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S20 ppp-br1

  1. 1. The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at,5 Success and failure mechanisms of public private partnerships (PPPs) in developing countries414 Insights from the Lebanese context Dima Jamali Suliman S. Olayan School of Business, American University of Beirut, Beirut, Lebanon Keywords Public sector organizations, Private sector organizations, Partnership, Telecommunications, Developing countries, Lebanon Abstract The concept of public private partnerships (PPPs) has attracted worldwide attention and acquired a new resonance in the context of developing countries. PPPs are increasingly heralded as an innovative policy tool for remedying the lack of dynamism in traditional public service delivery. However PPPs have also become mired in a muddle of conceptual ambiguities. This paper sheds light on the PPP concept and the rationale for invoking private participation in developing countries. It also identifies critical success factors and policy requirements for successful PPP implementation. Finally, the paper presents a case study assessment of a post-war PPP initiative in the Lebanese telecommunications sector and draws out lessons for improving the effectiveness and viability of PPP projects in the context of developing countries. Introduction Following the end of the cold war and a global disillusionment with statist and socialist ideals, much of the developing world has been adopting principles of free markets and seeking participation in the world trade system. Growing appreciation of the importance of the market mechanism, coupled with the success of privatization in various countries have sharply increased interest in the continuously emerging public-private partnership (PPP) phenomenon. PPPs have become a rather popular institutional arrangement, as they are perceived to remedy a lack of dynamism in traditional public service delivery. Yet there has been no systematic evaluation of the policy requirements for successful PPP implementation. This is particularly true in developing countries that have only recently started to experiment with various practical applications of cooperation between the public and private sectors. Several factors help account for the increased interest and popularity of PPPs. The promise of efficiency savings and a reduced burden on strained public resources has certainly struck a positive chord in countries operating under tight budgets. The appeal of PPPs can more generally be explained in terms of their expected benefits, including access to private finance for expanding services, clearer objectives, newThe International Journal of Public The author would like to extend special thanks to individuals who contributed indirectly to thisSector ManagementVol. 17 No. 5, 2004 study by agreeing to be interviewed in particular: Mr Naji Indraous and Mr Ahmad Oeidat,pp. 414-430 Directors General at the Ministry of Post and Telecommunications, Mr Hussein Rifaii, Chairmanq Emerald Group Publishing Limited0951-3558 and General Manager of Libancell, and Dr Kamal Shehadi, Regional TelecommunicationsDOI 10.1108/09513550410546598 Expert/Advisor to the Minister of Economy.
  2. 2. ideas, flexibility, better planning, improved incentives for competitive tendering and Success andgreater value for money for public projects (Spackman, 2002; Nijkamp et al., 2002). failure of PPPsThere is also the added pressure in the context of developing countries frominternational financial institutions such as the World Bank and the InternationalMonetary Fund to shift to an efficient and facilitative role of government and adoptprinciples of market liberalization and privatization. Financial assistance is oftenlinked to changing the focus and orientation of government from direct involvement 415and intervention to a role revolving around partnership and facilitation (Hughes, 1998).Along with the concepts of economic adjustment, privatization and deregulation, PPPsindeed evolved over the past decade as an important aspect of donor-countrydevelopment thinking and a central component of foreign policy toward developingcountries (Mitchell-Weaver and Manning, 1991). In this context, many developing countries have initiated PPPs in various sectorsincluding infrastructure, manufacturing and services. Investment in infrastructureprojects with private sector participation in developing countries by sector is depictedin Figure 1 (Roger, 1999). Evidently, the telecommunications and energy sectors haveled the growth in private activity in the 1990s. Although private sector participation isincreasingly invoked in the context of developing countries, the success or failure ofPPP projects has not been systematically assessed (Roseneau, 1999). The PPP debate isstill conducted in the terms “public bad, private good”, on the basis of selectiveevidence (Spackman, 2002; Broadbent and Laughlin, 2003). This is particularly the casein developing countries, where distrust of government prevails. This paper presents a case study assessment of a recent PPP initiative in thetelecommunications sector of Lebanon – a developing economy – and draws outlessons for improving the viability and effectiveness of PPP projects in the context ofdeveloping countries. First, the research sheds light on the PPP concept and therationale for invoking private participation. Based on the literature, critical successfactors and policy requirements for successful PPP implementation are identified. The Figure 1. Investment in infrastructure projects with private sector participation in developing countries by sector, 1990-1998
