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PUBLIC - PRIVATE PARTNERSHIP / Lessons from french experience throughout the world
2 December 2005 ,
Jean-Yves PERROT and Gautier CHATELUS,Editors
« FINANCING OF MAJOR INFRASTRUCTURE AND PUBLIC SERVICE PROJECTS - PUBLIC - PRIVATE PARTNERSHIP / Lessons from french experience throughout the world »
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In 1993, France’s Ministry of Public Works and Transportation, under the guidance
of my predecessor Claude Martinand, published an initial collective work on
the French experience DAEI (French Minstry of Public Works, Economic and International Affairs Division), Private
Financing of Public Infrastructure, supervised by Claude Martinand, Paris, 1994 already at that time deeply-rooted and widely-practiced, in
the area of private-sector financing and management of public infrastructure projects.
Six years ago, this first book served to ignite and spur on a debate over the
methods needed to associate the private sector in performing public service assignments.
The French experience, featuring a broad-based approach applicable to a
cross-section of services and infrastructure, proved to be quite original (even unique),
against the backdrop of a worldwide economy still heavily and at times dogmatically
championing total privatization as the sole alternative to public-sector facilities
Since then, the range of public-private partnerships, in terms of both geographic
location and service sector, has continued to spread throughout the world.
A large number of diverse countries, stretching across all continents, have been
holding international calls for tender in order to build facilities and run public services
within a partnership framework, especially in water/sewerage and transportation.
Energy production, waste handling/treatment and, to a broader extent, the environment,
telecommunications and public housing have all been managed using publicprivate
partnerships, with the legal and financial configurations of such partnerships
taking on a wide variety of forms.
Reliance upon a delegated management framework (whether a concession or
another type of public-private partnership), as a means of improving the quality of
public services, has thereby come to the fore as one of the basic tools in economic
modernization. Moreover, this brand of partnership has helped refocus the role and
resources of the public authority on its regulatory missions.
During these past six years, the debate over managing public services through
delegation (in all its international, economic and legal dimensions) has both matured
and become less vehement. No longer is it concentrated on the legitimacy of joint
public-private intervention in satisfying public service or facility requirements, but
rather on the most efficient manner in which such facilities and services can be set up
and operated, via a veritable and well-balanced partnership between public authority
and private operator. In conjunction with these developments, considerable advances (e.g. other publications, conferences, seminars, manuals) have allowed gaining
greater insight into the topic.
French firms have participated extensively in this opening onto the world by
demonstrating their longstanding tradition of involvement in public services within
many countries. These firms have made the most of their practical experience of
working in partnership with France’s public administration, as well as of their technological
prowess, in order to develop original formulae adapted to each context and
each project. This book has been intended to draw upon the depth and richness of
their collective experiences.
By its very nature, public-private partnership cannot stem from a single contractual
template, but instead must be assembled using lessons gleaned from past experience.
As such, it is incumbent upon us to share this experience with other public
and private actors as far and wide as possible, in an effort to incite meaningful and
beneficial exchanges. From a public authority’s standpoint, this book provides:
series of recommendations, reflecting the outcome of such practices and up-to-date
the various processes during the life of a contract: preparation, award and execution;
detailed descriptions of sector-specific parameters;
examples of successful partnerships conducted in various service sectors across the
The Ministry’s Division of Economic and International Affairs has sought, by
virtue of this latest book (which combines a broad range of contributions from company
sources, consultants, public authorities and financial advisers), to extend the
geographic and sectorial scope of strategies related to public-private partnerships.
This effort has also been intended to distinguish future trends shaping such partnerships,
as regards pertinent European and French references (while highlighting
successful ventures encountered the world over), in the aim of offering public authorities
if not an actual delegated-management user’s manual, at least some sound guidelines
for building sector-specific partnerships.
Objectives of this book
As of the 16th century in France, public authorities began envisioning the use
of private entities to perform, on behalf of and under the control of the authority
itself, an economic activity aimed at public service provision or a contribution to
the overall economy. The nation’s very first concession was granted to Adam de
Craponne in 1554 for the construction of a canal.
These partnerships between public sector and private sector began to take on
prominence in France towards the beginning of the 19th century, with the appearance
of new public services, especially in the area of water supply. Private companies
have been commissioned to treat and distribute water to the population as an
economic undertaking on behalf of and under the control of appropriate publicsector
authorities. The same would go on to happen in other public service areas,
such as public transit.
