Success and failure mechanismsof public private partnerships(PPPs) in developing countries

Insights from the Lebanese context

Dima JamaliSuliman S Olayan School of Business American University of Beirut

Beirut Lebanon

Keywords Public sector organizations Private sector organizations PartnershipTelecommunications Developing countries Lebanon

Abstract The concept of public private partnerships (PPPs) has attracted worldwide attentionand acquired a new resonance in the context of developing countries PPPs are increasinglyheralded as an innovative policy tool for remedying the lack of dynamism in traditional publicservice delivery However PPPs have also become mired in a muddle of conceptual ambiguitiesThis paper sheds light on the PPP concept and the rationale for invoking private participation indeveloping countries It also identifies critical success factors and policy requirements for successfulPPP implementation Finally the paper presents a case study assessment of a post-war PPPinitiative in the Lebanese telecommunications sector and draws out lessons for improving theeffectiveness and viability of PPP projects in the context of developing countries

IntroductionFollowing the end of the cold war and a global disillusionment with statist and socialistideals much of the developing world has been adopting principles of free markets andseeking participation in the world trade system Growing appreciation of theimportance of the market mechanism coupled with the success of privatization invarious countries have sharply increased interest in the continuously emergingpublic-private partnership (PPP) phenomenon PPPs have become a rather popularinstitutional arrangement as they are perceived to remedy a lack of dynamism intraditional public service delivery Yet there has been no systematic evaluation of thepolicy requirements for successful PPP implementation This is particularly true indeveloping countries that have only recently started to experiment with variouspractical applications of cooperation between the public and private sectors

Several factors help account for the increased interest and popularity of PPPs Thepromise of efficiency savings and a reduced burden on strained public resources hascertainly struck a positive chord in countries operating under tight budgets Theappeal of PPPs can more generally be explained in terms of their expected benefitsincluding access to private finance for expanding services clearer objectives new

The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at

wwwemeraldinsightcomresearchregister wwwemeraldinsightcom0951-3558htm

The author would like to extend special thanks to individuals who contributed indirectly to thisstudy by agreeing to be interviewed in particular Mr Naji Indraous and Mr Ahmad OeidatDirectors General at the Ministry of Post and Telecommunications Mr Hussein Rifaii Chairmanand General Manager of Libancell and Dr Kamal Shehadi Regional TelecommunicationsExpertAdvisor to the Minister of Economy

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414

The International Journal of PublicSector ManagementVol 17 No 5 2004pp 414-430q Emerald Group Publishing Limited0951-3558DOI 10110809513550410546598

ideas flexibility better planning improved incentives for competitive tendering andgreater value for money for public projects (Spackman 2002 Nijkamp et al 2002)There 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 involvementand 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 ldquopublic bad private goodrdquo 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 ndash a developing economy ndash 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 1Investment in

infrastructure projectswith private sector

participation indeveloping countries by

sector 1990-1998

Success andfailure of PPPs

415

research methodology is then presented and the record of the aforementioned PPPproject examined Lessons and relevant policy recommendations are delineated in lightof the findings

PPPs definition and rationaleThe recent ascendancy of ideals of free market economy in developing countries ndashwhether willingly or under the impetus of subtle persuasion ndash has invited a revisitingof the respective roles of the state and the private sector The traditional neatassignment of roles and functions between the sectors has been challenged with theinterdependencies of the free market economy often necessitating new forms ofpartnerships and collaboration across organizational boundaries Pongsiri (2002)writes of a blurring of activities and responsibilities and the public sector movingtowards 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 toseek a newmodus operandiwith the private sector In consequence PPPs have evolvedas a popular institutional arrangement A PPP is an institutionalized form ofcooperation of public and private actors which on the basis of their own indigenousobjectives work together towards a joint target (Nijkamp et al 2002) While PPPs wereoriginally treated as a derivative of the privatization movement there is a growingconsensus today that PPPs do not simply mean the introduction of market mechanismsor the privatization of public services PPPs rather imply a sort of collaboration topursue common goals while leveraging joint resources and capitalizing on therespective competences and strengths of the public and private partners (Widdus2001 Pongsiri 2002 Nijkamp et al 2002)

Unfortunately the term PPP has been abused and become mired in a muddle ofconceptual ambiguities The PPP concept is indeed commonly used to describe aspectrum of possible relationships between public and private actors for thecooperative provision of services (Figure 2) Admitting that there is no single PPPmodel and that a diversity of arrangements may be distinguished varying with regardto legal status governance management policy-setting prerogatives contributionsand operational roles it should be emphasized that actual partnering involvescollaboration in the pursuit of a common objective A relationship qualifies as apartnership if it involves the joint definition of specific goals and a clear assignment ofresponsibilities and areas of competence between the partners in the pursuit of acommon endeavor Most supposed PPPs in third world development do not seem tomeet this criterion Donor agencies often promote privatization and governmentsubsidies to private entrepreneurs in the name of building PPPs Howeverprivatization and subsidies should not be confused with PPPs (Mitchell-Weaver andManning 1991)

Some conceive PPPs as representing a middle path between state capitalism andprivatization (Leitch and Motion 2003) General disillusionment with privatization hasled to explicit attempts to engage with the private sector in a different wayPrivatization indeed did not result in massive reductions in national debts nor did theprivate sector demonstrate the universal superiority in running businesses that hadprovided the philosophical underpinnings of the privatization process (Broadbent andLaughlin 2003 Leitch and Motion 2003) PPPs were therefore seen as a way of

IJPSM175

416

involving 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 requirementsreinforcing 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 canunder 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 opennessfairness and mutual respect For the public agency the main rewards from partneringwith the private sector are improvement of program performance cost-efficienciesbetter 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 (Scharle2002)

Figure 2The spectrum of

public-privatepartnerships

Success andfailure of PPPs

417

Figure 3Main distinctions betweenthe public and privatesectors

IJPSM175

418

The respective roles of the private and the public partner are therefore neitherantagonistic nor identical but complementary The public sector controls several keylegal 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 ineconomic 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 strengthsresources 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 ldquoless governmentrdquo 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 PPPRegulation 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 Lodovico1998 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 PPPsincluding resource dependency commitment symmetry common goal symmetryintensive communication alignment of cooperation learning capability andconverging working cultures while Kanter (1994) emphasizes individual excellenceimportance interdependence investment information integration institutionalizationand integrity as the key ingredients of effective collaboration (Table I) Both the appeal

