Origin of Public Private Partnerships

Public-Private partnerships (PPP) have over the years grown tremendously across the globe. This is due to the increasing desire of state governments to provide basic public services for its citizens. Public-private partnerships are the best option to the highhandedness of privatisation or the negative effect of exclusive public ownership. It rather combines the know-how, skills and management of the private sector with the public sectors regulatory actions and its protection of public interest.

Public-private partnership (PPP) has been favoured by governments all over the globe due to the fact they work effectively well in delivery basic amenities and public services. This essay in different chapters takes a more critical look at PPPs its many benefits and the various directives and considerations behind them.

0RIGIN OF PUBLIC-PRIVATE PARTNERSHIPS: AN OVERVIEW

The need to change the mode of public procurement initially arose from concerns of the level of public debt, which grew enormously during the macro-economic dislocation of the 1970s and 1980s.Various government sought to encourage private investment infrastructure ,initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditure.

Another factor that sparked Public-private partnership was the fact that with water-tight budget and debt crises most government could not provide basic amenities and effective public services for its citizens. So private investors were invited through a process to form an alliance with government to provide, finance and maintain these public services.

In 1992 the John Major led government, in the United Kingdom introduced the Private Finance Initiative (PFI), which was the first systematic programme aimed at encouraging Public-Partnerships. The United Kingdom has one the most advanced public-private partnership programmes. Public-private partnership is responsible for about 24percent of its public investments. The process has also been adopted by some Australian state governments; a model is the state of Victoria.

2.1. WHAT ARE PUBLIC-PRIVATE PARTNERSHIPS (PPP)

Public-private partnerships (PPP) refers to a legal or /and a contractual relationship between the government and a private business venture, which aims at delivering basic amenities and public services.

A private venture sets up a special company called a ‘special purpose vehicle’ (SPV), to build, develop, maintain and operate for the specified contracted period. Where the government has invested in the project in some case the government is allocated equity. This however is not mandatory and is not done in all cases.

The consortium in most cases comprises of a building contractor, a maintenance company and a bank lender(s) if necessary. The special purpose vehicle has the duty to sign the contract with the government and subcontractors, also to build and maintain the project. For infrastructure sector, more complex arrangement and contracts that guarantee and ensure secure cash flow, make public-private partnership project a top notch candidate for project financing.

Public-private partnerships, is aimed at delivering public service relating to infrastructure, housing, transport, health, education, energy and defence.

2.2. REASONS FOR PUBLIC-PRIVATE PARTNERSHIPS

The reasons for public-private partnerships differ from country to country. However below are a few general reasons in brief, why state governments embrace public-private partnerships.

Firstly, to allow private sector to influence the delivery of public services-: the private sector has over the years been able to maintain an enviable standard in management and delivery, however the reverse is usually the case in most public sector, which is surrounded in debt, mismanagement and lack of effective control.PPP are seen as an effective hand that can steer the effective provision of public services and in numerous instances, the result has been positive.

Secondly, budget constraint-: Most debt ridden countries see PPP as a viable option to provide public services and still be able to channel its tight budget to other projects. This particular reason has recorded great success.

Thirdly, for private sector know-how-: private sector are way advanced than the public sector, in been abreast with latest technical know-how and expertise to maximize the potential of any sector it is involved in. Most private sector personnel’s attend seminars and workshops, that equips them intellectually, an advantage the public sector lack.

Fourthly, accountancy treatment of public-private partnerships off balance sheet-: Public sectors are usually shrouded in mismanagement of its financial records, thereby hard for it to maximize its potential and have an effective turn over. This is where private sector comes in to set up a lucrative agency to provide public services.

Fifthly, incentives are offered to aid private sector. Incentives such as tax relief in most cases offered.

Sixthly, innovation-: innovation means injecting something new. Private sector re-invents and introduces new technologies with aid effective public services.

Private sector is more technological advanced and in tune with the latest technology, which is why in most cases their involvement experiences a great deal of success in their delivery of public service.

Risk management-The risk does not lie solely on one party. It is shared within the private and public sector, which economically is healthy and advisable. In event of any loss, liability is shared between both parties unequivocally.