Since the beginning of the 1990’s, the principle of public-private partnership
has enjoyed, the world over, renewed success. A host of factors explain this regained
interest, with the most predominant being: the heightened need for public services,
in a context of limiting public-sector outlays, and a sharper analysis of the division
of roles between public entity and private operators. In this vein, a pragmatic
approach has taken shape, enabling greater overlap of both parties’ objectives for the
modernization and improvement of public services, while transferring a portion of
the taxpayer’s financial burden onto users.
The advent of public-private partnership can also be legitimized by the respective
roles played by the public authority and the private operator. The former is responsible
for ensuring the provision of services essential to the population’s economic and social
well-being, in accordance with society’s expressed needs; while the latter seeks to carry
out assigned missions in optimizing the cost-benefit ratio. The use of public-private
partnership thus enables reconciling these two positions. Nonetheless, considerable
insight into the process is a basic prerequisite; prior to calling upon a public-private
partnership, the public authority must have a solid grasp of the potential advantages
and inherent risks, and fully comprehend the process for enhancing a partnership’s
Public-private partnership has thus become a key issue for the beginning of
the new millennium in the field of public-sector management worldwide. Its
implementation necessitates in-depth preparation in order to develop a truly global
approach. This book aims at underscoring the main characteristics associated
with delegated management and concessions, as well as displaying their economic configurations, preparation conditions, contract-award procedures and execution.
The presentation format includes both the general theoretical standpoint and a
sector-by-sector analysis; each chapter closes with a series of recommendations
addressed to public authorities interested in pursuing this mode of contracting.
Contents of the book
We have produced a book intended for several types of readers. As for content,
background material critical to the success of partnerships, in terms of economic,
legal and financial principles, has been raised in Part II. Parts III and IV examine
these conditions for success in a pragmatic fashion, by economic sector, for the
various modes of transportation and types of urban public services. Part V is aimed at
sharpening some of the theoretical angles and gleaning the perception of multilateral
organizations involved in such projects.
As for presentation, this book has been designed to accommodate a variety of
reading approaches: from a quick skim to a more thorough perusal. Each chapter
is led off by a brief abstract which provides an overview of its contents. A section
has been included at the end to highlight the set of recommendations addressed to
public authorities seeking to enter into partnerships with private operators. Chapters
are also accompanied, whenever necessary, by tables or summary diagrams of the key
points discussed. In a number of cases, inserts allow grasping a particular subject in
greater detail; in the sector-specific chapters, descriptions of example set-ups help
illustrate the material presented.
Part I - Introduction
The first (introductory) part of this book is aimed at discerning the key stakes
involved in public-private partnerships. The first chapter (I-A) portrays the potential
advantages generated by these partnerships, while cautioning against an overlyidealistic
vision and stressing that their success depends, above all else, on both the
degree of partner involvement and the project’s intrinsic quality.
Chapter I-B presents 7 general conclusions which can be drawn from experience
with public-private partnerships over the past ten years. These conclusions encompass:
heightened pressures to justify increased reliance on public-private partnerships;
the growing emphasis placed on pragmatic approaches as opposed to public-private
partnership “models”; the importance of an ad hoc approach to public-private partnership
able to respond to narrowly-defined problems; the institutional environment’s
fundamental role; the life cycle of public-private partnerships projects; the
necessity of a contract regulator; and the need to take contractual procedures through
to the stage of implementation quickly.
Part II - Conditions for a successful public-private partnership
This part is devoted to a cross-sector analysis of the basic conditions necessary
for a partnership to succeed. The introductory chapter (II-A) presents the contracting
process and the features of the contract itself. The contracting process must
begin by defining a host framework for the public-private partnerships and then
developing the specific contract. It is essential to distinguish between the concessionary
contract containing a public service-delegation component and a conventional
public procurement contract. The contracting process must be laid out clearly, yet
incorporate performance objectives. The chapter then turns to the nature of the contract,
which must be firmly tied to: a detailed description of the works program,
the operating conditions stipulated for the public service, and the terms governing
contract termination. The guiding principles always focus on the contractual equilibrium
between partners and the guarantee of public service provision.
The second chapter (II-B) goes right to the heart of project analysis, which entails
the evaluation of risks, their limitation and the breakdown of those risks impossible
to contain. This exercise, valid for all public-private partnership projects and
applicable over the long run, is fundamental to the project’s overall configuration.
Many risks can be mitigated thanks to effective measures on the institutional and
regulatory environment and a solid project organization. Others need to be split between partners in accordance with the principle of risk assignment to the party
most capable of bearing the risk, depending both on the benefit derived from the
project and on the notion of contractual equilibrium.