Success andfailure of PPPs

419

and the challenge inherent in PPP arrangements arise from the notion of building newrelationships between actors that have drastically different constituenciesinterestsalong with divergent strategic and operational realities

Alliance research similarly suggests that the failure of many alliances can be tracedto the partner selection and planning stages and identifies the four Cs of compatibilitycapability commitment and control as critical for successful pre-selection of alliance

Based on Requirement Description

Samii et al (2002) Resourcedependency

Recognition by the partners that what can be achievedtogether can not be achieved alone

Commitmentsymmetry

Equal commitment from partners confirmed through theallocation of time and resources

Common goalsymmetry

Individual goals as an output or a subset of the overallprogram objectives

Intensivecommunication

Regular communication through different channelsmeans

Alignment ofcooperationworking capability

The sharing of knowledge across organizationalboundaries to alleviate problems of informationasymmetry and ensure convergence in learning skills andspeed

Convergingworking cultures

The joint development of a set of working practices andprocedures to level out differences in working styleculture

Kanter (1994) Individualexcellence

Both partners are strong and have something of value tocontribute to the relationship Their motives for enteringinto the relationship are positive (to pursue futureopportunities) not negative (to mask weaknesses or escapea difficult situation)

Importance The relationship fits major strategic objectives of partnersso they want to make it work Partners have long-termgoals in which the relationship plays a key role

Interdependence The partners need each other They have complementaryassets and skills Neither can accomplish alone what theyboth can together

Investment The partners invest in each other (eg equity swaps ormutual board service) to demonstrate their respectivestakes in the relationship and each other

Information Communication is reasonably open Partners shareinformation required to make the relationship workincluding their objectivesgoals technical dataknowledgeof conflicts trouble spots or changing situations

Integration The partners develop linkages and shared ways ofoperation so they can work together smoothly

Institutionalization The relationship is given a formal status with clearresponsibilities and decision-making processes

Integrity Partners behave toward each other in honorable ways thatenhance mutual trust without abusing the information theygain nor undermining each other

Table IPPP key formationrequirements

IJPSM175

420

partners (Hagen 2002) Particularly important are the notions of compatibility whichentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources Thisstream of literature generally points out that partnerships are high-risk strategiesparticularly at the level of implementation but that the advantagesmutual benefits incase of success by far outweigh the risks involved

Some of the traditional constraints in the way of a successful realization of a PPPconfiguration 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 implementationreductionist measures instilling competitive norms instead of cooperative ones andcultural differences between private and public partners (Nijkamp et al 2002 Scharle2002) 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 sectorrsquos concerns for transparency and accountability need to be accommodatedand 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 negotiatedSuch considerations include but are not limited to (Wallin 1997 Savas 2000 Roseneau2000 Widdus 2001 Nijkamp et al 2002 Spackman 2002 Scharle 2002 Sussex 2003Zouggari 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 aspectsof a PPP

a clear insight into the planning of projects parts the risk profiles involved andthe 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 privatesector expertise to promote and guide policy implementation

provisions for contract re-negotiation and for adjusting contractual termsparticularly 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

Success andfailure of PPPs

421

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

research methodology is then presented and the record of the aforementioned PPPproject examined Lessons and relevant policy recommendations are delineated in lightof the findings

PPPs definition and rationaleThe recent ascendancy of ideals of free market economy in developing countries ndashwhether willingly or under the impetus of subtle persuasion ndash has invited a revisitingof the respective roles of the state and the private sector The traditional neatassignment of roles and functions between the sectors has been challenged with theinterdependencies of the free market economy often necessitating new forms ofpartnerships and collaboration across organizational boundaries Pongsiri (2002)writes of a blurring of activities and responsibilities and the public sector movingtowards 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 toseek a newmodus operandiwith the private sector In consequence PPPs have evolvedas a popular institutional arrangement A PPP is an institutionalized form ofcooperation of public and private actors which on the basis of their own indigenousobjectives work together towards a joint target (Nijkamp et al 2002) While PPPs wereoriginally treated as a derivative of the privatization movement there is a growingconsensus today that PPPs do not simply mean the introduction of market mechanismsor the privatization of public services PPPs rather imply a sort of collaboration topursue common goals while leveraging joint resources and capitalizing on therespective competences and strengths of the public and private partners (Widdus2001 Pongsiri 2002 Nijkamp et al 2002)

Unfortunately the term PPP has been abused and become mired in a muddle ofconceptual ambiguities The PPP concept is indeed commonly used to describe aspectrum of possible relationships between public and private actors for thecooperative provision of services (Figure 2) Admitting that there is no single PPPmodel and that a diversity of arrangements may be distinguished varying with regardto legal status governance management policy-setting prerogatives contributionsand operational roles it should be emphasized that actual partnering involvescollaboration in the pursuit of a common objective A relationship qualifies as apartnership if it involves the joint definition of specific goals and a clear assignment ofresponsibilities and areas of competence between the partners in the pursuit of acommon endeavor Most supposed PPPs in third world development do not seem tomeet this criterion Donor agencies often promote privatization and governmentsubsidies to private entrepreneurs in the name of building PPPs Howeverprivatization and subsidies should not be confused with PPPs (Mitchell-Weaver andManning 1991)

Some conceive PPPs as representing a middle path between state capitalism andprivatization (Leitch and Motion 2003) General disillusionment with privatization hasled to explicit attempts to engage with the private sector in a different wayPrivatization indeed did not result in massive reductions in national debts nor did theprivate sector demonstrate the universal superiority in running businesses that hadprovided the philosophical underpinnings of the privatization process (Broadbent andLaughlin 2003 Leitch and Motion 2003) PPPs were therefore seen as a way of

IJPSM175

416

involving 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 requirementsreinforcing 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 canunder 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 opennessfairness and mutual respect For the public agency the main rewards from partneringwith the private sector are improvement of program performance cost-efficienciesbetter 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 (Scharle2002)

