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Financing of major infrastructure and public service projects
PUBLIC - PRIVATE PARTNERSHIP / Lessons from french experience throughout the world
Friday 2 December 2005 , Jean-Olivier Laval

Jean-Yves PERROT and Gautier CHATELUS,Editors


To get the book :

Presses de l’École nationale des ponts et chaussées, 28 rue des Saints-Pères - F-75343 Paris cedex 7 Tél : + 331 44 58 27 40 - Fax + 331 44 58 27 44


Jean-Yves PERROT

In 1993, France’s Ministry of Public Works and Transportation, under the guidance of my predecessor Claude Martinand, published an initial collective work on the French experience DAEI (French Minstry of Public Works, Economic and International Affairs Division), Private Financing of Public Infrastructure, supervised by Claude Martinand, Paris, 1994 already at that time deeply-rooted and widely-practiced, in the area of private-sector financing and management of public infrastructure projects.

Six years ago, this first book served to ignite and spur on a debate over the methods needed to associate the private sector in performing public service assignments. The French experience, featuring a broad-based approach applicable to a cross-section of services and infrastructure, proved to be quite original (even unique), against the backdrop of a worldwide economy still heavily and at times dogmatically championing total privatization as the sole alternative to public-sector facilities management.

Since then, the range of public-private partnerships, in terms of both geographic location and service sector, has continued to spread throughout the world.

A large number of diverse countries, stretching across all continents, have been holding international calls for tender in order to build facilities and run public services within a partnership framework, especially in water/sewerage and transportation. Energy production, waste handling/treatment and, to a broader extent, the environment, telecommunications and public housing have all been managed using publicprivate partnerships, with the legal and financial configurations of such partnerships taking on a wide variety of forms.

Reliance upon a delegated management framework (whether a concession or another type of public-private partnership), as a means of improving the quality of public services, has thereby come to the fore as one of the basic tools in economic modernization. Moreover, this brand of partnership has helped refocus the role and resources of the public authority on its regulatory missions.

During these past six years, the debate over managing public services through delegation (in all its international, economic and legal dimensions) has both matured and become less vehement. No longer is it concentrated on the legitimacy of joint public-private intervention in satisfying public service or facility requirements, but rather on the most efficient manner in which such facilities and services can be set up and operated, via a veritable and well-balanced partnership between public authority and private operator. In conjunction with these developments, considerable advances (e.g. other publications, conferences, seminars, manuals) have allowed gaining greater insight into the topic.

French firms have participated extensively in this opening onto the world by demonstrating their longstanding tradition of involvement in public services within many countries. These firms have made the most of their practical experience of working in partnership with France’s public administration, as well as of their technological prowess, in order to develop original formulae adapted to each context and each project. This book has been intended to draw upon the depth and richness of their collective experiences.

By its very nature, public-private partnership cannot stem from a single contractual template, but instead must be assembled using lessons gleaned from past experience. As such, it is incumbent upon us to share this experience with other public and private actors as far and wide as possible, in an effort to incite meaningful and beneficial exchanges. From a public authority’s standpoint, this book provides:
- series of recommendations, reflecting the outcome of such practices and up-to-date realities;
- the various processes during the life of a contract: preparation, award and execution;
- detailed descriptions of sector-specific parameters;
- examples of successful partnerships conducted in various service sectors across the globe.

The Ministry’s Division of Economic and International Affairs has sought, by virtue of this latest book (which combines a broad range of contributions from company sources, consultants, public authorities and financial advisers), to extend the geographic and sectorial scope of strategies related to public-private partnerships.
This effort has also been intended to distinguish future trends shaping such partnerships, as regards pertinent European and French references (while highlighting successful ventures encountered the world over), in the aim of offering public authorities if not an actual delegated-management user’s manual, at least some sound guidelines for building sector-specific partnerships.


Objectives of this book

As of the 16th century in France, public authorities began envisioning the use of private entities to perform, on behalf of and under the control of the authority itself, an economic activity aimed at public service provision or a contribution to the overall economy. The nation’s very first concession was granted to Adam de Craponne in 1554 for the construction of a canal.

These partnerships between public sector and private sector began to take on prominence in France towards the beginning of the 19th century, with the appearance of new public services, especially in the area of water supply. Private companies have been commissioned to treat and distribute water to the population as an economic undertaking on behalf of and under the control of appropriate publicsector authorities. The same would go on to happen in other public service areas, such as public transit.

