Term Paper: Public Private Comparator Public Sector

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[. . .] As one can see, a variety of factors affect the public-private partnership. Not all countries treat public-private partnerships in the same way. They have different agencies for administering public-private partnerships, different ways of dividing risk and different ways of defining the public-private partnership. There are many differences in the types of transactions, payment methods, and rules that govern the public-private partnership. In order to understand the public sector comparator, one must first understand the various factors that influence the public-private partnership in its many forms.

The PPP in the UK, Australia, USA, Germany, and in Korea

The UK. In the UK several debates, such as the use of public sector comparators, the initiation process of PPPs, choice of discount rate, and cost of capital between PPPs and conventional procurement are taking place (Ball, 2009). Many of these issues are similar to those which are of primary concern in many countries around the world. As of 2006, 750 PPPs were in existence, representing a total capital value of USD 130 billion (Ball, 2009). In the UK, health and education represent the widest use of the PPP model. Building schools and hospitals are among the largest expenditures utilizing PPPs in the UK. This contrasts with Australia, where the largest expenditure are for transportation, roads, and water projects (Ball, 2009). The needs of countries utilizing PPPs differ, thus the nature of the projects are significantly different as well.

The financial health and structure of the country also determine the nature and structure of PPP projects. In the UK, a strict policy is followed that does not allow the ratio government debt to exceed 40% of the GDP (Ball, 2009). Regardless of the government debt, new hospitals and schools are necessary. The PPP allows the UK government to pass some of its debt onto the private sector, thus allowing it to stay within its prescribed guidelines. The cost of the capital asset under a PPP can be removed from the public service balance sheet only if a sufficient level of risk is transferred to the private entity. In the UK, the Accounting Standards Board UK oversees PPPs. No equivalent board exists in Australia (Ball, 2009). Approval of the PPP depends on the ability to demonstrate that the PPP would provide a better value than conventional financing. This is a primary requirement in many countries that utilize the PPP. The goal of the is to protect and better manage public funds and to provide improvements in infrastructure utilizing the most efficient cost structure.

A comparison between attitudes towards PPPs in Australia and UK, found the attitude in Australia to be much more negative torts PPPs than that of the UK (Ball, 2009). The PPP is a much more acceptable form of financing and the UK. Ball attributes these differences too much stricter approval criteria in the UK, resulting in fewer failed projects.

Australia. The Western Australian government has produced a set of guidelines relating to the calculation of discount rates and each component of the raw and risk adjusted Public Sector Comparator (PSC). According to the guidelines, the purpose of the PSC is to assure that the tax dollars of the Australian people are spent wisely (Government of Western Australia 2011). The Victorian government has one of the most detailed sets of guidelines for calculating the PSC and determining the risk components of the PSC. The following basic guidelines are used to determine the PSC in Australia.

Australia is one of the best countries for the study of public-private partnerships and calculation of the PSC. Public-private partnerships in Australia are governed by a complex set of joint ventures law that is more advanced than in many other countries that utilize the public-private partnership (Duncan 2005). This is one of the key reasons for using Australia as an example for the study of factors that influence calculation of the PSC. Partnerships Victoria projects must follow the rules set forth in the official guidelines. Partnerships Victoria projects begin when a service need is identified by a department or agency. The project is then subjected to an investment appraisal using the current infrastructure investment evaluation policies and guidelines (Partnerships Victoria 2003). A business case is submitted to the government along with recommendations as to whether the project would be recommended for a partnership or traditional government contract project. If approved, the project will be compared to a reference project, which is a hypothetical situation in which the government provides and finances all of the services. The reference project does not need to assume that everything will be done within the public sector and these often include elements of outsourcing and third party contracts (Partnerships Victoria 2003).

The USA. The public-private partnership in the United States faces many political challenges and is currently a topic of debate. Deregulation efforts in the United States have faced many challenges. For instance, deregulation in the California Energy sector resulted in a crisis that shaped the view of policy makers and the public on privatization in the United States (Brusewitz 2005). For these reasons, the PPP has not been met with the same enthusiasm as in other parts the world. However, despite these concerns, the number of PPPs continues to grow in the United States. Contracts with private entities have a long history in the United States, but recently the trend is toward private entities taking on greater risks and assuming more responsibility and the projects (Brusewitz 2005). This is the issue that is of key concern and at the heart of the debate. As with Germany, no unified framework exist for the formation of public-private partnerships and the partnerships are based on a combination of government regulation in common law.

Germany. The example from Australia is an excellent starting point for discussion of calculating the PSC in the public-private partnership. Now let us examine some other examples from other areas of the globe. Germany utilizes PPP projects extensively, but they have no governing body of laws as we find in Australia. Instead, Germany has a large number of acts, rules, and regulations to apply. Germany has also created a number of institutions to facilitate the development of PPPs (Deringer 2009).

In Germany, PPPs are based on an agreement between the public and private entity, with private law taking precedence over public rules and obligations. The private partner is a legal entity, or sometimes a consortium consisting of several companies and different types of shareholders (Deringer 2009). There is no specific law or framework for the formation of PPPs. The public-private partnership must conform to constitutional law, administrative law, the law of public procurement, budgetary law, tax law, investment law, finance law, the law on public subsidies, contract law and corporate law. This makes the formation of PPPs in Germany and a highly complex issue (Deringer 2009).

The formation of the PPP in Germany follows the same steps as it does in Australia and many other countries. The phases include identification of possible projects, preparation and planning, the award procedure, and implementation and control of the project (Deringer 2009). The PPP Acceleration Act was devised to facilitate the formation of public-private partnerships. Amendments to other areas of the German law were made to help facilitate the formation of PPPs as well. The Federal PPP Task Force, Federal Ministry for Transport, Building and Urban Affairs in Berlin and a number of other organization were form to facilitate the formation of PPPs throughout Germany (Deringer 2009). Many steps of been taken in Germany to facilitate the formation of PPPs, but they do not have the highly developed framework that is found in Australia. The complexity and lack of uniformity makes calculation of the PSC a task that can only be accomplished on a per-project level. This lack of uniformity also results in a lack of consistency in the VFM and PSC.

Korea. Developed countries such as the UK, USA, Germany, and Australia have more experience with PPPs then and developed nations. In general, developing countries of the Asian and Pacific region are new to the idea of PPPs as a means to accomplish infrastructure improvements (ESCAP, 2011). PPP projects are often long and are not always desirable for this reason. PPP projects in developing nations often pose problems that are in addition to problems associated with them in developed nations.

Land acquisition for the project is often problematic in developing nations (ESCAP, 2011). This is particularly the case for road and rail projects that involve acquisition of land from multiple landowners. Land acquisition is an uncertainty for infrastructure projects. The rules, lost, and norms differ in various countries. Governmental structural support is not as sophisticated and highly developed nations. This lack of governmental support is a key factor that limits PPPs in Asian countries. Governments in Asia are… [END OF PREVIEW]

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