Overview
of Contract Types
Public
Private Partnerships ('PPPs') are partnerships between the public
sector and the private sector for the purposes of designing, planning,
financing, constructing and/or operating projects which would be regarded
traditionally as falling within the remit of the public sector. Infrastructure
projects such as roads and bridges are prime examples.
A
PPP can be viewed also as a means of delivering a service and not
merely an asset enabling the service to be delivered. A key objective
of a PPP is to allocate risk to the person best placed to manage and
deal with the particular risk. Certain risks may be more effectively
managed by the private sector rather than the public sector.
The private sector has always been involved in the water sector in
some form or other, from tendering for construction contracts in large
urban supplies to the informal provision of vended water in unserved
areas. However, a new role is currently being negotiated globally.
Three terms have been used (often interchangeably) to describe this
new role.
·
Privatisation: This term was commonly used towards the end of
the 1980s to describe the increase in private involvement; in this
paper it refers to the full hand-over of assets (or divestiture)
to the private sector.
· Private sector participation (PSP): PSP refers to
the role that the private sector can play in the delivery of services.
There are varying degrees of private sector involvement from service
contracts to concessions.
· Public-private partnership (PPP): PPP acknowledges
the key role that both the public and private sectors have in service
provision. The term is becoming increasingly popular as it emphasises
the need for partnerships to maximise the benefits which both sectors
can contribute.
PPP
is carried out by institutions which have elements of both public
and private involvement. The two main methods of operation are:
•
Corporatisation: public utilities are formed as autonomous
commercial enterprises with a board of directors. It remains in public
ownership. This is often the model put forward in opposition to full
PPP.
•
Public-private joint ventures: this involves the formation
of a separate corporate entity, with responsibility shared between
public and private interests. Responsibilities, representation, finance
and profits are all agreed beforehand. This is what is traditionally
referred to when PPP is mentioned. These PPPs range from service contracts
to full divestiture, with an increasing level of private involvement
and control (see table below).
Types
of PPP contracts in the water & sanitation sector
|
Contract
Type
|
Description
|
Examples
|
|
Cooperatives
|
They
can position themselves to be the service providers for certain
(often poorer, informal) areas of a city and manage facilities
in these areas. Often used in rural areas, in conjunction
with NGO's.
|
Port-au-Prince,
Haiti; Orangi, Pakistan
|
|
Service
Contracts
|
Public
authority retains overall responsibility for the operation
and maintenance (O&M) of the system, and contracts out
specific components. Service contracts last 1-3 years and
include services such as meter reading, billing and maintenance.
|
Mexico
City; Santiago, Chile; Madras, India
|
|
Management
Contracts
|
Public
authority transfers responsibility for the management of a
full range of activities within a specific field, such as
O&M. Remuneration is based on key performance indicators.
Public authority typically finances working and investment
capital and determines cost recovery policy. Usually contracts
last between three and five years.
|
Cartagena,
Colombia; Gdansk, Poland; Mali; Johannesburg, South Africa
|
|
Lease
contracts
|
Private
operator rents the facilities from a public authority and
is responsible for O&M of the complete system and tariff
collection. Lessor effectively buys the right to the revenue
stream and thus shares significant commercial risks. Usually
5-15 years.
|
Cote
d'Ivoire; Guinea; Czech Republic
|
|
BOT
(Build Operate, Transfer)
|
Usually
used to procure large discreet items of infrastructure e.g.
water treatment plants that require significant finance. The
private operator is required to finance, construct, O&M
the facility for a specific period of time (usually more than
20 years) before transferring the facility back to the public
authority. Variations: BOOT (Build, Own, Operate, Transfer)
and BOO (Build, Own, Operate).
|
Mendoza,
Argentina; Izmit, Turkey
|
|
Concessions
|
Private
operator takes responsibility for O&M and investment;
ownership of assets still rests with the public authority.
Concessions are substantial in scope (usually a whole city
or region) and tenders are usually bid on the tariff 25 -
30 years.
|
Buenos
Aires, Argentina; Manilla, Philippines; Cancun, Mexico
|
|
Divestiture
|
Full
private ownership and responsibility under a regulatory regime.
|
England
and Whales
|
Adapted
from Webster & Sansom, 1999.
|
