What Is Public Private Partnership Commerce Essay

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Any collaboration between public bodies, such as local authorities or central government, and private companies tend to be referred to a public-private partnership (PPP).

What is typical of the Public-Private Partnership projects is that they are long-term partnerships. Although you can meet projects of a short-term character in practice - but not shorter than 3 years, typical projects have duration between 20 and 40 years.

Public sector exactly specifies the demanded service, its quality, determines the price policy and arranges checks of the set targets, and the private sector ensures the entire project, i.e. ensures its funding, implementation and maintenance.

The Public-Private Partnership projects usually include a number of secondary public services. for example building the infrastructure, including accommodation, board or transportation services, but they do not include provision of the primary public services, e.g. justice, police supervision or public school system.

"One of the principles that guide government policy is that 'the government cannot deliver alone, civil society has to share the burden'"

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Donors, including DFID, USAID and the World Bank have played an important role in supporting discussions and programs that advance the idea of partnership. Other modes of partnership are referred to in various policy documents. The provincial local government ordinances provide a permissive framework within which local governments (tehsils and districts) may create joint arrangements or contract functions out to other public or private bodies. The Poverty Reduction Strategy Paper (Government of Pakistan 2003) contemplates the mobilization of private (NGO or for-profit) resources and community participation to support the provision of public education services; in the case of health and water/sanitation its emphasis is on engaging communities as partners in service design and delivery. National Education Policy from 1992 and for 1998-2010 has proposed grants and loans to private schools (especially secondary and higher), land grants to rural schools and an improved system of regulation. The Health for All and the Education for All programs both advocate partnership with private providers.

When government management is less attractive

Government inefficiencies might become large enough that even with somewhat higher quality, the cost of allowing government management offsets the benefits.

The more that government is plagued by patronage and corruption a problem, the less attractive is the government management of services. Such problems may be one particular reason why the government is less efficient.

In cases where the public sector underpays workers relative to the market, or provides particularly bad managerial oversight, the quality of government-provided services may be very low.

And finally role of competition in the provision of social services. Economists often take it as obvious that competition will improve the market.

When policy makers should rely on private markets

The policy and international communities have supported the private participation for numerous reasons numerous. The main reason of the support gained by PPPs has been due to the improvements in efficiency, pricing, financing, risk distribution, human resource management, environmental compliance, and service they can provide.

One of the important reasons for PPPs is the need for capital. The private sector can supply capital in return they receive profit.

Moreover, the governments that engage private markets tend to experience cost savings by transferring operating and maintenance costs associated with production to the private sector.

Such changes are not only helpful in minimizing the liability risks but also there implementation of favorable management practices in the view of improving performance

Market operators have significantly increased connections with consumers; especially the poor customers in those PPPS where contracts have been appropriately structured. Private participation is seen as improving access and affordability to poor urban consumers for the developing world. For example, about 400,000 lower-income consumers in Manila have benefited from PPPs that are providing affordable connection charges.

There are times when government cant deal with the issues on behalf of itself the expertise or the equipment needed can only be provided by the private sector for example Hunza lake which has been developed as a result of landslide can be very fatal, so government has incorporate the private sector to take safety measures which otherwise would lead to a devastating effects.

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The public private partnership projects give more efficient and higher quality process of construction and operation of infrastructure and provision of required services. Usually the project costs are not exceeded and are met on the given deadlines. It brings more satisfaction to the customers and strengthens the public administration, and even shortens the process of decision making, the substantive risk in transferred and no state securities are required.

Real world example:

 It is quite a challenge to develop a major domestic industry that brings public and private investors together and also take in consideration the interests of small-scale producers

In the early 1990s, Uganda relied almost entirely on imports from Asia to fill its needs for vegetable oil, a basic food. The Government of Uganda asked IFAD to support the development of domestic vegetable oil production and the refining industry. The aim was to help reduce dependency on imported oil and ensure a supply of high-quality domestically produced vegetable oil, a basic commodity, at prices that even poor people could afford. Increased domestic production would also generate jobs for rural people, replace exports and make it possible to diversify exports. 

A second component of the project focused on introducing the cultivation of the oil palm in Uganda and developing the palm oil industry. Palm oil has a much higher yield - about six times greater than other oil crops - and domestically produced palm oil will eventually replace imported oil. 

Finding a private company willing to make a long-term investment in this sector was not easy. The search took six years. Finally, in April 2003, the government and the private sector consortium, Oil Palm Uganda Limited (OPUL), and Bidco, signed an agreement. The agreement concluded a much larger investment than was initially planned by the private sector to marks its commitment to the enterprise and achieve greater efficiency of scale.  

In collaboration with the government, Infraco, a donor-funded project development company, financed the building of roads, brought electricity and water and established a ferry service to the island in 2006.

OPUL has played a crucial role in guiding and training smallholders in the cultivation of oil palm. OPUL employs over 1,400 Ugandans on its plantation and has built access roads to many remote households on the island. OPUL also provides housing and healthy meals for its employees and runs a local clinic with a clinic officer and a visiting doctor. As a result, overall health conditions have improved and the number of malaria cases has dropped significantly. 

The Ugandan oil palm enterprise still requires long-term commitment, but the country should become self-sufficient in the coming years and eventually export vegetable oil. The process has been long and it has met with delays and difficulties, but the projected gains are considerable, both for the national economy and for smallholder farmers.

When policy makers should not rely on private markets

Despite these apparent benefits of private sector involvement there is negative side too. There have been great concerns regarding the economic implications of private participation, labor concerns, the power of corporate players, environmental concerns, increased public risk, inappropriate application of private participation, and access inequality.

