A guidebook on public-private partnership in infrastructure

6. Are there any limitations of PPPs? 
There are many important economic, social, political, legal, and administrative 
aspects, which need to be carefully assessed before approvals of PPPs are 
considered by the government. PPPs have various limitations which should also be 
taken into account while they are being considered. The major limitations include: 
• Not all projects are feasible (for various reasons: political, legal, 
commercial viability, etc.). 
• The private sector may not take interest in a project due to perceived high 
risks or may lack technical, financial or managerial capacity to implement 
the project. 
• A PPP project may be more costly unless additional costs (due to higher 
transaction and financing costs) can be off-set through efficiency gains.
• Change in operation and management control of an infrastructure asset 
through a PPP may not be sufficient to improve its economic performance 
unless other necessary conditions are met. These conditions may include 
appropriate sector and market reform, and change in operational and 
management practices of infrastructure operation. 

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4 
A Guidebook on Public-Private Partnership in Infrastructure
 
 
• Often, the success of PPPs depends on regulatory efficiency. 
IMPORTANT CHARACTERISTICS OF PPP PROJECTS 
• Promise of better project structure and design.
• Allows better screening of projects. A bad project is a bad project 
no matter whether it is implemented by the public or the private 
sector. 
• Better choice of technology based on life-cycle costing. 
• Better service delivery, especially if performance based payment is 
considered. 
• Better chances of completion on time and within the budget. 
− Risk of default.
− Project risks can easily turn into government risks. 
− Various liabilities on government (direct and indirect). 
− A long-term contract management system needs to be in place. 
− An administrative mechanism and special skills in the 
government are required to develop and implement PPP 
projects. 
There can be underlying fiscal costs and contingent liabilities of PPPs on the 
government that may arise in the medium- and -long-term. These underlying fiscal 
costs and contingent liabilities on the government should be given due consideration 
when a PPP project is considered.