Good governance and success of PPPs: A global perspective

Public-Private Partnerships (PPPs) have become a critical tool for governments worldwide to deliver public infrastructure and services.

By leveraging private sector efficiencies, innovation, and capital, PPPs can significantly enhance public service delivery. However, the success of these partnerships hinges on good governance, a factor that determines the effectiveness, sustainability, and public acceptance of PPP projects.

This section of Visionary’s Guide explores the importance of good governance in PPPs, supported by real world examples from various countries.

The role of good governance in PPPs

Good governance in the context of PPPs refers to the processes, policies, and practices that ensure accountability, transparency, fairness, and efficiency in the planning, execution, and management of PPP projects. It involves multiple stakeholders, including government entities, private partners, and the public, each playing a crucial role in ensuring that the partnership achieves its intended outcomes.

1) Accountability and Transparency

Accountability ensures that all parties involved in a PPP are held responsible for their actions and decisions. Transparency, on the other hand, allows stakeholders, including the public, to access relevant information about the project. Together, these principles build trust and legitimacy, which are essential for the success of PPPs.

Example: The London underground PPP

In the early 2000s, the London Underground entered into a PPP to modernize its infrastructure. However, the project faced significant challenges due to a lack of transparency and accountability. The private partners, Metronet and Tube Lines, were criticized for cost overruns and delays. The lack of clear accountability mechanisms made it difficult to assign responsibility for the failures, leading to the eventual collapse of the partnership in 2010. This case highlights the importance of establishing clear, transparent, and accountable governance structures in PPPs to avoid similar outcomes.

2) Stakeholder engagement and public participation

Effective governance in PPPs requires active engagement with all stakeholders, including the public, who are the ultimate beneficiaries of the project. Public participation in decision-making processes can enhance the legitimacy and acceptance of PPP projects, ensuring that they meet the needs and expectations of the community.

Example: The Hyderabad Metro Rail Project, India

The Hyderabad Metro Rail project in India is a successful example of stakeholder engagement in a PPP. The project, which is one of the largest metro rail PPPs in the world, involved extensive consultation with local communities, businesses, and other stakeholders throughout its planning and implementation phases. The government’s proactive approach to public participation helped address concerns and gain public support, contributing to the project’s success. The Hyderabad Metro, operational since 2017, has been praised for its efficiency, safety, and user-friendliness, demonstrating the benefits of good governance in PPPs.

3) Risk management and fair risk allocation

Good governance in PPPs also involves the careful management and allocation of risks. Both public and private partners must understand and agree on who is best suited to manage specific risks. Fair risk allocation ensures that the project remains financially viable and that the risks do not disproportionately burden any single party.

Example: The Queen Elizabeth II Bridge, United Kingdom

The construction of the Queen Elizabeth II Bridge in the UK, which was completed in 1991, serves as a prime example of effective risk management in a PPP. The project was initially proposed to be fully financed by the government, but it was eventually delivered as a PPP, with the private partner assuming the financial risks associated with construction and operation. The government, in turn, provided guarantees and regulatory support. The fair allocation of risks contributed to the timely and cost-effective completion of the bridge, which has since played a crucial role in improving transportation in the region.

4) Effective legal and regulatory frameworks

A robust legal and regulatory framework is essential for ensuring that PPPs operate smoothly and fairly. This framework should clearly define the rights and obligations of all parties, provide mechanisms for dispute resolution, and ensure compliance with legal and contractual obligations.

Example: The Gautrain Rapid Rail Link, South Africa

Although it faced a range of challenges at the beginning, the Gautrain Rapid Rail Link in South Africa is an example of a successful PPP that benefited from a strong legal and regulatory framework. The project, which connects Johannesburg, Pretoria, and the O R Tambo International Airport, was delivered on time and within budget, largely due to the clear legal framework governing the partnership. The framework facilitated effective contract management, dispute resolution, and risk management, ensuring that the project met its objectives of reducing traffic congestion and promoting economic growth in the Gauteng region.

5) Capacity building and institutional strengthening

Good governance also involves building the capacity of government institutions to manage PPPs effectively. This includes training public officials, developing standardized processes and procedures, and establishing dedicated PPP units or agencies to oversee projects.

Example: The Chilean concession system

Chile’s concession system, which has been in place since the 1990s, is often cited as a model for successful PPP governance. The country has implemented over 60 PPP projects, including highways, airports, and hospitals, with significant success. A key factor in this success is the strong institutional capacity developed by the Chilean government, including the establishment of a dedicated PPP unit within the Ministry of Public Works. This unit is responsible for project preparation, bidding, and contract management, ensuring that PPP projects are delivered efficiently and effectively. The success of Chile’s PPPs has not only improved infrastructure but has also contributed to the country’s economic growth and development, not to mention employment.

Lessons learned and best practices

The examples above illustrate that good governance is a critical determinant of PPP success and demonstrate that when good governance principles are applied, PPPs can deliver significant public benefits, from modernized infrastructure to enhanced public services. As more countries turn to PPPs to address their development needs, the importance of good governance cannot be overstated — it is the key to unlocking the full potential of these partnerships for the betterment of society. Based on these cases, several best practices can be identified:

Ensure transparency and accountability

Clear and transparent governance structures are essential for building trust and avoiding disputes in PPPs. Engage stakeholders: Active stakeholder engagement, including public participation, enhances the legitimacy and public acceptance of PPP projects. Fair risk allocation: Risks should be allocated to the party best able to manage them, ensuring the financial viability and sustainability of the project.

Establish a strong legal framework: A robust legal and regulatory framework provides the foundation for effective PPP governance, ensuring that all parties fulfill their obligations.

Build institutional capacity: Strengthening government institutions and establishing dedicated PPP units can significantly improve the management and oversight of PPP projects.

Note: Hassan Abdulrahim is Senior Instructor, Economics & Finance, at Canadian College Kuwait and Deputy CEO at Visionary Consulting Company.