Public-private partnerships in infrastructure (PPP) are critical tools in the policymaker’s arsenal. As a result, many stakeholders have actively promoted this business arrangement.
Projects that qualify for this arrangement involve, for instance, significant private capital investment, They also require high levels of responsibility for long-term performance. Usually, these projects are difficult to achieve solely at the government’s expense. Consequently, governments have created avenues to partner with private businesses.
As a result, the Infrastructure Concession Regulatory Commission (ICRC), reported that it generated $8.5 bn from Public Private Partnerships in 10 years.
According to the ICRC, 152 PPP projects are presently at different stages of pre-contract regulation. 73 PPP projects are at different stages of post-contract regulation.
What is a PPP Transaction?
A PPP is a long-term contract between a private party and a government entity. Its goal is usually to generate efficient, affordable, and sustainable projects.
Under this arrangement, the private party usually bears the risk of providing and managing a public asset or service. This allows the government to deliver the services or facilities, with the private sector providing skills and core competencies. On the other hand, donors and investors provide funding and other resources.
PPPs are a mechanism for government to build public infrastructure using private sector resources and expertise. Generally, the transaction terms are documented in concession agreements. These agreements typically outline the responsibilities of each party and clearly allocate the risks of the Project.
Concession agreements come in different forms, depending on the needs of the grantor. It might be a Design, Build, Own and Transfer – DBOT transaction. Here, the Concessionaire designs and builds the project. It then operates it for profit and transfers ownership to the grantor at the end of the concession period.
Generally, PPP deals are Build Operate Transfer (BOT). They specify that the concessionaire just build/ rehabilitate the project, operate it and transfer at the end of the concession. As a result, it leaves the design phase to the public entity.
PPP arrangements have been used around the world to deliver public services. For example, seaports, airports, roads, waterways and even digital platforms can be developed using PPP.
What conditions must exist for a successful Transaction to Occur?
Generally, Private sector partnerships foster new infrastructural and financial solutions. This is important where governments lack infrastructure and require more efficient services.
The decision to adopt PPP is both political and commercial. Firstly, the government must consider the political and social implications. It must determine whether there is sufficient political will to implement the partnership. Otherwise, the project risks failure due to political exigency.
Secondly, the government needs to consider the institutional, legal and regulatory context. They need to ask the following questions:
Do the relevant entities have the needed skills and resources?
Do the financial and commercial markets have the needed capacity and appetite?
Can the existing laws and regulations encourage or enable PPP?
They then have to determine whether changes need to be made to the institutional, legal and regulatory climate. As a result, it provides the right context for the implementation of the arrangement.
Once these basic issues have been addressed, policymakers must consider the most commercially and financially viable and appropriate structures.
In conclusion, PPPs facilitate sorely needed investment in public infrastructure, providing a mechanism for improving infrastructure planning and project selection. It is also a mechanism for enhancing project management and guaranteeing adequate maintenance. This avoids cycles of construction followed by persistent neglect and then high-cost reconstruction.
Thus, well-structured PPPs bring private capital for investment. They also facilitate private-sector expertise, and commercial management incentives needed for enhancing service provision to users.
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