PPP model and its impact on APEC
- By Yu Ning
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E-mail China.org.cn, November 11, 2014
One of the things we should know about PPP is that it is primarily focused on risk allocation between public and private sectors. In the past, the public sector took on all the risk involved in infrastructure projects: the risk of contracting the work, the risk of ensuring that the contractor will finish the project on time, the risk that the contractor may run out of cash and abandon the project. Even when the contractor finishes the project and hands it over to the government, the government has to take on the task of managing and maintaining that hospital, school or road. PPP is about more efficiently allocating risk between the public and private sectors in order to prevent the government from taking on all the risk by itself.
The huge demand for infrastructure financing has provided the private sector with significant investment opportunities. Public-private partnerships are different from "pure privatization," allowing the private sector to engage in developing, financing and operating infrastructure projects. Making use of the PPP concept could be an essential solution to the lack of funding for major public projects.
There have been many successful cases of the implementation of PPP framework in several countries over the past several years. The key issue is how governments can effectively maintain a balance between public interests and fair returns for private investors.
In the PPP model, many projects offer low-risk investment opportunities and stable income for the private sector largely because of a combination of measures taken by governments. For example, governments usually retain a certain amount of the risk associated with the project while allowing the private partners some tax breaks or preferential subsidies, protecting against the possibility of inflationary impact on income generated by the projects and enhancing the reliability and transparency of regulations in some sectors.
Chinese Premier Li Keqiang proposed that we should support the innovative financing and improve the development of the PPP model in order to effectively and efficiently combine government investment and private investment.
There is huge demand for infrastructure in the APEC member economies that can provide new power to stimulate the economy. In this process, cooperation between government and private sector becomes extremely important. On one hand, the PPP model can relieve fiscal pressure on the government and improve the supply of public goods, but on the other hand, it can also provide room for the development of the private sector to expand and allow the private sector to serve the government in the capacity of a consultant or partner.
Again, I think the PPP model will allow us to ensure that government fundraising is efficient and flexible by using the private capital and expertise to close the development gap. If that model works well, it can be copied elsewhere in the Asia-Pacific region to help build "connectivity."
China is also trying to build up a China PPP Center to improve the establishment of PPP networking in the APEC region, and many other APEC members have similar plans. In future, a new economic development pattern based on the PPP model will be formed among all the APEC countries.
The writer is Lecturer of Beijing International Studies University, Associate Researcher of Stevenson Center in U.S.
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