Chapter II-C focuses on the primary parameter influencing a partnership: the
contract’s life cycle. As opposed to the classical public procurement contract, a partnership
is entered into for the long haul and engenders relations between public
authority and private operator that last a good number of years, and in most cases
span decades. Such a contract therefore must be set up to adapt to the inevitable
changes affecting its domain of application. This chapter highlights the characteristics
of the contract life cycle and their ultimate impact on both the preparation of the
economic and institutional framework up front and the options available following
the award procedure.
Chapter II-D helps clarify the project’s legal-related concerns and describes the
set of legal clauses essential to the preparation of a regulatory and institutional environment
for awarding contracts and ensuring successful partnerships. It also goes
into detail on the basic clauses not to be overlooked during the drafting of a contract.
The chapter’s underlying notion is the lack of a single universal public-private partnerships
model; the ensuing partnership and clauses may be applied within different
types of national legal systems, while maintaining the potential to adapt the contract
to a particular context.
To close this Part, Chapter II-E is aimed at presenting the appropriate financial
approach to public-private partnerships. This approach cannot be merely based on
conventional banking tools due to the level of risk involved from the banks’ standpoint
and the length of contractual periods. The financial organizations working in
this field have thus devised a new set of sophisticated tools. Yet, even the most favorable
financing set-up can only function successfully for projects with solid economic
Part III - Concessions in the field of transportation
Parts III and IV lay out a sector-by-sector approach organized around two major
themes: transportation and municipal services. Public-private partnerships do not
entail use of a single “recipe”, but rather must be applied on a case-by-case basis.
Individual sectors display their own set of specificities, and the experience acquired
in each allows identifying how best to integrate the general principles described in
Part III addresses the broad domain of transportation, which must be considered
both as an economic activity in and of itself and as a support service for the
economy. Consequently, owing to the magnitude of capital investments involved as
well as to the fact that users can be required to pay for services, the public-private partnership proves a particularly well-adapted formula. Four sectors have been analyzed
in-depth: roads, public transit, airports and ports.
Chapter III-A discusses roads and road-related infrastructure. This sector presents
contrasting aspects: simple in the approach (the primary objective of a publicprivate
partnership in this sector is to finance infrastructure), yet difficult due to
very sizable investment outlays coupled with highly-uncertain and imprecise revenue
projections. Public-sector subsidies are often justified and essential. A key to toll
road, bridge and tunnel projects, especially in urban settings, concerns the social
acceptability of paying tolls.
Chapter III-B discusses public transit systems. In this case, the partnership may
be focused not only on the infrastructure component, but on service operations as
well. Such services often exhibit low profitability levels, yet remain essential to urban
cohesion (at least as far as urban public transit is concerned). Concessionary contracts
can thereby incorporate a variety of elements. Rail operating franchises enable
optimizing the use of infrastructure. New high-speed train networks have to be designed
from an overall standpoint, so as to enhance compatibility between infrastructure,
rolling stock and operations; such projects, however, necessitate considerable
subsidization up front. Tramway or metro systems can be handled using different
types of project set-ups, with varying doses of management delegation.
Chapter III-C takes a close look at port systems. Their complexity lies in the
multiplicity of agreements relative to two functions: port authority (regulatory) and
operator (industrial and commercial). Ports can be divided into three main categories,
depending on the level of delegation exercised: operator port, tool port and landlord
port. The selected model must be well-adapted to local conditions regarding
competition, traffic volumes handled, etc.
Chapter III-D presents the characteristics of airport systems. This category of
transportation infrastructure has undoubtedly come to represent the most profitable
and the most straightforward to implement as concessions. The concessionaire is
entrusted with the status of airport authority and must coordinate operations with
four types of entities: airline companies, passengers (and their accompanying parties),
non-aeronautical commercial activities, and the host of regulatory public services
(airport security, customs, air traffic control, etc.). This assemblage requires a
truly multi-faceted partnership established over the long term.
Part IV - Delegated management of municipal services
Part IV describes public-private partnerships principles pertaining to municipal
services. Though the nature of such public-oriented services remains heavily under
the responsibility of the competent local public authority, the economic activities
they engender may be delegated. Quite often, these services associate a local facility
with a specific service provision, which in general comprises the very core of the activity. Use of the generic term “delegated management” for these service partnerships
is definitely most appropriate.
Chapter IV-A discusses the entire array of municipal services. As a result of the
diversity encountered among these services, it would have been difficult to devote a
separate chapter to each. Four major categories have nonetheless been assembled:
environmental protection services (water and waste, which are developed in this
book in two distinct subsequent chapters);
economic services, both basic (energy, telecommunications) and specific (public
fairs, tourism, slaughterhouses, etc.), and all services related to streets and public
space (street lighting, public amenities, etc.);
construction and maintenance of public buildings;
recreational services (athletic, cultural, etc.).
