Public-Private Partnership for Successful Urban Development [Part 2]
In part 1 of this article, we tackled the subject of Public-Private Partnerships (PPPs) and how they play a major role in the success of Urban Development and in building livable and smart cities for the population. In this part, we will mention the different types of PPPs and the challenges that might hinder their work, and we will suggest solutions for them.
Public-Private Partnerships are formal arrangements between the public and private sectors. These partnerships allow both parties to collaborate to build a city’s infrastructure, deliver public assets and services, and meet the needs of its population. Public-Private Partnerships are based on two principles, where both parties invest financially in a project and share their expertise, knowledge, and networks to achieve their common goals. The involvement of the private sector in the provision of infrastructure is not a new phenomenon, but PPPs can vary in functions and types.
Here are examples of the types of PPPs, with some of the challenges that they might face in Urban Development and solutions for these problems:
I. Types of Public-Private Partnerships:
PPPs come in different types of agreements and contracts. Below we list some of them:
1- Build, Operate, Transfer (BOT): A BOT contract is usually used in large-scale infrastructure projects, where the private sector has to finance, design, construct, own, and operate a public facility. This type of contract allows the development of a discrete asset instead of a whole network, such as roads and toll highways.
2- Build, Own, Operate (BOO): This type of PPP allows a private organization to build a facility or service according to preset design specifications, and to own the facility or service and operate it for a specified time. The private sector does not have to transfer the facility back to the public sector. This type of PPP is often used for water treatment and power plants.
3- Build, Own, Operate, Transfer (BOOT): This is where the private sector builds, owns, and operates the facility until the contract expires. At the end of the contract, the public facility is given back to the government. The private sector in this type of PPP agreements fills the financing gaps. This type of PPP is often used for schools, hospitals, and health facilities.
4- Design, Build: The private sector creates the design of a public facility and builds the facility accordingly. This type of PPP can reduce time and save money, while providing stronger guarantees for the public sector.
5- Design, Build, Maintain: The private sector is typically required to design, build, and maintain an infrastructure asset or public facility. This type of PPPs has a single source of responsibility, which is the private sector.
II. Challenges that PPPs Face and Their Solutions:
While PPPs are very effective in Urban Planning and Urban Development, they might face many challenges in the process. Here are some of the challenges and their solutions:
1- Institutional constraints need suitable governance structures: Institutions are a main element in partnerships. PPPs can face a major barrier at this level, as some institutions focus on the delivery of services and on a project’s activities ahead of partnership activities. This results in the scarcity of resources and to the unwillingness to commit such resources, including funding and time, to build a successful partnership. Institutional constraints also include poor planning, lack of information and leadership and lack of commitment. Providing equitable governance structures and paying attention to partnership processes can help reduce or solve these problems.
2- Finding different sources of financing as a solution for financial constraints: Infrastructure services, such as heating, electricity, energy, water, and technology, are heavily subsidized and incredibly expensive. And although the desire to leverage public funds are often considered primary motivations for the PPP, there may be a number of barriers to the successful financing of PPP projects. In some cases, for example, the private sector might not be able to compete with public sector financing. This is why public financing or borrowing could be considered a better option for the private sector. On the other hand, support from the government, such as financial support, supplies, and equipment, might not be available, which would turn the project into a financial burden for the private sector. This is where different sources of financing are involved. Some projects are financed through equity contributions and debt contributions, where the project sponsors fund the project through capital and stakeholder funds.
3- Conducting cost-benefit analyses for better PPP performance: Cost is one of the keys to PPP motivations. The government always tries to provide services of the highest quality at the lowest costs, which means it is essential to carry out a cost-benefit analysis to allow for better assessment of alternative delivery approaches of services. A lack of cost-benefit analyses can cause unclarity in many situations, where both the public and private sectors will not have the opportunity to understand what they are spending their money on. Conducting cost-benefit analysis can help strengthen the city’s position and create a more conducive environment for a better performance from both the public and private sector.
4- Providing training and exposure helps solve capacity constraints: An imbalance in the capacities of the public and private sectors is the most common challenge that might lead to unsuccessful PPP arrangements. In fact, capacity deficiencies can affect ongoing partnership arrangements negatively, which in turn affects any reforms that may be necessary due to lack of confidence. Normally, PPPs require a wide range of skills, which is why training in PPPs and exposure to the development of such partnerships in other areas can help achieve a broader understanding of the potential of the public and private sectors. This will eventually lead to successful PPP arrangements.
Although Public-Private Partnerships are a great tool for better urban planning and development at the city level, they face several constraints and challenges that might affect their work and lead to inefficiency in the implementation process of public services. This is why PPPs now have different types of contracts and agreements that ensure that both parties understand their roles in the planning process. These types of contracts provide more clarity and a broader understanding of the tasks required of both partners, which will eventually lead to efficient planning and better collaboration between both parties.