Commission Communication on Public Private Partnerships - Frequently asked questions
European Commission - MEMO/09/509 19/11/2009
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Brussels, 19 November 2009
Commission Communication on Public Private Partnerships - Frequently asked questions
What are public-private partnerships (PPPs)?
Public-private partnerships are forms of cooperation between public authorities and businesses, in general with the aim of carrying out infrastructure projects or providing services for the public. These arrangements have been developed in several areas of the public sector and within the EU are used in particular in the areas of transport, public buildings or environment.
Why is the Commission bringing forward this Communication?
This is a policy priority for the Commission, referred to in the European Economic Recovery Plan and in President Barroso's Political Guidelines for the next Commission. The focus is on building a functioning co-operation framework between public and private sectors, information exchange and networking activities, continuing the provision of innovative financing and innovative organisation of PPP projects.
What is the Commission proposing, in a nutshell?
The Commission's analysis shows that the regulatory framework governing PPPs needs to be better enforced and completed, but there is no immediate need for a new legislative framework. The Commission is proposing 5 core actions:
How is the Commission promoting better understanding and shared experience of the PPP market?
The Commission, EIB and Member States have established the European PPP Expertise Centre (EPEC). EPEC promotes good practice amongst its public sector members by helping share understanding and information on all aspects of design, procurement and delivery of PPP projects, as well as current direct experience. It is staffed by experienced PPP professionals from EIB and seconded from the public and private sector.
The Communication proposes that EPEC provides long term support to those Member States that seek to use PPP to optimise their use of structural and cohesion funds. EPEC should develop into a platform for the exchange of information and best practices and act as a focal point for a European network of national bodies established to support PPPs.
Why choose PPPs instead of "normal" public projects?
It is for national authorities to judge when the use of a PPP is appropriate depending on their strategic objectives and on the circumstances of the specific projects or services concerned.
In the right circumstances, they can leverage private funds, pool them with public resources and spread the cost of financing infrastructure over the lifetime of the asset, thus reducing immediate pressures on public sector budgets and allowing the completion of projects — and the benefits they deliver — to be brought forward by a number of years. This is of particular importance in the present economic conditions as Member States are seeking to accelerate investments in response to the crisis, whilst needing to preserve budgetary discipline.
More generally, PPPs can, when they are conceived and executed in the right way, reduce costs, improve and speed up delivery of projects and get better returns from infrastructure.
In turn, public sector participation in a project may offer important safeguards for private investors, in particular the stability of long term cash-flows from public finances, and can incorporate important social or environmental benefits into a project.
What are the potential social benefits of using PPP?
If properly designed and implemented, PPPs can bring real benefits in terms of helping governments to finance infrastructure investment in a more efficient way, freeing up scarce resources to devote to other national spending priorities (e.g. meeting citizen's basic needs in education or health care) and obtaining better value for money.
Important social benefits may be incorporated into a project. These can include quality criteria such as the frequency or cleanliness of services to be provided to citizens, or safety conditions, or measures to tailor the project to the specific needs of local or national communities. It is up to the contracting authority to define in the contractual terms the results and social objectives it wishes to achieve.
What are the challenges and risks inherent to PPPs?
They may require committing significant resources at the preparation and bidding stage and often involve important transaction costs.
They are complex instruments which, in order to ensure the public interest is properly served, require a set of specific skills within the public sector, which in turn requires training.
PPPs are "long-term marriages" requiring long-term commitment on all sides: in particular the possibility of future changes in policy may introduce uncertainty into the procurement process and can increase costs.
They need to be designed in a way that balances two requirements a) ensure the taxpayer receives genuine benefits in terms of value for money and/or transfer of risk to the private sector b) allow private partners to generate a return.
Are PPPs used to deliver services of general interest?
Public-private partnerships are being used in many Member States to deliver services of general interest. However, under no circumstance does EU law oblige authorities in the Member States to organise a service of general interest in the form of a PPP. Where a public service is delivered through a PPP it is always the relevant public authorities in the Member States that have decided to use this form of organisation.
