2.4. Other Private Involvement in Public Infrastructure and Services

Privatized Companies and Companies operating in a liberalized and regulated market — “Regulated Investor owned utilities”.

There is often confusion between privatization and PPPs (especially with user-pays PPPs). But there is a clear difference between these two forms of private sector engagement. See table 1.1.

As proposed earlier, in its true sense, privatization involves the permanent transfer to the private sector of a previously publicly-owned asset and the responsibility for delivering a service to the end user, whereas 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 2011).

In many countries (including Australia, France, the United Kingdom [UK], the US, and others), utility type infrastructure (such as electricity generation and distribution systems, and telecommunication systems) can be owned outright by private entities (rather than being subject to concessions) in schemes that may be regarded as “regulated investor-owned utilities”. Although these schemes also inherently grant to the investor the right to charge users (as in a user-pays PPP), they are not procurement methods. The public sector is not contracting the private agent for the specific purpose of developing and managing a public asset, but granting the private sector the right or authorization to conduct a business under certain regulated conditions for an unlimited period of time.

Some typical examples of privatization are in the telecommunication and energy sectors, when a government decides to liberalize the specific sector. The government usually owns a monopoly, and when liberalizing the market (that is, opening the market service to regulated competition), it will sell the company to a private investor (or sometimes to different investors after splitting the asset to boost competition).

In such liberalized markets where operators are subject to specific regulation, no contracts between the government and the operators are required to develop further infrastructure. There is a natural incentive for each operator to further develop its assets, including infrastructure/networks, at its own risk.

Public Domain Concession and Public Authorizations for Investment and Operating Public Interest Infrastructure under Regulated Conditions

In addition to the privatization of existing assets in a regulated market, there may be specific infrastructure development projects where a private promoter is authorized to develop infrastructure or a plant, and operate the asset under regulated conditions, sometimes including subsidies and regulated prices.

An example of this may be an independent power producer of renewable energy, where the private party buys land and asks for authorization to produce wind energy under a subsidized system. There is neither a contract nor any direct requirement from the government to the developer, rather there are general regulatory conditions that allow the private party to sell the power to the system. Conversely, when there is a public counterparty that commits to pay for the power generated and intentionally launches a tender for DBFOM of the plant under specifications against the committed payment — usually under a long-term, off-take contract called a Power Purchase Agreement (PPA) — this is regarded as a PPP.

Other similar situations are those related to the concept of “public domain concessions” in some civil code countries. This is where the use of land is granted for a long term (potentially up to 99 years), but the use is limited to (for example) developing port facilities that will be operated under certain regulations and will revert back to the government after that period.

These arrangements are not PPPs because, similar to privatizations and other liberalized businesses related to public interest infrastructure, there is no contract and the government acts as a relatively passive regulator (unlike a PPP in which the government actively manages the contract).

Partial divesture of public operators

Finally, a distinct situation of private participation is private sector participation in the shareholdership of an existing public company/operator that has the responsibility of operating certain infrastructure. However, there is no contract (in the strict sense) between the government and the operator, private investor, or investors. These situations may be regarded as “partial privatizations”, and they are commonly structured through an initial public offering (IPO), with all or the majority of the privatized shares floated on the stock market. These situations do not constitute a case of PPP contracts, as there is no contract in the strict sense, sand private investors do not have any control of the service and operations delivered by the public company (an example being the partial privatization of the Spanish airport operator AENA in 2014).

Table 1.2 describes the most relevant of infrastructure procurement that have been discussed in this section and explains how they do or do not fit with the main features of a PPP contract.

Note: DB= Design-Build; DBF= Design-Build-Finance; DBFM= Design-Build-Finance-Maintain; DBFOM= Design-Build-Finance-Operate-Maintain; DBOM=Design-Build-Operate-Maintain; PFI= public finance initiative; PPP= public-private partnership.