Public-Private-Partnership

„A public-private partnership (“PPP”) is an arrangement between a public authority and a private partner designed to deliver a public infrastructure project and service under a long-term contract. Under this contract, the private partner bears significant risks and management responsibilities. A PPP differs from conventional public procurement in several respects. PPPs typically share the following features:

  • a long-term contract between a public authority and a private partner focusing on the provision of services rather than assets;
  • the transfer of certain project risks to the private partner, notably with regard to designing, building, operating/maintaining and/or financing the project;
  • a focus on the specification of project outputs rather than project inputs, taking account of the whole life cycle implications for the project;
  • the application of private financing (often “project finance”) to underpin the risks transferred to the private partner; and
  • the public authority makes performance-based payments to the private partner for the provision of the service (e.g. for the availability of a road) or grants the private partner a right to generate revenues from the provision of the service (e.g. tolls from users of a bridge).“ (EIB)

“PPPs are a useful way to procure climate-resilient infrastructure projects for several reasons:

  • Incentive framework – The private sector is remunerated through their participation in the PPP, either from mechanisms like user fees (e.g. highway tolls) or through availability payments, in which the public sector pays the private party based on an assessment of performance indicators. Remuneration to the private contractor is typically based on contractual project specifications, creating an incentive for the contractor to deliver the asset according to those specifications. This provides an opportunity to include climate resilience principles into these incentive structures.
  • Output focus – PPP structures are typically focused on outputs defined by the public client (service levels) rather than input specifications – that is, the what it needs to be achieved rather than how it needs to be achieved. This provides the opportunity for private sector innovation, such as integrating the use of NbS in infrastructure projects from the outset. For that, tender requirements should promote incentives for innovation and harness the benefits provided by the natural environment, for example, by giving additional points in the evaluation of bids.
  • Longer duration and whole-of-life costing – PPPs are also longer in duration than typical public sector procurement. Instead of the relationship between the public sector and the private contractor ending upon completion of constructions, the private contractor is responsible for operating and maintaining – that is, managing – the asset for a specified duration. The long-term view of PPPs incentivises the integration of climate resilience principles into the design of the asset. If a private contractor must be responsible for the design, operation and maintenance of the asset over several decades, it is in their interest to design the asset to be resilient to a changing climate as a means to reduce costs.
  • Efficiency in recovery after a hazard occurrence – PPPs can reduce the strain on governments by maximizing private sector efficiencies during the operation and maintenance phase in the event of a climate hazard. As part of the climate resilience component of the project, the private partner needs to ensure that infrastructure continuity of service is maintained in the event of a hazard, or restored rapidly. By sharing the burden of recovery, the public partner would be able to direct its resources to other aspects of recovery.
  • Widespread use –PPPs are a relatively common tool for procuring infrastructure projects across the globe. Governments and private organisations alike already have skills and capacity around these arrangements. Climate resilience can be integrated into the PPP project cycle, rather than (or in addition to) using novel mechanisms which would take time to gain traction.
  • Risk transfer – PPPs support risk-sharing among partners. Risks are reviewed at the outset and allocated to the partner that is best-placed to absorb and manage that risk, although in practice this may be the partner who is least able to refuse the risk. Therefore, ensuring good governance of infrastructure delivery is key. Some types of climate-resilient infrastructure, like NbS, diverge from traditional infrastructure assets, and risk transfer from the private to the public partner can help to attract and stabilise investment into these novel types of infrastructure. Integrating NbS into the project and not as a stand alone measure can help make the climate-resilient infrastructure project viable and bankable.” (CRIO Handbook 2021, p24f)

In brief:

  • PPPs have the potential to significantly enhance climate resilience by combining the strengths of both the public and private sectors.
  • While there are challenges to their implementation, the benefits—such as increased resource mobilization, risk sharing, efficiency, and innovation—make PPPs a valuable tool in addressing the impacts of climate change. Success depends on careful planning, alignment of interests, supportive policies, and active stakeholder engagement.

 

Public-Private-Partnership Projects