Financing Sustainable Public-Private Partnerships

This briefing by the International Institute for Sustainable Development (IISD) examines the financial sustainability of public-private partnerships (PPPs) used to address infrastructure deficits. It details the mechanisms of project finance, including the use of Special Purpose Vehicles (SPVs) and high gearing ratios, while cautioning that PPPs are not a substitute for government budgets as public funds eventually cover the costs. The document also explores how PPP contracts can be designed to achieve broader environmental and social sustainability goals.

• Public-private partnerships (PPPs) are often adopted to fill public infrastructure funding gaps and may be encouraged by accounting practices that allow liabilities to remain off balance sheets. However, they are not a permanent solution for overextended budgets because the public sector must eventually compensate private partners.
• Infrastructure projects typically require high initial capital investment for single-purpose assets with limited flexibility, but they offer investors stability due to long-term demand and the presence of natural monopolies in sectors like water, hospitals, and electricity distribution.
• To manage risk and liability, PPPs typically utilize a Special Purpose Vehicle (SPV), a legally distinct project company. These SPVs rely on 'patient' capital and project finance, where lenders base risk assessments on expected future cash flows over 15 to 30+ years rather than short-term profits.
• PPP financing is characterized by high gearing, typically consisting of 75–80% debt and 20–25% equity. While this leverages low-cost debt, it requires significant cash flow for debt servicing, which can be risky in the early years of operation when revenues are low.
• The financial viability of PPPs depends on compensation packages involving user fees and government support. User fees should balance cost recovery with fairness and equity, while government subsidies are only justified if the total cost is lower than traditional public sector delivery, a comparison often measured by the Public Sector Comparator (PSC).
• The United Kingdom's National Audit Office warned in April 2011 that the costs of debt finance for the Private Finance Initiative (PFI) increased by 20–33% following the credit crisis, leading to a need for greater scrutiny of the decision to use private finance.
• PPPs can be leveraged to meet environmental goals, such as reducing carbon emissions and promoting energy efficiency, through 'green' revenue sources like carbon funds or incentives like Mexico's 'green mortgages'.
• PPP contracts can serve as tools for social sustainability by mandating fair wages, employment security, and the elimination of discrimination. Examples include the use of procurement preferences for affirmative action in the United States and black empowerment policies in South Africa.

APA

Turley, L., & Semple, A. (2013). Financing Sustainable Public-Private Partnerships. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/ppp_financing.pdf

Chicago

Turley, Laura, and Abby Semple. Financing Sustainable Public-Private Partnerships. International Institute for Sustainable Development, 2013. https://www.iisd.org/system/files/publications/ppp_financing.pdf.

Wikipedia

{{cite report |last1=Turley |first1=Laura |last2=Semple |first2=Abby |title=Financing Sustainable Public-Private Partnerships |publisher=International Institute for Sustainable Development |date=February 2013 |url=https://www.iisd.org/system/files/publications/ppp_financing.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{turley2013financing, author = {Turley, Laura and Semple, Abby}, title = {{Financing Sustainable Public-Private Partnerships}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = feb, url = {https://www.iisd.org/system/files/publications/ppp_financing.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }