Public Private Partnership

Public Private Partnership [PPP] refers to a project that is operated and funded by a partnership between private sector companies and government. Typically, the PPP involves the private sector entity injecting capital into the development of an asset, which it may then operate and assume some financial risk for. For example, a government may plan a tunnel, but be reluctant to levy taxes on the public to raise the capital. Instead, they may enter into a PPP with a contractor, or an alliance of contractors. The contractor invests the money and manages the building of the tunnel in return for the right to levy tolls on road users of the tunnel for a defined period, for example 30 years. At the end of the period the ownership of the asset may transfer to the government, and so the contractor’s risk would be that patronage of the tunnel might be less than anticipated, and they might not make as much profit as planned, or even make a loss.The use of PPPs has been controversial, as private sector access to capital depends upon the liquidity of the financial markets, and notable PPP contractor failures have led to assets reverting to public sector ownership following the insolvency of the contractor appointed to operate the project, calling into question the real level of risk that is transferred. See also Contract, BOOT.