1. Public private partnerships (PPPs) in infrastructure can be a means to
enabling the development or improvement of energy, water, transport
and telecommunications and information technology through the
participation of private and government entities. Where governments are
facing aging infrastructure and require more efficient services, a
partnership with the private sector can help foster new solutions, including
clean technology.
PPPs combine the skills and resources of both the public and private
sectors in new ways through sharing of risks and responsibilities. This
enables governments to benefit from the expertise of the private sector,
and allows them to focus instead on policy, planning and regulation by
delegating day-to-day operations.
In order to achieve a successful partnership, a careful analiyis of the long-
term development objectives and risk allocation is essential. In addition,
the legal framework must adequately support this new model of service
delivery and be able to monitor and regulate the outputs and services
provided. A well-drafted PPP agreement would be informed by both the
laws of the country and international best practices to clearly
delineate risks and responsibilities.
The PPP in Infrastructure Resource Center for Contracts, Laws and
Regulations (PPPIRC) seeks to give a general introduction to public-private
partnerships, offer practical tools for the development of the legal enabling
environment and regulation of PPPs and provide sample and annotated
contracts from various structures in private sector participation in
infrastructure.

2. Potential Benefits of Public Private Partnerships
The financial crisis of 2008-11 has brought about renewed interest in PPP
in both developed and developing countries. Facing constraints on public
resources and fiscal space, whilerecognizing the importance of investment
in infrastructure to help their economies grow, governments are
increasingly turning to the private sector as an alternative additional
source of funding to meet the funding gap. While recent attention has been
focused on fiscal leveraging of projects, governments look to the private
sector to help them deliver infrastructure for a number of other reasons:
Exploring PPPs as a way of introducing private sector technology and
innovation in providing better public services through improved
operational efficiency
Incentivizing the private sector to deliver projects on time and within
budgets
Imposing budgetary certainty by setting present and the future costs
of infrastructre projects over time
Utilizing PPPs as a way of developing local private sector capabilities
through joint ownership with large international firms, as well as
sub-contracting opportunities for local firms in areas such as civil
works, electrical works, facilities management, security services,
cleaning services, maintenance services, etc.
Using PPPs as a way of gradually exposing state owned enterprises
and government to increasing level of private sector participation
(especially foreign) and structuring PPPs in a way so as to ensure
transfer of skills leading to capacitated entities that can eventually
export their competencies by bidding for projects/ joint ventures
Creating diversification in the economy by making the country more
competitive in terms of its facilitating infrastructure base as well as
giving a boost to its business and industry associated with
infrastructure development (such as construction, equipment,
support services, etc.)

3. Supplementing limited public sector capacities to meet the growing
demand for infrastructure development
Extracting long-term value-for-money through appropriate risk
transfer to the private sector over the life of the project – from
design/ construction to operations/ maintenance
Potential Risks of Public Private Partnerships
There are a number of potential risks associated with Public Private
Partnerships:
development, bidding and ongoing costs in PPP projects are likely to
be greater than for traditional government procurement processes -
the government should therefore determine whether the greater
costs involved are justified. A number of the PPP and implementation
units around the world have developed methods for analysing these
costs and looking at Value for Money, e.g., UK Treasury. For a broader
discussion of Value for Money, go to Financing
there is a cost attached to debt – While private sector can make it
easier to get finance, finance will only be available where the
operating cashflows of the project company are expected to provide a
return on investment (i.e., the cost has to be borne either by the
customers or the government through subsidies, etc.)
some projects may be easier to finance than others (if there is proven
technology involved and/ or the extent of the private sectors
obligations and liability is clearly identifiable), some projects will
generate revenue in local currency only (eg water projects) while
others (eg ports and airports) will provide currency in dollar or other
international currency and so constraints of local finance markets
may have less impact
some projects may be more politically or socially challenging to
introduce and implement than others - particularly if there is an
existing public sector workforce that fears being transferred to the

