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Human Resource Development (HRM-627)

Lesson 39

PRINCIPLES OF PUBLIC PRIVATE PARTNERSHIP (PPP)

Partnership Principles

Following are the principles or criterion which a partnership has to fulfill to qualify as a PPP or PSPP.

1. Openness and Binding Commitment: Disclosure to partners of all relevant information and strict

adherence to the important principles of cooperation. This strict adherence is usually made possible in

the presence of a formal agreement between the partners. Others factors like resources put into the

partnership and agreed upon goals and shared functions should also be known fully to all the partners.

2. Supervision/Control: Continuous monitoring and observation allows important lessons to be learnt

from the partnership and also provide a good mechanism for collecting and analyzing the feedback.

3. Successful Negotiation Process: The partnership is a strategic community of responsibility and action

set up for the mid to long term, in which the partners contribute their respective inputs into the shared

process of producing products and/or services. The process of decision-making by negotiation is done

together, so that in the process of decision-making no-one is disadvantaged but rather, disadvantages

are reduced. For the risks, the planned input and the expected profits, an efficient exchange process

must be agreed. Every participant fulfils the role that is assigned to him or her within the partnership.

The equality of the roles is not essential, as long as the partners in their assigned roles have equal

rights.

4. Equal Rights in Different Roles: It is not necessary for the agreed roles of the partners to be equal but

it is necessary for them to have equal rights in their respective roles.

5. Clear Division of Tasks, Roles and Functions: The assignment of tasks and responsibilities is done

according to the actual capabilities and expertise of the partners.

6. Clear Goals and Objectives: Clear goals and objectives have to be decided mutually by the partners.

7. Mutual Trust: Especially in the area of "core services" (social services whose qualitative performance is

not easy to measure), mutual trust between the partners contributes a lot to the successful

implementation of the partnership.

8. Sympathy between the Partners: Experience shows that when the "chemistry" between the partners is

good, the setting-up and running of the partnership is smooth and more productive.

9. Creation of Synergy between Partners: In negotiation processes, specific resources of the partners are

brought together in such a way that usable synergy effects are generated. The focus is on achieving

goals negotiated together, with which each partner can identify themselves. Thus synergy effects are

made available to the partners, which would not have come about without the partnership.

10. Suitability of the Resources and Size of the Partnership: Resources for the partnership (human

resources) must be adequate for the size of the partnership. Sufficient time resources must be planned

for the partnership.

11. Risk Sharing: Sharing of risks and profits need to be made clear in the agreement and then strictly

adhered to during the whole duration of the partnership.

12. Active involvement of the public sector throughout the project and also in the follow up stages

13. Political leadership: Active support from the political leaders is required in encouraging the two

partners to share responsibilities, risks and rewards.

14. Secure public control: In case the private partner defaults or fails to fulfill its obligation, the

government should ensure that it has recourse rights to maximize the opportunity to resolve the issue

or to take control.

15. Limited complexity: The arrangement should be kept simple, workable and free of complexity and

confusion.

16. Legal authority: In the form of legislations and law making to encourage and protect PPP formation.

17. Specific Needs: Each partner must have a specific reason for joining a partnership, i.e. a specific need

which can be fulfilled through the partnership.

Infrastructure Public Private Partnerships: Trends in South Asia

The trends in developing infrastructure PPPs have been different to some extent in South Asia in comparison

to global trends, however, this needs to be studied closely. In the early 1990's, there were not many countries

that worked with the private sector. The World Bank started its operations in 1995 in the PPP domain and

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Human Resource Development (HRM-627)

estimated that private investments in this sector might double to $30 billion by 2000. However, these forecasts

were challenged as the world witnessed a spectacular growth in investments in the PPP sector to $130 billion in

1997 alone.

After this growth phase in PPP investments, came a rapid collapse following the economic crises in East Asia

and Latin America, thus slowing down PPP investments globally. These crises lead to the re-evaluation of risks

and the realization that expectations had not been met from both the public and private side.

However, PPPs have moved on since then and private investments have risen after the late 1990's, driven by

widespread privatization in the global economy. Figures from the early to mid 1990's show that, user fees

charged for the PPP projects were relative to cost recovery as evident in the telecom sector that dominated in

developing countries in that era. A lot of increase was seen in telecommunications, but that was not really a

sector with PPP characteristics and leaned more to the commercial side. The sectors of energy and water saw

the least increase because of their political and economical aspects. In Asia, nearly 18 percent of infrastructure

projects were funded by private sectors, however, South Asia had doubled its share of private sector

investment since then from a mere 5 percent to 11 percent. Most of the PPP projects in this era, faced

difficulties because of low cost recovery and much dependence on donor funds. This led to adjustment in

polices that focused more on increasing private sector investments and better cost recovery strategies.

The difference in global and South Asian trends is striking as globally investments in PPP projects are high,

whereas, such investments in South Asia are quite low. In South Asia, there has been a slow increase in private

sector investments in PPPs over time and no rush has occurred to actually invest in projects. Later, the

economic crisis added to this by putting off private sector investments. Major investments are only being made

in the energy generation and roads sector and the investments in the Greenfield projects are low. However,

South Asia has seen comparatively more investments in new projects and Greenfield projects as compared to

other regions in late 1990's.

Situation in Pakistan

While some countries had sustained investment flows in PPPs, Pakistan still spends about 1.3 - 1.4 percent of

its GDP on PPP projects and that too is mostly concentrated on power generation and telecommunications

sector. This poses a question, that if Pakistan was to increase its GDP spending on PPPs from 1.3-1.4 percent

to 3 percent and in the longer run to 6-7 percent, then how it can be done?

In the South Asian region, China and India both have been able to increase their GDP spending on PPP to

such levels. However, if Pakistan needs to do this, it needs to have certain "saving rate" which poses a very

serious policy challenge.

For any country to achieve such levels of GDP investments in PPPs, the following questions arise:

(i)

Who is going to pay for the PPP projects?

(ii)

How revenues will increase in sectors by bringing in projects which users will be happy to pay for?

(iii)

Whether the investments are going to be politically robust and sustainable?

However, when it comes to the power, water and sanitation, and transport sectors the capacity and ability for

the users to pay for these services and the political tolerance for charging prices that are close to cost recovery

becomes a real concern.

If the user capacity to pay and the political tolerance is not there then the question becomes, how you structure

government support in an efficient manner to address these concerns?

Therefore, one has to be realistic about the risks that have to be shared in developing PPPs and the ability of

the users and the government to support revenue streams that underlie these projects and attract a sustainable

level of private sector financing. This has to be operationalised in the Pakistani context to make PPPs work

here.

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