2.3.CHARACTERISTICS OF PUBLIC-PRIVATE PARTNERSHIPS (PPP)

There is no clear agreement on what does or what does not constitute a public-private partnership. However public-private partnership has distinctive characteristics, in comparison to traditional public-private contractual agreements. Firstly, the private sector provides financing for delivering the infrastructure project. This can be done by the private sector advocating of a financial institutions, in most cases a bank or banks. [1]

Another characteristics, is public-private partnerships are relatively for a long duration spanning 15-20 years. Thirdly, is the strategic role of the private sector inputs during various stages of the project. For instance, the design stage, completion and implementation. Fourthly, the allocation of risk from the public to the private sector. There are five times of risk namely construction risk, which involves design problems and project delays, financial risk, which involves interest, exchange rates.Performanace risk, which involves availability of an asset, continuity and quality of service provision. Demand risk, which involves the need for the services.

Fifthly, Public-private partnership is a credible solution to provide infrastructure and public services.

2.4. BENEFITS OF PUBLIC-PRIVATE PARTNERSHIPS TO THE GOVERNMENT AND TAX PAYERS.

(a) Public-private enterprise improves service delivery due to the merger of both sectors. The government concentrates on setting up policies and serving the public whilst the private sector handles non-core functions such as operating and maintain the infrastructure.

(b) Value for money -: public-private enterprise are effectively managed, which brings about satisfaction

(c) Improves cost-effectiveness -: due to vast experience and flexibility, public-private partnerships delivers public services more cost effectively than other traditional partnerships. The saved amount can be channelled to other services.

(d) Increased investment in public infrastructure -: basic amenities such as hospitals, schools, highways, reduce government capital cost, helping embrace the gap between the need for infrastructure and financial capacity.

(e) A higher level of service through innovation

(f) Reduces public sector risk-: public private partnerships shifts the risk from public to private, which in most cases is better managed by the private sector, due to the fact that it is in most cases, the private sectors expertise or area of specialization, for instance, a private company that specializes in managing buildings can effectively handle any risk arising from commercial real estate.

(g)Deliver capital projects faster-: private investors are more flexible in nature and have greater access to financial resources from financial institution

(h) Improve budget certainty -: The transfer of risk from public-private sector reduces cost usually set aside for unforeseen circumstances. Services are more precise and cost effective. Utilising tax payer’s money more efficiently.

(i) Make better use of assets:-private sectors maximize fully the potential and returns in investments. This results to a higher level of service, more accessibility of public service and reduced cost on the public sector.

2.5.BENEFITS OF PUBLIC-PRIVATE PARTNERSHIP TO THE PRIVATE SECTOR

Public-private partnerships give the private sector an access to a more long term investment opportunity. Business can be set up with security and certainty of procuring a government contract. Payment is initiated through a contracted fee for service, or by collection of user fees. And revenues are secure for as long as 15-20 years. Private sector partners by maintaining a high level of efficiency, by its managerial, technical and financial capabilities, they can expand their expertise, to other business opportunities, and even to other jurisdiction, due to the fact that their past records speak for them.

2.6. HOW ARE PUBLIC-PRIVATE PARTNERSHIP MEMBERS SELECTED?

Selection through legal basis-: if the task is a public contract fully covered by the public procurement directives, the procedure for selection would be determined by these directives. If the task is partially covered by the directives, the fundamental principles found in the EC treaty would apply in addition to relevant provisions of the directives.

In cases provided for in Annex II B of directive 2004/18/EC the fundamental principles of the EC treaty as set out in article 43 and 49 apply if these contracts can be expected to be of a certain interest to undertakings located in a different member state to that of the relevant contracting entity. If it is a service or concession or a public contract not covered by the directives, the selection of the private partner has to be in compliance with the brief overview of the EC treaty below.

Public-private partnerships are chosen through a fair and competitive bidding process. In most cases the agency sponsoring the project will invite the private sector to submit, detailed plans and proposals which are in turn evaluated to ensure they can effectively carry out the function. The medium through which the bidding processes are advertised are through newspapers and gazettes.

