The Emerald Handbook of Public-Private Partnerships in Developing and Emerging Economies

Perspectives on Public Policy, Entrepreneurship and Poverty

João Leitão, Elsa Morais Sarmento, João Aleluia, João Leitão, Elsa Morais Sarmento, João Aleluia, João Aleluia, Elsa Sarmento, João Leitão

• Publisher: Emerald Publishing Limited
• Year: 2017
• Print ISBN: 9781787144941
• eBook ISBN: 9781787149472
• Topic: Economics
• Subtopic: Business General
• Index: Economics

The Emerald Handbook of Public-Private Partnerships in Developing and Emerging Economies is a comprehensive resource bringing together leading scholars to analyze some of the key aspects associated with the processes of designing, implementing, operating, and evaluating PPPs in the context of emerging economies. Each contribution discusses ways to ensure PPPs result in the highest value for public money and welfare within the Sustainable Development Goals framework. 

There are four distinct sections: the first lays the groundwork for a thorough understanding of PPPs in developing and emerging countries; the second explores how to make PPPs work for the poor; the third focuses on public policy, public management practices and entrepreneurship; and the fourth uses practical considerations and case studies to address the implementation and evaluation of PPPs. Individual topics covered include public policy practices and social entrepreneurship; implementation and evaluation of PPPs; empirical analysis of PPP determinants; triggers and determinants to PPP implementation; and guiding principles for PPP sustainability and value for money. 

With a broad scope and final summary of lessons learned and emerging best practices from a range of case studies, this handbook is a go-to source for researchers and students.

PART I
Understanding PPPs in Developing and Emerging Countries

CHAPTER
1

Top 10 Reasons Why (Not) and How (Not) to Implement PPPs in the Developing and Emerging Economies

Boštjan Ferk and Petra Ferk

ABSTRACT

The purpose of this chapter is to analyse Public–Private Partnerships (PPPs) in the developing and emerging economies as a multifaceted challenge from viewpoint of the 10 keys ‘for’ and ‘against’ PPPs: feasibility; planning; optimization; modernization and development; financing; project delivery; project operation; supervision; user satisfaction and accounting issues. The conceptual model and the reasons were formulated by the authors some 10 years ago, based on the literature and case-study reviews. Relevance of those reasons was verified in practice. The knowledge and critical perspective on the above-stated reasons are relevant for the implementation of PPP projects in any national economy – developed, emerging or developing, but it is quintessential for the implementation of PPPs in the economies that are at the early stage of implementation of PPPs. Although for the identification of the above-stated reasons, wide comparative literature and case-studies review was conducted, the reasons were verified in practice in Slovenia only. Slovenia is considered as one of the most advanced transition countries of Central Europe and a developed economy. This chapter can improve public policy, teaching, learning and practice of PPP implementation in developing and emerging economies. The value of this chapter is in the approach which goes beyond the usual defending or renouncing of PPPs. This chapter also clearly identifies the importance of a sincere motive for the implementation of PPPs by the government as a prerequisite for the successful implementation of PPPs.

Keywords: Public–private partnerships (PPPs); developing and emerging economies (E7); arguments for and against PPPs; public relations (PR) strategy; motive for implementation of PPPs

Introduction

The concept of Public–Private Partnerships (PPPs) refers to various forms of cooperation between public and private sectors for the provision of public services and/or public infrastructure in the public interest.

It was based on the assumption that the private sector generally provides public goods more efficiently and at more reasonable prices than the public sector. This is presumably caused by the free-market mechanism, where the quality and cost of providing public goods is balanced at the optimal point arising from the free-market manner of operation which regulates supply and demand. However, when discussing the provision of public services and public infrastructure, the mechanisms of the free market often cannot be followed, namely through the prism of economic criteria, satisfying the public interest is frequently not eligible, yet required by the citizens. Functional dimension of public services therefore recognizes public services as activities that must be performed for various reasons in the public interest under a special regime. Public services are therefore activities that cannot be partially or fully performed in the market within the context of market mechanisms and in particular on two grounds, either the activity in the market does not function or it should not be left to function.¹

According to Duguit, the founder of public services, the term ‘public service’ was created on the day when the differentiation between rulers (gouvernants) and ruled (gouvernés) arose. Although the reasons for this differentiation were historically conditioned and diverse, Duguit argued that, from the very beginning, the ruled recognized they can impose the rulers with some obligations, while the execution of these obligations is at the same time reason and consequence of their existence and power (Duguit, 1929). In our view, this still remains the essence of the public services. Public services are to be provided by the rulers (governments) in countries around the globe, as provision of public services gives the rulers the legitimacy to rule; although the set quality and standard of those services necessarily vary around the globe and are influenced by various factors. Nonetheless, they are demanded to be provided, and in times of severe financial situation the PPPs represent likeable possibility for provision of public services and public infrastructure.

Although in emerging and developing economies, the financial situation is scarce, it seems that many of them are reluctant towards introducing PPPs into their national economies due to various reasons.² However, in many developing economies, the use of PPPs is evolving,³ e.g., the use of the private sector in furthering public health goals in low- and middle-income countries (LMICs) is increasingly common (Whyle & Olivier, 2016).⁴

Devoting special attention to the development and proper implementation of PPPs in emerging and developing economies is of special importance for further global development. In the next few decades, the global economic power will shift from G7⁵ to the E7⁶ economies. By 2017, the E7 emerging economies could be twice the size of developed markets, growing to make up almost 50% of the world gross domestic product, as assessed in the recent PricewaterhouseCoopers prognosis (2017). Consequently, the emerging and developing economies will significantly shape the well-being of the majority of the population. PPPs can be an effective instrument for filling the infrastructural gap and providing public services to increasing global population – if introduced and implemented properly.