The opponents of PPP are also greatly concerned about the balance of power between multinational firms and governments. Weak governments have many times signed contracts with unfavorable conditions for the public during contract negations. For instance, some governments have allowed a loss of local ownership.

Governments characterized by high indebtness are often in a weak negotiation position while seeking a private partner for financial support. In the pursuit of partners to ease financial constraints, governments have often failed to define broad guidelines for public access, oversight, and monitoring. These failures have lead to ineffective service provision, discriminatory behavior, or violations. The loss of power that some PPPs allow leads to opposition to this form of governance, the long duration and administrative efforts involved in most contracts entail a legal constraint and difficulty in canceling contracts.

Labor organizations and their members often object to increased private sector involvement. It is claimed that private sector involvement often follow job losses, job poor pay insecurity. There is evidence that private operators may reduce staff by 20 or 30 percent in order to achieve productivity improvements or cost reductions. For example, in Buenos Aires staff was reduced 50 percent with the take over of operations by a private partner.

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Finally, failure of contract is a risk involved in relying on private firms. Private sector firms may be unable to deliver the promised services and can encounter technical or economic difficulty.

There can be other reasons too for not relying on the private market, it maybe in the case of highly secret issues when government in any case can not incorporate the private market, like the printing of currency, or other defense related material can not be handed over to the private firms. At times the private firms don't want to engage in any type of contract, because they can foresee it would not be turning out in there favor. For example the PFI scheme in UK was not successful, the constructors or the financers were not prepared to either take risk or provide finance to support PFI, till the time the government assured the banks, that if NHS becomes bankrupt suitable financial reimbursement would be provided by the government.

The disadvantages of public private partnerships are that the firms consider the economic aspects of the project, can even take two to three years for just the preparation of the individual project, and since there is a demand for transparent relations for selecting a partner or drawing terms and conditions it can be time consuming too. There is a risk of bankruptcy and insufficient experience of the partner too.

Alternative models for provision of social services

Still in spite of all this argument government can still intervene and can make public private partnerships successful in a longer run. The following are the alternative models for the provision of social services..

Externalities

Private markets cannot really judge the benefits and cost with a certain service they are providing. For instance take an example of a highway it's a public good being provided but the congestion on the highway will be considered as externality.

Informational Asymmetries:

Private markets assume that the customers are fully aware but this might not be always the case.. In many social service areas, it may be difficult to judge the quality of the service provided. For example we will be aware about the schools and educational institutes but the service we avail rarely , we cant judge the quality of that service.

Agency Problems

In many social service areas the recipient of the service may have a limited capacity for choice and is often not the actual decision-maker. For instance, very young children they cannot make their own choices or the illiterate people who cannot judge wisely what is good and what is bad for them.

Distributional Concerns

Distributional issues are often a fundamental reason why private market outcomes are considered inadequate in the social service area, especially for the people who have low income levels and they cannot afford the particular service if provided by the private sector.

There are, however, many ways for the government to be involved in the provision of social services, and simply saying that there are market failures does little to indicate exactly what type of government involvement may be optimal. At least four broad alternative models may be identified.

Private ownership and management with government regulation.

This way by the imposition of government regulations the things would be systemized to an extend for example about the disclosure of financial position of the business.

Private ownership with government regulation and government funding to subsidize low-income clients.

Low income group cant afford to avail the services ,so the government can take measures to provide subsidiary in one way or another like giving them vouchers for the purchase of a service they would get a discount on that and hence would be affordable for them.

Government ownership, with contracts to the private sector for the management and operation of the service

This way owner ship remains with the government but private sector is hired for management for example toll collection.

Government ownership and government management

In this case the government makes all operating decisions and government employees typically provide the service. Traditionally, prisons, schools, and welfare services have been provided in this way.

How win-win situation would not be possible:

Public and private sector can opt to work together if they perceive that the benefits of working together will be greater rather then alone. But if there is a gap between these 'good intentions' at a broad policy level and understanding of the 'objective realities' that often in practice constrain the role of the private sector. Number of 'inconsistencies' in government's policy to the non-profit sector

• Support at the policy level but obstructionism at the operational level of line departments of federal, provincial and local governments,

• Acceptance of non-profit organizations as providers of services but hostility to their adoption of advocacy roles

• Suspicion of externally funded organizations that might support politically sensitive positions (rights, political freedom)

• An extremely low level of government funding of non-profit organizations.

Outlined below are the reasons when government and private sector cannot create win-win situation through collaboration

1) If there is not a commitment from executive leadership

There should be a commitment from both government and private sector organization to work together. Senior public officials if not actively involved in supporting the concept then win-win situation is not possible.

2) If there is no legislative foundation for partnering

If state laws are limited or lack clarity regarding the formation and management or PPP. It can be a risky affair otherwise and people would not take the advantage of innovation and creative solutions.

3) If there is no direct public sector involvement

Monitoring by public sector is very important, if they fail to do so results are not up to the expectations.

4) If the plan is not well crafted

It describes the responsibilities of both public and private partners; hence if the plan is not crafted well it can lead to problems.

5) Communication with the stakeholders

The information if not delivered timely, and if it is not accurate and consistent and the messages are not from the trusted sources and not realistic can also lead to problems.

Conclusion

A willingness to trust and openly listen to ideas and views is essential for policy makers to rely on private markets. Participants must be focused on outcomes that are desirable for all concerned not just on individual goals. Efforts by participants to support and confront proposals with integrity and respect can create an atmosphere will ultimately result in an outcome that everyone will actively support.