Is PPP a form of privatization? It’s a question of degree, as is shown by the diagram below.

Full privatization of a publicly-owned enterprise would normally involve a complete transfer of ownership and risk of the business to the private sector. This may also occur by way of a private sale (through a tender process) or a public flotation of the enterprise.

Very often, a public sector enterprise that is being privatized will have a monopoly or a very strong market position. To avoid market abuse (price-raising), a privatization process will often involve the establishment of an appropriate regulatory regime to supervise service delivery and ensure prices are fair. Subject to this regulation, the licence to operate may be indefinite in term.

PPP projects can be said to be a step in the road toward full privatization.

The principal difference is that the project will be time limited. As a result, the concessionaire needs to be certain that it will recover its investment over that fixed term. The concessionaire and its lenders will therefore be more sensitive to risk, so the contract will tend to be more detailed. This also allows the government party to be more prescriptive in terms of the level and nature of service delivery it expects. The government therefore remains in control to a greater degree. Termination of a PPP contract for service failure is a less blunt instrument than nationalization of a fully-private enterprise.