  3. 3. IJPSM research methodology is then presented and the record of the aforementioned PPP17,5 project examined. Lessons and relevant policy recommendations are delineated in light of the findings. PPPs: definition and rationale416 The recent ascendancy of ideals of free market economy in developing countries – whether willingly or under the impetus of subtle persuasion – has invited a revisiting of the respective roles of the state and the private sector. The traditional neat assignment of roles and functions between the sectors has been challenged, with the interdependencies of the free market economy often necessitating new forms of partnerships and collaboration across organizational boundaries. Pongsiri (2002) writes of a blurring of activities and responsibilities and the public sector moving towards a diffuse force field in which public and private interests have to be reconciled. These new dynamics, among others, have acted as a catalyst in many countries to seek a new modus operandi with the private sector. In consequence, PPPs have evolved as a popular institutional arrangement. A PPP is an institutionalized form of cooperation of public and private actors, which, on the basis of their own indigenous objectives, work together towards a joint target (Nijkamp et al., 2002). While PPPs were originally treated as a derivative of the privatization movement, there is a growing consensus today that PPPs do not simply mean the introduction of market mechanisms or the privatization of public services. PPPs rather imply a sort of collaboration to pursue common goals, while leveraging joint resources and capitalizing on the respective competences and strengths of the public and private partners (Widdus, 2001; Pongsiri, 2002; Nijkamp et al., 2002). Unfortunately, the term PPP has been abused and become mired in a muddle of conceptual ambiguities. The PPP concept is indeed commonly used to describe a spectrum of possible relationships between public and private actors for the cooperative provision of services (Figure 2). Admitting that there is no single PPP model and that a diversity of arrangements may be distinguished, varying with regard to legal status, governance, management, policy-setting prerogatives, contributions and operational roles, it should be emphasized that actual partnering involves collaboration in the pursuit of a common objective. A relationship qualifies as a partnership if it involves the joint definition of specific goals, and a clear assignment of responsibilities and areas of competence between the partners in the pursuit of a common endeavor. Most supposed PPPs in third world development do not seem to meet this criterion. Donor agencies often promote privatization and government subsidies to private entrepreneurs in the name of building PPPs. However, privatization and subsidies should not be confused with PPPs (Mitchell-Weaver and Manning, 1991). Some conceive PPPs as representing a middle path between state capitalism and privatization (Leitch and Motion, 2003). General disillusionment with privatization has led to explicit attempts to engage with the private sector in a different way. Privatization indeed did not result in massive reductions in national debts, nor did the private sector demonstrate the universal superiority in running businesses that had provided the philosophical underpinnings of the privatization process (Broadbent and Laughlin, 2003; Leitch and Motion, 2003). PPPs were therefore seen as a way of
  4. 4. Success and failure of PPPs 417 Figure 2. The spectrum of public-private partnershipsinvolving the private sector in projects of national importance, while avoiding theproblems associated with the extensive privatizations that occurred in the 1980s. In the context of developing countries, the recent proliferation of PPPs has beenattributed to several explicitly stated reasons, including: the desire to improve theperformance of the public sector by employing innovative operation and maintenancemethods; reducing and stabilizing costs of providing services; improvingenvironmental protection by ensuring compliance with environmental requirements;reinforcing competition; and reducing government budgetary constraints by accessingprivate capital for infrastructure investments (Miller, 2000; Savas, 2000). The latentreasons for contemplating a PPP lie in the inherent differences between the public andprivate sectors, which are outlined in Figure 3. These differences imply that PPPs can,under the right conditions, provide an effective mechanism for capitalizing on thepeculiarities and strengths of each sector in the pursuit of common objectives. Public agencies and private organizations can indeed seek mutual advantages indeveloping a PPP, particularly when the latter is characterized by trust, openness,fairness and mutual respect. For the public agency, the main rewards from partneringwith the private sector are improvement of program performance, cost-efficiencies,better service provisions and appropriate allocation of risks and responsibilities(Pongsiri, 2002). The good faith approach indeed takes as proven that privateparticipation results in a combination of lower cost and less risk for the public sector(Miller, 2000; Leitch and Motion, 2003). The private sector on the other hand expects tohave a better investment potential, to make a reasonable profit, and to have moreopportunities to expand its business interests. A good return on investment isdefinitely an essential consideration from the private partner perspective (Scharle,2002).
