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Innovative Capitalization: Reflecting on the Political Implications of the Public-Private Partnership Model

Innovative Capitalization: Reflecting on the Political Implications of the Public-Private Partnership Model

One of the most innovative financing strategies is the Public-Private Partnership (P3) model. The Public-Private Partnership is fast becoming the future of 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 derivatives contract, the skills and assets of each sector (public and private) are shared in the delivery of goods, services or facilities for the use of the general public in an efficient and effective manner. In addition to sharing resources, each party shares the potential risks and rewards in delivering the good, service, or facility. Given the government’s current fiscal and budgetary crises, viable financing options are being evaluated to build and renovate infrastructure using small amounts of money from governments or non-governmental organizations. Often times, the Public-Private Partnership can be the solution to problems of financing, completion of work and investment 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 estimated initial cost, making them very attractive and a preferred financing option for many organizations.

The assistance of competent financial advisers may be required. Often the executive portfolio of financial advisors includes the design and implementation of a sound financial accounting system with strong internal controls. In addition, they can help formulate financial objectives, policies, procedures, and processes across the company to ensure that all stakeholders have a sound and transparent financial accounting framework.

Additionally, financial advisors can design and execute fraud detection and mitigation strategies. Their assignments may address key aspects of fraud screening, including fraud detection, deterrence and prevention, internal controls, audit and investigation techniques, relevant laws and tests, and fraud schemes involving business-to-business, corporate and personal financing. , financial institutions, health care. , insurance, intellectual property and securities.

Finally, financial advisers employ managerial economics to mitigate moral hazard and adverse selection for insurance and reinsurance portfolios and corporate clients. Building on strategic links with relevant aspects of interdisciplinary competencies in management (cost) accounting, managerial economics, managerial finance, business methods, information technology, criminal justice, and law enforcement, formulate appropriate corporate financial management strategies that mitigate financial losses, protect and preserve financial assets.

However, what keeps financial advisers awake at night and occupied most of their professional time are not the objectives of internal control, which ensure the achievement of an organization’s objectives in terms of operational efficiency and effectiveness, reporting reliable financial and compliance with relevant laws, regulations and policies or elements of internal control-control environment, risk assessment, control activities, information and communication, and monitoring, but identifying appropriate sources of funds for the company and corporate clients , particularly governments and non-governmental organizations.

There are several types of Public-Private Partnerships, depending on the needs, the available options and the size of the project being considered. Based on the available metadata and meta-analysis, the most appropriate 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 the contracting officer; seeks financing and has overall control over the project and its assets; Operation and maintenance-Under this financing strategy, the private component of the association operates and maintains the project facility, while the public agency acts as the owner of the project; Design and buildUnder 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 the construction and operation; Design-Build-Finance-Operate-Under this financing strategy, the private sector provides financing, design, construction, ownership and operation of 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 opts 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 a certain time when the installation is transferred, at no cost, including ownership to the private agency; Rental-Under this financing strategy, the public owner leases the facility to a private company. The private company must operate and will provide maintenance to the facility according to 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 the exclusive rights to operate and maintain for a specific period of time, under specific terms of the contract. The public partner will have power over the property, but the private partner will have proprietary rights over any additions incurred while operating under his domain; Dispossession-Under this financing strategy, the public partner will make a total or partial transfer of the facility to the private sector. The government could include specific clauses in the sales agreement that require investments and modernizations in the facility, and the continuation of the services that are provided.

As with all business decisions, there are costs and benefits associated with all capitalization strategies. Financial advisers 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 the best practices in the industry.

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