The promise of public–private partnerships

Public-private partnerships (PPPs) were prompted by dissatisfaction with the bureaucratic, dirigiste nature of public provision of infrastructure, and the belief that PPPs could combine the best features of private and public approaches. The chapter examines the mechanics of a PPP and three issues are addressed. One is what a PPP can and cannot do. It can bring private sector efficiency, regulation through competition, economic pricing of services, filter out ‘white elephants’, and free up public (that is, ‘free’) services, but cannot bring in additional finance for infrastructure except in the case of ‘user pays’ tolls and charges. A second issue is the theoretical basis of a PPP. Economic theory suggests that performance differences relative to traditional procurement lie in ownership rights, the bundling of construction and operation into a single contract, and the transfer of risks of design, construction overruns and time delays to the private body. Finally, the third aspect examined concerns the criticisms surrounding PPPs. These arise from refinancing, the drag on government budgets from the unitary charge, incomplete (or no substantive) risk transfer from the public purse, the public’s access rights to tolled facilities, the difficulties of allowing for technological change over the lengthy and inflexible contracts, the significant procurement costs involved in PPP projects and their potential to be ‘gamed’ by some participants (including public sector procurers).