PPPs

UNDERSTANDING PUBLIC-PRIVATE PARTNERSHIPS

A Public/Private Partnership (PPP) arrangement is an operation aimed at involving the private sector in the financing, construction and/or operation of an infrastructure service.

Two main categories of PPP can be distinguished:

Institutional PPPs:

"Ces PPP impliquent une coopération au sein d'une entité distincte et peuvent conduire à la création d'une entité ad hoc détenue conjointement ou à la prise de contrôle d'une entité publique par un opérateur privé" — BOO, joint-venture, etc.“These PPPs involve cooperation within a separate entity and may lead to the creation of a jointly owned special purpose entity or the takeover of a public entity by a private operator” — BOO, joint venture, etc.

Purely contractual PPPs:

"the partnership is based on exclusively contractual links" - BOT, concession, operating contracts, etc.

PPP arrangements can allow greater flexibility in fiscal policies and better performance of public projects by leveraging capital and expertise brought in by the private sector.

However, they cannot be reduced to the sole notion of financing vehicle or be interpreted as a miracle solution: they must be understood by the public authorities as tools at the service of a strategic vision.

Stakeholders in a PPP:

A PPP is a partnership involving many economic actors committed over the long term.

1. Public partner: State, local authorities, regulatory authorities...

2. Private Partner: Promoters or "Operator sponsors, manufacturers, banks, other financial institutions, insurers...

3. The Customer: user (tariff, tax, etc.) versus public buyer (removal contract or Take or pay

The main types of PPP are:

- The management concerned;

- leasing;

- the public service or public works or development concession;

- public service delegation for the management of a public service;

- the construction, operation, transfer (CET) contract available in various forms; - the design, construction, financing and operation contract;

- the partnership contract on public funding;

- institutional partnerships developed in the form of a company with minority public financial participation.

Public Service Delegation: the contract by which a contracting authority entrusts the management of a public service falling within its competence to a delegate whose remuneration is linked or substantially ensured by the results of the operation of the service.
Concession contract: the contract by which a contracting authority entrusts the concessionaire, whether he is a legal person governed by public or private law, to carry out a public work or to make investments relating to such a work and to operate it in with a view to providing a public service, or solely to operate a public work or equipment with a view to providing a public service. In all cases, the concessionaire operates the public service in its own name and at its own risk and peril by collecting remuneration from the users of the structure or the beneficiaries of the service under concession.
Affermage contract: agreement entrusting the management of a public service to a private partner collecting user fees on its own behalf and paying a fixed “rent” to the public partner in return for making the work necessary to the mission.
Interested management contract: agreement entrusting the operation of a public service to a private partner who is remunerated by the contracting authority while being interested in the results of the operation. : convention confiant l’exploitation d’un service public à un partenaire privé qui est rémunéré par l’autorité contractante tout en étant intéressé aux résultats de l’exploitation.

CET (in English BOT)

Contract by which the contracting authority entrusts an operator with the construction, financing, operation and maintenance of infrastructure and receives, in return, its remuneration on the tariffs paid by users, in order to recover its costs. The user can be a public person,
Unlike the concession, the work carried out remains the property of the private partner throughout the duration of the BOT and thus serves as a guarantee for the financing of the project. The licensing authority is most often the operator’s client and, at the end of the BOT contract, obtains the free transfer of the infrastructure.^louvrage réalisé reste la propriété du partenaire privé pendant toute la durée du BOT et sert ainsi de garantie pour le financement du projet. L’autorité concédante est le plus souvent le client de l’opérateur et, au terme du contrat de BOT, obtient le transfert gratuit de l’infrastructure.

Partnership contract on public funding

The contracting authority entrusts to a third party, for a determined period, an overall mission including the realization (construction, rehabilitation or transformation, of tangible or intangible investments, as well as their maintenance, operation or management and, if necessary, other services, which contribute to the exercise by the contracting authority concerned of the public service mission for which it is responsible.