  5. 5. IJPSM17,5418Figure 3.Main distinctions betweenthe public and privatesectors
  6. 6. The respective roles of the private and the public partner are therefore neither Success andantagonistic nor identical, but complementary. The public sector controls several key failure of PPPslegal and regulatory assets to implement a project within the context of an overalldevelopment program. The private sector brings outside capital, technical expertiseand an incentive structure. The essence is the cooperative and mutually supportingnature of the relationship. Actual partnering therefore involves collaboration andleveraging the strengths of both the private sector (more competitive and efficient in 419economic terms) and the public sector (more responsible and accountable to society).PPPs may therefore, under the right conditions, bring the discipline of the market intopublic administration and promote a synergistic combination of the strengths,resources and expertise of the different sectors. The question then arises as to underwhat conditions do PPPs create win-win situations as a result of mutual benefits orsocio-economic symbiosis. This question will be addressed in the next section.Critical success factorsWhile PPPs can provide a mechanism for exploiting the comparative advantages ofpublic and private sectors in mutually supportive ways, several issues are salient anddeserve careful consideration when contemplating a PPP. To start with, thegovernment needs to maintain its involvement, whether in its capacity as partner orregulator. This is especially true where accountability is critical, cost-shifting presentsproblems, the timeframe is long, or societal normative choices are more important thancosts (Spackman, 2002). PPPs should not be expected to substitute for action norresponsibilities that properly rest elsewhere. In particular, the public sector shouldcontinue to set standards and monitor product safety, efficacy and quality andestablish systems whereby citizens have adequate access to the products and servicesthey need. In other words, PPPs do not imply “less government” but a differentgovernmental role. Because of the stronger position of the private partner, more skilledgovernment participation is often needed (Scharle, 2002). Pongsiri (2002) emphasizes the establishment of a transparent and sound regulatoryframework as a necessary precursor to private sector participation in a PPP.Regulation provides assurance to the private partner that the regulatory systemincludes protection from expropriation, arbitration of commercial disputes, respect forcontract agreements, and legitimate recovery of costs and profit proportional to therisks undertaken. A sound regulatory framework can also increase benefits to thegovernment by ensuring that essential partnerships operate efficiently and optimizingthe resources available to them in line with broader policy objectives (Di Lodovico,1998; Zouggari, 2003). Baker (2003) similarly demonstrates that the nature ofregulation and control are crucial in decisions about PPPs, outlining that PPPsgenerally necessitate a more direct control relationship between the public and privatesector than would be achieved by a simple (legally-protected) market-based andarms-length purchase. Samii et al. (2002) highlight the key formation requirements of effective PPPs,including resource dependency, commitment symmetry, common goal symmetry,intensive communication, alignment of cooperation learning capability, andconverging working cultures while Kanter (1994) emphasizes individual excellence,importance, interdependence, investment, information, integration, institutionalization,and integrity as the key ingredients of effective collaboration (Table I). Both the appeal
  7. 7. IJPSM Based on Requirement Description17,5 Samii et al. (2002) Resource Recognition by the partners that what can be achieved dependency together can not be achieved alone Commitment Equal commitment from partners confirmed through the symmetry allocation of time and resources420 Common goal Individual goals as an output or a subset of the overall symmetry program objectives Intensive Regular communication through different channels/means communication Alignment of The sharing of knowledge across organizational cooperation boundaries to alleviate problems of information working capability asymmetry and ensure convergence in learning skills and speed Converging The joint development of a set of working practices and working cultures procedures to level out differences in working style/culture Kanter (1994) Individual Both partners are strong and have something of value to excellence contribute to the relationship. Their motives for entering into the relationship are positive (to pursue future opportunities), not negative (to mask weaknesses or escape a difficult situation) Importance The relationship fits major strategic objectives of partners so they want to make it work. Partners have long-term goals in which the relationship plays a key role Interdependence The partners need each other. They have complementary assets and skills. Neither can accomplish alone what they both can together Investment The partners invest in each other (e.g. equity swaps or mutual board service) to demonstrate their respective stakes in the relationship and each other Information Communication is reasonably open. Partners share information required to make the relationship work, including their objectives/goals, technical data/knowledge of conflicts, trouble spots or changing situations Integration The partners develop linkages and shared ways of operation so they can work together smoothly Institutionalization The relationship is given a formal status, with clear responsibilities and decision-making processesTable I. Integrity Partners behave toward each other in honorable ways thatPPP key formation enhance mutual trust without abusing the information theyrequirements gain, nor undermining each other and the challenge inherent in PPP arrangements arise from the notion of building new relationships between actors that have drastically different constituencies/interests, along with divergent strategic and operational realities. Alliance research similarly suggests that the failure of many alliances can be traced to the partner selection and planning stages and identifies the four Cs of compatibility, capability, commitment and control as critical for successful pre-selection of alliance
