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Public-private partnership (PPP) refers to a business venture which attracts funding through a partnership of government and a private investor or a consortium of companies. It involves a contract between the government and a private investor in which the private investor takes over the provision of a public service and takes over technical, operational and financial risks in the entire project. The government’s inability to meet the growing demand for infrastructure services is the driving force for this partnership. The available funding and capacity in the public sector to implement various projects may remain limited, leaving the government with the option of engaging private parties in service delivery (West, 2009).
A public-private partnership (PPP) is a legally binding agreement to share responsibilities related to management, operation or implementation of a project. In some partnerships, the service users bear the cost while in other partnerships; the private party makes capital investment while the government bears the operational cost. The government may also contribute by providing capital subsidy in the form of grants to attract private investors. In other scenarios, the government may provide revenue subsidies (such as tax breaks or removal of annual revenues). If the government has invested in the project, it may be entitled to equity shares.
PPP model may take various forms of models. A Design-Build-Finance-Operate-Maintain model varies depending on the role of the private entity. In this model, a private party gets involved in financing, designing, implementation and maintenance of the project but enjoys the right collect future revenues for compensation. In the long term lease agreement model, the private party has the right to collect revenues from the project. In availability model, the government provides regular payments to a private entity that maintains the project. The government pays the private party according to a compensation scheme.
The Evolution of Public-Private Partnership Model
During the 1970s and 1980s, macroeconomic dislocation, the level of public debt increased rapidly. This added pressure to the standard public procurement model and this forced the government to encourage private sector involvement in infrastructure. Initially, the involvement was on the basis of accounting fallacies that arose from the knowledge that public accounts failed to distinguish between capital expenditures and recurrent expenditures. The notion that the private sector would provide infrastructure in a way that was cost free to the public became fodder for various governments. Scholars have contended that models that involved an enriched role for the private parties, with one private investor running a project would improve risk allocation (West, 2009). At the same time, scholars argued, this engagement would maintain public accountability for fundamental service provision aspects.
This led to individual negotiation of public-private partnership deals in early 1990s. In 1992, the Britain government introduced a private finance initiative (PFI) which became the first program to encourage public-private partnerships. The aim was to reduce the borrowing requirement of the public sector. The government expanded the program in 1997 but shifted the emphasis to the value of money by appropriately allocating the risks. In the last two decades, the European Union has signed more than 1000 public private partnerships as various governments have started to rely on public-private partnerships.
Currently, the digital divide is one of the most significant factors to economic development, and, to some degree, to public-private partnership. A person with access to personal computers can compete in today’s economy that is rich in information. They can access government services and spread the information through a mesh of communication through the internet. Scholars anticipate further evolution of public-private partnership because of the emergence of e-government and the related transactions (West, 2009). In conclusion, PPPs are imperative in times of prosperity as well as periods of economic uncertainty. Therefore, governments need to consider PPPs in their quest for innovative ways to deliver services to the taxpayer.