Public-Private Partnership

Public-Private Partnership

 

Public-Private Partnership (PPP) can be defined in its broadest sense as a business relationship between public and private partner at projects that will serve the public. The term Public-Private Partnership therefore includes various forms that are on the one side limited with classical public procurement and on the other side with entirely private initiative. Where in this range a specific Public-Private Partnership will find its place depends on numerous factors like how the ownership of infrastructure, its management and maintenance are agreed, who will finance the project and in what share, how risks are divided between partners, what the duration of the partnership is and similar.

Statistical data and research all over the world clearly show that the number and value of concluded Public-Private Partnership projects have been growing more or less for the last three decades. The main reason for this is that public authorities all over the world face the same problem, namely budgetary constraints. Consequently, public partners lack the funds to build and maintain transport infrastructure (highways, roads, bridges, tunnels, railroads, airports), social infrastructure (hospitals, kindergartens, schools, prisons), public good (drinking water, sewage network, cleaning plants) and special infrastructure (communication network, defence systems), which forces them to find new funding sources among private partners.

The next very important argument in favour of Public-Private Partnership is the transfer of risks from the public to the private partner as the latter is better equipped to manage it. Besides, when for instance the private partner undertakes to build and maintain infrastructure, he, inter alia, also bears construction risks. Any increase in the cost of construction or eventual extension of construction period, which in the final consequence means higher project costs and shorter periods when the private partner receives project cash flow, is usually the private partner’s risk. All additional costs associated with the construction are in this case the costs of the private partner and the public partner does not suffer any consequences because of that. At the end of the concession period the public partner becomes the owner of the infrastructure irrespective of the price that was paid for its construction.

Apart from solving public budget constraints and transferring risks, Public-Private Partnership can also bring significant discipline to project selection, construction and operation, when managed effectively. 

REAL OPTIONS CONSULTING

At Real Options Consulting Ltd, we are merging real options and PPP.

Company

Real Options Consulting Ltd is a company specialized in the valuation of risks and real options in infrastructure Public-Private Partnership projects.

We bring to our clients the best of theory and practice of Real Options and Public-Private Partnership with the purpose of creating the most suitable solutions for them.

Contact Us

Real Options Consulting Ltd 20-22 Wenlock Road, London, N1 7GU
United Kingdom
Website: http://www.ppp-infrastructure.com
Email: [email protected]
Phone: +44 70 2403 4340