2.1.2. Joint venture

IDevice Icon What is a joint venture?
The SPV is usually set by the private concessionaire/sponsor(s), who contribute the long-term equity capital in exchange for shares representing ownership in the SPV, and who agree to lead the project. The Government may also contribute to the long-term equity capital of the SPV in exchange of shares. In such a case, the SPV is established as a joint venture company between the public and private sectors and the government acquires equal rights and equivalent interests to the assets within the SPV just like other private sector shareholders.

Why joint ventures between public and private sectors?

Sometimes governments want to ensure a continued interest (with or without controlling authority) in the management and operations of infrastructure assets of strategic importance such as ports or airports or assets that require a significant financial contribution from the government. In these cases, a joint venture may be established. A joint venture is an operating company owned by a government entity and a private company (or multiple companies including foreign companies if permitted by law), or a consortium of private companies. Often, the SPV is formed as a joint venture between an experienced construction company and a service operations company capable of operating and maintaining the project.

Reasons for direct government involvement

Other than its strategic, financial and economic interest, the government may also like to directly participate in a PPP project. The main reasons for such direct involvement include:

  • To address political sensitivity and fulfill social obligations
  • To ensure commercial viability
  • To provide greater confidence to lenders
  • To have better insight to protect public interest.
IDevice Icon Examples of joint ventures

Depending on government policy, the private sector company may or may not be allowed to hold the majority stake in a joint venture. For example, considering strategic importance of ports, private stakes in ports in China were limited to a maximum of 49 per cent.

However, the Government of India has allowed 74 per cent of the stakes in the joint venture companies for Delhi and Mumbai airports to be held by the private sector. In another example from India, the Pipavav Rail Corporation Ltd, a 50:50 joint venture between Indian Railways and Pipavav Port Ltd was set up to construct, maintain and operate a 270-km long railway line connecting the Pipavav port in Gujarat to Surendranagar Junction on the Western Railway.

Source: Mohammad Jamshed (2008). Container transportation by railways in India: Challenges and initiatives, Transport and Communications Bulletin for Asia and the Pacific, No. 77, United Nations publication, Sales No. E.08.II.F.10, pp. 25-46. Available on ESCAP website.

True-False Questions

All joint ventures are special types of public-private partnerships?

True False

Governments sometimes pursue a joint venture with a private company, in order to ensure a continued interest in projects that require large financial contributions by the private sector.

True False

Copyright © 2008 by Transport Policy and Development Section, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).