Since the beginning of the 1990’s, the principle of public-private partnership has enjoyed, the world over, renewed success. A host of factors explain this regained interest, with the most predominant being: the heightened need for public services, in a context of limiting public-sector outlays, and a sharper analysis of the division of roles between public entity and private operators. In this vein, a pragmatic approach has taken shape, enabling greater overlap of both parties’ objectives for the modernization and improvement of public services, while transferring a portion of the taxpayer’s financial burden onto users.

The advent of public-private partnership can also be legitimized by the respective roles played by the public authority and the private operator. The former is responsible for ensuring the provision of services essential to the population’s economic and social well-being, in accordance with society’s expressed needs; while the latter seeks to carry out assigned missions in optimizing the cost-benefit ratio. The use of public-private partnership thus enables reconciling these two positions. Nonetheless, considerable insight into the process is a basic prerequisite; prior to calling upon a public-private partnership, the public authority must have a solid grasp of the potential advantages and inherent risks, and fully comprehend the process for enhancing a partnership’s success.

Public-private partnership has thus become a key issue for the beginning of the new millennium in the field of public-sector management worldwide. Its implementation necessitates in-depth preparation in order to develop a truly global approach. This book aims at underscoring the main characteristics associated with delegated management and concessions, as well as displaying their economic configurations, preparation conditions, contract-award procedures and execution. The presentation format includes both the general theoretical standpoint and a sector-by-sector analysis; each chapter closes with a series of recommendations addressed to public authorities interested in pursuing this mode of contracting.

Contents of the book

We have produced a book intended for several types of readers. As for content, background material critical to the success of partnerships, in terms of economic, legal and financial principles, has been raised in Part II. Parts III and IV examine these conditions for success in a pragmatic fashion, by economic sector, for the various modes of transportation and types of urban public services. Part V is aimed at sharpening some of the theoretical angles and gleaning the perception of multilateral organizations involved in such projects.

As for presentation, this book has been designed to accommodate a variety of reading approaches: from a quick skim to a more thorough perusal. Each chapter is led off by a brief abstract which provides an overview of its contents. A section has been included at the end to highlight the set of recommendations addressed to public authorities seeking to enter into partnerships with private operators. Chapters are also accompanied, whenever necessary, by tables or summary diagrams of the key points discussed. In a number of cases, inserts allow grasping a particular subject in greater detail; in the sector-specific chapters, descriptions of example set-ups help illustrate the material presented.



Part I - Introduction

The first (introductory) part of this book is aimed at discerning the key stakes involved in public-private partnerships. The first chapter (I-A) portrays the potential advantages generated by these partnerships, while cautioning against an overlyidealistic vision and stressing that their success depends, above all else, on both the degree of partner involvement and the project’s intrinsic quality.

Chapter I-B presents 7 general conclusions which can be drawn from experience with public-private partnerships over the past ten years. These conclusions encompass: heightened pressures to justify increased reliance on public-private partnerships; the growing emphasis placed on pragmatic approaches as opposed to public-private partnership “models”; the importance of an ad hoc approach to public-private partnership able to respond to narrowly-defined problems; the institutional environment’s fundamental role; the life cycle of public-private partnerships projects; the necessity of a contract regulator; and the need to take contractual procedures through to the stage of implementation quickly.

Part II - Conditions for a successful public-private partnership

This part is devoted to a cross-sector analysis of the basic conditions necessary for a partnership to succeed. The introductory chapter (II-A) presents the contracting process and the features of the contract itself. The contracting process must begin by defining a host framework for the public-private partnerships and then developing the specific contract. It is essential to distinguish between the concessionary contract containing a public service-delegation component and a conventional public procurement contract. The contracting process must be laid out clearly, yet incorporate performance objectives. The chapter then turns to the nature of the contract, which must be firmly tied to: a detailed description of the works program, the operating conditions stipulated for the public service, and the terms governing contract termination. The guiding principles always focus on the contractual equilibrium between partners and the guarantee of public service provision.

The second chapter (II-B) goes right to the heart of project analysis, which entails the evaluation of risks, their limitation and the breakdown of those risks impossible to contain. This exercise, valid for all public-private partnership projects and applicable over the long run, is fundamental to the project’s overall configuration. Many risks can be mitigated thanks to effective measures on the institutional and regulatory environment and a solid project organization. Others need to be split between partners in accordance with the principle of risk assignment to the party most capable of bearing the risk, depending both on the benefit derived from the project and on the notion of contractual equilibrium.

