Nowadays, more and more forms of contracting out to the private sector are being hailed as public private partnerships. Long-term contracts, leasing agreements, and even fairly short-term contracting-out arrangements are commonly described as PPPs.
PPPs are most closely associated with private sector financing and long-term leasing and ownership of public infrastructure. The differences among them relate to the point where ownership of assets is assumed by the private sector and when a corporation or the public sector makes lease payments for facilities and service provision.
Common types of PPPs:
- Build, Transfer and Operate (BTO): A private developer designs, finances and constructs a facility that upon completion is transferred to public ownership. The public sector may lease the facility back to the developer who operates it at a profit or the public sector may operate it and pay the private partner out of operating fees or tax revenue.
- Build, Operate and Transfer (BOT):A private developer receives a franchise to finance, build and operate a facility (and perhaps charge user fees). The public sector is charged operating costs for up to 35 years and then ownership is transferred to the public sector at a predetermined price.
- Lease-Purchase:A private developer finances, designs and builds a capital project and then leases it to the public sector for a predetermined period of time. At the end of the lease period, ownership of the facility reverts to the public sector. The difference between this and the BOT arrangement is in the tax benefits for the private developer which can write off the cost of the facility.
- Sale-Lease-Back:A private company buys existing public assets such as schools, libraries and recreation centres and then leases them back to the public sector. Income tax law allows the private sector to reduce its tax payments on such assets. The facility can be sold back to the public sector once the lease has expired.