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A section of Highway 2000 between Bushy Park and Mandela Highway in St Catherine that was constructed through a private public partnership agreement between Government and French construction conglomerate Bouygues.

THERE IS NO commonly accepted definition of the term public private partnership or PPP. It is a concept which involves the public and private sectors working in partnership to provide infrastructure and services. PPP is one of a range of alternative structures that fall between conventional procurement through state ownership at one end of the continuum, and full privatisation at the other.

Typical PPP structure

Instead of the public sector procuring a capital asset by paying for it in full up front, a typical PPP structure creates a single stand-alone business, financed and operated by the private sector. The purpose is to create the asset and then deliver a service to the public-sector client and in return, obtain payments that are commensurate with the service levels provided.

The key features of a PPP, therefore, include:

(i) Buying specified outputs or outcomes of a service. The private sector should determine the inputs required, including infrastructure and skills, to achieve that specified output.

(ii) Creating a process that delivers the service required to the necessary standard throughout the lifetime of the project.

(iii) Aligning the interests of the user, the service provider and the major financier. It is in the financier's interests that the service is supplied to the agreed standard.

(iv) Establishing a relationship between public and private sector that is based on partnership rather than confrontation.

(v) Providing the appropriate training, motivation and reward for staff to ensure that quality services are provided on a consistent basis.

Private finance initiative or PFI has the additional benefit of relieving short-term pressure on the public finances, because PFI links public-sector financial obligations to the delivery of the service. However, PFI does not imply 'free' infrastructure; neither does it involve skewing public finances or evading responsibility for the proper governance of the assets.

Essentially, PFI deals focus on the delivery of relatively well-defined and continuous service. PPP deals are targeting the wider set of transactions around PFI, or for which several coordinated and managed PFI deals may be the solution. PFI is most suited to projects where the service requirements can be clearly defined at the outset and are unlikely to vary much over the lifetime of the contract.

The international adaptation of PFI/PPP is vibrant and varied. The current and projected success rate is equally diverse. A number of countries, such as Ireland, The Netherlands, South Africa, and, to a degree, Australia, have spent considerable time reviewing the United Kingdom (UK) process before creating their own version.

Some countries, on the other hand, have taken a relatively uninformed view of the UK experience and have created their own process - largely in a vacuum - with unsurprising results. Italy failed to take onboard lessons learnt from the UK system and devised its own 'concession law'. This was duly enacted, pilot projects were undertaken and it was publicly declared to be "unsuccessful" at a conference in Dublin in 2001. The Italian process is now being substantially revised.

Key to success

The key to success is not merely to duplicate the UK models by slavish adherence to 'standard' contracts, etc, but to devise a locally appropriate solution through understanding how the good parts of the UK mechanism were created, and, most important, why each element of the process operates the way it does.

This list is by no means exhaustive; other countries interested in developing their own processes include Belgium, Brazil, some Canadian provinces, Finland, Japan, Norway, Portugal, Spain and Sweden.

But does it work?

There have been a number of reviews of the PFI/PPP processes over recent years. One which was undertaken by the UK is widely in agreement that all the current estimates of improvement in value for money, which are predicted to occur, are all systematically biased in favour of the public-sector alternatives. Reasons for this inherent (and perhaps unintentional) bias are easy to spot.

First, in many cases, the costs of parts of the public-sector alternative are either ignored or understated. By way of example, the costs of pensions for public-sector workers are often ignored from the costs of the public-sector alternative because the costs are not apparent 'in the system'. The private-sector supplier by comparison has to include the costs of providing equivalent pension benefits for transferring staff in the bid.

A second reason is subtler. The quality of service specified in many deals is felt by many practitioners to be aspirational - the public sector often has little experience of delivery to the quality level demanded and certainly has no experience of doing so consistently over many years. It is indeed this failure to deliver consistently that is associated with the appalling maintenance backlogs that are in part triggering the huge demand for PFI/PPP schemes worldwide. In general, a number of practitioners believe that in the UK, there could be as much as a 10-15 per cent understatement of expected benefits. However, only time will tell what the true number is.

The primary reason for the continuing uninformed public debate about the merits of PFI/PPP is first the lack of available data on the current state of affairs. Where data are available, the consequences are alarming. In 2006, the Ministry of Transport and Works in Jamaica reported that 12 per cent of principal roads (by length) were classified as good. The thought that nearly 80 per cent of the national road network requires rebuilding is ludicrous.

Delivering better facilities

The continuing themes of the PFI/PPP arguments are often focused on the value-for-money issues; it would be interesting to see how public opinion would change if the presentations were directed to the other issues, such as the delivery of better facilities faster, which work better for longer, and at a long-run cost, which is certainly no more expensive, and is generally much cheaper.

For such an important area, it is regrettable that this apparent lack of data and lack of understanding of the PFI/PPP process by the media, juxtapositioned with a vigorous trade-union intervention, has resulted, in our view, in such a poor quality of public debate.

Contributed by the Private Sector Organisation of Jamaica's Economic Policy Committee.