In many countries across the globe, various sectors – such as toll roads, parking garages and airports – have embraced the concept of public-private partnerships (PPPs) since it provides essential capital while meeting a public need. There are multiple public benefits for a government entity, such as a municipal water or wastewater department, to consider when forming a PPP, and utilities are increasingly discovering the advantages.
First, it is important to distinguish the difference between PPPs and outright privatization. Privatization implies selling the entire assets of a given entity. But in a PPP, the government entity can retain ownership of the assets (facilities, pipes, right-of-ways, pumps, etc.) and, depending on the agreed structure of the deal, can then turn over control of the assets to the private sector. This would include the operations, maintenance, capital delivery and investments associated with the assets.
While public-private partnerships in the water sector are very prevalent in some countries, they are a growing concept in the U.S., according to Bruce Allender, Chief Operating Officer at infraManagement Group (iMG), a wholly owned subsidiary of Black & Veatch.
Cindy Wallis-Lage, President of Black & Veatch’s water business, said there were two important keys to making a public-private partnership work. “First, it involves partnering with the right funds and the right professionals who know how to structure the partnership properly to the benefit of the public,” Wallis-Lage said.
The second key involves the allocation of funds.
“It is vital to have a good vision for how the municipality will allocate the money that is often provided up front as part of the partnership. Experience has shown this type of forward thinking to be essential for the long-term success,” she said.
“A PPP is a true partnership between the private and public sector, not an asset sale.”
Bruce Allender, Chief Operating Officer at iMG
12 Ways the Public Benefits in a Public-Private Partnership
Asset management implementation
Asset management is the systematic way of getting full life cycle results from facilities and all related assets. It involves the cataloguing of all assets into a database, implementing a full life cycle cost analysis on replacement components, and prioritizing all upgrades and repairs in order to gain the full life from each asset.
Capital improvement efficiencies
PPPs use asset management practices that are linked to business planning. This type of approach can provide for increased synergies and efficiencies across the entire utility spectrum for a municipality.
Ability to retain ownership of the assets
Ownership is very important to many community leaders and may be hard to relinquish to an outside group. With public-private partnerships that incorporate a concession model, ownership can remain with the community, and with it, the pride and history of a given entity.
Retention of workforce
In some instances, the workforce of a water or wastewater department is retained in its entirety – depending on the PPP model.
Customizable PPP models
There are dozens of ways of forming a public-private partnership. Each one is unique and can be designed to meet the exact needs of the local community.
Relief of financial stresses on cities
There are many pension liabilities and health care expenses that are legacy costs that cities struggle to pay, considering declines in populations or tax base. In some PPP arrangements, these can be taken over by the private entity.
While each PPP deal is unique, many concession models involve an upfront capital infusion to the municipality.
Businesses are attracted to areas with new and stable infrastructure. Having a water system with known issues is, likewise, a disincentive.
New revenue opportunities
There are multiple opportunities to realize new revenues, such as waste-to-energy; expanding a service area and gaining economies of scale; or leasing water towers to cell tower development.
Ability to handle aging workforce
Many utilities have workers with 30 to 40 years of experience, but when they retire, the knowledge is hard, if not impossible, to replace. PPP entities have a pool of resources to support a utility.
Investment in new technology
Part of the upgrades and repairs to systems include new technology, which can improve the quality of the water and allow for more automation.
Saving on precious natural resources
Many municipalities face aging infrastructure issues, but implementing a good asset management program can save a tremendous amount of natural resources (both water and energy) by bringing financial solutions to put the entity in a state of good repair.