1 Public-Private Partnerships (PPPs) Dr. Ali Mistarihi Ch.1: PPPs: Conceptual & Theoretical Background ©

2 Public-Private Partnerships (PPPs) Cooperative Partnership Non-cooperative Partnership Team Partner ship Collabor ation Market interact ions Buyer- seller relations hip Ch.1: PPPs: Conceptual & Theoretical Background

3 Public-Private Partnerships (PPPs) Formal partnership (as per the partnership agreement) Informal partnership (no set or definite cooperation rules) Leader-follower relationship (inequality in resources/power) 0 Exchange relationship (voluntary; win-win partnership) Limited partnership (limited-sharing of risks/rewards) Full partnership (full-sharing of risks/rewards) Ch.1: PPPs: Conceptual & Theoretical Background

4 Public-Private Partnerships (PPPs) The partnership purpose / objective What Key actors in the partnership Allocation of roles and responsibilities for each partner Who The stage of partnership development Who is involved in each development stage What objective(s) to achieve in each development stage When The spatial dimension: parts / components of the project When to be involved in which part of the project Who is involved on each part of the project What objective(s) to be achieved in each part of the project Wher e The implementation mechanism What mechanisms to use in each part of the project What mechanisms to use in each development stage Who is involved and how is involved What mechanisms to use to achieve each objective How HowWhereWhenWhoWhat Ch.1: PPPs: Conceptual & Theoretical Background

5 Public-Private Partnerships (PPPs) Join t Vent ure Join t Vent ure Co nce ssio n Co nce ssio n Lease Lease Tra nsfe r Tra nsfe r Own Own Mai ntai n Mai ntai n Ope rate Ope rate Con stru ct, Buil d Con stru ct, Buil d Desi gn, deve lop Desi gn, deve lop Fina nce Fina nce Function / Role Type / Modality √√ Traditional Design and Construction (TD&C) √√ Operation and Maintenance Contract (O&M) √√√ Lease, Develop, Operate (LDO) √√√√ Build, Own, Operate, Transfer (BOOT) √√√ Build, Own, Maintain (BOM) √√√ Build, Own, Operate (BOO) √√√ Build, Operate, Transfer (BOT) √√√ Design, Build, Finance (DBF) √√√√ Design, Build, Finance and Operate (DBFO) √√√ Design, Build, Operate (DBO) √ Concession √ Joint Venture Ch.1: PPPs: Conceptual & Theoretical Background

6 Public-Private Partnerships (PPPs) Build – Own – Maintain (BOM): This type of arrangement involves the private sector developer builds, owns and maintains a facility. The government leases the facility and operates it using public sector staff. القطاع الخاص يبني، يمتلك، يصون ويمول المشروع. القطاع العام يشغل المشروع باستخدام موظفيه. Ch.1: PPPs: Conceptual & Theoretical Background

7 Public-Private Partnerships (PPPs) Build – Own – Operate - Transfer (BOOT): This type of arrangement involves a private sector developer finances, builds, owns and operates a facility for a specified period. At the expiration of this period, the facility is returned to the government. القطاع الخاص يمول، يبني، يمتلك ويشغل المشروع لفترة محددة. القطاع العام تعوج اليه الملكية بنهاية المشروع. Ch.1: PPPs: Conceptual & Theoretical Background

8 Public-Private Partnerships (PPPs) Build – Own – Operate (BOO): These projects operate similarly to BOOT projects, except that the private sector owns the facility in perpetuity. The developer may be subject to regulatory constraints of operation and, in some cases, pricing. The long term right to operate the facility provides the developer with significant incentive for the capital investment in the facility. يشبه النموذج السابق، ولكن يمتلك القطاع الخاص المشروع بالتقادم ( لا تعود الملكية للحكومة ). Ch.1: PPPs: Conceptual & Theoretical Background

9 Public-Private Partnerships (PPPs) Build – Operate - Transfer (BOT): A PPP agreement to design, finance, operate and maintain the facility by the concessionaire for the period of the concession. Legal ownership of the facility may or may not rest with the concession company (USAID, 2007). القطاع الخاص ( المستثمر ) يصمم، يمول، يبني، يشغل ويصون المشروع لمدة محددة، قد يمتلك القطاع الخاص المشروع أو لا يمتلكه خلال قترة التعاقد. يشبه نموذج ال (BOOT) باستثناء الملكية. Ch.1: PPPs: Conceptual & Theoretical Background

10 Public-Private Partnerships (PPPs) Concession: The oldest form of PPP that involves a variety of arrangements that are based on the concept of a fixed-term concession, using various combinations of private sector resources to design, construct, finance, renovate, operate and maintain facilities. Ownership of the facility may remain with the government or be transferred to it after the completion of the construction phase or at the end of the concession period. استثمار لفترة محددة في اي مجال / طريقة : في التصميم، البناء، التمويل، التأهيل، التشغيل و / أو صيانة المشروع. ملكية المشروع اما أن تبقى بيد الحكومة أو تعود اليها بانتهاء الفترة الزمنية المحددة. Ch.1: PPPs: Conceptual & Theoretical Background

