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MANAGING PARTNER KPT ASSOCIATES LTD.
08033223800 kptassociates@yahoo.com

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1. Introducing and Scoping the PPP Concept.

1.2 Analyzing the Definition Proposed by this PPP Guide. Describing and 
Explaining the Features of a PPP Contract as a Tool to Procure New 
Infrastructure.

Introduction and Objectives
1. Introducing and Scoping the PPP Concept

1.1 Defining PPPs for the Purpose of This PPP Guide
PPP is a Legal Term in Some Jurisdictions
PPP is Not Privatization

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Two main types of infrastructure – Economic and social

Economic infrastructure is infrastructure that makes business activity 
possible, such as communications and transportation(for passengers and 
freight),as well as utilities’ networks, and systems and plants such as in 
water, waste and energy supply systems).

Social infrastructure is infrastructure(mostly facilities in the form of 
buildings) that accommodate social services. For example, hospitals, 
schools, universities, prisons, social housing, law courts, and so on.

“The basic physical and organizational structures and facilities (eg, 
buildings, roads, power supplies) needed for the operation of a 
society or enterprise”

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3. Contracts in which a private partner manages existing infrastructure or only 
provides or operates public services (known as service PPPs)

There is no universally accepted definition for the PPP concept. 
1.1 Defining PPPs for the Purpose of This Training

PPPs are a contractual means to deliver public assets and public services.

1. They include contracts to develop and manage new infrastructure,

2. Contracts to undertake significant upgrades to existing infrastructure

Sometimes PPP is used to describe any form of association or co-operation 
between the public and private sectors for the purpose of reaching a common goal.

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“ a form of legally enforceable contract between the public sector and the 
private sector, which requires new investments by the private contractor 
(money, or technology, or expertise/time, or reputation, etc.), which transfers 
key risks to the private sector (design, construction, operation, etc), in which 
payments are made in exchange for performance, for the purpose of 
delivering a service traditionally provided by the public sector.” ip3

“A long-term contract between a public party and a private party, for the 
development and/or management of a public asset or service, in which 
the private agent bears significant risk and management responsibility 
through the life of the contract, and remuneration is significantly linked to 
performance, and/or the demand or use of the asset or service”. Public-
Private Partnerships Reference Guide, V 2.0(World Bank 2014).

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The public party concept is intended to include either governments (the 
respective procuring authority), agencies, companies or entities that may act 
in the respective contract as procuring authorities in the name of the 
government.

“Private party” is the term selected to refer to the private sector agent(s) or 
participant(s), meaning the company or companies that will act as a “private 
partner” in the “partnership” (that is, the PPP contract)

This private partner is the contractual counterparty of the “public party” and 
will usually be a project company that may also be named as a Special 
Purpose Vehicle (SPV), such as a company constituted specifically for the 
purpose of signing the contract and managing the project

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For convenience, the PPP Guide will refer to any contract for the 
acquisition by the public sector of goods, works and services, which does 
not fall within the above definition of a PPP as traditional or conventional 
procurement.

Countries will differ in the forms of procurement that they regard as 
“conventional” depending on their respective tradition of procurement

In addition, some countries will sometimes introduce new forms of 
procurement (or new types of contracts) which are not traditional in the 
relevant country, but which also are not deemed to be PPPs in this PPP 
Guide.

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It also assumes that there is a contract acting as the legal instrument that 
contains the obligations and rights of both parties.

The broad definition of a PPP assumes that there are significant risks and 
responsibilities borne by the private agent under a long-term relationship

This does not necessarily imply that the private agent will finance part or all of 
the works when the PPP relates to infrastructure development (infra PPPs).

Rather, it assumes that construction/development and management 
(maintenance and operations) are bundled together.

