Public Private Partnerships
What are They? Theory and Practice
Carlo Cottarelli
Deputy Director, Fiscal Affairs Department , IMF
February 2008
1
Part I: What are PPPs and how to
implement them
2
What are PPPs?
A form of procurement of public assets with private
involvement. Specific characteristics:
Public-Private
Cooperation /
Dimension of
Change
IMF
OECD
EIB
UK
NZT
√
√
√
√
√
Private Role
Risk Sharing /
Transfer
Financing
Investing
in Infrast.
Assets
Service
Provision
√
√
√
√
√
√
√
√
√
√
√
√
Non essential: SPV, user fees, price regulation.
√
√
√
3
Fiscal Sustainability Perspective of PPPs
Fiscal sustainability perspective is key:
gather under the same label of PPP all
arrangements that have two common
denominators


provision by private sector of a public service
through a contract that backloads the cash
flow payment for the government arising from
the provision of the service; and
Sharing of risk between public and private
sector that is innovative with respect to
traditional forms of risk sharing.
4
Risk Distribution
Types of PPP arrangements vary depending on degree of
involvement (and risk sharing) of private sector
Government
Private Sector
Public Procurement
PPP
Design & construction
Design & construction
Service provision
Service provision
Maintenance & renewal
Maintenance & renewal
Quality of service
Quality of service
Volume
Volume
Force majeure
Force majeure
Obsolescence
Obsolescence
Residual value
Residual value
Regulation/policy
Regulation/policy
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Source: E. Farquharson, PartnershipsUK
Part II: PPPs in Practice
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Empirical Evidence on PPPs
Growing interest in PPPs in many countries
Covering a broad range of activities
In this presentation empirical evidence only on
economic infrastructure
Experience also in social infrastructure, although
successful implementation is more challenging:
technological change, need measurable and
monitorable indicators of output/service
provision
Data sources: IMF country work, World Bank
PPI database, EIB
7
PPPs around the World
PPPs are becoming popular with many low and
middle income countries
8
PPPs in time
A lot of talk about PPPs now, but they have been
around for a while
Still, they represent a low share of public
investment flows. But trend is increasing
Proje cts pe r Ye ar
180
160
140
3-yr moving average
120
100
80
60
40
20
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0
Source: World Bank, privat e part icipat ion in infrast ruct ure (PPI) dat abase
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PPPs by Sector
More prevalent in roads, but important in other
areas. Electricity higher measured by investment
Activity in social infrastructure less frequent but
expanding
Limited information on PPP activity
Role for national registries
PPPs by Sector (1990-2006)
500
450
400
350
300
250
200
150
100
50
0
90
80
70
60
50
40
30
20
10
0
s
ad
o
R
E
ric
ct
le
ity
tm
ea
Tr
en
ts
an
l
tp
ts
or
p
a
Se
as
G
l
ra
tu
a
N
ili
Ut
Number of Projects (left axis)
ty
Ra
s
ad
o
r
il
A
ts
or
p
ir
om
ec
l
Te
Investment (US$ bn)
10
Improving country practices for PPPs
Increasing interest in PPPs evident from Fund
interaction with member countries
Countries moving to strengthen institutional
frameworks:





Introducing specialized legal frameworks (Brazil,
Cameroon, Czech Rep., Nigeria, Peru)
Setting up PPP units (Egypt, Chile) as knowledge
centers and sometimes as project gateways (Peru,
South Africa)
Establishing adequate accounting rules (UK,
Australia)
Strengthening measurement and reporting in budget
annexes, DSAs (Brazil, Chile, Colombia)
Establishing fiscal rules (caps on PPP flows/stocks,
stock of contingent liabilities)
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Improving country practices for PPPs
However implementation is not uniform across
countries, good practices should pay attention to





greater integration of PPPs with public investment
plans and medium term frameworks
strengthening public investment processes, including
PPPs
doing PPPs for the right reasons (VfM, affordability,
CBA, public sector comparators)
putting in place sound legal and institutional
frameworks
appropriate accounting and reporting procedures
Importance of OECD countries in continued
dissemination of good PPP practices in their role
as donors in the developing world
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IMF Work on PPPs
Board papers & books: Papers in 2004 “Public Private
Partnerships;” paper in 2005 summarizing 8 pilot country case
studies on public investment & fiscal policy (including PPPs); paper
in 2005 on “Government Guarantees & Fiscal Risk;” book in 2006
on “Public-Private Partnerships, Government Guarantees, and
Fiscal Risks,” paper in 2007 on Public-Private Partnerships and
Fiscal Risks”
Technical assistance: On managing fiscal risks from PPPs, in EU
member and African countries. About 10 missions in the last 3 years
Surveillance: Several Art. IV consultations discussed FRLs, legal
frameworks, accounting issues, and inclusion in DSA
Research: (ongoing) on fiscal risks and PPPs.
Outreach seminars: On public investment and PPPs in South
America (Brazil, Apr/05), Asia (Korea, Nov/05), Africa (South Africa,
May/05), Europe (Hungary, Mar/07)
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Summary
There is an increased interest in PPPs as a
method for procuring public assets across the
world
But actual use of PPPs remains limited
Adequate management of fiscal risks from PPPs
is a key challenge
Do them for the right reason and do them right


PPPs should lead to better value for money
Provide an appropriate enabling environment (public
investment planning, laws, and institutions)
Progress being made but continued need for
capacity building in many countries
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Thank you!
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