Public Private Partnership

Advantages of PPP

This specific form of cooperation may offer a number of advantages for local authorities:

• using know-how in the private (business) sector and improved service delivery,
• improve cost effectiveness,
• reduced public sector risk,
• faster project delivery,
• improved budget certainty,
• better use of assets.

Disadvantages of PPP

However, these potential advantages are in contrast with disadvantages which may run counter to integrated government approaches:

• Private industry pursues commercial objectives and profit interests which generally speaking can only with difficulty be reconciled with holistic municipal objectives and the public or common good.
• Often PPP projects are not being carried out in the central fields of local authority tasks and day-to-day work. This leads to an information and know-how deficit for municipal compared with private sector players. Thus the result is an asymmetric partnership in which local authorities have difficulty in implementing their control and regulatory duties.
• In PPP projects the interests of other stakeholders, apart from the immediate and contractually-stipulated partners, are generally not taken into account. Thus a holistic approach is rendered more difficult and often prevented.

It follows that if PPP is to be an element in Integrated Urban Governance, it needs to be very carefully arranged. In every case the final control and direction needs to be in the hands of the local authorities. Insufficient financial resources alone are not a satisfactory argument for this type of partnership. For specific tasks in social and spatial development, PPP approaches may nevertheless be sensible, if they are an integral part of a canon of other measures and activities. In this way it is possible to avoid or at least reduce the potential disadvantages of PPP with respect to Integrated Government approaches.

Public Social Private Partnership

A further development in PPP in the context of international development work, Public Social Private Partnership (PSPP), is increasingly being applied in municipalities as well. PSPP is suitable in particular in the health, social, and educational fields. Some of the risks with respect to Integrated Governance approaches which may stem from traditional PPP can, in this context, be avoided or at least diminished.

Possible partners for municipalities in terms of this approach would be socio-economic enterprises and non-profit organizations. Of course, socio-economic businesses also act out of profit motives. However, these can only be achieved if the organizations focus their products in accordance with the needs and living conditions of their clientele (in the PSPP field usually disadvantaged people and groups). As a result of this orientation towards social products and services, the congruence between private commercial interests and the interests of local authority players which are obligated to the public or common good would be greater than in a PPP situation. The potential disadvantages of PPP can thus be minimized.

Public-private-partnerships in deprived neighbourhoods

The interest of the private sector in investing in deprived neighbourhoods and in regeneration areas has been (and still is) limited for several reasons:

• negative image of a neighbourhood,
• expectation of low rates on investment return,
• perception of bureaucratic grant or funding regimes,
• lack of information and weak market signals,
• low standards of property and infrastructure,
• characteristics of the labour market,
• social factors, crime, and lack of security.

In view of these barriers it is of decisive importance that local government policies are put in place to encourage investors to become involved in deprived neighbourhoods and regeneration areas. Investment risks need to be diminished, and the barriers mentioned above reduced. PPP which is included in other measures to improve the area may be the method of choice. First of all, by means of other regeneration measures 'soft' investment obstacles are counteracted. Then, the municipality is able in a PPP project to put in place financial incentives without surrendering its regulatory function. There may for example be reduced taxes and property prices, or it may be that plots of land may be made available without charge (in exchange for future shares in the profits). Incentives of this nature depend to a major extent on the legal and fiscal situation of the particular country concerned. In most cases it is easier to activate social enterprises. Their goals concur generally speaking to a far larger extent with the objectives or goals of a regeneration project.

So far PPP shows a definite focus on technical infrastructure. This includes transport, water, waste disposal, hospitals, schools, public housing, and other activity fields. In most of the cases it is major projects which are involved, which frequently are out of the question for deprived neighbourhoods. Nevertheless, there are a number of examples from areas like this. In some of these cases it was not private investors, but the local communities themselves which were involved by means of specially set-up companies or cooperatives:

• Low-budget supermarkets and other shops can benefit from the fact that provision of services of this kind in the neighbourhood is minimal. If the project runs successfully they can count on growing demand. In addition, enterprises like these create jobs and income.
• Small enterprises such as for example groceries, bakeries, tradesmen's businesses, and repair shops frequently find better conditions in deprived areas, especially at start-up, because often there is little or no competition.
• Social organizations such as health and (elderly) care centres, educational establishments, and so on improve conditions of life in the neighbourhood. In the majority of cases theses are operated by social enterprises as PSPP projects.
• Some regeneration areas are characterized by their geographical location or by their ethnic composition. In this situation it is conceivable that projects may be initiated in conjunction with private companies in tourism. This can help to counteract the negative image of these areas and highlight the contributions made by the various ethnic cultures in making the city an interesting and attractive place to live in.
• Telecommunication and IT service companies can benefit due to the fact that even in the most deprived areas many residents have access to or are prepared to spend money on (mobile) phones and internet. Such services can help to enhance competitiveness in these areas and help to attract additional investment.

On any account the municipality needs to answer the crucial question as to how a PPP project is, and remains, integrated within the strategic overall planning and how control may be retained over the process. Agreements with private investors need therefore to be worked out very accurately. Often special purpose vehicles are set up for PPP projects where the municipality has a stake.

In order to guarantee that the project is integrated into strategic overall planning, it is advisable to include potential PPP partners in the participation procedure at an early stage. In this way they can first of all integrate their interests and points of view into the overall project and gain information about whether their plan can be realized in an economic way. On the other hand in this way commitment for the strategic objectives of the neighbourhood project can be strengthened. Possible disadvantages of PPP for regeneration projects can be reduced in this way and the potential advantages may be realized.