ANALYSIS
A Primer on Public-Private
Partnerships with
U.S. Expert,
Richard Norment
Richard Norment is a Senior Fellow and former Executive Director of the National
Council for Public-Private Partnerships in Washington, DC, a non-profit organization that
promotes the use of public-private partnerships (PPPs) to improve the delivery of public
services and infrastructure in the United States.
PPPs vs. Concessions
Current U.S. Trends
PPP is a broad term that includes a range of options
for combining the resources of the public and private
sectors. Concessions are a subset, meaning they are
just one of the ways in which a PPP can be carried
out.
While the economy in the United States is regaining
its strength, the economic downturn did cause many
in the public sector to take a closer look at PPPs. With
maintenance deferred and mounting infrastructure
demands resulting from population growth, public
officials have become much more receptive to the
idea of forming PPPs to meet public needs.
Many PPPs include public capital or funding. This is
the most common practice: the pubic sector pays for
the project upon completion and delivery or by making “availability payments” for the successful operation and maintenance of a project over a defined
period of time. This is common in most municipal
infrastructure projects (e.g., offices, schools, recreational facilities). In some of these cases, public
funds are the sole revenue source.
Concession-based projects include a revenue stream
allowing the private sector recoup their capital
investment made in the project, including tolls or
other types of user fees. In the case of projects that
involve long-term commitments and revenue prospects (usually greater than 25 years), the private
partner may be willing to provide an “up front” payment to the pubic sector in order to obtain the contract. This concession payment is then included in
the long-term capital debt of the private sector, ultimately to be recouped by the revenue stream set up
to recover this initial investment.
For these reasons, concessions are more limited than
other, broader versions of PPPs.
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This trend has been significantly aided by the level of
private and public pension funds that are available to
help finance PPPs. Namely, the financial return on
PPP infrastructure projects is higher that what can be
expected from government bonds and – with proper
due diligence of the project’s contract – the level of
risk tends to be low enough to attract private sector
investment.
Sectors that have benefited most from these trends
have been education (particularly in the construction
of primary, secondary and higher education buildings
and infrastructure), water and wastewater systems
and municipal facilities (administrative offices, energy
improvements, parking and more). While transportation projects receive a great deal of press coverage,
due to the very high level of investment they tend to
involve, the majority of projects are smaller.
PPPs in Developing Countries
It is a common misperception that PPPs are only
for developed economies, when in fact the greatest
Emerging Macedonia Summer 2014 Issue 42