CHAPTER ONE
GENERAL INTRODUCTION
1.0.0: INTRODUCTION
Public Private Partnership is a contractual arrangement which is formed between public and private sector partners which involve the private sector in the development, financing, ownership, and or operation of a public facility or service. In such a partnership, public and private resources are pooled and responsibilities divided so that the partners‟ efforts are complementary. The private sector partner usually makes a substantial cash or equity investment in the project and the public sector gains access to new revenue or service delivery capacity,1 and this arrangement between the public and private sector differ from service contracting2.
Public-Private partnerships relate to perceptions and practices affecting public private sector relationships in ensuring national/global health, development and well-being of the society, and the conceptual aspects of such relationships, including the role of the key players in collaborating to make these partnerships successful or otherwise.
1Dr. Babalakin B. O. Public Private Partnership: „Infrastructure Development as a vehicle for Economic Development‟ (being a paper presented at the 2nd Mustapha Akanbi Public Lecture organized by the Faculty of Law University of Ilorin pg 6.)
2 Service Contracting will be limited to the provision of service with no ownership interest accruing to the private sector.
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Though no single, universally accepted definition for public-private partnerships, PPP are often termed to mean different things to different people, which can make assessing and comparing international experience in such partnerships difficult. In general, PPP refers to form of cooperation between public authorities and the private sector to finance, construct, renovate, manage, operate or maintain an infrastructure or service. At their core, all PPP involve some form of risk sharing between the public and private sector to provide the infrastructure or service. The allocation of sizable and, at times significant, elements of risk to the private partner is essential in distinguishing a PPP from the more traditional public sector model of public service delivery. There are two basic forms of
PPP: contractual and institutional. Although institutional PPP have been quite successful in some circumstances, particularly in countries with well-developed institutional and regulatory capacities, contractual PPP are significantly more common, especially in developing economies.
Although there is no universal consensus about the definition of public-private partnerships, the following elements typically characterize a PPP: The infrastructure or service is funded, in whole or in part, by the private partner. Risks are distributed between the public partner and private partner and are allocated to the party best positioned to manage each individual risk. PPP are complex structures, involving multiple parties and relatively high transaction costs. PPP is a procurement tool where the focus is payment for the successful delivery of services (the performance risk is transferred to the private partner).
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PPP is an output-/performance-based arrangement as opposed to the traditional input-based model of public service delivery where the focus is payment for the successful delivery of services. PPP typically involve bundled services (i.e., design, construction, maintenance and operation) to increase synergies and discourage low-capital/high operating-cost proposals. In general, PPP offer a new and dynamic approach to managing risk in the delivery of infrastructure and services. Although PPP is considered a new concept that has gained prominence in the last 20 years, PPP have actually been around for hundreds of years, wherever the private sector has been involved in the delivery of traditional public services (i.e., water, roads, rail and electricity).
In PPP arrangements, the private partner is typically compensated through either: User-based payments (i.e., toll roads, airport or port charges) Availability payments from the public authority [i.e., PFI, power purchase agreements (PPAs), water purchase agreements (WPAs)] A combination of the above in user-based payment structures, the government or public authority often needs to provide some financial support to the project to mitigate specific risks, such as demand risk, or to ensure that full cost recovery is compatible with affordability criteria and the public‟s ability to pay. Government support mechanisms can take many forms, such as contributions, investments, guarantees and subsidies, but they should be carefully designed and implemented to allow for optimal risk allocation between the public and private sectors. When government supports are present, the objective is to increase private capital mobilization per unit of public sector contribution. Availability payments are at the heart of one form of PPP, the
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PFI model. This system provides capital assets for the provision of public services. Developed in the U.K., this model is used for a large number of infrastructure projects and gives the private sector strong incentives to deliver infrastructure and services on time and within budget. PFIs simultaneously allow governments and public authorities to spread the cost of public infrastructure projects over several decades. This creates greater budget certainty, while also liberating scarce public resources for other social priorities. Government Support Mechanisms hosting governments can provide financial support to or reduce the financial risk of a project in many ways. Common forms of government support mechanisms include: Cash subsidy: The government or public authority agrees to provide a cash subsidy to a project. It can be a total lump sum or a fixed amount on a per unit basis, and payments can be made either in installments or all at once. Payment guarantee: The government agrees to fulfill the obligations of a purchaser (typically a publicly owned enterprise) with respect to the private entity in the case of non-performance by the purchaser. The most common example of this is when a government guarantees the fixed payment of an off-take agreement (e.g., PPA or WPA) between a private entity and the publicly owned enterprise. Debt guarantee: The government secures a private entity‟s borrowings by guaranteeing repayment to creditors in case of default. Revenue guarantee: The government sets a minimum variable income for the private partner; typically this income is from customer user fees. This form of guarantee is most common in roads with minimum traffic or revenue set by a government
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1.1.0: BACKGROUND TO THE STUDY
Public private partnership arose as a medium for infrastructure development, i.e. to make available adequate infrastructure through public private partnership‟s development.
Public private partnership can be said to be a crossover from the normal contracting of projects to private personnel to develop a particular project which the government will pay such private personnel for the provision of such projects and which may not later be fully completed. Here, essence of PPP is to see to the successful development of infrastructure by the contribution and collaboration of both the public and private sectors.
