Public Private Partnership and its Potential Benefits

P3 has been defined 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” (Canadian Council for Public-Private Partnerships). Under this type of arrangement, governments work in partnership with private companies in the delivery of services or in production industries or other sectors of the economy. The involvement of the private sector can consist of the provision of capital, expertise or both, and the arrangements can take a variety of forms, to suit the specific needs and requirements of a country.

The potential advantages of P3 for governments include resource mobilization, access to expert skills, increased efficiency, enhanced creativity and innovation, and ease of the public budget. Capacity can be freed up for the public sector to concentrate on high-level issues such as policy-making, developing robust regulatory frameworks and improving delivery of services which are retained in the public sector. For private sector partners, the benefits of P3 include market entrance, investment security, the ability to influence policy decisions in their areas of specialist knowledge and the potential for commercial gain.

Ultimately, the greatest benefits potentially offered by P3 are improved efficiencies in key sectors of the economy, leading to increased productivity and economic growth. Well-planned P3 arrangements can help to ensure that this growth is sustainable, offers environmental benefits and is in the interests of all sections of the population.

Lessons from International Experience

In implementing P3, Suriname can learn from the well-documented international experience of best practice in this area and how to avoid some common mistakes which can hinder success. A number of essential pre-conditions for success in P3 can be identified from published case studies and other literature:

• A high level of commitment to P3 on the part of the government.
• The development or procurement of sufficient specialist expertise within the public sector to support P3, especially in areas such as law, finance and procurement.
• A strengthening of the regulatory, legal, governance and macro-economic environments, to encourage private investor confidence.
• A mechanism for involving key stakeholders in the development and implementation of P3.
• A thorough planning and preparation stage, including clarification of goals and objectives, full appraisal of the P3 options, and consultation with key stakeholders.
• The allocation of sufficient public sector funding to cover preparation, start-up and ongoing costs.
• The identification of potentially suitable private sector partners.
• The establishment of common goals and objectives and a shared commitment between public and private sector partners.
• The establishment of clear channels of responsibility and accountability, and an effective mechanism for conflict resolution.
• The implementation of monitoring and evaluation processes and feedback loops, to help identify and remove barriers to success and build on achievements.

On the other hand, when P3 arrangements have failed to achieve their objectives, the published evidence reveals that this is most often due to factors such as:

• Weak or overly bureaucratic regulatory and governance frameworks
• A lack of sufficient specialist expertise within the public sector, particularly in the areas of law, finance and procurement
• Insufficient involvement of and buy-in from key stakeholders and other relevant parties
• Protracted, non-transparent and insufficiently competitive procurement processes
• A lack of shared goals or inadequate commitment to shared goals between public and private sector partners
• Inadequate planning and preparation

Pending P3 project in Suriname --Suriname Port Authority--

At this moment in Suriname there are several P3 projects being implemented, one of which is the main port of entry for importing and exporting purposes. This project can be qualified as the biggest Surinamese project of its kind. The construction is being completed in cooperation with the Surinamese government, the European Union and the private sector and the port has been restored and expanded to facilitate the business in a better way. A tender has been organized for companies--tenants--to operate a part of the port in a responsible way. Three navigation companies --Integra Marine Freight Services, Continental Shipping Agency and VSH Shipping-- were selected to act as tenants. Based on the rules and regulations, the responsibility of a tenant ends with the service to third parties, firms using the port for import and export purposes. These firms can utilize 65,000 square meters of port land for the processing of incoming and outgoing containers. All other activities such as maintenance, utilities etc are the responsibility of the “landlord”, i.e. the port authority. The tenants pay their rent of U$56 per square meter, per year for the physical facilitation as well as for the services rendered by the port authority. The contract period (15 years) between the tenants and the landlord started on January 1, 2010 and ends on January 1, 2025.

There are other smaller P3 projects in the works in various infrastructure sectors, which will not be mentioned since they are not of that magnitude as the Surinamese port P3 project. In essence, the project described above is the only one worth mentioning in Suriname.

Selecting Suitable Sectors for P3

One of the most important elements in preparing for P3 is to identify sectors of the economy in which this type of arrangement is viable and expected to have major positive impacts on productivity. These should then be subjected to a full appraisal, including a cost-benefit analysis and risk assessment before projects are implemented. In general, P3 is often well suited to declining sectors that were previously under direct or indirect government control and require increased investment and/or specialist expertise in order to boost productivity. It is also sometimes suitable for more innovative projects where a country has considerable untapped resources and there is clear potential for development.

It is proposed that, within Suriname, the following sectors should be investigated by the Government for their potential suitability for P3:

Eco Tourism - Suriname has tremendous potential for eco-tourism since it is home to one of the world's largest nature reserve rainforests, over 16 million hectares. There is expected to be a high level of interest in this initiative among the private sector, and potential for the generation of substantial profits. However, Suriname has a lack of experience in this area and there are likely to be major start-up costs.

