Public Private Partnerships (PPP)
Public-private partnerships cover a range of structures under which the private sector is involved in the delivery of a public service.
Within that range there are permutations which vary as to: • The nature of the asset • The nature and the extent of capital expenditure • Ownership of the asset • Responsibility for operation and maintenance of the asset • The way in which the private sector partner is regulated • The source/s of revenue for the private sector partner Some PPP structures are associated with procurement models which involve project-specific capital expenditure. These include projects under the UK’s Private Finance Initiative (PFI) programme which commenced in the mid 1990s. Some 800 projects have been procured under the programme, mostly in the period up to 2010 and across a broad range of sectors, including healthcare, education, accommodation, defence, rail, water/waste, emergency services, streetlighting, social housing and leisure. In the case of roads, the UK Highways Agency (now Highways England) operated a similar programme. In a typical PFI project, a public sector body (eg a government department, health trust or local authority) enters into a long term project agreement with a private sector partner for
the design, construction, financing, operation and maintenance of a facility or amenity that will be used by the public, such as a school or hospital. Alternatively it may be used for the delivery of a public service, such as serviced accommodation for use by the procuring authority. The private sector partner is responsible for obtaining finance for the initial design and construction stage, the majority of which typically consists of long term third party debt, and in return the public body pays a fee (the “unitary charge”) on an ongoing basis for the facility and for the services provided, but only once construction is complete and the facility is operating to the required standard. The unitary charge will cover debt service, operating costs and maintenance reserving, together with an equity return for the project sponsors. The unitary charge will be subject to deductions, should the private sector partner fail to operate and maintain the facility to the required standard. At the end of the project agreement term the asset will generally remain with the procuring authority, except in cases where there is life left in the asset and it is no longer needed by the procuring authority. The UK PFI model is designed to be compatible with project financing, in order to facilitate a competitive cost of capital, and nearly all PFI projects are financed in this way. Consistently with limited recourse
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