PPP – Public Private Partnership

On the 12.th of July, 2016, from 10:00 to 16:30,  a conference on “The Public Private Partnership – legal economic technical aspects” has been held at the Politecnico di Milano.

Here below some notes I took during the conference:

1. There are public works of high social value but whose economic values cannot be determined: in several cases the Judiciary has suspected that there was a deviance, that was not always the case.
2. There is a substantial  need formation of professionals, economists, RUP (responsabile unico del procedimento, a kind of program manager in pubic works)  and all those who have to operate under PPP arrangements
3. The logic of “rating” the projects can not and should not be limited to economic and financial parameters as we have been used until now, also qualitative and technical factors, even long-term, have to be taken into consideration.
4. The private operator, in PPP, assumes the “operational risk” without having the power to determine, at its own risk, the price of services. The administration should give up making all the decisions.
5. A PPP can work only if it is controlled during the whole of his life and maintained in good performance, there is need for training of persons involved in such control.
6. The PPP is the only way to prevent the decline of infrastructures in Italy: the “fiscal compact” requires the reduction of public debt from 132% to 60% of GDP, consequently the public investment in infrastructural works will be drastically reduced. PPP, under certain conditions, does not weigh down the national debt so it becomes convenient, although more expensive than a standard construction contract, due to the need of giving a proper return on equity (10 to 11%)
7. The liquidity of the financial markets brings more competition, ease and lower cost of funding. Currently we are in a period of high liquidity, although it is a liquidity partly due to interventions from ECB. Investors exist, but apparently they do not want to take the construction risks.
8. The design and feasibility phase is moving from the technical aspect to the whole consideration of  technical, economic and financial aspects; it is a dynamic process in which all technical and economic professions are invited to act.
9. The construction sector, as it is now, is not co-operative but antagonistic. It will be necessary to reach  cooperative agreements (transactional, relational, associative, cooperative, IPD, “project alliances”). There is also an evolution from product to service, the investment in a road is being considered as an investment in kilometers driven.
10. Costs and revenues are factors related to  the objective to be achieved, the social value of a public work is the sum of value derived from direct revenue, the value of the indirect revenues and the potential benefit for future generations.