The definition of PPPs for infrastructure projects will vary depending on the context and specific background of the country in which they will be developed, hence its definition is still perceived by industrial practitioners and academics as being very ambiguous.
Thus, in our community we will use the following definition: “The term PPP refers to a long-term, contractually regulated co-operation between the public and private sector for the efficient fulfillment of public tasks in combining the necessary resources (e.g. know-how, operational funds, capital, personnel) of the partners and distributing existing project risks appropriately according to the risk management competence of the project partners”.
The history of PPPs can be tracked from the XVIIIth Century, when the needs in urbanization and related infrastructure grew up with the Industrial Revolution. This increase on the demand of infrastructure put pressure on the governments´ budgets. Even though during that period the government’s income allowed it to provide funding for the required infrastructure, the larger projects remained delivered through concession or franchise arrangements. As a result, the first concession was granted in 1777 to the Perrier Brothers in Paris to build and operate the first water network in the city.
More recently, PPP infrastructure projects can be tracked up to few decades ago in a privatized vehicle tunnel in Hong Kong in the late fifties, and in Australia where public-private arrangements for development of infrastructure date from 1988. Ever since, despite the PPP projects vary greatly in their purpose, industry sector and size, they all share four main characteristics:
The risks are shared between the public and the private sectors. Usually the public sector manages sovereign tasks and the private sector manages the implementation ones.
The projects are based on private investment and whole lifecycle of the project.
The contractual relationship between the parties is often long-term oriented (usually lasts over decades).
There is innovation related to the output specification, service levels and payment mechanisms.
Currently, the PPP procurement model has already been used worldwide. In developed countries like the United Kingdom (UK) and Germany it has been used in the provision of public services such as education, health, waste management and public buildings; but also in developing countries like China, India, Costa Rica, Chile and other countries of Latin America. Nevertheless, in the developing countries due to the high infrastructure demands they are often seen in the power, road and water sectors.
The reasons for the wide spread use of PPPs in infrastructure projects lie in its advantages. First, the funding for the project remains outside of the government´s balance sheet; second, it introduces competition into the development of infrastructure; third, it allows the access to best managerial practices and experience of the private sector; fourth, the public sector is restructured by introducing the practices and capital of the private sector into the delivery of traditional public services; and lastly, it allows the achievement of greater efficiency than the traditional methods of procurement for public infrastructure and services.
In one hand, the PPP model has been successful in many developed and developing countries in which it has increased the value for money in projects like roads, bridges, ports, airports, railways, power, water supply, waste disposal systems, telecommunication networks, schools, hotels, hospitals, prisons and military facilities. To give some examples, the Private Project Initiative (PFI) in the UK, compared to traditional public procurement, has resulted in average costs savings of 15% for roads, 10% for the Bridgend and Fazakerley prison projects, 60% for the national insurance recording system and 40% for the Home Office´s immigration casework IT project. In general, PPP´s have produced average savings between 17% to 25% over all sectors in the UK during the first decade of the twentieth-first century.
On the other hand, PPPs have also encountered problems. One is the slow progress in their implementation, and despite they represent a very small portion of the total infrastructure projects, they usually face against strong public opposition. Some examples include privatized projects in the Lao PDR, the United States, failures in two build-operate-transfer (BOT) projects in Thailand due mainly to political instability, the national sewerage project which was privatized in Malaysia5 and we may also include projects in Costa Rica which have faced strong public opposition like Ruta 27 San José - Caldera and Corredor San José - San Ramón.
In general, there is an increasing popular rejection of the involvement of the private sector in the delivery of public services, which becomes more notorious in developing countries. Nevertheless, those problems are not a surprise as the PPP projects offer a broad range of risks and uncertainties, long term contracts, multiple stakeholders involved and lack of experience.
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