  8. 8. partners (Hagen, 2002). Particularly important are the notions of compatibility, which Success andentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources. This failure of PPPsstream of literature generally points out that partnerships are high-risk strategies,particularly at the level of implementation, but that the advantages/mutual benefits incase of success by far outweigh the risks involved. Some of the traditional constraints in the way of a successful realization of a PPP 421configuration include: the long-term planning horizon; the complexity of variousprojects; the institutionalized competition rules for public projects; the hold-up problemcaused by a change in the position of partners; a technocratic implementation;reductionist measures instilling competitive norms instead of cooperative ones; andcultural differences between private and public partners (Nijkamp et al., 2002; Scharle,2002). For Spackman (2002), a key characteristic of a successful PPP project is atrusting relationship between the parties based on a shared vision. Partnerships appear to be most justified where: traditional ways of workingindependently have a limited impact on a problem; the specific desired goals can beagreed on by potential collaborators; there is relevant complementary expertise in bothsectors; the long-term interests of each sector are fulfilled; and the contributions ofexpertise of the different sectors are reasonably balanced (Linder, 1999). Generally, thepublic sector’s concerns for transparency and accountability need to be accommodated,and the private sector needs reassurance about safety and return on investments. Thechallenge therefore is to ensure that the multiple interests of key participants areskillfully negotiated and packaged. In addition, experience with PPP suggests that there are several principles andguidelines worth applying during project preparation. Some have to do with thequality of the participants and the relationships among them. Others are moreimportant during the phase when the financing and implementation are negotiated.Such considerations include but are not limited to (Wallin, 1997; Savas, 2000; Roseneau,2000; Widdus, 2001; Nijkamp et al., 2002; Spackman, 2002; Scharle, 2002; Sussex, 2003;Zouggari, 2003): . a careful consideration and precise articulation of the purposes of the partnership; . a clear delineation of targets and goals; . a timely and transparent mapping of all costs, revenues and profitability aspects of a PPP; . a clear insight into the planning of projects parts, the risk profiles involved and the ways in which various partners are involved; . clear boundaries, measurable output performance and transparency; . specific reporting and record keeping requirements; . a strong central structure at the level of central administration, using private sector expertise to promote and guide policy implementation; . provisions for contract re-negotiation and for adjusting contractual terms particularly in countries where administrative capacity is weak; . an appropriately designed legal framework; . a consideration of environmental, safety, and health responsibilities; and . control over and close monitoring of monopolistic situations.
  9. 9. IJPSM PPP in Lebanon17,5 The Lebanese economy has traditionally been dominated by the private sector. After nearly two decades of civil unrest, the performance of the public sector deteriorated due to physical damage, lack of government supervision, and scarcity of resources. Repeated pledges for administrative reforms did not materialize and the performance of the public sector did not improve. The government considered restructuring and422 reforming public enterprises, which required significant financial resources that were lacking. Considering the cumulative negative effects of operational, financial, institutional, and environmental problems, PPPs were proposed as a possible solution to leverage needed technical and managerial expertise, secure capital injections and greater efficiency. PPPs were thus initiated in several sectors including telecommunications, post and solid waste management. In an attempt to assess the extent to which the PPP experience has been effective and sustainable, the record of one of the earliest post-war PPP initiatives is examined. The case was specifically selected because it represents a failing PPP initiative in a vital infrastructure sector and very few PPP failures have been openly reported in the literature. Research methodology An in-depth investigation of one post-war PPP initiative in the telecommunications sector has been conducted combining fieldwork and review of relevant literature and data. The assessment has drawn on multiple sources of data (e.g. documentation, archival records, interviews with key sector informants) to develop converging lines of inquiry through a process of cross validation or multiple triangulation. Success of the PPP initiative was gauged based on a quantitative and qualitative assessment of typical performance indicators of PPP effectiveness (Table II). Given that most information acquired from field interviews and literature searches is non-numerical, a quantitative comparative assessment was provided when practically feasible. Nevertheless, the analysis provides interesting insights and, where possible, a quantitative assessment of the effectiveness of the PPP in question. Case example: a post-war PPP initiative in the telecommunications sector Background information. Prior to the war (1975-1991), the telecommunications system in Lebanon was among the most advanced in the Middle East region. Both the local and international networks, however, incurred substantial damage throughout the 16 years of civil unrest. Therefore, in view of the deteriorated state of the fixed line network in the wake of the war, the Lebanese Government initiated in 1994 a PPP in the mobile segment by awarding two Global System for Mobile (GSM) communication concessions to private companies. Accordingly, in 1994, two cellular operators were granted ten-year GSM concessions under a build operate and transfer (BOT) contract (with a possible extension of two years) and subjected to an escalating revenue sharing scheme. The two operators are France Telecom Mobile Liban (FTML), commercially known as Cellis, a joint venture between France Telecom (66.6 percent) and local investors (33.3 percent) and Libancell, a joint venture between Telecom Finland (14 percent) and local investors (86 percent). The BOT agreements stipulated an eight-year exclusivity period and a ten-year operating license. The agreement included a 20 percent gross revenue share in the first eight years, rising to 40 percent in the final two years and 50
  10. 10. Quantitative indicators Description Example from telecommunicationsInputs The amount of resources used in delivering the service Investment; personnel; equipmentOutputs Measurable units of the services that are delivered in a Cellular penetration or the number of lines per 100 given time frame inhabitantsEffectiveness Indicators that reflect timeliness, compliance or satisfaction Error rates (e.g. faults per line and call completion rates) with services delivered Volume of complaintsEfficiency The cost per unit of output Revenues per line (RPM) and revenues per employee (RPE)Regulatory framework A stable and trusted system of enforceable laws designed to A system of enforceable laws concerning property rights, protect collective welfare, ensure open competition and contracts, disputes and liabilities promote the advantages of market disciplineDivision of labor and Clear assignment of areas of competence and expertise, Unbundling of policy-making, operation and regulationcommitment symmetry division of roles and functions, and delineation of areas for functions cooperation Demonstrated commitment and stake in the relationshipCommunication and Communication through different channels regarding Regular meetings and exchange of relevant information;integration goal-related progress, technical data, trouble spots or development of linkages/shared ways of operation changing situations Specific reporting and record-keeping requirements Typical performance effectiveness failure of PPPs indicators of PPP Success and 423 Table II.
