Sunday, December 27, 2015

What's wrong with the Public Private Partnership model?

Mr. Tan
The PPP (public private partnership) model sounds like a good idea. The government (i.e. taxpayers) do not bear any risk. All the risk are borne by the private sector. Eventually, the government gets the asset, i.e. the Sports Hub, for free. Is there any negative aspect of it, from the taxpayer's point of view?

The private sector does not enter into the PPP as a charity or public service. They do it for profit. They expect to earn a higher profit that will cover their risk.

The PPP model is also more costly. Decision making is complicated, as the different partners have to agree to any major change.

The model is also inflexible. The terms of the PPP have to be set out in detail in advance. It is difficult to modify the terms to meet changing market conditions. The re-negotiation will be time consuming and costly.

The PPP model is more costly. It can work in a virtual monopoly, e.g. utilities and toll roads.

When there is no monopoly, the higher operating cost is likely to price the PPP out of the market. That is why many of the international sports events find the rental rates of the Sports Hub to be too expensive and have opted for other venues.

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