The Seven Sins of Flawed Public-Private Partnerships

There are three stakeholders in a public-private partnership (PPP), (a) the government in office, (b) private firms (financial and non-financial) and investors (individual and institutional), and (c) final beneficiaries (taxpayers or users, present...

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Bibliographic Details
Main Authors:	de la Torre, Augusto, Rudolph, Heinz
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	AUCTION CONTINGENT LIABILITIES CAPITAL MARKETS FINANCIAL SERVICES HOLDING BROKERAGE LIABILITY ACCOUNTING CHECKS PUBLIC-PRIVATE PARTNERSHIPS FUND MANAGERS INTEREST INSTITUTIONAL INVESTORS LIFE INSURANCE GUARANTEES LONG-TERM FINANCE SAVINGS ACCOUNTS EXCHANGE DISCOUNT RATE CAPITAL BASE LIQUIDITY LONG-TERM LIABILITIES FIXED ANNUITIES CAPITAL STRUCTURES REVENUES CAPITAL STRUCTURE REGULATOR DEFAULT RISK BONDS LOAN DISCOUNT RENEGOTIATION SUBSIDY PRICE SAVING BENEFICIARIES GOVERNMENT GUARANTEES PENSION CREDITOR DISPUTE RESOLUTION BUDGET CONCESSION LONG-TERM ASSET MARKET LIQUIDITY INVESTMENT HORIZONS INSTITUTIONAL INVESTOR PRIVATE CREDITOR DISPUTE RESOLUTION MECHANISM SAVINGS PUBLIC-PRIVATE PARTNERSHIP CONCESSION CONTRACT CURRENCY CONTRACT RENEGOTIATION INFRASTRUCTURE PROJECT CONTRACTS PRIVATIZATIONS OPTIONS MARKETS DEBT RETURN PUBLIC FINANCE NEGOTIATIONS LIFE INSURANCE COMPANIES BREACH OF CONTRACT LOANS SECONDARY MARKET LIQUIDITY RISK SHARING PENSION FUNDS FINANCIAL SYSTEM DUE DILIGENCE SUBSIDIES FINANCE TAXES CONTINGENT LIABILITY INVESTORS SYSTEMIC RISKS GOOD JURISDICTION PROCUREMENT DISCLOSURE STANDARDS SOVEREIGN RISK FUTURE GOVERNMENT GUARANTEE CONFLICTS OF INTEREST CONCESSIONS BOND MARKET CONTRACT INFRASTRUCTURE BONDS BIDS BALANCE SHEET MARKET DEFAULT INFRASTRUCTURE PROJECTS LOCAL CURRENCY FINANCIAL CONTRACTS GOVERNANCE RENEGOTIATIONS INFRASTRUCTURE CONCESSIONS INSURANCE ECONOMIC DEVELOPMENT GOVERNMENT BONDS INTERESTS INVESTOR MISSING MARKET MUTUAL FUND INVESTMENT RATES OF RETURN BOND COMMERCIAL BANKS CONTRACTUAL OBLIGATION INFRASTRUCTURE BOND INFRASTRUCTURE FINANCE FINANCIAL ASSETS PRIVATE INVESTORS BID COORDINATION FAILURES PROFIT RESOLUTION MECHANISM CONTRACT RENEGOTIATIONS SUPERVISORY AGENCY PENSION FUND LONG-TERM INVESTORS INSURANCE COMPANIES LEVERAGE EXCHANGE RATE INSTITUTIONAL FRAMEWORK SECONDARY MARKET FINANCIAL SYSTEMS LIABILITIES LONG TERM FINANCE OUTSOURCING FINANCIAL SERVICES INDUSTRY GUARANTEE LONG-TERM ASSETS UNDERDEVELOPED FINANCIAL SYSTEMS EXCHANGE RATE REGIMES FAIR PRICE ASSET MANAGERS
Online Access:	http://documents.worldbank.org/curated/en/2015/12/25674410/seven-sins-flawed-public-private-partnerships http://hdl.handle.net/10986/23595

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Summary:	There are three stakeholders in a public-private partnership (PPP), (a) the government in office, (b) private firms (financial and non-financial) and investors (individual and institutional), and (c) final beneficiaries (taxpayers or users, present and future). The raison detre of PPPs is threefold: (i) to crowd in private firms and investors into projects that they will otherwise not undertake; (ii) to transfer to the private sector a significant part of the risks and costs that the government would otherwise fully absorb; and (iii) to ensure that the projects efficiency/quality is at least equal to that obtained if the government alone carried all costs and risks. Important (yet often ignored) implications follow. First, outsourcing (e.g., construction and maintenance) to the private sector does not by itself constitute a PPP if all risks and costs are, in one way or another, still borne by the government. Second, a PPP does not reduce total risk; it simply distributes it differently, involving private sector firms and investors. Third, the total costs borne by the final beneficiaries would be lower under a PPP (compared to a project whose costs and risks rest completely in the governments balance sheet) only if the PPP achieves efficiency gains; otherwise, what beneficiaries save in taxes they will pay in user fees, although, under a PPP, more of the costs would be assigned to direct beneficiaries/users, than to taxpayers at large. Fourth, that a PPP can provide (cash) budget relief may be a welcome corollary for the government in office but it is not a core objective of a PPP.

The Seven Sins of Flawed Public-Private Partnerships

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