Distinction between Public Procurement and PPP

The characteristics of a public market are as follows:

public payment
Prohibition of deferred payment;
Important formalism: deed of engagement, mandatory information

“public contracting authority”

Obligation to distinguish the design from the construction of a work (subject to certain limited exceptions) and to separate the construction from the operation (or maintenance) of a work.
Competitive bidding procedure excluding the use of negotiation

The public market is a public purchasing tool and not a partnership

Key factors of success

From the implementation of a PPP project

A project that is part of a State reform process whose objectives are clearly defined and shared by all the actors concerned

A socio-economic justification of the projects and strong involvement of the public authorities during its implementation

A project that is part of a State reform process whose objectives are clearly defined and shared by all the actors concerned

A stable macro-economic and legal framework

Strong involvement in the project from public & private sponsors

A good understanding and identification of the project’s risks leading to a “fair” and balanced allocation scheme based on a general principle: any risk identified must be borne by the person who has the best capacity to bear it, in other words whose is the job”

An adapted financial, legal and institutional plan, making it possible to deal with possible “external shocks”

In sum, PPPs,if implemented well, can help overcome inadequate infrastructure that
constrains economic growth, particularly in developing countries.
Infrastructure investments are known to accelerate much-needed growth in
developing countries and reduce income disparities.1 But poor infrastructure is
often a reflection of several constraints governments face, for example,
insufficient public funds, poor planning, weak analysis underpinning project
selection, or corruption. Infrastructure assets are also often poorly
maintained.

PPPs
can help overcome some of these challenges by mobilizing private sector
sources, helping improve project selection and on-time and on-budget
implementation, and ensuring adequate maintenance. Although initially
restricted to public infrastructure in the form of roads, railways, power
generation, or water and waste treatment facilities, PPPs have increasingly
moved into the provision of so-called “social infrastructure,” such as schools,
hospitals, and health services.

THE GUIDING PRINCIPLES OF PPP

1. The Win-Win

A PPP approach is certainly defined as a cooperation between public and private actors in which the different actors can achieve their own objectives, while working together and on the basis of potential synergies, sharing responsibilities, opportunities and risks, on the basis of a cooperation contract.
The cooperation contract (PPP contract) should be governed by the basic and sacrosanct principle of win-win cooperation between the public and private sector for the provision of public services, ensuring a good distribution of roles and efficient management.
Win-win cooperation is a cooperative relationship in which each partner is also concerned with the other’s interest, in a way that is also in its own interest. It is not a matter of seeking the best compromise of gainsharing, but of finding a cooperation that increases the gains of the parties (the State and the Partner) to the contract.

2. Risk sharing

The public-private partnership is a priori a risk management tool since the key to any PPP contract is the sharing of
risk sharing. It is at the heart of the logic of public-private partnership contracts. The risks of PPP projects are either financial, commercial, political or regulatory. The private sector is assumed to be better able to manage commercial risks, leaving political risk to the state. Commercial risks are divided into production risks (project costs) and demand risks (project revenues).
Production risks relate to construction, production processes, and technological changes. Demand risks relate to the revenues generated by the project (changes in consumer choices and
(changes in consumer choices and behavior, competition) as well as macroeconomic risks (growth, demographics, interest rates, exchange rates, inflation, etc.).

3. Performance

Any public-private partnership contract must define clearly defined performance objectives or results requirements. They should be specific, measurable, achievable, relevant to reality, and time-bound, and indicate how performance will be monitored.
The PPP contract must clearly specify what is expected of the private partner in terms of quality and quantity of assets and services to be provided. The evaluation made by the Institut d’Administration des Entreprises des Universités Panthéon-Sorbonne IAEUPS on the performance of the PPP projects in the exploitation phase showed that the recourse to this mechanism by the planet was massive. The public entity is satisfied with the quality-price ratio of public-private partnerships.

Support agency for the implementation of Public-Private Partnership contracts