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. 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 derivative agreement, 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 risks and potential rewards in delivering the good, service, or facility. Given the current fiscal and government budget crises, 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 public-private partnership 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. 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 company-wide financial goals, policies, procedures and processes to ensure a sound and transparent financial accounting framework 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 investigative techniques, relevant law and evidence, and fraud schemes involving fraud financing. business to business, corporate and personal, financial institutions, healthcare. , insurance, intellectual property and securities.
Finally, financial advisors employ managerial economic techniques to mitigate moral hazard and adverse selection for insurance and reinsurance portfolios and corporate clients. Building on strategic linkages with relevant aspects of interdisciplinary competencies in managerial (cost) accounting, managerial economics, managerial finance, business methods, information technology, criminal justice, and law enforcement, they formulate appropriate corporate financial management strategies that mitigate losses. financial institutions, protect and preserve financial assets.
However, what keeps financial advisors up at night and taking up most of their professional time are not the objectives of internal control: ensuring the achievement of an organization’s objectives for operational efficiency and effectiveness, financial reporting 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 particularly governments and non-governmental organizations.
There are several 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 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 funding strategy, the public component of the association acts as contracting officer; seek financing and has 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 the owner of the project; 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 funds 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 specified 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 a time when 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 shall operate and maintain the facility under the terms specified, 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, maintain for a specific 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 sales agreement that require investments and modernizations in the facilities and the continuation of the services that are being provided.
As with all business decisions, there are costs and benefits associated with all capitalization 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.