2.7. PUBLIC-PRIVATE PARTNERSHIPS IN VARIOUS JURISDICTIONS: AN OVERVIEW.

Partnerships between the public and the private sectors are a cornerstone for delivering public service and infrastructures. The aim of this essay is not to look into the progress of public-private partnerships in every jurisdiction, but an overview on a few namely, the United Kingdom, who is a model, Chile and Nigeria. The idea of choosing these three countries is to show the success of PPPs in various strata of countries.

The United Kingdom is a model for public –private partnerships, with the most experience than any other jurisdiction worldwide. The United Kingdom has signed numerous projects, leveraging in capital investment of over 12billion pounds. They include:-

35 major hospitals, representing the largest investments in new hospital facilities since the NHS was established

520 schools

4 prisons

28 defence contracts

Various projects to modernize government estates

Post office-this sector witnessed a tremendous turn around in service delivery and efficiency a clear contrast from what it used to be before.

Communication-Kingston communication was the last wholly owned local authority telephony in the country. The Hull city council in 1999 floated the company on the stock market. As a result of this effective control passed from the local authority to a competent private company.

The London underground-the introduction of public-private partnership in this area, brought about modernized tube infrastructures, to match up with the growing rise of passengers and also safe guard public interest by maintain safety and a unified network.

In Chile, a country that has been immersed in debt, and run on a tight budget, public-private partnerships have helped the government reduce ‘’infrastructure deficit’’.The issue of water which has been a major problem for the Chile government, recorded a tremendous boost, with the involvement of the sector. Other sectors that have been turned around include roads, ports, electricity, education and healthcare [2] .

In Nigeria, at just 49years,and a new entrant to the public-private scheme, the alliance between the government and the private sector has helped in providing infrastructures and public services .PPP has been embraced by both state and federal government.

In 2008 Stabillini Vissioni, constructed a domestic airport in Lagos, to replace the old one that got burnt. The airport has eased air transportation difficulties, and is equipped with the latest technologies and innovation. The Lagos-Ibadan expressway and Lekki-Epe expressway, are currently under works and are been maintained by the private sector.

3.0.LEGAL TYPES OF PUBLIC-PRIVATE PARTNERSHIPS

Three major legal types of public-private partnerships exist, namely [3] -:

The Concession

The contractual public-private partnership

The Institutional public-private partnership

The Concession -: The EU laws that regulate concessions includes the EC treaty (general principles), the procurement directives 2004/17, 2004/18(works concession and definition of service concession), the case law of the ECJ and the commission interpretative (2006/C 179/02, 2000/C 121/02,2005/0569).Concessions are in two forms, service concession and works concessions. The main characteristics of a concession, includes

Contracting authority entrust to a third party

Total or partial management of services (which constitute economic activities)

For which that authority would normally be responsible

For which the third party assumes the economical, operational and financial risk

Leaves the public authority function and powers of the grantor untouched. [4]

A public concession is revenue generating public private partnership, which involves an infrastructure or a service, the use of which necessitates the payment of fees by end users of this service and any function arising from the sale, rent or exploitation of public land or buildings [5] .

Contractual Public-private Partnerships:-This is based on a relationship between the public and private sector. This contractual model assumes that the private sector partner is responsible to provide funds for the completion of the project and in turn the public sector would pay back through ‘’service or unitary charges’’ which is a reflection of payment based upon usage volumes or demand (e.g. Tolls or public lighting).Many jurisdictions such as the US, the EU and Canada have embraced this system [6] .

The Institutional Public-private partnerships-: This involves the establishment of a separate legal entity that is jointly held by public and private partners. The joint entity is poised with the responsibility of financing and delivering the service or infrastructure for the benefit of the public. This entity has a distinctive legal personality that allows the public partner, through its presence in the body of shareholders and in decision making of the joint entity, to retain a high degree of control over the development and delivery of the project. The entity can also allow a situation, where the public partner develops its own experience of running and improving the public service and still have recourse to the private partner. [7]

An institutional public private partnership can either be set up by creating an entity that would be controlled by public and private partners or by the private sector taking control of an existing publicly owned company, which has obtained contracts or concessions. [8]