Wood processing - P3 might be used to regenerate the major state-owned wood processing company. Advantages include existing private sector interest and low start-up costs as specific infrastructure, skills and production facilities are already in place. With regards to the general infrastructure such as roads, the government should play a major role. Possible risks to expansion include the concerns and activities of environmentalists and human rights activists.

Physical Infrastructure - Suriname’s road system is very under-developed and currently acts as a constraint on improved efficiency and production in all sectors of the economy. The adoption of P3 in improving and expanding the road network has tremendous potential for spin-off benefits and there are many successful precedents in other developing countries.

Utilities- Similarly, Suriname’s electricity generation and distribution and water-management services are currently inadequate to meet the needs of the population and industry, and could benefit from private sector investment, management and/or expertise, with major potential benefits for the country as a whole.

Mining - Suriname has an immense potential in the mining sector, specifically the gold sector. Development in the mining sector has started by signing contracts with foreign private organizations. Although this arrangement contributes to the GDP, it is not in accordance with the potential. Being involved as government through special agencies, gives the country the opportunity to control vital parts of the operations. Participation through special purpose vehicles could be an arrangement that can be utilized for the short- and medium term. Once the Surinamese government has a clear idea of the different aspects of the businesses, it can be fully placed in the hands of the private sectors.

Rice Production – one of the key sectors of the economy and previously a strategic national asset with a world-class reputation. This sector has fallen into decline because of poor management and heavy debt. There is strong export market potential, and existing investor interest in the sector.

Having proposed a solution to eliminate the obstacles for economic development, it is unavoidable to identify some general actions that should be undertaken in order to offer support to gear the system towards Public Private Partnership implementation. In this context, we have given a lot of attention to the necessary measures that could be taken, and how they should be implemented and dealt with during the preparation phase of structuring private participation in the development process. To make people aware of advantages of P3, we need to promote the utilization of P3 structures/opportunities through information exchange with all relevant stakeholders of the public and the private sector regarding the advantages of P3 and how these could be beneficial to the country and its people.

Government and private executives should be informed on the key features of P3:

• P3 options and fundamental issues with regards to forms,
• Types, elements and working method of P3;
• Conditions necessary to construct P3s;
• Supporting pillars of successful P3s;
• Planning and implementation process of P3:
1. Stimulating utilization of structured P3 programs in Suriname.
2. Proposing a concrete project to be launched by the Surinamese Government in cooperation with the private sector as a pilot project.
3. Advising and supporting other individuals and organizations involved in promoting the P3 principle.
4. Communicating actively with foreign P3 organizations having much more knowledge and experience in P3 matters.
5. Highlighting and communicating through individual means and mass communication vehicles the progress made during all phases of the process; preparation and implementation phase.

To start the process of formally creating the P3 environment, a complete assessment should be made after which a strategic framework should be established and followed. This framework should present a package of integrated reforms to create an environment geared at supporting P3 arrangements.

In broad terms we present underneath an overview of the measures that should be taken. The Suriname P3 Initiative must stimulate actions to:

• Establish a clearer policy framework to ensure that PPPs are a coherent option for departments;
• Refine legislation through a targeted program to remove unnecessary obstacles to cost-effective PPP arrangements;
• Enhance the capacity of departments to use PPPs in sound and effective projects;
• Provide an effective institutional framework to ensure that PPPs achieve value for money and facilitate capacity enhancement activities;
• Set up an office space from where all PPP activities will be coordinated;
• Hire a full time staff to take part in the P3 awareness process towards the public and take care of the communication process towards stakeholders of the private as well as the public sector.

The policy framework must describe specific procedural guidance with regards to structural P3 implementation. This framework should not only support the process of delivering value for money, but should also ensure the affordability and financial security of projects in the long run. Furthermore, it should pay attention to the overall P3 goals in the country and guiding parameters to the process of project selection, partner selection and the contractual elements.

In addition, the policy framework should guide the process of attracting capital. The legislative framework should describe among others how existing relevant laws will be adjusted to provide government officials with authority to create binding commitments. Important during the formulation of the legal framework are the contractual provisions like, among others, duration of the contract, range of services, modalities with regards to payments, relationship between the responsible department and the service provider, protection of government intellectual property. These provisions are meant to secure all parties’ -- public as well as private partners-- interests.

In summary, we can state that while the actions should be made clear for all parties involved, the project executive's responsibility is to closely monitor that everything planned is done correctly, on time and within budget. It should also be checked if project milestones are being met during the development of the project; report intake sessions from all the departments involved should be scheduled and discussed thoroughly within the responsibility of the executives. At the core of all the activities lies the documentation of all decisions, reports, changes, corrections and other relevant lessons learned.

For successful completion of the project, the project executives must involve technically high educated personnel with good communication skills. The executives need communicative and dispute resolution skills in order for the project to continue without crucial obstacles.

Andy Rusland MBA
Public Private Partnership Specialist
arusland@yahoo.com

Copyright ©2010 Institute for Public-Private Partnerships, Inc. All rights reserved