Public-Private Partnerships

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Public-Private Partnerships (PPP) have become a prominent feature of cooperation between the public and the private sector in developing and developed countries alike. It is defined as a voluntary cooperation between public and private actors with the purpose of coordinating and pooling organizational, technical and financial resources for the fulfillment of certain tasks. The fact that PPP received a lot of attention over the last years, marks a significant shift in the way local governments perceive the private sector. Whereas formerly the private sector was seen more or less as a recipient of "orders" from government, it is now viewed more and more as a true partner in cooperation on an equal level.

The reason for the emergence of this concept relates very much to the dwindling public resources. Many local administrations have to face the fact that rising demands with regard to the services that local citizens wish to be delivered by local authorities and/or a decrease of available funds needed to produce these services led to financial imbalances (see also chapter Reforming the Public Sector). Therefore, PPP was initially perceived as one among other possibilities of generating access to private funds. Improvements in the effectiveness and efficiency of service delivery and the promotion of local markets were other objectives.

Today, PPP encompass a range of different types of partnerships, with the most important being PPP for local service delivery. Other forms of PPP include user PPP and strategic PPP, differing from each other not only contentwise but also in the degree of formalization.

PPP for Service Delivery

PPP for service delivery are active in many fields where local communities offer services to their citizens, such as refuse collection, wastewater treatment, drinking water supply, operation of transport services, taking care of public gardens and real estate development and management. Apart from this, in some cases, private investors are also assigned the task to build infrastructures such as roads. The reason for the public side to contract these services out is to improve efficiency and effectiveness in their delivery, thus saving scarce public money. The private side simply hopes to make profit from a new business.

PPP for service delivery are the most formalized form of PPP. They are not only based on formal contracts signed by both sides but in some cases the partners even create new companies, where both enter as stakeholders with different degrees of participation. The German city of Oberhausen, for instance, transformed the entity assigned with refuse and wastewater disposal into a private company, with the city holding a majority of 51% of all stakes and the private partner 49%. The tasks are clearly divided: whereas the city is responsible for putting the equipment and the real estate at disposal of the company, the private partner takes care of the day-to-day management. The personnel was transferred from the former public entity to the new company and is subordinated to the private management.

Whereas in the case presented above, the objective was to make the operations of an existing entity more efficient and effective, PPP can also contribute to raising investment capital. A common feature in this respect are build-operate-transfer schemes. A private investor enters into a contract with a public institution in order to, say, contribute to the construction of a road. He enters with capital and know-how, as well as the public partner. In order to allow the private partner to make his investment profitable, he is allowed to operate the road as a toll-road, for example, making its users pay for it upon entry. He may do so for an exactly defined period of time - e.g. 30 years - by the end of which the private operator thinks to have made profit from it. Then, the road is transferred to the public partner, who will operate it alone.

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Strategic PPP

Whereas PPP for service delivery on the local level are formalized, strategic PPP are far more open. This openness corresponds with the tasks of strategic PPP. Rather than producing services, this form of PPP tries to have representatives of the public and the private sector come together and turn issues of economic or political development into a joint effort. It is called "strategic" because it does not pretend to get involved in the day-to-day business of decision-making but rather shape the future or medium and long-term goals of local development. An example: a workshop where actors of both sides come together with the purpose of defining a governing pattern for development (see also Intangible Locational Factors, relevant for Individuals) may be called an activity within a strategic PPP.

Very often, strategic PPP are created when something extraordinary happens. An economic crisis needing a special effort by all sides to be overcome is a typical example for this. Sometimes, depending on the specific circumstances, strategic PPP become institutionalised, sometimes they cease to exist because their goal was achieved. In general, they are a good tool for a local government to build consensus, to create transparency and to enhance legitimacy but they require a good deal of communication skills, as for example, the moderation of workshops is not an easy task.

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User PPP

This form of PPP occurs when local authorities withdraw from delivering a service and when a group of citizens takes over responsibility for it. This usually happens when local government is under financial pressure and needs to reduce the range of services offered. Services not considered vital or essential are the first to be given up (for example public libraries). On the other hand, a user PPP requires the existence of a group of active citizens who think it is worthwhile continuing with the service. They normally put a lot of effort and voluntary work in it in order to maintain it. This scheme is called a PPP because the public side transfers either the ownership or the use of the equipment to the private initiative, whereas the private side contributes with voluntary labor to the running of the activity.

Public-private partnerships can serve as a useful tool for achieving certain goals that the local government cannot achieve by relying exclusively on its own resources. However, there are certain aspects that need to be considered in order to guarantee the success of any PPP:

• A PPP needs to be managed from the public side, there has to be an administrative framework for it to take place. This means that the purpose, the administrative procedures, the tasks of both sides, quality indicators, the monitoring process all need to be clearly defined. In the beginning, a PPP means a lot of preparatory work.
  

• Sometimes there are conflicts between the public and the private partner because not always their goals are totally congruent and each side is viewing the issue only from its own standpoint. Social and political goals may contradict the goal of profit maximization, for instance. It is useful to talk about possibly conflicting issues right from the beginning of the partnership in order to deepen the understanding of the other partner's points of view and to build trust.

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Conceptual differences

One would expect that public-private partnership (PPP) is a straightforward issue: the public sector and the private sector work hand-in-hand to solve a given problem. However, the issue of public-private partnerships is more difficult than it may appear at first glance. It is being operationalized in very different ways in Anglo-Saxon and continental European countries, and in some developing countries, such as South Africa, it has yet another meaning.

The Anglo-Saxon concept of PPP is mostly private: it is about private business, or non-profit groups created by private business, executing tasks which might also handled by government.

The continental European concept of PPP is mostly public: it is about the public sector trying to involve, to a limited extent, the private sector in the execution of certain tasks. For instance, in Germany it is not infrequent to encounter PPPs which are made up by a local government, the Sparkasse and the Chamber (IHK), with the latter two being public law organizations and the Sparkasse being governed by local government.

More about PPP:

• PPP and LED

• The PPP Facility of German Development Cooperation

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