2.4.3. Are there any limitations of PPPs?

There are many important economic, social, political, legal, and administrative aspects, which need to be carefully assessed before approvals of PPPs are considered by the government. PPPs have various limitations which should also be taken into account while they are being considered. The major limitations include:

♤ Not all projects are feasible (for various reasons: political, legal, commercial viability, etc.).

♤ The private sector may not take interest in a project due to perceived high risks or may lack technical, financial or managerial capacity to implement the project.

♤ A PPP project may be more costly unless additional costs (due to higher transaction and financing costs) can be off-set through efficiency gains.

♤ Change in operation and management control of an infrastructure asset, as has been the traditional BOT model.

♤ PPP may not be sufficient to improve its economic performance unless other necessary conditions are met. These conditions may include appropriate sector and market reform, and change in operational and management practices of infrastructure operation.

♤ Often, the success of PPPs depends on regulatory efficiency.