> Sampension:
PPP as a Way Forward for a Modern Welfare System By Henrik Olejasz Larsen
Public Private Partnerships (PPP) can be defined as a long-term contract between the public authority and a private partner. In Denmark it now seems clear that PPP is particularly suitable for infrastructure projects that will further the development of society. This holds especially true in three main areas: Transport, centralized supply and services.
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ransport means mostly roads, bridges and tunnels which facilitate the efficient movement of goods and people. Centralized supply facilities, such as power and heat generators plus their transmission lines, ensure proper heat, water, electricity and waste management. Services concern mostly schools, hospitals, day care centres, sports facilities and administrative buildings that support the delivery of the welfare services that characterize developed societies. INTERNATIONAL RECOMMENDATIONS This assessment of infrastructure is supported by the OECD’s assessment that economic development will largely depend on the availability of adequate and timely infrastructure facilities. There is thus a potential economic benefit – and a social benefit at the end of the tunnel - which may be harvested. Moreover, in Denmark - as in most of Europe – is faced with an urgent need to upgrade the existing infrastructure, which only partially matches today’s needs and falls short when future needs are considered. Major technological developments and demographic and geographic shifts in population composition means a change of the basic infrastructure servicing society is called for. In Denmark, people move from rural to urban
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“The capital city Copenhagen is currently experiencing a historically large population growth.” areas. The capital city Copenhagen is currently experiencing a historically large population growth. In the past few years, we have embarked on the development of large construction projects such as Metro and DR Byen. We have also adopted new projects, including the Fehmarn Belt link, super hospitals and the City Circle. But there is still an adjustment and maintenance backlog in public infrastructure which in Denmark alone will amount to several billion dollars. HELP FOR THE PUBLIC? It is obviously useful to look at how investment in infrastructure can be organized in new ways. Experience shows that cost overruns of more than half of the infrastructure project’s original budget are quite common when the government is the client. A new way is offered via PPP companies that
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celebrate a single contract with a public authority and then carries out all aspects of the proposed project: Design, construction, operation and financing. The model is flexible enough to be adapted to any specific circumstances. It may be a hybrid model in which a PPP established by a public corporation is the co-investor. Or with the government as a regulator, drawing up a regulatory framework that allows private incentive to develop, construct and operate a plant or other venture. And finally, the private builder who host the public authority as a tenant of the infrastructure it built and now owns. Based on the - rather limited - experience with Danish PPP projects, it turns out that all were delivered at the agreed price and on time or even before the deadline. This suggests that PPPs can be a tool for bringing efficiency to large infrastructure projects such as the ones mentioned above. Notwithstanding all these good arguments, we in Denmark have still not as advanced as much with PPP projects as other countries, or indeed as we would have wished. One of the reasons for this may be that the coordination between the public and private sectors often contributes to an increase in the complexity of already complex deals.