Public/Private Partnerships (PPP)

Public/private partnership (PPP) is a funding model for a public infrastructure project such as a
new telecommunications system, airport or power plant. The public partner is represented by the
government at a local, state or national level. The private partner can be a privately-owned
business, public corporation or consortium of businesses with a specific area of expertise. In one
line we can say, Public/Private Partnerships are government services or assets funded and
operated with the private-sector.

How does a PPP work?

PPP works with complex long-term contracts. They typically span 15, 20, 25 years, sometimes
more, depending on the nature of the project. In that period of time, technology, demographics,
environment, and politics can all change, so contracts needs to be flexible to adjust to the
project’s life cycle.

The private-sector partner designs and builds the infrastructure to meet the public-sector partner's
specifications, often for a fixed price. The private-sector partner assumes all risk.

The private-sector partner, under contract, operates a publicly-owned asset for a specific period
of time. The public partner retains ownership of the assets.

The private-sector partner designs, finances and constructs a new infrastructure component and
operates/maintains it under a long-term lease. The private-sector partner transfers the
infrastructure component to the public-sector partner when the lease is up.

The private-sector partner finances, builds, owns and operates the infrastructure component in
perpetuity. The public-sector partner's constraints are stated in the original agreement and
through on-going regulatory authority.

The private-sector partner is granted authorization to finance, design, build and operate an
infrastructure component for a specific period of time, after which ownership is transferred back
to the public-sector partner.

This publicly-owned asset is legally transferred to a private-sector partner for a designated period
of time.

The private-sector partner designs, finances and builds a facility on leased public land. The
private-sector partner operates the facility for the duration of the land lease. When the lease
expires, assets are transferred to the public-sector partner.
The private-sector partner is granted a license or other expression of legal permission to operate
a public service, usually for a specified term.

Public-Private Partnership Advantages

 Public Private Partnership provide better infrastructure solutions than an initiative that is
wholly public or wholly private. Each participant does what it does best.
 They result in faster project completions and reduced delays on infrastructure projects by
including time-to-completion as a measure of performance and therefore of profit.
 A public-private partnership's return on investment might be greater than projects with
traditional, all-private or all-government fulfillment. Innovative design and financing
approaches become available when the two entities work together.
 Risks are fully appraised early on to determine project feasibility. In this sense, the
private partner can serve as a check against unrealistic government promises or
expectations.
 The operational and project execution risks are transferred from the government to the
private participant, which usually has more experience in cost containment.
 Public-private partnerships may include early completion bonuses that further increase
efficiency. They can sometimes reduce change order costs as well.
 The greater efficiency of PPP reduces government budgets and budget deficits.
 High-quality standards are better obtained and maintained throughout the life cycle of the
project.
 Public-private partnerships that reduce costs potentially can lead to lower taxes.

Public-Private Partnership Disadvantages

 Every public-private partnership involves risks for the private participant, who
reasonably expects to be compensated for accepting those risks. This can increase
government costs.
 When there are only a limited number of private entities that have the capability to
complete a project, such as with the development of a jet fighter, the limited number of
private participants that are big enough to take these tasks on might limit the
competitiveness required for cost-effective partnering.
 Profits of the projects can vary depending on the assumed risk, the level of competition,
and the complexity and scope of the project.

 If the expertise in the partnership lies heavily on the private side, the government is at an
inherent disadvantage. For example, it might be unable to accurately assess the proposed
costs.
 Economic Leakage
Economics leakage is a diversion of funds from some iterative process. Leakage occurs when
money leaves an economy. In the investor relations world, leakage also refers to the
unauthorized or unanticipated dissemination of information. Many countries have chosen
tourism as a tool for economic development. Economic leakage is a phenomenon that always
occurs in the tourism industry of every country. Economic leakage should be underestimated
because if a high level of leakage prevails in a region, it could decelerate a region moving
towards economic sustainability. The story of economic leakage is presented by starting from
concepts of sustainability, tourism and economic development followed by the literature review
of economic leakage. The tourism value chain is used to help examine leakage prone points in
the tourism sector.

How does Economic Leakage occour?

Leakage occurs when taxes, savings, and imports remove income from the system. In the retail
sector, leakage refers to consumers who spend money outside the local market. Businesses
within such an economy must find other ways to drum up revenue. Leakage causes the exiting of
money from an economy and results in a gap in the supply and demand chain.

Income can leak out of closed systems through a variety of events and mechanisms. Tourism can
cause leakage through funds transitioning between those who live in a particular area and chosen
tourist destinations. Additionally, tourism-based businesses that have facilities in one area but
hold headquarters in another can create leakage as funds are shifted to the headquarters location.

Importing goods can also result in leakage when the goods are considered necessary to support
local business or interests. The funds used to purchase the imports leave the immediate
area, resulting in an outflow from the home area.

Export funds can result in leakage when those funds are invested in areas other than where the
exports are produced. This most commonly occurs in multinational business operations.

How to minimize Economic Leakage?

To minimize economic leakages for example in tourism, it is imperative for destinations,

especially in small island developing states, to strengthen linkages with the local economies.
Linkages between tourism and other industries is an under-researched topic. More specifically,
research topics such as legal and institutional factors constraining the linkages between tourism
and other local industries could fill a major gap and add to current discussion on leakages and
repair strategies.