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Getting beyond PPPs as just projects

Malcolm Morley's picture



PPPs are designed to achieve improved access to assets, infrastructure and services over a significant number of years. They should have clearly identified objectives, specified outcomes, clear programs of investment over time, and relationships and performance targets to bring to life the Social and Economic Value Equations that underpin them.
 
As stated in my previous blogs, the Social and Economic Value Equation is:

Increase in value for money from the commissioning and provision of assets and public services
+ Increase in community wellbeing
= Change in the economic and social value achieved

PPPs cannot be viewed in terms of either economic value or social value alone; they need to consider both. This is why clear objectives are so important.

Take for example the provision of a road. The objectives for the provision of a road are to provide more economic, efficient and effective access to and for places, people, markets and services. A new road has economic, community and social benefits.

The provision of a school is to achieve more economic, efficient and effective access to education to improve the life chances, health and well-being of individuals and to improve the economic potential and success of people, organizations and places. 

 
The provision of roads and schools, as well as all assets and infrastructure, should be part of a strategy to achieve the strategic objectives for places and communities. The provision of assets and infrastructure is not an end in itself but a means to an end. This is an important distinction. 
 
Objectives are what the organization is seeking to achieve, and strategy is how its objectives are to be achieved. The objective might be to improve the economic success of a community with the strategy being, in part, the provision of a new road to improve connectivity with markets and the attractiveness of a place for inward investment.
 
It is important to recognize that PPPs for the provision of assets and infrastructure are only part of the strategy to achieve the objectives for places and communities. Improving the economic success of places and communities has many aspects to the strategy to achieve it. PPPs must also be seen within the overall strategic objectives for places and communities. The challenge for leaders and managers is to ensure that the linkages between different elements of the strategy are identified and put into place. 
 
It is important not to get lost in the PPP process for the provision of assets and infrastructure and to lose sight of the real objectives for their provision.  This is why the Social and Economic Value Equation is important and useful in developing PPPs. 
 
As products cannot exist and fulfil their potential without services, neither can assets and infrastructure exist and fulfil their potential without services to support and to enable their use. A new school building will not guarantee a transformation in the educational attainment of the students that use it. A new water treatment plant will not transform people’s lives if the filtration mechanism keeps breaking down due to it not being maintained.
 
A strategic context for places and communities needs to be created into which proposals for PPPs can be placed. In this way, PPP proposals can be seen as part of a strategy to address strategic objectives rather than them becoming an objective in their own right. Without a strategic context, PPPs become limited to being operational projects and their potential to transform the Social and Economic Value Equation is constrained.
 
The creation of this strategic context requires strategic thinking and the willingness and ability of leaders and managers to clarify strategic objectives, identify priorities, allocate resources and to see PPP projects not as ends in themselves, but as part of an interconnected program of investment in assets, infrastructure and services. It requires a long-term vision and commitment. 
 
While individual PPP projects might be managed by a single organization or part of an organization, the thinking and action to initiate and support them needs input from many organizations. Building a new hospital and merely transferring the current services into a new building will not guarantee an improvement in services and health outcomes. The building is merely part of the process for transforming service quality and outcomes. What happens in hospitals is part of a system of preventing illness, intervening in illness, and post-hospital care. The provision of a new hospital is but part of the strategy required to improve health outcomes. PPPs need to be seen within this strategic context.
 
In recognizing this reality, it is important that organizations respond to the challenges of managing a portfolio approach to the achievement of strategic objectives. PPPs are likely to be only one element of the portfolio approach required to achieve the provision of, and realize the potential from assets, infrastructure and services. Public sector managers need to be portfolio managers. They need to be able to manage different types of relationships for direct asset/infrastructure/service provision by their organizations, for the provision of assets/infrastructure/services through PPPs and for joint working with other parts of the public and private sectors.
 
This is a demanding cocktail of requirements and provides a leadership and managerial context for PPPs. Where the willingness and ability to respond to these requirements doesn’t exist, the strategic context is underdeveloped and the linkages between PPPs and the input from the public sector necessary to realize the full potential of PPPs are not present. This creates a barrier to the transformation of the Social and Economic Value Equation. PPPs become discrete projects and they do not fulfil their potential to transform places and communities.
 
Developing the knowledge necessary to pursue PPPs as projects is important, but it is equally important that public sector managers develop their strategic thinking and are able to put PPPs within a strategic context. PPPs should be part of transforming the economy, efficiency and effectiveness of public resources. They will only do so if they are seen as part of an interconnected system of pursuing strategic objectives. 
 
To achieve this requires a move to Public to Public Partnerships (P2P Partnerships). Joint working within the public sector needs to be transformed (see previous blogs on P2P Partnerships). Only in this way will the strategic context and approach to PPPs evolve effectively to fulfil their potential to address strategic issues, and will PPPs be able to move from a project focus to being part of a strategic solution focus.
 
It is also the case that the private sector needs to be encouraged to move from a project focus to a strategic solution focus. This means that the public sector needs to develop PPP opportunities that have a wider scope and scale within a clearly defined and articulated strategic context. 
 
If the private sector is to be able to respond to these opportunities it will have to be committed to achieving the public sector’s strategic objectives, to move from a transactional relationship with the public sector to one based upon partnership working, and to develop Private to Private Partnerships (Pr2Pr Partnerships).
 
Pr2Pr Partnerships will be the subject of my next blog: PPPs and PALS.


Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.

