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Public Private Partnerships - (PPP)

Partnerships between a government body and a private sector party whereby the private sector provides infrastructure or services that have traditionally been delivered by the public sector are termed as Public Private Partnerships (PPPs). PPPs come in different forms. A few of them are mentioned below. The level of ownership, financial responsibility and required know-how may vary across the different models. PPPs are widely used in Europe for improving the efficiency and effectiveness of local public service delivery and are usually based on the following one or more basic concepts:



A private entity operates the facility for an agreed compensation while the responsibility of the capital costs remains with the local public authority.

Lease/Purchase and Operate:  

The facility is leased for certain number of years or purchased by the private entity from the local authority. The private entity then operates the facility and charges user fees.

Lease/Purchase, Build and Operate:  

In this arrangement the leased/purchased facility is built/refurbished or further expanded and operated charging user fees by the private entity. 


The private entity is contracted to build/refurbish/expand the facility according to specifications of the local authority for a certain agreed compensation and handed over to the public sector on completion. 

Build, Operate, Transfer (BOT)

A private entity is responsible to build and operate the facility for a specified period and then the facility is transferred to the local authority.

Build and Operate:  

A private entity builds and operates the facility and is responsible for its capital financing. The local public authority is responsible to regulate and control its operations.

Build and Transfer:  

The private entity builds the facility and then transfers ownership to the local authority. (UN-HABITAT, 2009) 




PPP - Sell to a private partner and lease back 

In this model infrastructure is sold under the condition that it will upgrade, meet better operation integration and incorporate better management techniques. The municipality then leases the infrastructure back from the private contractor for a certain fixed charge over a stipulated duration. With this practice, it reveals that the infrastructure changes the ownership rights from the contractor to the municipality at the end of the leading contract. Ownership rights are generally transferred back to the municipality at the end of the leasing contract (Novikova et al., 2017).

Advantages:  This model presents numerous advantages. For instance, when infrastructure is leased, from the municipality to a private contractor and back again to the municipality after the end of the leasing period, the private contractor and their investors incur the investment costs. On the other hand, The municipality enjoys the benefits of having updated infrastructure without having to take on any further debt or incur any additional expenditures. Lastly, the risks that would be experienced from the finances and other related costs would be spread out over time.  

Disadvantages:  The risk associated with this model is that the partners of the private investors would share the risk after the leasing period. The hazards might be connected to the operation and maintenance of the asset. Additionally, the municipality loses some degree of control over the assets that are already under lease.

Projects that can be financed with this model:  Leasing provides support for initiatives that need substantial upfront investment expenses, as well as for projects that are too large for the municipality to handle by providing appropriate funds and other measures.



PPP - Concession to private partner

Under this model, a private partner is given the responsibility of controlling and managing the infrastructure by the municipality for a predetermined amount of time. The municipality takes the responsibility of paying fees needed, like paying the fee to the operator for the service they would offer over the course of a stipulated timeframe. In order to fully cover on expenditures, the private partner can utilise their personal money to minimise maintenance and operation costs. The contractor would then collect revenue from the project using various means. In response to Directive 2014/23/EU (26 February 2014) on the award of concession contracts (European Commission 2014b), each EU member state implemented national legislation regulating tenders for concession contracts.

Advantages: The municipality would receive final projects that are well-refurbished. This is because the private partner would be forced to invest in upgrading and bear all costs that would be incurred in maintenance. Over the stipulated set period, the municipality would not associate in investing in the technical upgrade and implementation risk. Another merit is that municipality can stimulate innovations by stipulating energy efficiency standards to the contracted investor (ESCAP 2008).

Disadvantages: Setting up and administering a concession model can be complicated. In particular, the negotiation and tendering phases may require significant manpower and time. Therefore, the transaction costs can be substantial. In addition, once the contract is signed, close regulatory oversight is required (ESCAP 2008).  

Projects that can be financed with this model: By drafting a concession agreement that complies with the legislation of the relevant national government, the municipality has the ability to outsource the operational costs and maintenance. 

ESCAP. 2008. ”Pros and cons of concessions”.

European Commission 2014 Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts [2014] OJ L94/1

Novikova, A., Stelmakh, K., Hessling, M., Emmrich, J., and Stamo, I. 2017. Guideline on finding a suitable financing model for public lighting investment: Deliverable D.T2.3.3 Best practice guide. Report of the EU-funded project “INTERREG Central Europe CE452 Dynamic Light”, October 2017.

UN-HABITAT. (2009). Guide to Municipal Finance.

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