PPP concessions are long-term agreements in which the private sector assumes responsibility for the provision of public goods or services. The private concessionaire is fully responsible for designing, financing, constructing, maintaining and operating the project. In return, and upon fulfilling the project requirements, the concessionaire receives predefined payments from one of the following sources:
- End users of the good/service
- The public sector
- A combination of the above
PPP – Prominent features
- Public – Private cooperation
- Efficient risk allocation which utilizes the various parties’ comparative advantages
- Long term concessions (20-35 years)
- The public sector is a client rather than a provider of goods/services
Cost benefit analysis
Advantages and disadvantages of the PPP model should be considered while evaluating the PPP model’s suitability to a specific project.
- Synergy between design, construction and operation
- Efficient risk allocation between public and private sectors
- Incorporation of private sector innovation
- Maximizing project value through additional uses of the project
- Improving services to State and the end users
- Increasing competition in relevant sectors
- Tapping into private funding sources
- Increasing GDP growth without creating deficits
- Efficient quality control measures
- Temporary private ownership of public assets
- Higher private sector finance costs
- High tendering costs
- Reduced budget flexibility resulting from the creation of long term obligations toward projects
PPP – Public Private Partnership
Long-term agreement between the public and private sectors to provide a high quality public goods or services through efficient allocation of risk that maximizes value for money. PPP projects in Israel are tendered through one of the following models:
- P.F.I – Private Finance Initiative
PFI agreements are a form of PPP agreement in which the public sector retains demand risk rewarding the private concessionaire with a predetermined fixed payment upon fulfillment of the concession requirements.
- B.O.T – Build, Operate, Transfer
BOT agreements are a form of PPP agreement in which the public sector transfers demand risk to the private concessionaire who collects payment directly from users. Variable income may be augmented by government grants and safety nets.
- B.O.O – Build, Operate, Own
A variant of the BOT model in which ownership of the project does not revert to the state at the end of concession period, rather, the concessionaire remains the owner of the project after termination of the concession.