Innovative capitalization: weighing the political implications of the public-private partnership model
One of the most innovative financing strategies is the Public-Private Partnership (P3) model. Public-private partnership is fast becoming the future for most infrastructure projects. The Public-Private Partnership is a contractual arrangement between a public agency (federal, state, or local) and a private sector entity. Through the derivative agreement, the skills and assets of each sector (public and private) are shared in delivering goods, services or facilities for use by the general public in an efficient and effective manner. In addition to sharing the resources, each party shares the potential risks and rewards in delivering the good, service, or facility. Given the current fiscal and budgetary crises of the government, viable financing options are being evaluated to build and renovate infrastructure using small amounts of money from governments or non-governmental organizations. Often, the Public-Private Partnership can be the solution to problems of financing, carrying out works and investing in large projects without sacrificing the limited financial resources of the government. There is significant and growing empirical evidence that PPP projects cost substantially less than their initial estimated cost, making them a highly attractive and preferred financing option for many organizations.
Assistance from competent financial advisers may be required. Financial advisors’ executive portfolio often includes the design and implementation of a sound financial accounting system with strong internal controls. In addition, they can help formulate company-wide financial goals, policies, procedures, and processes to ensure a sound and transparent financial accounting structure for all stakeholders.
In addition, financial advisors can design and execute fraud detection and mitigation strategies. Your assignments may address key aspects of fraud examination, including fraud detection, deterrence and prevention, internal controls, audit and investigation techniques, relevant law and evidence, and fraud schemes involving financing of business to business, corporate and personal, financial institutions, health care. , insurance, intellectual property and securities.
Finally, financial advisors employ managerial economic techniques to mitigate moral hazards and adverse selection for insurance and reinsurance portfolios and corporate clients. Drawing on strategic linkages with relevant aspects of interdisciplinary competencies in managerial accounting (cost), managerial economics, managerial finance, business methods, information technology, criminal justice, and law enforcement, formulate appropriate corporate financial management strategies that mitigate losses finance, protect and preserve financial assets.
However, what keeps financial advisors up at night and occupying most of their professional time is not the objectives of internal control: to ensure that an organization’s objectives of operational efficiency and effectiveness, financial reporting reliability and compliance with relevant laws, regulations and policies or elements of the control environment-internal control, risk assessment, control activities, information and communication, and monitoring, but identifying the appropriate sources of funds for the company and corporate clients , in particular governments and non-governmental organizations.
There are various types of Public-Private Partnerships, depending on the needs, the options available and the size of the project being considered. According to the available metadata and meta-analyses, the most suitable public projects to be executed through public-private partnerships are power generation projects and infrastructure projects. The most used formats are: Traditional-Under this financing strategy, the public component of the association acts as contracting officer; seek financing and have overall control over the project and its assets; Operation and maintenance-Under this financing strategy, the private component of the partnership operates and maintains the project facility, while the public agency acts as project owner; Design and Construction-Under this financing strategy, the private partner designs and builds the facility; while the public partner provides the funds for the project, and has control over the ownership and assets generated by the project; Design-Build-Operate-Under this financing strategy, the private partner designs, builds, and operates the facility or project. The public partner acts as the owner of the facility and obtains the fund for construction and operation; Design-Build-Financing-Operation-Under this financing strategy, the private sector provides financing, designs, builds, owns and operates the project, while the public partner only provides financing while the project is in use or active; Design-Build-Operate-Transfer-Under this financing strategy, the private partner designs, builds and operates, for a limited time, the project, and after that specific period of time, the facility is transferred to the public partner.
Others include, Build-Transfer-Operate-Under this financing strategy, the private partner builds and transfers the project to the corresponding public partner. Subsequently, the public partner chooses to lease the operation of the facility to the private sector, under a long-term lease; Build-Own-Operate-Transfer-Under this financing strategy, the public partner builds, owns, and operates the project for a limited time, until such time that the facility is transferred, free of charge, including ownership, to the private agency; To lease-Under this financing strategy, the public owner leases the facility to a private company. The private company must operate and maintain the facility under the specified terms, including additions or the remodeling process; Concession-Under this financing strategy, the public agency will partner with a private company, granting all exclusive rights to operate, maintain for a specified period of time, under specific contract terms. The public partner will have ownership over the property, but the private partner will have ownership rights over any additions incurred while operating under his domain; Dispossession-Under this financing strategy, the public partner will transfer all or part of the facility to the private sector. The government could include specific clauses in the sale agreement that require investments and modernizations in the facilities and the continuation of the services that are being provided.
As with all trading decisions, there are costs and benefits associated with all compounding strategies. Financial advisors help their clients isolate and weigh the costs and benefits of each financing strategy. And recommend the financing option that provides the maximum net benefit according to the stipulated evaluation criteria. In the next article we will examine some keys to the success of Public-Private Partnerships considered as best practices in the industry.