(Water) Public–Private Partnerships: The Economics

Abstract

With frequent water main breaks, leaking pipes, and lead contamination, the water infrastructure of many countries is in bad shape, and improvements are urgent in light of climate change and increasing water stress. Discussion in recent years has focused on the role of private companies in a sector that has traditionally been in public hands. Since the privatization of the United Kingdom's water infrastructure in the late 1980s, a whole range of novel modes of cooperation have been identified, from 100% private to 100% public ownership. This note focuses on the economics of public-private partnerships (PPPs). PPPs offer a contractual approach to the delivery of infrastructure goods and services that are typically provided by the public sector or by heavily regulated private operators such as public utilities. They tend to involve relatively long-term contracts, in which the public sector shares some decision-making authority and property rights with private companies. This overlap of ownership and decision-making powers between the public authorities and private operators is both the appeal and the challenge of water PPPs. Excerpt UVA-GEM-0183 Dec. 14, 2020 (Water) Public-Private Partnerships: The Economics With frequent water main breaks, leaking pipes, and lead contamination, the water infrastructure of many countries is not in good shape. In light of climate change and increasing water stress, calls for repairs and upgrades are getting louder. Beyond focusing on the specific upgrades needed, the discussion in recent years has zoomed in on the roles private companies can play in a sector that has traditionally been in public hands. Since the privatization of the United Kingdom's water infrastructure in the late 1980s, a whole range of novel modes of cooperation have been identified, from 100% private to 100% public ownership. This note focuses on those forms of collaboration between the public and private sector that are fashionably labeled public-private partnerships (PPPs); it lays out the economics of how PPPs in the water sector function. PPPs offer a contractual approach to the delivery of infrastructure goods and services that are typically provided by the public sector or by heavily regulated private operators such as public utilities. PPPs tend to involve relatively long-term contracts, in which the public sector shares some decision-making authority and property rights with private companies. This overlap of ownership and decision-making powers between the public authorities and private operators is both the appeal and the challenge of water PPPs. . . .