This legal situation is formally confirmed in the Treaty of Lisbon. In its Protocol No 26 on services of general interest the wide discretion of national, regional and local authorities in providing, commissioning and organising services of general interest as closely as possible to the needs of the users is explicitly highlighted.
Is the Commission calling for the privatisation of public services or public infrastructure?
It is for the Member State or its regional, local authorities to establish individual PPPs under their responsibility, together with the private sector. The PPP initiative does not call for the privatisation of public services or public infrastructure.
How is EU funding involved in PPPs?
EU financing through the Structural Funds, the European Investment Bank or TEN-T instruments can help to mobilise PPPs.
For example, PPP projects in the Trans-European Transport (TEN-T) include the Perpignan — Figueras 50-year rail concession including a cross-border tunnel, the Oresund fixed railway link between Sweden and Denmark, and a high speed railway line in the Netherlands . Several cross-border PPP projects are currently planned under TEN-T. These include a rail/road bridge between Denmark and Germany, the Seine-Nord Canal, and a cross-border inland waterways project in France and Belgium.
The Structural Funds for the period 2007-2013 offer important opportunities to Member States to implement operational programmes through PPPs organised with the EIB, banks, investment funds and the private sector in general.
The Commission works in close collaboration with EIB, which is Europe's leading funder of PPP with a portfolio of 120 projects across the EU with investment of EUR 25 billion
Meanwhile Joint Technology Initiatives (JTIs) are a new way of realising public-private partnerships for research at European level.
How does a Joint Technology Initiative work?
JTIs are key instrument to bring together EU, national and private resources, know-how and research capabilities from large and smaller companies from all over the EU, for a period of several years, to achieve critical mass and ensure that the EU can lead the world in developing breakthrough technologies addressing major societal challenges. So far, JTIs have been set up in five areas: innovative medicines, aeronautics, fuel cells and hydrogen, nanoelectronics and embedded computing systems (See for details of JTIs).
What is the difference between traditional PPPs and JTIs?
PPPs cover many different forms of organisation and it is important to distinguish between traditional PPPs in Member States and the special PPPs for research purposes set up at the European level. Traditional PPPs are normally set up in Member States to modernise the delivery of infrastructure or public services, usually under private law and occasionally with financial participation of the Community. They aim at promoting efficiency of public services through risk sharing and harnessing of private sector expertise.
JTIs are a specific form of European PPPs which were launched in 2007. They have a special legal framework and take the form of Community bodies making them subject to the Financial and Staff Regulations of the EU, as they are based on article 171 of the European Community Treaty. Community PPPs in the research field are oriented towards coordinating public and private investment into generating new knowledge and technological breakthroughs. The outputs are therefore less predictable and tangible than for investing in infrastructure and services.
Is there a need to change the regulatory framework for JTIs?
Stakeholders have repeatedly expressed the view that Joint Technology Initiatives could be implemented more effectively if the set-up and operational procedures were simplified. The Commission is therefore exploring options to propose a new framework for JTI, which could be based on private law bodies. The upcoming revision of the Financial Regulation will take the Commission's findings into account.
How can industry participate in the legislative process leading to JTIs?
The Commission wants stakeholders to play an active role in the process through direct and ongoing dialogue with the relevant Commission services. The Commission has set up a sherpa group to discuss solutions for better involvement of and cooperation with the private sector. The recommendations of this group will be published in the coming months.
What progress has been made on the PPPs mentioned in the European Economic Recovery Plan?
These initiatives are neither JTIs nor PPPs in the traditional sense but new research partnerships based on coordinated calls for proposals, setting up multi-annual, cross-thematic approaches in partnership with industry.
The Commission launched in July 2009 the first round of research calls for proposals in the areas announced in t he Recovery Plan: factories of the future, energy-efficient buildings and green cars (see ).
