Public-Private Partnership in the Implementation of Construction Projects Development Prospects. Edyta PLEBANKIEWICZ

Transcription

1 2017 International Conference on Economics and Management Engineering (ICEME 2017) ISBN: Public-Private Partnership in the Implementation of Construction Projects Development Prospects Edyta PLEBANKIEWICZ Institute of Construction and Transportation Engineering & Management, Tadeusz Kościuszko Cracow University of Technology, Warszawska 24 St., Kraków, Poland Keywords: Public-private Partnership, Market Maturity, PPP in Poland. Abstract. The implementation of construction projects within public-private partnership (PPP) has a number of benefits for both the partners. The paper presents three phases of PPP market maturity and briefly describes them. Examples of countries in the first and third phase illustrate the differences. Conditions in which the PPP formula operates in the two groups are emphasized, which could become a guideline for countries aiming at PPP development. Introduction Public-private partnership (PPP) is defined in a variety of ways, due to a number of factors typical for such contracts; however, certain elements remain constant. According to a general definition, public-private partnership denotes a joint project implementation based on task and risk sharing between the public entity and the private partner. Both parties complement each other by completing within the partnership this part of the task they can do best. Public-private partnership is a relatively novel form of implementation of public tasks. The full forms of the legal regulation of its use in Europe date back nearly 20 years. In 1997 only 5 countries: the UK, Australia, South Africa, Japan and Austria, applied PPP to implement infrastructure investments. 13 years later, the vast majority of countries already had experience with public-private partnership. Phases of PPP Market Maturity In 2006 an international consulting company Deloitte published a report Closing the infrastructure gap the role of public-private partnerships presenting a concept of PPP market maturity curve. Figure 1 illustrate the three phases of PPP market development [1]. In accordance to the criteria that assign a country to a particular group, PPP leaders include the UK and Australia, which belong to the third, most advanced phase of the PPP market development. The second phase concerns the countries which successfully develop the formula of public tasks implementation, but not as fruitfully as the UK or Australia. Phase one involves these countries that already begin the implementation of PPP. This group includes Poland. It needs to be emphasized that the maturity of the PPP market in a given country depends (in agreement with the methodology adopted in this analysis) not only on the number of projects implemented or the rate of their development, but also on legislative and institutional solutions. Table 1 outlines. 173

2 PHASE THREE Australia Germany France The UK PHASE TWO the USA China Croatia India Poland PHASE ONE Country's activity in project implementation Figure 1. Description of the phases in the PPP market maturity [1]. Table 1. The specifics of the markets in the particular phases [1]. PHASE ONE PHASE TWO PHASE THREE Establishing the legislative skeleton for PPP (regulations - including e.g. law) Initiating the creation of a central unit dealing with PPP Creating and refining the structure of PPP transactions Correct PPP transactions execution and development and implementation of methods for comparing PPP with the traditional investment form Developing the PPP market Moving the implementation experience of PPP in transport to other sectors of the economy The creation of special PPP teams in particular public authorities Initiating the design and implementation of new hybrid PPP models Expansion and help to shape the PPP market The use of new sources of funding available in the capital market The use of PPP as a factor for the development of innovation Strengthening of the PPP market Improving new innovative PPP models The use of a more creative and flexible approach to the roles of the partners Using more sophisticated risk management models Increased focus on a holistic approach to PPP Educated infrastructure market with pension funds and private equity funds The public partner learns from the private partner the methods of responding to changes in market competition Countries in the third phase of development the UK A country that serves as a model of PPP development is the UK. In the 1990s, the development of privatization was halted there due to the low efficiency of the task implementation and the lack of social consensus on the continuation of the process of privatization of public services. In search for a solution, the UK resorted to the private capital. In 1992 Private Finance Initiative Law was passed which established the rules of public-private cooperation in public tasks implementation, allowing to award the private partner a share of the risk traditionally carried by the public partner. The amount of remuneration, shaped adequately to their level, compensates the private partner for the risk taken (including expenditures). At present, the UK is the undisputed leader in the implementation of the PPP and its promotion, marked by the almost 5-fold (compared to 1997) increase in public investment [2-4]. 174

