Preeti Sinha has over 30 years’ experience working with the UN on unique, sustainable improvements, and finance development. In the following article, Preeti Sinha discusses the various benefits and challenges of public-private partnerships in development finance.
A broad consensus isn’t often achieved when discussing policy issues. But the cruciality of enhancing the United States of America’s infrastructure is something that most officials agree on. The significance of the physical framework making up the country is enormous, making contesting the problem near-on impossible.
Sadly, Preeti Sinha explains that political reporters note that’s where the consensus starts and ends. Everyone knows it requires urgent addressing, but parties fail to agree on the correct financing methods for such large-scale infrastructure investments.
That is until a few years ago when an innovative approach began making headway in development finance — public-private partnerships, otherwise known as PPPs. Preeti Sinha explains that this method involves ongoing collaborations with government agencies and private-sector enterprises to fund, build, and operate projects like convention centers, parks, transportation networks, and more.
PPP structures can vary. Some utilize a single firm that shoulders the responsibility for all development phases, from design through to maintenance, while others use a firm for the initial design and construction phases. The chosen structure depends on the project type and the contracts.
Regardless, Preeti Sinha says that this approach to development financing comes with unique benefits and challenges that project participants must consider before diving headfirst into the agreement.
Public-Private Partnerships Bring Many Benefits to Development Financing
PPPs are gaining further traction within the United States of America, as the aforementioned goals are increasingly realized.
Preeti Sinha says that public-private partnerships can also help spread the generally exorbitant cost over a longer duration, freeing up public funds for investment in sectors wherein private investment is otherwise inappropriate or impossible.
When private firms agree to take on the costs of a development project within the agreement, the company benefits from user fees, otherwise called availability payments. They’re paid to them by the government, increasing the organization’s revenue explains Preeti Sinha.
Additionally, infrastructure projects utilizing public-private partnerships create economic diversification. In turn, it makes the nation more competitive in facilitating its development base and increasing the related construction, support services, equipment, and other businesses.
When used to deliver practical, cost-efficient projects rather than solving financing gaps or budget constraints in the public sector, Preeti Sinha says that PPPs can be incredibly rewarding, bringing undeniable benefits to both sides of the arrangement. However, there is always a not-so-positive side to the advantage coin.
What Goes Up Must Come Down: The Challenges Faced by Public-Private Partnerships in Development Financing
Engaging in PPPs may present special risks for the private party. Infrastructure like railways or roads always involves risks during the construction phase. And if budgets are exceeded, the private partner generally shoulders that burden.
From the taxpayers’ point of view, public-private partnerships create risks too. Preeti Sinha says that collaborating with government agencies may safeguard private operators from accountability to the public service users for cutting corners, violating Constitutional rights, or offering substandard services.
Simultaneously, private partners could raise tolls, fees, and rates for consumers who may have no choice but to pay for using the development.
PPPs can also create convoluted principal-agent problems, wherein the facilitation of corrupt dealings and pay-offs to political parties could occur.
Ultimately, Preeti Sinha says that the positive initiatives often fail to establish the ideal balance of private-sector participation, leaving them bereft with traditional challenges of typically financed public projects — delays, budget overruns, and complexities.
Managing Challenges to Reap the Public-Private Partnership Rewards
Perhaps the core reason why PPPs fail is they do not find the correct level of private-sector participation. Thus, they never entirely meet expectations due to the disparities in the sectors’ attitudes toward risk.
Public sectors have become more apt and sophisticated in managing risks, focusing on transparency and compliance laws rather than efficiency and effectiveness. Private sectors, on the other hand, focus on efficiency and effectiveness to ensure projects are completed on time explains Preeti Sinha.
Understanding the different views on risk could be the key to unlocking successful public-private partnerships in development financing. Realizing the disparity ensures both parties can uphold their views while aiding the other to ensure all-around compliant, transparent, effective, and efficient projects.
PPPs have the potential to be turnkey agreements in the infrastructure financing world. It’s just a matter of managing the risks to realize the fruitful rewards.