Comments

Submitted by Femi Abisoye on

I live in Nigeria, there are tons of projects designed to be executed via the PPP arrangement. Should your team by be interested in doing business in Nigeria, pls reach me asap.

Submitted by Kehinde Adeniyi on

Very informative.....My company is a project development consulting firm and have several projects designed to be executed through PPP arrangement. Please talk to us if interested - www.ardenilprojects.com

Submitted by George Ekpenyong on

I am a Financial & Investment Consultant based in Nigeria, I have clients with viable projects; Real State Development($100million) Nigeria. Gold Mining Venture/Film making(South Africa).

Submitted by Zhang Fu on

The private investment in PPP project can help to reduce the public burden when the public party has limited capital capacity, for sure the public interest has to be concerned because it’s the purpose of PPP. The public party has the responsibility to create proper environment for sustainable development of PPP.

Submitted by Zhang Fu on

The private investment in PPP project can help to reduce the public burden when the public party has limited capital capacity, for sure the public interest has to be concerned because it’s the purpose of PPP. The public party has the responsibility to create proper environment for sustainable development of PPP.

Submitted by Henri-Claude Enoumba on

Thanks for this point .But, I think that the Social Return of Investment (SROI) is the up-to-date tool of evaluation which complements very well the existing project or investment evaluation practice.It shows clearly benefits for organizations in terms of their future funding and business development activities ,as well as focusing their day-to-day practice on where and how they add value!

Submitted by Kehinde Adeniyi on

Very informative.....My company is a project development consulting firm and have several projects designed to be executed through PPP arrangement. Please talk to us if interested - www.ardenilprojects.com

Submitted by Kehinde Adeniyi on

Very informative.....My company is a project development consulting firm and have several projects designed to be executed through PPP arrangement. Please talk to us if interested - www.ardenilprojects.com

Submitted by Predrag Cvetkovic on

Inspirative article with important questions raised.
The relationship between private and public actors could be also observed in the following manner:

I The competent public authorities are obliged to establish the standards governing the administration of public services and the protection of the public interest, irrespective of whether this interest is protected by the private or the public sector. This specific feature of providing public services is defined as "the hierarchical constant" of the public sector, which is also relevant in public-private partnership (The linguistic term, specifically referring to the "public-private" rather that the "private-public" partnership, actually reflects the hierarchical constant).

II The hierarchical constant necessarily reflects the prevailing legal and political discourse and system of values. The structure of public-private partnership is imbued with elements which are laid down by the political leadership; thus, the PPP goals are frequently no more than a reflection of political priorities of the governing elite. The elites use the PPP as "an ideological safety buoy", which is used as an instrument for accomplishing prospective goals and justifying the changes in the legislative and political paradigm underlying the legislation. It is the universal "key" in which the hierarchical constant is to be interpreted as an element of public-private partnership, irrespective of the time, place, subject matter or ideological provenience.

III The hierarchical constant ensures that exercise of the public good though the "mediation" of the private sector does not result in excluding or imposing restrictions on legitimacy and its respective control. This legitimacy is absolutely necessary in the process of structuring and applying the PPP concept; the necessity is a result of the political sensitivity and the significance of the interests involved. Namely, the participation of private actors in exercising the public interest may potentially jeopardize the legitimacy of the action aimed at exercising such an interest; as a rule, the political public is rather skeptical towards the disposal of public resources for the benefit of private entities. The skepticism is embodied in the standpoint that the primary goal of including the private sector into the process of ensuring the public good is to generate private profit rather than satisfy the public interest. The public sector may be exposed to a critical political pressure in case the private investor's activity is predominantly aimed at making capital gains, without demonstrating due consideration for a further development of the quality of public services (schools, hospitals, infrastructure). For this reason, it is necessary to establish the "public identity" of the interest which is achieved by means of enacting relevant regulations, establishing "the best practices" as the criteria for a successful exercise of the public good, and providing a steadfast definition of standards for establishing the public interest and its implementation. Thus, the private sector is preventively put in the position of an accountable actor.

IV The protection of public interests and ensuring the legitimacy of private action in the public sector are based on the presumed principles of transparency and public accountability (of course, the hierarchical constant shall not be used by the public authorities for the purposes of imposing a crypto-monopoly over the general public interest activities; the private sector is entitled to satisfy its own private interest in a manner which is complementary and convergent with the public interest).

V The primary tools for securing the public identity of a general public interest are promotion and transparency. Namely, the possibility of controlling the exercise of the public interest, which is put into effect either through administrative or political processes, is diminished by the extent to which the public good has been transposed into the domain of the private sector. For this reason, it is necessary to organize public debates (both ex ante and during the action aimed at achieving the public interest) and ensure the exercise of the principles of fairness and equality. Transparency generates a positive pressure on public authorities to constantly provide information on whether and to what extent the public interest is put into effect by the private sector (and, if not, for what reason).

VI Transparency per se is insufficient for securing the legitimacy of the private action. Another convergent prerequisite is to ascertain the public accountability. Public accountability is defined as responsibility not only towards the one who has delegated the power (i.e. the responsibility of the management towards shareholder, the responsibility of an agent or service provider to the principal body that authorized the agent to provide services) but also the responsibility to all the participants who bear the consequences of inadequately provided services and the failure to provide for the public good. This kind of responsibility is accompanied by the fiscal liability and "reputational" responsibility. The adequately regulated and sanctioned responsibility of the participants in the PPP relations is essential for the legitimacy of the public- private partnership.

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