FAQ: Public-private partnership
02.02.2011
What is public-private partnership?
Public-private partnership is a form of cooperation between the private and public sectors executed under an agreement or in the form of a separate entity that involves the provision of services traditionally provided by the public sector.
PPP: advantages for partners
The premise for starting cooperation by private and public partners is the conclusion that they both have certain competences whose combination allows for the optimum satisfaction of the public needs.
The cooperation’s effectiveness is guaranteed by the proper division of risks and benefits between the partners.
What is the definition of PPP?
According to the statutory definition (law of the 19th of December 2008 on public-private partnership, Journal of Laws of 2005, No. 169 item 1420, as amended):
“The subject of public-private partnership is the joint execution of venture based on the division of tasks and risks between the public entity and the private partner.”
The venture could involve construction or renovation of a building, provision of services, performance of work, particularly the furnishing of property element in devices that increase its worth or utility, or other benefits, but they always have to be connected with the maintenance or management of the property element that is used for the execution of public-private partnership or is connected with it.
What is a public entity as understood by the law on the public-private partnership of the 19th of December 2008?
Pursuant to the law, the public entity is: a public finance sector unit as understood by the regulations on public finances or other legal person established for the special purpose of satisfying common needs that is not of industrial or commercial character, if the public finance sector units:
- Finance it in over 50% or
- Have more than half of shares or stocks or
- Hold supervision over the managing body or
- Have the right to appoint more than half of the supervisory or managing body composition.
What legal acts regulate the PPP issues in Poland?
The PPP issues in Poland are regulated by two laws: law on public-private partnership of the 19th of December 2009, and law on concessions for construction works or services of the 9th of January 2009.
How do public institutions select private partners?
There are two options for the selection of private partners: in the mode of the Public Procurement Law or in the mode of the law on concessions for construction works or services. The selection depends on the source of remuneration of the private party:
- If the private partner’s remuneration is exclusively the right to gain profit from the subject of the partnership or mostly this right (that is more than 50%) together with the payment of monetary sum by the public party – the selection of the private partner will follow the regulations of the law on concessions for construction works or services;
- In other cases the selection of private partner will be subject to the regulations of the Public Procurement Law.
Why is PPP attractive for the public party?
PPP is attractive for the public party due to:
- Increasing investment needs in the public sphere;
- Inadequate sum of financial resources in relation to the current needs (growing debt of self-governments);
- Greater effectiveness of measures undertaken by private enterprises in comparison to public management;
- Possibility of transferring part of the risk related to the investment to the private party;
- Positive experiences of partners from the EU.
What are the benefits from using PPP for the public and private sectors?
Benefits for the public sector are as follows:
- Faster process of infrastructure construction and faster implementation of projects than in the case of totally public investments;
- Lower costs of the infrastructure’s completion and maintenance – greater effectiveness of expenditure of public resources;
- Better placement of risks related to the investment – division of risk between the public party and private partner;
- Provision of services with better parameters;
- Acquisition of additional revenues from the investment.
Benefits for the private sector include primarily stable long-term contract and independence from political changes and annual budgeting in the public sector.
Source: Guidelines concerning successful public-private partnership, European Commission, January 2003.
What are the known examples of benefits stemming from the execution of investments in the PPP model?
In the years 2001 – 2007 in the United Kingdom over 500 projects were executed in the PPP model (source: Public Private Finance, DLA Piper). The results of the ‘HM Treasury, PFI: meeting the investment challenge 2003’ market research in the United Kingdom indicate that the average savings in relation to the costs of investments executed with the use of the traditional method amount to 17%, 78% of the projects did not exceed their budgets, 88% of projects were executed on time or before the deadline, and less than 8% of projects were completed with more than 2-month delay.