PPP Development Stage – Defining Parameters (Scope)
7.1 What is the scope of the PPP?
The scope of the PPP has to be established during the process
of strategic planning [Tool 2]. First and foremost, the scope of
the public-private partnership should be considered in terms of
geographical area and service requirements. However, the regulatory
framework is another aspect through which the parameters of the
partnership must be defined.
In terms of geographical area, the scope should be defined
with regards to both the nature of the project (for example,
if the service to be provided is water supply, waste management
and so on) and the objectives of the decision-maker.
Projects often deliver improved value for money if the scope
of the contract is increased to provide greater possibilities
for innovation and economies of scale. For instance, in
the waste sector, government policy usually favours regional co-operation
to provide a more effective framework – in planning and volume terms- – for
the development of integrated waste management systems. In
this case a single PPP could be established for each region
to provide a seamless integrated waste management service,
incorporating all elements of waste collection, separation,
recycling, treatment and disposal.
However, other projects may be sufficiently large and/or
complex to the degree that there exist a number of sub-options
to the PPP. These options may relate to the separation of
a business by function or geographical area. For example,
if the government is considering the use of a PPP to provide
integrated waste management services in a particular region, it
could use a number of area-based contracts, or separate PPP contracts
for waste collection and waste treatment/disposal. Where
such sub-options exist, the costs and benefits of each sub-option
should be appraised in monetary and non-monetary terms
and the preferred option identified in the PPP assessment.
The government needs to assess current levels of service;
these are expressed typically as ratios of facility capacity
to demand. For this, the government will need to gather information
on such matters as:
- characteristics of the service (quantities supplied,
metered and paid for);
- performance standards (quality, pressure,
supply security, interruptions, sewer flooding, sewer collapse
and the like); and
- problems with service delivery by the public sector.
Geographical area and
define the scope of the PPP.
It is important for the government or municipality to prioritise
flexibility with respect to tradeoffs between tariffs
and service parameters (levels). An ambitious plan for the service to cover
additional areas may not be feasible because the
people to be connected are not able to pay for the service,
especially if the connection fee is high. The same problem could
occur if the level (quality) of the proposed service is too high
for a disadvantaged community to be able to afford.
The affordability of services could be enhanced through
appropriately designed subsidies. Liberalising entry to the
market for small-scale or innovative providers serving communities
not reached by conventional organisations is another way
to resolve this issue. Smaller providers tend to be more
flexible in terms of meeting to the needs of the poor.
Finally, an expanded dialogue/exchange of information
with a more diverse range of stakeholders (including
poor communities) should take place in order to find out
the appropriate/optimal service requirements.
Governments must prepare the PPP environment. When the government
decides to involve a private party (a for-profit or not-for-profit
organisation) to provide services, it should consider installing
sound and independent regulatory regimes and enforceable
laws on tariff setting and collections. A government that
fails to get the structural and regulatory package right in the
first place can face an immensely costly and time-consuming process
to rectify matters later on.
In most developed countries, and increasingly in developing countries
too, governments have attempted to establish a sound legal
and institutional framework for the regulation of network industries,
such as, water and wastewater treatment providers. Where there
is limited regulatory capacity, regulation by contract may
be sufficient. However, in most cases, it is best when a well-qualified
and independent third party is responsible for monitoring tariff
adjustments and is the first port of call should there be a dispute
A regulatory framework, within which the private
contractor must operate, should cover issues such as service
quality and reliability, service fees, environmental standards
and the rights and obligations of customers. In general, the
greater a government's political commitment to creating a clear,
fair and credible environment for private sector involvement, the
more it is likely to be able to ask the private sector to do,
and the greater the likely benefits will be to its citizens.
The options for the scope of the regulatory structure might
include: centralised or decentralised regulation; multi-sector
or single-sector regulation; and regulation by an individual
regulator or a regulatory commission.
1. Centralised or decentralised?
The choice between centralised or decentralised regulation of
services depends to a great extent on the local context: the size,
topography and population of the country and the strength of the
different levels of government. It also depends on which level
of government is responsible for financing and organising services.
2. Multi-sector or single-sector?
The advantages that apply to centralised regulatory agencies
also apply to multi-sector agencies (regulatory authorities
which regulate a number of different public services such as water
supply and sewerage, power and telecommunications). In addition,
multi-sector agencies enhance the opportunities for cross-fertilisation
among the sectors. However, sector-specific departments must be
established to ensure that the regulatory approaches are appropriate
to each sector. Multi-sector agencies are particularly appropriate
for small countries, or when regulation is decentralised.
3. Commission or Individual?
In a number of countries, regulatory authority over certain
services is vested in an individual regulator. The
alternative is a board or commission. There are good reasons
to favour the commission model. It allows different kinds of
professional expertise and perspectives to be represented; it
also reduces the pressure on the individual regulator, and the
potential for improper influence (by the private contractor,
for example) over decisions. Decision-making in a board or commission
can be facilitated by establishing an odd number of members and
limiting the number to the minimum required to achieve the
desired breadth, preferably three or five. The larger the number
of board members, the more cumbersome decision-making will
be and the weaker the accountability of individual members.
More can be found on regulatory frameworks in [Tool