- 15 Marks
Question
Public-Private Partnership (PPP) involves a private entity financing, constructing, or managing a project in return for a promised stream of payments directly or indirectly from government.
Required:
Explain THREE merits and TWO demerits of private finance initiatives. (15 Marks)
Answer
Merits of Private Finance Initiatives (PFI):
- Efficiency: The private sector is often more effective in managing investment projects and can achieve cost efficiencies, reducing unnecessary bureaucratic delays associated with public sector projects.
- Extra Investment: PFI enables additional funding, kick-starting projects that bring economic and social benefits, especially in sectors like health and education, which can enhance productivity and economic growth.
- Timely Delivery: Since payments are often contingent on asset delivery, there is an incentive for the private sector to complete projects on time. Fixed-price contracts in PFIs include financial consequences for delays, encouraging adherence to schedules.
Demerits of Private Finance Initiatives (PFI):
- Higher Debt Costs: Private finance typically incurs higher interest rates than government borrowing, making PFI projects more expensive over the project lifecycle, which imposes a significant cost on taxpayers.
- Inflexibility and Poor Value for Money: Long-term service contracts under PFI can be challenging and costly to adjust if project management issues arise. Additionally, some PFIs may require expensive maintenance or replacement if infrastructure is not designed to endure beyond the contract duration
- Tags: Demerits, Merits, PPP, Private Finance Initiative, Public Sector Financing
- Level: Level 2
- Uploader: Kofi