It covers the procurement of new or upgraded infrastructure, procurement of 
infrastructure management services for assets already financed and built, and 
services in the narrow sense of the word (ie., public services, eg utilities, 
transportation of passengers, water supply to homes, etc (service PPPs)

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The focus of the PPP Guide is on PPPs as an alternative means to procure 
capital-intensive infrastructure projects that rely on private sector finance

This can either be new infrastructure, or significant upgrades and renewals of 
existing infrastructure

Therefore, this chapter will also propose a narrower definition of PPPs, 
specifically as an option to procure new or upgrade existing infrastructure on 
the basis of private capital resources.

For convenience, the PPP Guide will refer to these PPPs as private finance PPPs 
or simply as PPPs.

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Definition of a “Private Finance” PPP Contract (as an alternative method 
for procuring infrastructure for the purpose of this PPP Guide)

A long term contract between a public party and a private party for the 
development (or significant upgrade or renovation) and management of a 
public asset (including potentially the management of a related public 
service), in which the private party bears significant risk and management 
responsibility throughout the life of the contract, provides a significant portion 
of the finance at its own risk, and remuneration is significantly linked to 
performance and/or the demand or use of the asset or service so as to align 
the interests of both parties.
This definition largely follows the broader definition in the PPP Reference 
Guide2.0,(World Bank 2014) introducing the assumption of the existence of 
private finance provision by the private party.

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At the same time, attracting private finance to PPPs represents a 
significant challenge for EMDE countries facing infrastructure gaps.

The inclusion of private finance in the bundled list of obligations of the private 
party is not a necessary condition to enjoy the benefits of a PPP approach

However, risk transfer is more effective (though not necessarily more efficient) 
when the private agent is providing capital resources that are at risk, rather 
than when the agent is only subject to penalties

This definition is also intended to capture the two main types of PPPs 
considered by this PPP Guide: PPPs whose revenues are based on user 
payments (user-pays PPPs, also known in many countries as “concessions”) 
and those whose revenues are based on public or budgetary payments 
(government-pays PPPs, also known in many countries as Private Finance 
Initiatives or PFIs).

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In some jurisdictions PPP is a legal term

In some jurisdictions, PPP may be a legally defined term (ie., a legal type of 
contract/procurement as defined in the legislation)

In a number of jurisdictions in which a legal framework provides a definition 
for PPPs, the term is reserved (from a legal standpoint) for PPPs in which the 
revenues consist of public payments, or in which those payments represent 
the majority of the revenues of the PPP company (European System of 
Accounts definition)

In other jurisdictions PPP is a concept to describe a different way of procuring 
infrastructure or services, which may be implemented under one or more 
different types of contracts.

It can even be used for PPP-type projects with any level or amount of 
government payments (for example, as in Brazil).

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In these jurisdictions there may be public contracts that fall within the PPP 
Guide definition of PPP, but do not fall within the local legal definition of PPPs.

In these cases, the term ‘concession’ is usually used for PPPs based on user 
payments.

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There is often confusion between privatization and PPPs.

However, a PPP necessarily involves a continuing role for the public sector as a 
“partner” in an ongoing relationship with the private sector (World Bank -
Farquharson, Torres de Mästle, and Yescombe, with Encinas 20112011).

There is however a clear difference between these two forms of private sector 
engagement

In its true sense, privatization involves the permanent transfer of ownership to the 
private sector of a previously publicly-owned asset and the responsibility for 
delivering a service to the end user.

Confusion can arise because sometimes the term “privatization” is used more 
broadly; for example, to mean any form of private management.

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Similarly, the contracting out of management of existing infrastructure is 
not privatization because it does not involve a permanent transfer of that 
infrastructure to the private sector.

But, for the purposes of the PPP Guide, privatization is defined in its true 
sense as described above, & under this definition PPPs are not privatizations

By definition, privatization in its true sense is not an option for governments to 
procure new infrastructure, as privatization implies the infrastructure has 
already been constructed.).

When used in this way, the term can apply to a wide range of arrangements, 
including PPPs.

In addition, there is a continuing role for the public sector as a “partner” in 
an ongoing relationship with the private sector.

