To what extent are public-private partnerships necessary for the cities of the future?

The various agents  the State, private companies, individuals, and even social agents  need to work together to achieve the objective of making the cities of the future, through the use of ICTs, not only more sustainable but also more efficient, thus improving the quality of life of the people who live there.

Currently, about 55% of the world’s population lives in cities, and according to the United Nations (UN) this proportion is expected to increase to approximately 70% by 2050.

As a consequence of this exponential growth in the occupation of cities, these areas are facing new challenges ¾ among them environmental, energy, housing and even mobility issues ¾ which require new responses from the States. Information and communication technologies (ICT), a term associated with smart cities, will prove essential in this field.

For Rudolf Giffinger, who was one of the first authors to conceptualise smart cities, these cities must be formed by six dimensions, one of which is smart governance. This dimension is characterised by being associated not only with administrative but also political procedures that should enhance greater participation among all entities ¾ both public and private  ¾ in the various decision-making and implementation of new public policies.

The smart governance dimension consists of the following subdimensions: participation in decision-making; public and social services; transparent governance; political strategies and perspectives.

It is in this context of encouraging greater participation of all agents in the governance of cities that public-private partnerships (PPPs) ¾ which can be defined as “a long-term contractual agreement between the State and one or more private partners, under which the latter provide and finance public services using a fixed asset and share the risks with the State” ¾ gain importance.

The various agents ¾ the State, private companies, individuals, and even social agents ¾ need to work together to achieve the objective of making the cities of the future, through the use of ICTs, not only more sustainable but also more efficient, thus improving the quality of life of the people who live there (in fact, goal 17 of Agenda 2030 is to foster partnerships for the implementation of sustainable development goals).

PPPs can enhance the cities of the future in several ways. Public-private partnerships are an alternative to public funding. Given the scarcity of financial resources, it is difficult for States alone to build and improve the multiple infrastructures required by the increasing population in the cities.

In Dubai, a prime example of a city of the future, the CEO of Dubai’s Electricity and Water Authority(DEWA), H.E. Saeed Mohammed AL Tayer, has already stated that “the public-private partnerships are critically important in meeting the challenge of sustainable development”. DEWA’s CEO further pointed out that the strategy to achieve sustainable development in Dubai rests on five main pillars, one of which is infrastructure.

This pillar includes revolutionary projects “such as the Mohammed bin Rashid Al Maktoum Solar Park, which will be the largest solar park in the world and aims to have a planned capacity of 5,000 MW by 2030, using the Independent Power Producer(IPP) model”.

In order to realise this project, and due to the high associated costs, a pioneering model of public-private partnership for electricity and water production was developed, the Independent Power & Water Producer IPWP model. As a consequence of the implementation of this public-private partnership, DEWA has “achieved many world records in the lowest solar energy prices (Levelized Cost of Energy), making Dubai a global benchmark for solar energy prices”, which shows how PPPs can be instrumental in achieving desired goals.

Furthermore, PPPs may be fundamental insofar as they may enable States to benefit from the know-how ofprivate companies, their experience, their more modern and technologically advanced means of obtaining creative and innovative solutions, such as new ideas, new products, new services that are better suited to meet the challenges of the cities of the future.

For example, in the Netherlands, Amsterdam Smart City, which is a platform that brings together the municipality of Amsterdam and various companies, knowledge institutions and civil society organisations with the aim of making Amsterdam a smart city, has been reinforcing this idea.

The content of the platform’s website shows that Amsterdam Smart City is not only a public-private partnership, but also an international community that, by sharing knowledge and working together, aims to find innovative solutions to the metropolitan issues (social, economic, and ecological) facing Amsterdam. In this way, it will be possible to ensure “that the Amsterdam Metropolitan Area remains liveable, now and in the years to come”.

Furthermore, it also emerges from the website that Amsterdam Smart City believes present and future challenges can only be solved through collaboration between multiple and diverse entities. It also states that various entities are working together on complex issues that “are high on their agendas but cannot be solved on their own”.

This platform, by acting as a project incubator, allows a wide variety of initiatives to be tested and the results shared among different agents. It should be noted that about 80 pilot projects have already resulted from this work, which is demonstrative of its success.

Moreover, PPPs also imply a sharing of risks between the State and the private sector. This distribution of risks, which is assessed according to the Value for Money (VfM) criterion, allows the allocation of risks to private companies (the risks that would be difficult for the State to manage).

Another advantage that we can point to PPPs is that they make it possible to obtain better and more efficient results. The services/infrastructure are implemented faster, more efficiently and effectively, and at a lower overall project cost (due to the VfM, the project cost, when of shared responsibility, is lower than if it is the sole responsibility of the State).

Of course, PPPs also have disadvantages that must be taken into account, not only now but also in the cities of the future. For example, the fact that the State and private parties have different interests/objectives (public interest vs. profit) can make it difficult, if not impossible, to establish an agreement. More specifically, “the traditional logics of profitability/market are often at odds with public projects”.

Finally, with PPPs there is no immediate direct impact on the State’s accounts, and therefore there may be overinvestment in areas in which it is not imperative to act or it is not justified to develop multiple projects simultaneously. Consequently, it is possible to irremediably compromise future State budgets. This is a particularly relevant problem in countries like Portugal.

In the Portuguese context, it should be noted that there seems to be a growing commitment to encourage PPPs in the cities of the future, as results from SMART PORTUGAL which is: “a collaborative network  that brings together the territory (municipalities), academia and companies that organically build, together, a more intelligent and sustainable country based on the territory, its identity and its endogenous resources”. Therefore, we can conclude that PPPs will in fact be essential to enable us to have cities increasingly capable of responding to the multiple challenges of the future.

The Insights published herein reproduce the work carried out for this purpose by the author and therefore maintain the original language in which they were written. The opinions expressed within the article are solely the author’s and do not reflect in any way the opinions and beliefs of WhatNext.Law or of its affiliates. See our Terms of Use for more information.

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