Ovsiannykova I.А., postgraduate student

Taras Shevchenko National University of Kyiv, Ukraine

Public-Private Partnership: world experience and implementation issues in developing countries

Infrastructure development is, on the one hand, a tactical anti-crisis measure, on the other - a strategic measure that provides long term economic growth. Governments face an ever-increasing need to find sufficient financing to develop and maintain infrastructure required to support growing populations. At the same time can observe the inefficient use of public property and poor quality of services provided to citizens and businesses. In combination with the most limited financial capabilities of government, this pressure intensifies the desire to mobilize private sector capital to invest into infrastructure. To overcome such problems in some developed economies and, in recent decades, in developing countries a special form of collaboration between business and government - Public-Private Partnership (PPP) – is actively used.

The term Public-Private Partnership refers to a long-term, contractually regulated cooperation between the public and private sector for the efficient fulfillment of public tasks in combining the necessary resources of the partners and distributing existing project risks appropriately according to the risk management competence of the project partners. It is important that this is not privatization or leasing of state property [1]. The government’s contribution to a PPP may take the form of capital for investment, a transfer of assets, or other commitments or in-kind contributions that support the partnership. The government also provides social responsibility, environmental awareness, local knowledge, and an ability to mobilize political support. The private sector’s role in the partnership is to make use of its expertise in commerce, management, operations, and innovation to run the business efficiently. The structure of the partnership is designed to allocate risks to the partners who are best able to manage those risks and thus minimize costs while improving performance [2].

The rapid development of various forms of PPP worldwide, their wide distribution in various industries allows us to treat this form of partnership as a special feature of modern mixed economy. The wave of PPP proliferation emerged and gained popularity in the 90s of the 20th century in Britain, where privatization was not quite successful. Common causes for movement towards PPP in Britain and other European countries are as follows [3]:

- fiscal crisis in the public sector, and therefore a search for other sources of funding;

- increased mobility of capital, which causes a power shift in the relationship between government and capital towards the private sector;

- increased complexity of government tasks requiring an overlap between the public and private sector;

- dominance of neoliberal ideas, such as “new public management”, and the reliance on market mechanisms and incentives.

Public-private partnership has been distributed in traditional areas of state responsibility worldwide: infrastructure, power generation and distribution, water and sanitation, waste disposal, pipelines, hospitals, education, railways and roads, social sphere (stadiums, prisons). Statistics shows that PPP road projects (average annual volume about $ 22 bn) dominate all over the world and account for a 40% share of world PPP volume. It can be explained by high profitability, fees availability and simple contracts form.

Recently the use of PPP has increased all over the world, especially in emerging-market countries (Figure 1). Thus, global PPP volume reached $50.5bn in the first nine months of 2010, up 19% compared with $42.6bn in the comparable 2009 period. This accounted for 21% of total project finance volume, on par with the same period in 2009. Western Europe remained the dominant region for PPP projects, accounting for 48% of volume with 68 projects worth $24.4bn in 2010. Spain led Western Europe ranking in 2010 with 15 deals totaling $8.0bn. Portugal and the UK both tied for second with $4.4bn each. India, with volume of $8.4bn via 19 deals was the leading nation for PFI/PPP projects for the second successive year [4].

Figure 1. Regional PPP volume

Worldwide popularity PPPs’ use for infrastructure projects realization is explained by PPPs opportunity to provide public services cheaper than a sole private or sole public entity. The public-private partnership implementation allows the state to solve important social obligations and at the same time reducing costs. Moreover, it helps to exempt the state assets and develop and implement public policy more effectively. But PPPs success depends on economic and political stability in the country, reliable legal system, government guarantees, government clear understanding of the PPPs main goal and ambition to improve current situation in social sphere. All these factors influence investors’ firmness to take part in the partnership without any unforeseen risks. Investors have to be sure that both the public and the private sectors have certain advantages, relative to the other one, in specific tasks performance. This is the main restrictive factor for PPPs development in CIS countries. Unfortunately, economic and politic instability, problems with financial commitment implementation in long-term projects, lack of monitoring and controlling mechanisms and unclear tender system are an inherent feature of Eastern European countries. To gear up PPPs development CIS countries should learn developed countries’ experience of PPPs mechanism implementation and provide reforms in legal, economic and political systems. It will enable them to be reliable for investors and insure them that the tasks, obligations, and risks among the public and private partners are distributed in an optimal way.

As a conclusion we should emphasize that PPP is a new effective financial tool, which helps governments to meet important social needs and at the same time reduce costs. The world experience PPP use shows that this partnership may be more efficient in the countries which governments follow stability-oriented and predictable macroeconomic policies that are conducive to cheaper financing securing. An equally important advantage is a reliable legal system that provides the instruments to secure the interest of the public partner vis-a-vis the private partner. The lack of confidence between the partners, insufficient legal framework, and the pursuit of other than stability-oriented macroeconomic policies would undermine the PPPs effectiveness.

References

1. Public-Private Partnership in Infrastructure Development: Case Studies from Asia and Europe. Edited by Prof. Hans Wilhelm Alfen, Bauhaus-Universitat Weimar, Germany. – 2009. [Electronic resource] - Available: http://e-pub.uniweimar.de/volltexte/2009

2. Public-Private Partnership: Handbook. Edited by Asian Development Bank. – Philippines, - 2006. [Electronic resource] – Available: http://www.adb.org/Documents/Handbooks/Public-Private-Partnership/prelims.pdf

3. Strategic Issues in Public–Private Partnerships: An international perspective. Mirjam Bult-Spiering, Geert Dewulf. Published by Blackwell Publishing Ltd. – 2006. [Electronic resource] – Available: http://www.ebookee.org/Strategic-Issues-in-Public-Private-Partnerships-An-International- Perspective_241336.htm

4. Global Project Finance Review First Nine Months 2010. Dealogic plc., - 2010. [Electronic resource] – Available: http://www.indialawjournal.com/volume3/issue_4/legalwrap.pdf