Public-Private Partnerships Could Be Costly if Not Done Right, Says Report

Constrained by tight budgets, governments today are increasingly looking for private-sector support in financing and delivering new bridges, airports, and electricity grids, which are critical drivers of a country’s economic prospects and social well-being. In partnering with the private sector, the public sector can gain access to financial resources, as well as make more effective and efficient use of its limited funds by leveraging private-sector capabilities in designing, building, and operating infrastructure assets.


As the advantages of public-private partnerships (PPPs) have become clearer, so too have the challenges. Many projects either failed or never got off the ground in the first place as a result of ill-suited preparations, according to a new report from the World Economic Forum, developed in collaboration with The Boston Consulting Group (BCG).


The reason for this paradox—especially in emerging countries—is the “project preparation gap,” the lack of well-prepared, bankable PPP projects.


“The typical preparation issues include insufficient project management and leadership, biased demand forecasts, delayed approvals or land acquisition, insufficient stakeholder engagement, and unbalanced risk allocation,” says Philipp Gerbert, a BCG senior partner and one of the report’s contributors. “These issues have not only prevented many projects from launching but have also led to many problems later on. High-quality project preparation in turn gives a project a high chance of prospering throughout its life cycle."


Unfortunately, getting it right is not so simple: it takes a considerable commitment of skills, time, and resources, says the report.


“You end up paying even more if you don’t do it properly. Underpreparation is going to cause delays, cost overruns, or renegotiations further down the line,” said Jan Justus, a BCG principal. “Particularly in developing countries, one of the key levers is building capacity among public officials, as well as on an institutional level in order to equip those agencies with the diverse skills required to launch PPPs smoothly.”



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