The Role and Impact of Public-Private Partnerships in Education

Understanding Public-Private Partnerships in Education 13
reasonably good capital planning processes
in place. Using these contracts in
public education often has positive effects
throughout the sector, not just in the facilities
involved. For example, private involvement
in the financing and construction of
education facilities often results in bettermaintained
buildings that do not require
costly renovations.
However, the long-term purchasing commitments
required for contracting out the
financing and construction of an education
facility are difficult for many governments
to manage, and the associated repayment
risks can make loans obtained by the private
consortiums very costly. Many governments
find it difficult to set and maintain
service prices high enough to allow consortiums
to pay back (equity or debt) capital
payments. This difficulty is compounded if
the education authorities have either hidden
or poorly quantified the capital costs of
these public facilities at the outset, which
can lead to exorbitant payments for privately
provided infrastructure.
There are often only limited efficiency
gains and cost savings from contracting
out facility availability because of the high
cost of borrowing for social infrastructure
and the limited range of savings associated
with the private design, construction, and
operation of facilities compared with traditional
public procurement. For most social
services, more significant cost savings can
be gained from contracting out operational
services to the private sector. Capital costs,
including maintenance, rarely exceed 15
percent of total service costs in education
and health (World Bank 2006). Thus, nonprofit
organizations are often unable to
participate in contracts for the finance and
construction of facilities because they have
less access than for-profit organizations to
the large amount of long-term finance that
is needed (box 1.1).
Both facility availability
and education services
(comprehensive contracting)
Another form of contracting that some
governments have used in the social sectors,
particularly health care, but not yet
BOX 1.1 Sources of capital
for the nonprofit provision of
education
There are only few sources of capital
funding for the nonprofit provision of
social services. These include:
• Publicly guaranteed or subsidized
bonds
• Public subsidies
• Private finance with a government
guarantee (or quasi-guarantee)
• Retained earnings
• Donations
• Long-term loans (restricted to large,
corporate, nonprofit organizations)
Because the first three require public
sector support, they defeat the purpose
of mobilizing nongovernmental finance.
The last three are used to only a limited
extent in most countries.
Source: World Bank 2006.
in education, is to contract private firms
to both provide and operate facilities, in
other words, to undertake all of the activities
associated with delivering the needed
services and infrastructure. In essence,
the government simultaneously implements
two forms of contract with the same
operator—a contract for facility financing,
development, and availability and a longterm
contract for providing services. The
rationale cited most often for this form of
contracting is that it enables governments
to obtain needed capital investment while
providing the operator with a considerable
incentive to organize and deliver services as
efficiently as possible. The efficiency gains
that the private consortium can capture
from both constructing and operating the
schools may make up for the fact that they
face higher costs of borrowing than the
government.
Delivered Managing by The World these Bank facility e-library availability to: and
unknown
operations IP : 192.86.100.35 contracts is clearly challenging.
It is Mon, “best 30 practice” Mar 2009 12:16:23 for private participation
initiatives to be managed by the central
government, often in a PPP unit attached
(c) The International Bank for Reconstruction and Development / The World Bank