Public Private Partnerships Definitions and Trends

1. Public Private PartnershipsDefinitions and Trends • Reto Fausch, lic.rer.publ.HSG, dipl. Hdl. reto.fausch@zhaw.ch

2. Outline • Defining Public Private Partnerships (PPPs/3Ps) • Developments and trends • A Swiss point of view

3. Projected infrastructure investment Source: Deloitte (2006) Closing the Infrastructure Gap.

4. Reasons for implementing PPPs • Infrastructure gap • Fiscal crisis of the public sector • Need of new financial instruments • Off balance sheet financing (Maastricht Criteria) • Improving efficiency • Increased complexity of government tasks (overlap between the public and private sector)

5. PPPs by country and sector (1)

6. PPPs by country and sector (2)

7. Definitions (1) • PPP is a form of cooperationbetween public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of an infrastructure or the provision of a service. (European Union: Green Paper on Public-private Partnerships and Community Law on Public Contracts and Concessions) • A PPP is an agreement between government and a private partner(s) (that may include the operators and financiers) according to which the private partner(s) delivers the service in such a manner that the service delivery objectives of government are aligned with the profit objectives of the private partner(s) and where the effectiveness of the alignment depends on a sufficient transfer of risk to the private partner(s). (OECD)

8. Definitions (2) • PPPs refer to arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided by the government. In addition to private execution and financing of public investment, PPPs have two other important characteristics: there is an emphasis on service provision, as well as investment, by the private sector; and significant risk is transferred from the government to the private sector. PPPs are involved in a wide range of social and economic infrastructure projects, but they are mainlyused to build and operate hospitals, schools, prisons, roads, bridges and tunnels, light rail networks, air traffic control systems and water and sanitation plants. (IMF) • Any scenario … under which the private sector assumes a greater role in the planning, financing, … of a transportation facility compared to traditional procurement methods. (United States Federal Highway Administration Public-Private Partnerships Website)

9. Definitions (3) • Criteria of PPPs • Public service • At least one private and one public partner • Provision of an economic service / output • Shared accountability • Bundling of resources (synergies) • Shared risk • Long-term, process oriented cooperation • Increase of efficiency Source: BOLZ et al. (2005)

10. Defintions (4) Source: Bennett et.al.(2000) in Bult-Spiering-Dewulf (2006)

11. Definitions (5) • General characteristics of PPP • Involves two or more actors (government + business) • Partners are principals who can act on their own • Continuity of relations (contracts based on trust, negotiation and dialogue) • Willingness to invest in partnership (material/non-material) • Establish separate organisational structures, define objectives, tasks, financial platform and responsibilities. • Shared responsibility for outcome Source: Peters (1997) and Andersen (2004) in Bult-Spiering-Dewulf (2006)

12. Trends in PPP discussion (1) • Institutionalisation • Expansion to other sectors • From project to portfolio management • From single-function to integrated project PPPs • From project to more policy-based partnerships • Public sector needs the skills to develop successful relationships and to deal with changes (long term VFM) • Efficient selection procedures

13. Trends in PPP discussion (2) • Contract management: public sector needs to be an intelligent client • Contract evaluation tools • Performance monitoring and sanctioning • Contractual changes, re-negotiation of contracts • Refinancing issues • Contingency planning • Contract termination threat • Ensuring efficiency throughout project life time

14. Trends in PPP discussion (3) • Research on functioning of partnerships, partnership development; communication; cultural differences • Value for money appraisal (improved methodologies?) • Studies on new forms of arrangements / credit guarantee financing (UK) / public public partnerships (?) • Empirical studies on performance of PPPs • Accounting and reporting of PPPs (see presentation Prof. Andreas Bergmann)

15. „The Swiss Case“ • Tradition of public private cooperation / partnerships in policy making • PPPs following international definitions are hardly known • Transfer from other countries (D,F) and adaptation • Reasons slowing PPP implementation • Low financial pressure, highly developed infrastructure • Fear of loosing independence • Complexity of legislation/political system, small size public sector entities • Attitude towards “service public” and debts • Institutional and cultural framework (high private participation)

16. References • Bolz, U. (2005) Public Private Partnerships in der Schweiz. • Bult-Spiering, M., Dewulf, G. (2006) Strategic issues in Public-Private Partnerships. An international perspective. • Deloitte (2006) Closing the Infrastructure Gap. The Role of Public Private Partnerships. • Ehrensperger, M (2008) Erfolgsvoraussetzungen von Public Private Partnership im öffentlichen Hochbau. • European Investment Bank (2005, Vol. 10, no. 2) Innovative financing of infrastructure – the role of public-private partnerships: Lessons from the early movers. • Gremsey, D., Lewis, M.K (2005) The Economics of Public Private Partnerships • PricewaterhouseCoopers (2005) Delivering the PPP promise. A review of PPP issues and activity. • Institute for Public Policy Research/Commission on Public-Private Partnerships (2001) Building better partnerships.