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The definition of a private finance PPP provided in the PPP Guide implies a 
number of features which need to be present in a PPP contract to be properly 
regarded as a private finance PPP. 
This section will describe and explain each of these features.

(a) Long-term: The long-term nature or condition of a PPP relates naturally to one 
of the essential features of any PPP, which is the effective risk transfer and 
responsibilities to the private party over a significant part of the life of the 
infrastructure asset. The long-term also connects with the financial structure as 
explained below.

1) “A long-term contract between a public party and a private party”

Most of these, with the exception of the presence of Private Finance, are also 
necessary features to be met by any Infrastructure contract to be regarded as a 
PPP under the broad definition..

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(b) Contract: The relationship and/or delegation of management by the public 
sector to the private sector usually demands the use of a contract, that is, a written 
document comprising the rights and obligations enforceable by either party

The contract is a single document, with attachments, identified as binding.

Invariably, a PPP contract consists of a web of agreements( contractors, lenders 
etc) woven around a main agreement.

Sometimes the contractual relationship may be more complex(with more than one 
public entity), including different contract documents linking the private party with 
different public institutions (for example, a PPP for a new power plant may be 
governed by a license or authorization by the respective Ministry for the plant, 
together with a Power Purchase Agreement with the state-owned transmission 
company).

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(c) Public party: Includes governments (the procuring authority),or agencies, 
companies and entities that may act in the respective contract as procuring 
authorities in the name of the government. These procuring authorities may be 
national or sub-national (sub-sovereign) ie., states and LGA.

Generally, the public partner or public contractual counterparty in the PPP contract 
will coincide with the procuring authority that tenders and executes the contract.

The public partner is also referred to in the PPP Guide as the procuring authority, 
although other terms are internationally accepted or used in some jurisdictions.

For convenience, this is assumed by this PPP  Guide to be the common situation.

However, there may be cases in which the procuring authority that tenders and 
awards the contract is not the public body or institution that signs or executes the 
PPP agreement, but is a public entity related to the same government.

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If the consortium is awarded the contract, it creates a new company to sign the 
contract and act as the private partner.

(d) Private party: Commonly refers to the key private sector company or 
companies that will be involved in the delivery of the project, whereas “private 
partner” refers to the contractual counterparty of the public party.

In a PPP, it is common for a group of private parties to form a consortium to bid for 
the PPP contract.

This new company is referred to in the PPP Guide as the project company or as a 
Special Purpose Vehicle (SPV).

Note that an SPV is not a necessary condition for a contract to be regarded as a 
PPP.

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A govt owned coy or state-owned enter (SOE) may be regarded in some countries 
as a “private entity” subject to civil (rather than administrative) regulations

A different case is when a public company or SOE is owned by a different 
government  than the one which procures the project. It operates in the market like 
any private economic operator (that is, competing for the market), so that the risk 
transferred to that SOE is effectively transferred out of the procuring government.

It is not regarded as a PPP because there are reasonable doubts that there is 
risk transfer to the private sector.

However, a contract between a procuring authority and such a government-owned 
"private" entity (when the SOE is owned by the government that procures the 
project) would not normally be considered to be a PPP.

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However, the presence of the procuring authority, a related government, or a state 
company as a shareholder of the project company does not prevent the project 
contract from being regarded as a PPP, regardless of whether the government 
holds a minority or even a majority equity stake.

(a) Development and management of the asset: One of the essential features of 
the PPP model is the search for efficiency through the involvement of a contractor.

2) “For the development (or significant upgrade or renovation) and 
management of a public asset (including potentially the management of a 
related public service)”.

This applies not only to the design and construction of the asset, but also to its 
long-term maintenance so that construction and maintenance are bundled 
obligations.

In some projects, management will also include operations (either of the 
infrastructure or a related service)..

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(b) Significant upgrade or renovation: The PPP Guide deals with PPP as a 
delivery option for capital intensive projects. PPPs may be also used for intensive 
additional investment in an existing asset.