4.0. A CRICTICAL LOOK AT THE LEGAL DIRECTIVES ON PUBLIC-PRIVATE PARTNERSHIPS.

Primarily, the aim of the European procurement regulations is the provision of the treaties of the EU that prohibits barriers to intra-union trade, freedom to provide services and right to establishment(three of the ‘four freedoms’),prohibit discrimination on national origin basis, regulate public undertakings and public monopolies. [9] However this rules being prohibitive in nature, have proved insufficient in eliminating the protection afforded by member state to domestic enterprises by preferential procurement practices. This brought a positive secondary legislation to harmonize procurement laws of member states were needed [10] . These secondary legislations are divided into generations.

(a) First Generation of Secondary Legislation –Supply and Works Directive

The council of ministers of the EC, in 1962 adopted a general programme that envisaged the abolition of national quotas and restrictions in public procurement [11] . Directive 66/683 prohibited rules that required the use of national products or rules that prohibited the use of foreign products in public procurement and Directive 70/32 applied the same rule to the public supply of contracts. Procedures for awarding public supply contracts were co-ordinated with directive 77/62 that was responsible for introducing for introducing three fundamental principles: contracts had to be advertised community wide, discriminatory technical specifications were prohibited and tendering and award procedures had to be based on objective cricteria.It however did not cover public utilities, or products coming from outside the EC until its amendment by directive 80/767 as a result of the community’s approval of 1979 GATT agreement on government procurement [12] .

Identical principles of transparency and non-discrimination were applied to the awarding of public works contracts with Directive 71/305 that didn’t replace the national tendering procedures and practices with a set of common rules [13] .

Second Generation of Secondary Legislation -: Utilities Directives

In 1985 the European Community’s white paper for completion of the internal market, identified members states public procurement policy and practice as an essential non-tariff barrier to the free circulation of goods and provision of services in Europe [14] , because it happened to favour national providers, therefore sheltering market from competition and distorting trade patterns [15] . The single European Act of 1986 and the paper are the core foundation of current EU procurement law [16] .

On this note, Directive 88/295 amended all previous public supplies directives. Open tendering procedures were now the norm and negotiated procedure were allowed in only exceptional situations. Purchasing officials now had to publish advance notices of their annual procurement, and also details of each decision it has undertaken. National technical standards now had to be collectively recognized, and the exempted sectors were more clearly defined [17] . Directive 89/440 also amended previous public workers directives. The scope of application was widened, to include concession contracts and certain states subsidized works and also allowing consortial participation in contracts [18] .

The adoption of the first utilities directives, Directive 90/351, was the most important change. Public utilities-the energy, telecommunications, transport and the water sector all escaped the European procurement law harmonization, due to stiff national regimes governing them and also due to the fact that their enormous purchasing volume constituted an instrument of national industrial policy, that government were reluctant to give up [19] . Removal of market access barriers in this sector was greatly facilitated by concurrent liberalization of the European telecommunication industry and by the envisaged global liberalization of public procurement in the Uruguay round of the GATT negotiations [20] .

The first utilities directives generally followed the approach of the supply and works directives, but however provisions for exemption was made in some sectors like broadcasting or for utilities operating under competitive grounds [21] . However with the first remedies directives, 89/995 which related to public works and supply of contracts and 92/13 involving public utilities, member states were obliged to ensure effective and speedy judicial review of decisions by contracting officials. The directive introduced the ‘’attestation procedure’’ as a means for contracting authorities to confirm the compliance of their purchase procedures and practices with procurement law.

The Third Generation of Secondary Legislation: – Service Directive and consolidation

The official completion of the single market in 1992 shifted the attention of the European institutions towards the service sector, due to the constant increase of its macroeconomic importance. The service directive 92/50 tried to contribute to the liberalization of the public sector services by introducing a regime similar to the one governing the procurement of goods, works and public utilities. It also introduced a new award procedure, called the design contest [22] . But its scope, excluded various specific services, and service concession, which may be due to certain national constitutional restrictions, against outsourcing of public services. It also created a clear distinction between ‘priority’ services, to which the whole range of procurement discipline applied, and ‘non-priority’ service, whose procurement was subject to basic non-discrimination and publicity rules only [23] .