Figure 2The spectrum of

public-privatepartnerships

Success andfailure of PPPs

417

Figure 3Main distinctions betweenthe public and privatesectors

IJPSM175

418

The respective roles of the private and the public partner are therefore neitherantagonistic nor identical but complementary The public sector controls several keylegal 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 ineconomic 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 strengthsresources 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 ldquoless governmentrdquo 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 PPPRegulation 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 Lodovico1998 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 PPPsincluding resource dependency commitment symmetry common goal symmetryintensive communication alignment of cooperation learning capability andconverging working cultures while Kanter (1994) emphasizes individual excellenceimportance interdependence investment information integration institutionalizationand integrity as the key ingredients of effective collaboration (Table I) Both the appeal

Success andfailure of PPPs

419

and the challenge inherent in PPP arrangements arise from the notion of building newrelationships between actors that have drastically different constituenciesinterestsalong with divergent strategic and operational realities

Alliance research similarly suggests that the failure of many alliances can be tracedto the partner selection and planning stages and identifies the four Cs of compatibilitycapability commitment and control as critical for successful pre-selection of alliance

Based on Requirement Description

Samii et al (2002) Resourcedependency

Recognition by the partners that what can be achievedtogether can not be achieved alone

Commitmentsymmetry

Equal commitment from partners confirmed through theallocation of time and resources

Common goalsymmetry

Individual goals as an output or a subset of the overallprogram objectives

Intensivecommunication

Regular communication through different channelsmeans

Alignment ofcooperationworking capability

The sharing of knowledge across organizationalboundaries to alleviate problems of informationasymmetry and ensure convergence in learning skills andspeed

Convergingworking cultures

The joint development of a set of working practices andprocedures to level out differences in working styleculture

Kanter (1994) Individualexcellence

Both partners are strong and have something of value tocontribute to the relationship Their motives for enteringinto the relationship are positive (to pursue futureopportunities) not negative (to mask weaknesses or escapea difficult situation)

Importance The relationship fits major strategic objectives of partnersso they want to make it work Partners have long-termgoals in which the relationship plays a key role

Interdependence The partners need each other They have complementaryassets and skills Neither can accomplish alone what theyboth can together

Investment The partners invest in each other (eg equity swaps ormutual board service) to demonstrate their respectivestakes in the relationship and each other

Information Communication is reasonably open Partners shareinformation required to make the relationship workincluding their objectivesgoals technical dataknowledgeof conflicts trouble spots or changing situations

Integration The partners develop linkages and shared ways ofoperation so they can work together smoothly

Institutionalization The relationship is given a formal status with clearresponsibilities and decision-making processes

Integrity Partners behave toward each other in honorable ways thatenhance mutual trust without abusing the information theygain nor undermining each other

Table IPPP key formationrequirements

IJPSM175

420

partners (Hagen 2002) Particularly important are the notions of compatibility whichentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources Thisstream of literature generally points out that partnerships are high-risk strategiesparticularly at the level of implementation but that the advantagesmutual benefits incase of success by far outweigh the risks involved

Some of the traditional constraints in the way of a successful realization of a PPPconfiguration 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 implementationreductionist measures instilling competitive norms instead of cooperative ones andcultural differences between private and public partners (Nijkamp et al 2002 Scharle2002) 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 sectorrsquos concerns for transparency and accountability need to be accommodatedand 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 negotiatedSuch considerations include but are not limited to (Wallin 1997 Savas 2000 Roseneau2000 Widdus 2001 Nijkamp et al 2002 Spackman 2002 Scharle 2002 Sussex 2003Zouggari 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 aspectsof a PPP

a clear insight into the planning of projects parts the risk profiles involved andthe 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 privatesector expertise to promote and guide policy implementation

provisions for contract re-negotiation and for adjusting contractual termsparticularly 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

Success andfailure of PPPs

421

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

involving 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 requirementsreinforcing 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 canunder 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 opennessfairness and mutual respect For the public agency the main rewards from partneringwith the private sector are improvement of program performance cost-efficienciesbetter 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 (Scharle2002)

Figure 2The spectrum of

public-privatepartnerships

Success andfailure of PPPs

417

Figure 3Main distinctions betweenthe public and privatesectors

IJPSM175

418

The respective roles of the private and the public partner are therefore neitherantagonistic nor identical but complementary The public sector controls several keylegal 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 ineconomic 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 strengthsresources 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 ldquoless governmentrdquo 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 PPPRegulation 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 Lodovico1998 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 PPPsincluding resource dependency commitment symmetry common goal symmetryintensive communication alignment of cooperation learning capability andconverging working cultures while Kanter (1994) emphasizes individual excellenceimportance interdependence investment information integration institutionalizationand integrity as the key ingredients of effective collaboration (Table I) Both the appeal

Success andfailure of PPPs

419

and the challenge inherent in PPP arrangements arise from the notion of building newrelationships between actors that have drastically different constituenciesinterestsalong with divergent strategic and operational realities

Alliance research similarly suggests that the failure of many alliances can be tracedto the partner selection and planning stages and identifies the four Cs of compatibilitycapability commitment and control as critical for successful pre-selection of alliance

Based on Requirement Description

Samii et al (2002) Resourcedependency

Recognition by the partners that what can be achievedtogether can not be achieved alone

Commitmentsymmetry

Equal commitment from partners confirmed through theallocation of time and resources

Common goalsymmetry

Individual goals as an output or a subset of the overallprogram objectives

Intensivecommunication

Regular communication through different channelsmeans

Alignment ofcooperationworking capability

The sharing of knowledge across organizationalboundaries to alleviate problems of informationasymmetry and ensure convergence in learning skills andspeed

Convergingworking cultures

The joint development of a set of working practices andprocedures to level out differences in working styleculture

Kanter (1994) Individualexcellence

Both partners are strong and have something of value tocontribute to the relationship Their motives for enteringinto the relationship are positive (to pursue futureopportunities) not negative (to mask weaknesses or escapea difficult situation)

Importance The relationship fits major strategic objectives of partnersso they want to make it work Partners have long-termgoals in which the relationship plays a key role

Interdependence The partners need each other They have complementaryassets and skills Neither can accomplish alone what theyboth can together

Investment The partners invest in each other (eg equity swaps ormutual board service) to demonstrate their respectivestakes in the relationship and each other

