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Public Private Partnerships

Public Private Partnerships. What are They? Theory and Practice. Carlo Cottarelli Deputy Director, Fiscal Affairs Department , IMF February 2008. Part I: What are PPPs and how to implement them. What are PPPs?.

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Public Private Partnerships

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  1. Public Private Partnerships What are They? Theory and Practice Carlo Cottarelli Deputy Director, Fiscal Affairs Department , IMF February 2008

  2. Part I: What are PPPs and how to implement them

  3. What are PPPs? A form of procurement of public assets with private involvement. Specific characteristics: Non essential: SPV, user fees, price regulation.

  4. 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.

  5. Risk Distribution Types of PPP arrangements vary depending on degree of involvement (and risk sharing) of private sector Public Procurement PPP Private Sector Design & construction Design & construction Service provision Maintenance & renewal Quality of service Service provision Maintenance & renewal Quality of service Volume Force majeure Obsolescence Residual value Regulation/policy Volume Force majeure Obsolescence Government Residual value Regulation/policy Source: E. Farquharson, PartnershipsUK

  6. Part II: PPPs in Practice

  7. 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

  8. PPPs around the World • PPPs are becoming popular with many low and middle income countries

  9. 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

  10. 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

  11. 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)

  12. 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

  13. 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)

  14. 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

  15. Thank you!

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