This chapter aims to analyse the implementation of PPPs in the developing and emerging economies as a multifaceted challenge, and to point out the key aspects to be considered by governments when implementing PPPs, either on a strategical level or when implementing individual projects. The key issues are elaborated through ‘for’ and ‘against’ arguments as we have identified them: feasibility; planning; optimization; modernization and development; financing; project delivery; project operation; supervision; user satisfaction and accounting issues. The arguments follow the project cycle.

In the first part of the chapter, we briefly introduce the historical evolution of the PPP and elaborate how PPP differentiates from the concepts of privatization and liberalization. This is an important issue from the viewpoint of political tendencies and objectives pursued by individual states when implementing PPP. Next, we presented the importance of a (sincere) motive for the implementation of PPPs as a key enabler for success. In the second part of the chapter, we present the top 10 advantages and disadvantages for implementing PPPs. The chapter takes a critical perspective of a continuously present challenge: to understand the main advantages of PPPs, which may prove beneficial in project implementation, and even more so its weaknesses, which must be addressed properly, prior to initiating PPPs.

PPPs Stood Up to the Test of Time and Became the Global Necessity

In this section, we examine the context and historical background of PPPs. The historical development of PPPs plays an important role. Being familiar with the historical background can prove important as it can help governments to avoid repeating past mistakes. A clear distinction between the concepts of PPPs and privatization bears the same importance. Namely, a wrongful perception on this matter might result in severe consequences when implementing the projects.

Academic literature often features the opinion that the concept of contracting out essential public services is generally thought to be a modern development. In particular, it is most closely associated with New Public Management (NPM), which was established in the 1980s in the United Kingdom while under the leadership of the conservative governments of Margaret Thatcher and her successor John Major (Bringenberg, 2008). However, further analysis in fact reveals that the concept of contracting out public services to private service providers is a concept deeply rooted in history, and that even the Roman Empire used it, e.g., in the transport of grain to the inhabitants of Rome. The provision of grain to the inhabitants of Rome was one of the most significant public services in the Roman Empire. Therefore, the Roman government developed a public system for the provision of grain (annona), in which the public sector actively participated. The key characteristics of this system were, inter alia, that it was based on long-term partnerships with private ship owners that it was established in the public interest of ensuring public order and peace and that the contracts included clauses dividing contractual risks between the parties.⁷ Risk sharing between the government and private providers indicates a relatively modern approach and remarkably modern thinking even for this day and age, which may well fall under the concept of PPP according to modern criteria. This is especially important for combating the present prejudice towards PPP representing a modern innovation from the 1980s. Following the Roman era, in almost every historical period, one can find examples of various forms of private sector involvement in the provision of public services and goods.⁸ The first known use of the term ‘regal’ in the European area was around 800 AD, i.e., in times of Regnum Francorum. The legal definition of the word is traced back to the 12th century and comes from Latin ius regalium, meaning the regal power, the ruling right reserved to the King. The modern successor of this regal power is represented by legal monopolies.⁹ The development was granted legal codification during the Staufen dynasty.¹⁰ In fact, the mediaeval statehood mainly relied on granting economically significant rights in exchange for political support. These rights were granted on the principle of exclusion, which is characteristic of economic monopolies. Exploitation of these rights granted monopoly rents.¹¹ Concessions developed in early Middle Ages. Although they were utilized as early as ancient Rome, when they were granted for the lease of state property; hence, the term concessio. However, the notion of concession then emerged in France about 1170, during the reign of Louis VI. The king gave the Parisians permission for the transportation of goods. Originally, the term ‘concession’ referred to the Latin concedere, to permit. Later, the term ‘concession’ referred not only to a permit but also to the supply of services to residents of towns and villages for the purpose of satisfying public needs. In the 13th century, the concept of concession began to be applied to the development and building of infrastructure, e.g., for the construction of bridges, for which the lords of the castle, as investors, collected the toll.¹² The next period, which features active cooperation between the public and private sector for providing public goods, is the 19th century, when the need for public infrastructure (roads, bridges, railroads), distribution of drinking water, electricity, communal infrastructure, etc., was further promoted by the rapid development of the industrial revolution and the growing number of citizens. In 1777 in France, the first concession for a public service was granted for water capture and distribution in Paris area.¹³ The model of concession was emulated all over Europe¹⁴ and worldwide. One of the most renowned cooperations between the public and private sector was the concession granted in 1854 for the construction and operation of the Suez Canal¹⁵ (Hershlag, 1980; Levy, 1996).

The trend of public–private cooperation changed course in the 20th century with the rise of etatistism, a response to the world wars and the great depression. During this period, the influence and role of the state in providing public goods was significantly strengthened.¹⁶

The ideas about active participation of the private sector in the provision of public goods gained new momentum with the recession in 1980s and the emergence of the NPM. Important elements of the NPM were deregulation, privatization and marketization, the ideas formed by the Chicago School of Economics.¹⁷

Following this doctrine, the conservative UK government in 1992 presented the Private Finance Initiative – PFI.¹⁸ Simplified, the PFI provided that the private sector in the scope defined by the public sector take over...

Table of contents

• Cover
• Title Page
• Part I Understanding PPPs in Developing and Emerging Countries
• Part II Making PPPs Work for the Poor
• Part III Public Policy, Public Management Practices and Entrepreneurship
• Part IV Implementation and Evaluation of PPPs: Practical Considerations and Case Studies
• Index