Information Communication is reasonably open Partners shareinformation required to make the relationship workincluding their objectivesgoals technical dataknowledgeof conflicts trouble spots or changing situations

Integration The partners develop linkages and shared ways ofoperation so they can work together smoothly

Institutionalization The relationship is given a formal status with clearresponsibilities and decision-making processes

Integrity Partners behave toward each other in honorable ways thatenhance mutual trust without abusing the information theygain nor undermining each other

Table IPPP key formationrequirements

IJPSM175

420

partners (Hagen 2002) Particularly important are the notions of compatibility whichentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources Thisstream of literature generally points out that partnerships are high-risk strategiesparticularly at the level of implementation but that the advantagesmutual benefits incase of success by far outweigh the risks involved

Some of the traditional constraints in the way of a successful realization of a PPPconfiguration 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 implementationreductionist measures instilling competitive norms instead of cooperative ones andcultural differences between private and public partners (Nijkamp et al 2002 Scharle2002) 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 sectorrsquos concerns for transparency and accountability need to be accommodatedand 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 negotiatedSuch considerations include but are not limited to (Wallin 1997 Savas 2000 Roseneau2000 Widdus 2001 Nijkamp et al 2002 Spackman 2002 Scharle 2002 Sussex 2003Zouggari 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 aspectsof a PPP

a clear insight into the planning of projects parts the risk profiles involved andthe 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 privatesector expertise to promote and guide policy implementation

provisions for contract re-negotiation and for adjusting contractual termsparticularly 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

Success andfailure of PPPs

421

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

Figure 3Main distinctions betweenthe public and privatesectors

IJPSM175

418

The respective roles of the private and the public partner are therefore neitherantagonistic nor identical but complementary The public sector controls several keylegal 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 ineconomic 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 strengthsresources 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 ldquoless governmentrdquo 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 PPPRegulation 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 Lodovico1998 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 PPPsincluding resource dependency commitment symmetry common goal symmetryintensive communication alignment of cooperation learning capability andconverging working cultures while Kanter (1994) emphasizes individual excellenceimportance interdependence investment information integration institutionalizationand integrity as the key ingredients of effective collaboration (Table I) Both the appeal

Success andfailure of PPPs

419

and the challenge inherent in PPP arrangements arise from the notion of building newrelationships between actors that have drastically different constituenciesinterestsalong with divergent strategic and operational realities

Alliance research similarly suggests that the failure of many alliances can be tracedto the partner selection and planning stages and identifies the four Cs of compatibilitycapability commitment and control as critical for successful pre-selection of alliance

Based on Requirement Description

Samii et al (2002) Resourcedependency

Recognition by the partners that what can be achievedtogether can not be achieved alone

Commitmentsymmetry

Equal commitment from partners confirmed through theallocation of time and resources

Common goalsymmetry

Individual goals as an output or a subset of the overallprogram objectives

Intensivecommunication

Regular communication through different channelsmeans

Alignment ofcooperationworking capability

The sharing of knowledge across organizationalboundaries to alleviate problems of informationasymmetry and ensure convergence in learning skills andspeed

Convergingworking cultures

The joint development of a set of working practices andprocedures to level out differences in working styleculture

Kanter (1994) Individualexcellence

Both partners are strong and have something of value tocontribute to the relationship Their motives for enteringinto the relationship are positive (to pursue futureopportunities) not negative (to mask weaknesses or escapea difficult situation)

Importance The relationship fits major strategic objectives of partnersso they want to make it work Partners have long-termgoals in which the relationship plays a key role

Interdependence The partners need each other They have complementaryassets and skills Neither can accomplish alone what theyboth can together

Investment The partners invest in each other (eg equity swaps ormutual board service) to demonstrate their respectivestakes in the relationship and each other

Information Communication is reasonably open Partners shareinformation required to make the relationship workincluding their objectivesgoals technical dataknowledgeof conflicts trouble spots or changing situations

Integration The partners develop linkages and shared ways ofoperation so they can work together smoothly

Institutionalization The relationship is given a formal status with clearresponsibilities and decision-making processes

Integrity Partners behave toward each other in honorable ways thatenhance mutual trust without abusing the information theygain nor undermining each other

Table IPPP key formationrequirements

IJPSM175

420

partners (Hagen 2002) Particularly important are the notions of compatibility whichentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources Thisstream of literature generally points out that partnerships are high-risk strategiesparticularly at the level of implementation but that the advantagesmutual benefits incase of success by far outweigh the risks involved

Some of the traditional constraints in the way of a successful realization of a PPPconfiguration 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 implementationreductionist measures instilling competitive norms instead of cooperative ones andcultural differences between private and public partners (Nijkamp et al 2002 Scharle2002) 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 sectorrsquos concerns for transparency and accountability need to be accommodatedand 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 negotiatedSuch considerations include but are not limited to (Wallin 1997 Savas 2000 Roseneau2000 Widdus 2001 Nijkamp et al 2002 Spackman 2002 Scharle 2002 Sussex 2003Zouggari 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 aspectsof a PPP

a clear insight into the planning of projects parts the risk profiles involved andthe 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 privatesector expertise to promote and guide policy implementation

provisions for contract re-negotiation and for adjusting contractual termsparticularly 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

Success andfailure of PPPs

421

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

The respective roles of the private and the public partner are therefore neitherantagonistic nor identical but complementary The public sector controls several keylegal 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 ineconomic 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 strengthsresources 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 ldquoless governmentrdquo 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 PPPRegulation 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 Lodovico1998 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 PPPsincluding resource dependency commitment symmetry common goal symmetryintensive communication alignment of cooperation learning capability andconverging working cultures while Kanter (1994) emphasizes individual excellenceimportance interdependence investment information integration institutionalizationand integrity as the key ingredients of effective collaboration (Table I) Both the appeal

Success andfailure of PPPs

419

and the challenge inherent in PPP arrangements arise from the notion of building newrelationships between actors that have drastically different constituenciesinterestsalong with divergent strategic and operational realities

Alliance research similarly suggests that the failure of many alliances can be tracedto the partner selection and planning stages and identifies the four Cs of compatibilitycapability commitment and control as critical for successful pre-selection of alliance