3 One of the elements that cause such a high position of the UK is, among others, extensive institutional support for projects within the PPP formula. The results include: model documentation, including a standard model of contract used throughout the UK, and the guidelines for the implementation of PPP projects for the public party. Countries in the first phase of development Poland Poland, in contrast to western countries, implements very few PPP projects (only 0,4% of all projects completed in Poland). The PPP projects are typically large ones the 0,4% of European projects completed in Poland amounted to 1,7% of their value. The distinctive features of the Polish PPP market include the following [5]: Low project value; Low effectiveness of procedures to choose a private partner; A low level of public authorities involvement; Lack of standardization or procedures for projects preparation. Figure 2 presents the number of published procedures, projects and contracts signed in Sept , , , Number of published procedures Number of projects for which procedures were initiated Number of contracts signed Figure 2. The number of published procedures, projects and contracts signed in [5]. Advantages of and barriers to the application of PPP Table 2 presents the most important advantages and basic barriers to implement and use PPP. 175

4 Table 2. The most important advantages and basic barriers to implement and use PPP [6]. Advantages Barriers Public sector Private sector greater opportunities for financing infrastructure investments completing projects within the predicted budget and schedule guarantee of the quality of services and infrastructure maintenance using the experience and skills of the private sector allocating risk and value for money Off-balance investment approach focus on results and core business long-term stable contracts motivation to achieve high performance less dependence on annual public budgets and market cycles the ability to generate additional revenue risk diversification by managing a portfolio of projects higher cost of capital possibility of of improper transfer of risks loss of control over asset management long and costly tendering process lack of flexibility in the use of the assets and services offered project under threat in case of the private partner s bankruptcy high costs of project preparation and taking part in tenders postponed return of the investment diversity and co-dependence of risks remuneration dependent on performance indicators uncertainty about future demand and revenue Comparison of the PPP formula on the example of the the housing stock in the UK and Poland Table 3 depicts the conditions of applying the public-private cooperation formula as regards public housing stock in the UK and Poland.. Table 3. The conditions of applying the public-private cooperation [7]. The UK active state housing policy including the improvement of the standard of social housing in the sphere of revitalization, financing of projects from the central budget an active housing policy at the local level, including: - separate accounts for the revenue and expenses associated with housing; - using Housing Associations in the implementation of the local housing policy; - monitoring and control of projects. Summary Poland the lack of a consistent policy of state housing the lack of a revitalization policy at the state level the lack of a comprehensive housing policy at the local level the lack of a solution to the problem of forming enclaves of poverty and wealth. The application of the PPP formula in the implementation of construction investments has a number of benefits for both the public and private partner, yet some countries do not fully seize this opportunity. The paper briefly describes the use of the PPP formula in two countries at the two extremes of the PPP market maturity scale. The analysis of the barriers to the implementation of the PPP formula, as well as the comparison of the PPP systems in the UK and Poland allows to draw conclusions about the prospects and directions of the development of PPP in the countries that are only in the first phase, such as Poland and China. 176

5 References [1] I. Herbst, PPP in the world and in Poland, Property Forum, [in Polish] [2] A. Kappeler and M. Nemoz, Public-private partnerships in Europe before and during the recent financial crisis, Economic and Financial Report, [3] L. Booth, V. Starodubtseva, PFI: costs and benefits, Briefing Paper, 6007, [4] D. Corner, The United Kingdom Private Finance Initiative: The Challenge of Allocating Risk, OECD Journal on budgeting, 5/3 (2006) [5] E. Plebankiewicz, K. Biadała: Profitability of investments in PPP for example underground car park in Krakow, Przegląd Budowlany, 11 (2014) [in Polish] [6] D. P. Mikołajczyk, Theoretical aspects of public-private partnership - advantages, disadvantages, barriers to development in Poland, Acta Universitatis Lodziensis Folia Oeconomica, 243 (2010) [in Polish] [7] M. Załęczna, The use of Private Finance Initiative in the housing market in the UK and the ability to use this instrument in Poland, Studia Ekonomiczne, 155 (2013) [in Polish] 177