Question

Give 5 points in creating an essay that Public Private Partnership is the resolution for infrastructure projects, etc.

Answer 1

A public-private partnership (PPP) is a very particular type of contract whereby the public partner (government entity) delegates some of its own responsibilities to a private partner under a long-term contract that defines the rights and obligations of each party during the term as well as the mechanisms for its financial re-equilibrium arising from unforeseen events or lack of compliance of the parties.

1) PPPs are an important tool for developing infrastructure and therefore fostering economic development.

2) They are used with infrastructures like roads, airports, ports, power, water, and solid waste treatment and typically involve investment and operation and maintenance. PPPs are also used in social infrastructure like health and education, e.g.. construction and maintenance of a hospital or school facilities, but can also include total or partial clinical or education services.

3) There’s potential for PPPs in any sector. Interesting examples are agriculture or social housing. Regarding agriculture, in countries where government institutions have an important role in food security, such as India or Pakistan, PPPs in silos can be inserted in the production chain. Through controlling temperature and moisture and keeping pests out, silos generate savings that can easily pay the construction costs. The same applies to cold storage facilities. Regarding social housing, we are about to complete a project in India where a PPP is structured to provide housing to the poor, the government intervening through specific regulation and a land contribution to the project.

4) These are complex long-term contracts. They typically span 15, 20, 25 years, sometimes more, depending on the nature of the project. In that period of time, technology, demographics, environment, and politics can all change, so contracts needs to be flexible to adjust to the project’s life cycle. The art of a PPP resides in the allocation of risks of the project and in the definition of the framework, principles, and rules to deal with change, because it will occur. So fundamentally in structuring a PPP contract we need to articulate a set of incentives and penalties to potential actions of the parties, so to ensure the stability and sustainability of the project.

5) PPPs require a lot of business developer skills which need to be interdisciplinary, often drawing in people with expertise in finance, economics, law, engineering, environment, accounting/taxes, etc. Projects move ahead slowly, first to establish sound engineering and economics, then financial and legal feasibility, and finally political will to insert private-sector participation. Private-sector participation typically introduces new governance rules in a sector, externalizing costs or processes hidden until then. These projects can therefore awake unions or specific interest groups and rapidly become very politicized.