Ⅰ．Public Interests and Private Interests Are in Conflict in PPP

The foundation of PPP lies in the sharing of interests; otherwise there will be no continuous partnership．But to share interests does not signify having the same interests．In fact, the interests between the public and private sectors are often in conflict in the long-term lifecycle．The public sector strives for the public interests, the private sector pursues the economic benefits, and the two different interest expectations reflect two different values—either to maximize the social public interests or to maximize the capital interests．Confusion in the two types of interest expectations tends to cause tensions between the public and private sectors in their partnership．On the one hand, the public interest tends to restrain the private interest; on the other hand, the private interest is likely to “lock”the public interest.

A．Public Interests Restrain Private Interests

Most PPP projects are public-interest oriented in nature, which dictates that the projects cannot chase for maximum profit．Otherwise the private sector will easily make windfall gains by raising prices for its monopolistic position in the infrastructure and public utilities．In such a case, it will undoubtedly lead to public concern, and will ultimately provoke political resistance among the public during the lifecycle of the PPP agreement．For the above reason, the two partners of PPP projects are often beholden to each other such that they cannot excessively pursue their partial interests, and the government will especially not allow the private sector to attain windfall investment returns.

Besides in investment returns, public interests also restrain private interests in market operation and market withdrawal．Public utilities are targeted to meet the public needs; therefore the enterprises which engage in public utilities, once investing, cannot withdraw from the market randomly, the aim of which is to ensure the continuity of public service．As early as 1872, a judge in the USA delivered this opinion in a federal court ruling, “Once being a part of the national transportation, the railway shall not withdraw by its own discretion only．It is without any doubt that the country is authorized to coerce the railway to continue its operation and fulfill its pubic obligation.”In Gates v．Boston ＆ N．Y．Airline R．R．(1885), a New York court made the same judgement, dismissing the railway's advocacy and concluding that enterprises shall not violate the will of the state to withdraw from a public utility, “Once the railway property is adopted for the public purpose and is essential for the public usage, it shall practice its commitment to the public so as to realize the social expectations．This public right, for coping with the public crisis and being crucial in the moment of public crisis, is superior to the property right of the enterprises, the shareholders and the creditors.”^[1]In 1918, an American federal court reaffirmed the above principle in a decision regarding a local railway, “If a railway company bears the legal or contractual obligation to maintain and operate certain railroads, it shall be subject to the coercion of fulfilling the obligation by the injunction or the mandamus, even if the fulfillment of the obligation will cause the losses of the profits”.^[2]The principle that public enterprises shall not withdraw from the market through self-discretion does not imply that the government is authorized to force the public enterprises to fulfill their obligations in any situation．When a public enterprise, in practice, is inappropriate to deliver the public service, the government should consider rescinding the agreement．In most cases, however, once the private sector has invested in the public utility, it will be restricted by the public interest and shall not withdraw at random.

B．Private Interests “Lock”Public Interests

According to the transaction cost theory, “lock-in”refers to the situation in which one party relies on a second party, so that second party is given more rights of discretionary authority in their relationship．This kind of “lock-in”makes the risks that have already been transferred to the private sector revert back to the public sector in the end.^[3]In reality, no matter how elaborately the PPP agreement is initially designed, due to the incompleteness of the contract, the private sector may threaten to suspend the contract after it wins a project bid, because it is the public sector that bears the ultimate responsibility for the project construction．Generally, the private sector will ask to modify the contract clauses, in order to reduce the risks which are assigned to it under the original contract, or require the public sector to increase the public funds．In this case, compared to the private sector, it is the government who cares more about the success of the project, since the government has to bear the public responsibility for the project construction, especially in the cities where PPP is overwhelmingly implemented．Worrying that its sunk investment in the project construction, once started, cannot be taken back, together with the fear that it will be blamed by the public if a major project suspends; to avoid the occurrence of the above and to prevent the project image from being damaged as a result of changing the contractor; the government has to make concessions repeatedly in the subsequent negotiations with the private sector, and will finally be “locked”by the private sector．In the end, in order to persuade the private sector to continue to perform the contract, the government has to increase the public funds or decrease the private sector's risks．This act of the “soft budget constraint”tends to weaken the advantage of the PPP's risk allocation, and will result in the loss of the public interest.

It is obvious that, although the aim of PPP is to realize a mutual benefit, the partnership between the public and private sectors is a complicated contractual process．That is why the conflicts between both sectors exist in the whole maintenance and operation of the PPP project.

[1] See Gao Junjie, Public-interest Orientation of Regulating the Privatized Public Utilities, Modern Law Science, Issue 2, 2014.

[2] Ibid.

[3] See Chen Cheng, Risk Allocation of PPP: Ideal, Reality and Enlightenment, Public Administration Review, Issue 5, 2010.