AmCham Macedonia Summer 2014 (Issue 42) | Page 12

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. 12 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