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What are PPPs?

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a. Definition

  • PPPs are formal arrangements between public and private counterparties to share risks and rewards in the delivery of e.g. public services and infrastructure.
  • There is no uniform definition of what PPPs are and what kind of contracts are typically considered PPPs, but definitions used in national laws, by development organizations and in academic literature offer some general guidance.
  • National laws and policies provide for a shared understanding of PPPs, but specific definitions vary. For example:
    • The Canadian Council for Public-Private Partnerships defines a PPP as “a cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks, and rewards”. [1]
    • The European Commission defines a PPP as “an arrangement between two or more parties who have agreed to work cooperatively toward shared and/or compatible objectives and in which there is shared authority and responsibility; joint investment of resources; shared liability or risk-taking; and ideally mutual benefits”. [2]
  • Development organizations (development banks, IGOs etc.) mostly converge in their definition of a PPP, many of them utilizing the definition developed by the PPP Knowledge Lab. [3]
    • The PPP Knowledge Lab defines a PPP as “[a] long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility and remuneration is linked to performance”. [4]
  • Academic definitions incorporate elements of both the governmental and PPP Knowledge Lab definitions, defining PPPs e.g. as:
    • “a cooperative arrangement between the public and private sectors that involves the sharing of resources, risks, responsibilities, and rewards with others for the achievement of joint objectives”.[5]
  • For the purpose of this project, UNCTAD’s working definition covers the following key characteristics of PPPs on which most definitions converge:
    • Cooperative project between the private and the public sector;
    • On a long-term basis (can range from a few up to 30 or more years);
    • For the provision of a public asset and/or public service;
    • Sharing of risks, responsibilities and rewards between the project partners.

PPPs can vary in a number of aspects. [6]

  • PPPs vary depending on whether they concern the provision of new assets (greenfield investments) or the upgrade/management of existing ones (brownfield investment).
  • PPPs vary in terms of the degree of the private involvement. At one end of the spectrum, there is full responsibility of the public actor for the provision of the public asset or service; at the other end of the spectrum, there is full responsibility of the private actor. A PPP will fall somewhere in-between of these extremes.
  • PPPs vary in the functions transferred to the private party:
    • Design: The private party may be responsible for the development of the project from initial concept and output requirements to construction-ready design specifications;
    • Build or Rehabilitate: The private party may be responsible for building a new or rehabilitating an existing asset;
    • Finance: The private party is typically responsible for financing, in whole or in part, the building or rehabilitation of the asset;
    • Maintain: The private party may be responsible for maintaining the asset to a specified standard over the life of the contract;
    • Operate: The private party may be responsible for operating the asset, depending on the nature of the underlying asset and associated service.
  • PPPs also vary depending on the remuneration mechanism:
    • “User-pays” PPPs: Under this mechanism, the private party typically provides a service to users and generates revenues by charging fees to the users of the service (e.g. road tolls, water distribution fees, etc.). This may be supplemented by government payments (e.g. subsidies to the investor; subsidies for services provided to low-income users).
    • “Government-pays” PPPs: The government is the only source of revenue for the private party to recoup the investment.
  • Finally, PPPs also vary depending on the level of ownership of the asset involved. This will also depend on the legal frameworks in place in any given country (e.g. foreign ownership restrictions).

