Before PPPs – Starting out

 

1.2 What are the key features of successful partnerships?

A. How public-private partnerships typically get started

Public-private partnerships may not seem to be a desirable solution at first. Most organisations prefer to stay on paths they know, sharing goals and work practices with other groups that think and act like them – governments working with governments, businesses with businesses, non-profit groups with non-profit groups.

Governments and private firms have long worked together under simple arrangements, such as government purchase of products that have been produced by the private sector. However, they are often hesitant to enter more complex relationships. Governments are often concerned that private businesses will take advantage of them, while businesses often consider the approaches taken by governments to be burdensome and a waste of time.

Nonetheless, there are three main conditions that favour the formation of a partnership: a crisis; the involvement of a champion; and some kind of catalyst.

Crisis

Generally, it takes a widely acknowledged crisis – for instance, the lack of particular services or the waste of resources – before partners are forced to decide to cooperate in order to resolve the problem. Although it is hoped that progress can be made in the absence of a crisis, in practice, the inertia that keeps many people on their familiar paths is usually broken only by the pressing need to work together.

Champion

Sometimes, even in the absence of a significant crisis, an individual, group, or organisation will realise that separate, uncoordinated actions are creating redundancies and missed opportunities in terms of optimising the use of scarce resources. In reality, even if the crisis is clear and the interest is there, partnership arrangements will not succeed without the drive and commitment of a few individuals. Such "champions" (leaders or pioneers) can be government officials, NGOs, business people, or citizens who – through their own personal motivation – make partnerships happen. In other cases, champions are service providers who stand to profit from the partnership.

Catalyst

Frequently, there is a need for some kind of catalyst to bring the partners together. Such a catalyst could be the actions of an external actor, such as one or more international finance institutions or other bodies that are respected and trusted by all partners.

B. Characteristics of successful partnerships

Compatibel goals

Government, businesses and community leaders must understand and respect one another's goals. For instance:

• the government may initially have difficulty accepting the profit motive of private businesses;
• the private companies may be tempted to walk away from the more bureaucratic decision-making processes used in the public sector; and/or
• local communities may not have the patience needed to address issues affecting other areas of the city.

To resolve these differences, all parties must focus on the broader, complementary goals that are to be achieved. It is important for them to realise that public and private goals do not necessarily need to be the same for partnerships to work – they must be merely compatible.

For example, both the public and private sectors want to raise general standards of living – governments and communities wish to do so to alleviate poverty; and businesses so that more people can afford their products. Both sectors also want to build more links at the local level, particularly in "emerging markets¡" – businesses to support market growth; and governments and communities to promote development and the idea exchange. In addition, both want to provide efficient services – governments and communities to keep costs low and to increase coverage; and businesses in the private sector so as to increase profits. More on objectives can be found in [Tool 6].

Enabling environments

An enabling regulatory, legal and political environment is the cornerstone of sustainable private sector participation.

Legal framework

Early on, the public sector must establish an appropriate legal framework for contract procurement and private sector investment. It is very important that mechanisms be put into place to minimise the likelihood or appearance of corruption in any procurement processes. Unpredictable and unfair procurement processes reduce both political acceptability and the interest of many private investors.

Regulatory framework

The government must also establish a clear regulatory framework and it must implement appropriate tariff regimes and subsidy mechanisms. The creation of a regulatory framework alone, however, does not necessarily guarantee effective regulation. As all local governments are different, the public and private sectors will face a steep learning curve as they try to define and regulate their relationship with one another and their roles in providing services. In particular, the public sector needs to define a clear allocation of responsibilities between the national and municipal governments, and a clear statement of its role as a provider and regulator.

In general, private sector companies prefer that the contract serve as the major regulatory mechanism, and that local governments have very limited regulatory discretion once the contract is in place. Highly specific contract terms that establish duties, performance targets, rules for changing prices and dispute resolution procedures, allow the private sector to better predict the profitability of the venture and decide whether and what to bid for the contract. Given these preferences, governments will have to make important decisions about the degree of regulatory discretion they are willing to give up, particularly for long-term contracts. More on PPP regulation can be found in [Tool 15].