  11. 11. IJPSM percent should the two companies opt for a further two-year license. These revenues17,5 are collected by the Ministry of Post and Telecommunications (MPT), which maintained a regulatory function in the mobile telephone and the data and Internet services, while continuing to operate the fixed telephone service both locally and internationally. The partnership was therefore conceived as one in which the private partner would be responsible for building and operating the network and the public424 sector would be responsible for regulation. The cellular market consists of 759,300 subscribers (June 2001). The networks of the two operators cover more than 80 percent of Lebanon and the GSM penetration rate is around 22 percent, almost equally shared between the two operators. The operators have also increased their international coverage. Roaming arrangements have reached 67 countries and more than 75 operators for Cellis and 80 live networks in 55 countries for Libancell (Middle East Communications, 1999). Tariffs for cellular services are set by the government that fixed a tariff ceiling of US$0.05 per minute for all domestic calls, to which is added a 10 percent municipal tax. The end-user price for a minute is therefore US$0.0779, which is one of the lowest in the world. This low price made the service very affordable and resulted in a high average use of 750 minutes per subscriber per month. The government also sets an annual 5 percent cap on increases in tariffs and fees, as well as on connection and rental charges. The operators are free, however, to set the rates for all other value-added services. Table III highlights some key current market data for this segment. The table indicates that subscription prices are high (US$25 per month) but usage charges are low (US7.79 cents per minute). Despite the success of the Lebanese cellular segment, the future of the GSM networks is far from decided. The massive take-up in GSM subscription levels has prompted a recent dispute between the government and the private cellular operators causing the government to limit each operator’s subscriber totals to 125,000. With Lebanon’s tremendous cellular growth, the two operators had reached that mark by late 1998, resulting in the current stagnation in GSM market growth. Both operators deny the ceiling constraint and defend their obligation, under contractual terms, to fulfill market demand. They maintain that the decision to cap subscriptions is counterproductive because it deprives the government of additional revenues. While the initial dispute between the cellular companies and the government revolved around the 250,000 subscriber ceiling in their contracts, the conflict has acquired new dimensions in recent years, as the MPT unilaterally raised taxes on mobile calls by 4 cents per minute in April 1999. Matters came to a head in June 1999, when the State Audit Department produced a report accusing the two cellular companies of systematically violating the terms of their contracts and imposing on Number of subscribers 700,000 Consumption (airtime minutes per month) 750 Installation fee (US$) 500 Monthly subscription 25 Price per minute (US$) 0.079Table III. Average revenue from value added services (US$/month/subscriber) 10The Lebanese cellular Estimated average revenue per user (US$) 90segment: key current Estimated gross yearly revenues (US$ millions) 486market data Sources: FTML (2000) and LibanCell (2000)
  12. 12. them over US$1 billion in penalties and fines. The alleged violations primarily relate to Success andsurpassing the 125,000 subscriber limit specified in each contract, unpaid fees and failure of PPPstaxes especially for microwave links, and insufficient geographic and networkcoverage (Lebanon Opportunities, 2000, pp. 53-5). The government has even threatenedto cancel the contracts and seize the two companies’ assets if an agreement is notreached through negotiation. Both companies have reacted defiantly to the MPT and the government’s 425accusations and fines. Cellis and Libancell maintain that arbitration should beconducted under Lebanese Law with an arbitrator appointed by the InternationalChamber of Commerce in Paris as stipulated in their contracts. But even theinternational law firm Booz Allen and Hamilton, which was called upon to mediate andinterpret the contract concluded that there could be two legal interpretations of thesame clause. Excerpts from their report indeed confirm that in certain respects, theterms of the contracts are not transparent and the impact of supervening law,documentation and discussions not clear (Executive, 2000). PPP effectiveness: an assessment of quantitative indicators. By all quantitativemeasures, the PPP experience has been a success. The cellular market peaked at759,300 subscribers in June 2001, an increase from 267,350 in July 1997 (Table IV). TheLebanese mobile segment has indeed reached high penetration levels even by regionalstandards. Figure 4 reveals that Lebanon had in 2002 a ratio of cellular subscribers percapita higher than Egypt, Morocco, Jordan, Saudi Arabia and Oman. Other quantitative measures similarly suggest that the PPP experience has beensuccessful. Table V illustrates the consistent growth in the revenues of both operatorsfrom 1995 to 2001. Mobile operators produced revenues of US$3,095 million in 2001 ofOperator System Launch Subscribers Annual growth (%)Cellis GSM 1994 384,335 8.14LibanCell GSM 1994 375,000 9.91 Table IV.Total 759,335 9.01 Mobile subscribers: JuneSource: Budde Communications (2002) 2001 Figure 4. Cellular penetration rates (subscribers per 100 inhabitants)
