PPPs are a contractual means to deliver public assets and public services. PPP contracts include those intended to develop and manage new infrastructure, contracts to undertake significant upgrades to existing infrastructure (these are called infrastructure PPPs), and those under 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. In fact, the term PPP is sometimes used to mean any form of association or co-operation between the public and private sectors for the purpose of reaching a common goal.
In the specific field of procurement and delivery of public infrastructure and services, there is also a large variety of definitions (see box 1.3 below).
BOX 1.3: Examples of PPP Definitions
The Organization for Economic Co-operation and Development (OECD) defines a Public-Private Partnership (PPP) as an agreement between the government and one or more private partners (which may include the operators and the financers). Within the agreement, the private partners deliver the service so that the service delivery objectives of the government are aligned with the profit objectives of the private partners. Furthermore, the effectiveness of the alignment depends on a sufficient transfer of risk to the private partners.
According to the International Monetary Fund, PPPs refer to arrangements in which the private sector supplies infrastructure assets and services that traditionally have been provided by the government. In addition to private execution and financing of public investment, PPPs have two other important characteristics: an emphasis on service provision and investment by the private sector. In this way, significant risk is transferred from the government to the private sector.
PPPs are involved in a wide range of social and economic infrastructure projects. However, they are mainly used to build and operate hospitals, schools, prisons, roads, bridges and tunnels, light rail networks, air traffic control systems, and water and sanitation plants.
For the European Commission, the term Public-Private Partnership is not defined at the community level. In general, the term refers to forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management and maintenance of infrastructure for the provision of a service.
Standard & Poor’s definition of a PPP is any medium- to long-term relationship between the public and private sectors involving the sharing of risks and rewards of multi-sector skills, expertise and finance to deliver desired policy outcomes.
For the European Investment Bank, Public-Private Partnership is generic term for the relationships formed between the private sector and public bodies, often with the aim of introducing private sector resources and/or expertise in order to help provide and deliver public sector assets and services. The term PPP is thus used to describe a wide variety of working arrangements from loose, informal and strategic partnerships, to design-build-finance-and-operate (DBFO)-type service contracts and formal joint venture companies.
Source: From OECD (2008) Public-Private Partnerships: In Pursuit of Risk Sharing and Value for Money
Based on the definition provided by the Public-Private Partnerships Reference Guide, V 2.0 (World Bank 2014), as a broad concept to be applied both to new or existing infrastructure and services, a PPP may be defined as:
“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”.
This is the broad definition used within this PPP Guide in reference to the PPP concept as a method for delivering public infrastructure and/or services as an alternative to “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. For convenience, this PPP Guide will refer to any contract for the acquisition by the public sector of goods (including works) and services, which does not fall within the above definition of a PPP as traditional or conventional procurement.
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 (infrastructure PPPs). Rather, it assumes that construction/development and management (maintenance and operations) are bundled together. It also assumes that there is a contract acting as the legal instrument that contains the obligations and rights of both parties. It is intended to cover not only the procurement of new or upgraded infrastructure, but also the procurement of infrastructure management services for assets already financed and built, and even services in the narrow sense of the word (that is, public services, such as utilities, transportation of passengers, water supply to homes, and so on, which may be called service PPPs).
However, 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, this PPP Guide will refer to these PPPs as private finance PPPs or simply as PPPs. See also box 1.4.
BOX 1.4: 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 Guide 2.0,(World Bank 2014) introducing the assumption of the existence of private finance provision by the private party.
The presence and inclusion of private finance provision 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. At the same time, attracting private finance to PPPs represents a significant challenge for EMDE countries facing infrastructure gaps.
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 Public Finance Initiatives or PFIs).
PPP is a Legal Term in Some Jurisdictions
For some jurisdictions, PPP may be a legally defined term (that is, a legal type of contract/procurement as defined in the legislation). In other jurisdictions, PPP remains a concept to describe a different way of procuring infrastructure or services, which may be implemented under one or more different types of contracts.
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 (for example, the European System of Accounts definition). It can even be used for PPP-type projects with any level or amount of government payments (for example, as in Brazil).
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.
These and other nuances related to the terminology used to refer to PPP contracts are explained in section 3.2. “Nomenclature - other names used for the PPP concept”.
PPP is Not Privatization
There is often confusion between privatization and PPPs. There is however a clear difference between these two forms of private sector engagement. 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. 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 2011 2011).
Confusion can arise because sometimes the term “privatization” is used more broadly; for example, to mean any form of private management. When used in this way, the term can apply to a wide range of arrangements, including PPPs. However, for the purposes of this PPP Guide, privatization is defined in its true sense as described above, and 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.
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. In addition, there is a continuing role for the public sector as a “partner” in an ongoing relationship with the private sector.
Section 2.4 explains further this distinction and the features of privatization.
 “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 – see box in section 6.1. This is explained later in this chapter. 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. See glossary for further clarifications.
 To enjoy the potential efficiencies that private finance may bring in the PPP, likewise the potential incremental efficiency of any PPP, a number of conditions have to be met. This is described later in section 5.