Public-Private Partnership Experience in the International Arena: Case of Turkey Asli Pelin Gurgun, Ph.D.1; and Ali Touran, Ph.D., P.E., F.ASCE2 Abstract: Public-private partnership (PPP) models are frequently used in construction projects worldwide. The experiences of developed and developing countries vary depending on existing legal, economical, social, and political environments. Although there are some common challenges, risks, limitations, and success factors, practicing PPP framework is also dependent on country-specific factors. In this paper, first the state of the art in frequent PPP practicing regions/countries such as Europe, the U.K., and China are summarized; and a review of PPP experience in the U.S. is presented. Then, Turkey, where different PPP models have been used for nearly three decades, is analyzed in more depth as an example for developing countries. A new PPP law has been drafted to expand the legal context and types of models and overcome the existing limitations since the first introduction of PPP projects in Turkey in early 1980s. An intensive PPP literature survey has been made to present the common success factors, risks, limitations, and challenges in Europe, the U.K., China, U.S., and Turkey as well as under- standing the differences in the implementations. A viable economic environment, proper contractual arrangements for appropriate risk allocation, well-established legal basis, public support, transparency, and a central unit to standardize the procedures are determined to be major factors for successful PPP projects. DOI: 10.1061/(ASCE)ME.1943-5479.0000213. © 2014 American Society of Civil Engineers. Author keywords: Public-Private Partnerships (PPP); Turkey; Developing countries; Project delivery; Risk. Introduction different forms, including involvement of the private sector in financing, design, construction, operation, maintenance and, in A public-private partnership (PPP) is a collaboration between a some cases, concessional ownership of major facilities (Li et al. government agency and one or more private enterprises to provide 2005). Although the variety in the types of agreements causes a public service. The underlying concept is to allow the public difficulties in defining a unified description for PPP projects, most agency to satisfy a specific public need while minimizing the definitions in the literature have common features and characteris- use of limited public funds. PPP projects are generally preferred tics (Akintoye et al. 2003). Basically, a license or concession is for projects where the government states its need for capital- granted to the private sector to deliver infrastructure services of intensive and long-lived infrastructure (Savas 2000). It can be de- a certain type for specific length of time (McCowan and Mohamed scribed as an agreement between a host government and a private 2007). entity for supplying infrastructure assets and services by the private Governments form partnerships with private sector resources sector (Rebeiz 2011). According to an Organisation for Economic for several drivers like economical recession, inadequate public re- Co-operation and Development (OECD) report (2008), a PPP can sources, lack of expert knowledge particularly for special projects, be defined as an agreement that takes place between the and different political factors. The major motivating factors for government and one or more private partners; and the service de- developing countries in pursuing PPP agreements are providing livery objectives of the government should be aligned with the incentives for improved efficiency and performance, enabling gov- profit objectives of the private partners. A wide range of economic ernments to enforce contracts by establishing relationships between and social infrastructure projects have utilized the PPP delivery governments and providers of services, and providing access to method; however, it is mainly used to build and operate roads, skills and technologies from the private sector (Public-Private bridges, tunnels, light rail networks, hospitals, schools, traffic Infrastructure Advisory Facility 2007). According to Li et al. control systems, and water and sanitation systems [International (2005), these agreements can provide enhanced government capac- Monetary Fund (IMF) 2004]. ity, innovation in delivering public services, reduction in the cost Expertise and private sector funds are combined for the imple- and time of project implementation, and transfer of major risks to mentation of major construction projects, which have traditionally the private sector. been built by governments. PPP approaches are established in 1 Downloaded from ascelibrary.org by BERN DIBNER LIB SCI & TECH on 09/05/14. Copyright ASCE. For personal use only; all rights reserved. Assistant Professor, Dept. of Civil Engineering, Yildiz Technical Univ., Objective of the Paper Davutpasa Campus, Esenler, Istanbul 34220, Turkey; formerly, Assistant Professor, Dept. of Civil Engineering, Okan Univ., Istanbul 34959, Turkey The PPP concept and its applications have been reviewed inten- (corresponding author). E-mail: [email protected] sively by many researchers in different countries. Many surveys 2 Professor, Dept. of Civil and Environmental Engineering, Northeastern have been conducted to identify the critical success factors and Univ., 400 Snell Engineering Center, Boston, MA 02115. E-mail: challenges worldwide. Additionally, the state of practice of PPP [email protected] Note. This manuscript was submitted on January 10, 2013; approved on in many developed and developing countries has been reported April 30, 2013; published online on May 2, 2013. Discussion period open by several professionals and scholars. Looking into the Turkish until August 20, 2014; separate discussions must be submitted for indivi- case as a developing country, it is possible to find a vast number dual papers. This paper is part of the Journal of Management in Engineer- of articles and reports about the Turkish PPP experience. The ing, © ASCE, ISSN 0742-597X/04014029(11)/$25.00. existing literature mainly depends on experts from legal firms © ASCE 04014029-1 J. Manage. Eng. J. Manage. Eng. and public agencies, and academic papers and research are mainly services provided are paid for by the public; in others, PPP projects generated by public relations, finance, or law departments. How- can be used in outsourcing and joint ventures. In this report, a data- ever, the development of legislations, limitations, and challenges base of 1,340 PPP projects with a capital value of €254 billion in PPP projects have been reviewed and reported much less fre- reaching financial close (project contract and financing documen- quently in the construction management context. As a country that tation have been signed and conditions precedent to initial drawing is in need of diverse public services to meet the demand of new of the debt have been fulfilled) has been analyzed by country and infrastructure construction and rehabilitation of the existing infra- sector to outline the state of the art of PPP projects in Europe. The structure, cooperation with the private sector seems to be one of the projects were selected from between 1990 and 2009 and only proj- options to provide a solution where government funding is insuf- ects equal to or larger than €5 million were included in the database. ficient. Turkey has been one of the first developers of PPP laws in The share of PPP projects in European countries can be seen in the world (Yondem 2012a) and the PPP legal context has improved Table 1. Of all these projects, the U.K. has the largest share of over the years. As a result, applications of PPP for construction PPP projects with 67.1%, which represents 52.5% of the total projects has gained acceleration accordingly in sectors like power, PPP project value. The U.K., Spain, France, Italy, Germany, and roads, airports, harbors, marinas, hospitals, and health campuses Portugal account for 93% of all PPPs by number and 83.6% by value throughout Turkey. of projects (Kappeler and Nemoz 2010). The majority of these This paper consists of two parts. The first part presents a brief projects are in education, health facilities, and transportation sectors. review of PPP implementations in different regions/countries, in- In the U.K., PPP projects have mainly been developed through cluding Europe, the U.K., and China as well as the U.S., where the Private Finance Initiative (PFI), which was first announced in the use of PPP is relatively common. In the second part, the expe- 1992 (Li et al. 2005). PFI can be described as a particular way of rience, legislative framework, and practiced models in Turkey are financing that involves designing, building, financing, and operat- described with a case study from the energy sector. The evolution ing facilities by the private sector, where PPP is used as a generic of PPP models in Turkey is summarized as an example of a term with more flexible methods of financing and operating developing country where the implementation of PPP projects is (European Services Strategy Unit 2001). PPP/PFI models are ap- prioritized with government policies particularly over the past plied in sectors like health, education, transport, and defense, with decade. Additionally, comparisons are made to outline the similar- the largest number in the health sector (Akintoye and Chinyio ities and differences in diversification of infrastructural needs, in- 2005). In this model, the projects go through