PPP Menu No. 3: Public and/or private resources … Choice of the cuisine

Last week this columnist wrote about a viand that the government has to order—whether to court or bid out projects in a public-private partnership (PPP) arrangement; or allow itself to be courted or consider an unsolicited proposal from a private sector proponent (PSP).

In the sequence of decisions, this, however, is not the first choice which the government, through an implementing agency (IA), has to make. To choose this viand means that an IA has already decided to embark on a PPP. Before an IA opens its PPP Menu, it must first choose from a host of development strategies.

The pure public choice. An IA may opt to use its own (public) money to fund a project—road, bridge, airport, bulk water supply, monorail, among others. The IA may also borrow money. It may construct the project by administration. The concerned agency may also operate and maintain the facility. The IA may set up a subsidiary as its public corporate vehicle for a project. The IA performs all the functions, assumes all the risks and earns from the public investment.

The private-only PPP choice. The IA, without contributing any public resource, may decide to allow a PSP to undertake a project from end-to-end. The government here chooses the project, chooses the PSP, and retains its power to regulate and set policies.

The PSP uses private money, whether borrowed or from its own pocket, to fully fund a project. It also designs, constructs, operates and maintains the facility, procures supplies and equipment, hires the officers and staff, buys realties, and assumes right-of-way (ROW) obligations. The PSP sets up a special corporate project-based vehicle.

The PSP assumes almost everything. It bears all the functions and assumes the corresponding risks. Such a close-to-nil-public-participation may produce high tariffs and, therefore, high rewards for the PSP.

The ‘buffet.’ The all-of-the-above, or all-at-the-same-time option, combines the public and private viands. PSPs will trust more in a PPP project or program if the government has a skin-in-the-game. Partners in any arrangement do not only share in the upside. Parties, who believe in the feasibility of the relationship, must have a recognizable stake in the project.

They become coowners, corisk-takers, coinvestors and cochampions. Project-related functions and responsibilities are divided or shared between the parties. When not disallowed by law, the IA can subsidize, extend equity, guarantee, partially fund a project; allow its property to be used, undertake the ROW, facilitate regulatory approvals, provide assistance to or enter into a joint venture with a PSP.

The hybrid choice. This viand, popularized under the current administration, offers a sequential one-after-another approach. The IA does it first (i.e., funds the project and/or constructs the facility; or the PSP, through procurement, designs and builds the facility), then the same or different PSP, through a PPP scheme or procurement of services, operates, manages and maintains the governmental asset.

The determinative decision of which of the four cuisines to choose lies with the government. There could be others. Let us know.