(c) Potentially including management of a related service: The focus of the 
PPP Guide is infrastructure development.

However, many PPPs also include the management or operations of a public 
service when the infrastructure relates to such service or is a platform to allow 
public authorities to render the service

Eg., a PPP of a major transport system, including the operation of transportation 
service falls within the scope of the PPP..

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3) “In the contract, the private party bears significant management 
responsibility and risks through the life of the contract”

(a) Significant management responsibility: The private party should be 
materially and integrally in charge of the management of the asset (especially 
life-cycle cost management), rather than only being dedicated to specific and/or 
minor areas of management.

The scope of responsibilities determine the extent of risk transfer, as risk should 
not be transferred to activities and events in which the private partner has no 
control or mechanisms to prevent or mitigate the probability of the event 
occurring or the impact reduced.

Otherwise there is no point in transferring life-cycle risks and in relying on a 
long-term contract under a PPP scheme.

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(i) Significant: The bulk of the risk has to be transferred (as risk transfer is the 
main driver for PPP efficiency, but there is no need to transfer all risks/events and 
their consequences

Risks relate to responsibilities(i.e., risks related to long lifecycle management of 
the infrastructure should only be transferred if the responsibility for long-term 
management —especially maintenance and renewals —has been delegated to 
the private partner).

There may be significant inefficiencies in transferring certain risks that can be 
reduced by means of the public partner retaining or sharing the risk

(b) Significant risk transfer: There should be significant risk transfer to the 
private sector over a significant part of the asset life cycle(which links to the long-
term nature of these contracts), in addition to the transfer of construction risks.

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From a broad perspective, any financing provided by the private sector might be 
regarded as private finance.

4) “and provides a significant portion of the finance”
Private participation in the financing of a project is not a necessary condition for 
a project to be regarded as a PPP.

However, the focus of the PPP Guide is on private finance PPPs.

However, “private finance” may be considered a regulatory matter: from a 
national accounting and reporting perspective, private finance means financing 
that is not regarded as public debt (i.e., it is not consolidated in the government 
sector balance sheet). statistics. 
However, the PPP Guide considers “private finance” as any finance provided by 
the private sector that is at risk, that is, it is dependent on the performance of the 
project-contract.

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Securing private finance may be an objective or motivation in itself for a public 
authority to procure infrastructure under this mode.

This view is aligned with the concept of the economic ownership of the asset, 
which is used by some standards and guides to assess whether a PPP asset 
should or should not be consolidated or recorded in the govt balance sheet

More refined or specific criteria are applied in some countries according to 
standards which define whether the asset should be regarded as public.

Furthermore, private finance(usually under a “project finance” structure)may also 
be an essential factor for efficiency because when the private partner finances 
all or a significant part of the infrastructure and its remuneration is based on the 
performance (availability and/or use) of such infrastructure, then financing is at 
risk.

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PPPs provide a focus on all of the costs during the useful life of the infrastructure, or 
during the life of the contract.

This is a powerful mechanism to align the objectives of the public and private 
partners; it incentivizes the private partner to be proactive in maximizing the 
objective of the public party (which is to ensure that the infrastructure is 
available and adequately operated and/or maintained)

This mean that, after meeting operating costs, the private partner has sufficient 
revenue to service its debt and provide a return to its investors..

The private finance also incentivizes the private partner to manage whole-of-life 
costs (over the life cycle of the asset)

This includes the initial investment/costs of construction and any other 
maintenance work required to maintain the asset in an acceptable, technical 
state, or in a state necessary to meet the performance requirements

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This notion is linked to the private finance feature and risk transfer characteristics 
of the PPP..

5) “and remuneration is significantly linked to performance and/or the 
demand for or use of the asset or service, so as to align the interests of 
both parties”

The link to performance and/or use also results in another particular feature of 
infrastructure PPPs: the private party will only receive payments (or most of the 
payments) once the infrastructure asset is completed

The most effective way of transferring responsibility and significant risks over the 
life of the contract is to compensate the private partner on the basis of its 
performance

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The typical contract form of a private finance PPP is the design, build, finance, 
operate and maintain (DBFOM) contract.

