What’s it: A public-private partnership is an arrangement in a public sector project involving the private sector. It is a long-term partnership, and the private sector may be involved in financing, construction, or operation, depending on the type of partnership. It has been applied in many countries, especially to build infrastructure projects such as transportation systems, sewers, water systems, hospitals, energy, and information technology.
There are many models for public-private partnerships. Each depends on the extent to which the private sector is involved.
Then, involving the private sector in public administration is important for several reasons. Limited fiscal funding is one reason. Infrastructure requires significant funding, which often exceeds government spending capacity.
What are the types of public-private partnerships?
Project delivery methods govern the extent to which the private sector is involved in public-private partnerships. There are several models, including:
Operation and maintenance contracts (O&M). Private sector businesses operate publicly owned assets for a certain period, while ownership remains under the public sector.
Build-transfer (BT). Construction and capital financing during construction are borne by the private sector. Then, the assets are handed over to the government or a public entity such as a government contracting agency. Sometimes also called build-finance.
Build-operate-transfer (BOT). The private sector is involved in financing and building projects according to the standards set by the government. The private company or consortium then manages the assets for a period specified by the contract – enough to recover the investment costs and generate returns. After the contract is completed, the company hands over the assets to the government.
Build-own-operate (BOO). Private companies finance, build, own and operate infrastructure projects or development facilities. They are allowed to recover their total investment, operating, and maintenance costs plus a reasonable return. Income can be from fee levies, levies, rent, or other levies from facility users. They may then hand over operation and maintenance to the facility operator, which may be a subsidiary.
Build-lease-transfer (BLT). Private companies finance and build infrastructure or development facilities. Once completed, they rent it out to the government for a certain period according to the contract. After that, the facility is automatically transferred to a government agency.
Affermage or lease contracts. Private companies are not involved in financing or development but only operate the facilities and are responsible for the quality and service standards. So, assets are kept under public sector ownership. The risks related to service, operation, and maintenance are borne entirely by the private sector operator, including losses and unpaid consumer debt.
Concession. The private sector is licensed to operate in certain areas, including being responsible for project financing, construction, operation, maintenance, and management. However, assets remain owned by the public sector, which is responsible for setting performance standards and ensuring concessionaires comply with them.
Design-build-finance-maintain (DBFM). The private business is responsible for designing, financing, constructing, and delivering maintenance services under a long-term agreement. Meanwhile, the public sector owns and operates these facilities.
Design-build–operate–transfer (DBOT). It is an extension of the BOT; however, the private sector is also designing the project. It is usually used for projects where the public sector lacks knowledge of what the project is building and requires.
What are the benefits of a public-private partnership?
Berikut manfaat kemitraan publik-swasta:
Funding. Sometimes, fiscal capacity is limited to finance infrastructure development, which requires significant funding. Therefore, involving the private sector allows development to be realized.
Knowledge. Besides funding, private sector involvement makes it possible to transfer their knowledge and expertise to the public sector in building infrastructure. As a result, it provides better infrastructure solutions than fully public initiatives.
Efficiency. Private companies are profit-oriented when running a business, encouraging them to finance, build and operate facilities as efficiently as possible. So, costs can be lower than under the public sector.
Project completion. Private companies are less bureaucratic than the public sector. It allows projects to be completed more quickly. They will try to keep infrastructure projects built on time and reduce delays. Project completion time is usually also used as a performance measure because it affects costs and profits.
Share the risk. Involving the private sector allows for the spread of risk, depending on the extent to which private companies are involved. For example, risk-sharing may be related to financing, construction, or operation.
Quality. Partnering with the private sector makes it possible to obtain and maintain high-quality standards throughout the project life cycle.
What are the costs of public-private partnerships?
The three costs of public-private partnerships are:
Job security. Private companies may choose to cut salaries and staff benefits to increase profits. Thus, job security is not as safe as work in the public sector.
A burden to taxpayers. Some public-private partnership models have been criticized because profits go to private sector business owners instead of being used to provide further public services. In addition, the cost of rent must be borne by the taxpayer.
Private sector capacity. Tenders may be less competitive – resulting in no cost savings – due to the small number of private companies participating and having the capacity to build large-scale infrastructure projects.