An insert included in this chapter provides a closer glimpse at electricity supply
and telecommunications services.
Chapter IV-B focuses more specifically on municipal water services (production,
distribution and sewerage). This sector illustrates to a great extent the multitude of
issues arising in service-oriented public-private partnership projects. Though a production
function is very often present (e.g. water treatment plant), the critical feature
herein revolves around the provision of an absolutely vital service (water supply),
with its array of issues pertaining to user relations, the social acceptability of water
service rates, quality of service, etc. On the other hand, this sector includes services
intended for the locality as a whole, such as sewerage. A wide variety of delegatedmanagement
approaches are available, extending from a simple Build, Operate and
Transfer “BOT” contract (for a treatment plant) or a service management contract
(for overseeing distribution) all the way to the overarching system concession (with
varying levels of investment exposure).
This part closes with Chapter IV-C, which examines the environmental services,
and more precisely those services related to the entire waste sector. This sector is
currently undergoing tremendous growth and features an emphasis on innovation
and heavy capital investment. Service is provided to the local population, but often
indirectly through a local authority (as opposed to water, whereby the user is served
directly). As is the case with water, a combination of pure service activities (waste
collection) and more industrial activities (treatment) typifies this sector. Moreover,
these industrial activities involve a strong degree of product reuse and may combine
provision of services for both public and private clients.
Part V - Close-up
The final part of the book serves to gain a more in-depth perspective on the subject.
To lead off, a more theoretical chapter allows insisting upon the rationale and
need for making use of a panoply of public-private partnership models, adapted to
specific economic and political contexts and stressing certain invariant parameters encountered in all forms of public-private partnership. Accompanying chapters present
the points of view of several eminent international organizations. The opinions
expressed by the World Bank, the European Investment Bank and the European
Commission have all been assembled here.
I. PUBLIC-PRIVATE PARTNERSHIP IN THE CONSTRUCTION
AND MANAGEMENT OF MAJOR INFRASTUCTURE AND PUBLIC SERVICE
- A. In favor of a pragmatic approach towards public-private partnership
- B. Ten years of public utility reforms: 7 lessons
(from privatization to public-private partnership)
II. CONDITIONS FOR A SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIP
- A. The concessionary contract: a framework, a process, a contract
- B. Risk analysis and sharing: the key to a successful public-private
- C. The contract’s life cycle
- D. The legal framework
- E. The financial approach
III. CONCESSIONS IN THE FIELD OF TRANSPORTATION
- A. Roads and road-related infrastructure
- B. Public transit systems
- C. Ports
- D. Airports
IV. DELEGATED MANAGEMENT OF MUNICIPAL SERVICES
- A. Municipal services: the stakes involved in delegation
- B. Water and sanitation services
- C. Waste management
V. CLOSE UP: THEORETICAL FRAMEWORK
AND PERSPECTIVE OF MULTILATERAL ORGANIZATIONS
- A. A draft typology of public-private partnerships
- B. The European Commission’s point of view:
Mobilising partners for networks of tomorrow
- C. Public-private partnership financing for European infrastructure:
The role of the European Investment Bank
- D. The World Bank’s point of view
LISTE OF CONTRIBUTING AUTHORS
TABLE OF CONTENTS
APPENDIX : Primary types of contracts underlying a public-private partnership
The concessionaire carries out all of the capital investment, operates the resulting service and
is remunerated primarily through service fees paid by users. The facilities are to be handed
over to the oversight public authority at the end of the contract period.
The lessee manages either the facilities side or the operations side of the project and is remunerated
primarily through service fees paid by users. Equivalent to the Anglo-Saxon Management
Contract (plus a “success fee”).
BOOT (Build Own Operate Transfer)
Within a project financing framework, several private entities - via a series of contracts -
finance, build, own and operate an infrastructure facility designed to accommodate the set of
needs established by the public authority, which in many instances acts as guarantor for the
project. Ownership of the facility is to be transferred to the public authority upon expiration
of the contract.
BOT (Build Operate Transfer)
A variant of the BOOT contract, whereby facility ownership is transferred to the public
authority once the building phase has been completed.
BOO (Build Own Operate)
A variant of the BOOT contract, whereby facility ownership remains in the hands of the
private investors beyond the contract’s expiration.
The public authority finances and builds the facility, and then confers service operations to a
private firm which assumes ownership as the building phase winds down.
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