In 1993, Directive 93/36, 93/37 and 93/98, re-adopted older supplies, works and utilities directives in a consolidated form. The aim was to make the legal frame work more homogenous .However the change to the works directives include significant clarifications and a special mitigated regime for the award of concession contracts.

Fourth Generation of Secondary Legislation: Further Consolidation

After a considerable amount of talks, debates and consultations, two new public procurement directives which govern the award of supplies, works and service contracts in the public sector and in the utilities have been adopted by the EU. The principle behind it was simplification and mordenisation.The new directive is a reflection of the 1996 European commission’s green paper on public procurement [24] and the following 1998 commission’s communication.

These directives have been viewed as an integral part of the commissions 2000 work programme, which aimed at modernizing the relevant legislation for the completion of the internal market and at the same time an implementation of the Lisbon European councils call for economic reform within the internal market.

The new legal framework is based upon a precise dichotomy between utilities and the rest of the public sector. Whilst the procurement of the former remains governed by a new utilities directive, Directive 2004/17 ‘’coordinating the procurement procedures of entities operating in the water,energy,transport and postal services sectors’’, the other three directives were fused into a single ‘’public sector directives’’, Directive 2004/18 ‘’on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts’’ which now governs procurement by public authorities other than utilities [25] .

The 2004 directive irrespective of further simplifying and clarifying the existing law, it introduced a new procurement procedure, called the competitive dialogue, and allows the procurement of frame work agreements. In 2007, the much anticipated remedies directives were also updated by Directive 2007/66 which amended directive 89/665 and 92/13, with the aim of improving the effectiveness of review procedures relating to award of public contracts.

However public-private partnerships are not subject to any special rules in the EU procurement law, but must abide by the rules and principles of the European treaties, including those in the secondary legislations as listed above [26] . In 2002, the commission made available an ‘’interpretation communication on concessions and community procurement law [27] and in 2004 a ‘’green paper on public-private partnerships and community law on public contracts and concessions was also published’ [28] ’.It intention is take inventory of existing practices from the perspective of the European law and intends to initiate a debate on whether a specific legal framework should be drawn up at the European level.

4.1.The Role Of The European Court Of Justice

The European court of justice (ECJ) has been over the years saddled with the responsibility of interpreting the public procurement legal framework. The ECJ also provides intellectual assistance to the efforts of the European institutions with the aim of strengthening the 3principles (non-discrimination, objectivity, and transparency) underlying the regulation of public procurement with the aim of eliminating discrimination and non-tariff barriers in the field of technical standard and selection procedures.

The jurisprudence of the court is a clear reflection of the sole aim of the European judiciary, which is to vest its regime wherever with direct effect. By arming public procurement with direct effect the access to justice is further increased, and this would improve its compliance and the quality of the regulatory regime, ensuring uniformity.

Law and policy makers have however learnt an essential lesson, from the courts jurisprudence that it reflects on a ‘’rule of reason approach’’ which drives public procurement regulation as an agent of policy making at the national and European levels [29] .

5.0.POLICY CONSIDERATIONS SURROUNDING THE AWARD OF PUBLIC-PRIVATE PARTNERSHIPS

Social Consideration-:

In Beentjes [30] , the court held that social policy considerations and most especially measures that aim at reducing long-term unemployment, could only be part of the award criteria for public contract, most especially in situations where economically advantageous offers is selected. The court also went further and accepted that the later criteria for an award, has features that were vaguely defined in the directive, in other words, there isn’t any discretion conferred on contracting authorities to specify what most economically advantageous offer is for them. However this criterion cannot be a basis for disqualifying any candidate who could not meet them, by the contracting authorities. Selection of tenderers is based on a exhaustive list of technical and financial requirements, provided for in relevant Directives and the insertion of contract compliance as a selection and qualification requirement would be considered ultravires.The court also held further that ,contractual conditions relating to the employment of unemployed person for a long term basis is compatible with public procurement directive, if it has no direct or indirect discriminatory effect on tenders from other member states. Such a condition must be included in the tender notice [