Exploring the Social Potential of Public-Private Partnerships in Transport Infrastructure

Abstract

Public-private partnerships (PPP) is defined as a form of structured collaboration framework in the procurement strategy where risks, costs, benefits and resources are shared between public and private sector through the life-cycle of the project (Koppenjan, 2005). Previous research revealed the use of PPP is still being in question, whether the benefits outweigh the costs of PPP. It is also found the utilisation of Cost-Benefit Analysis (CBA) in transport PPP project appraisal remains a niche. Therefore, this study aims to research what PPP brings societally, as well as to contribute to the existing literature of transport infrastructure by exploring the social potential of PPP project compared to traditional public procurement through the use of societal CBA.

A theoretical conceptualisation is performed by means of modelling the social potential of a PPP project. The result from the conceptual model development is then investigated in an empirical setting (case study). Based on the analysis, an inventory of the potential costs and benefits of a PPP project is presented into two models: PPP project with actual tolls and shadow tolls. The similarities between the two models include the potential social impacts resulting from cost-saving investment, quality-enhancing effect, better risks management, and higher up-front transaction costs in a PPP project. Conversely, implications of PPP with both tolls also have different societal impacts due to distinct payment arrangement between them. Actual tolls provide users with incentives to decide whether or not using the road, since they have to pay the tolls independently. It is thus understandable if there will be a reduction in traffic volume on the road (mobility loss). Road users who decide to avoid such costs will experience a loss of consumer surplus. However, those who keep using the road will experience travel time gains due to less congestion. It is also important to note that mobility loss in PPP project with actual tolls will result in more societal gains, such as environmental gains in which less CO2 emissions would be generated on the road (less pollution). In contrast, the demand for the road use will not be influenced in PPP project with shadow tolls, thus neither environmental nor travel time gains can be obtained. Nevertheless, the private party would receive higher revenue. It has to be acknowledged this study is conducted on a positive case, where all potential impacts in the theoretical conceptualisation were confirmed in the empirical analysis of the Indonesian context.

To conclude, the key takeaway of the research is that in doing the CBA, outcomes of a PPP project compared to traditional public procurement is dependent on the way the tolls are implemented. The research shows the importance of distinguishing between PPP with actual tolls and shadow tolls. Reflecting on the theoretical conceptualisation and empirical analysis, there have been huge implications for the CBA outcomes since there are different potential societal costs and benefits to be expected in the two models. The significant implications have been outlined for the public party, the private party and the road user.