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To the skp learning series on public private partnership or ppp in this first module module will provide you with broad overview of what is the ppp and what are main differences between ppp and traditionally fast at your procurement. Lets start by defining what we mean by pvp pvp is a long term contract typically over ten years between a private party and a government entity or the provision of public services and our development of public infrastructure in which responsibilities and rewards are shared tv can be in a wide range of sector roads energy will education water or health. The a number of typical characteristic that differentiates ppp is from conventional project approaches we a structure this presentation.
I want four of the most important ones first of all funding sources traditional public in castro project are financed by the national budget of a country to build a faster this way the government select a contractor and build this contractor based on the progress of project construction this means that most pavement are made up front during the construction. See the ppp project private investors are financing the across sector. But they are not doing it for free.
They expect to generate a profit out of their investments. Which means that they have to be remunerated. There are typically two is the private investor mpp project can generate the return on their investment bounce by panels can be granted rise to collect fees from users like collecting tolls on highway forward projects.
Second the gun can reimburse a python through what are called availability payments in the case of ability payments. The private operator speed based on the availability of the asset over time. An example of a highway project.
The government may check at regular intervals. If the asset is available meaning. If the goal can be used and if the asset meets.
The quality standard defining the contract meaning the quality of the road surface is sufficient if the ability criteria are met the government pays a fixed fee to the private operator if at some point in time the i said no longer fully meets the ability criteria then the payment by the government is reduced is that preserve at a strong incentive for the private partner to maintain asset performance of a sign so one in traditional manufacturing project payments are made up front in philippines. No public funds are disbursed during the construction phase payment to the private partner are spread over the lifetime of the project. Once the project is affectionate the second key difference between pvps and traditional procurement models concerned duration.
The traditional procurement. The relationship between the government agency and the private contractor ends. When the construction phase is or will be the relationship continues far beyond the completion of construction as a private partner responsible for not only building the protector.
But also operating it for set numbers of years typically more than twenty correspondingly. The public authority must monitor the performance of the private operator through the length of the contract at the end of a few contracts asset rice. Usually revert back to the public authority and this is a major distinction between pvp and outright privatization of public assets.
A third element that differentiates evp is from conventional project is that requirement are defined in terms of outputs. What we want to achieve by traditional procurement focus on inputs are to achieve. What we want in the case of a highway project.
This means that project specification in ppp might refer to indicators of road surface quality rather than the specific details of road construction for an apple an output could be handling capacity of 10 million air passengers for a year. Whereas an input might be two terminals age of at least 250 thousand square meters. And so on using output pacification provides.
The private sector with the opportunity to come up with innovative solution for delivering the public services. Which might result in significant cost saving. These focus on output specification requires a fundamentally different mindset.
It may necessitate adjustment from public partners. More familiar with conventional input oriented approaches the fourth and final key characteristic. That makes ppp distinct for conventional project approach concern risk allocation while in traditional procurement.
More risk are borne by the public sector. The ppp is risk our share. Im a public and private path for example pvps the private sector usually support the construction and operations risk.
But what are these risk with any project. There is always there is that construction in operation cost may exceed the estimated budget in a traditional procurement model. That financial risk is very subtly on the shoulders of the government entity in a ppp project.
Model. Risk is allocate to the five part chart with undertaking the construction and operation this means that in the pvp. The fabric sector is not exposed to risk of potential cost overruns you repeat the risk are typically review at the altar and the project is structured to allocate risk to the partner with best equipped to manage them that covers the four key differences between ppps and traditional procurement models.
Now lets have a look at some of the key benefit of a big restructure project as well as some possible limitation. The first benefit and one of the primary reason governments are increasingly considering the ppp approach is to attract private capital. If this view as a viable means to finance project.
That would not otherwise be feasible due to public budget. Constraints your project. However not free.
The private sector has to be remedied at four is in business. Using a pivot structure can provide short term financial relief. However.
This would only alleviate investor fighting issue to the extent that user fee can be charged or that additional revenue can be generated from the fabric asset speaking of additional revenue take our earlier example of an apple on a publics perspective. An airport is mainly seen as a mean to provide transportation services to passenger and airlines. The private sector might be able to identify and develop more efficiently.
Other source of revenue from this asset. Such as sharps authors. Car parks and so on this revenues rule could serve to party fund the investor investment.
A second benefit and key motivation for employing a pivot model is the realization of efficiency gains to improve project delivery operation and management and access to technology. The goal is to improve the quality of public service delivery by taking advantage of private sector efficiency. A sub benefits realized with the pp model involves the creation of long term tuition of the provision of public infrastructure through addressing issues such as poor construction quality and inadequate maintenance.
Indeed. If you are responsible for operating. An asset for twenty years you will make sure that the asset is built properly similarly if payment would be without if the asset fail to meet the performance standard.
Then you will be sure that added to allocate sufficient whistles to asset maintenance. The researcher also create incentives to reduce the lifecycle cost of assets. Take a highway example.
Lets assume that there are two option to build a road with the first option construction will be cheaper initially. But maintenance costs would be greater over the long term. The second option might be more expensive in terms of construction.
But will have lower maintenance costs over the long run upp project. The private partner will select option two because it integrates maintenance in cost implication into the overall project design and will be the cheapest alternative over the lifetime of the asset. The fourth and final key benefit of the ppp model related to the transfer of risk to the private sector by transfer risk to the private sector.
Government finance are protected against potential cost overruns that are often significant in public key. Faster project. Now that we have presented benefits of a tvv approach.
Lets have a look at the limitation fans. Ppp are not suitable for all type of project. Even in countries.
Where pvps have been promoted actively only a limited share of public interest to protect has been pursued to this model. People do not work well in sectors with rapid change such as it the world. Better.
If there is a long term predictable need for faster services. The key question in this regard is do you need the infrastructure to be serviceable for the next 20 years. If the answer is yes.
Then ppp might be the solution secondly. The structural complexity of pv project can create high transaction cost. The project must be big enough to justify such increase for human cost with this in mind some countries.
Only consider a preview model for projects with budget above a certain threshold for instance 20 million dollars. Another limitation of the v3 approach can be the lack of capacity of local companies. So that this type of project local companies might not be equipped to manage the risk related abuse.
But if we can also be sensitive from political founders. The public might feel that the government is giving too much or is being too generous with private hands. So in addition the establishment of ppp my coincide with the introduction of the use of a principle.
Which can create public discontent. The right of this from political support is critical for the success of a pv project. Finally the real structure can be relatively inflexible and pull at accommodating change for instance.
It might be costly for the public entity to modify project. Specification. Once the project has been a war that concludes at the first episode of an e learning series on public private partnerships.
We hope you have enjoyed thank you for your attention and interest in the work of escape. Please check out the escape website for more information and additional resource on tpp at wwwunorg webcast .
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