PPP Development Stage – Defining Parameters (Scope)
7.4 What are the key issues?
Some of the issues faced by the government while it is considering
the PPP parameters require special attention.
Service sector organisation
Whether the service sector is a monopoly or allows competition
defines the parameters that need to be set up.
Some sectors are considered natural monopolies, for instance
water and wastewater treatment. Therefore, governments rarely
seek large-scale competition within these sectors (although
they may seek competition for the sector). However, in
such cases regulation is required to ensure that the monopoly
service provider does not abuse its power by charging prices
that are too high or by providing a low-quality service. Regulation
is especially important in the water sector because demand
for water is inelastic.
In areas in which competition can be introduced, a consumer-oriented
service and culture may be established by the normal process
of market competition. In those sectors where competition
cannot be introduced, the creation of private monopolies
will result in profit-maximising behaviour leading to an
anti-consumer service and culture. In such monopoly sectors, clearly
set parameters can help protect consumers.
The PPP should establish clear performance requirements and
incorporate them into the contract, requesting the operators
of the service to publish key performance
The following list is indicative of the kinds of indicators
which service providers could be required to report on regularly:
- technical efficiency losses;
- quality indicators;
- reliability of service;
- consumer satisfaction, measured by the
number and nature of complaints and through surveys of
- complaint response/resolution times;
- repair response/completion times; and
- access to service (i.e. percentage of the population
However, formal indicators should not disregard the
fact that some people are covered by the service, but
are not able to use it because they cannot afford to pay for it. Thus,
there is also a need to have a comparative assessment
of service use indicators.
Levels of service
One of the most common expectations that governments have
of a PPP is innovation in how service delivery
is organised and carried out. PPPs are frequently called upon to
improve the quality and level of services.
The level of service should be defined narrowly, specifically
and with forethought. For instance, it could
be defined through a measure of the number and rate of unresolved
service requests and complaints. Or through an
indicator of reliability measured by the functioning time – the
number of days in a month or year when
the service is functioning.
Incremental service options
In some cases a desire for greater choice or geography with
respect to service options can be partially satisfied through
incremental changes to the current service structure. For
instance, a minimally acceptable level of service, in terms
of reliability, for example, could be negotiated with the community
with the plan to slowly enhance the service level thought
the course of the project.
Defining outcomes and outputs
The preferred approach for regulating quality of service is
for the regulator to specify and monitor performance outputs
rather than inputs (for example, to specify an indicator
of drinking water quality rather than the treatment methodologies
and equipment to be used to achieve the desired water quality).
Regulating outputs promotes innovation and efficiency improvements – but
only if the service provider also has an incentive to reduce costs.
As a result, this approach goes hand-in-hand with other regulatory
mechanisms, such as the price-cap approach to tariffs (which motivates
cost savings). Specifying and monitoring a limited number of outputs
helps to minimise regulation and avoid costly and bureaucratic
regulatory practices and interference in day-to-day operations.