Pricing and Its Adjustment Mechanisms of Public-Private Partnership (PPP) Project and Practices in Different Countries

Public Private Partnerships (PPPs) has emerged as one of the major instruments for delivering infrastructure projects in recent years. PPP, defined by Canadian Council for Public Private Partnerships, is a cooperative venture between the public and private sectors, built on its respective expertise that clearly address public needs through the appropriate allocation of resources, risks and rewards. A PPP project can provide a number of benefits to the public sector: alleviating the financial burden on the public sector; allowing risks to be transferred from the public to the private; and increasing the “value for money” spent for infrastructure by providing less expensive and more efficient services.

The client, China Ministry of Finance's China Clean Development Mechanism (CDM) Fund, is a national climate fund aiming to support low carbon growth and climate resilience in China. China is seeking ways to manage a huge public debt equal to 282 percent of GDP (Mckinsey, 2014). As public commitment with PPP format is not counted in public debt, it can deliver the need of future infrastructure development without deteriorating the public debt level, hence making this method an attractive approach to the Chinese government. The CDM is focusing on leveraging private sector engagement and supporting policy research. The fund is eager to know the benefits and obstacles of PPPs through examples of worldwide applications.

The Capstone team conducted research of different PPP pricing and adjustment mechanisms and analyzed the rationale and functions of these models. Our research method is on-desk case studies of PPP pricing and its adjustment mechanism. The team selected the countries with most successful cases or active involvement of PPPs.