Local Private Sector Involvement in Public–Private Partnerships for Sustainable Water and Sanitation in Asia

No.2024-11(June) pborileicfy KeyPoints •Public–privatepartnerships(PPPs)arevitalinwaterandsanitationsectorprojects,bridgingthefinancialgapandaddressinginefficienciesinpublicserviceprovision. •PPPisamethod,notapurposeitself.Theyshouldonlyoperateifthelocalcontextissufficientlypreparedandiftheyareguaranteedtoimproveservicedelivery. •Successvaries;notalllocalormunicipalgovernmentsareequippedorinterestedinwaterandsanitationPPPprojects,eveninJapan. •ProjectsindevelopingAsiashowtheneedforeffectiveprivatesectorcollaborationandcriteriadevelopment,givenchallengessuchasinadequateregulatoryframeworksandoperatingenvironmentsthatimpedelong-termprivateinvestment. •ThispolicybriefhighlightsthedefiningfeaturesofPPPsasanalternativetotraditionalpublicinfrastructureprocurement,improvingtheprovisionoflocalwaterandsanitationservicesacrossAsia. ©2024AsianDevelopmentBankInstitute ISSN2411-6734 DOI:https://doi.org/10.56506/OOWF2834 ThisworkislicensedunderaCreativeCommonsAttribution-NonCommercial-ShareAlike4.0InternationalLicense. LocalPrivateSectorInvolvementinPublic–PrivatePartnershipsforSustainableWaterandSanitationinAsia MonikaFebiola,Intern,AsianDevelopmentBankInstituteandGraduateStudent,UniversityofTokyo NatiaParekhelashvili,CapacityBuildingandTrainingAssociate,AsianDevelopmentBankInstitute YuNamba,Professor,ToyoUniversityBurcuBasar,SeniorStaff,ToyoUniversity KESeethaRam,SeniorConsultingSpecialistforCapacityBuildingandTrainingProjects,AsianDevelopmentBankInstitute;VisitingProfessor,TheUniversityofTokyo 1.UnderstandingPublic–PrivatePartnerships Definition,Types,andModels ThispolicybriefreflectsthediscussionsfromtheADBI–ToyoUniversityWorkshoptitledUtilizingPrivateSectorInvolvementattheLocalLevelThroughPublic–PrivatePartnershipstoEnhancetheDeliveryofSustainableWaterandSanitationServicesinAsiaon25March2024. TheauthorsareindebtedforthesupportoftheworkshopandforthecriticalreviewofthispolicybrieffromAdrianTorres,Director,SpecialInitiativesandFunds,OfficeofMarketsDevelopmentandPublic-PrivatePartnership,AsianDevelopmentBank. Public–privatepartnerships(PPPs)havebecomeanimportantprocurementmethodfortheprovisionofpublicinfrastructureandservicesacrossavastnumberofeconomies,withagloballyestimatednumberofmorethan6.4millionin2020andanannualaverageof$79billionchanneledtodevelopingcountriesduring2007–2011(IMFn.d.;WorldBank2015).Despitetheirsalience,thereisnoshareddefinitionofPPPs.Overall,theycoveravarietyofarrangementsbetweenpublicactors(governmententities)andprivateactorsininfrastructureandotherservices.Toavoidconflationwithprivatesectorparticipationandprivatization,thedefinitionofPPPsemphasizestheengagementoftheprivatesectorwhileacknowledgingthegovernment’sroleinfulfillingtheirsocialobligationsandaimingattheachievementofsuccessfulsectorreformsandpublicinvestments(ADB2008).Newman(2017)definesPPPsasamodeofalternativeservicedeliveryarrangementinwhichthegovernmentorpublicsectorandprivatecorporationsagreetoalong-termcontractualrelationshipfortheprovisionofpublicservices.PPPmodelsdifferintheirlevelofresponsibilityandrisktransfertotheprivatesector.ThebasicPPPcontracttypesareservicecontracts,management Table1:BroaderConceptofPublic–PrivatePartnerships PPPs Public/StateUndertaking PPPType1:PublicServiceProvision PPPType2:PublicAssetUtilization PPPType3:Regulation/Deregulation PPPType4:SharingEconomy PrivateBusiness Assetownership Public Public Public Private Public Private Private Providedservices Public Public Private Private Public Private Private Serviceprovider Public Private Private Private PublicandPrivate Private BOT/BTO,design-build,build-lease-operate,design-build-finance-operate,andPFI Sale/leaseofpublicassets(land,buildings,andotherrights) Revitalizationoflocaleconomy,welcomeenterprises,tourismpromotion,andurbandevelopment Sharingofassets(equipment,space,andpersonnel)whennotinuse SoftPPs BOT=build,operate,transfer;BTO=build,transfer,operate;PFI=privatefinanceinitiative;PPP=public–privatepartnership.Source:ReprintedfromNamba(2024a). contracts,affermage1orleasecontracts,build–operate–transfer(BOT)andsimilararrangements,concessions,andjointventures(ADB2008).Table1showcasesavarietyofPPPmodelscoveringabroaderrangeofpartnershipmodelsgoingbeyondtheconventionalunderstandingofPPPsintermsofassetownership,providedservices,andserviceprovider. AdvantagesandConstraintsofPPPs PPPsofferdifferentadvantagesdependingonthemarketofeachcountry,yettheygenerallyarebeneficialforbothdevelopedanddevelopingcountries.AlleviatingcostoverrunsanddelayedschedulesthatareintrinsictopublicservicesisamongthebenefitsofapproachingPPPsstrategically(Rocca2017).PPPsalsoallowforthesharingofriskamongparties.ExistingliteratureonPPPsgenerallyfindsthatthereisatransferofoperationalprojectriskstotheprivatesector,whichhasthepotentialforbetterandeffectivemanagementthanthepublicsector.However,therearecaseswheretheprivatesectoronlyagreestobeartherisksuptoacertainpoint,andearlyterminationmayoccurtominimizelosses,leavingthepublicsectortocoverthedebtsorcostsincurred(FerkandFerk2018).PPPsa