Article:

Private Sector Participation in Public Infrastructure

07 December 2016

Background

The efficient provision of public infrastructural services (water and waste water, solid waste, power, transport, etc.) is a pre-requisite to a fully-functional economy. Historically, governments in both emerging nations and developed countries have established State or municipally-owned enterprises to develop and operate these infrastructural networks. While some of these public sector utilities continue to operate effectively, many have been faced by the twin problems of a lack of best practice skills and entrepreneurial drive within management together with inadequate financial resources, insufficient to meet the increasingly critical demand for network modernisation and expansion. 

The encouragement of private sector participation in the operation, management, development and financing of public sector infrastructure has been seen as a potential solution to both problems in recent years. 

Private sector participation (PSP) may take many forms: 

  • from the contracting-out to a private sector operator of a discrete activity (eg, security, rubbish collection, debt recovery, etc.) 
  • the contracting-out of the operation of the entire business (management agreements, concessions, etc.) while maintaining public sector ownership 
  • the development of infrastructure by the private sector and its operation for a defined period of time before handing back to the public sector (BOT/BOOT/PFI schemes) 
  • through to full privatisation by public listing or competitive tender of the entire utility (the UK model, for example). 

Such PSP schemes can introduce best practice management and entrepreneurial skills into poorly-performing utilities and can also mobilise the funding required for capital investment in infrastructure modernisation and expansion. PSP schemes have now been implemented (with various degrees of success) throughout the world. 

One of the keys to successful PSP is seen as the parallel development of a strong regulatory regime with a remit to protect the consumer in what is often a monopoly supply situation.

In particular, regulators monitor service levels and enforce remedial action where standards fall below a pre-defined minimum. Regulators also control tariffs to limit "gouging" by the private sector operator. 

Our experience 

BDO has been intimately involved in this process. Gaining our initial experience as advisers to the UK Government on a range of privatisations, we have subsequently applied these skills to advising relevant government authorities in developing nations and emerging markets on the orderly and transparent privatisation of many public enterprises. Similarly, we have gained significant UK experience in the restructuring of public enterprises (advising utility regulators, benchmarking exercises, etc.) and BDO's International Projects Group (IPG) has introduced these principles and practices to public enterprises in around the world.