Based on Requirement Description

Samii et al (2002) Resourcedependency

Recognition by the partners that what can be achievedtogether can not be achieved alone

Commitmentsymmetry

Equal commitment from partners confirmed through theallocation of time and resources

Common goalsymmetry

Individual goals as an output or a subset of the overallprogram objectives

Intensivecommunication

Regular communication through different channelsmeans

Alignment ofcooperationworking capability

The sharing of knowledge across organizationalboundaries to alleviate problems of informationasymmetry and ensure convergence in learning skills andspeed

Convergingworking cultures

The joint development of a set of working practices andprocedures to level out differences in working styleculture

Kanter (1994) Individualexcellence

Both partners are strong and have something of value tocontribute to the relationship Their motives for enteringinto the relationship are positive (to pursue futureopportunities) not negative (to mask weaknesses or escapea difficult situation)

Importance The relationship fits major strategic objectives of partnersso they want to make it work Partners have long-termgoals in which the relationship plays a key role

Interdependence The partners need each other They have complementaryassets and skills Neither can accomplish alone what theyboth can together

Investment The partners invest in each other (eg equity swaps ormutual board service) to demonstrate their respectivestakes in the relationship and each other

Information Communication is reasonably open Partners shareinformation required to make the relationship workincluding their objectivesgoals technical dataknowledgeof conflicts trouble spots or changing situations

Integration The partners develop linkages and shared ways ofoperation so they can work together smoothly

Institutionalization The relationship is given a formal status with clearresponsibilities and decision-making processes

Integrity Partners behave toward each other in honorable ways thatenhance mutual trust without abusing the information theygain nor undermining each other

Table IPPP key formationrequirements

IJPSM175

420

partners (Hagen 2002) Particularly important are the notions of compatibility whichentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources Thisstream of literature generally points out that partnerships are high-risk strategiesparticularly at the level of implementation but that the advantagesmutual benefits incase of success by far outweigh the risks involved

Some of the traditional constraints in the way of a successful realization of a PPPconfiguration 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 implementationreductionist measures instilling competitive norms instead of cooperative ones andcultural differences between private and public partners (Nijkamp et al 2002 Scharle2002) 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 sectorrsquos concerns for transparency and accountability need to be accommodatedand 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 negotiatedSuch considerations include but are not limited to (Wallin 1997 Savas 2000 Roseneau2000 Widdus 2001 Nijkamp et al 2002 Spackman 2002 Scharle 2002 Sussex 2003Zouggari 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 aspectsof a PPP

a clear insight into the planning of projects parts the risk profiles involved andthe 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 privatesector expertise to promote and guide policy implementation

provisions for contract re-negotiation and for adjusting contractual termsparticularly 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

Success andfailure of PPPs

421

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

and the challenge inherent in PPP arrangements arise from the notion of building newrelationships between actors that have drastically different constituenciesinterestsalong with divergent strategic and operational realities

Alliance research similarly suggests that the failure of many alliances can be tracedto the partner selection and planning stages and identifies the four Cs of compatibilitycapability commitment and control as critical for successful pre-selection of alliance

Based on Requirement Description

Samii et al (2002) Resourcedependency

Recognition by the partners that what can be achievedtogether can not be achieved alone

Commitmentsymmetry

Equal commitment from partners confirmed through theallocation of time and resources

Common goalsymmetry

Individual goals as an output or a subset of the overallprogram objectives

Intensivecommunication

Regular communication through different channelsmeans

Alignment ofcooperationworking capability

The sharing of knowledge across organizationalboundaries to alleviate problems of informationasymmetry and ensure convergence in learning skills andspeed

Convergingworking cultures

The joint development of a set of working practices andprocedures to level out differences in working styleculture

Kanter (1994) Individualexcellence

Both partners are strong and have something of value tocontribute to the relationship Their motives for enteringinto the relationship are positive (to pursue futureopportunities) not negative (to mask weaknesses or escapea difficult situation)

Importance The relationship fits major strategic objectives of partnersso they want to make it work Partners have long-termgoals in which the relationship plays a key role

Interdependence The partners need each other They have complementaryassets and skills Neither can accomplish alone what theyboth can together

Investment The partners invest in each other (eg equity swaps ormutual board service) to demonstrate their respectivestakes in the relationship and each other

Information Communication is reasonably open Partners shareinformation required to make the relationship workincluding their objectivesgoals technical dataknowledgeof conflicts trouble spots or changing situations

Integration The partners develop linkages and shared ways ofoperation so they can work together smoothly

Institutionalization The relationship is given a formal status with clearresponsibilities and decision-making processes

Integrity Partners behave toward each other in honorable ways thatenhance mutual trust without abusing the information theygain nor undermining each other

Table IPPP key formationrequirements

IJPSM175

420

partners (Hagen 2002) Particularly important are the notions of compatibility whichentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources Thisstream of literature generally points out that partnerships are high-risk strategiesparticularly at the level of implementation but that the advantagesmutual benefits incase of success by far outweigh the risks involved

Some of the traditional constraints in the way of a successful realization of a PPPconfiguration 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 implementationreductionist measures instilling competitive norms instead of cooperative ones andcultural differences between private and public partners (Nijkamp et al 2002 Scharle2002) 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 sectorrsquos concerns for transparency and accountability need to be accommodatedand 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 negotiatedSuch considerations include but are not limited to (Wallin 1997 Savas 2000 Roseneau2000 Widdus 2001 Nijkamp et al 2002 Spackman 2002 Scharle 2002 Sussex 2003Zouggari 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 aspectsof a PPP

a clear insight into the planning of projects parts the risk profiles involved andthe 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 privatesector expertise to promote and guide policy implementation

provisions for contract re-negotiation and for adjusting contractual termsparticularly 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

Success andfailure of PPPs

421

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

partners (Hagen 2002) Particularly important are the notions of compatibility whichentails identifying complementary strengths and weaknesses and commitment asreflected in the formalized commitment of necessary time energy and resources Thisstream of literature generally points out that partnerships are high-risk strategiesparticularly at the level of implementation but that the advantagesmutual benefits incase of success by far outweigh the risks involved