11 Public-Private Partnerships (PPPs) Design, Build, Finance (DBF): A form of PPP that involves the procurement of an asset using private finance, without private sector operation and provision of associated services. القطاع الخاص يصمم، يبني ويمول المشروع، دون تشغيل المشروع أو تقديم الخدمات. Ch.1: PPPs: Conceptual & Theoretical Background

12 Public-Private Partnerships (PPPs) Design, Build, Finance and Operate (DBFO): A form of PPP in which the service provider is responsible for the design, construction, financing and operation of an asset. Operation refers to the provision of some or all of the services related to the asset’s use. نفس النوذج السابق ولكن يقوم القطاع الخاص بتشغيل المشروع جزئيا أو كليا. Ch.1: PPPs: Conceptual & Theoretical Background

13 Public-Private Partnerships (PPPs) Design, Build and Operate (DBO): A PPP arrangement, in which the public sector provides finance for a capital investment project but the providers of the project retain the design and construction, and delivers some or all of the operational elements. القطاع العام يمول المشروع. القطاع الخاص يصمم، يبني، يشغل المشروع كليا أو جزئيا. Ch.1: PPPs: Conceptual & Theoretical Background

14 Public-Private Partnerships (PPPs) Joint Venture (JV): A distinct legal form of PPP arrangement involving public and private bodies assuming some form of equity stake in a PPP استثمار مشترك بين القطاعين.. Ch.1: PPPs: Conceptual & Theoretical Background

15 Public-Private Partnerships (PPPs) Operation and Maintenance Contract (O&M): These projects involve the private sector operating a publicly-owned facility under contract with government. القطاع الخاص يشغل مشروع مملوك بالأصل للحكومة بطريقة العقد أو التعاقد. أشبه بما يكون بالتخاصية ولكن تبقى الملكية للحكومة Ch.1: PPPs: Conceptual & Theoretical Background

16 Public-Private Partnerships (PPPs) Lease – Develop – Operate (LDO): This type of project involves a private developer being given a long-term lease to operate and expand an existing facility. The private developer agrees to invest in facility improvements and can recover the investment plus a reasonable return over the term of the lease. يقوم المستثمر ( القطاع الخاص ) باستئجار مشروع قائم أصلا لتشغيله وتوسعته لمدة طويلة يستطيع خلالها استرداد أصوله ويحقق عائدا / ربحا معقولا. Ch.1: PPPs: Conceptual & Theoretical Background

17 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background Traditional procurement: The Public Sector Privatization: The Private Sector Public-Private Partnership (PPP) BOO T BOO TD&C BOTDBO DBF LDO JV O&M BOM DBF& O Figure (4): Traditional procurement, PPP and privatization schemes

18 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 6 Rationale for the Use of PPPs “new legitimacy for gov’s the efficiency of the private sector and the involvement of civil society improving service quality creating high customer service high management standards investing in R&D and in developing new services efficient material-based systems reduction of the construction costs of infrastructure mega-projects For the public sector,

19 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 6 Rationale for the Use of PPPs For the public sector,Other reasons.. value for money risk sharing and/or transfer political attraction production of some goods / services may require specialised knowledge owned by others concerns over the level of the public debt & expenditures

20 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 6 Rationale for the Use of PPPs For the private sector, internal triggers ensuring survival of the firm profitability lack of resources limited essential expertise and knowledge in markets and cultures.

21 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 6 Rationale for the Use of PPPs For the private sector, external triggers gov’t encouragement & incentives (grants and allowances) taking advantage of a naturally occurring phenomenon spreading business risk (diversifying out of a single economy) external triggers gov’t encouragement & incentives (grants and allowances) taking advantage of a naturally occurring phenomenon spreading business risk (diversifying out of a single economy)

22 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 6 Rationale for the Use of PPPs pg. 25 PPP Rationale The Public Partn er Inter est The Pri vat e Par tne r Int ere st Key: (  ): Private Partner Interest; (  ): Public Partner Interest; (  ) Partial Interest Financial and Economic Goals: Belief that partner can produce more efficiently  - Relief of constraints on the budget and strengthening balance of payments  Value for money (i.e. lower construction, operating and maintenance)  Risk sharing  Risk transferring  Lack of resources  Increased profitability potential  Organisational and Managerial Goals: Improved quality of goods and services offered by the other sector  - Improved customer service and management standards  - More investment in research and development  Improved control mechanisms for public services  The need for specialized knowledge owned by other partners  Limited essential knowledge in markets and cultures  Limited technical know-how  limited management expertise / desire to buy in management talent  Collecting information about a competitor-  Ensuring the survival of the firm  Government encouragement and incentives-  Taking advantage of a naturally occurring phenomenon-  Realisation that market opportunities cannot be exploited solely  Overcoming prejudice in the market by joining with an indigenous partner -  Political Goals Partnerships give the government a new legitimacy (i.e. political attraction)  - Increasing involvement of private sector and civil society organisations  The move towards enabling local government  The move towards genuine participation of the local community 

