# **3.  FORMS OF PRIVATE SECTOR PARTICIPATION IN TRANSPORT**

While there are many ways of classifying PPP contractual arrangements, most international databases keeping track of these contracts tend to classify them in four main categories: _Divestitures or asset sale_ contracts transfer ownership of the business to the private sector and all risks are hence “privatized”; it can take many forms—public offerings of shares, or private trade sales of assets themselves; _Greenfield Projects_ contracts are for specific projects such as a new toll road or port or airport terminal. They cover brand new investment projects which are commissioned to the private sector and Build-Operate and Transfer or Own (BOT or BOO) are among the most common contractual forms. The associated commercial risks tend to be the responsibility of the private constructor while other risks such as exchange or political risks can be shared to varying degrees with the public sector through various types of legal instruments such as guarantees or explicit subsidies. The allocation of these risks in a ring-faced part of a sector is one of the major contribution of project finance techniques that have contributed to the development of this form of contract; _Service contracts for Operation and Maintenance with some investment obligations_ are essentially contracts to allow a private operator to manage (i.e. operate and maintain) the service but do not include investment obligations. These contracts are typically of short to medium duration (2-5 years) and generally the government continues to take on all risks involved in the project except for the management risks; _Concessions_ / _licences/franchises_ are usually long term contracts of 10-30 years, which pass on the responsibility for O&M to a private operator and include detailed lists of investment and service obligations. In this case, the government passes on the commercial risks to the private operator. For many governments, it also has the advantage that it does not imply a politically sensitive transfer of ownership of public assets to the private sector; assets are “rented” out.

In developed countries, asset sales (most obvious in Australia and continental Northern Europe) and concessions/franchises (in the U.K., Southern Europe and Canada) have been the main instruments of private participation in transport infrastructure but not the only one. Additional complementary initiatives abound. The best known may be the Private Finance Initiative (PFI) launched by the UK in 1997 to deliver new and modernize infrastructure to public services. The initiative is interesting because it has been adapted in other developed and developing countries for their transport sector.

Although it had a wider sectoral agenda, the UK’s PFI was designed to stimulate the introduction of private sector ownership in public services and the transport sector is an integral part of this program<sup>8</sup> . The PFI in transport has so far been used in projects that are capital intensive and have

> 8. According to H.M. Treasury (2003), up to 1997 the transport sector had suffered from consistent neglect and a highly damaging lack of investment in infrastructure.

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