1.2.0: OBJECTIVES OF STUDY
The average Nigerian is suspicious of PPP and is usually of the belief that it is a means of transferring power or control of the nation among a favored few, they refuse to see and appreciate the burden encountered by the private sector and public in ensuring the availability of a lasting and well functioning infrastructure which can better and faster be achieved through PPP. It is therefore expected that the result of this study is to enlighten and or educate those persons ignorant of what PPP is actually about and its mode of operation.
1.3.0: FOCUS OF STUDY
This essay is going to focus on the historical background of PPP, types, nature and importance of public private partnership. It shall also focus on how infrastructure is
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developed by PPP and also the advantages and problem faced by public private partnership.
1.4.0: SCOPE OF STUDY
Public private partnership can be said to be a recent development which must be tread on so softly. PPP being a recent development is thus a delicate area of study, so this research will carefully examine widely the gains and benefits of PPP.
The center of concentration being the effects PPP will have in a particular locality i.e. its advantages and disadvantages where it is being practiced and also how it helps in the provision of needed and necessary infrastructure
1.5.0: RESEARCH METHODOLOGY
Public Private Partnership is a recent development and there are certain steps to be put in place and or taken to successfully carry out a public private partnership contracts.
Textbooks dealing on this topic are hard to come by, thus the primary sources of information are materials downloaded from the internet, paper presentation, published and unpublished articles which have all been of immense benefit to this essay.
This essay is analytical and expository in nature and which shall attempt to shed light on gray and unpopular areas of PPP.
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1.6.0: LITERATURE REVIEW
This topic is both academic and practical considering the vital role public private partnership plays and expected to play in the society, for example it is an avenue which allows the government to be of constructive use and benefit to the public.
As earlier said, there is shortage of books on PPP which therefore led to the use of paper presented, articles, publications, materials downloaded on the internet for use in the compilation and research on this essay.
DR. B. O. Babalakin3 has explained some knotty issues on public private partnership with Muritala Muhammed Airport‟ rehabilitation used as a case study drawing from experiences of the concessionaire, he in the paper discussed on general problems of PPP e.g. Funds, ability of the concessionaire to get loans e.t.c. The paper also discussed infrastructure development and it defined infrastructure to mean „structural elements of an economy that facilitate the flow of goods and services between buyers and sellers‟4. It also defined it as „the basic public works of a city or subdivision, including roads bridges…‟5.
3Dr. Babalakin B. O. „Public Private Partnership: Infrastructure Development as a Vehicle for Economic Development‟ (being a paper presented at the 2nd Mustapha Akanbi Public Lecture organized by the Faculty of Law University of Ilorin)
4 Ibid pg4
5 Ibid pg4
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The article on public private partnership by wikipedia6 has summarily described the origin and history of PPP, its importance e.t.c. It was said that PPP arose due to pressure to change the standard model of public procurement which arose initially from concerns about the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s. Governments sought to encourage private investment in infrastructure, initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditures.
The article further stated that the idea that private provision of infrastructure represented a way of providing infrastructure at no cost to the public has now been generally abandoned; however, interest in alternatives to the standard model of public procurement persisted. In particular, it has been argued that models involving an enhanced role for the private sector, with a single private-sector organisation taking responsibility for most aspects of service provisions for a given project, could yield an improved allocation of risk, while maintaining public accountability for essential aspects of service provision.
Initially, most public–private partnerships were negotiated individually, as one-off deals. In 1992, however, the Conservative government of John Major in the United Kingdom introduced the private finance initiative (PFI), the first systematic programme aimed at encouraging public–private partnerships. The 1992 programme focused on reducing the Public Sector Borrowing Requirement, although, as already noted, the effect on public
6public private partnership <www.wikipedia.org/publicprivatepartnership> Accessed on 12 February 2010
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accounts was largely illusory. The Labor government of Tony Blair, elected in 1997, persisted with the PFI but sought to shift the emphasis to the achievement of “value for money,” mainly through an appropriate allocation of risk.
It should be of note that many more unmentioned materials have been of great contribution to this essay, also is oral discussions with legal practitioners and law students alike which of course cannot all be mentioned but has been of help in this essay.
1.7.0: DEFINITION OF PUBLIC PRIVATE PARTNERSHIP
Public private partnership has been defined as arrangements between governments and private sector entities for the purpose of providing public infrastructure, community facilities and related services. Such partnerships are characterized by the sharing of investment, risk, responsibility and reward between the partners7.
Public private partnership has also been defined by the Canadian council for PPP as co-operative venture where there is an allocation of the risks inherent in the provision of public service between the public and private sectors8
7 Public private partnership; A guide for Local Government prepared by the British Colombia Ministry of Municipal Affairs, May 1999.
8 U. S. Pant, Chief controller of Accounts. Ministries of Urban Development; Urban employment & Poverty Alleviation, Government of India Relevance of public private partnership in public construction being a paper presented at the International conference in New Delhi;150 years of the CPWD.
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Partnership has been defined by the Encarta Dictionary to mean „the relationship between two or more people or organizations that are involved in the same activity‟.
Infrastructure is defined as the large-scale public systems, services, and facilities of a country or region that are necessary for economic activity including power and water supplies, public transportation, telecommunications, roads, and schools9.
1.8.0: CONCLUSION
The concept of public private partnership has been explained in this chapter, the fact that public private partnership is on a class of its own which includes the public and private sector together to put in place PPP. Thus subsequent chapters of this essay will further explain the issues raised in this chapter and how exactly PPP works.
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