Public Private Partnerships (PPPs)

What is a Public Private Partnership (PPP)?

PPPs are long-term contractual arrangements between the public and private sectors for the delivery of public services in efficient manner.  In this scenario, PPPs involve three main features namely risk transfer, long-term contracts and partnership agreement.  The governments around the world tend to adopt this approach owing to three main types of benefits.

  1. Ability of developing new infrastructure services despite short-term fiscal constraints.
  2. Value for money through efficiencies in procurement, construction and operation.
  3. Improved service quality and innovation through use of private sector expertise and performance incentives.

Roles and Responsibilities of Public and Private Entities under different forms of Private Sector Participation

It is noted that the forms of PPPs differ from country to country to and sector to sector depending on the circumstances that they confront and political and administrative structures that they adopt.

 

Other Definitions of PPP

  • PPP means an arrangement between Government or statutory entity or Government owned entity on one side and private sector entity on the other, for the provision of public assets and/or related services for public benefit, through investments being made by and/or management undertaken by the private sector entity for a specified period of time, where there is a substantial risk sharing with the private sector and the private sector receives performance linked payments that conform to specified pre-determined and measurable performance standards. (Department of Economic Affairs, Ministry of Finance, India)
  • PPP is a generic term for the relationships formed between the private sector and public bodies often with the aim of introducing private sector resources and/or expertise in order to help provide and deliver public sector assets and services. The term PPP is used to design, build, finance and operate (DBFO) type service contracts and formal joint venture companies. (Local Government Procurement Agency, UK)
  • A PPP is a partnership between the public sector and private sector for the purpose of delivering a project or a service traditionally provided by the public sector. PPPs come in a variety of different forms, but at the heart of every successful project is the concept that better value for money may be achieved through the exploitation of private sector competencies and the allocation of risk to the party best able to manage it.(Department of Environment and Local Government, Ireland)

Sri Lankan experience in PPP’s

Uplifting the management and the workmanship of the government owned business ventures, the government is paying attention to apply alternative strategies to get private sector involved. In this context, the government is paying its attention to the fact that the private sector has a social responsibility in addition to earning profits and as such, the private sector needs to be involved in implementation of government ventures and projects. As further described in the above Policy Framework, depending on Treasury funding for the government ventures should be under a minimum level and their capital base should be strengthened through different investment methods. The policy framework emphasizes PPP as a successful alternative funding method. At national level, strategic plan adopted for uplifting of infrastructure has gained considerable progress in PPP approach.

Among the future projects where the PPP investment approach is expected to be widely used, the areas of Transport, Aviation, Milk and Dairy Farming, Tourism and Drinking water supply are mainly important.

When looking at the South Asian countries like Malaysia and Thailand which have moved into the speediest development drive, private investments and PPP investments have increased tremendously. The main reason being the respective governments have created the required conducive environment for the same. Although, Sri Lanka is not maintaining hard privatization policy like these countries, it has become essential to create a conducive investor friendly environment, particularly at sub national level.

Procedures to be adopted at provincial level for promoting PPPs

Sri Lanka is functioning as a unitary state with provincial council system with a limited power of devolution. But even under this system there are opportunities in entering into PPPs and they can be used as a tool to face the problem of funding shortages. The Government of Sri Lanka has accepted the PPP investment approach as a policy and opportunities have been given to the provincial councils also to follow the same.

In the guidelines issued for the year 2012 to the provincial Chief Secretaries by the Finance commission, it is emphasized the requirement of implementing the projects though PPP basis by using limited development grants. In addition to obtaining the private sector participation, they should take action to get beneficiary contribution and it is further described the importance of assigning the responsibility of maintaining capital assests by the community organizations.

When applying PPPs at provincial level projects, it is not necessary to enter into mega scale agreements as required at national level special projects. Since the projects to be implemented at provincial level are at middle or small scale, the investors should be selected accordingly. However, when entering into agreements with private sector, it is essential to maintain the transparency adherence to the accepted procurement procedures.    The involvement of provincial level Chambers of Commers, provincial commercial and development banks and private companies should be ensured.

It seems that for the provincial level projects, the provinces are heavily dependent on government funds. Although, the central government funds are to be utilized for the essential public services, the private sector participation could be obtained for the projects that could be carried out on commercial basis.

From the government side the land owned by the state can be given as part of the equity capital and financial allocations could also make available, if necessary. The private sector, in addition to providing financial contribution could get involved in project activities, project implementation and management.  Both parties have to equally agree to share  the risk factor, if any, and also the both parties should properly adhere to the basic principles such as social responsibility,  minimizing the cost, proper management increasing the working capacity, and efficient service providing  etc.

In addition to this process, the responsibility of running and managing an asset built on government fund could be assigned to a private investor. However, the main principle is that the government or the provincial body should not directly involve or intervene in such ventures. The main reason is that the capability and the knowledge in handling commercial ventures is minimal  in the government institutions and such a service cannot be expected from  the government officials. But the responsibility in regulating the tasks assigned to private sector lies with the government institutions including provincial councils.

Despite the fact that the money is invested through government funds or the private funds, the government has the responsibility with regard to maintaining the required standards of the service and fair price for the service.

In summary, investments to be done on PPP approach at provincial level could be carried out under the following four methods.

  1. After completion of infrastructure facilities by the government, assigning of management to private sector; Example: small power plants.
  1. Putting of state land as a part of equity capital and to give a share value for the same. Example: projects in tourism sector.
  1. Putting capital investment proportionately like 50:50 basis by the both parties on a selected venture and share the profit accordingly. Example; Dairy Farming.
  1. Leasing out government assets or lands for a specific period. Example; Industrial states.