A three-day Roundtable on Public Sector Management (PSM) and Public-Private Partnerships (PPPs) for Development Results was held in Tokyo from 22 to 24 April to discuss the role of the public sector in managing PPPs to deliver development results. It was organized in collaboration with Asia-Pacific Community of Practice on Managing for Development Results. Twenty-six representatives from governments, mostly senior officials attached to planning ministries, from 17 economies, as well as representatives from knowledge institutes attended the roundtable. Participants shared practical experiences and explored ways to more effectively implementing public-private-partnerships. In total, there were 10 technical sessions on PSM and PPPs, including a field visit to a private financial initiative facility operated by Yokohama City, Japan. The deliberations of the roundtable are summarized here.
Result Oriented Public Sector Management
PSM refers to how governments manage the traditional components of the public sector to deliver developmental results. Planning, budgeting, implementation, monitoring, and evaluation embody the core components of management. In the public sector, these components are carried out simultaneously at various agencies and levels of government—central ministries, line agencies, and subnational governments.
Public Private Partnerships as a Developmental Approach
There are a variety of PPP models. Some PPPs are created for policy formulation and policy setting. Infrastructure or asset-based projects encompass economic (roads, bridges, etc.) and social assets (school-buildings, health centers, etc.) and there are overlaps in these types of infrastructure. Nevertheless, both types entail significant initial capital costs and, thus, need to be managed on a long-term basis. While PPPs strengthen the procurement process, there are many gray areas. Thus, rather than conforming to a model, PPPs should be viewed as a systemic way to define outputs, evaluate impacts and inherent risks, and identify appropriate models relative to those risks. This requires a different approach to every project.
In PPPs, parties commit themselves to a cooperative relationship with each expected to contribute something of value to the partnership. On the part of the public sector, this may be in the form of its authority. On the part of the private sector, this may be in the form of capital, efficiency, or technical capacity. There are benefits to PPP engagement, some of which may be aspirational and not always reflected in each PPP arrangement. An ideal partnership plays on the inherent strengths of each sector and may provide the benefits of (i) predictability and the realistic assessment of risks, (ii) value for money, (iii) bundling of resources, (iv) social gains, (v) environmental gains.
Myths and Realities of Public Private Partnerships
PPPs provide benefits to the public sector by increasing the transparency of investments and provide visibility and quantification of performance of public assets over their lifecycle in a way public investment cannot. However, to achieve this, governments must invest considerable effort in structuring, assessment, implementation and monitoring of PPP projects that is atypical in traditional public sector procurement operations.
The general findings from the country presentation and thematic discussions on PPPs can be summarized as
- PPP differs from privatization. In privatization, the ownership, management, and operation of the asset are handed over to the private sector. In PPPs, ownership returns to the government and public sector engagement remains throughout the life cycle of the agreement. The contractor does not own the asset but is merely allowed its use and is paid a price for its services. Meanwhile, the public sector must monitor the private sector's delivery of the service package.
- PPPs should not dilute accountability. Rather than reducing public sector accountability to deliver results, PPPs should ideally provide better accountability streams. Traditional public service delivery is generally political and non-transparent. PPPs can encourage transparent service delivery while opening many points along the process to allow for the consideration of public interest concerns.
- PPPs will not replace traditional public sector financing. PPPs are large and expensive. The expense involved in PPPs means that this is not going to be the main mode of funding projects.
- PPPs inject market discipline to investment policies. PPPs provide a framework for competition among potential operators. Moreover, the in-built incentive systems in PPPs enable the public sector to reward contractors that perform well while punishing those that perform badly.
Implications for Public Sector Management
The key conclusions and recommendations coming out of the discussions and field visits are
- Considerable effort would be required to galvanize the benefit of PPPs to enhance development outcomes. Statistics presented showed that fewer than 15% of infrastructure projects in the OECD countries were covered by PPPs and even a smaller portion in the Asia and Pacific region. PPPs were never intended to supplant public investment in majority. What is important is that such a percentage represents billions of dollars of capital investment that the public sector did not have to fund itself. However these are also billions of dollars in potential liabilities and, in some cases, explicit payment obligations that the public sector does have to carefully consider, plan for, and manage.
- The Public Sector has a significant role in promoting the enabling environment for PPPs. While evidence from the region has shown that the public sector has played the largest role in infrastructure growth, there exist core areas of development where PPPs are appropriate and constructive. In developing countries of Asia, the immaturity of the private and public sector relationship has resulted in the private sector taking a low-risk approach, with expectations of high and quick returns not conducive to the long-term perspective essential for successful PPPs. Counterbalancing this, is the need for public sector entities to evolve their understanding of private sector investment requirements. PPPs have worked best when the public sector has taken a lead role in proving that the PPP engagement can work. Further, evidences from India, Indonesia, Japan and Philippines demonstrates that there is a need for the public sector to continue active monitoring and engagement with private sector concessionaires to assure development outcomes are achieved in the long-run.
- Extensive PPP capacity development is required. The roundtable highlighted the tremendous knowledge deficit within the public sector in the region on how to approach and manage the PPP engagement. Even countries such as Indonesia and the Philippines who have benefited from extensive donor support and have established PPP centers in government, commented on the need for a better understanding of how public sector can better manage the PPPs and in particular the line agencies that have to support the PPP implementation. This highlighted the need for continuous re-assessment and improvement of PPP operations, even in the presence of well-developed PPP institutions.
- Development Partners have an important role in enhancing PPPs. Development partners can play a greater role in supporting the public sector not just through instruments such as project development funding facilities and partial risk guarantees, but also in making them better understand and manage PPPs, notwithstanding the different historical, political, economic and institutional contexts in which PPPs were operating and encouraging and catalyzing knowledge sharing.