Chapter II-C focuses on the primary parameter influencing a partnership: the contract’s life cycle. As opposed to the classical public procurement contract, a partnership is entered into for the long haul and engenders relations between public authority and private operator that last a good number of years, and in most cases span decades. Such a contract therefore must be set up to adapt to the inevitable changes affecting its domain of application. This chapter highlights the characteristics of the contract life cycle and their ultimate impact on both the preparation of the economic and institutional framework up front and the options available following the award procedure.

Chapter II-D helps clarify the project’s legal-related concerns and describes the set of legal clauses essential to the preparation of a regulatory and institutional environment for awarding contracts and ensuring successful partnerships. It also goes into detail on the basic clauses not to be overlooked during the drafting of a contract. The chapter’s underlying notion is the lack of a single universal public-private partnerships model; the ensuing partnership and clauses may be applied within different types of national legal systems, while maintaining the potential to adapt the contract to a particular context.

To close this Part, Chapter II-E is aimed at presenting the appropriate financial approach to public-private partnerships. This approach cannot be merely based on conventional banking tools due to the level of risk involved from the banks’ standpoint and the length of contractual periods. The financial organizations working in this field have thus devised a new set of sophisticated tools. Yet, even the most favorable financing set-up can only function successfully for projects with solid economic justification.

Part III - Concessions in the field of transportation

Parts III and IV lay out a sector-by-sector approach organized around two major themes: transportation and municipal services. Public-private partnerships do not entail use of a single “recipe”, but rather must be applied on a case-by-case basis. Individual sectors display their own set of specificities, and the experience acquired in each allows identifying how best to integrate the general principles described in Part I.

Part III addresses the broad domain of transportation, which must be considered both as an economic activity in and of itself and as a support service for the economy. Consequently, owing to the magnitude of capital investments involved as well as to the fact that users can be required to pay for services, the public-private partnership proves a particularly well-adapted formula. Four sectors have been analyzed in-depth: roads, public transit, airports and ports.

Chapter III-A discusses roads and road-related infrastructure. This sector presents contrasting aspects: simple in the approach (the primary objective of a publicprivate partnership in this sector is to finance infrastructure), yet difficult due to very sizable investment outlays coupled with highly-uncertain and imprecise revenue projections. Public-sector subsidies are often justified and essential. A key to toll road, bridge and tunnel projects, especially in urban settings, concerns the social acceptability of paying tolls.

Chapter III-B discusses public transit systems. In this case, the partnership may be focused not only on the infrastructure component, but on service operations as well. Such services often exhibit low profitability levels, yet remain essential to urban cohesion (at least as far as urban public transit is concerned). Concessionary contracts can thereby incorporate a variety of elements. Rail operating franchises enable optimizing the use of infrastructure. New high-speed train networks have to be designed from an overall standpoint, so as to enhance compatibility between infrastructure, rolling stock and operations; such projects, however, necessitate considerable subsidization up front. Tramway or metro systems can be handled using different types of project set-ups, with varying doses of management delegation.

Chapter III-C takes a close look at port systems. Their complexity lies in the multiplicity of agreements relative to two functions: port authority (regulatory) and operator (industrial and commercial). Ports can be divided into three main categories, depending on the level of delegation exercised: operator port, tool port and landlord port. The selected model must be well-adapted to local conditions regarding competition, traffic volumes handled, etc.

Chapter III-D presents the characteristics of airport systems. This category of transportation infrastructure has undoubtedly come to represent the most profitable and the most straightforward to implement as concessions. The concessionaire is entrusted with the status of airport authority and must coordinate operations with four types of entities: airline companies, passengers (and their accompanying parties), non-aeronautical commercial activities, and the host of regulatory public services (airport security, customs, air traffic control, etc.). This assemblage requires a truly multi-faceted partnership established over the long term.

Part IV - Delegated management of municipal services

Part IV describes public-private partnerships principles pertaining to municipal services. Though the nature of such public-oriented services remains heavily under the responsibility of the competent local public authority, the economic activities they engender may be delegated. Quite often, these services associate a local facility with a specific service provision, which in general comprises the very core of the activity. Use of the generic term “delegated management” for these service partnerships is definitely most appropriate.

