Public Private Partnerships and LCCR-investments Joop Koppenjan Professor of Public Administration OECD Paris February 6th, 2012
Outline 1. PPP: what is it and what do we know about it? 2. PPP and LCCR Approach: not a financial, but a behavioral one Knowledge base: UK: PFI The Netherlands: three waves of PPP 2005 Literature research PPP in Sustainable Urban Development worldwide Students on China: BOT-projects and joint ventures Vietnam: BOT-projects South America: urban rail
Fully Public Sector Traditional Public Traditional Contracting Public Contracting Design Build DesignMaintain Build Maintain Public service provision Forms of private sector participation 1. Passive private investment Government Bonds 2. Service Contracts Operate Maintain Lease Full Divestiture Privatization 3. Build Operate and Invest 3a. Concession (DBFM/O) Government defines project 3b. BOT Private party develops project 4. Joint ventures Fully Private Sector Full Divestiture 5. Passive Public Investme nt Equity Debt Equity Guarante es Grants Coownership Coresponsibility Private 5. Passive service Public Private provision Investment service provision Debt Guarantees Grants Privatization Public Investment responsibility Private Provider Government role Enabler Adapted from Bennet et. Al. (1999)
BOT model Financing The Central Government The Regional or Local Government The Domestic and Foreign Banks Project Conception and approval: The central, regional or local governments Granting Concession Transfer Project Concession: The private firm that is granted with the concession Consultancy Firm Insurance Company Subcontractor: Constructor Subcontractor: Monitor The Concession Firm Subcontractor: Operator and Maintainer The Public Users Charging Users Fees
TOT model The Existing Project Ownership: The Central, Regional or Local Governments Financing Transfer the operating right with private payment Transfer back the operating right The Domestic and Foreign Banks The Private Operator (and Maintainer) Charging Users Fees The Public Users
Why PPP? Traditional method (Separated packages & public funding) 1. Limited budgets 2. Wrong projects & budget overruns 3. Lack of efficiency & quality 4. No innovation Promises of PPP (Integral & private Funding & long term) 1. Private investments 2. Demand driven &Better control 3. Value for money (10-20%) 4. State of the art knowledge
Experiences: are expectations met? 1. Private investments? Hard to realize PPP Private credit instead of investments 2. Value of money realized? NAO: 10-20 %! Differs among countries and sectors 3. Innovation? Design optimizations Usual suspects 4. Better decision making and control? Dutch High Speed Railway link Complicated contracts Overall: Mixed and contested results
Bad practices 1. No private finance; unwillingness to invest 2. No business case (affordability and return on investment!) 3. No room for private contributions 4. No competitive tendering 5. Unreliable or incompetent client 6. Strategic behavior private companies 7. Inadequate regulatory framework and market Good practices 1. Value capturing and scope management 2. Addressing affordability problems and upfront assessment 3. Early private involvement: innovation 4. Competitive tendering 5. Knowledge support & transfer; public guarantees 6. Monitoring and benefit sharing 7. Strengthening regulatory framework
Overall lessons 1. PPP: no free lunch; Risk of indebtedness 2. Learning cycle: critical mass of projects! 3. Learning curve: Pudong, Shanghai China 4. Need of knowledge management and transfer! 5. Contingencies: Differentiate! What is needed?
2. PPP and LCCR Are investments in infrastructures always the best solution? Layer approach in Dutch water management 1. Dikes 2. Storage 3. Preparation evacuation Infrastructures and Long term contracts: Inflexibility; risk of lock in Faster isn t always better! Organize trajectories of variation and selection How to safeguard flexibility during life cycle Real options Adapting and upgrading infrastructures
PPP and LCCR-2 Do PPP-projects contribute tot LCCR? Bridges and Roads: PPP doesn t help Choice of projects with potentials: (example; research proposal on sustainable public transport versus electric car) Investments: Looking for alliances: how to develop a positive business case? healthy, sustainability; safety, nature developments, food Value capturing by link to real estate is also risky (Examples China) LCCR-projects: How to realize these? (Example Barendrecht CCS in the Netherlands; PPP also requires Stakeholder Management)
PPP and LCCR -3 How to make LCCR part of the regulatory framework? Economic regulation: no attention to LCCR Choice of projects and project goals Importance of internalization of LCCR by governments! Knowledge units and transfer Need for LCCR-indicators
PPP and LCCR-4 Besides traditional PPP projects : Knowledge alliances in R&D Innovative governance networks Triple Helix: government - business - knowledge institutes Relation with Transition Theory Aimed at contributions to system transitions Outside but connected to regime; looking for innovative entrepreneurs