Answered: characteristic

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Public-private partnerships (PPPs) refer to arrangements under which the private sector supplies infrastructure assets and infrastructure-based services that traditionally have been provided by the government. PPPs are used for a wide range of economic and social infrastructure projects, but they are mainly used to build and operate roads, bridges and tunnels, light rail networks, airports and air traffic control systems, prisons, water and sanitation plants, hospitals, schools, and public buildings. PPPs can be attractive to both the government and the private sector. For the government, private financing can facilitate increased infrastructure investment without immediately adding to government borrowing and debt, and user charges can be a source of revenue for the government. At the same time, the private sector can be more efficient than the public sector because of its superior management capabilities and greater capacity to innovate, which in turn can translate into a combination of better-quality and lower of cost services. For the private sector, PPPs can open up business opportunities in new areas. A number of advanced OECD member countries now have well-established PPP programs. Undoubtedly the best developed of these is the United Kingdom’s Private Finance Initiative (PFI), which began in 1992. The PFI is currently responsible for about 14 percent of public investment, with projects in most key infrastructure areas. Other countries with significant PPP programs include Australia (and in particular the state of Victoria) and Ireland, while the United States has considerable experience with leasing. Many Western European countries now have PPP projects, including Finland, Germany, Greece, Italy, the Netherlands, Portugal, and Spain, although their share in total public investment is quite small. Reflecting a need for infrastructure investment on a large scale and weak fiscal positions, a number of countries in Central and Eastern Europe have embarked on PPPs, including Croatia, the Czech Republic, Hungary, and Poland. There are also fledgling PPP programs in Canada and Japan. PPPs in most of these countries are dominated by road projects. In addition, greater use of PPP– type arrangements have been proposed to develop a trans-European road network (European Council, 2003). In the rest of the world, PPPs have made fewer inroads. In Latin America, however, Chile, Colombia, and Mexico have used PPPs to promote private sector participation in public investment projects. Chile has a well-established PPP program that has been used mainly for the development of roads, airports, prisons, and irrigation. In Colombia, PPPs have been used since the early 1990s, but early projects were not well-designed. A relaunched PPP program emphasizes road projects. In Mexico, PPPs were first used, though unsuccessfully, in the 1980s to finance roads. Since the mid-1990s, Mexico has used PPPs with greater success for public investment projects in the energy sector through the PIDIREGAS scheme, and they are beginning to be extended to the provision of other services. Therefore, a successful PPP can deliver high-quality services at lower cost than the government. For this promise to be realized, not only must the private sector be more efficient, but the efficiency gains must be large enough to compensate for the fact that private sector borrowing costs are often higher than those of the government.

The 3 required efficiency gains are more likely to materialize if PPPs have the following characteristics:

1. The quality of services is contractible.

2. Risk is transferred to the private sector.

3. There is either competition or incentive-based regulation.

4. An appropriate institutional framework is in place.

5. The government develops its own technical expertise.

6. The fiscal implications of PPPs are properly accounted for and reported.

The Concession Agreement for the Public Private Partnership (PPP) Project for upgrading to Dual-Carriage-Way of 327 km of T2/T3 from Jinja to Kampala, including rehabilitation of 45km of -Bugema-Gayaza-Kampala Road was signed on 28th February, 2023 in Kampala. The total project cost is US$ 649,976,167, broken down as follows: (a) US$ 577.38 million is the total cost of construction; (b) US$ 1,000,000 for working capital; (c) US$ 1,849,500 for finance costs; and (d) US$ 69.74 million) for interest during the construction period. Using the six factor characteristic model highlighted for a successful implementation of a PPP, appraise the Dual Carriage Way PPP.

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Thank you for the insight. In such a question, does the fact that certain data in terms of amounts involved, require any calculations a regards fully appraising this PPP? considering this portion of the question with the referred data provide "The total project cost is US$ 649,976,167, broken down as follows: (a) US$ 577.38 million is the total cost of construction; (b) US$ 1,000,000 for working capital; (c) US$ 1,849,500 for finance costs; and (d) US$ 69.74 million) for interest during the construction period. Using the six factor characteristic model highlighted for a successful implementation of a PPP, appraise the Dual Carriage Way PPP."

or we are safe to overlook this?

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