b. Relevant types of contracts for PPPs

aa. Contracts that are typically considered PPPs

  • DBFOM (Design-Build-Finance-Operate-Maintain), Design-Build-Finance-Operate (DBFO), Design-Construct-Manage-Finance (DCMF):
    • These types of PPP contracts are defined by the functions transferred to the private sector.
    • Functions of the private party may be, as applicable, to design, build, construct, finance, operate and/or manage as implied by the titles of the contract types (see above).
  • Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), Build-Transfer-Operate (BTO), Build-Own-Operate (BOO):
    • These PPPs are described with respect to the legal ownership of the project assets (the functions transferred are typically the same as stipulated above).
    • Under a BOT project, the private company owns the project assets during the life-time of the project,< but transfers them to the public sector at the end of the contract. BOOT and BOT are used interchangeably.
    • Unlike BOOT and BOT, where the ownership is transferred at the end of the contract, under a BTO contract term, the asset ownership is transferred once the construction is complete.
    • A BOO contract is similar to a BOOT contract, but the private party permanently retains ownership of the asset (the government only agrees to purchase the services produced for a specified length of time).
  • Concession:
    • Typically, a concession gives the private party a long-term right to use the public assets in question, but also places on the private party the responsibility for operations and some investment.[7]
    • Asset ownership typically remains with the public sector, and the private party obtains most of its revenues directly from the consumer (“user-pays” PPPs).[8]
    • Operations and maintenance (OM): Under this concept, the private sector is responsible for all aspects of operation and management of the PPP. This is only considered as PPP to the extent it is performance-based and long-term and involves significant private investment.

bb. Contracts that are typically not considered as PPPs

Contracts that do not fulfil the key characteristics resumed above will typically not be considered as PPPs. This is the case for, e.g.:

  • Management contracts: In this type of contracts, the key characteristics of long-term project duration, significant private financing/risk and/or the high-level responsibility for the performance of the PPP are typically absent.
  • Affermage (franchise) contracts:This contract type is similar to a concession, but the government typically remains responsible for the financing.
  • Design-bid-build and turnkey contracts: These types of contracts are often used for “simple” projects and typically do not include maintenance or operation of the asset. The private party does not assume long-term responsibilities nor does it have long-term performance incentives.
  • Financial lease contract: This type of contract is not considered a PPP because of the significantly lower risks than would be transferred to the private sector through the PPP.
  • Privatizations: In privatizations, the government permanently transfers public assets (and the responsibility to provide a service) to the private sector. The public actor therefore frees itself from any responsibility and ownership, and all risks are fully borne by the private owner.


The Canadian Council for Public Private Partnerships, “Definitions and Models”, http://www.pppcouncil.ca/web/Knowledge_Centre/What_are_P3s_/Definitions_Models/web/P3_Knowledge_Centre/About_P3s/Definitions_Models.aspx?hkey=79b9874d-4498-46b1-929f-37ce461ab4bc.

[2] European Commission, “Guidelines for Successful Public-Private Partnerships” (2003) 16, http://ec.europa.eu/regional_policy/sources/docge...

[3] The PPP Knowledge Lab is a knowledge platform launched in 2015 by several development organizations, such as the African Development Bank (AFDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IADB), the Islamic Development Bank (IsDB), and the World Bank Group, with the support of the Public-Private Infrastructure Advisory Facility (PPIAF). Since its launch, the European Investment Bank (EIB), the Global Partnership on Output-Based Aid (GPOBA), the Organisation for Economic Co-operation and Development (OECD), the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) and the United Nations Economic Commission for Europe (UNECE) have joined the Lab.

[4] PPP Knowledge Lab, “PPP Reference Guide, Version 3” available at https://pppknowledgelab.org/guide/sections/83-what-is-the-ppp-reference-guide.

[5] Young Hoon Kwak, YingYi Chih, C. William Ibbs, “Towards a Comprehensive Understanding of Public Private Partnership for Infrastructure Development” (2009) 51(2) California Management Review 51, 52.

[6] Unless indicated otherwise, the following discussion is based on the PPP Reference Guide (n 4) 6ff.

[7] World Bank, “Concessions, Build-Operate-Transfer (BOT) and Design-Build-Operate (DBO) Projects“ Public-Private Partnership in Infrastructure Resource Center, https://ppp.worldbank.org/public-private-partnership/agreements/concessions-bots-dbos.

[8] But different e.g. in the Chilean Concession Law, which include “government-pays” contracts, PPP Reference Guide (n 4) 7.