  13. 13. IJPSM Revenues State revenuesa Net profit17,5 Year Cellis Libancell Cellis Libancell Cellis Libancell 1995 55 52 24 21 1 5 1996 113 92 44 42 14 13 1997 184 155 74 75 31 26426 1998 241 219 104 115 37 45 1999 303 282 136 188 41 52 2000 363 316 170 211 57 54 2001 374 346 169 211 60 82Table V. Total 1,633 1,462 721 863 241 277Mobile sector revenues in Note: a State revenues include all taxes and international communicationsUS$ millions Source: MPT (2003) which US$1,584 million went to the treasury. The call success (or call completion) rate is close to 96 percent and revenues per line reached US$900 in 2001. PPP effectiveness: an assessment of qualitative indicators. It is on the qualitative aspects/dimensions that the PPP experience has faltered. In general, little attention was accorded in Lebanon to building the institutional framework for a functioning competitive domestic market. Noting that regulatory capacity builds slowly, the creation of a separate regulatory authority prior to the initiation of the PPP initiative was not accorded enough attention. The MPT was assigned the regulation function, although, as confessed by Ministry senior officials, MPT had neither the staff nor the technical expertise to exercise adequate regulation and assume an active and constructive role in the newly initiated partnership. This in turn reflected in limited regulatory oversight, the undermining of the original division of roles and functions between the partners, and the gradual build up of distrust and resentment, reflecting in turn in poor patterns of communication and integration. Given the novelty of the PPP experience in the Lebanese context, there was also no systematic effort at mapping the costs, revenues and profitability aspects of the new initiative. Government officials indeed openly admit that a major source of contention is that many of the services now provided by the cellular operators were not foreseen in the original contract. The introduction of prepaid cards in 1997 for example resulted in intense debate as to whether they should be subjected to the same revenue sharing scheme. Also, no provisions were made for contract re-negotiation or for adjusting contractual terms. Such observations confirm the critical importance in any PPP initiative of a strong structure at the level of central administration to promote and steer policy implementation. It often goes unrecognized, particularly in developing countries, that a PPP is an exercise in the implementation of a radically new and complex policy, and that a great deal of good-quality, updated central technical guidance is required. Finally, neither the public nor the private sector approached the new project in a spirit of true partnership. There was suspicion from the start in public circles about the inclination of the new operators to openly share and disclose information. On the other hand, the cellular companies did not have much faith in the technical competence of the public partner given the predominant perception of the Lebanese public sector as
  14. 14. bloated and inefficient. Therefore aside from the contractual mandates and obligations, Success andno systematic effort was expended at re-negotiating joint expectations, or developing failure of PPPsthe skills, mindsets and working practices to level out differences in workingstyle/culture. While the partnership materialized in the context of high hopes and expectations(being the first post-war PPP initiative in Lebanon), it gradually disintegrated intopatterns of mutual distrust, threats and accusations. Gaps in the original BOT 427contracts were exploited and resulted in tension and contention over levels ofprofitability, revenue sharing arrangements, and subscriber ceilings. The conflict wasallowed to escalate and several of the key requirements of successful PPPs werecompromised along the way including commitment symmetry, integration, andregular, intense communication. For example, not a single coordination meeting washeld between the partners since December 1998. The struggling partnership therefore managed to suppress conflict and substitutecompromise for consensus for a period of five years (1994-1999). Although there wereoccasional tensions revolving around taxes, the conflict erupted in June 1999, when theState Audit Department openly accused the two cellular companies of systematicviolations of the terms of their contracts. Following the long running feud, theLebanese government cancelled the two operators’ BOT contracts in late 2001, threeyears before the anticipated termination date. An agreement was reached in 2002 tocontinue to have Cellis and Libancell operate the nationwide GSM cellular network inreturn for a fixed management fee of $7.6 million per month per operator. Thepartnership faltered, because from the start, it was not based on firm foundations tosustain the challenge of working across sectors with divergent strategic andoperational realities.Concluding remarksThe appeal of PPPs as a new policy alternative in the context of developing countries isgrowing. However, not only PPPs have become mired in a stream of conceptualambiguity, but also the logistics and policy requirements for successful PPPimplementation have not been systematically explored. This paper has attempted toshed light on this relatively new and complex policy, both from a conceptual andpractical implementation perspectives. It has also presented a case study of a failingPPP initiative in the Lebanese context, and critically examined the possible reasonsbehind the failure. Generally, trust, openness and fairness are basic foundational underpinnings ofsuccessful PPPs. Partnering should be mutually viewed as representing anopportunity rather than a threat and loss of control. In this context, whilerecognizing the immense complexities in working across sectors with differentstrategic and operational realities, the focus should be on identifying common goals,delineating responsibilities, negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirements.Attention needs to be accorded to developing mechanisms – structures, processes andskills – for bridging organizational/interpersonal differences and nurturingcommunication and coordination. Deploying adequate time and staff helps ensurethat both partners’ resources are tapped and that both have their goals and needsadequately represented.
  15. 15. IJPSM Lessons learned, moreover, suggest that PPPs must begin with careful groundwork17,5 and preparation, including a comprehensive feasibility study and economic evaluation for each potential partnership project. In this respect, developing country governments need to build their legal and regulatory capacity to effectively foster and participate in PPPs. The concept of partnership is indeed founded on the assumptions of interdependence and individual excellence (i.e. complementary assets and skills).428 These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiency gains. Unequal qualifications and contributions of expertise are recipes for failing PPPs (Hagen, 2002). Hence, while PPPs can bring added value to the public and private sector partners, a sound legal and regulatory framework and complete transparency particularly with regards to financial accountability are essential elements. Also important is the presence of strong structure at the level of central administration to steer and guide policy implementation. PPPs indeed often falter because of hastily prepared tender documents and contracts and the negotiations taking place between unequally qualified and experienced professionals, mainly to the disadvantage of the representative from the public sector (Zouggari, 2003). Finally, while PPPs may offer opportunities for exploiting the comparative advantages of both the private sector – dynamism, access to finance, knowledge of technologies, managerial efficiency, and entrepreneurial spirit, with the social responsibility, environmental awareness, and job generation concerns of the public sector – they should not be treated as a panacea. PPP projects should be evaluated on their merits, on a case-by-case basis, and contemplated when the ingredients of effective collaboration (e.g. commitment, interdependence, individual excellence, communication and integrity) are found or can be safely nurtured along the way. References Baker, R.C. (2003), “Investigating Enron as a public private partnership”, Accounting, Auditing & Accountability Journal, Vol. 16 No. 3, pp. 446-66. Broadbent, J. and Laughlin, R. (2003), “Public private partnerships: an introduction”, Accounting, Auditing & Accountability Journal, Vol. 16 No. 3, pp. 332-41. Budde Communications (2002), “Telecommunications and information highways in the Middle East”, available at: (accessed 2 June 2003). Di Lodovico, A.M. (1998), “Privatization and investment under weak regulatory commitment”, PhD dissertation, University of California, Berkeley, CA. Executive (2000), 17 September. France Telecom Mobile Liban (FTML) (2000), Tariffs Brochure, FTML, Beirut, May. Gidman, P., Blore, I., Lorentzen, J. and Schuttenbelt, P. (1995), Public Private Partnerships in Urban Infrastructure Services, UMP Working Paper Series No. 4, UNDP/Habitat/World Bank, Nairobi, pp. 1-11. Hagen, R. (2002), “Globalization, university transformation and economic regeneration: a UK case study of public/private sector partnership”, The International Journal of Public Sector Management, Vol. 15 No. 3, pp. 204-18. Hughes, O. (1998), Public Management and Administration, St Martin’s Press, New York, NY.
