Turkey: Partnership Of Success: Public Private Partnerships

In recent years, one of the most popular topics in the business world is "Public Private Partnership" ("PPP") which is a method to establish a partnership between a public entity and a private company for the realization of some sizeable investments and the provision of the related services whereby the construction and performance risks are allocated to the private entity.

It can be said that, at the beginning, PPP models have been created for the projects which needed high financial resources in different sectors like telecommunication, water systems, transportation, energy and medical care. However, today, as a result of the new government policies, it is preferred to realize infrastructure projects mostly with PPP models, not only for the need of high financial resources but also for achieving and maintaining high quality and faster realization in these investments.

The very first reason as to why PPP is needed is that the public investment requirements are increasing and the demand cannot really be met by classical methods. In that respect; new methods such as PPP models, are considered by the public authorities in order to meet these requirements in a satisfactory level.

Regarding the PPP forms, which vary depending on the risk allocation and the liabilities of the parties, we may list the major types of PPP as Built-Operate-Transfer, Built-Operate, Built-Own-Operate-Transfer, Develop and Operate, Lease-Refurbish-Operate and Transfer and Operate and Maintain. A public authority may use one of these models or some of the elements of the mentioned models and can create a new PPP model for finding the most suitable model, taking into consideration of the nature and requirements of the specific project. Therefore it cannot be said that "this is the best type of PPP or suitable for any investment" and accordingly, the proper model of the PPP must be specified on case by case basis in accordance with the requirements of project and the approaches of the respective public and private parties.

PPP models are being used in so many countries for a long time, especially by the EU member countries, Canada and USA which use PPP generally in their infrastructure projects. Also in developing countries and the EU candidate countries, the governments tend to create and support new PPP projects to operate public services because of several advantages of PPP. First of all; under a PPP model, public services are provided in a timely and efficient manner and PPP removes the difficulties in public financing and creates a new financial instrument. The costs of the public services are paid following the  commencement of the services and always subject to the provision of the services under PPP which improves the public services and immediately adapts the same to any related innovation. In PPP, the risk assessment and management skills of the private sector can be used for public sector and the long-term risks are assigned to the party which can manage it in the best way so that an efficient and firm project ground can be established. PPP develops the current level of service as well as maintenance & repair and increases the availability level and quality of the public services for end users. Further; no PPP obligation is included in public debts pursuant to EU Criteria. Considering the advantages of the PPP as mentioned herein, it is clear that the current public-private relation will certainly improve and be restructured in such a positive way with the implementation of PPP.

However; apart from the advantages of PPP mentioned above, it should be considered that the PPP projects are generally hard to design, operate and manage. This structural complexity brings out some difficulties which may be listed as below:

  • PPP creates a long-term inseparable and dependent partnership between public and private sector,
  • The preparation and contractual process of PPP is very complicated and much longer as compared to current public procurement systems,
  • A proper planning and management of Projects and risks will be difficult in PPP as compared to other financial models,
  • Each partner will have different requirements and expectations under the Project; therefore, it makes it difficult to establish a balance between the parties involved,
  • Under PPP there exists high sensitivity and risks depending on political and economic developments which may result in unforeseen and undesirable circumstances,
  • Any failure in respect of the proper determination of the terms and conditions of the Project may result in serious and unrecoverable long-term problems,
  • Any failure in conducting public auditing during the agreement procedure may result in very serious problems,
  • Borrowing costs of private sector will be high in PPP,
  • The long-term payment obligations applicable in PPP will constitute a threat in respect of the state budget flexibility,
  • The long-term payment obligations applicable in PPP will also weaken the investment planning,
  • Finally, exclusion of the PPP obligations from the public debts will constitute invisible threats. Although it may on one hand be advantageous to have PPP obligations not included in public debts pursuant EU Criteria, on the other hand, it may give an unsecured comfort to governments which may face with budgeting problems.

In addition to the advantages and disadvantages mentioned above, there are some other parameters which should duly be considered for a successful PPP. First of all; it is vitally important to have clear Policy stating the objectives of PPP and the procedures to be followed for such objectives to be achieved. It is also crucial to ensure that a stable and continuous political support is always available. In addition, there should be a well-defined and firm Legal Framework which enables the establishment and implementation of PPP arrangements. Besides, legal arrangements should be made in such a way as to ensure integrity and compatibility of the new laws to the existing regulations. At this point, it should be remembered that several investors faced serious problems regarding the BOT implementations in the years of 1990 due to the cancellation of some provisions of the BOT Law No: 3996 by the Turkish Constitutional Court. For that reason, it is crucial to make sure that the legal arrangements will not be breaching the provisions of other laws and the Constitution.

Furthermore; there should be a well-established Institutional Framework where the responsibilities and the decision rights or the parties are well defined and not contradicting with any other institution's powers. Apart from those factors, the adaptation of the PPP implementations to the public and private sector is very important. It is therefore necessary to establish national PPP policy as to proceed consistently.

Due to its complex nature and its need for a combination of legal, technical and financial evaluations, a PPP project should be handled professionally by a scrutinized consideration and synchronization of all these aspects in order to eliminate the possible risks. In order to be able to do this, the structure of a PPP project and the contract to be signed between the partners of the partnership should be made and manage by professional entities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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