A Public-Private Partnership (PPP) is a partnership between the government and a private business. It is created to benefit the citizens of a country. It is also one of the types of business organizations.
Definition of Public-Private Partnership (PPP)
Public-Private Partnership (PPP) occurs when private sector organizations invest in public sector projects. The government of the country works together with the private sector to jointly provide certain goods or services. It is the involvement of the private sector which provides management expertise and/or financial investment in public sector projects supervised by the government and aimed at benefiting the public.
A Public-Private Partnership (PPP) can benefit from the dynamics, financial resources and efficiency of the private-sector business organizations alongside the benefits of public sector funding and support with bureaucracy and procedures.
Neither is public sector business organization privatized for the purpose of PPP, nor is a private sector business organization nationalized. A completely new public-private enterprise is created to conduct those projects.
Examples of Public-Private Partnerships (PPP)
In some countries, the private sector businesses run public sector hospitals, highways, sports stadiums, amusement parks, public parks and public schools which were built by the government.
The London’s Olympic Stadium in the UK, the Sydney Harbor Tunnel in Australia, New York’s Central Park in the U.S. and Hong Kong Disneyland in China were all built using Public-Private Partnership (PPP) schemes.
Two different types of Public-Private Partnership (PPP)
There are two main types of Public-Private Partnerships (PPP).
1. Government funded (public), but private sector managed (private) schemes. This type of PPP encourages both private sector funding and some private sector management control of public projects. For example, a government may want a new prison to be built. The public sector will provide the funding for the building of the prison and a private sector company will manage the prison. This is where the government provides a part of or all the funding for a scheme and the private sector runs the scheme. For example, the Hope Clinic Lukuli in Kampala, Uganda, receives government funding for its malaria prevention and HIV-testing services. These are managed efficiently and successfully by a private sector, but non-profit-making, clinic. Analysts believe that the clinic operates the health services more efficiently than a government department would.
2. Private sector funded (private), but government run (public) schemes. Opposite of the above. This is where the private sector pays for the building of an asset such as a railway and then hands it over to the government to run. The government pays rent to the private sector firm for the use of that asset. This is called a Private Finance Initiative (PFI) – investment by private sector organizations in public sector projects. For example, private finance was used to build the channel tunnel between the UK and France. However, the UK government operates the tunnel on a daily basis and pays and annual rent to the private finance providers for use of the tunnel.
In Japan, the Public-Private Parthership (PPP), known as ‘the hybrid organization’, is referred to as operating in the ‘third sector’ of the economy.
Advantages of Public Private Partnership (PPP)
1. New infrastructure projects in a country. Many schools, roads, tunnels, bridges, prisons and hospitals have been built through the Public-Private Partnership (PPP) and Private Finance Initiative (PFI) schemes. It is argued that these would not have been constructed at all unless the private sector had been involved.
2. Lower costs and higher efficiency. Private sector businesses aim to make profit, therefore their managers need to operate resources in private businesses as efficiently as possible. This could mean that costs to the public sector are lower, than if the projects were operated by managers working in the public sector.
3. Better quality of public services without increase in TAXation. By using private sector business finance, the government can claim that public services are being improved, without an actual increase in TAXes (at least in the short run as the capital cost is not paid for by the government).
Disadvantages of Public Private Partnership (PPP)
1. Worse working conditions. The private sector business, if asked to manage the project, could try to increase profits by reducing staff salaries, wages and other benefits. In effect, workers would no longer have the security of being employed by the public sector forever, so called in China ‘having an iron rice bowl’.
2. Higher public scrutiny impacting reputation. Private Finance Initiative (PFI) schemes have been criticized for earning private sector businesses large profits from high rents and other leasing charges which must be paid for by regular TAX payers.
3. Lack of experience of private companies in construction of large-scale projects. Private sector organizations may lack the experience needed to operate large public sector projects – such as social housing schemes – and failure of the scheme could leave vulnerable groups in the society at risk.
