Home » Economics » What is the Public Private Partnership

What is the Public Private Partnership

Partnership mostly is defined as the collaboration of two or more individuals or two or more sectors or two or companies or two or more governments. Anything that involves the involvement and influence of more than two entities to lift and make the business prosperous. Sharing of profits and liabilities. In a general partnership company, all members share both profits and liabilities. Professionals like doctors and lawyers often form a limited partnership.

Public–private partnerships are typically found in transport infrastructures such as highways, airports, railroads, bridges, and tunnels. Examples of municipal and environmental infrastructure include water and wastewater facilities.

The Public-Private partnerships involve the cooperation between two or more public-private share and stakeholders. With the help of this partnership, a collapsing economy could see an improvement in the upcoming phase. It helps in assisting large-scale government-based projects like the development of roads, bridges, and laying of railway tracks. It also focuses on proper water and sanitation projects. Also, the dams could also be built with the help of this partnership.

The major breakthrough it could impact on the current traditional way is that it could reduce the corruption factor by a huge margin. As the private and government sector will work collaboratively as well as with the check and balance of both the entities would be much better.

Business Partnership

A business partnership is no different than a personal partnership. Both these partnerships have the following attributes:

  • Pooling money
  • Equal sharing and propagation of an individual’s ideas.
  • Sharing in the ups and downs of profit and loss.

A business partnership is initiated with legal documentation and agreement between two or parties. Both then get convinced each other to proceed further. The co-founders or co-owners then set some funding criteria to launch the business. They also discuss the task and responsibilities of each partner or partner. They also talk about the profits and losses that each investor or partner would have a share in.

Some partnerships include individuals who work in the business, while other partnerships may include partners who have limited participation and also limited liability for the debts and lawsuits against the business.

In a business partnership, a sole proprietor or independent candidate who is the stakeholder of the business is then gets involved in the activities of the business. A partnership, as different from a corporation, is not a separate entity from the individual owners. The business isn’t separate from the owners, for liability purposes.

Public Private Partnership

Drawbacks

The need for this partnership comes when the Government hasn’t got enough budget to deliver and develop the infrastructure. So the private takes the most of the responsibility of budget and development. With that comes high risk, because the private sector will need to be paid its spendings within a given time and with the interest rate too sometimes. Whether the infrastructure is in use or of no use, the private amount has to be paid. This takes decades to cover the expenses. The Government then takes taxes from the citizens to pay the remaining.

Benefits

They provide better infrastructure solutions than an initiative that is wholly public or wholly private. They result in faster project completion and reduced delays on infrastructure projects by including time-to-completion as a measure of performance and therefore of profit.

Click here to read more about Drawbacks & Benefits about PPP by World Bank

Equity Factor

Equity is the amount of profit generated by the company that a shareholder or stakeholder of the company would have a share in. The equity is determined before kicking off the business or in the middle (In case if you need to add new shareholders). The amount will be paid off to the shareholders only when the assets are liquidated and the debt becomes zero. Equity is placed on the balance sheet of the company. It is one of the most important and common financial metrics employed by analysts to assess the financial health of a company. Shareholder equity can also represent the book value of a company. Bookkeeping Services for small businesses also use an equity factor. Equity can sometimes be offered as payment-in-kind.

Examples

The partnership takes part in the development of infrastructure. Which is the basic necessity of the citizens? It mostly focuses on transportation. Like the development of roads, highways, water systems, irrigation systems, airports, bridges, railroads, and tunnels. It also may include public facilities like parks, gymnasium, and museums.

Read our detailed article on: Examples of Public Private Partnership Projects

Bottom Line

So the bottom line induces that the Public-Private partnership could be lethal and friendly. It all depends on how the government adopts it. The timing and the current economic situation both are the keen indicators to look before considering the Public-Private partnership. If the Government has capability to endure the crisis and could sustain without using the partnership, then all is good. Otherwise, if something is contrary to it, then government needs to take some measures before adopting Public-Private partnership. This could only be done by applying a strategic approach.