4. private sector, if significant tariff increases are required to make the
project viable, if there are signficant land or resettlement issues, etc.
there is no unlimited risk bearing – private firms (and their lenders)
will be cautious about accepting major risks beyond their control,
such as exchange rate risks/risk of existing assets. If they bear these
risks then their price for the service will reflect this. Private firms will
also want to know that the rules of the game are to be respected by
government as regards undertakings to increase tariffs/fair
regulation, etc. Private sector will also expect a significant level of
control over operations if it is to accept significant risks
private sector will do what it is paid to do and no more than that –
therefore incentives and performance requirements need to be
clearly set out in the contract. Focus should be on performance
requirements that are out-put based and relatively easy to monitor
government responsibility continues – citizens will continue to hold
government accountable for quality of utility services. Government
will also need to retain sufficient expertise, whether the
implementing agency and/ or via a regulatory body, to be able to
understand the PPP arrangements, to carry out its own obligations
under the PPP agreement and to monitor performance of the private
sector and enforce its obligations
the private sector is likely to have more expertise and after a short
time have an advantage in the data relating to the project. It is
important to ensure that there are clear and detailed reporting
requirements imposed on the private operator to reduce this
potential imbalance
a clear legal and regulatory framework is crucial to achieving a
sustainable solution (for more, go to Legislation and Regulation)
given the long-term nature of these projects and the complexity
associated, it is difficult to identify all possible contingencies during
project development and events and issues may arise that were not
anticipated in the documents or by the parties at the time of the
contract. It is more likely than not that the parties will need to

5. renegotiate the contract to accommodate these contingencies. It is
also possible that some of the projects may fail or may be terminated
prior to the projected term of the project, for a number of reasons
including changes in government policy, failure by the private
operator or the government to perform their obligations or
indeed due to external circumstances such as force majeure. While
some of these issues will be able to be addressed in the PPP
agreement, it is likely that some of them will need to be managed
during the course of the project
Identify Form Project Should Take
A host government's objectives in planning an infrastructure project are
usually shaped by what is in the public interest; for example, promoting
a new highway around its capital to ease traffic congestion or improving
the quality of drinking water.
A host government must consider whether it is best to achieve these
objectives exclusively through state owned enterprises (through
traditional government procurement/ public financing/ sector reform)
or whether and how to involve the private sector. A number of the
World Bank toolkits look in detail at the different options available and
give guidance on how a government should choose between those
options—see Further Reading below.
This section summarizes the key issues that a host government needs to
consider when choosing a solution to meet its objectives and suggests a
possible decision making process. For more detailed analysis, click on
the links listed under Further Reading.
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Identify the Business Need

6. The first step in developing a project is for the responsible government
agency to identify the need for new public infrastructure or
improvements in existing infrastructure or public service delivery. A
need for additonal assets or improvements may be identified when, for
example, there is:
a lack of capacity of a public service to meet the community needs—
e.g. water treatment capacity
a low service level and improvement is necessary
a risk of service level falling in the near future and this merits action
now
low operating efficiency of facilities.
The government will also need to consider whether any investment that
is required can and should be met through public funds or whether it
might be appropriate to involve the private sector.
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Possible Reasons for Involving Private Sector
As noted under Benefits and Risks of Public Private Partnerships, there
are a number of reasons for involving the private sector, including
additional sources of financing and the broader expertise and
technology that the private sector can bring. However, involvement of
the private sector is not always appropriate or even a viable option,
particularly if the project cannot be well-defined, if the costs of the
project are too high, if the technology that is to be used is unproven or if
there is too much uncertainty in the enabling environment (legal,
financial, political). The Government should carefully appraise the
options available to it and ensure that there is a clear business case for
proceeding with a project via PPP, as discussed below.

