Public Private Partnership (PPP)

Private Public Partnership (PPP) is a broad term that can be applied to anything from a simple, short term management contract to a long-term contract that includes funding, planning, building, operation and maintenance. PPP arrangements are useful for large projects that require highly skilled professionals and a significant financial outlay to execute. The PPP model is useful in those countries that require the state to legally own any public service infrastructure like Pakistan.

Benefits of PPP: 

• Increase in international and domestic investment
• Engagement of innovation, latest technological support and robust financing structures from private sector
• Risk sharing by the Government with the PPP partners
• Ensuring good quality public services and their wider availability
• Real time financial benefits and ideal utilization and allocation of public funds
• Within budget and in time development of infrastructure
• Increased Economic Growth
• Wider employment opportunities 

Driving force behind any PPP project: 

The most important factor is to create value for money as it should be the driving force behind any project. When we say ‘value’ it means a combination of quantity, quality, features and cost of the project. Secondly, the procedures should be simple and transparent. Thirdly, the risk factors should be clearly mentioned especially in connection with the ownership as these ambiguities later become major causes of delay in meeting deadlines or failures. Finally, the key institutional roles and responsibilities should be maintained. The procuring authorities, Public-Private Partnership Units, the Budget Authority, the Auditors and sector regulators should be awarded with clear mandates and sufficient resources to ensure a careful procurement process and clear lines of accountability. 

Establishing a PPP contract: 

It varies from project to project; we only can talk about the basics. It includes project selection, feasibility preparation, pre-assessment, designing the procurement route and contract, preselection of the bidder and finally the agreement. Technical details of any project are always dealt with by the technical teams and mostly these are related to quality, quantity and durability. 

Major challenges: 

PPP is a contract between the government and a private company. It has both sides; for the private participants or parties like the banks, the builders and the service companies, they find an extremely attractive business opportunity. A single contract gives them a flow of income for many years or more. The companies can approach politicians to ensure that governments create more PPPs. Normally, in developing countries, the development banks and multinational companies encourage the spread of PPPs. Then comes the other side of the coin, the major challenge is about the awareness or unfamiliarity of PPP. In the UK, it took 10-12 years to familiarize the PPP concept. In India, the movement started in the mid-90s but it was not until the mid-2000s that the momentum came. Although no country has delivered PPPs overnight, a systematic approach for the PPP initiative has yet to be seen. Balancing the Private Public Partnership (PPP) is a broad term that can be applied to anything from a simple, short term management contract to a long-term contract that includes funding, planning, building, operation and maintenance. PPP arrangements are useful for large projects that require highly skilled professionals and a significant financial outlay to execute. The PPP model is useful in those countries that require the state to legally own any public service infrastructure like Pakistan.

Methods to ensure equal risk allocation:

Risk allocation is a very tricky aspect of any PPP project as it directly relates with all success factors of a project. Principally, risks should be allocated to the party best able to manage them. The party that manages the risk and also bears its financial cost will enjoy the benefit as well. Standardizing risk allocation reduces the transaction time and costs during the tendering and negotiation stages. Risk allocation should be based on its frequency and severity by minimizing transaction cost. It is important to understand the extent to which the private party is willing to accept risk as it should be familiar with market conditions. Effective risk allocation requires creative and innovative thinking. It also requires additional guiding principles, including considering which party has the greatest incentives to undertake preventative risk management and to minimize the financial consequences of a risk.

Future of PPP: 

Positive impact of change in social and political values will affect the future of PPP. Environment and social considerations are always critical in certain projects. Transparency, engagement with affected communities and communication are keys to a better PPP practice in future. It is not an overnight process. It differs from society to society and country to country.

Scope of the PPP projects in Pakistan:

• Energy Projects
• Transport and logistics including construction of roads, rail tracks, seaports and airports
• Local Government Services including water supply and sanitation
• Solid Waste Management
• Low cost Housing, Healthcare, Education and Skills Development facilities
• Tourism projects
• Industrial Parks, Special Economic Zones
• Irrigation Projects

PPP Practice in Pakistan:

Pakistan has experimented with different models and projects of PPP. It is time to learn from the lessons and also from the success of other countries in the region. 

• Policy commitment and continuity of policy, despite changes in political regimes
• To ensure transparency
• Private party stakes must be protected decently and by making the time and cost friendly procedures
• A high-powered committee consisting of eminent persons of high reputation and integrity should be entrusted with the task of evaluating the bids and recommending the award to the most responsive bidder

India has constructed world-class airports at Delhi, Mumbai and Hyderabad, Delhi Metro and many other impressive projects combining the financing and technical expertise of the private sector with the legal, regulatory, concessionaire powers of the public sector. There is no reason why we should not be able to overcome our infrastructure deficiencies following the Private Public Partnership (PPP) model.