Some of the traditional constraints in the way of a successful realization of a PPPconfiguration 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 implementationreductionist measures instilling competitive norms instead of cooperative ones andcultural differences between private and public partners (Nijkamp et al 2002 Scharle2002) 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 sectorrsquos concerns for transparency and accountability need to be accommodatedand 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 negotiatedSuch considerations include but are not limited to (Wallin 1997 Savas 2000 Roseneau2000 Widdus 2001 Nijkamp et al 2002 Spackman 2002 Scharle 2002 Sussex 2003Zouggari 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 aspectsof a PPP

a clear insight into the planning of projects parts the risk profiles involved andthe 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 privatesector expertise to promote and guide policy implementation

provisions for contract re-negotiation and for adjusting contractual termsparticularly 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

Success andfailure of PPPs

421

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

PPP in LebanonThe Lebanese economy has traditionally been dominated by the private sector Afternearly two decades of civil unrest the performance of the public sector deteriorated dueto physical damage lack of government supervision and scarcity of resourcesRepeated pledges for administrative reforms did not materialize and the performanceof the public sector did not improve The government considered restructuring andreforming public enterprises which required significant financial resources that werelacking Considering the cumulative negative effects of operational financialinstitutional and environmental problems PPPs were proposed as a possiblesolution to leverage needed technical and managerial expertise secure capitalinjections and greater efficiency PPPs were thus initiated in several sectors includingtelecommunications post and solid waste management In an attempt to assess theextent to which the PPP experience has been effective and sustainable the record ofone of the earliest post-war PPP initiatives is examined The case was specificallyselected because it represents a failing PPP initiative in a vital infrastructure sector andvery few PPP failures have been openly reported in the literature

Research methodologyAn in-depth investigation of one post-war PPP initiative in the telecommunicationssector has been conducted combining fieldwork and review of relevant literature anddata The assessment has drawn on multiple sources of data (eg documentationarchival records interviews with key sector informants) to develop converging lines ofinquiry through a process of cross validation or multiple triangulation Success of thePPP initiative was gauged based on a quantitative and qualitative assessment oftypical performance indicators of PPP effectiveness (Table II) Given that mostinformation acquired from field interviews and literature searches is non-numerical aquantitative comparative assessment was provided when practically feasibleNevertheless the analysis provides interesting insights and where possible aquantitative assessment of the effectiveness of the PPP in question

Case example a post-war PPP initiative in the telecommunications sectorBackground information Prior to the war (1975-1991) the telecommunications systemin Lebanon was among the most advanced in the Middle East region Both the localand international networks however incurred substantial damage throughout the 16years of civil unrest Therefore in view of the deteriorated state of the fixed linenetwork in the wake of the war the Lebanese Government initiated in 1994 a PPP inthe mobile segment by awarding two Global System for Mobile (GSM) communicationconcessions to private companies Accordingly in 1994 two cellular operators weregranted 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 sharingscheme

The two operators are France Telecom Mobile Liban (FTML) commercially knownas Cellis a joint venture between France Telecom (666 percent) and local investors(333 percent) and Libancell a joint venture between Telecom Finland (14 percent) andlocal investors (86 percent) The BOT agreements stipulated an eight-year exclusivityperiod and a ten-year operating license The agreement included a 20 percent grossrevenue share in the first eight years rising to 40 percent in the final two years and 50

IJPSM175

422

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

Quantitativeindicators

Description

Exam

plefrom

telecommunications

Inputs

Theam

ountof

resources

usedin

deliveringtheservice

Investm

entpersonnelequipment

Outputs

Measurableunitsof

theservices

that

aredelivered

ina

given

timefram

eCellularpenetration

orthenumber

oflines

per

100

inhabitants

Effectiveness

Indicatorsthat

reflecttimelinesscompliance

orsatisfaction

withservices

delivered

Error

rates(egfaultsper

lineandcallcompletion

rates)

Volumeof

complaints

Efficiency

Thecost

per

unitof

output

Revenues

per

line(RPM)andrevenues

per

employee

(RPE)

Regulatory

fram

ework

Astableandtrusted

system

ofenforceablelawsdesigned

toprotect

collectivewelfareensure

open

competitionand

promotetheadvantages

ofmarket

discipline

Asystem

ofenforceablelawsconcerningproperty

rights

contractsdisputesandliabilities

Divisionof

labor

and

commitmentsymmetry

Clear

assignmentof

areasof

competence

andexpertise

divisionof

rolesandfunctionsanddelineation

ofareasfor

cooperation

Unbundlingof

policy-m

akingoperationandregulation

functions

Dem

onstratedcommitmentandstakein

therelationship

Com

municationand

integration

Com

municationthroughdifferentchannelsregarding

goal-relatedprogresstechnical

datatroublespotsor

changingsituations

Regularmeetingsandexchangeof

relevantinform

ation

developmentof

linkagesshared

waysof

operation

Specificreportingandrecord-keepingrequirem

ents

Table IITypical performance

indicators of PPPeffectiveness

Success andfailure of PPPs

423

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

percent should the two companies opt for a further two-year license These revenuesare collected by the Ministry of Post and Telecommunications (MPT) whichmaintained a regulatory function in the mobile telephone and the data and Internetservices while continuing to operate the fixed telephone service both locally andinternationally The partnership was therefore conceived as one in which the privatepartner would be responsible for building and operating the network and the publicsector would be responsible for regulation

The cellular market consists of 759300 subscribers (June 2001) The networks of thetwo operators cover more than 80 percent of Lebanon and the GSM penetration rate isaround 22 percent almost equally shared between the two operators The operatorshave also increased their international coverage Roaming arrangements have reached67 countries and more than 75 operators for Cellis and 80 live networks in 55 countriesfor Libancell (Middle East Communications 1999) Tariffs for cellular services are setby the government that fixed a tariff ceiling of US$005 per minute for all domesticcalls to which is added a 10 percent municipal tax The end-user price for a minute istherefore US$00779 which is one of the lowest in the world This low price made theservice very affordable and resulted in a high average use of 750 minutes persubscriber per month The government also sets an annual 5 percent cap on increasesin tariffs and fees as well as on connection and rental charges The operators are freehowever to set the rates for all other value-added services Table III highlights somekey current market data for this segment The table indicates that subscription pricesare high (US$25 per month) but usage charges are low (US779 cents per minute)