From 2010 to 2013, a total of € 3.2 billion will be allocated for research through the three partnerships, with half of the funds coming from industry and half from the European Commission through the 7th Framework Programme for R&D. In October 2019 a fourth such partnership was announced, on the Internet of the Future (see ).
Does the Commission intend to encourage more systematic use of Structural funds for PPPs?
Yes. In many cases a PPP may offer the best approach for implementing projects. However, the Commission is aware of difficulties in combining different sets of EU and national rules, practices and timetables. The Commission therefore intends to review the rules and practices to ensure that PPPs are not put at a disadvantage and issue the necessary guidance to assist the public authorities in the preparation of projects.
Does the Commission have a clear estimate of the cost of future infrastructure needs?
Climate change, healthcare, transport and energy security are all among the list of pressing challenges. In many cases, new or upgraded infrastructure and services are needed to respond to these challenges and provide a strong basis for the future economic and social development of the EU. The likely scale of future needs is demonstrated by the OECD's Infrastructure Project to 2030. This suggests that annual investment requirements for telecommunications, road, rail, electricity and water taken together are likely to total around an average of 2.5 % of world GDP. However this project does not cover ports, airports and storage facilities. The World Bank has estimated that the investments needed in infrastructure in the EU 10 alone will amount to € 65 billion by 2020.
How much public sector investment is currently being executed under PPPs?
An EIB study published in October 2007 1 showed that since 1993 more than one thousand PPP contracts had been signed in the EU, representing a capital value of about €200 billion, and with deals worth another €73 billion in the pipeline – though the crisis may have jeopardised some of these.
The UK accounted for 58% of the total value of EU PPPs with Spain, France, Germany, Italy and Portugal accounting for a further 30% between them. The percentage of overall public investment accounted for by PPPs is very small, even in the UK (around 10% in 2005-6).
A more up to date report on PPP in Europe – taking account of the crisis - is being prepared in close collaboration with EPEC and will be available from the EIB in early December.
What is the impact of the crisis on PPPs?
Various market observers suggest that around 65 PPP transactions closed during the first 10 months of 2009 with a value estimated at €12billion. Those closely involved with the market estimate that a decrease of around one third from the same period last year has taken place.
Banks' recent risk adverse conduct has meant a marked reduction in the availability of credit for PPPs, and a significant worsening of the financial conditions. National governments and regional authorities have reduced or put on hold their PPP programmes. Lending for PPP transactions is competing with corporate lending opportunities for the scarce funding resources available. Traditional key players in the PPP market have disappeared and no viable market solution has emerged to replace them.
Current signs of economic recovery should ease the situation to some extent.
What has the EU done to mitigate this impact?
Improving the environment for PPPs is a key objective of the work set out in the Communication published today. Meanwhile, the European Council in December 2008 endorsed a Commission proposal for the use of accelerated public procurement procedures during 2009 and 2010. The Commission has also put in place a Temporary Community framework for State aid measures to support access to finance’, which contains a number of relevant provisions for PPPs. It provides a flexible complementary instrument allowing Member States to intervene where general measures, interventions in line with market conditions and interventions under the normal state aid rules are insufficient to respond to the exceptional conditions created by the crisis.
What is a concession and how does it differ from other PPPs?
A key feature of concessions is that the right to exploit a service is awarded to the concessionaire as a reward for either having built the infrastructure or construction through which the service is delivered (e.g. a motorway) or for simply ensuring the ongoing delivery of the service (e.g. by providing the equipment and staff to serve a local bus route). The main difference from public contracts is the risk inherent in such exploitation which the concessionaire, usually providing the funding of at least parts of the relevant projects, has to bear. Such private capital involvement is one of the key incentives for public authorities to enter into PPPs.
Why might a legislative proposal for concessions be required?
The general EC Treaty principles applying to the award of concessions may need to be clearly spelled out.
In particular, this would require: