Public–Private Partnership: Generating Mutual Benefits for Stakeholders

Infrastructure is arguably one of the main drivers of developmental growth, as it provides social, as well as economic, benefits to society. The development of infrastructure becomes a way to combat poverty as well as increase productivity and enable competitive advantage. Continuing my notes last year on the role of public–private partnership (PPP) in accelerating infrastructure development, I would now like to extend our discussion to deepening the important principles to optimize the partnership.

Many governments are now developing closer partnerships with the private sector to achieve mutual benefits in generating massive development of sustainable projects by stimulating private sector participation as well as increasing infusions of investment funds. The need to deliver adequate PPP due-diligence analysis is important to ensure that projects are well designed and developed. This is required to ensure that PPPs are successful by creating fair sharing of resources, risks, responsibilities, expertise and rewards planned for implementation among stakeholders.

A key factor for the successful implementation of the PPP scheme is project feasibility, which is assessed through value for money and optimum benefits for stakeholders. The partnership requires delivering measurable results through stakeholders’ mutual benefits. Therefore, there are three principles that need to guide the partnership: (1) the government can succeed in providing public infrastructure; (2) the private sector can gain adequate profits; and (3) there can be reasonable community pricing for accessing infrastructure services. Failure to comply with any of the above principles contributes to the lack of partnership success in public project development.

Furthermore, in order to create optimum benefits and to increase project feasibility, innovative and value-added infrastructure projects must be contemplated during project development. In other words, creating value-added infrastructure projects can be defined as a way to increase the feasibility of projects by creating innovation, generating efficiency and conducting technology transfer, thereby optimizing benefits for all stakeholders through multi-sector collaboration in producing integrated and multi-functional public projects. The underlying concept is to maximize project benefits and enhance total cost efficiency; for example, the production of multi-functional infrastructure such as the PRASTI (Public RAilways and STormwater Infrastructure) Tunnel or highway bridges above the sea that are able to generate renewable tidal energy attached to the sub-structure.

Efforts to achieve cost effectiveness and to generate additional benefits form the basis for project planning and development. Value-added projects will directly affect financing and partnership schemes. There are four financial scenarios that can generate the project feasibility of partnerships between the government and the private sector: first, the initial cost-sharing scenario; second, the operation and maintenance cost-sharing scenario; third, the initial cost and operation and maintenance cost-sharing scenario; and fourth, the initial cost, operation and maintenance cost, and revenue-sharing scenario. As a consequence of the first three financial scenarios, there are several types of partnership schemes that are commonly used, including Design-Build-Finance-Operate (DBFO), Design-Build-Operate (DBO), Design-Build-Maintain (DBM) and Build-Operate-Transfer (BOT). Furthermore, it is argued that the last scenario can produce optimum benefits for stakeholders by generating a new form of contractual partnership agreement, the Build-Operate-Share-Transfer (BOST) scheme. In BOST, the public and private sectors share costs and revenues during projects’ life cycles. Based on our research findings, the system engineering that produces value-added project planning and development could increase feasibility by up to 10%, and furthermore, the financial engineering and partnership scheme could contribute up to another 10% in project feasibility. Optimizing planning systems and financial partnerships clearly contributes to the achievement of optimum feasibility, not only to distribute the investment burden but also to improve project benefits.