Book Review: Public-Private Partnership Projects in Infrastructure: An Essential Guide for Policy Makers

Madeleine Albright and George Shultz, speaking at independent events at the Council on Foreign Relations in January and February of 2013, both stressed the importance of public-private partnerships (PPPs)—Shultz in the context of infrastructure and Albright in the context of diplomacy (Albright, 2013; Shultz, 2013). With endorsements like that, it is fair to say that the PPP has arrived as an idea in good currency in our present discourse. Indeed, PPPs are now accepted instruments for improving and/or expanding infrastructure services in many countries around the world.

Yet as Jeffrey Delmon astutely observes in this book, PPPs are not “one-size-fits-all” solutions. Thus, he argues that policy makers, especially in the current economic environment, need to be diligent, well prepared, and patient as they proceed with PPP projects in their countries. Written in the shadow of the 2008-2009 worldwide economic and financial crisis, Delmon in each chapter outlines the “key messages” that policy makers need to consider in selecting, preparing, financing, allocating risk, contracting, and ultimately implementing PPP projects in different sectors of their country’s economy.

Delmon defines a PPP as “a contractual or legal relationship between a public entity (the grantor) and private project companies.” The introduction provides the fundamentals of PPP projects and the PPP investment climate. These include an overview of the key PPP terminology and acronyms, as well the key actors involved in the “typical” PPP project. A 15-page glossary at the back of the book is a useful reference to the terminology. The section on the PPP investment climate includes a warning that trying to use traditional public procurement institutional, legal, and financial mechanisms without considering reform of those mechanisms for PPP-specific concerns is usually “a recipe for disaster,” and advises that policy makers should make sure that projects tie in well with national and regional priorities and are integrated with the country’s overall planning mechanisms. The chapter then describes some of the key institutional units and functions that should be implemented to assure that projects use PPP best practices to coordinate project activities and manage project risks.

The introduction is followed by an overview of the PPP project selection, preparation, and development process (chapter 2). The concepts of value for money and feasibility studies are explained—albeit briefly (2 pages)—as tools to help identify strategic projects for PPPs. The author also briefly describes the project team organization and typical PPP procurement process. The brevity of this discussion of what can be a very complicated and lengthy process underscores that PPP project management is not the book’s focus. Similarly, chapter 6 on PPP project implementation covers this equally vast topic in less than 10 pages.

By far, the strength of this book lies in chapters 3 and 4 on PPP project financing and allocation of risk and in chapter 5 on the PPP contractual structure. Chapter 3 provides some good examples of existing PPP governmental institutions, including the Infrastructure Development Finance Company of India and South Africa’s Project Development Fund. Policy makers new to PPPs will find his descriptions of PPP financing sources, definitions of key PPP financial terms, and diagrams of government mechanisms to encourage PPP development useful and insightful. Likewise, the chapter on risk allocation provides a good overview of the various types of risk that need to be considered in PPP projects, and introduces ideas on mitigating risk as a lead in to a well-organized and detailed analysis of the contractual structure of a typical PPP project (chapter 5). This analysis includes a review of agreements for concessions, “offtake purchase” (i.e., the purchase of the products of a PPP investment, such as electricity, water, or transportation services), construction, operations and maintenance, and lending, as well as other contractual factors such as hedging, insurance, credit enhancement, and dispute resolution. Both chapters 3 and 5 include useful key messages to policy makers when making PPP financing and contractual decisions.

Chapter 7 examines the use of PPPs in different economic sectors including transportation, telecommunications, power generation, and water treatment. One of the book’s surprises is that it never clearly defines the term infrastructure. The implicit definition is consistent with the four categories used by the American Society of Civil Engineers: (a) water and environment (including dams and water/waste treatment facilities); (b) transportation (including aviation, bridges, inland waterways, rail, roads, and transit facilities; (c) public facilities (including parks and recreation and schools; and (d) energy (including power plants and oil refineries). In this context, the cover image of what appears to be the construction of an office building appears to be a little out of place.

The book concludes with a chapter on the impact of the economic and financial crisis of 2008-2009 on PPP projects, which is both timely and concise. Delmon provides good insight into the new challenges that confront policy makers in organizing PPP financing and also offers creative ideas on ways that officials can overcome many of these new hurdles. His message is that crisis does not change the fundamentals of PPPs, and despite the challenges these officials should continue to develop their PPP pipeline.

In evaluating the overall utility of this book, it should be noted that the primary audience is policy makers in developing countries. For that audience, the PPP terminology and overview, especially related to PPP financing, risk allocation, and contractual structure will be very informative. One criticism of this book for this audience is the lack of good case studies and empirical data that would illustrate the applicability of the author’s policy recommendations.

Delmon’s book provides some key insights that are relevant to countries with more developed infrastructure systems as well. PPPs bring new players to the table—often players with significant equity at risk—which is a fundamental change for agencies more accustomed to working with private companies as contractors.

Many developed nations have already had years or decades of experience with PPPs—the United Kingdom, Canada, Australia, and New Zealand, for example. Interest in PPPs in the United States is growing, as its public budgets strain under the pressures of health care and retirement liabilities and elected officials’ distaste for tax increases.

The PPP approach to developing, operating, and maintaining infrastructure holds a great deal of promise, along with some significant pitfalls. One can only hope that some of the lessons imparted in Delmon’s text will be taken to heart as PPPs are considered and adopted more widely.