The link of remuneration to performance is paramount for aligning the interest of 
the private partner (mostly focused on payment) with the objectives of the public 
sector (mostly focused on service reliability and quality).

However, interests should be aligned without being prescriptive in the means and 
methods to be applied (inputs), and leaving reasonable scope for innovation..

But it will only be regarded as a true private finance PPP if significant financing is 
provided by the private sector at its own risk, and most of the remuneration are 
linked to performance..

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There are also other contract forms that may be regarded as PPPs, including 
some infrastructure PPPs that do not involve private finance. These are notably 
design, build, operate and maintain (DBOM) projects

There are also number of variations and referred to by other terms in some 
countries.

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There is a long-term contract 
between public and private parties.
The private party is usually 
constituted as an SPV.

There is significant risk 
transferred to the private 
sector over a significant part of 
the life cycle of the asset.

Revenues are earned by the 
private party only (or mainly) 
when the asset is completed and 
ready to be used.

Summary of Essential and Other Common Features of a Private Finance PPP

The construction and long-term 
management of the asset are 
bundled together in the one contract.

Financing raised by the private 
party is usually in the form of 
“project finance”.

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There is significant private finance at 
risk.
The private party is usually 
constituted as an SPV.

The private partner’s 
remuneration is linked to, and 
at risk of, performance and/or 
demand benchmarks 
(alignment of interests)

Consistent with the performance 
focus of remuneration to the 
private partner, technical and 
service requirements are also 
focused on results or “output 
specifications”, rather than on 
inputs. The requirements also 
leave room for innovation.

Summary of Essential & Other Common Features of a Private Finance PPP 2

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Key Points on the Introduction to the PPP Concept

PPP is an option to procure infrastructure (infrastructure PPPs) and 
services(service PPPs), which may provide some incremental benefits in addition 
to being a means to access private financing for the promoting governments

The focus of the PPP Guide is on PPPs as a tool to develop new infrastructure (or 
upgrades) in an efficient manner. Specifically, the PPP Guide focuses on PPPs 
relying on significant private finance (private finance PPPs).

There is no universal definition of PPPs, but there is a reasonable consensus on
some key features for when a contract is regarded as a PPP: long-term contract, 
significant transfer of risks and responsibilities from the government to the private 
sector, and remuneration linked to performance and/or demand for the services of 
the infrastructure asset being built.

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Key Points on the Introduction to the PPP (2)

PPPs may be classified as user-pays PPPs (funding of the payments is based in 
charges to users –tariffs) or government-pays PPPs (funding of payments is 
based on the public budget).

PPPs may be referred to using a variety of terms, the most common alternative 
nomenclature being concessions in Brazil (for user-pays PPPs) and PFI in UK (for 
government-pays PPPs).

Private finance is not a necessary condition for a contract to be regarded as a PPP 
but, involving the private sector in financing may not only help to accelerate 
infrastructure development, but it also adds incremental benefits in the form of 
efficiency (in the right projects and under certain requirements and conditions).

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• APMG Public-Private Partnership Certification Guide Chapters 1 - 7 The World Bank 
Group, 1818 H Street NW, Washington, DC 20433, USA 2016
• Draft PPP Manual from Infrastructure Concession Regulatory Commission  2017
• Cosette Canilao Bankability: More than de-risking projects 2017. Retrieved from 
World Bank website 23/8/2017
• Cuttaree V. Successes and Failures of PPP Projects. Retrieved from World Bank 
website 17/6/2008
•
• Katchy C.C. Public-Private Partnership El Demak Ltd. 76 Robinson Street, Uwani Enugu 
State Nigeria. 2015

MODULE CHAPTER 1 INTRODUCING & SCOPPING PPP

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