Despite the success of the Lebanese cellular segment the future of the GSMnetworks is far from decided The massive take-up in GSM subscription levels hasprompted a recent dispute between the government and the private cellular operatorscausing the government to limit each operatorrsquos subscriber totals to 125000 WithLebanonrsquos tremendous cellular growth the two operators had reached that mark bylate 1998 resulting in the current stagnation in GSM market growth Both operatorsdeny the ceiling constraint and defend their obligation under contractual terms tofulfill market demand They maintain that the decision to cap subscriptions iscounterproductive because it deprives the government of additional revenues

While the initial dispute between the cellular companies and the governmentrevolved around the 250000 subscriber ceiling in their contracts the conflict hasacquired new dimensions in recent years as the MPT unilaterally raised taxes onmobile calls by 4 cents per minute in April 1999 Matters came to a head in June 1999when the State Audit Department produced a report accusing the two cellularcompanies of systematically violating the terms of their contracts and imposing on

Number of subscribers 700000Consumption (airtime minutes per month) 750Installation fee (US$) 500Monthly subscription 25Price per minute (US$) 0079Average revenue from value added services (US$monthsubscriber) 10Estimated average revenue per user (US$) 90Estimated gross yearly revenues (US$ millions) 486

Sources FTML (2000) and LibanCell (2000)

Table IIIThe Lebanese cellularsegment key currentmarket data

IJPSM175

424

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

them over US$1 billion in penalties and fines The alleged violations primarily relate tosurpassing the 125000 subscriber limit specified in each contract unpaid fees andtaxes 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 companiesrsquo assets if an agreement is notreached through negotiation

Both companies have reacted defiantly to the MPT and the governmentrsquosaccusations 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 lawdocumentation 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 at759300 subscribers in June 2001 an increase from 267350 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$3095 million in 2001 of

Figure 4Cellular penetration rates

(subscribers per 100inhabitants)

Operator System Launch Subscribers Annual growth ()

Cellis GSM 1994 384335 814LibanCell GSM 1994 375000 991Total 759335 901

Source Budde Communications (2002)

Table IVMobile subscribers June

2001

Success andfailure of PPPs

425

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

which US$1584 million went to the treasury The call success (or call completion) rateis close to 96 percent and revenues per line reached US$900 in 2001

PPP effectiveness an assessment of qualitative indicators It is on the qualitativeaspectsdimensions that the PPP experience has faltered In general little attention wasaccorded in Lebanon to building the institutional framework for a functioningcompetitive domestic market Noting that regulatory capacity builds slowly thecreation of a separate regulatory authority prior to the initiation of the PPP initiativewas not accorded enough attention The MPT was assigned the regulation functionalthough as confessed by Ministry senior officials MPT had neither the staff nor thetechnical expertise to exercise adequate regulation and assume an active andconstructive role in the newly initiated partnership This in turn reflected in limitedregulatory oversight the undermining of the original division of roles and functionsbetween the partners and the gradual build up of distrust and resentment reflecting inturn in poor patterns of communication and integration

Given the novelty of the PPP experience in the Lebanese context there was also nosystematic effort at mapping the costs revenues and profitability aspects of the newinitiative Government officials indeed openly admit that a major source of contentionis that many of the services now provided by the cellular operators were not foreseen inthe original contract The introduction of prepaid cards in 1997 for example resulted inintense debate as to whether they should be subjected to the same revenue sharingscheme Also no provisions were made for contract re-negotiation or for adjustingcontractual terms Such observations confirm the critical importance in any PPPinitiative of a strong structure at the level of central administration to promote andsteer policy implementation It often goes unrecognized particularly in developingcountries that a PPP is an exercise in the implementation of a radically new andcomplex policy and that a great deal of good-quality updated central technicalguidance is required

Finally neither the public nor the private sector approached the new project in aspirit of true partnership There was suspicion from the start in public circles about theinclination of the new operators to openly share and disclose information On the otherhand the cellular companies did not have much faith in the technical competence of thepublic partner given the predominant perception of the Lebanese public sector as

YearRevenues State revenuesa Net profit

Cellis Libancell Cellis Libancell Cellis Libancell

1995 55 52 24 21 1 51996 113 92 44 42 14 131997 184 155 74 75 31 261998 241 219 104 115 37 451999 303 282 136 188 41 522000 363 316 170 211 57 542001 374 346 169 211 60 82Total 1633 1462 721 863 241 277

Note a State revenues include all taxes and international communicationsSource MPT (2003)

Table VMobile sector revenues inUS$ millions

IJPSM175

426

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

bloated and inefficient Therefore aside from the contractual mandates and obligationsno systematic effort was expended at re-negotiating joint expectations or developingthe skills mindsets and working practices to level out differences in workingstyleculture

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 BOTcontracts 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 operatorsrsquo 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 $76 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 goalsdelineating responsibilities negotiating expectations and building bridges includingcommon working practices and specific reporting and record keeping requirementsAttention needs to be accorded to developing mechanisms ndash structures processes andskills ndash for bridging organizationalinterpersonal differences and nurturingcommunication and coordination Deploying adequate time and staff helps ensurethat both partnersrsquo resources are tapped and that both have their goals and needsadequately represented

Success andfailure of PPPs

427

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

Lessons learned moreover suggest that PPPs must begin with careful groundworkand preparation including a comprehensive feasibility study and economic evaluationfor each potential partnership project In this respect developing country governmentsneed to build their legal and regulatory capacity to effectively foster and participate inPPPs The concept of partnership is indeed founded on the assumptions ofinterdependence and individual excellence (ie complementary assets and skills)These pre-requisites cannot be compromised in the pursuit of quick fixes and efficiencygains Unequal qualifications and contributions of expertise are recipes for failingPPPs (Hagen 2002)

Hence while PPPs can bring added value to the public and private sector partners asound legal and regulatory framework and complete transparency particularly withregards to financial accountability are essential elements Also important is thepresence of strong structure at the level of central administration to steer and guidepolicy implementation PPPs indeed often falter because of hastily prepared tenderdocuments and contracts and the negotiations taking place between unequallyqualified and experienced professionals mainly to the disadvantage of therepresentative from the public sector (Zouggari 2003)