Chapter IV-A discusses the entire array of municipal services. As a result of the diversity encountered among these services, it would have been difficult to devote a separate chapter to each. Four major categories have nonetheless been assembled:
- environmental protection services (water and waste, which are developed in this book in two distinct subsequent chapters);
- economic services, both basic (energy, telecommunications) and specific (public fairs, tourism, slaughterhouses, etc.), and all services related to streets and public space (street lighting, public amenities, etc.);
- construction and maintenance of public buildings;
- recreational services (athletic, cultural, etc.).

An insert included in this chapter provides a closer glimpse at electricity supply and telecommunications services.

Chapter IV-B focuses more specifically on municipal water services (production, distribution and sewerage). This sector illustrates to a great extent the multitude of issues arising in service-oriented public-private partnership projects. Though a production function is very often present (e.g. water treatment plant), the critical feature herein revolves around the provision of an absolutely vital service (water supply), with its array of issues pertaining to user relations, the social acceptability of water service rates, quality of service, etc. On the other hand, this sector includes services intended for the locality as a whole, such as sewerage. A wide variety of delegatedmanagement approaches are available, extending from a simple Build, Operate and Transfer “BOT” contract (for a treatment plant) or a service management contract (for overseeing distribution) all the way to the overarching system concession (with varying levels of investment exposure).

This part closes with Chapter IV-C, which examines the environmental services, and more precisely those services related to the entire waste sector. This sector is currently undergoing tremendous growth and features an emphasis on innovation and heavy capital investment. Service is provided to the local population, but often indirectly through a local authority (as opposed to water, whereby the user is served directly). As is the case with water, a combination of pure service activities (waste collection) and more industrial activities (treatment) typifies this sector. Moreover, these industrial activities involve a strong degree of product reuse and may combine provision of services for both public and private clients.

Part V - Close-up

The final part of the book serves to gain a more in-depth perspective on the subject. To lead off, a more theoretical chapter allows insisting upon the rationale and need for making use of a panoply of public-private partnership models, adapted to specific economic and political contexts and stressing certain invariant parameters encountered in all forms of public-private partnership. Accompanying chapters present the points of view of several eminent international organizations. The opinions expressed by the World Bank, the European Investment Bank and the European Commission have all been assembled here.



  • A. In favor of a pragmatic approach towards public-private partnership
  • B. Ten years of public utility reforms: 7 lessons (from privatization to public-private partnership)


  • A. The concessionary contract: a framework, a process, a contract
  • B. Risk analysis and sharing: the key to a successful public-private partnership
  • C. The contract’s life cycle
  • D. The legal framework
  • E. The financial approach


  • A. Roads and road-related infrastructure
  • B. Public transit systems
  • C. Ports
  • D. Airports


  • A. Municipal services: the stakes involved in delegation
  • B. Water and sanitation services
  • C. Waste management


  • A. A draft typology of public-private partnerships
  • B. The European Commission’s point of view: Mobilising partners for networks of tomorrow
  • C. Public-private partnership financing for European infrastructure: The role of the European Investment Bank
  • D. The World Bank’s point of view



APPENDIX : Primary types of contracts underlying a public-private partnership

The concessionaire carries out all of the capital investment, operates the resulting service and is remunerated primarily through service fees paid by users. The facilities are to be handed over to the oversight public authority at the end of the contract period.

The lessee manages either the facilities side or the operations side of the project and is remunerated primarily through service fees paid by users. Equivalent to the Anglo-Saxon Management Contract (plus a “success fee”).

BOOT (Build Own Operate Transfer)
Within a project financing framework, several private entities - via a series of contracts - finance, build, own and operate an infrastructure facility designed to accommodate the set of needs established by the public authority, which in many instances acts as guarantor for the project. Ownership of the facility is to be transferred to the public authority upon expiration of the contract.

BOT (Build Operate Transfer)
A variant of the BOOT contract, whereby facility ownership is transferred to the public authority once the building phase has been completed.

BOO (Build Own Operate)
A variant of the BOOT contract, whereby facility ownership remains in the hands of the private investors beyond the contract’s expiration.

Reverse BOOT
The public authority finances and builds the facility, and then confers service operations to a private firm which assumes ownership as the building phase winds down.


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