Module 07: Defining Parameters (scope)

7.1 What is the scope of the PPP?

The scope of the PPP has to be established during the process of strategic planning [Tool 2]. First and foremost, the scope of the public-private partnership should be considered in terms of geographical area and service requirements. However, the regulatory framework is another aspect through which the parameters of the partnership must be defined.

Geographical area and service requirements define the scope of the PPP.

Geographical area

In terms of geographical area, the scope should be defined with regards to both the nature of the project (for example, if the service to be provided is water supply, waste management and so on) and the objectives of the decision-maker.

Projects often deliver improved value for money if the scope of the contract is increased to provide greater possibilities for innovation and economies of scale. For instance, in the waste sector, government policy usually favours regional co-operation to provide a more effective framework – in planning and volume terms- – for the development of integrated waste management systems. In this case a single PPP could be established for each region to provide a seamless integrated waste management service, incorporating all elements of waste collection, separation, recycling, treatment and disposal.

However, other projects may be sufficiently large and/or complex to the degree that there exist a number of sub-options to the PPP. These options may relate to the separation of a business by function or geographical area. For example, if the government is considering the use of a PPP to provide integrated waste management services in a particular region, it could use a number of area-based contracts, or separate PPP contracts for waste collection and waste treatment/disposal. Where such sub-options exist, the costs and benefits of each sub-option should be appraised in monetary and non-monetary terms and the preferred option identified in the PPP assessment.

Service requirements

The government needs to assess current levels of service; these are expressed typically as ratios of facility capacity to demand. For this, the government will need to gather information on such matters as:

◊ characteristics of the service (quantities supplied, metered and paid for);

◊ performance standards (quality, pressure, supply security, interruptions, sewer flooding, sewer collapse and the like); and

◊ problems with service delivery by the public sector.

It is important for the government or municipality to prioritise flexibility with respect to tradeoffs between tariffs and service parameters (levels). An ambitious plan for the service to cover additional areas may not be feasible because the people to be connected are not able to pay for the service, especially if the connection fee is high. The same problem could occur if the level (quality) of the proposed service is too high for a disadvantaged community to be able to afford.

The affordability of services could be enhanced through appropriately designed subsidies. Liberalising entry to the market for small-scale or innovative providers serving communities not reached by conventional organisations is another way to resolve this issue. Smaller providers tend to be more flexible in terms of meeting to the needs of the poor. Finally, an expanded dialogue/exchange of information with a more diverse range of stakeholders (including poor communities) should take place in order to find out the appropriate/optimal service requirements.

Regulatory framework

Governments must prepare the PPP environment. When the government decides to involve a private party (a for-profit or not-for-profit organisation) to provide services, it should consider installing sound and independent regulatory regimes and enforceable laws on tariff setting and collections. A government that fails to get the structural and regulatory package right in the first place can face an immensely costly and time-consuming process to rectify matters later on.

In most developed countries, and increasingly in developing countries too, governments have attempted to establish a sound legal and institutional framework for the regulation of network industries, such as, water and wastewater treatment providers. Where there is limited regulatory capacity, regulation by contract may be sufficient. However, in most cases, it is best when a well-qualified and independent third party is responsible for monitoring tariff adjustments and is the first port of call should there be a dispute over tariffs.

A regulatory framework, within which the private contractor must operate, should cover issues such as service quality and reliability, service fees, environmental standards and the rights and obligations of customers. In general, the greater a government's political commitment to creating a clear, fair and credible environment for private sector involvement, the more it is likely to be able to ask the private sector to do, and the greater the likely benefits will be to its citizens.

The options for the scope of the regulatory structure might include: centralised or decentralised regulation; multi-sector or single-sector regulation; and regulation by an individual regulator or a regulatory commission.

1. Centralised or decentralised?

The choice between centralised or decentralised regulation of services depends to a great extent on the local context: the size, topography and population of the country and the strength of the different levels of government. It also depends on which level of government is responsible for financing and organising services.

2. Multi-sector or single-sector?

The advantages that apply to centralised regulatory agencies also apply to multi-sector agencies (regulatory authorities which regulate a number of different public services such as water supply and sewerage, power and telecommunications). In addition, multi-sector agencies enhance the opportunities for cross-fertilisation among the sectors. However, sector-specific departments must be established to ensure that the regulatory approaches are appropriate to each sector. Multi-sector agencies are particularly appropriate for small countries, or when regulation is decentralised.

3. Commission or Individual?

In a number of countries, regulatory authority over certain services is vested in an individual regulator. The alternative is a board or commission. There are good reasons to favour the commission model. It allows different kinds of professional expertise and perspectives to be represented; it also reduces the pressure on the individual regulator, and the potential for improper influence (by the private contractor, for example) over decisions. Decision-making in a board or commission can be facilitated by establishing an odd number of members and limiting the number to the minimum required to achieve the desired breadth, preferably three or five. The larger the number of board members, the more cumbersome decision-making will be and the weaker the accountability of individual members.

More can be found on regulatory frameworks in Tool 15.

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