23 Public-Private Partnerships (PPPs) The 1 st Exam Tuesday 12.00

24 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 Partnership Theories: the “WHY” Question The Theory of Cooperation public and private organisations have good reasons to cooperate – a NEED all participants expect to end up better off than they would have if they were acting alone The Theory of Enforced Cooperation Cooperation is due to a threat of a central authority, common objectives or (other) self-interest

25 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 Partnership Theories: the “WHY” Question partnership between the same partners involves compromising and giving concessions whenever possible to gain benefits in future interactions strong chance that partners to meet again in future positive outputs have happened despite the partnership not because of it!” each partners has different reasons for partnering Game Theory The Collaborative Inertia View

26 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 Partnership Theories: the “WHY” Question based on systems thinking - the assumption that the whole is greater than the sum of its parts utilizing unique advantages for each partner ‘boundary spanners’ are individual managers whose work involves bridging the organisational boundaries of PPPs The View of Partnership Synergy

27 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Figure (5): The historical development of PPPs Mistarihi’s (2012) PPPs Contracting outs Privatizatio n Schemes Traditional procuremen t

28 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Figure (6): Mistarihi’s (2012) PPPs and other public good production / delivery Traditional procurement Privatization Schemes PPP s Contract ing out The Private Sector The Public Sector Contract ing out

29 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Figure (7): Yin’s (1993) PPP development model  Interna l & external forces result in the strategic decision to start a PPP  Form alisati on of a PPP agree ment Stabili sation of resour ces  Cons tituent s achiev e their self interes ts  Push for broader PPP agenda  PPP is an institut ionalis ed entity  Able to survive in tough times The Start-up Stage The Growth Stage The Maturity Stage The Institution alized Stage

30 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Figure (8): Griffith’s (2000) partnership development model Integration -A relationship structure forms -Shared purpose/goals -A relationship structure forms -Shared purpose/goals Coordination -Start working together -Collective basis/goals -Start working together -Collective basis/goals Cooperation -Formal relations -Individual basis/goals -Formal relations -Individual basis/goals Networking -Informal relations -Exchange information & experiences -Informal relations -Exchange information & experiences

31 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Delivery -Moving from a virtual to a physical organisation (Partnership) Commissioning -Agreeing on the project ‘s performance management -Agreeing on the project ‘s performance management Integration  A relationship structure forms  Shared purpose/goals  A relationship structure forms  Shared purpose/goals Coordination  Start working together  Collective basis/goals  Start working together  Collective basis/goals Cooperation  Formal relations  Individual basis/goals  Formal relations  Individual basis/goals Networking  Informal relations  Exchange information & experiences  Informal relations  Exchange information & experiences Figure (9): Fox and Butler’s (2004) partnership development model Strategic -Considering to partner -Developing partnership strategies individually -Considering to partner -Developing partnership strategies individually

32 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Figure (10): Major steps in developing a typical PPP project as suggested by Grimsey and Lewis (2004a)

33 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Figure (11): Noble and Jones’ four-stage model of a PPP establishment Main managerial focus StageManagerial Challenges Pre-contact Trawling Sizing up Structuring the partnership Do we need a partner? Who is out there? Are our organizations compatible and can I work with this manager from the other sector? How might the partner organizations' work together? Autonomy distance Cultural distance Throw the catch back? Cautionary organizational risk / benefit personal rapport Finding common ground Divided loyalty

34 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Service Identification Preliminary Assessment PPP Business Case Development Expression of Interest Bidding Process Management of Project Agreement Figure (12): Key milestones in the PPP progression process in the Queensland Government, Australia (2008)

35 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 7 PPP Development Models: the “HOW” Question Source: Mistarihi (2011) Figure (13): A two-phase model of PPP development Privatization Traditional procurement Public-Private Partnership (PPP) Construction Delivery Public Sector PPPs STAGE 1 STAGE 2 STAGE 3 STAGE 4 P H A S E O N E A Pu bli c Ne ed Assessi ng options for Service constru ction and/or deliver y Assessi ng options for Service constru ction and/or deliver y P H A S E T W O Political System Political System Economic/ Financial Environment Legal / Administrative System Legal / Administrative System Social Environment Social Environment Private Sector

36 Public-Private Partnerships (PPPs) Ch.1: PPPs: Conceptual & Theoretical Background 78 Working Towards a Universal PPP Theory PPP Outcomes Stakeholders Partners BOT O&M LDO DBF DBO C DBFO BOOT BOM BOO JV PPP Design PPP Design Political Legislative Economic 7 Financila Economic 7 Financila Social PPP Environment Legal 7 Financila Legal 7 Financila Technological 7 Financila Technological 7 Financila Cultural 7 Financila Cultural 7 Financila Financial 7 Financila Financial 7 Financila Administrative 7 Financila Administrative 7 Financila EffectiveSupportiveEffective A Publi c Need PPP Environmental Conditions PPP Implementation PPP Design PPP Process Deli ver y Co nst ruc tio n PPP Outcome (Assessment) PPP Outcome (Assessment) Suc ces s Fai lur e Time Source: Mistarihi (2011)

37 Thank You Question Time ??? End of Ch.1