Political environment

In addition to the regulatory climate, a bad political climate caused by the pressure of election cycles, the potential instability of new democracies, the personal agendas of government officials and the special status of some services (particularly in terms of access to water, for example), can create barriers to starting or maintaining public-private collaborations. Governments must provide assurances whenever possible to private sector partners that such political factors will not disrupt the contractual partnership.

Acceptance

The government and business leaders cannot build partnerships alone – political and social acceptance of private sector involvement is essential. The population must see private sector participation as beneficial if the partnership is to last over time. Public support of private sector involvement over the long term will depend on primarily the delivery of promised services and benefits at reasonable costs. Therefore, it is of the utmost importance that mechanisms be developed to ensure that the organisation providing the service, whether it is a public or a private sector organisation, be accountable to its customers.

Public support will also depend on the ability of the partnership to meet the needs of all stakeholders. For example, public sector workers can be a source of tremendous opposition to increased private involvement in the provision of services. Contracts should ensure the employment or placement of public employees and local residents to the greatest degree possible.

Credibility and transparency

Effective cooperation between local government, businesses and the community is always difficult to achieve because of the wide range of participants involved, the low level of trust that often exists between potential partners and the lack of predictability in the process. The credibility of champions and other leaders involved, as well as transparency in the process, are critical determinants of long-term success. Experience suggests that genuine partnerships must include the principles of equity, transparency of operations and mutual benefit. Trust and confidence in any project is necessary for successful partnerships. More on principles can be found in [Tool 8].

C. Factors contributing to the durable partnerships

Governments clearly want to establish PPPs that are sustainable over time. Essential ingredients of durable PPPs include those listed below:

Commitment of resources

All partners to the arrangement should be obliged to commit resources (financial, human, capital) to increase their interest in seeing the partnership succeed. This implies shared risks and rewards.

Capacity development

Projects requiring substantial institutional change or large capital investments will require capacity development within all groups of stakeholders [Tool 21]. For example, development of:

• consumers, in terms of the nature of the service they are to receive and the costs associated with its provision;
• service providers, particularly local organisations, in terms of entrepreneurial skills; and
• governments, in terms of their adopting the frameworks necessary for, and overseeing the provision of, the service.

Roles and responsibilities

The delineation of appropriate roles and responsibilities is another element necessary in the development of effective partnerships. It is essential that partnerships be organised in a concerted fashion in order to make the most effective use of the resources committed by both parties.

Individual responsibilities should be clearly outlined from the beginning so that there is no ambiguity in the tasks that each party is expected to perform. Furthermore, these responsibilities need to be defined realistically with a clear understanding of the strengths and weaknesses of each individual partner [see Tool 9].

Flexibility

All partnerships are context-based and different locally. Partnerships should draw upon other experiences, but at the same time should be opportunistic about exploiting the comparative advantage of local resources. Over the long-term, changes in investment plans, technology choices and priority actions will be necessary in response to unforeseen circumstances. Including clear procedures for making such changes over the life of the project will reduce the chance that they will have a negative impact on the partnership.

Time

Partnerships take time. The process of understanding the problems to be addressed and the impacts on potential partners, as well as those partners' needs and aspirations, all takes time. Progress can certainly be made along the way, but the process of achieving and maintaining acceptance among users, providers and regulators is a continuing one – a cooperative dialogue to address shared needs must be maintained throughout the project.

Patience

Projects requiring substantial institutional change or large capital investments require a lot of time. Careful attention must be paid to the balance between responding rapidly to the most pressing crises and developing integrated solutions that will last. Political cycles and the desire for immediate improvement in a crisis situation often lead to the development of time frames that are too short. Such short-term agendas and limited horizons lead to unrealistic expectations and unsustainable solutions. Major institutional change (such as developing regulatory capacity) and major private investments both take time. It is not realistic to expect that private sector involvement will overcome public institutional and operational inefficiencies quickly, nor that it will compensate immediately for a history of insufficient public sector resources and funding.

Social responsibility

Public services provide public goods – in other words, goods that should be available to everyone. Improving provision of such services is about making people's lives better, especially those of the urban poor. Governments should always make sure that the changes they make promote increased access to, and better quality of, services. An emphasis on social responsibility will also increase political gain, as better services will lead to greater political acceptance by the general population.