1 Public Private Partnerships What are They? Theory and Practice Carlo Cottarelli Deputy Director, Fiscal Affairs Department, IMF February 2008

2 Part I: What are PPPs and how to implement them

3 What are PPPs? Public-Private Cooperation / Dimension of Change Private Role Risk Sharing / Transfer Financing Investing in Infrast. Assets Service Provision IMF OECD EIB UK NZT Non essential: SPV, user fees, price regulation. A form of procurement of public assets with private involvement. Specific characteristics:

4 Fiscal Sustainability Perspective of PPPs Fiscal sustainability perspective is key: gather under the same label of PPP all arrangements that have two common denominators provision by private sector of a public service through a contract that backloads the cash flow payment for the government arising from the provision of the service; and provision by private sector of a public service through a contract that backloads the cash flow payment for the government arising from the provision of the service; and Sharing of risk between public and private sector that is innovative with respect to traditional forms of risk sharing. Sharing of risk between public and private sector that is innovative with respect to traditional forms of risk sharing.

5 Risk Distribution Source: E. Farquharson, PartnershipsUK Private Sector Design & construction Service provision Maintenance & renewal Quality of service Volume Force majeure Obsolescence Residual value Regulation/policy Design & construction Service provision Maintenance & renewal Quality of service Volume Public ProcurementPPP Government Force majeure Obsolescence Residual value Regulation/policy Types of PPP arrangements vary depending on degree of involvement (and risk sharing) of private sector

6 Part II: PPPs in Practice

7 Empirical Evidence on PPPs Growing interest in PPPs in many countries Covering a broad range of activities In this presentation empirical evidence only on economic infrastructure Experience also in social infrastructure, although successful implementation is more challenging: technological change, need measurable and monitorable indicators of output/service provision Data sources: IMF country work, World Bank PPI database, EIB Data sources: IMF country work, World Bank PPI database, EIB

8 PPPs around the World PPPs are becoming popular with many low and middle income countries

9 PPPs in time A lot of talk about PPPs now, but they have been around for a while Still, they represent a low share of public investment flows. But trend is increasing

10 PPPs by Sector More prevalent in roads, but important in other areas. Electricity higher measured by investment Activity in social infrastructure less frequent but expanding Limited information on PPP activity Role for national registries

11 Improving country practices for PPPs Increasing interest in PPPs evident from Fund interaction with member countries Countries moving to strengthen institutional frameworks: Introducing specialized legal frameworks (Brazil, Cameroon, Czech Rep., Nigeria, Peru) Introducing specialized legal frameworks (Brazil, Cameroon, Czech Rep., Nigeria, Peru) Setting up PPP units (Egypt, Chile) as knowledge centers and sometimes as project gateways (Peru, South Africa) Setting up PPP units (Egypt, Chile) as knowledge centers and sometimes as project gateways (Peru, South Africa) Establishing adequate accounting rules (UK, Australia) Establishing adequate accounting rules (UK, Australia) Strengthening measurement and reporting in budget annexes, DSAs (Brazil, Chile, Colombia) Strengthening measurement and reporting in budget annexes, DSAs (Brazil, Chile, Colombia) Establishing fiscal rules (caps on PPP flows/stocks, stock of contingent liabilities) Establishing fiscal rules (caps on PPP flows/stocks, stock of contingent liabilities)

12 Improving country practices for PPPs However implementation is not uniform across countries, good practices should pay attention to greater integration of PPPs with public investment plans and medium term frameworks greater integration of PPPs with public investment plans and medium term frameworks strengthening public investment processes, including PPPs strengthening public investment processes, including PPPs doing PPPs for the right reasons (VfM, affordability, CBA, public sector comparators) doing PPPs for the right reasons (VfM, affordability, CBA, public sector comparators) putting in place sound legal and institutional frameworks putting in place sound legal and institutional frameworks appropriate accounting and reporting procedures appropriate accounting and reporting procedures Importance of OECD countries in continued dissemination of good PPP practices in their role as donors in the developing world

13 IMF Work on PPPs Papers in 2004 Public Private Partnerships; paper in 2005 summarizing 8 pilot country case studies on public investment & fiscal policy (including PPPs); paper in 2005 on Government Guarantees & Fiscal Risk; book in 2006 on Public-Private Partnerships, Government Guarantees, and Fiscal Risks, paper in 2007 on Public-Private Partnerships and Fiscal Risks Board papers & books: Papers in 2004 Public Private Partnerships; paper in 2005 summarizing 8 pilot country case studies on public investment & fiscal policy (including PPPs); paper in 2005 on Government Guarantees & Fiscal Risk; book in 2006 on Public-Private Partnerships, Government Guarantees, and Fiscal Risks, paper in 2007 on Public-Private Partnerships and Fiscal Risks On managing fiscal risks from PPPs, in EU member and African countries. About 10 missions in the last 3 years Technical assistance: On managing fiscal risks from PPPs, in EU member and African countries. About 10 missions in the last 3 years Several Art. IV consultations discussed FRLs, legal frameworks, accounting issues, and inclusion in DSA Surveillance: Several Art. IV consultations discussed FRLs, legal frameworks, accounting issues, and inclusion in DSA (ongoing) on fiscal risks and PPPs. Research: (ongoing) on fiscal risks and PPPs. On public investment and PPPs in South America (Brazil, Apr/05), Asia (Korea, Nov/05), Africa (South Africa, May/05), Europe (Hungary, Mar/07) Outreach seminars: On public investment and PPPs in South America (Brazil, Apr/05), Asia (Korea, Nov/05), Africa (South Africa, May/05), Europe (Hungary, Mar/07)

14 Summary There is an increased interest in PPPs as a method for procuring public assets across the world But actual use of PPPs remains limited Adequate management of fiscal risks from PPPs is a key challenge Do them for the right reason and do them right PPPs should lead to better value for money PPPs should lead to better value for money Provide an appropriate enabling environment (public investment planning, laws, and institutions) Provide an appropriate enabling environment (public investment planning, laws, and institutions) Progress being made but continued need for capacity building in many countries

15 Thank you!