Should We Consider Private-Public Partnerships Instead of Public-Private Partnerships for Infrastructure Development?

New Pressures and a Need for Change

There is a growing census that the practise of using Public-Private Partnership (PPP) to leverage infrastructure development needs to be revisited and reformed.  With an ever-increasing global public sector infrastructure funding gap of trillions of dollars, governments need alternative sources of financing and innovation to leverage the development of infrastructure that can help them achieve their sustainable development goals (SDGs) and build sustainable infrastructure that is sustainable, resilient and which makes tangible contributions to trade, economic activity, and their citizen’s aspirations.  

The current pandemic and climate change impacts to infrastructure integrity and resilience have provided important insights into why ailing infrastructure needs to be renovated or rebuilt and then need for bankable projects to be built that will answer the needs of coming generations.  Not only do governments need to revisit their assessments of value for money (vfm), but they also need to consider how vfm can be leveraged through additional considerations of value for people (vfp) which implies building projects that citizens really need; and value for the future which implies introducing ‘future proofing” of investments in the infrastructure fabric that supports socioeconomic fabric and well-being.

The Public Sector is failing in Leadership

For the last 30 years, governments have focused on finding ways to collaborate with the private sector so that long-lasting partnerships can be formed where they can collectively leverage their combined resources to build projects that otherwise would not be considered because of cost or lack of vision. To a certain degree Public-Private Partnerships have served a purpose and well-planned initiatives have been strengthened through combining the institutional knowledge of the public sector, the alternative financing of the private sector, and primarily innovation from the private sector. Unfortunately, infrastructure development agendas have become so politicised, especially in the USA, that public sector initiatives have stagnated and stalled.  Unless the political log-jam can be broken, economic development will stagnate, jobs will be lost, and the private sector will lose its competitive edge, locally, regionally, nationally, and internationally.

If political leadership continues with its dismal tract record of failure, it is highly likely that an increasingly impatient private sector might have to unwillingly take over the leadership of infrastructure development as a mechanism of survival. This can be done and is being done (e.g. in the US NASA is a prime example of where underfunding of the US space program has led to private sector initiatives out performing NASA ability to service its needs itself, thereby saving NASA’s mission from short-sighted politicians).

Traditional Public-Private Partnership Approach

The World Bank and its partners have traditionally defined Public-Private Partnerships as the following – 

“Public-Private Partnerships are "a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance". (World Bank)

UNECE defines Public-Private Partnerships “as a tool that aims at financing, designing, implementing and operating public sector facilities and services. Their key characteristics include:

• Long-term (sometimes up to 30 years) service provisions;
• The transfer of risk to the private sector; and
• Different forms of long-term contracts drawn up between legal entities and public authorities.

They refer to ‘innovative methods used by the public sector to contract with the private sector, who bring their capital and their ability to deliver projects on time and to budget, while the public sector retains the responsibility to provide these services to the public in a way that benefits the public and delivers economic development and an improvement in the quality of life.”

I believe that there is one inherent weakness in the current approach to PPPs that manifests itself in the UNECE and World Bank definitions and implementation of PPPs. The weakens is that there is a one sided assumption that the public sector should take the lead in these partnerships and be the primary partner. 

Increasing role of the Private Sector in Development 

However, in the rapidly transforming global economy we live in, we are seeing the private sector (often with its international partners) taking a commanding lead in innovation and the development of infrastructure that serves the purpose of increased global interconnectivity and trade logistics.  In essence, built infrastructure is being delocalised and is increasingly becoming regionalised and globalised with an increasing dependence on transboundary and transnational infrastructure (i.e. digital infrastructure networks).  Private sector companies are increasingly focused on developing infrastructure that serves their logistic and operational needs.  This leaves the public sector with a stark choice of becoming better collaborative partners or eventually being strategically side-lined.  Private sector and investors are not sentimental and will seek government institutions (i.e. local and national governments) that are collaborative and understand their market needs.  Public sector institutions that do not realize this will stagnate.

This does not mean that the public sector (or governments) needs to capitulate to the private sector.  Of course, national strategic initiatives and security need to be addressed.  However, so do the needs of the private sector.

Private-Public Partnerships

Maybe the intransience and lack of political commitment to all levels of infrastructure can be mitigate through better and visionary partnerships with the private sect.  Maybe it is time to let the private sector be the initiator of infrastructure projects which serve the interests of both the public and private sectors, without the public sector always being the senior partner.  I believe that as the global economy modernises, the public and private sector need to negotiate better partnerships that recognize the possibility of Private-Public Partnerships when it makes sense.  

For example, this is especially true where the private sector needs infrastructure initiatives to be launched that address rapidly changing technology.  In many instances the private sector has insights and foresight that the public sector often does not have. If governments loosened their excessive bureaucratic hold over infrastructure strategies and decision-making and entertained the entreaties of the private sector to deliver innovation and be true partners, then maybe excessive bureaucracy and self-serving political manoeuvring could be mitigated and infrastructure could be improved. The private sector must be given a greater voice and its market needs recognized, while the public sector remains a custodian of social needs.

Trusting Partnerships

For Private-Public Partnerships to take root with the private sector taking the lead in areas where public sector infrastructure vision or commitment to delivery is missing, trust will need to be built.  This will require flexible and dynamic (less bureaucratic) best practices and guidance to be established that address: competitiveness, transparency in agreements, and a commitment to people focussed Private-Public Sector projects that address national Sustainable Development Goals and strategic goals.

This would require rewriting of the World Bank and UNECE Public-Private Partnership descriptions to a more private sector friendly Private-Public Partnership approach.

A new definition should state the following – 

Private-Public Partnerships are a long-term contract between a private party and a public entity which collaborative delivers a private sector funded Private-Public asset or service, in which the private sector innovatively initiates the project, meets the needs of project stakeholders and where risk is shared by the party best able to address project risks. Project delivery and management responsibility would lie with the private sector while the public sector would ensure that common needs and aspirations are met.  The private sector would be remunerated according to commercial performance and the achievement of commonly desired outcomes.  Additionally, the public sector would take a benevolent role in the agreement by providing trusted legal protection for project partners and stakeholders.

The following should also be addressed for Private-Public Sector Partnership projects proposed by the private sector (i.e. unsolicited proposals) – 

• Proposed unsolicited private sector project should be truly innovative and commercially viable and demonstratively develop what the public sector cannot
• Comprehensive feasibility studies should be performed before candidate projects are considered 
• Projects should be beneficial to both the private and public sector (i.e. a water bottling plant sharing, through agreement, excess treated water with a municipal authority)
• Unsolicited projects should not be part of an existing infrastructure delivery program or included in an existing government project pipeline. 
• They must not be allowed to circumvent public sector procurement practices
• The project must show that it offers value for money, value for people, and value for the future
• Due diligence must be performed to ensure that conflicts of interest are avoided as well as corrupt practices
• State monopolies and unproductive competition between private sector companies should be addressed
• Ownership of project assets must be clearly defined 
• Legal reforms that create a protective enabling environment for partners must be implemented

Concluding Comments – Don’t be Left Behind

Private-Public Partnership projects initiated by the private sector in a collaborative partnership with the public sector might seem to be rather utopian.  However, the private sector is impatient for infrastructure to be built that serves their strategic business growth and sustainability needs. It only makes sense that the public sector would embrace proactive private sector partners that will help the private sector develop sustainably, competitively and resiliently. Parties left behind will isolate themselves from global trends that creating new opportunities.