7. Appraise Options
Having established a need for improvement in public infrastructure
service or development of new infrastructure, the government agency
will need to identify and appraise the various options available to it to
fulfil the need, guided by relevant government policies on infrastructure
investment and where applicable the government's strategy for
infrastructure and general planning policies. For a summary of the main
recognized categories of public sector reform/public/private sector
participation in infrastructure, click on Agreements.
Option appraisal is a preliminary assessment of what is required to meet
the business need (i.e., investment, improved efficiencies, or better
management, etc.) and whether a PPP structure is a suitable and feasible
option and merits further and more detailed assessment.
Option appraisal may be carried out in two steps:
Step 1: Identify delivery solutions
This may include:
Non-asset solutions. Needs may be met without creating additional
assets, through reconfiguring means of service delivery, developing
initiatives to manage demand more effectively, or increasing use of
existing assets. It may involve sector reform and restructuring
Existing asset solutions. This may involve upgrade or refurbishment
to bring the existing infrastructure to the required standard
New asset solutions. When the needs can not be met by the above-
mentioned two options, new infrastructure may be developed

8. Step 2: Carry out a preliminary assessment of the available options
This typically involves outlining and analyzing the advantages and
disadvantages of each possible form of traditional government
procurement and PPP mechanism as described in Agreements. A high
level assessment is made with regard to the potential for a PPP to
deliver improved value for money over the life of the project when
compared with the cost of traditional procurement (often known as the
"public sector comparator"). There are a number of mechanisms for
assessing Value for Money that have been developed by PPP units and
implementation units around the world. This analysis and the
assessment of the public sector comparator is more of an art than a
science and so the principles and guidelines for making these
assessments vary from country to country. Examples of these
mechanisms can be found at Value for Money Mechanisms.
The option analysis is not intended to form a final view on the most
appropriate procurement structure. If a PPP option appears to be
feasible, a business case can then be developed to further analyze the
option in detail.
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Develop a Business Case
Having appraised the available options and preliminarily decided that a
PPP structure is feasible, the responsible government agency will want
to develop a more detailed business case of the project to assess the
potential of PPP to deliver value for money when compared with
traditional procurement. It may be appropriate for the business case to
be referred to a higher level of government for approval. For more on
this, go to Government Institutions for Implementing PPPs and
to Further Reading below.

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Identify Institutional Machinery Necessary for Reform
Any reform, whether through a contractual solution or through public
sector reform, will require the government to first put in place the
machinery to implement the reforms. A number of the issues that may
need to be addressed are:
legal environment—analyzing the existing legal environment to
determine whether there are constraints on the various solutions
being considered (see the Due Diligence Checklist for legal and
institutional enabling environment for PPP, for more on the different
issues that will concern investors, go to Legal Framework
Assessment). If it is found that legal reform is necessary, then
designing enabling legislation to meet the solution and fit the
country. It may be appropriate to design a legal solution to fit a
project/ a sector or the climate for PPPs in general (for examples of
specific concession/PPP laws designed to create the appropriate
enabling environment for PPPs, go to PPP Laws/Concession Laws);
developing/ reforming institutions to prepare and monitor
procurement mechanisms, centralized decision making (consider
establishment of a unit responsible for identifying strategic sectors
and allocating private capital such as a so-called “PPP Unit”). For
more on PPP Units, go to Public Policy for the Private Sector Note on
PPP Units;
managing and monitoring contingent liabilities borne by government
further to private sector investments (whether formal, in the form of
risk management units, or otherwise);
knowledge sharing/ developing best practice in management of PPPs
including standardization of approaches to achieve economies of
scale (for example, South Africa). See also Procurement Processes
and Standardized Bidding Documents;

10. determining how to allocate government support – how subsidies
work; possible sources of funding for the project; regulation of
capital markets and banking sectors to encourage private investment
and management of funds. For information on one source of output
based aid, go to GPOBA Web site;
developing/ reforming institutions to regulate, manage, enforce, and
adjust the arrangement over time—the government will need to
retain sufficient capacity, or create a specific body entity with
sufficient capacity, to regulate and manage the utilities/ private
operators. (For more, go to Regulation);
putting arrangements into legally enforceable form (statute, license,
contract);
if private sector is to be involved in the solution, selecting the right
operator in a transparent and competitive process (for more on this,
go to Procurement Laws and Procurement Processes and
Standardized Bidding Documents). For more, go toLegislation.