Since the 1872 dedication of Yellowstone National Park—the world’s first national park—governments have continuously sought to set aside and protect lands deemed important enough to maintain in their natural state. In doing so, governments typically seek to support expenditures by promoting park tourism. Historically, as was the case with many infrastructure projects, government authorities have sought to maintain full control over the development, management, and revenue of public parks and wildlife.
However, public-private partnership (PPP) models for public parks based on structures developed for more traditional projects can be an attractive option and should be considered by authorities seeking to develop parks’ tourism potential. This article focuses on three areas which deserve particular attention in any planned whole park PPP concession, where the bulk of the day-to-day development, management, and maintenance of the park is allocated to an operator.
A key issue for the authority to consider—even before it begins to structure a PPP in the parks sector—is whether applicable legislation permits it to concession the park’s continued development, operation, and maintenance to a private operator. The relevant legislation may prohibit the authority from granting concessions over some or all of the park’s operations. In addition, in some jurisdictions—particularly those that follow the civil law tradition—authorities may be constitutionally forbidden from allowing any non-state entity to manage assets considered to be part of the public domain.
In most jurisdictions, however, legislation will likely allow some form of private participation in public parks, although the specific operational features of the park that can be concessioned to a private party will vary from jurisdiction to jurisdiction and, in some cases, from park to park. Even where such concessions are not permitted, a PPP model may often be structured to take such restrictions into account.
Creative payment mechanism models can be considered… Payments and deductions tied to specific ecological or sustainability benchmarks may be attractive.
Demand Risk and Structuring the Payment Mechanism
Assuming that the governing law permits an operator to manage a park on a long-term basis, the authority can consider a broad concession to the operator to maintain and operate a variety of park services in exchange for a performance-based availability payment.
Payments to the operator pursuant to a PPP structure are generally spread out throughout the term of the PPP agreement. Although this risk is easy to manage from an operator’s perspective where a project allocates a simple managerial function to the operator, if the project instead requires upfront or ongoing capital investments the operator may be required to obtain third-party financing. This would typically be repaid during the term of the PPP from the availability payment. The PPP agreement’s payment mechanism therefore needs to be structured so as to ensure the financeability of the project.
The payment mechanism is also structured to incentivize desired outcomes. For example, authorities could tie the operator’s payment to the level of visitors to the public park, in order to incentivize the operator to perform any promotion-related obligations. The demand risk associated with a visitor-based payment mechanism may need to be mitigated, however, if the project is financed, since lenders are unlikely to finance a project if repayments are subjected to the ups and downs of the tourism sector.
In such circumstances, shadow tolling arrangements similar to those used in the transportation sector should be considered. Under a shadow toll structure, the authority would pay the operator a performance-based availability payment that could be adjusted based on visitor numbers. Entrance fees would be allocated to the authority directly, with a defined portion thereof being paid over to the operator. The PPP agreement could control the fees that can be charged—or not. Fees generated by services offered at the public park, such as hotels and restaurants, could also be shared in this manner.
This structure permits the operator a level of stable income (subject to appropriate performance of its obligations). This makes most projects financeable while at the same time ensuring that the operator is motivated to maximize the number of visitors to the park.
More creative payment mechanism models can also be considered. Payments and deductions tied to specific ecological or sustainability benchmarks may be attractive to authorities—for example, allowing for additional payments or deductions calculated on the basis of increases or decreases in the forest cover, vegetation, or of a particular animal species. Structuring any such mechanisms would likely require great care, given the number of variables involved.
A tailored approach
The PPP agreement will include a number of performance and output specifications that address the operator’s obligations with respect to its management of the park. Traditional services, such as security, hospitality, food, and sanitary services, can be combined with more capital-intensive requirements such as the building of additional hotels or the establishment of an in-park network of roads and trails.
Authorities should be creative about imposing requirements specifically tailored to the natural parks and tourism sectors. For example, the authority could require the operator to offer guided tours of the park, market the park in appropriate outlets, or ensure easier accessibility for visitors. Creativity is key so that legal structures and guidelines can continue to encourage the original purpose behind national parks.
As American naturalist Enos Mills said, “Within National Parks is room—glorious room—room in which to find ourselves, in which to think and hope, to dream and plan, to rest and resolve.” The dedication of Yellowstone National Park set this mission in motion and it is as important today as it was in 1872. To ensure the mission continues, we need to make a little room for PPPs as well.