When people start talking about big-ticket infrastructure projects, we always hear the descriptors advantageous financially and economically in the same sentence, as if they’re the same thing. It is very seldom that we hear of projects that are tagged financially viable but not economically, nor the other way around. Maybe because most projects which are financially viable are also economically viable, and vice-versa. But some are not.
Financial feasibility is the more commonly understood metric. Simply put, it measures whether a certain project or venture makes more money than what was spent --whether it results in a profit, or, in business terminology, a return. When a private person puts up a business, say, a sari-sari store, you expect to generate profit from it. Economic viability, on the other hand, is not on that person’s mind, but that of the government. Economic viability measures whether an activity generates more economic benefits than economic costs.
It is not unusual for people to think of these two interchangeably. It is seldom that you hear about projects which are economically viable but not financially, or financially feasible, but not economically. But there are concrete examples of both. On one hand, think of a lighthouse. The government builds lighthouses because of the tremendous economic benefits it accrues by steering ships and preventing maritime accidents. But no private business would build one because there is simply no profit from it. You can’t charge for its use because it will be there for all to see --there is no way you can ask payment per use. It is economically advantageous but not financially viable.
On the other extreme, suppose somebody wants to build a marijuana processing plant. It probably would be extremely profitable that some people would even go into this business even if it’s illegal. But the government prohibits it for the health, social, and economic disadvantages that come along with it. It is a venture that is financially viable but grossly economically unviable. These are just examples of extremes. The majority of other activities, or projects, done by the government and the private sector, are both financially and economically viable, although the actors place different emphasis on both --government placing importance on economic gain, while the private sector, naturally looking more on financial gain.
Each and every project has varying levels of financial and economic viabilities, but the government and private sectors have different perspectives as to what is viable or not --the government looking at the economic viability primarily while personal business will always measure viability with how it can give the maximum financial returns. That’s what’s different about how the two sectors view projects. It won’t take a lot of sense to see that a project that has both robust financial and economic viabilities might be good opportunities for collaboration between the two. This is the opportunity where public-private partnerships are based on. When a project can give excellent economic returns for the government and a rewarding financial viability for the private sector, then such a partnership would be an excellent opportunity for a PPP.