Defining the PPP framework

There is no single, model PPP framework. A government's PPP framework typically evolves over time, often in response to specific challenges facing its PPP program. In the early stages of a program the emphasis may be on enabling PPPs, and creating and promoting PPP opportunities. Once several PPPs have been implemented on an ad hoc basis, concern about the level of fiscal risk in the PPP program may be the impetus for strengthening the PPP framework. In this case, the focus may be on strengthening control over how PPPs are developed, or improving public financial management for PPPs, as for example in South Africa (Burger 2006).

Often the initial phase of this iterative process involves introducing PPP-specific institutions, rules, and procedures to ensure PPP projects are subject to similar discipline as public investment projects. Gradually, as experience with PPP grows, these PPP frameworks may re-integrate with normal public investment and infrastructure planning, procurement, and fiscal management processes, with PPPs as one option facing the same standards as others for implementing public investment projects. Maintaining the same standards will prevent PPPs from being used to circumvent standard project checks and balances or fiscal constraints.  

The best solutions to any given challenge will likely vary between countries—depending on the country's existing legal framework, investment environment, government institutions, and capacity. The PPP Framework of Chile and The PPP Framework of South Africa provide brief overviews of the PPP frameworks in South Africa and Chile—both countries recognized as having best-practice PPP frameworks.

The components of a comprehensive PPP framework typically include the following:

• Policy—articulation of the rationale behind the government's intent to use PPPs to deliver public services, and the objectives, scope, and implementing principles of the PPP program.
• Legal framework—the laws and regulations that underpin the PPP program—enabling the government to enter into PPPs, and setting the rules and boundaries for how PPPs are implemented. This can include PPP-specific legislation, other public financial management laws and regulations, or sector-specific laws and regulations.
• Processes and institutional responsibilities—the steps by which PPP projects are identified, developed, appraised, implemented, and managed, ideally within the Public Investment Management system; and the roles of different entities in that process. A sound PPP process is efficient, transparent, and is followed consistently to effectively control the quality of PPP projects.
• Public financial management approach—how fiscal commitments under PPPs are controlled, reported, and budgeted for, to ensure PPPs provide value for money, without placing undue burden on future generations, and to manage the associated fiscal risk.
• Other arrangements—how other entities such as auditing entities, the legislature, and the public participate in the PPP program, and hold those responsible for implementing PPPs accountable for their decisions and actions. The sections of this module describe each of these elements of a PPP framework, providing examples and guidance for practitioners.

In practice, these elements are closely interrelated. For example, a well-controlled process for developing PPPs requires assessing their fiscal consequences, which implies some Finance Ministry control at different stages of the project cycle. This is essential for sound public financial management of the PPP program. Comprehensive public reporting of fiscal commitments to PPPs in turn enables effective oversight of the PPP program. These linkages are highlighted throughout this module.

For more on the typical components of a PPP framework, see Farquharson et al (Farquharson et al. 2011, 15–16), and Yong (Yong 2010, 30), which both provide brief overviews. The OECD's recommendation on public governance of PPPs (OECD 2012) also sets out guiding principles for governments on managing PPPs. The recommendations cover three areas: (1) establishing a clear, predictable, and legitimate institutional framework supported by competent and well-resourced authorities; (2) grounding the selection of PPPs in value for money; and (3) using the budget process transparently to minimize fiscal risks and ensure the integrity of the procurement process. These built on earlier OECD principles for private sector participation in infrastructure (OECD 2007b).

Detailed assessments of PPP frameworks in a range of countries are available in the following:

• The Economist Intelligence Unit (EIU)'s Infrascope index publications assess the PPP environment in a set of countries to determine whether they are  ready to undertake sustainable PPPs. The variables used to assess the countries include many of the PPP framework elements described above, as well as the country's operational experience with PPPs, the availability of finance and financing support mechanisms, and the overall investment climate. The series includes EIU Infrascope index for Latin America and the Caribbean (EIU 2014b), commissioned by Inter-American Development Bank's Multilateral Investment Fund (MIF); EIU Infrascope index for the Asia-Pacific region (EIU 2014a), commissioned by the Asian Development Bank (ADB);  EIU Infrascope index for Eastern Europe and the Commonwealth of Independent States (EIU 2012), commissioned by the European Bank for Reconstruction and Development (EBRD); and the EIU Infrascope report evaluating the environment for PPPs in Africa (EIU 2015), commissioned by the World Bank.
• Irwin and Mokdad's paper on managing contingent liabilities in PPPs (Irwin and Mokdad 2010) describes the PPP approval, analysis and management approach in Australia, Chile, and South Africa, with a focus on fiscal management.
• The PPP Knowledge Lab contains links to a set of tools designed by multilateral organizations to assess and improve PPP frameworks.
• The OECD Principles for Public Governance of Public-Private Partnerships (OECD 2012)—provides recommendations on how to ensure value for money through institutional design, regulation, competition, budgetary transparency, fiscal policy, and integrity at all levels of government.
• The Country Readiness Diagnostic for Public-Private Partnerships (WB 2016a)—is a World Bank tool that helps determine the status quo and compares it with best practices to determine gaps.
• The World Bank Benchmarking PPP Procurement 2017 (WB 2016b)—benchmarks the regulatory frameworks governing the PPP procurement processes in 82 economies, and evaluates these data against internationally recognized good practices.
• The Framework for Disclosure in PPP Projects (WB 2015a)—is a World Bank review of PPP disclosure frameworks and practices together with a set of recommendations for a systematic structure for proactively disclosing project information.