1 - Introduction

Summary

One of the main tasks of government is to provide infrastructure services at a reasonable cost. Infrastructure projects, such as highways, bridges, tunnels, and ports, are large, sunk investments that need to be maintained and operated once they are built. The process by which projects are selected, designed, operated, and maintained is therefore critical.

During the 1970s and 1980s, countries as diverse as the United Kingdom and Chile privatized many public enterprises, driven by both efficiency and ideological considerations. Public services such as telecommunications, electricity, and sanitation came first. Next, governments sought to extend the benefits of private participation to sectors deemed exceedingly difficult to privatize, such as transportation, schools, and hospitals. This led to the development of public-private partnerships (PPPs), long-term contracts between the state and a private company to provide infrastructure. These contracts bundle financing, construction, operation, and maintenance within a single firm.

Prior to PPPs, the state usually provided infrastructure. The construction of a project was contracted out to a private company and financed with taxes or public debt. The firm built the project and received the agreed payment, thereby completing the contract. Afterwards, a different division of government took charge of operating and maintaining the facility.