Public-Private Partnership Disadvantages

REPORT 6

1. PPP OPTIONS ANALYSIS REPORT

1. PUBLIC PRIVATE PARTNER-SHIPS (PPPS)

1.1 Definition

The term "public-private partnership" covers a range of possible relationships among public and private entities in the context of infrastructure and other services. Other terms used for this type of activity include privatization and private sector participation (PSP). While the three terms have often been used interchangeably, there are differences:

• Privatization involves the sale of shares or ownership in a company or the sale of operating assets or services owned by the public sector. Privatization is most common and more widely accepted in sectors that are not traditionally considered public services, such as manufacturing,

Under a joint venture, all partners have invested in the company and have an interest in the success of the company and incentives for efficiency.

3.18 Inherent Disadvantages

Government's dual roles as owner and regulator can lead to conflict of interest. Joint ventures also have a tendency to be directly negotiated or to follow a less formal procurement path, which can lead to concern for corruption.

3.19 Hybrid Arrangements

Contract arrangements that incorporate different characteristics of a range of contract types can also be developed. Called "hybrid arrangements", these bring together the attributes most suitable to a particular project's requirements and the operating conditions. Hybrid arrangements provide a tailored solution in terms of scope, risk sharing, and/or scope that is most directly suitable to the project at hand. Obviously, the variations are endless, but examples

For instance, the payment of bonuses to the management contractor might be linked to achievement to increases in the operating cash flow of the utility by a predetermined amount. To achieve the bonus (if sufficiently large), the contractor may put additional inputs at risk to achieve the cash flow outputs.

• A "lease plus" arrangement has the ability to share responsibility for investments. Under a standard lease, the contracting authority retains full responsibility for undertaking and financing new investment even though the operator may be in a better position to manage new construction and some other investment obligations.

• In some cases, the operator is given a limited investment responsibility, such as extension of network service coverage in certain areas. Alternatively, the operator and contracting authority may reach an agreement to co-finance investments.

A PPP can be tailored to address specific reform objectives. The PPP process and contract can therefore be tailored, more or less, to the requirements of Low Income Group (subsistence farmers) to the degree desired and