Finally while PPPs may offer opportunities for exploiting the comparativeadvantages of both the private sector ndash dynamism access to finance knowledge oftechnologies managerial efficiency and entrepreneurial spirit with the socialresponsibility environmental awareness and job generation concerns of the publicsector ndash they should not be treated as a panacea PPP projects should be evaluated ontheir merits on a case-by-case basis and contemplated when the ingredients ofeffective collaboration (eg commitment interdependence individual excellencecommunication and integrity) are found or can be safely nurtured along the way

References

Baker RC (2003) ldquoInvestigating Enron as a public private partnershiprdquo Accounting Auditingamp Accountability Journal Vol 16 No 3 pp 446-66

Broadbent J and Laughlin R (2003) ldquoPublic private partnerships an introductionrdquo AccountingAuditing amp Accountability Journal Vol 16 No 3 pp 332-41

Budde Communications (2002) ldquoTelecommunications and information highways in the MiddleEastrdquo available at wwwbuddecomaumideasthtml (accessed 2 June 2003)

Di Lodovico AM (1998) ldquoPrivatization and investment under weak regulatory commitmentrdquoPhD 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 inUrban Infrastructure Services UMP Working Paper Series No 4 UNDPHabitatWorldBank Nairobi pp 1-11

Hagen R (2002) ldquoGlobalization university transformation and economic regeneration a UKcase study of publicprivate sector partnershiprdquo The International Journal of Public SectorManagement Vol 15 No 3 pp 204-18

Hughes O (1998) Public Management and Administration St Martinrsquos Press New York NY

IJPSM175

428

International Telecommunications Union (ITU) (2002) ldquoICT free statistics home page mobilecellular subscribers per 100 people by countryrdquo available at wwwituintITU-T (accessed5 March 2004)

Kanter RM (1994) ldquoCollaborative advantage the art of alliancesrdquo Harvard Business ReviewJuly-August pp 96-108

Lebanon Opportunities (2000) May

Leitch S and Motion J (2003) ldquoPublic private partnerships consultation cooperation andcollusionrdquo Journal of Public Affairs Vol 3 No 3 pp 273-8

LibanCell (2000) Tariffs Brochure LibanCell Beirut

Linder SH (1999) ldquoComing to terms with the public private partnershiprdquo American BehavioralScientist Vol 43 No 1 pp 35-51

Middle East Communications (1999) Vol 3 No 4 May

Miller JB (2000) Principles of Public and Private Infrastructure Delivery Kluwer AcademicPublishers London

Ministry of Post and Telecommunications (MPT) (2003) Annual Figures MPT Beirut

Mitchell-Weaver C and Manning B (1991) ldquoPublic private partnerships in third worlddevelopment a conceptual overviewrdquo Studies in Comparative International DevelopmentVol 26 No 4 pp 45-67

Nijkamp P Van der Burch M and Vidigni G (2002) ldquoA comparative institutional evaluation ofpublic private partnerships in Dutch urban land-use and revitalization projectsrdquo UrbanStudies Vol 39 No 10 pp 1865-80

Pongsiri N (2002) ldquoRegulation and public private partnershipsrdquo The International Journal ofPublic Sector Management Vol 15 No 6 pp 487-95

Roger N (1999) Recent Trends in Private Participation in Infrastructure Public Policy for thePrivate Sector Note No 196 World Bank Washington DC

Roseneau P (1999) ldquoThe strengths and weaknesses of public private policy partnershipsrdquoBehavioral Scientist Vol 43 No 1 pp 10-34

Roseneau P (Ed) (2000) Public Private Policy Partnerships MIT Press London

Samii R Van Wassenhove LN and Bhattacharya S (2002) ldquoAn innovative public privatepartnership new approach to developmentrdquoWorld Development Vol 30 No 6 pp 991-1008

Savas ES (2000) Privatization and Public Private Partnerships Seven Bridges Press New YorkNY

Scharle P (2002) ldquoPublic private partnerships as a social gamerdquo Innovation Vol 15 No 3pp 227-52

Shafritz JM and Hyde AC (1997) Classics of Public Administration 4th ed Harcourt BraceCollege Publishers Orlando FL

Spackman M (2002) ldquoPublic-private partnerships lessons from the British approachrdquo EconomicSystems Vol 26 pp 283-301

Sussex J (2003) ldquoPublic-private partnerships in hospital development lessons from the UKrsquosprivate finance initiativerdquo Research in Health-care Financial Management Vol 8 No 1pp 59-76

Wallin BA (1997) ldquoThe need for a privatization process lessons from development andimplementationrdquo Public Administration Review Vol 57 No 1 pp 11-20

Widdus R (2001) ldquoPublic private partnerships for health their main targets their diversity andtheir future directionsrdquo Bulletin of the World Health Organization Vol 79 No 4 pp 713-20

Success andfailure of PPPs

429

Zouggari M (2003) ldquoPublic private partnerships major hindrances to the private sectorrsquosparticipation in the financing and management of public infrastructuresrdquo WaterResources Development Vol 19 No 2 pp 123-9

Further reading

Middle East Communications (2000) Vol 15 No 6 June

Pisitkasem P (1998) ldquoTelecommunications development and privatization a case study of sixcountriesrdquo PhD dissertation University of Wisconsin-Milwaukee Milwaukee WI

Rodal A and Mulder N (1997) ldquoPartnerships devolution and power-sharing issues andimplications for managementrdquo Optimum The Journal of Public Sector ManagementVol 24 pp 27-48

Van De Walle N (1989) ldquoPrivatization in developing countries a review of the issuesrdquo WorldDevelopment Vol 17 No 5 pp 601-15

Wilson RA Songer AD and Diekmann J (1995) ldquoPartnering more than a workshop acatalyst for changerdquo Journal of Management in Engineering Vol 11 No 5 pp 40-4

World Bank (2000) Telecommunications Sector Review Technical Report No 18455-LEInfrastructure Development Group Middle East and North Africa Region The WorldBank Washington DC

Wortzel H and Wortzel L (1989) ldquoPrivatization not the only answerrdquo World DevelopmentVol 17 No 5 pp 633-41

IJPSM175

430