Definitions and objectives of public private partnerships (PPPs) Annemarie Mille

Partnerships between the public and the private sector (New Public Management) traditional procurement: governments specify the quality+quantity of a service and negotiate the price with a private provider (through a tender process); government carries the risk involved in the service delivery. privatisation: private providers set the quality and quantity of the goods delivered (though it may be regulated by government)while they also specify design+set the price; private company carries the risk. PPPs: cooperation between public and private sectors to guarantee services of general interest/infrastructure (contractual model: concessions; societal model…); shared risks.

Definition of Public Private Partnerships (PPPs) no standard definition OECD: an agreement between the government + one/several private partners according to which the private partners deliver the service in such a manner that the service delivery objectives of the government are aligned with the profit objectives of the private partners and where the effectiveness of the alignment depends on a sufficient transfer of risk to the private partner. government specifies the quality and quantity of the service required from the private partner private partner may be tasked with design, construction, financing, operation, management of capital assets, delivery of service + receives money (payments from government and/or user charges levied on end users)

Definition of PPPs cooperation between government + business for infrastructure projects and „services of general interest“ based on the transfer of risk from government to private sector partnerships in several areas of the public sector: transport public health education + researchdesign, construction, waste managementfunding, management, water distribution maintenance,... public safety international, crossborder, federal, regional, local projects effective competition safeguarded by (public procurement or concession) law: eg competitive dialogue or negotiated procedure

Definition of PPPs (transfer of risks) risk is identified, priced and either retained by the public sector or transferred to the private partner through an appropriate payment mechanism and specific contract terms risk should be allocated where it can be best managed risk should never be transferred to the private partner at any price for the sake of transferring risk alone! risk transfer to the private partner may increase value for money for the government, but only up to the point where it creates an incentive for the private partner to improve efficiency

Definition of Risks (1) endogenous versus exogenous risks: endogenous risks as drivers of efficiencies in PPPs exogenous risks are not controllable by the project partners (e.g. force majeure such as natural disasters, wars,...) (2) legal/policy/political versus commercial risks legal/policy/political risks caused by government (e.g. new government priorities, laws), beyond the control of private partner commercial risks: responsibilities transferred to private sector (e.g. availability+costs of input, technical process, cost of capital – supply side risk)

Sharing of Risks according to the respective ability of the parties concerned to asses, control + cope with this risk Public Sector Shared RisksPrivate Sector Regulatory Inflation Risk Planning Framework Detailed Project Construction Administrative Planning Management Guarantees Force Majeure Operation Financing New Technologies

Definition of PPPs long-term partnerships + strong political commitment assessment, whether PPP offers real value added vs traditional public contract (dedicated PPP Task Forces in several EU member states e.g. UK, Germany,...) risk sharing according to the respective ability of the parties concerned to assess, control + cope with this risk „case by case“ decision (public sector comparator) often financed by the private sector; public funds may be added („shadow tolls“,...) reliable („waterproof“) contracts including fair distribution of risks + gains

Reasons for PPPs encouragement of economic growth in the EU due to private involvement (efficiency: value for money) change in the role of the state: moving from a role of direct operator --> organiser, regulator and controller “New Public Management” private sector: greater incentive+ability to deliver cost effective capital assets than public sector fiscal constraints: pressure for governments to reduce public spending to meet political/legisated fiscal targets participation of the private sector at various levels = design, planning, construction, maintenance, operation, financing,... value for money + development of public quality services

Interests of the Public Partner budget constraints: need for private funding benefit from private know-how and working methods fast realisation of large-scale projects reduction of transaction costs better quality for public services

Interests of the Private Partner profit development of new markets employment of its staff (“no hiring and firing” policies) references for other (public) projects altruistic aims

12 PPPs... Involvement of private business when fulfilling public tasks be it „classic“ public contracts or concessions, DBFO, BOT, BOLT,... especially long-term projects -----> need a reliable, clear and stable legal framework, involving competitive procedures !!!

EU: Public Procurement Directives for the Award of Public Contracts (Art 1 (11) lit c classic DIR: definition) The (Competitive) Dialogue (Art 29 classic DIR) as a flexible new procedure  for particularly complex contracts, where the CA is objectively unable – to identify the technical means to satisfy its needs/objectives or – to define the legal and/or financial form of a project At the end of this dialogue: candidates present their „last and final offer“ based on the solutions identified in the dialogue Not for utilities!!!

Ensuring the success of PPPs decision to involve the private partner has to be guided by an assessment of the relative long-term costs/benefits + availability of finance taking into account the pricing of risks transferred to the private operators government must guarantee an enabling policy framework for investment (laws, ex post control, audit, reporting, integrity) government needs adequate capacity to implement agreed projects government must establish a durable working relationship with private partners (viable long term relationship)

PPPs in Austria electronic road toll collection system by ASFINAG in 2002 as a BOT ( telecom system for blue light organisations as a concession rail infrastructure in the pipeline: e.g. Summerau- Spielfeld-Strass; Brenner Tunnel project „Ostregion“ motorway network as a DBFOM- contract: interurban highways to the north, east and south of Vienna + Vienna – Czech Republic ( ctinformation_ pdf) ctinformation_ pdf health sector (hospitals, care for elderly and handicapped persons)…

Any questions????