  16. 16. International Telecommunications Union (ITU) (2002), “ICT free statistics home page: mobile Success and cellular subscribers per 100 people by country”, available at: (accessed 5 March 2004). failure of PPPsKanter, R.M. (1994), “Collaborative advantage: the art of alliances”, Harvard Business Review, July-August, pp. 96-108.Lebanon Opportunities (2000), May.Leitch, S. and Motion, J. (2003), “Public private partnerships: consultation, cooperation and 429 collusion”, Journal of Public Affairs, Vol. 3 No. 3, pp. 273-8.LibanCell (2000), Tariffs Brochure, LibanCell, Beirut.Linder, S.H. (1999), “Coming to terms with the public private partnership”, American Behavioral Scientist, Vol. 43 No. 1, pp. 35-51.Middle East Communications (1999), Vol. 3 No. 4, May.Miller, J.B. (2000), Principles of Public and Private Infrastructure Delivery, Kluwer Academic Publishers, London.Ministry of Post and Telecommunications (MPT) (2003), Annual Figures, MPT, Beirut.Mitchell-Weaver, C. and Manning, B. (1991), “Public private partnerships in third world development: a conceptual overview”, Studies in Comparative International Development, Vol. 26 No. 4, pp. 45-67.Nijkamp, P., Van der Burch, M. and Vidigni, G. (2002), “A comparative institutional evaluation of public private partnerships in Dutch urban land-use and revitalization projects”, Urban Studies, Vol. 39 No. 10, pp. 1865-80.Pongsiri, N. (2002), “Regulation and public private partnerships”, The International Journal of Public Sector Management, Vol. 15 No. 6, pp. 487-95.Roger, N. (1999), Recent Trends in Private Participation in Infrastructure, Public Policy for the Private Sector, Note No. 196, World Bank, Washington, DC.Roseneau, P. (1999), “The strengths and weaknesses of public private policy partnerships”, Behavioral Scientist, Vol. 43 No. 1, pp. 10-34.Roseneau, P. (Ed.) (2000), Public Private Policy Partnerships, MIT Press, London.Samii, R., Van Wassenhove, L.N. and Bhattacharya, S. (2002), “An innovative public private partnership: new approach to development”, World Development, Vol. 30 No. 6, pp. 991-1008.Savas, E.S. (2000), Privatization and Public Private Partnerships, Seven Bridges Press, New York, NY.Scharle, P. (2002), “Public private partnerships as a social game”, Innovation, Vol. 15 No. 3, pp. 227-52.Shafritz, J.M. and Hyde, A.C. (1997), Classics of Public Administration, 4th ed., Harcourt Brace College Publishers, Orlando, FL.Spackman, M. (2002), “Public-private partnerships: lessons from the British approach”, Economic Systems, Vol. 26, pp. 283-301.Sussex, J. (2003), “Public-private partnerships in hospital development: lessons from the UK’s private finance initiative”, Research in Health-care Financial Management, Vol. 8 No. 1, pp. 59-76.Wallin, B.A. (1997), “The need for a privatization process: lessons from development and implementation”, Public Administration Review, Vol. 57 No. 1, pp. 11-20.Widdus, R. (2001), “Public private partnerships for health: their main targets, their diversity and their future directions”, Bulletin of the World Health Organization, Vol. 79 No. 4, pp. 713-20.
  17. 17. IJPSM Zouggari, M. (2003), “Public private partnerships: major hindrances to the private sector’s participation in the financing and management of public infrastructures”, Water17,5 Resources Development, Vol. 19 No. 2, pp. 123-9. Further reading Middle East Communications (2000), Vol. 15 No. 6, June.430 Pisitkasem, P. (1998), “Telecommunications, development, and privatization: a case study of six countries”, PhD dissertation, University of Wisconsin-Milwaukee, Milwaukee, WI. Rodal, A. and Mulder, N. (1997), “Partnerships, devolution and power-sharing: issues and implications for management”, Optimum: The Journal of Public Sector Management, Vol. 24, pp. 27-48. Van De Walle, N. (1989), “Privatization in developing countries: a review of the issues”, World Development, Vol. 17 No. 5, pp. 601-15. Wilson, R.A., Songer, A.D. and Diekmann, J. (1995), “Partnering: more than a workshop, a catalyst for change”, Journal of Management in Engineering, Vol. 11 No. 5, pp. 40-4. World Bank (2000), Telecommunications Sector Review, Technical Report, No. 18455-LE, Infrastructure Development Group, Middle East and North Africa Region, The World Bank, Washington, DC. Wortzel, H. and Wortzel, L. (1989), “Privatization: not the only answer”, World Development, Vol. 17 No. 5, pp. 633-41.