems, and
• housing.