Public private investments, also known as public private partnerships (PPPs), are agreements between a public entity and a private company to fund, develop, and operate a project. Concessionsavailability payments and DBFOM (design, build, finance, operate, and maintain) are common structures used in PPPs.
These structures allocate risks and responsibilities between the public and private partners. Risk allocation is a critical aspect of PPPs, as it determines which partner bears the responsibility for potential risks and liabilities. The cash-flow profile of a PPP is also essential, as it outlines the revenue streams and expenses associated with the project.
Concessions
A concession is a type of PPP where the private company is granted the right to operate and maintain a project for a specified period. In exchange, the private company pays a fee to the public entity. Concessions are often used for infrastructure projects, such as roads, bridges, and airports.
Availability Payments
Availability payments are a type of PPP where the public entity makes payments to the private company based on the project’s performance. The private company is responsible for designing, building, and operating the project, and the public entity pays for the services provided. Availability payments are often used for social infrastructure projects, such as schools and hospitals.
DBFOM
DBFOM is a type of PPP where the private company is responsible for designing, building, financing, operating, and maintaining a project. The private company bears the risks associated with the project, and the public entity makes payments based on the project’s performance. DBFOM is often used for complex infrastructure projects, such as transportation systems and energy facilities.
When evaluating a PPP, it is essential to consider the political and legal factors that may impact the project. The public entity and private company must navigate a complex regulatory environment, and any changes to laws or regulations can affect the project’s viability. IRR (internal rate of return) drivers are also critical, as they determine the project’s financial viability and attractiveness to investors.
Due Diligence Checkpoints
When conducting due diligence on a PPP, there are several checkpoints to consider. These include evaluating the project’s cash-flow profile assessing the risk allocation between the public and private partners, and reviewing the fee and term norms associated with the project.
By considering the various structures, risk allocation, and cash-flow profiles, investors and public entities can make informed decisions about PPPs and create successful partnerships.
