A public–private partnership (PPP) is an “arrangement in which the private sector supplies infrastructure assets and services traditionally provided by governments.”
The public and private sectors have different goals and organizational philosophies and cultures. Reconciling these differences requires a strong commitment, and a clear vision regarding expectations and outcomes.
The essence of PPP is risk allocation—whether these operations add value depends primarily on how risk is identified, managed, and priced.
In emerging markets, international partners must address not only the project risk and country risk, but also the risks posed by the lack of local managerial skills, inadequacy of institutions, corruption, lack of transparency, and others.
Project financing can be used for PPP projects, thus clarifying a key element of the partnership financing structure.
One of the most significant and interesting global economic developments of the past few years is the emergence of Africa as a competitive region for business.
The Bujagali Hydropower Project represents the largest mobilization of private financing for a power project in Africa.
Given the state of public sector resources around the world, governments seek to enhance resources by attracting private sector participation. Such participation may be somewhat unstructured, or more formal. The public–private partnership (PPP) is one of the formal approaches to cooperation. PPP, in various forms, is not a new construct. The current frailties of the global economy have forced governments to reduce costs and limit risks. This paper examines the nature of PPP, and describes some of the advantages and disadvantages of PPP. The discussion then focuses on the viability of PPP in emerging markets in general, and African countries in particular. A case study, Bujagali Hydropower Project in Uganda, illustrates many of the major concepts discussed throughout this paper.
Definitions/Nature of PPP
There are many definitions of PPP. Most versions of PPP are very similar, although the degree of control shared by the partners, and several other characteristics of the partnership may receive different emphasis from definition to definition. Thus, PPP is an “arrangement in which the private sector supplies infrastructure assets and services traditionally provided by governments” 1 (Michel). Other terms for PPP include: PPI (private participation in infrastructure); PSP (private sector participation); in the UK, the term used is PFI (private finance initiative); in Australia, the reference is to PFP (privately financed projects); and P3 is commonly used in the US (see Yescombe, 2007). Other variants include the build–transfer–lease (BTL) and build–own–operate–transfer (BOOT) options. In some cases, two or more of the above terms can be used in combination. For example, project financing can be used for PPP projects, thus clarifying a key element of the partnership, financing. Project financing schemes may involve a variety of instruments such as the special-purpose vehicle (SPV), a legal entity with its own assets and obligations. Creation of this joint venture among project sponsors enables the flow of funds. An SPV is typically a highly leveraged company, with limited-recourse debt and limited equity participation. PPP can indeed be very complicated, and requires thorough analysis of associated terms and conditions.
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